Eagle Financial Bancorp 10K 2019 Annual report

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

(Mark One)

☒

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

For the fiscal year ended December 31, 2019.

☐

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

For the transition period from to .

Commission file number: 001-38162

EAGLE FINANCIAL BANCORP, INC.

(Exact name of registrant as specified in its charter)

	Maryland						82-1340349
	(State or other jurisdiction of incorporation or organization)						(I.R.S. Employer Identification Number)

	6415 Bridgetown Road, Cincinnati, Ohio						45248
	(Address of principal executive offices)						(Zip Code)

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

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

	Title of each class						Name of each exchange on which registered
	None

Securities registered pursuant to Section 12(g) of the Act: Common Stock, $0.01 par value

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No ☒

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ No ☒

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the Registrant was required to submit and post such files). Yes ☒ No ☐

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ☒

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

	Large accelerated filer ☐			Accelerated filer ☐
	Non-accelerated filer ☒			Smaller reporting company ☒
	Emerging growth company ☒

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 7(a)(2)(B) of the Securities Act. ☐

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

The aggregate market value of the voting and non-voting common equity held by non-affiliates of the Registrant as of the last business day of the Registrant’s last completed second fiscal quarter was $20,859,068.

As of March 26, 2020, there were issued and outstanding 1,594,658 shares of the Registrant’s Common Stock.

DOCUMENTS INCORPORATED BY REFERENCE:

Portions of the definitive Proxy Statement for the Annual Meeting of Stockholders for 2020 are incorporated by reference into Part III, Items 10-14 of this Annual Report on Form 10-K.

TABLE OF CONTENTS

	ITEM 1. Business					1
	ITEM 1A. Risk Factors					31
	ITEM 1B. Unresolved Staff Comments					41
	ITEM 2. Properties					41
	ITEM 3. Legal Proceedings					41
	ITEM 4. Mine Safety Disclosures.					41
	ITEM 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities					42
	ITEM 6. Selected Financial Data					43
	ITEM 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations					44
	ITEM 7A. Quantitative and Qualitative Disclosures about Market Risk					55
	ITEM 8. Financial Statements and Supplementary Data					56
	ITEM 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure					95
	ITEM 9A. Controls and Procedures					95
	ITEM 9B. Other Information					95
	ITEM 10. Directors, Executive Officers and Corporate Governance					95
	ITEM 11. Executive Compensation					95
	ITEM 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters					96
	ITEM 13. Certain Relationships and Related Transactions and Director Independence					96
	ITEM 14. Principal Accountant Fees and Services					96
	ITEM 15. Exhibits and Financial Statement Schedules					96
	ITEM 16. Form 10-K Summary					97

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PART I

ITEM 1.

Business

Eagle Financial Bancorp, Inc.

Eagle Financial Bancorp, Inc. is a Maryland corporation and owns 100% of the common stock of Eagle Savings Bank (the “Bank”). On July 20, 2017, the Company completed its public offering of common stock in connection with the mutual-to-stock conversion of the Bank, selling 1,572,808 shares of common stock at $10.00 per share and raising $15.7 million of gross proceeds. Since the completion of the stock offering, the Company has not engaged in any significant business activity other than owning the common stock of and having deposits in the Bank.

The Company’s only significant asset is its investment in Eagle Savings Bank. At December 31, 2019, Eagle Financial Bancorp, Inc. had consolidated assets of $142.8 million, total deposits of $112.0 million, and stockholders’ equity of $27.9 million. Our executive office is located at 6415 Bridgetown Road, Cincinnati, Ohio 45248, and our telephone number at this address is (513) 574-0700.

Eagle Savings Bank

Eagle Savings Bank is an Ohio chartered stock savings and loan association that was originally organized in 1882 under the name The Price Hill Eagle Loan and Building Company No. 1 in the community of East Price Hill for the purposes of promoting savings and home ownership. The Bank changed its name to Eagle Savings Bank in 1996. We conduct our business from our main office and two branch offices. All of our offices are located in Hamilton County, Ohio. Our primary deposit-taking market includes the local communities surrounding our bank offices. Our primary lending market is Hamilton County, Ohio, and the adjoining counties of Butler, Warren and Clermont Counties in Ohio, Boone, Kenton and Campbell Counties in Kentucky, and Dearborn County in Indiana.

We offer a variety of deposit accounts, including checking accounts, savings accounts, money market demand accounts and certificate of deposit accounts. We utilize advances from the Federal Home Loan Bank of Cincinnati (the “FHLB-Cincinnati”) for asset/liability management purposes and, from time to time, for additional funding for our operations.

Eagle Savings Bank is subject to comprehensive regulation and examination by its primary federal regulator, the Federal Deposit Insurance Corporation (the “FDIC”), and by its state regulator, the Ohio Division of Financial Institutions (the “ODFI”).

Our executive office is located at 6415 Bridgetown Road, Cincinnati, Ohio 45248, and our telephone number at this address is (513) 574-0700.

Available Information

The Securities and Exchange Commission (“SEC”) maintains an internet site at www.sec.gov that contains reports, proxy and other information that the company files electronically with the SEC. These documents are also available to the public on the Company website at www.eaglesavings.com. Information on our website is not incorporated into this Annual Report and should not be considered part of this Annual Report.

Market Area

We conduct our operations from our three full-service offices in Cincinnati, Ohio. Our main office is located in the Bridgetown area of Cincinnati, Ohio, and our two branch offices are in Delhi Township and

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the Hyde Park neighborhood of Cincinnati. Our primary deposit-taking market includes the local communities surrounding our bank offices. Our primary lending market is Hamilton County, Ohio, and the adjoining counties of Butler, Warren and Clermont Counties in Ohio, Boone, Kenton and Campbell Counties in Kentucky, and Dearborn County in Indiana.

Our primary market area is a part of the Cincinnati metropolitan statistical area (“MSA”) and is both urban and suburban in nature. According to Gale Business — Demographics Now, the Cincinnati MSA population in 2010 was 2.32 million (Census) which increased to 2.40 million by 2019 (estimates). Our primary market area economy is comprised of a number of employment sectors including business and professional services, healthcare, wholesale/retail, government, and finance/insurance/real estate. Based on data from the U.S. Bureau of Labor Statistics, for 2019, unemployment rates were 3.8%, 4.1% and 3.7% in Hamilton County, the State of Ohio and the United States as a whole, respectively.

According to Demographics Now by Gale Business, the number of households in Hamilton County, the Cincinnati MSA, Ohio and the United States increased by 0.9%, 3.6%, 1.4% and 7.2%, respectively, from 2010 to 2019. Between 2019 and 2024, the number of households in Hamilton County, the Cincinnati MSA, Ohio and the United States are projected to increase/(decrease) by (.01%), 2.0%, 0.9% and 4.1%, respectively.

Competition

We face competition within our market area both in making loans and attracting deposits. Our market area has a concentration of financial institutions that include large money center and regional banks, community banks and credit unions. We also face competition from commercial banks, savings institutions, mortgage banking firms, consumer finance companies and credit unions and, with respect to deposits, from money market funds, brokerage firms, mutual funds and insurance companies. As of June 30, 2019, based on the most recent available FDIC data, our market share of deposits represented 0.10% of FDIC-insured deposits in Hamilton County, ranking us 17th in market share of deposits.

Strong competition within our market area may limit our growth and profitability. The financial services industry could become even more competitive as a result of new legislative, regulatory and technological changes and continued industry consolidation. Banks, securities firms and insurance companies can merge under the umbrella of a financial holding company, which can offer virtually any type of financial service, including banking, securities underwriting, insurance (both agency and underwriting) and merchant banking. Also, technology has lowered barriers to entry and made it possible for non-banks to offer products and services traditionally provided by banks, such as automatic transfer and automatic payment systems. Many of our competitors have fewer regulatory constraints and may have lower cost structures than we do. Additionally, due to their size, many competitors may be able to achieve economies of scale and, as a result, may offer a broader range of products and services than we can as well as better pricing for those products and services.

Lending Activities

General. Our principal lending activity is originating one- to four-family residential real estate loans, commercial real estate loans, construction loans, and home equity loans and lines of credit. To a lesser extent, we also originate commercial business loans, multi-family real estate loans and other consumer loans. We plan to grow and diversify our loan portfolio by increasing our commercial business lending, our commercial real estate lending, and our home equity loans and lines of credit.

Commercial real estate loans generally carry greater credit risk than loans secured by owner occupied one- to four-family real estate, and these risks will increase if we succeed in our plan to increase this type of lending. Given their larger balances and the complexity of the underlying collateral, commercial real estate loans generally expose a lender to greater credit risk than loans secured by owner occupied one- to four-family real estate. Consequently, an adverse development with respect to one loan or one credit relationship can expose us to significantly greater risk of loss compared to an adverse development with respect to a one- to four-family residential real estate loan.

Increasing our portfolio of home equity loans and lines of credit will increase our credit risk. Most of our home equity loans and lines of credit are secured by real estate in Hamilton County, Ohio and contiguous

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counties. We generally originate home equity loans and lines of credit with loan-to-value ratios of up to 90% when combined with the principal balance of the existing first mortgage loan. Declines in real estate values could cause some of our home equity loans to be adequately collateralized, which would expose us to greater risk of loss in the event that we seek to recover on defaulted loans by selling the real estate collateral.

Beginning in 2001, we began to increase the number of loans that we originate for sale to the secondary market. We currently originate most of our fixed-rate one- to four-family residential real estate loans for sale to the FHLB-Cincinnati through the MPP. During 2019 we originated $91.0 million one- to four-family residential real estate loans, and sold $82.4 million of such loans to the FHLB-Cincinnati through the MPP and other correspondent investors. See “— Loan Originations, Participations, Purchases and Sales” below for more information regarding our sale of loans through the MPP. We currently employ four residential mortgage loan originators, and we intend to hire up to six new commission-based mortgage lenders over the next three years, as well as additional support staff as needed. Our mortgage banking infrastructure and risk management systems will allow us to safely manage a significantly larger volume of loans.

Our mortgage banking business is subject to risks that could negatively affect our non-interest income. In a rising or higher interest rate environment, our originations of mortgage loans may decrease, resulting in fewer loans that are available to be sold to investors. This would result in a decrease in mortgage banking revenues. Under the terms of the MPP, we are required to maintain a Lender Risk Account (“LRA”). The LRA consists of amounts withheld from the loan sale proceeds by the FHLB-Cincinnati for absorbing potential losses on the loans we sell. These withheld funds are an asset to the Company as they are scheduled to be paid to the Company in future years, net of any credit losses on the loans sold. If there are higher than expected losses on the loans we have sold to the FHLB-Cincinnati through the MPP, the amount of the LRA would be reduced through a charge to earnings, which would reduce our earnings.

In addition, our loans sold in the secondary market have agreements that contain representations and warranties related to, among other things, the origination and characteristics of the mortgage loans. We may be required to repurchase mortgage loans that we have sold in cases of borrower default or breaches of these representations and warranties. If we are required to repurchase mortgage loans or provide indemnification or other recourse, this could significantly increase our costs and thereby affect our future earnings.

Loan Portfolio Composition. The following table sets forth the composition of our loan portfolio, by type of loan at the dates indicated.

	At December 31,
	2019					2018
	Amount			Percent		Amount			Percent
	(Dollars in thousands)
One- to four-family residential:
Owner occupied		$	59,859		52.26%		$	67,169		54.18%
Non-owner occupied			5,522		4.82			6,464		5.21
Commercial real estate and land			20,800		18.16			17,587		14.19
Home equity and other consumer(1)			9,690		8.46			13,773		11.11
Residential construction			11,684		10.20			11,756		9.48
Multi-family real estate			1,065		0.93			1,185		0.96
Commercial			5,921		5.17			6,041		4.87
Total gross loans receivable			114,541		100.00%			123,975		100.00%
Deferred loan costs			4					14
Loans in process			(6,811)					(9,485)
Allowance for loan losses			(1,166)					(1,187)
Total loans receivable, net		$	106,568				$	113,317

(1)

At December 31, 2019 and 2018, other consumer loans totaled $8,000 and $9,000, respectively.

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Contractual Maturities. The following table summarizes the scheduled repayments, based on scheduled principal amortization, of our loan portfolio at December 31, 2019. Demand loans, loans having no stated repayment schedule or maturity, and overdraft loans are reported as being due in the year ending December 31, 2020. Maturities do not reflect the impact of prepayments.

	One- to four-family residential, owner occupied			One- to four family residential, non-owner occupied			Commercial real estate and land			Home equity and other consumer			Residential construction			Multi- family real estate			Commercial			Total
	(In thousands)
Due During the Years Ending December 31,
2020		$	1,184		$	101		$	1,164		$	596		$	11,684		$	35		$	861		$	15,625
2021			1,233			106			1,223			628			—			36			908			4,134
2022			1,283			112			1,286			662			—			38			957			4,338
2023 to 2024			2,725			243			2,775			1,432			—			82			2,073			9,330
2025 to 2029			7,844			734			8,286			4,308			—			245			1,122			22,539
2030 to 2034			9,578			958			6,066			2,064			—			315			—			18,981
2035 and beyond			36,012			3,268			—			—			—			314			—			39,594
Total		$	59,859		$	5,522		$	20,800		$	9,690		$	11,684		$	1,065		$	5,921		$	114,541

Fixed- and Adjustable-Rate Loan Schedule. The following table sets forth the scheduled repayments of fixed- and adjustable-rate loans at December 31, 2019 that are contractually due after December 31, 2020.

	Due After December 31, 2020
	Fixed			Adjustable			Total
	(In thousands)
One- to four-family residential:
Owner occupied		$	41,439		$	17,236		$	58,675
Non-owner occupied			2,975			2,446			5,421
Commercial real estate and land			11,314			8,322			19,636
Home equity and other consumer			348			8,746			9,094
Residential construction			—			—			—
Multi-family real estate			61			969			1,030
Commercial			2,866			2,194			5,060
Total		$	59,003		$	39,913		$	98,916

Loan Approval Procedures and Authority. Pursuant to applicable law, the aggregate amount of loans that we are permitted to make to any one borrower or a group of related borrowers is generally limited to 15% of Eagle Savings Bank’s unimpaired capital and surplus. We may lend an additional amount to one person up to 10% of unimpaired capital and unimpaired surplus, to the extent that such amount is secured by readily marketable collateral, which is defined to include certain financial instruments and bullion, but generally does not include real estate. At December 31, 2019, our largest credit relationship totaled $3.21 million and was secured by commercial real estate, residential real estate. Our second largest relationship at December 31, 2019 totaled $3.16 million and is secured by business assets. At December 31, 2019, all of these loans were performing in accordance with their terms.

Our lending is subject to written underwriting standards and origination procedures. Decisions on loan applications are made on the basis of detailed applications submitted by the prospective borrower and property valuations (consistent with our appraisal policy) prepared by outside independent licensed appraisers approved by our board of directors as well as internal evaluations, where permitted by regulations. The

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loan applications are designed primarily to determine the borrower’s ability to repay the requested loan, and the more significant items on the application are verified through use of credit reports, financial statements and tax returns.

Generally, we require title insurance on our mortgage loans as well as fire and extended coverage casualty insurance in amounts at least equal to the principal amount of the loan or the value of improvements on the property, depending on the type of loan. We also require flood insurance if the property is determined to be in a flood zone area.

Our President and Chief Executive Officer, Residential Lending Operations Manager, and Residential Lending Processing Manager and Underwriter each have approval authority for up to $510,400 for residential mortgage loans. They may combine their authority such that together they can approve residential loans of up to $1,020,800. Our President and Chief Executive Officer and our Vice President of Commercial Lending each have approval authority for up to $510,400 for all secured commercial loans. They may combine their authority such that together they can approve commercial loans of up to $1,020,800. For unsecured credit, the President and Chief Executive Officer has an authority of $50,000 and the Vice President of Commercial Lending has an authority of $150,000. They may combine their authority such that together they may approve unsecured loans up to $200,000. Any loans in excess of these prescribed limits require the approval of the board of directors. All loans to one borrower will be aggregated for determining the limits as described above.

One- to Four-Family Residential Real Estate Lending. The focus of our lending program has historically been the origination of one- to four-family residential real estate loans. At December 31, 2019, we had $65.4 million of loans secured by one- to four-family real estate, representing 57.1% of our total loan portfolio. We originate both fixed-rate and adjustable-rate residential mortgage loans. At December 31, 2019, the one- to four-family residential mortgage loans held in our portfolio were comprised of 69.3% fixed-rate loans, and 30.7% adjustable-rate loans.

Our one- to four-family residential real estate loans are generally underwritten according to Fannie Mae and Freddie Mac guidelines, and we refer to loans that conform to such guidelines as “conforming loans.” We generally originate both fixed- and adjustable-rate mortgage loans in amounts up to the maximum conforming loan limits as established by the Federal Housing Finance Agency for Fannie Mae, which is currently $510,400 for single-family homes in our market area. We also originate loans above the lending limit for conforming loans, which are referred to as “jumbo loans.” We also offer FHA loans, which we originate for sale on a servicing-released, non-recourse basis in accordance with FHA guidelines. Although we are an approved Title II Direct Endorsement Mortgagee with the FHA, we currently use a third-party underwriter with expertise in this type of lending. Currently, our Loan Processing Manager/UW is in the process of training to become a Direct Endorsement Underwriter. Virtually all of our one- to four-family residential real estate loans are secured by properties located in our market area.

We generally limit the loan-to-value ratios of our one- to four-family residential mortgage loans to 80% of the purchase price or appraised value, whichever is lower. In addition, we may make one- to four-family residential mortgage loans with loan-to-value ratios between 80% and 95% of the purchase price or appraised value, whichever is less, where the borrower obtains private mortgage insurance. FHA loans may be made with loan-to-value ratios up to 96.5% of the purchase price or appraised value, whichever is less.

Our one- to four-family residential real estate loans typically have terms of 15 or 30 years. Our adjustable-rate one- to four-family residential real estate loans generally have fixed rates for initial terms of five, seven or ten years, and adjust annually thereafter at a margin. In recent years, this margin has been 2.75% over the weekly average yield on U.S. treasury securities adjusted to a constant maturity of one year. The maximum amount by which the interest rate may be increased or decreased is generally 2% per adjustment period and the lifetime interest rate cap is generally 4% or 6% over the initial interest rate of the loan. Adjustable-rate one-to four-family residential real estate loans are originated on a servicing released basis.

In the past we originated loans on non-owner occupied one- to four-family properties. At December 31, 2019, we had $5.5 million of loans secured by non-owner occupied one- to four-family residential real estate, representing 4.8% of our total loan portfolio and 8.4% of our total one- to four-family real estate portfolio. We do not intend to make such loans in the future.

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Since 2001, we have originated an increasing amount of our one- to four-family residential real estate loans for sale to the secondary market. During 2019, we sold approximately 90.5% of the one- to four-family residential real estate loans we originated to the secondary market. These sales were primarily through the FHLB-Cincinnati’s MPP. See “— Loan Originations, Participations, Purchases and Sales” below for additional information regarding our sale of loans through the MPP. We intend to continue to grow our mortgage banking operations in the coming year.

The one- to four-family residential real estate loans that we retain for our portfolio include shorter-term fixed-rate loans, adjustable-rate loans, jumbo loans and other non-conforming loans that have mitigating strengths that make the loan an appropriate risk.

We do not offer “interest only” mortgage loans on permanent one- to four-family residential real estate loans (where the borrower pays interest for an initial period, after which the loan converts to a fully amortizing loan). We also do not offer loans that provide for negative amortization of principal, such as “Option ARM” loans, where the borrower can pay less than the interest owed on the loan, resulting in an increased principal balance during the life of the loan. We do not currently offer “subprime loans” on one- to four-family residential real estate loans (i.e., generally loans with credit scores less than 660). In addition, we do not intend to offer interest only, Option ARM or subprime loans in the future.

We also originate home equity lines of credit. See “— Home Equity Loans and Lines of Credit, and Other Consumer Lending”, below.

Commercial Real Estate, Land and Multi-Family Residential Lending. In recent years, we have sought to increase our commercial real estate loans. Our commercial real estate loans are secured primarily by office buildings, retail and mixed-use properties, and light industrial properties located in our primary market area. To a lesser extent, we also make multi-family loans secured primarily by residential apartment buildings and land loans primarily secured by land located in our primary market area. At December 31, 2019, we had $20.8 million in commercial real estate and land loans and $1.1 million in multi-family real estate loans, representing 18.2% and 1.0% of our total loan portfolio, respectively.

Most of our commercial and multi-family real estate loans have a maximum term of up to 30 years. The new originations of commercial real estate and multi-family loans are generally fixed for an initial period of five years and adjust every five years thereafter based on market rates. The maximum loan-to-value ratio of our commercial real estate and multi-family real estate loans is generally 80% or less. For properties on which there will be a third party junior lien, the maximum loan-to-value ratio is 70%. All loan-to-value ratios are subject to our underwriting procedures and guidelines. At December 31, 2019, our largest commercial real estate loan totaled $3.2 million and was secured by commercial real estate and residential real estate. At that date, our largest multi-family real estate loan totaled $409,000 and was secured by a multiuse building. At December 31, 2019, both of these loans were performing in accordance with their terms.

Set forth below is information regarding our commercial real estate total loans at December 31, 2019.

Type of Loan	Number of Loans		Total Loan Balances
			(Dollars in thousands)
Apartment Buildings		1		$	225
Land		7			429
Storage		2			1,026
Office		8			1,572
Owner occupied commercial real estate		29			10,578
Restaurant		1			581
Retail/Wholesale		12			6,389
Total		60		$	20,800

We consider a number of factors in originating commercial and multi-family real estate loans. We evaluate the qualifications and financial condition of the borrower, including credit history, profitability

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and expertise, as well as the value and condition of the property securing the loan. When evaluating the qualifications of the borrower, we consider the financial resources of the borrower, the borrower’s experience in owning or managing similar property and the borrower’s payment history with us and other financial institutions. In evaluating the property securing the loan, the factors we consider include the net operating income of the mortgaged property before debt service and depreciation, the ratio of the loan amount to the appraised value of the mortgaged property and the debt service coverage ratio (the ratio of net operating income to debt service). All commercial real estate and multi-family loans are appraised by outside independent appraisers approved by the board of directors. Personal guarantees are generally obtained from the principals of commercial and multi-family real estate borrowers.

Raw land loans have terms of not more than 25 years. The maximum loan-to-value of these loans is 60% of the lesser of the appraised value or the purchase price of the property.

At December 31, 2019, we had 429,000 of total land loans outstanding. Our largest land loan totaled $90,000 and was performing in accordance with its terms at December 31, 2019.

Loans secured by commercial real estate, raw land and multi-family real estate generally involve greater credit risk. Commercial real estate loans often involve large loan balances to single borrowers or groups of related borrowers. This greater risk is due to several factors, including the concentration of principal in a limited number of loans and borrowers, the effects of general economic conditions on income-producing properties and the increased difficulty of evaluating and monitoring these types of loans. Repayment of commercial real estate loans depends to a large degree on the results of operations and management of the properties securing the loans or the businesses conducted on such properties, and may be affected to a greater extent by adverse conditions in the real estate market or the economy in general. Furthermore, the repayment of loans secured by multi-family residential real estate is typically dependent upon the successful operation of the related real estate project. If the cash flow from the project is reduced (for example, if leases are not obtained or renewed), the borrower’s ability to repay the loan may be impaired. Accordingly, the nature of these loans makes them more difficult for management to monitor and evaluate.

Commercial Business Lending. At December 31, 2019, we had $5.9 million of commercial business loans, representing 5.2% of our total loan portfolio. In the coming year we intend to increase our emphasis on commercial business lending. We offer regular lines of credit and revolving lines of credit with terms of up to 12 months to small businesses in our market area to finance short-term working capital needs such as accounts receivable and inventory. Our commercial lines of credit are typically adjustable-rate generally based on the prime rate, as published in The Wall Street Journal, plus a margin. We generally obtain personal guarantees with respect to all commercial business lines of credit. We also offer term loans of five to seven years.

We typically originate commercial business loans on the basis of the borrower’s ability to make repayment from the cash flow of the borrower’s business, the experience and stability of the borrower’s management team, earnings projections and the underlying assumptions, and the value and marketability of any collateral securing the loan. Commercial business loans are generally secured by a variety of collateral, primarily accounts receivable, inventory and equipment. As a result, the availability of funds for the repayment of commercial business loans may be substantially dependent on the success of the business itself and the general economic environment in our market area. Therefore, commercial business loans that we originate have greater credit risk than one- to four-family residential real estate loans or, generally, consumer loans. In addition, commercial business loans often result in larger outstanding balances to single borrowers, or related groups of borrowers, and also generally require substantially greater evaluation and oversight efforts.

Home Equity Lines of Credit, and Other Consumer Lending. At December 31, 2019, we had $9.7 million, or 8.5% of our loan portfolio, in home equity loan lines of credit. We intend to increase our portfolio of home equity loan lines of credit in proportion to the increase in our total loan portfolio in 2020.

Our home equity line of credit loans are secured by owner occupied residential property. Home equity lines of credit are variable rate, and are approved with a maximum maturity of up to 25 years. The 25 year term is a 10 draw period followed by a 15 year amortization period. We extend home equity lines of credit on owner occupied property regardless of whether we hold the first mortgage. We do not extend home equity lines of credit unless the combined loan-to-value ratio of the first mortgage and the home equity line of credit is 90% or less.

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Home equity line of credit loans have greater risk than one- to four-family residential real estate loans secured by first mortgages. Our interest is generally subordinated to the interest of the institution holding the first mortgage. Even where we hold the first mortgage, we face the risk that the value of the collateral may not be sufficient to compensate us for the amount of the unpaid loan and costs of foreclosure. As a result, consumer loan collections are dependent on the borrower’s continuing financial stability and thus are more likely to be adversely affected by job loss, divorce, illness or personal bankruptcy.

Home equity loans and lines of credit and other consumer loans generally have shorter terms to maturity, which reduces our exposure to changes in interest rates. In addition, management believes that offering these loan products helps to expand and create stronger ties to our existing customer base by increasing the number of customer relationships and providing cross-marketing opportunities.

From time to time we may make consumer loans other than home equity loans and lines of credit, generally as an accommodation to existing customers. At December 31, 2019, we had $8,000 in other consumer loans.

Construction Lending. We originate construction loans, primarily for one- to four-family residential properties. At December 31, 2019, $11.7 million, or 10.2%, of our total loan portfolio, consisted of construction loans, all of which were secured by one- to four-family residential real estate. At December 31, 2019, the un-advanced portion of one- to four-family residential construction loans totaled $6.8 million. In the coming year, we intend to continue expanding our construction lending for one- to four-family residential properties. From time to time we may also consider making construction loans for commercial real estate properties, including multi-family properties, if attractive opportunities arise.

Construction loans for one- to four-family residential properties are originated with a maximum loan to value ratio of 80% and are generally “interest-only” loans during the construction period which typically does not exceed 12 months. After this time period, the loan converts to permanent, amortizing financing following the completion of construction. We generally require that a commitment for permanent financing be in place prior to closing the construction loan.

Construction financing generally involves greater credit risk than long-term financing on improved, owner-occupied real estate. Risk of loss on a construction loan depends largely upon the accuracy of the initial estimate of the value of the property at completion of construction compared to the estimated cost (including interest) of construction and other assumptions. If the estimate of construction cost is inaccurate, we may be required to advance additional funds beyond the amount originally committed in order to protect the value of the property. Moreover, if the estimated value of the completed project is inaccurate, the borrower may hold a property with a value that is insufficient to assure full repayment of the construction loan upon the sale of the property. Construction loans also expose us to the risk that improvements will not be completed on time in accordance with specifications and projected costs or that we may take possession of a partially completed project. In addition, the ultimate sale or rental of the property may not occur as anticipated.

At December 31, 2019, our largest construction loan had a principal balance of $584,000. This loan was performing in accordance with its terms at December 31, 2019.

Loan Originations, Participations, Purchases and Sales.

Most of our loan originations are generated by our loan personnel and from referrals from existing customers and real estate brokers. All loans we originate are underwritten pursuant to our policies and procedures. While we originate both fixed- and adjustable-rate loans, our ability to generate each type of loan depends upon relative borrower demand and pricing levels established by competing banks, thrifts, credit unions, and mortgage banking companies. Our volume of loan originations is influenced significantly by market interest rates, and, accordingly, the volume of our loan originations can vary from period to period.

Since 2001, and consistent with our interest rate risk strategy in the low interest rate environment, we have sold on a servicing-released basis most of the fixed-rate conforming one- to four-family residential mortgage loans that we have originated. We currently sell most of these loans to the FHLB-Cincinnati through the MPP. During 2019 we originated $91.0 million fixed-rate and adjustable rate one- to four-family residential real estate loans, and sold $82.4 million of such loans to several secondary market investors as

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well as the FHLB-Cincinnati through the MPP. As part of our business strategy, we intend to expand our mortgage banking activity by adding up to six new commission-based mortgage lenders over the next three years. We believe that our mortgage banking infrastructure and risk management systems will allow us to safely manage a significantly larger volume of loans.

Under the terms of the MPP, we are required to maintain a Lender Risk Account (“LRA”). The LRA consists of amounts withheld from the loan sale proceeds by the FHLB-Cincinnati for absorbing inherent losses that are probable on the loans we sell. These withheld funds are an asset to the Company as they are scheduled to be paid to the Company in future years, net of any credit losses on the loans sold. The funds withheld to settle these potential losses totaled $6.2 million at December 31, 2019; however, these receivables are recorded at fair value, which includes consideration of inherent losses that are probable and net present value discounts. The carrying value of the LRA totaled $3.6 million at December 31, 2019.

We have developed certain processes and procedures to monitor and mitigate the risks associated with our mortgage banking activities, including:

•

independent daily pricing to establish profitability targets;

•

a central rate lock desk to mitigate risk of pair off fees;

•

selling loans pursuant to mandatory delivery contracts to eliminate warehouse and pipeline risk;

•

selling loans on a best-effort flow basis to eliminate pair-off fees;

•

underwriting review of each file to avoid loan repurchases for non-compliance with underwriting requirements; and

•

quality control performed by an independent third party vendor.

From time to time, we may purchase loan participations secured by properties within and outside of our primary lending market area in which we are not the lead lender. In these circumstances, we follow our customary loan underwriting and approval policies. At December 31, 2019, we had five participation loans totaling $2.2 million in which we were not the lead lender. We also have sold portions of loans from time to time that exceeded our loans-to-one borrower legal lending limit and for risk diversification. At December 31, 2019 we had two participations totaling $1.5 million, $901,000 of which is sold.

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The following table sets forth our loan origination, purchase, sale and principal repayment activity during the years indicated.

	Years Ended December 31,
	2019			2018
Total gross loans, including loans held for sale, at beginning of year		$	125,802		$	108,391
Loans originated:
One- to four-family residential:
Owner occupied			91,005			69,306
Non-owner occupied			—			—
Multifamily real estate			—			241
Residential construction			11,779			14,838
Commercial real estate and land			5,706			3,339
Commercial			5,778			11,041
Home equity and other consumer			4,808			9,308
Total loans originated			119,076			108,073
Loans purchased:
One- to four-family residential:
Owner occupied			—			—
Non-owner occupied			—			—
Multifamily real estate			—			—
Residential construction			—			—
Commercial real estate and land			—			—
Commercial			—			67
Home equity and other consumer			—			—
Total loans purchased			—			67
Loans sold:
One- to four-family residential:
Owner occupied			(82,369)			(52,126)
Non-owner occupied			—			—
Multifamily real estate			—			—
Residential construction			—			—
Commercial real estate and land			—			—
Commercial			—			—
Home equity and other consumer			—			—
Total loans sold			(82,369)			(52,126)
Other:
Principal repayments			(41,578)			(38,603)
Net loan activity			(4,871)			17,411
Total gross loans, including loans held for sale, at end of year		$	120,931		$	125,802

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Delinquencies, Classified Assets and Non-Performing Assets

Delinquency Procedures. When a borrower fails to make a required monthly payment by the due date, a late notice is generated stating the payment and late charges due. Our policies provide that a late notice be sent when a loan is 15 days past due. In addition, we may call the borrower when the loan is 30 days past due, and we attempt to cooperate with the borrower to determine the reason for nonpayment and to work with the borrower to establish a repayment schedule that will cure the delinquency. Once the loan is considered in default, generally at 90 days past due, a certified letter is generally sent to the borrower explaining that the entire balance of the loan is due and payable, the loan is placed on non-accrual status, and additional efforts are made to contact the borrower. If the borrower does not respond, we generally consider initiating foreclosure proceedings when the loan is 90 to 120 days past due. If the loan is reinstated, foreclosure proceedings will be discontinued and the borrower will be permitted to continue to make payments. In certain instances, we may modify the loan or grant a limited exemption from loan payments to allow the borrower to reorganize his or her financial affairs.

When we acquire real estate as a result of foreclosure or by deed in lieu of foreclosure, the real estate is classified as foreclosed real estate until it is sold. The real estate is recorded at estimated fair value at the date of acquisition less estimated costs to sell, and any write-down resulting from the acquisition is charged to the allowance for loan losses. Subsequent decreases in the value of the property are charged to operations through the creation of a valuation allowance. After acquisition, all costs in maintaining the property are expensed as incurred. Costs relating to the development and improvement of the property, however, are capitalized to the extent of estimated fair value less estimated costs to sell.

Troubled Debt Restructurings. We occasionally modify loans to help a borrower stay current on his or her loan and to avoid foreclosure. We consider modifications only after analyzing the borrower’s current repayment capacity, evaluating the strength of any guarantors based on documented current financial information, and assessing the current value of any collateral pledged. We generally do not forgive principal or interest on loans, but may do so if it is in our best interest and increases the likelihood that we can collect the remaining principal balance. We may modify the terms of loans to lower interest rates (which may be at below market rates), to provide for fixed interest rates on loans where fixed rates are otherwise not available, or to provide for interest-only terms. These modifications are made only when there is a reasonable and attainable workout plan that has been agreed to by the borrower and that is in our best interests. At December 31, 2019, we had seven loans totaling $292,000 that were classified as troubled debt restructurings. Troubled debt restructurings may also be included in non-accrual loans if they are not performing in accordance with their modified terms or had been performing in accordance with their modified terms for less than six months since the date of restructuring.

At December 31, 2019 and during the twelve months then ended, there were no non-accruing troubled debt restructurings. For the year ended December 31, 2019, we recognized $18,000 of interest income on such loans, the same amount that would have been recorded on the loans under their original terms.

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Delinquent Loans. The following table sets forth our loan delinquencies by type and amount at the dates indicated.

	Loans Delinquent For
	30 – 89 Days					90 Days and Over					Total
	Number		Amount			Number		Amount			Number		Amount
	(Dollars in thousands)
At December 31, 2019
One- to four-family residential:
Owner occupied		1		$	75		7		$	364		8		$	439
Non-owner occupied		—			—		1			489		1			489
Commercial real estate and land		—			—		—			—		—			—
Home equity and other consumer		2			24		—			—		2			24
Residential construction		—			—		—			—		—			—
Multi-family real estate		—			—		—			—		—			—
Commercial		—			—		—			—		—			—
Total		3		$	99		8		$	853		11		$	952
At December 31, 2018
One- to four-family residential:
Owner occupied		2		$	86		5		$	362		7		$	448
Non-owner occupied		1			493		—			—		1			493
Commercial real estate and land		—			—		—			—		—			—
Home equity and other consumer		4			55		2			71		6			126
Residential construction		—			—		—			—		—			—
Multi-family real estate		—			—		—			—		—			—
Commercial		1			125		—			—		1			125
Total		8		$	759		7		$	433		15		$	1,192

Classified Assets. Federal regulations provide for the classification of loans and other assets, such as debt and equity securities considered by the FDIC to be of lesser quality, as “substandard,” “doubtful” or “loss.” An asset is considered “substandard” if it is inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any. “Substandard” assets include those characterized by the “distinct possibility” that the insured institution will sustain “some loss” if the deficiencies are not corrected. Assets classified as “doubtful” have all of the weaknesses inherent in those classified “substandard,” with the added characteristic that the weaknesses present make “collection or liquidation in full,” on the basis of currently existing facts, conditions, and values, “highly questionable and improbable.” Assets classified as “loss” are those considered “uncollectible” and of such little value that their continuance as assets without the establishment of a specific allowance for loan losses is not warranted. Assets that do not currently expose the insured institution to sufficient risk to warrant classification in one of the aforementioned categories but possess weaknesses are designated as “special mention” by management.

When an insured institution classifies problem assets as either substandard or doubtful, it may establish general allowances in an amount deemed prudent by management to cover losses that were both probable and reasonable to estimate. General allowances represent allowances which have been established to cover accrued losses associated with lending activities that were both probable and reasonable to estimate, but which, unlike specific allowances, have not been allocated to particular problem assets. When an insured institution classifies problem assets as “loss,” it is required either to establish a specific allowance for losses equal to 100% of that portion of the asset so classified or to charge-off such amount. An institution’s determination as to the classification of its assets and the amount of its valuation allowances is subject to review by the regulatory authorities, which may require the establishment of additional general or specific allowances.

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In connection with the filing of our periodic regulatory reports and in accordance with our classification of assets policy, we regularly review the problem loans in our portfolio to determine whether any loans require classification in accordance with applicable regulations. Loans are listed on the “watch list” initially because of emerging financial weaknesses even though the loan is currently performing as agreed, or delinquency status, or if the loan possesses weaknesses although currently performing. Management reviews the status of each loan on our watch list on a quarterly basis with the board of directors. If a loan deteriorates in asset quality, the classification is changed to “special mention,” “substandard,” “doubtful” or “loss” depending on the circumstances and the evaluation. Generally, loans 90 days or more past due are placed on nonaccrual status and classified “substandard.”

On the basis of this review of our assets, our classified loans, special mention loans, and foreclosed real estate held for sale at the dates indicated were as follows:

	At December 31,
	2019			2018
Classified loans:
Substandard		$	1,414		$	1,708
Doubtful assets			—			—
Loss assets			—			—
Total classified assets		$	1,414		$	1,708
Special mention loans		$	—		$	—
Foreclosed real estate held for sale		$	—		$	217

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Non-Performing Assets. The table below sets forth the amounts and categories of our non-performing assets at the dates indicated.

	At December 31,
	2019			2018
	(Dollars in thousands)
Non-accrual loans:
One- to four-family residential:
Owner occupied		$	364		$	362
Non-owner occupied			489			—
Commercial real estate and land			—			—
Home equity and other consumer			—			71
Residential construction			—			—
Multi-family real estate			—			—
Commercial			—			—
Total			853			433
Accruing loans 90 days or more past due:
One- to four-family residential:
Owner occupied		$	—		$	—
Non-owner occupied			—			—
Commercial real estate and land			—			—
Home equity and other consumer			—			—
Residential construction			—			—
Multi-family real estate			—			—
Commercial			—			—
Total loans 90 days or more past due			—			—
Accruing troubled debt restructurings:
One- to four-family residential:
Owner occupied		$	71		$	74
Non-owner occupied			182			190
Commercial real estate and land			—			—
Home equity and other consumer			39			43
Residential construction			—			—
Multi-family real estate			—			—
Commercial			—			—
Total		$	292		$	307
Total non-performing loans		$	1,145		$	740
Foreclosed real estate			—			217
Total non-performing assets		$	1,145		$	957
Ratios:
Total non-performing loans to total loans			1.00%			0.60%
Total non-performing assets to total assets			0.80%			0.70%
Non-performing assets excluding accruing troubled debt restructurings to total assets			0.60%			0.47%
Non-performing loans excluding accruing troubled debt restructurings to total loans			0.74%			0.35%

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For the year ended December 31, 2019, gross interest income that would have been recorded had our non-accruing loans been current in accordance with their original terms was $26,000. Interest income recognized on such loans for the year ended December 31, 2019 was $13,000.

Other Loans of Concern. There were no other loans at December 31, 2019 that are not already disclosed where there is information about possible credit problems of borrowers that caused management to have serious doubts about the ability of the borrowers to comply with present loan repayment terms and that may result in disclosure of such loans in the future.

Allowance for Loan Losses

Analysis and Determination of the Allowance for Loan Losses. Our allowance for loan losses is the amount considered necessary to reflect probable incurred losses in our loan portfolio. We evaluate the need to establish allowances against losses on loans on a quarterly basis. When additional allowances are necessary, a provision for loan losses is charged to earnings.

Our methodology for assessing the appropriateness of the allowance for loan losses consists of two key elements: (1) allocated allowances for identified impaired loans; and (2) a general valuation allowance on the remainder of the loan portfolio. Although we determine the amount of each element of the allowance separately, the entire allowance for loan losses is available for the entire portfolio.

We identify loans that may need to be charged off as a loss by reviewing all delinquent loans, classified loans, and other loans about which management may have concerns about collectability. For individually reviewed loans, the borrower’s inability to make payments under the terms of the loan, as well as a shortfall in collateral value, could result in our charging off the loan or the portion of the loan that was impaired.

Among other factors, we consider current general economic conditions, including current housing price depreciation, in determining the appropriateness of the allowance for loan losses for our residential real estate portfolio. We use evidence obtained from our own loan portfolio as well as published housing data on our local markets from third party sources we believe to be reliable as a basis for assumptions about the impact of housing depreciation.

Substantially all of our loans are secured by collateral. Loans 90 days past due and other classified loans are evaluated for impairment and general or specific allowances are established. Typically for a non-performing real estate loan in the process of collection, the value of the underlying collateral is estimated using either the original independent appraisal, adjusted for current economic conditions and other factors, or a new independent appraisal or evaluation, and related general or specific allowances for loan losses are adjusted on a quarterly basis. If a non-performing real estate loan is in the process of foreclosure and/or there are serious doubts about further collectability of principal or interest, and there is uncertainty about the value of the underlying collateral, we will order a new independent appraisal or evaluation if it has not already been obtained. Any shortfall would result in immediately charging off the portion of the loan that was impaired.

Allocated Allowances for Identified Problem Loans. We establish an allocated allowance when loans are determined to be impaired. Loss is measured by determining the present value of expected future cash flows or, for collateral-dependent loans, the fair value of the collateral less estimated selling expenses. Factors in identifying a specific problem loan include: (1) the strength of the customer’s personal or business cash flows; (2) the availability of other sources of repayment; (3) the amount due or past due; (4) the type and value of collateral; (5) the strength of our collateral position; (6) the estimated cost to sell the collateral; and (7) the borrower’s effort to cure the delinquency. In addition, for loans secured by real estate, we consider the extent of any past due and unpaid property taxes applicable to the property serving as collateral on the mortgage.

General Valuation Allowance on the Remainder of the Loan Portfolio. We establish a general allowance for loans that are not classified as impaired to recognize the probable incurred losses associated with lending activities, but which, unlike specific allowances, has not been allocated to particular problem assets. This general valuation allowance is determined by segregating the loans by loan category and assigning allowance percentages based on our historical loss experience for the last three years, delinquency trends and management’s evaluation of the collectability of the loan portfolio. The allowance may be adjusted for

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significant qualitative factors that, in management’s judgment, affect the collectability of the portfolio as of the evaluation date. These significant factors may include changes in lending policies and procedures, changes in existing general economic and business conditions affecting our primary market area, credit quality trends, collateral value, loan volumes and concentrations, seasoning of the loan portfolio, recent loss experience in particular segments of the portfolio, duration of the current business cycle and bank regulatory examination results. The applied loss factors are re-evaluated quarterly to ensure their relevance in the current real estate environment.

As an integral part of their examination process, the FDIC and the ODFI will periodically review our allowance for loan losses. Such agencies may require that we recognize additions to the allowance based on their judgments of information available to them at the time of their examination.

Allowance for Loan Losses. The following table sets forth activity in our allowance for loan losses for the years indicated.

	At or For the Years Ended December 31,
	2019			2018
	(Dollars in thousands)
Balance at beginning of year		$	1,187		$	1,181
Charge-offs:
One- to four-family residential:
Owner occupied			—			(35)
Non-owner occupied			—			—
Commercial real estate and land			—			(68)
Home equity and other consumer			(39)			(7)
Residential construction			—			—
Multi-family real estate			—			—
Commercial			—			—
Total charge-offs			(39)			(110)
Recoveries:
One- to four-family residential:
Owner occupied			15			15
Non-owner occupied			2			2
Commercial real estate and land			—			—
Home equity and other consumer			1			—
Residential construction			—			—
Multi-family real estate			—			—
Commercial			—			—
Total recoveries			18			17
Net charge-offs			(21)			(93)
Provision for loan losses			—			99
Balance at end of year		$	1,166		$	1,187
Ratios:
Net charge-offs to average loans outstanding			(0.02)%			(0.09)%
Allowance for loan losses to non-performing loans at end of year			101.83%			160.41%
Allowance for loan losses to total loans at end of year			1.02%			0.96%

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There were $21,000 in net loan charge-offs for the year ended December 31, 2019 and $93,000 in net loan charge-offs during the year ended December 2018, respectively.

Allocation of Allowance for Loan Losses. The following table sets forth the allowance for loan losses allocated by loan category, the percent of allowance to total allowance by category, and the percent of loans in each category to total loans at the dates indicated. The allowance for loan losses allocated to each category is not necessarily indicative of future losses in any particular category and does not restrict the use of the allowance to absorb losses in other categories.

	At December 31,
	2019							2018
	Allowance for Loan Losses			Percent of Allowance to Total Allowance		Percent of Loans in Category to Total Loans		Allowance for Loan Losses			Percent of Allowance to Total Allowance		Percent of Loans in Category to Total Loans
	(Dollars in thousands)
One- to four-family residential:
Owner occupied		$	394		33.79%		52.26%		$	409		34.46%		54.18%
Non-owner occupied			29		2.49		4.82			42		3.54		5.21
Commercial real estate and land			346		29.67		18.16			260		21.90		14.19
Home equity and other consumer			225		19.30		8.46			313		26.37		11.11
Residential construction			139		11.92		10.20			128		10.78		9.48
Multi-family real estate			13		1.11		0.93			14		1.18		0.96
Commercial			20		1.72		5.17			21		1.77		4.87
Total allocated allowance			1,166		100.00		100.00			1,187		100.00		100.00
Unallocated allowance			—		—		—			—		—		—
Total allowance for loan losses		$	1,166		100.00%		100.00%		$	1,187		100.00%		100.00%

At December 31, 2019 and 2018, our allowance for loan losses represented 1.02% and 0.96% of total loans and 101.83% and 160.41% of non-performing loans. Although we believe that we use the best information available to establish the allowance for loan losses, future adjustments to the allowance for loan losses may be necessary and results of operations could be adversely affected if circumstances differ substantially from the assumptions used in making the determinations. Because future events affecting borrowers and collateral cannot be predicted with certainty, the existing allowance for loan losses may not be adequate and management may determine that increases in the allowance are necessary if the quality of any portion of our loan portfolio deteriorates as a result. Furthermore, as an integral part of its examination process, the FDIC and ODFI will periodically review our allowance for loan losses. The FDIC and ODFI may require that we increase our allowance based on its judgments of information available to it at the time of its examination. The regulatory agencies are not, however, directly involved in the determination of the allowance for loan losses, and decisions to increase and decrease the allowance are the responsibility of Eagle Savings Bank management. Any material increase in the allowance for loan losses may adversely affect our financial condition and results of operations.

The Financial Accounting Standards Board has adopted a new accounting standard that will affect our allowance for loan losses, effective for Eagle Financial Bancorp, Inc. and Eagle Savings Bank for fiscal year 2023. This standard, referred to as Current Expected Credit Loss, or CECL, will require financial institutions to determine periodic estimates of lifetime expected credit losses on loans, and recognize the expected credit losses as allowances for loan losses. This will change the current method of providing allowances for loan losses that are probable, which would likely require us to increase our allowance for loan losses, and to greatly increase the types of data we would need to collect and review to determine the appropriate level of the allowance for loan losses. Any increase in our allowance for loan losses or expenses incurred to determine the appropriate level of the allowance for loan losses may have a material adverse effect on our financial condition and results of operations.

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Investment Activities

General. Our investment policy is established by the board of directors. The objectives of the policy are to: (i) ensure adequate liquidity for loan demand and deposit fluctuations, and to allow us to alter our liquidity position to meet both day-to-day and long-term changes in assets and liabilities; (ii) manage interest rate risk in accordance with our interest rate risk policy; (iii) provide collateral for pledging requirements; (iv) maximize return on our investments; and (v) maintain a balance of high quality diversified investments to minimize risk.

Our investment committee, consisting of our President and Chief Executive Officer, our Executive Vice President, and our Vice President, Chief Financial Officer and Treasurer, is responsible for implementing our investment policy, including approval of investment strategies and monitoring investment performance. The board of directors regularly reviews our investment strategies and the market value of our investment portfolio. Historically we have invested in short term funds and interest-earning deposits as well as bank owned life insurance. Investment in longer term securities has not been part of our core investment strategy. Subject to ongoing asset/liability management, we do not expect to emphasize long-term investment in securities in the future.

We account for investment securities in accordance with Accounting Standards Codification Topic 320, “Investments — Debt and Equity Securities.” Accounting Standards Codification 320 requires that investments be categorized as held-to maturity, trading, or available for sale.

Federally chartered savings institutions have authority to invest in various types of assets, including government-sponsored enterprise obligations, securities of various federal agencies, residential mortgage-backed securities, certain certificates of deposit of insured financial institutions, overnight and short-term loans to other banks, corporate debt instruments, debt instruments of municipalities and Fannie Mae and Freddie Mac equity securities. At December 31, 2018, other than stock in the FHLB-Cincinnati, we held no investment securities in our portfolio; and accordingly, there is no corresponding table setting forth maturities and yields at such date.

Federal Home Loan Bank Stock. We hold common stock of the FHLB-Cincinnati in connection with our FHLB borrowing activities totaling $816,000 and $754,000 at December 31, 2019 and 2018. The FHLB-Cincinnati common stock is carried at cost and classified as restricted equity securities. We may be required to purchase additional FHLB-Cincinnati stock if we increase our FHLB-Cincinnati advances in the future.

Sources of Funds

General. Deposits have traditionally been our primary source of funds for use in lending and investment activities. We also utilize advances from the FHLB-Cincinnati for asset/liability management purposes and, from time to time, for additional funding for our operations. In addition, we receive funds from scheduled loan payments, loan prepayments, retained earnings and income on earning assets. While scheduled loan payments and income on earning assets are relatively stable sources of funds, deposit inflows and outflows can vary widely and are influenced by prevailing interest rates, market conditions and levels of competition.

Deposits. Our deposits are generated primarily from our primary market area. We offer a selection of deposit accounts, including non-interest-bearing and interest-bearing checking accounts, statement savings accounts, variable rate money market accounts, and certificates of deposit. Deposit account terms vary, with the principal differences being the minimum balance required, the amount of time the funds must remain on deposit and the interest rate. We have not in the past used, and currently do not hold, any brokered deposits. At December 31, 2019, our core deposits, which are deposits other than certificates of deposit, were $64.4 million, representing 57.5% of total deposits.

We participate in the National CD Rateline Program as a wholesale source for certificates of deposit to supplement deposits generated through our retail banking operations. The Rateline Program provides an internet based listing service which connects financial institutions such as Eagle Savings Bank with other financial institutions for jumbo certificates of deposit. Deposits obtained through the Rateline Program are not considered to be brokered deposits. At December 31, 2019, approximately $746,000 of our certificates

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of deposit, representing 0.7% of our total deposits, had been obtained through the Rateline Program. At December 31, 2019, these certificates of deposit had an average term to maturity of 4.2 months. Early withdrawal of these deposits is not permitted, which makes these accounts a more stable source of funds.

Interest rates, maturity terms, service fees and withdrawal penalties are established on a periodic basis. Deposit rates and terms are based primarily on current operating strategies and market rates, liquidity requirements, rates paid by competitors and growth goals. The flow of deposits is influenced significantly by general economic conditions, changes in interest rates and competition. The variety of deposit accounts that we offer allows us to be competitive in generating deposits and to respond with flexibility to changes in our customers’ demands. Our ability to generate deposits is affected by the competitive market in which we operate, which includes numerous financial institutions of varying sizes offering a wide range of products. We believe that deposits are a stable source of funds, but our ability to attract and maintain deposits at favorable rates will be affected by market conditions, including competition and prevailing interest rates.

The following table sets forth the distribution of our average total deposit accounts, by account type, for the years indicated.

	For the Years Ended December 31,
	2019							2018
	Average Balance			Percent		Weighted Average Rate		Average Balance			Percent		Weighted Average Rate
	(Dollars in thousands)
Non-interest-bearing checking		$	5,474		5.06%		—%		$	4,564		4.42%		—%
Interest-bearing checking			19,632		18.13		.17			18,339		17.75		0.15
Savings			16,623		15.35		.14			17,287		16.73		0.14
Money market demand			18,559		17.14		.49			18,825		18.21		0.22
Certificates of deposit			47,984		44.32		1.99			44,325		42.89		1.52
Total deposits		$	108,272		100.00%		1.07%		$	103,340		100.00%		0.85%

The following table sets forth our deposit activities for the years indicated.

	At or For the Years Ended December 31,
	2019			2018
	(In thousands)
Beginning balance		$	106,369		$	101,118
Net deposits before interest expense			4,517			4,481
Interest expense			1,105			770
Net increase in deposits			5,622			5,251
Ending balance		$	111,991		$	106,369

The following table sets forth all our certificates of deposit classified by interest rate as of the dates indicated.

	At December 31,
	2019			2018
	(In thousands)
Interest Rate:
Less than 1.00%		$	2,410		$	5,506
1.00% – 1.99%			19,431			31,681
2.00 – 2.99%			24,860			9,311
3.00 – 3.99%			868			—
Total		$	47,569		$	46,498

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Maturities of Certificates of Deposit Accounts. The following table sets forth the amount and maturities of all our certificates of deposit by interest rate at December 31, 2019.

	At December 31, 2019
	Period to Maturity
	Less Than or Equal to One Year			Over One Year to Two Years			Over Two Years to Three Years			Over Three Years			Total			Percentage of Total Certificate Accounts
	(Dollars in thousands)
Interest Rate:
Less than 1.00%		$	2,327		$	83		$	—		$	—		$	2,410		5.07%
1.00% – 1.99%			9,294			6,319			2,014			1,804			19,431		40.85
2.00% – 2.99%			14,788			4,689			3,038			2,345			24,860		52.26
3.00% – 3.99%			—			—			—			868			868		1.82
Total		$	26,409		$	11,091		$	5,052		$	5,017		$	47,569		100.00%

As of December 31, 2019, the aggregate amount of our outstanding certificates of deposit in amounts greater than or equal to $100,000 was approximately $21.4 million. The following table sets forth the maturity of those certificates as of December 31, 2019.

	At December 31, 2019
	(In thousands)
Three months or less		$	2,829
Over three months through six months			4,049
Over six months through one year			5,259
Over one year to three years			6,833
Over three years			2,464
Total		$	21,434

Borrowings. From time to time we obtain advances from the FHLB-Cincinnati upon the security of our capital stock in the FHLB-Cincinnati and certain of our mortgage loans. Such advances may be made pursuant to several different credit programs, each of which has its own interest rate and range of maturities. To the extent such borrowings have different terms to reprice than our deposits, they can change our interest rate risk profile. See Note 8 to the Financial Statements for additional information on the maturity of our FHLB-Cincinnati advances. At December 31, 2019, we had no outstanding advances from the FHLB-Cincinnati. At December 31, 2019, based on available collateral, our ownership of FHLB stock, and based upon our internal policy, we had access to additional FHLB-Cincinnati advances of up to $48.8 million.

The following table sets forth information concerning balances and interest rates on our borrowings at and for the years shown:

	At or For the Years Ended December 31,
	2019			2018
	(Dollars in thousands)
FHLB advances:
Balance at end of year		$	—		$	—
Average balance during year		$	22		$	2
Maximum outstanding at any month end		$	—		$	7
Weighted average interest rate at end of year			0.00%			0.00%
Average interest rate during year			2.58%			3.33%

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Subsidiary Activities

Eagle Savings Bank is the only subsidiary of Eagle Financial Bancorp, Inc. Eagle Savings Bank has no subsidiaries.

Expense and Tax Allocation Agreements

Eagle Savings Bank has entered into an agreement with Eagle Financial Bancorp, Inc. to provide it with certain administrative support services, whereby Eagle Savings Bank is compensated at not less than the fair market value of the services provided. In addition, Eagle Savings Bank and Eagle Financial Bancorp, Inc. have entered into an agreement establishing a method for allocating and for reimbursing the payment of their consolidated tax liability.

Employees

As of December 31, 2019 we had 37 full-time equivalent employees. Our employees are not represented by any collective bargaining group. Management believes that we have a good working relationship with our employees.

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REGULATION AND SUPERVISION

General

As an Ohio-chartered savings and loan association, Eagle Savings Bank is subject to supervision and regulation by the ODFI and the FDIC. This regulation and supervision establish a comprehensive framework of activities in which Eagle Savings Bank may engage and are intended primarily for protection of depositors and the FDIC’s Deposit Insurance Fund, and not for the protection of stockholders. Under this system of regulation, depository institutions are periodically examined to determine whether they satisfy applicable standards with respect to their capital adequacy, assets, management, earnings, liquidity and sensitivity to market interest rates and are otherwise in safe and sound financial condition and comply with applicable law and regulations. Eagle Savings Bank is also regulated to a lesser extent by the Federal Reserve Board, which governs the reserves to be maintained against certain deposits and other matters. Eagle Savings Bank must comply with federal consumer protection regulations issued by the Consumer Financial Protection Bureau (“CFPB”). Eagle Savings Bank is a member of and owns stock in the FHLB-Cincinnati, which is one of the eleven regional banks in the Federal Home Loan Bank System.

As a savings and loan holding company, Eagle Financial Bancorp, Inc. is subject to examination and supervision by, and reporting to, the Federal Reserve Board. Eagle Financial Bancorp, Inc. is also subject to the rules and regulations of the Securities and Exchange Commission under the federal securities laws.

Set forth below are certain material regulatory requirements that are applicable to Eagle Savings Bank and Eagle Financial Bancorp, Inc. This description of statutes and regulations is not intended to be a complete description of such statutes and regulations and their effects on Eagle Savings Bank and Eagle Financial Bancorp, Inc. Any change in these laws or regulations could have a material adverse impact on Eagle Financial Bancorp, Inc., and Eagle Savings Bank and their operations.

Ohio Regulation

Prior to 2018, Ohio-chartered banks, savings banks and savings and loan associations were governed by three different sets of Ohio laws. Effective January 1, 2018, the Ohio Legislature amended Ohio’s banking laws so that Ohio-chartered banks, savings banks and savings and loan associations are under one common form of charter. Sections of the code that formerly governed savings and loan associations and savings banks were eliminated. Accordingly, Eagle Savings Bank is now governed by the same statutory framework as Ohio banks and savings banks. However, under the new laws, a savings and loan association may elect to continue to be classified as a savings and loan association if the savings and loan association continues to hold the required amount of qualified thrift investments. As a result of Eagle Savings Bank making such an election, Eagle Savings Bank is subject to the same Ohio laws as banks and savings banks, but Eagle Financial Bancorp, Inc. continues to be regulated as a savings and loan holding company for purposes of federal law.

The ODFI is responsible for the regulation and supervision of Ohio savings associations in accordance with the laws of the State of Ohio. Ohio law prescribes the permissible investments and activities of Ohio savings and loan associations. Pursuant to federal law, the ability of Ohio associations to engage in state-authorized investments and activities is subject to oversight and approval by the FDIC if such investments or activities are not permissible for a federally chartered savings bank.

The approval of the ODFI is required for certain expansion proposals, such as the establishment of branches and acquisitions of other depository institutions. Dividend payments to stockholders may also require ODFI approval under certain circumstances.

The ODFI may initiate certain supervisory measures or formal enforcement actions against Ohio savings associations. Ultimately, if the grounds provided by law exist, the ODFI may place an Ohio association in conservatorship or receivership.

The ODFI conducts regular examinations of Eagle Savings Bank. Such examinations are often conducted jointly with the FDIC. The ODFI imposes assessments on Ohio savings associations based on their asset size to cover the cost of supervision and examination.

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Federal Regulation

The FDIC is the primary federal regulator for Eagle Savings Bank. As such, it has authority to examine Eagle Savings Bank and must approve such matters as the establishment of branch offices and mergers in which Eagle Savings Bank is the resulting institution. In addition, federal statutes and regulations, some of which are discussed below, greatly affect the operations of FDIC-insured depository institutions, including savings associations.

Capital Requirements. Federal regulations require FDIC-insured depository institutions to meet several minimum capital standards: a common equity Tier 1 capital to risk-based assets ratio of 4.5%, a Tier 1 capital to risk-based assets ratio of 6.0%, a total capital to risk-based assets ratio of 8%, and a 4% Tier 1 capital to total assets leverage ratio. The current capital requirements were effective January 1, 2015 and are the result of a final rule implementing recommendations of the international Basel Committee on Banking Supervision and certain requirements of the Dodd Frank Wall Street Reform and Consumer Protection Act of 2010 (the “Dodd-Frank Act”).

In determining the amount of risk-weighted assets for purposes of calculating risk-based capital ratios, all assets, including certain off-balance sheet assets (e.g., recourse obligations, direct credit substitutes, residual interests) are multiplied by a risk weight factor assigned by the regulations based on the risks believed inherent in the type of asset. Higher levels of capital are required for asset categories believed to present greater risk. Common equity Tier 1 capital is generally defined as common stockholders’ equity and retained earnings. Unrealized gains and losses on certain “available for sale” securities holdings are also included in common equity Tier 1 capital unless the institution has exercised a one-time opt out election regarding the treatment of accumulated other comprehensive income. Eagle Savings Bank elected to exercise its one-time option to opt out. Tier 1 capital is generally defined as common equity Tier 1 and additional Tier 1 capital. Additional Tier 1 capital includes certain noncumulative perpetual preferred stock and related surplus and minority interests in equity accounts of consolidated subsidiaries. Total capital includes Tier 1 capital (common equity Tier 1 capital plus additional Tier 1 capital) and Tier 2 capital. Tier 2 capital is comprised of capital instruments and related surplus meeting specified requirements, including cumulative preferred stock and long-term perpetual preferred stock, mandatory convertible securities, intermediate preferred stock and subordinated debt. Also included in Tier 2 capital is the institution’s allowance for loan and lease losses limited to a maximum of 1.25% of risk-weighted assets. Calculation of all types of regulatory capital is subject to deductions and adjustments specified in the regulations. In assessing an institution’s capital adequacy, the FDIC takes into consideration not only these numeric factors, but qualitative factors as well, and has the authority to establish higher capital requirements for individual institutions where deemed necessary.

In addition to establishing the minimum regulatory capital requirements, the regulations limit capital distributions and certain discretionary bonus payments to management if the institution does not hold a “capital conservation buffer” consisting of 2.5% of common equity Tier 1 capital to risk-weighted asset above the amount necessary to meet its minimum risk-based capital requirements. The capital conservation buffer requirement is being phased in. As of January 1, 2019, it was fully phased in at 2.5%.

Legislation enacted in May 2018 required the federal banking agencies, including the FDIC, to establish an optional “community bank leverage ratio” of between 8% to 10% of average total consolidated assets for qualifying institutions with assets less than $10 billion of assets. Institutions with capital meeting the specified requirement and electing to follow the alternative framework would be deemed to comply with the applicable regulatory capital requirements, including the risk-based requirements. The federal regulators issued a final rule, effective January 1, 2020, that set the elective community bank leverage ratio at 9% tier 1 capital to average total consolidated assets.

The FDIC also has authority to establish enhanced individual minimum capital requirements in appropriate cases upon determination that an institution’s capital level is, or is likely to become, inadequate in light of particular circumstances.

Standards for Safety and Soundness. As required by statute, the federal banking agencies adopted final regulations and Interagency Guidelines Establishing Standards for Safety and Soundness to implement safety and soundness standards. The guidelines set forth the safety and soundness standards that the

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federal banking agencies use to identify and cover problems at insured depository institutions before capital becomes impaired. The guidelines address internal controls and information systems, internal audit systems, credit underwriting, loan documentation, interest rate exposure, asset growth, asset quality, earnings and compensation, fees and benefits. The agencies have also established standards for safeguarding customer information. If the appropriate federal banking agency determines that an institution fails to meet any standard prescribed by the guidelines, the agency may require the institution to submit to the agency an acceptable plan to achieve compliance with the standard.

Investment Activities. Subject to certain exceptions, Federal law generally limits the equity investment authority of state savings associations to equity investments of the type and in the amount authorized for federal savings associations, notwithstanding state law. In addition, a state savings association may only engage as principal in other state-authorized activities that are permissible for federal savings associations if it meets all applicable capital requirements and by the FDIC determines that such activities or investments do not pose a significant risk to the Deposit Insurance Fund.

Prompt Corrective Regulatory Action. Federal law requires, among other things, that the FDIC and other federal bank regulators take “prompt corrective action” with respect to institutions that do not meet minimum capital requirements. For these purposes, the law establishes five capital categories: well capitalized, adequately capitalized, undercapitalized, significantly undercapitalized and critically undercapitalized.

The FDIC has adopted regulations to implement the prompt corrective action legislation. The regulations were amended to incorporate the previously mentioned increased regulatory capital standards that were effective January 1, 2015. An institution is deemed to be “well capitalized” if it has a total risk-based capital ratio of 10.0% or greater, a Tier 1 risk-based capital ratio of 8.0% or greater, a leverage ratio of 5.0% or greater and a common equity Tier 1 ratio of 6.5% or greater. An institution is “adequately capitalized” if it has a total risk-based capital ratio of 8.0% or greater, a Tier 1 risk-based capital ratio of 6.0% or greater, a leverage ratio of 4.0% or greater and a common equity Tier 1 ratio of 4.5% or greater. An institution is “undercapitalized” if it has a total risk-based capital ratio of less than 8.0%, a Tier 1 risk-based capital ratio of less than 6.0%, a leverage ratio of less than 4.0% or a common equity Tier 1 ratio of less than 4.5%. An institution is deemed to be “significantly undercapitalized” if it has a total risk-based capital ratio of less than 6.0%, a Tier 1 risk-based capital ratio of less than 4.0%, a leverage ratio of less than 3.0%, or a common equity Tier 1 ratio of less than 3.0%. An institution is considered to be “critically undercapitalized” if it has a ratio of tangible equity (as defined in the regulations) to total assets that is equal to or less than 2.0%.

At each successive lower undercapitalized capital category, an insured depository institution may be subject to more restrictions and prohibitions, including restrictions on growth, restrictions on interest rates paid on deposits, restrictions or prohibitions on payment of dividends, and restrictions on the acceptance of brokered deposits. Furthermore, an insured depository institution that is classified in one of the undercapitalized categories is required to submit a capital restoration plan to the appropriate federal banking agency. An undercapitalized institution’s compliance with a capital restoration plan is required to be guaranteed by any company that controls the undercapitalized institution in an amount equal to the lesser of 5.0% of the institution’s total assets when deemed undercapitalized or the amount necessary to achieve the status of adequately capitalized. If an “undercapitalized” institution fails to submit an acceptable plan, it is treated as if it is “significantly undercapitalized.” “Significantly undercapitalized” institutions must comply with one or more of a number of additional restrictions, including but not limited to, an order by the FDIC to sell sufficient voting stock to become adequately capitalized, requirements to reduce total assets, cease receipt of deposits from correspondent banks or dismiss directors or officers, and restrictions on interest rates paid on deposits, compensation of executive officers and capital distributions by the parent holding company. “Critically undercapitalized” institutions are subject to additional measures including, subject to a narrow exception, the appointment of a receiver or conservator within 270 days after it obtains such status.

The previously referenced final rule that establishes an elective “community bank leverage ratio” regulatory framework provides that a qualifying institution whose tier 1 capital complies with the ratio and opts into the framework will be considered well capitalized.

Loans-to-One-Borrower. Pursuant to federal law, a state savings association may not make a loan or extension of credit to a single or related group of borrowers in excess of 15% of its unimpaired capital and

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unimpaired surplus. An additional amount may be lent, equal to 10% of unimpaired capital and unimpaired surplus, if the loan is secured by readily marketable collateral, which is generally defined to include certain financial instruments and bullion (but does not include real estate).

Qualified Thrift Lender Test. Federal law requires savings associations to satisfy a qualified thrift lender (“QTL”) test under which an association must either qualify as a “domestic building and loan” as defined by the Internal Revenue Code or maintain at least 65% of its “portfolio assets” in “qualified thrift investments for at least nine out of every twelve months. “Qualified thrift investments” consist primarily of residential mortgages and related investments, including mortgage-backed and related securities. “Portfolio assets” generally means total assets less specified liquid assets up to 20% of total assets, goodwill and other intangible assets and the value of property used to conduct business. A savings association that fails the QTL test must operate under specified restrictions. The Dodd-Frank Act made noncompliance with the QTL test also subject to agency enforcement action for a violation of law. As of December 31, 2019, Eagle Savings Bank maintained 69.9% of its portfolio assets in qualified thrift investments and, therefore, met the QTL test.

Transactions with Affiliates and Regulation W of the Federal Reserve Regulations. Transactions between insured depository institutions and their affiliates are governed by federal law. An affiliate is any company or entity that controls, is controlled by or is under common control with the institution. In a holding company context, the parent holding company and any companies that are controlled by the parent holding company are affiliates of the savings association (although subsidiaries of the savings associations itself are generally not considered affiliates). Generally, federal law limits the extent to which a savings association or its subsidiaries may engage in “covered transactions” with any one affiliate to an amount equal to 10.0% of such institution’s capital stock and surplus and such transactions with all affiliates to an amount equal to 20.0% of such institution’s capital stock and surplus. The term “covered transaction” includes the making of loans to, purchase of assets from and issuance of a guarantee on behalf of an affiliate and other specified transactions. In addition, loans or other extensions of credit by an institution to an affiliate are required to be collateralized in accordance with the requirements set forth in federal law. “Covered transactions,” as well as to certain specified other transactions, are required to be on terms substantially the same, or at least as favorable, to the institution as those provided to a non-affiliate.

Capital Distributions. FDIC regulations govern capital distributions by a state savings association, which include cash dividends, stock repurchases and other transactions charged to the institution’s capital account. A state savings association must file an application with the FDIC for approval of a capital distribution if:

•

the total capital distributions for that calendar year (including the proposed distribution) exceed the sum of the savings association’s net income for that year to date plus the savings association’s retained net income for the preceding two years;

•

the savings association would not be at least adequately capitalized (as defined for prompt corrective action purposes) following the distribution;

•

the distribution would violate any applicable statute, regulation, agreement or regulatory-imposed condition; or

•

the savings association is not eligible for expedited treatment of its filings.

Even if an application is not otherwise required, every savings association that is a subsidiary of a holding company, such as Eagle Savings Bank, must file a notice with the Federal Reserve Board at least 30 days before the board of directors declares a dividend or approves a capital distribution.

The FDIC or the Federal Reserve Board may disapprove an application or notice if:

•

the savings association would be undercapitalized following the distribution;

•

the proposed capital distribution raises safety and soundness concerns; or

•

the capital distribution would violate a prohibition contained in any statute, regulation, agreement with a federal banking regulatory agency or condition imposed in connection with an application or notice.

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Federal law also restricts a savings association’s loans to its insiders, i.e., executive officers, directors and stockholders (i.e., control of 10% or more of a class of voting stock). Loans to insiders of an institution and certain related interests of such persons, may not exceed specified limits. Loans to insiders are also generally required to be made on terms substantially the same as offered in comparable transactions to other persons, subject to an exception for loan programs open to the institution’s employees, and prior board approval is required for certain such loans. In addition, the aggregate amount of extensions of credit by an institution to its insiders cannot exceed the institution’s unimpaired capital and surplus. Federal law places additional restrictions on an institution’s loans to its executive officers.

Enforcement. The FDIC has extensive enforcement authority over insured state savings associations, including Eagle Savings Bank. The enforcement authority includes, among others, the ability to assess civil money penalties, issue cease and desist orders and remove directors and officers. In general, these enforcement actions may be initiated in response to violations of laws and regulations, breaches of fiduciary duty and unsafe or unsound practices. The FDIC may also appoint itself as conservator or receiver for an insured state non-member bank under specified circumstances, including: (1) insolvency; (2) substantial dissipation of assets or earnings through violations of law or unsafe or unsound practices; (3) existence of an unsafe or unsound condition to transact business; (4) insufficient capital; or (5) the incurrence of losses that will deplete substantially all of the institution’s capital with no reasonable prospect of replenishment without federal assistance.

Federal Insurance of Deposit Accounts. Eagle Savings Bank is a member of the FDIC’s Deposit Insurance Fund. Deposit accounts in Eagle Savings Bank are insured up to a maximum of $250,000 for each separately insured depositor. The FDIC imposes deposit insurance assessments. Under the FDIC’s risk-based assessment system, insured institutions were initially assigned to risk categories based on supervisory evaluations, regulatory capital levels and certain other factors. An institution’s assessment rate depended upon the category to which it is assigned and certain adjustments specified by FDIC regulations, with less risky institutions paying lower rates. Assessment rates (inclusive of possible adjustments) ranged from 21∕2 to 45 basis points of each institution’s total assets less tangible capital. The FDIC’s current system represents a change, required by the Dodd-Frank Act, from its prior practice of basing the assessment on an institution’s volume of deposits. Effective July 1, 2016, the FDIC adopted changes that eliminated the risk categories. Assessments for most institutions are now based on financial measures and supervisory ratings derived from statistical modeling estimating the probability of failure within three years. In conjunction with the Deposit Insurance Fund reserve ratio achieving 1.15%, the assessment range (inclusive of possible adjustments) was reduced for institutions of less than $10 billion in total assets to 1.5 basis points to 30 basis points, also effective July 1, 2016. The Dodd-Frank Act specifies that banks of greater than $10 billion in assets be required to bear the burden of raising the reserve ratio from 1.15% to 1.35%. Such institutions were subject to an annual surcharge of 4.5 basis points of total assets exceeding $10 billion. On September 30, 2018, the Deposit Insurance Fund Reserve Ratio exceeded 1.35%. As a result (i) banks with total consolidated assets of less than $10 billion will receive assessment credits for the portion of their assessments that contributed to the growth in the reserve ratio from between 1.15% and 1.35%, to be applied when the ratio reserve is at or above 1.38%, and (ii) surcharges on banks with total consolidated assets of $10 billion ended.

The FDIC, exercising discretion provided to it by the Dodd-Frank Act, has established a long-term goal of achieving a 2% reverse ratio for the Deposit Insurance Fund.

The FDIC has authority to increase insurance assessments. A significant increase in insurance premiums would likely have an adverse effect on the operating expenses and results of operations of the Bank. Future insurance assessment rates cannot be predicted.

Insurance of deposits may be terminated by the FDIC upon a finding that the institution has engaged in unsafe or unsound practices, is in an unsafe or unsound condition to continue operations, or has violated any applicable law, regulation, rule order or regulatory condition imposed in writing.

Privacy Regulations. Federal regulations generally require that Eagle Savings Bank disclose its privacy policy, including identifying with whom it shares a customer’s “non-public personal information,” to customers at the time of establishing the customer relationship and annually thereafter. In addition, Eagle Savings Bank is required to provide its customers with the ability to “opt-out” of having their personal information

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shared with unaffiliated third parties and not to disclose account numbers or access codes to non-affiliated third parties for marketing purposes. Eagle Savings Bank currently has a privacy protection policy in place and believes that such policy is in compliance with the regulations.

Community Reinvestment Act. Under the Community Reinvestment Act, or CRA, as implemented by federal regulations, a depository institution has a continuing and affirmative obligation, consistent with its safe and sound operation, to help meet the credit needs of its entire community, including low and moderate income neighborhoods. The CRA does not establish specific lending requirements or programs for depository institutions nor does it limit an institution’s discretion to develop the types of products and services that it believes are best suited to its particular community, consistent with the CRA. The CRA does require the FDIC, in connection with its examination of a state savings association, to assess the institution’s record of meeting the credit needs of its community and to take such record into account in its evaluation of certain applications by the institution, including applications to establish branches and acquire other institutions by merger. The CRA requires a written evaluation of an institution’s CRA performance utilizing a four-tiered descriptive rating system. Eagle Savings Bank’s latest CRA rating was “Satisfactory.”

USA Patriot Act. Eagle Savings Bank is subject to the USA PATRIOT Act, which gives federal agencies additional powers to address terrorist threats through enhanced domestic security measures, expanded surveillance powers, increased information sharing, and broadened anti-money laundering requirements. The USA PATRIOT Act contains provisions intended to encourage information sharing among bank regulatory agencies and law enforcement bodies. Further, certain provisions impose affirmative obligations on a broad range of financial institutions, including banks, thrifts, brokers, dealers, credit unions, money transfer agents, and parties registered under the Commodity Exchange Act.

Other Laws and Regulations

Interest and other charges collected or contracted for by Eagle Savings Bank are subject to state usury laws and federal laws concerning interest rates. Lending operations are also subject to state and federal laws and regulations applicable to credit transactions, such as the:

•

Home Mortgage Disclosure Act of 1975, requiring financial institutions to provide information to enable the public and public officials to determine whether a financial institution is fulfilling its obligation to help meet the housing needs of the community it serves;

•

Equal Credit Opportunity Act, prohibiting discrimination in extending credit on the basis of race, religion, sex, creed or other specified factors;

•

Fair Credit Reporting Act of 1978, governing the use and provision of information to credit reporting agencies; and

•

Truth in Lending Act, establishing customer disclosure requirements with respect to certain loans.

The deposit operations of Eagle Savings Bank are subject to, among others, the:

•

Right to Financial Privacy Act, which imposes a duty to maintain confidentiality of consumer financial records and prescribes procedures for complying with administrative subpoenas of financial records;

•

Check Clearing for the 21st Century Act (also known as “Check 21”), which gives “substitute checks,” such as digital check images and copies made from that image, the same legal standing as the original paper check;

•

Electronic Funds Transfer Act and Regulation E promulgated thereunder, which govern automatic deposits to and withdrawals from deposit accounts and customers’ rights and liabilities arising from the use of automated teller machines and other electronic banking services; and

•

Truth in Savings Act, establishing customer disclosure requirements for certain deposit accounts.

The Dodd-Frank Act transferred regulation-writing authority for federal financial consumer protection laws to the CFPB. However, institutions with under $10.0 billion of total assets, such as Eagle Savings Bank, continue to be examined for compliance with such laws and regulations by their federal bank regulator, which is the FDIC in Eagle Savings Bank’s case.

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Federal Reserve System

The Federal Reserve Board regulations require depository institutions to maintain non-interest-earning reserves against their transaction accounts (primarily NOW and regular checking accounts). For 2020, the Federal Reserve Board regulations generally require that reserves be maintained against aggregate transaction accounts as follows: for that portion of transaction accounts aggregating $127.5 million or less (which may be adjusted by the Federal Reserve Board) the reserve requirement is 3.0%, and for amounts greater than $127.5 million the reserve requirement is 10.0% (which may be adjusted annually by the Federal Reserve Board to between 8.0% and 14.0%). The first $16.9 million of otherwise reservable balances (which may be adjusted annually by the Federal Reserve Board) are exempted from the reserve requirements. Eagle Savings Bank is in compliance with these requirements.

Federal Home Loan Bank System

Eagle Savings Bank is a member of the Federal Home Loan Bank System, which consists of 12 regional Federal Home Loan Banks. The Federal Home Loan Bank provides a central credit facility primarily for member institutions. Members of the Federal Home Loan Bank are required to acquire and hold shares of capital stock in the Federal Home Loan Bank. Eagle Savings Bank was in compliance with this requirement at December 31, 2019.

Holding Company Regulation

Eagle Financial Bancorp, Inc. is a unitary savings and loan holding company subject to regulation and supervision by the Federal Reserve Board. The Federal Reserve Board has enforcement authority over Eagle Financial Bancorp, Inc. and any non-savings institution subsidiaries. Among other things, this authority permits the Federal Reserve Board to restrict or prohibit activities that are determined to be a risk to Eagle Savings Bank.

As a savings and loan holding company, the activities of Eagle Financial Bancorp, Inc. is limited to those activities permitted for financial holding companies (if Eagle Financial Bancorp, Inc. meets the necessary requirements to be a financial holding company and makes the required election) or multiple savings and loan holding companies. A financial holding company may engage in activities that are financial in nature, incidental to a financial activity or complementary to financial activities. Such activities include lending and other activities permitted for bank holding companies, insurance and underwriting equity securities. Multiple savings and loan holding companies are authorized to engage in activities specified by federal regulation, including activities permitted for bank holding companies under Section 4(c)(8) of the Bank Holding Company Act, with appropriate Federal Reserve Board approvals.

Federal law prohibits a savings and loan holding company from, directly or indirectly, or through one or more subsidiaries, acquiring more than 5% of another savings institution or savings and loan holding company without prior written approval of the Federal Reserve Board and from acquiring or retaining control of any depository institution not insured by the FDIC. In evaluating applications by holding companies to acquire savings institutions, the Federal Reserve Board must consider such factors as the financial and managerial resources and future prospects of the company and institution involved, the risk to the federal deposit insurance fund, the convenience and needs of the community and competitive factors. A savings and loan holding company may not acquire a savings institution in another state and hold the target institution as a separate subsidiary unless it is a supervisory acquisition under Section 13(k) of the Federal Deposit Insurance Act or the law of the state in which the target is located authorizes such acquisitions by out-of-state companies.

The Dodd-Frank Act required the Federal Reserve Board to impose upon bank and savings and loan holding companies consolidated regulatory capital requirements that are equally stringent as those applicable to the subsidiary depository institutions. However, legislation enacted in May 2018 required the Federal Reserve Board to raise the asset size threshold of its “small holding company” exception to the applicability of consolidated holding company capital requirements from $ 1 billion to $3 billion. The change became effective in 2018. Consequently, holding companies with less than $3 billion of consolidated assets, such as Eagle Financial Bancorp, Inc., are generally not subject to the requirements unless otherwise advised by the Federal Reserve Board.

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The Dodd-Frank Act codified the “source of strength” doctrine. That longstanding policy of the Federal Reserve Board requires bank holding companies to serve as a source of strength to their subsidiary depository institutions by providing capital, liquidity and other support in times of financial stress.

The Federal Reserve Board has issued a policy statement regarding the payment of dividends and the repurchase of shares of common stock by bank holding companies. In general, the policy provides that dividends should be paid only out of current earnings and only if the prospective rate of earnings retention by the holding company appears consistent with the organization’s capital needs, asset quality and overall financial condition. The policy statement also provides for regulatory consultation and possible objection prior to a holding company paying dividends or redeeming or repurchasing regulatory capital instruments under certain circumstances.

The Federal Deposit Insurance Act makes depository institutions liable to the FDIC for losses suffered or anticipated by the insurance fund in connection with the default of a commonly controlled depository institution or any assistance provided by the FDIC to such an institution in danger of default. That law would have potential applicability if Eagle Financial Bancorp, Inc. ever held as a separate subsidiary a depository institution in addition to Eagle Savings Bank.

Federal Securities Laws

Eagle Financial Bancorp, Inc.’s common stock is registered with the Securities and Exchange Commission under the Securities Exchange Act of 1934, as amended. Eagle Financial Bancorp, Inc. is subject to the information, proxy solicitation, insider trading restrictions and other requirements under the Securities Exchange Act of 1934.

The registration under the Securities Act of 1933 of shares of common stock issued in the stock offering does not cover the resale of those shares. Shares of common stock purchased by persons who are not our affiliates may be resold without registration. Shares purchased by our affiliates are subject to the resale restrictions of Rule 144 under the Securities Act of 1933. If we meet the current public information requirements of Rule 144 under the Securities Act of 1933, each affiliate of ours that complies with the other conditions of Rule 144, including those that require the affiliate’s sale to be aggregated with those of other persons, would be able to sell in the public market, without registration, a number of shares not to exceed, in any three-month period, the greater of 1% of our outstanding shares, or the average weekly volume of trading in the shares during the preceding four calendar weeks. In the future, we may permit affiliates to have their shares registered for sale under the Securities Act of 1933.

Emerging Growth Company Status

On April 5, 2012, the JOBS Act was signed into law. The JOBS Act made numerous changes to the federal securities laws to facilitate access to capital markets. Under the JOBS Act, a company with total annual gross revenues of less than $1.07 billion during its most recently completed fiscal year qualifies as an “emerging growth company.” We qualify as an “emerging growth company” and believe that we will continue to qualify as an “emerging growth company” for five years from the completion of our initial public offering on July 20, 2018.

Subject to certain conditions set forth in the JOBS Act, as an “emerging growth company” we are not required to, among other things, (i) provide an auditor’s attestation report on our system of internal controls over financial reporting, (ii) provide all of the compensation disclosure that may be required of non-emerging growth public companies under the Dodd-Frank Act, (iii) hold non-binding stockholder votes regarding annual executive compensation or executive compensation payable in connection with a merger or similar corporate transaction, (iv) comply with any requirement that may be adopted by the Public Company Accounting Oversight Board regarding mandatory audit firm rotation or a supplement to the auditor’s report providing additional information about the audit and the financial statements (auditor discussion and analysis), and (v) disclose certain executive compensation related items such as the correlation between executive compensation and performance and comparisons of the chief executive officer’s compensation to median employee compensation. These exemptions will apply for a period of five years following the completion of our initial public offering or until we are no longer an “emerging growth company,” whichever is earlier. However, we will not be subject to the auditor attestation requirement or

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additional executive compensation disclosure, regardless of the exemptions, so long as we remain a “smaller reporting company” under Securities and Exchange Commission regulations (generally less than $75 million of voting and non-voting equity held by non-affiliates).

We could remain an “emerging growth company” for up to five years, or until the earliest of (a) the last day of the first fiscal year in which our annual gross revenues exceed $1.07 billion, (b) the date that we become a “large accelerated filer” as defined in Rule 12b-2 under the Securities Exchange Act of 1934, as amended, which would occur if the market value of our common stock that is held by non-affiliates exceeds $700 million as of the last business day of our most recently completed second fiscal quarter, or (c) the date on which we have issued more than $1.0 billion in non-convertible debt during the preceding three-year period.

Sarbanes-Oxley Act of 2002

The Sarbanes-Oxley Act of 2002 is intended to improve corporate responsibility, to provide for enhanced penalties for accounting and auditing improprieties at publicly traded companies and to protect investors by improving the accuracy and reliability of corporate disclosures pursuant to the securities laws. We have policies, procedures and systems designed to comply with these regulations, and we review and document such policies, procedures and systems to ensure continued compliance with these regulations.

Change in Control Regulations

Under the Change in Bank Control Act, no person may acquire control of a savings and loan holding company, such as Eagle Financial Bancorp, Inc. unless the Federal Reserve Board has been given 60 days prior written notice and has not issued a notice disapproving the proposed acquisition, taking into consideration certain factors, including the financial and managerial resources of the acquirer and the competitive effects of the acquisition. Control, as defined under federal law, means ownership, control of or holding irrevocable proxies representing more than 25% of any class of voting stock, control in any manner of the election of a majority of the institution’s directors, or a determination by the regulator that the acquirer has the power, directly or indirectly, to exercise a controlling influence over the management or policies of the institution. Acquisition of more than 10% of any class of a savings and loan holding company’s voting stock constitutes a rebuttable determination of control under the regulations under certain circumstances including where, as is the case with Eagle Financial Bancorp, Inc., the issuer has registered securities under Section 12 of the Securities Exchange Act of 1934.

The approval of the ODFI is also necessary for acquisitions of control of Ohio savings associations.

In addition, federal law provides that no company may acquire control of a savings and loan holding company without the prior approval of the Federal Reserve Board. Any company that acquires such control becomes a “savings and loan holding company” subject to registration, examination and regulation by the Federal Reserve Board.

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TAXATION

Federal Taxation

General. Eagle Financial Bancorp, Inc. and Eagle Savings Bank are subject to federal income taxation in the same general manner as other corporations, with some exceptions discussed below. The following discussion of federal taxation is intended only to summarize material federal income tax matters and is not a comprehensive description of the tax rules applicable to Eagle Financial Bancorp, Inc. and Eagle Savings Bank.

Method of Accounting. For federal income tax purposes, Eagle Savings Bank currently reports its income and expenses on the accrual method of accounting and uses a tax year ending December 31th for filing its federal income tax returns. Eagle Financial Bancorp, Inc. and Eagle Savings Bank will file a consolidated federal income tax return. Eagle Savings Bank is not currently under audit with respect to its federal income tax return. The Small Business Protection Act of 1996 eliminated the use of the percentage of taxable income method of accounting for income taxes on bad debt reserves by savings institutions, effective for taxable years beginning after 1995.

Net Operating Loss Carryovers. Generally, a financial institution may carry a net operating loss forward indefinitely for losses generated in taxable years ending after December 31, 2017. Eagle Savings Bank had no federal net operating loss carryforwards at December 31, 2019.

Capital Loss Carryovers. A corporation cannot recognize capital losses in excess of capital gains generated. Generally, a financial institution may carry back capital losses to the preceding three taxable years and forward to the succeeding five taxable years. Any capital loss carryback or carryover is treated as a short-term capital loss for the year to which it is carried. As such, it is grouped with any other capital losses for the year to which carried and is used to offset any capital gains. Any undeducted loss remaining after the five year carryover period is not deductible. At December 31, 2019, Eagle Savings Bank had no capital loss carryovers.

Corporate Dividends. We may generally exclude from our income 100% of dividends received from Eagle Savings Bank as a member of the same affiliated group of corporations.

State Taxation

Eagle Financial Bancorp, Inc. and Eagle Savings Bank are subject to Ohio taxation in the same general manner as other financial institutions. In particular, Eagle Financial Bancorp, Inc. and Eagle Savings Bank file a consolidated Ohio Financial Institutions Tax (FIT) return. The FIT is based upon the net worth of the consolidated group. For Ohio FIT purposes, savings institutions are currently taxed at a rate equal to 0.8% of taxable net worth. Eagle Savings Bank is not currently under audit with respect to its Ohio FIT returns.

As a Maryland business corporation, Eagle Financial Bancorp, Inc. is required to file an annual personal property tax return with the State of Maryland. Eagle Savings Bank’s state income tax returns have not been audited in recent years.

ITEM 1A.

Risk Factors

Our business strategy includes significant growth of our assets and liabilities, including increasing and diversifying our lending operations, which will increase our fixed expenses. Our financial condition and results of operations could be negatively affected if we fail to grow or fail to manage our growth effectively.

Our strategic plan contemplates significant growth in assets and liabilities over the next several years. Specifically, we intend to increase our commercial real estate loans, commercial business loans, construction loans and home equity loans and lines of credit, while attracting favorably priced deposits to fund our increased lending. In addition, we intend to significantly grow our mortgage banking operations. We have incurred, and will continue to incur, additional expenses due to the implementation of our strategic plan, including salaries and occupancy expense related to new lending officers and related support staff. Many of these increased expenses are considered fixed expenses. Unless we can successfully implement our strategic plan, our financial condition and results of operations will be negatively affected by increased costs.

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The successful implementation of our strategic plan will require, among other things, that we increase our market share by attracting both new borrowers and new deposit customers that currently bank at other financial institutions in our market area. In addition, our ability to successfully grow will depend on several factors, including continued favorable market conditions, the competitive responses from other financial institutions in our market area, and our ability to maintain high asset quality as we increase our commercial real estate loans, commercial business loans, construction loans and home equity loans and lines of credit. While we believe we have the management resources and internal systems in place to successfully manage our future growth, growth opportunities may not be available and we may not be successful in implementing our business strategy. Further, our new strategic plan, even if successfully implemented, may not ultimately produce positive results.

An increase in interest rates or a change in market conditions could reduce our mortgage banking revenues, which would negatively impact our non-interest income.

We sell residential mortgage loans in the secondary market, which provides a significant portion of our non-interest income. We generate mortgage revenues primarily from gains on the sale of mortgage loans to investors on a servicing-released basis. We also earn interest on loans held for sale while they are awaiting delivery to our investors. For the year ended December 31, 2019, income from loan sales equaled $2.4 million, which made up approximately 86.0% of our non-interest income and 29.2% of our revenue. We intend to increase our mortgage banking operations, including adding up to six additional commission-based mortgage lenders. In a rising or higher interest rate environment, our originations of mortgage loans may continue to decrease, resulting in fewer loans that are available to be sold to investors. This would result in a decrease in mortgage banking revenues. In addition, our results of operations are affected by the amount of non-interest expenses associated with mortgage banking activities, such as salaries and employee benefits, occupancy, equipment and data processing expense and other operating costs. During periods of reduced loan demand, our results of operations may be adversely affected to the extent that we are unable to reduce expenses commensurate with the decline in mortgage loan origination activity.

If there are higher than expected losses on loans that we have previously sold, or if we are forced to repurchase such loans, it would negatively affect our earnings.

One of our primary business operations is our mortgage banking, which involves originating residential mortgage loans for sale in the secondary market, primarily to the FHLB-Cincinnati through the Mortgage Purchase Program (“MPP”). Under the terms of the MPP, we are required to maintain a Lender Risk Account (“LRA”). The LRA consists of amounts withheld from the loan sale proceeds by the FHLB-Cincinnati for absorbing inherent losses that are probable on the loans we sell. These withheld funds are an asset to the Company as they are scheduled to be paid to the Company in future years, net of any credit losses on the loans sold. If there are higher than estimated losses on the loans we have sold to the FHLB-Cincinnati through the MPP, the amount of the LRA would be reduced through a charge to earnings, which would reduce our earnings and capital.

Our business may be adversely affected by credit risk associated with residential property.

At December 31, 2019, $65.4 million, or 57.1%, of our total loan portfolio was secured by one- to four-family real estate. One- to four-family residential mortgage lending is generally sensitive to regional and local economic conditions that significantly impact the ability of borrowers to meet their loan payment obligations, making loss levels difficult to predict. A decline in current residential real estate values could reduce the value of the real estate collateral securing these types of loans. As a result, we have increased risk that we could incur losses if borrowers default on their loans because we may be unable to recover all or part of the defaulted loans by selling the real estate collateral. In addition, if borrowers sell their homes, they

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may be unable to repay their loans in full from the sale proceeds. For these reasons, we may experience higher rates of delinquencies, defaults and losses on our residential mortgage loans.

We have a high concentration of loans secured by real estate in our market area, which makes our business highly susceptible to downturns in the local economy and could adversely affect our financial condition and results of operations.

Unlike larger financial institutions that are more geographically diversified, we are a community banking franchise located in Cincinnati, Ohio. At December 31, 2019, a substantial amount of our mortgage loans were secured by real estate located in Hamilton County, Ohio and, to a lesser extent, the adjoining counties in Ohio, Kentucky and Indiana. As a result, we have a greater risk of loan defaults and losses in the event of economic weakness in this area, which may have a negative effect on the ability of our borrowers to timely repay their loans. A deterioration in economic conditions in the market area we serve could result in, among other things: (i) an increase in loan delinquencies, problem assets and foreclosures; (ii) a decrease in the demand for loans by creditworthy borrowers; and (iii) a decline in the value of the collateral securing our loans. Consequently, a deterioration in economic conditions in the local economy could have a material adverse effect on our business, financial condition and results of operations.

A portion of our one- to four-family residential mortgage loans is comprised of non-owner occupied properties which increases the credit risk on this portion of our loan portfolio.

At December 31, 2019, of the $65.4 million of one- to four-family residential mortgage loans in our portfolio, $5.5 million, or 8.4% of this amount, was comprised of non-owner occupied properties. We do not make such loans anymore. Our non-owner occupied residential loans are secured primarily by single family properties, and to a much lesser extent, by two- to four-unit properties. We believe that there is a greater credit risk inherent in investor-owner and non-owner occupied properties than in owner occupied single family properties since, similar to commercial real estate and multi-family loans, the repayment of these loans may depend, in part, on the successful management of the property and/or the borrower’s ability to lease the units of the property. In addition, the physical condition of non-owner occupied properties is often below that of owner occupied properties due to lax property maintenance standards, which has a negative impact on the value of the collateral properties. Furthermore, some of our non-owner occupied borrowers may have more than one loan outstanding with us, which may expose us to a greater risk of loss compared to residential and commercial borrowers with only one loan. A downturn in the real estate market or the local economy could adversely affect the value of properties securing these loans or the revenues derived from these properties which could affect the borrower’s ability to repay the loan. At December 31, 2019, one of our non-owner occupied one- to four-family loans was delinquent 30 days or more.

Commercial real estate and land loans and commercial business loans generally carry greater credit risk than loans secured by owner occupied one- to four-family real estate, and these risks will increase if we succeed in our plan to increase this type of lending.

Given the larger balances and/or the higher complexity of the underlying collateral, commercial real estate and land loans and commercial business loans generally expose a lender to greater credit risk than loans secured by owner occupied one- to four-family real estate. Also, many of our borrowers have more than one of these types of loans outstanding. Consequently, an adverse development with respect to one loan or one credit relationship can expose us to significantly greater risk of loss compared to an adverse development with respect to a one- to four-family residential real estate loan. Commercial real estate and land loans and commercial business loans have greater credit risk than one- to four-family residential real estate loans because repayment is generally dependent on income generated in amounts sufficient to cover operating expenses and debt service. If the associated business deteriorates or does not generate sufficient business for the borrower to make required payments, we may not collect the outstanding loan amount owed to us.

A key component of our strategy is to increase our origination of commercial business loans and commercial real estate and land loans to diversify our loan portfolio and increase our returns or yields on our loan portfolio. This increase will significantly increase our exposure to the risks inherent in these types of loans.

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We intend to grow our portfolio of home equity loans and lines of credit, which will increase our credit risk.

As part of our strategic business plan, we intend to increase our home equity lines of credit. At December 31, 2019 home equity loans and lines of credit totaled $9.7 million, or 8.5%, of our total loans. Most of our home equity loans and lines of credit are secured by real estate in Hamilton County, Ohio and contiguous counties. We generally originate home equity lines of credit with loan-to-value ratios of up to 90% when combined with the principal balance of the existing first mortgage loan. Declines in real estate values in our market area could cause some of our home equity loans to be inadequately collateralized, which would expose us to a greater risk of loss in the event that we seek to recover on defaulted loans by selling the real estate collateral.

We make construction loans which are considered to have greater credit risk than other types of residential loans made by financial institutions.

We originate construction loans for one- to four-family residential properties and, to a lesser extent, commercial properties. We intend to increase the amount of such loans that we originate. While we believe we have established adequate allowances in our financial statements to cover the credit risk of our construction loan portfolio, there can be no assurance that losses will not exceed our allowances, which could adversely impact our future earnings.

If our allowance for loan losses is not sufficient to cover actual loan losses, our earnings and capital could decrease.

Lending is inherently risky and we are exposed to the risk that our borrowers may default on their obligations. A borrower’s default on a loan may result in lost principal and interest income and increased operating expenses as a result of the allocation of management’s time and resources to the collection and work-out of the loan. In certain situations, where collection efforts are unsuccessful or acceptable work-out arrangements cannot be reached, we may have to charge-off the loan in whole or in part. In such situations, we may acquire real estate or other assets, if any, that secure the loan through foreclosure or other similar available remedies, and the amount owed under the defaulted loan may exceed the value of the assets acquired.

At December 31, 2019, our allowance for loan losses as a percentage of total loans was 1.02%. We make various assumptions and judgments about the collectability of our loan portfolio, including the creditworthiness of our borrowers and the value of the real estate and other assets serving as collateral for many of our loans. In determining the amount of the allowance for loan losses, we review our loans and our loss and delinquency experience, and we evaluate other factors including, among other things, current economic conditions. If our assumptions are incorrect, or if delinquencies or non-performing loans increase, our allowance for loan losses may not be sufficient to cover probable losses inherent in our loan portfolio, which would require additions to our allowance and thereby decrease our net income.

In addition, bank regulators periodically review our allowance for loan losses and, based on their judgments and information available to them at the time of their review, may require us to increase our allowance for loan losses or recognize further loan charge-offs. An increase in our allowance for loan losses or loan charge-offs as required by these regulatory authorities may reduce our net income and our capital, which may have a material adverse effect on our financial condition and results of operations.

Future changes in market interest rates may reduce our profits.

Our profitability, like that of most financial institutions, depends to a large extent on our net interest income, which is the difference between the interest income we earn on our interest-earning assets, such as loans and securities, and our interest expense on interest-bearing liabilities, such as deposits and borrowed funds. Accordingly, our results of operations depend largely on movements in market interest rates and our ability to manage our interest-rate-sensitive assets and liabilities in response to these movements. Factors such as inflation, recession and instability in financial markets, among other factors beyond our control, may affect interest rates.

If interest rates rise, and if rates on our deposits reprice upwards faster than the rates on our long-term loans and investments, we would experience compression of our interest rate spread, which would have a

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negative effect on our net interest income and profitability. Furthermore, increases in interest rates may adversely affect the ability of our borrowers to make loan repayments on adjustable-rate loans, as the interest owed on such loans would increase as interest rates increase. Conversely, decreases in interest rates can result in increased prepayments of loans and mortgage-related securities, as borrowers refinance to reduce their borrowing costs. Under these circumstances, we are subject to reinvestment risk as we may have to redeploy such loan or securities proceeds into lower-yielding assets, which would also negatively impact our interest income.

Any substantial, unexpected, prolonged change in market interest rates could have a material adverse effect on our financial condition, liquidity and results of operations. Changes in the level of interest rates also may negatively affect our ability to originate loans, the value of our assets and our ability to realize gains from the sale of our assets, all of which ultimately affect our earnings.

At December 31, 2019, our “rate shock” analysis indicates that our net portfolio value would decrease by $4.7 million, or 11.3%, if there were an instantaneous 200 basis point increase in market interest rates. However, our interest rate risk modeling techniques and assumptions likely may not fully predict or capture the impact of actual interest rate changes on our balance sheet or projected operating results.

If our non-performing assets increase, our earnings will be adversely affected.

At December 31, 2019, our non-performing assets, which consist of non-performing loans and other real estate owned, were $1.1 million, or 0.80% of total assets. Our non-performing assets adversely affect our net income in various ways:

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we record interest income only on the cash basis or cost-recovery method for non-accrual loans and we do not record interest income for other real estate owned;

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we must provide for probable loan losses through a current period charge to the provision for loan losses;

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non-interest expense increases when we write down the value of properties in our other real estate owned portfolio to reflect changing market values;

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there are legal fees associated with the resolution of problem assets, as well as carrying costs, such as taxes, insurance, and maintenance fees; and

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the resolution of non-performing assets requires the active involvement of management, which can distract them from more profitable activity.

In addition, the funds that are invested in non-performing assets cannot be reinvested in other assets until the non-performing assets are resolved. If additional borrowers become delinquent and do not pay their loans and we are unable to successfully manage our non-performing assets, our losses and troubled assets could increase significantly, which would have a material adverse effect on our financial condition and results of operations.

Our small size makes it more difficult for us to compete.

Our small asset size makes it more difficult to compete with other financial institutions which are generally larger and can more easily afford to invest in the marketing and technologies needed to attract and retain customers. Because one of our primary sources of income is the net interest income we earn on our loans and investments, less the interest we pay on deposits and other sources of funds, our ability to generate the revenues needed to cover our expenses and finance such investments is limited by the size of our loan and investment portfolios. Accordingly, we are not always able to offer new products and services as quickly as our competitors. Our lower earnings also make it more difficult to offer competitive salaries and benefits. In addition, our smaller customer base makes it difficult to generate meaningful non-interest income. Finally, as a smaller institution, we are disproportionately affected by the ongoing increased costs of compliance with banking and other regulations.

Strong competition within our market area may limit our growth and profitability.

Competition in the banking and financial services industry is intense. In our market area, we compete with commercial banks, savings institutions, mortgage brokerage firms, credit unions, finance companies,

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mutual funds, insurance companies, and brokerage and investment banking firms operating locally and elsewhere. Some of our competitors have greater name recognition and market presence that benefit them in attracting business, and offer certain services that we do not or cannot provide. In addition, larger competitors may be able to price loans and deposits more aggressively than we can, which could affect our ability to grow and remain profitable on a long-term basis. Our profitability depends upon our continued ability to successfully compete in our market area. If competition causes us to raise interest rates paid on deposits or lower interest rates charged on our loans, our net interest margin and profitability could be adversely affected.

The financial services industry could become even more competitive as a result of new legislative, regulatory and technological changes and continued industry consolidation. Banks, securities firms and insurance companies can merge under the umbrella of a financial holding company, which can offer virtually any type of financial service, including banking, securities underwriting, insurance (both agency and underwriting) and merchant banking. Also, technology has lowered barriers to entry and made it possible for non-banks to offer products and services traditionally provided by banks, such as automatic transfer and automatic payment systems. Many of our competitors have fewer regulatory constraints and may have lower cost structures than we do. Additionally, due to their size, many competitors may be able to achieve economies of scale and, as a result, may offer a broader range of products and services than we can as well as better pricing for those products and services.

Changes in laws and regulations and the cost of regulatory compliance with new laws and regulations may adversely affect our operations and/or increase our costs of operations.

Eagle Savings Bank is subject to extensive regulation, supervision and examination by the ODFI and the FDIC, and Eagle Financial Bancorp, Inc. will be subject to extensive regulation, supervision and examination by the Federal Reserve Board. Such regulation and supervision governs the activities in which an institution and its holding company may engage and are intended primarily for the protection of the federal deposit insurance fund and the depositors and borrowers of the bank, rather than for stockholders. Regulatory authorities have extensive discretion in their supervisory and enforcement activities, including the imposition of restrictions on our operations, the classification of our assets and determination of the level of our allowance for loan losses. These regulations, along with existing tax, accounting, securities, insurance and monetary laws, rules, standards, policies, and interpretations, control the methods by which financial institutions conduct business, implement strategic initiatives and tax compliance, and govern financial reporting and disclosures. Any change in such regulation and oversight, whether in the form of regulatory policy, regulations, legislation or supervisory action, may have a material impact on our operations. Further, changes in accounting standards can be both difficult to predict and involve judgment and discretion in their interpretation by us and our independent accounting firms. These changes could materially impact, potentially even retroactively, how we report our financial condition and results of operations.

The Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”) has significantly changed the regulation of banks and savings institutions and affects the lending, deposit, investment, trading and operating activities of financial institutions and their holding companies. The Dodd-Frank Act requires various federal agencies to adopt a broad range of new implementing rules and regulations, and to prepare numerous studies and reports for Congress. The federal agencies have been given significant discretion in drafting the implementing rules and regulations, many of which are not in final form. As a result, we cannot at this time predict the full extent to which the Dodd-Frank Act will impact our business, operations or financial condition. However, compliance with the Dodd-Frank Act and its implementing regulations and policies has already resulted in changes to our business and operations, as well as additional costs, and has diverted management’s time from other business activities, all of which have adversely affected our financial condition and results of operations.

Cyber-attacks or other security breaches could adversely affect our operations, net income or reputation.

We regularly collect, compile, process, transmit and store significant amounts of confidential information regarding our customers, employees and others and concerning our business, operations, plans and strategies. In some cases, this confidential or proprietary information is collected, compiled, processed, transmitted or stored by third parties on our behalf.

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Information security risks have generally increased in recent years because of the proliferation of new technologies, the use of the Internet and telecommunications technologies to conduct financial and other transactions and the increased sophistication and activities of perpetrators of cyber-attacks and mobile phishing. Mobile phishing, a means for identity thieves to obtain sensitive personal information through fraudulent e-mail, text or voice mail, is an emerging threat targeting the customers of popular financial entities. A failure in or breach of our operational or information security systems, or those of our third-party service providers, as a result of cyber-attacks or information security breaches or due to employee error, malfeasance or other disruptions, could adversely affect our business, result in the disclosure or misuse of confidential or proprietary information, damage our reputation, increase our operating costs or cause losses.

If this confidential or proprietary information were to be mishandled, misused or lost, we could be exposed to significant regulatory consequences, reputational damage, civil litigation and financial loss.

Physical, procedural and technological safeguards designed to protect confidential and proprietary information from mishandling, misuse or loss, do not provide absolute assurance that mishandling, misuse or loss of information will not occur, and if mishandling, misuse or loss of information does occur, that those events will be promptly detected and addressed. Similarly, when confidential or proprietary information is collected, compiled, processed, transmitted or stored by third parties on our behalf, our policies and procedures require that the third party agree to maintain the confidentiality of the information, establish and maintain policies and procedures designed to preserve the confidentiality of the information, and permit us to confirm the third party’s compliance with the terms of the agreement. As information security risks and cyber threats continue to evolve, we may be required to expend additional resources to continue to enhance our information security measures and/or to investigate and remediate any information security vulnerabilities.

Risks associated with system failures, interruptions, or breaches of security could negatively affect our earnings.

Information technology systems are critical to our business. We use various technology systems to manage our customer relationships, general ledger, securities, deposits, and loans. We have established policies and procedures to prevent or limit the impact of system failures, interruptions, and security breaches, but such events may still occur and may not be adequately addressed if they do occur. In addition, any compromise of our systems could deter customers from using our products and services. Although we rely on security systems to provide the security and authentication necessary to effect the secure transmission of data, these precautions may not protect our systems from compromises or breaches of security.

In addition, we outsource the majority of our data processing to third-party providers. If these third-party providers encounter difficulties, or if we have difficulty communicating with them, our ability to adequately process and account for transactions could be affected, and our business operations could be adversely affected. Threats to information security also exist in the processing of customer information through various other vendors and their personnel.

The occurrence of any system failures, interruptions, or breaches of security could damage our reputation and result in a loss of customers and business, subject us to additional regulatory scrutiny or expose us to litigation and possible financial liability. Any of these events could have a material adverse effect on our financial condition and results of operations.

We rely on our senior management to implement our business strategy and execute successful operations. We have recently added to our management team and could be harmed by the failure to successfully integrate the new members of our management team or by the loss of any of our senior management.

We depend upon the services of the members of our senior management team to implement our business strategy and execute our operations. Our management team is comprised of experienced executives, with our top four executives possessing an average of 25 years of financial institution experience. Members of our senior management team and lending personnel who have expertise and key business relationships in our markets could be difficult to replace. In addition, some of the members of our senior management team have been recently added. The loss of members of our management team, the failure to successfully integrate the new members of our management team, or our inability to hire additional qualified personnel,

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could impact our ability to implement our business strategy and could have a material adverse effect on our results of operations and our ability to compete.

The cost of additional finance and accounting systems, procedures and controls in order to satisfy our new public company reporting requirements will increase our expenses.

As a result of the completion of our offering, we will become a public reporting company. We expect that the obligations of being a public company, including the substantial public reporting obligations, will require significant expenditures and place additional demands on our management team. We have made, and will continue to make, changes to our internal controls and procedures for financial reporting and accounting systems to meet our reporting obligations as a public company. However, the measures we take may not be sufficient to satisfy our obligations as a public company. Section 404 of the Sarbanes-Oxley Act of 2002 (the “Sarbanes Oxley Act”) requires annual management assessments of the effectiveness of our internal control over financial reporting, starting with the second annual report that we would expect to file with the SEC. Any failure to achieve and maintain an effective internal control environment could have a material adverse effect on our business and stock price. In addition, we may need to hire additional compliance, accounting and financial staff with appropriate public company experience and technical knowledge, and we may not be able to do so in a timely fashion. As a result, we may need to rely on outside consultants to provide these services for us until qualified personnel are hired. These obligations will increase our operating expenses and could divert our management’s attention from our operations.

We are subject to stringent capital requirements, which may adversely impact our return on equity, require us to raise additional capital, or limit our ability to pay dividends or repurchase shares.

The federal banking agencies have adopted a final rule implementing the regulatory capital reforms from the Basel Committee on Banking Supervision (“Basel III”) and changes required by the Dodd-Frank Act. The final rule includes new minimum risk-based capital and leverage ratios, which were effective for us on January 1, 2015, and refines the definition of what constitutes “capital” for calculating these ratios.

The new minimum capital requirements are: (i) a new common equity Tier 1 capital ratio of 4.5%; (ii) a Tier 1 to risk-based assets capital ratio of 6% (increased from 4%); (iii) a total capital ratio of 8% (unchanged from prior rules); and (iv) a Tier 1 leverage ratio of 4%. The final rule also requires unrealized gains and losses on certain “available-for-sale” securities holdings to be included for calculating regulatory capital requirements unless a one-time opt-out is exercised. Eagle Savings Bank has elected to opt out of the requirement under the final rule to include certain “available-for-sale” securities holdings for calculating its regulatory capital requirements. The final rule also establishes a “capital conservation buffer” of 2.5%, and, when fully phased in, will result in the following minimum ratios: (i) a common equity Tier 1 capital ratio of 7.0%; (ii) a Tier 1 to risk-based assets capital ratio of 8.5%; and (iii) a total capital ratio of 10.5%. The new capital conservation buffer requirement began being phased in beginning in January 2016 at 0.625% of risk-weighted assets and increased each year until full implementation in January 2019. An institution will be subject to limitations on paying dividends, engaging in share repurchases and paying discretionary bonuses if its capital level falls below the buffer amount. These limitations will establish a maximum percentage of eligible retained income that can be utilized for such actions.

The application of more stringent capital requirements likely will result in lower returns on equity, and could require raising additional capital in the future, or result in regulatory actions if we are unable to comply with such requirements. Furthermore, the imposition of liquidity requirements in connection with the implementation of Basel III could result in our having to lengthen the term of our funding, change our business models, and/or increase our holdings of liquid assets. The implementation of changes to asset risk weightings for risk-based capital calculations, items included or deducted in calculating regulatory capital and/or additional capital conservation buffers could result in management modifying its business strategy, and could limit our ability to make distributions, including paying dividends or repurchasing our shares.

Non-compliance with the USA PATRIOT Act, Bank Secrecy Act, or other laws and regulations could result in fines or sanctions.

The USA PATRIOT and Bank Secrecy Act require financial institutions to develop programs to prevent financial institutions from being used for money laundering and terrorist activities. If such activities

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are detected, financial institutions are obligated to file suspicious activity reports with the U.S. Treasury’s Office of Financial Crimes Enforcement Network. These rules require financial institutions to establish procedures for identifying and verifying the identity of customers seeking to open new financial accounts. Failure to comply with these regulations could result in fines or sanctions, including restrictions on conducting acquisitions or establishing new branches. During the last year, several banking institutions have received large fines for non-compliance with these laws and regulations. The policies and procedures we have adopted that are designed to assist in compliance with these laws and regulations may not be effective in preventing violations of these laws and regulations.

We are a community bank and our ability to maintain our reputation is critical to the success of our business and the failure to do so may materially adversely affect our performance.

We are a community bank and our reputation is one of the most valuable assets of our business. A key component of our business strategy is to rely on our reputation for customer service and knowledge of local markets to expand our presence by capturing new business opportunities from existing and prospective customers in our market area and contiguous areas. As such, we strive to conduct our business in a manner that enhances our reputation. This is done, in part, by recruiting, hiring and retaining employees who share our core values of being an integral part of the communities we serve, delivering superior service to our customers and caring about our customers. If our reputation is negatively affected by the actions of our employees, by our inability to conduct our operations in a manner that is appealing to current or prospective customers, or otherwise, our business and operating results may be materially adversely affected.

A new accounting standard will likely require us to increase our allowance for loan losses and may have a material adverse effect on our financial condition and results of operations.

The Financial Accounting Standards Board has adopted a new accounting standard that will be effective for Eagle Financial Bancorp, Inc. and Eagle Savings Bank for fiscal year 2023. This standard, referred to as Current Expected Credit Loss, or CECL, will require financial institutions to determine periodic estimates of lifetime expected credit losses on loans, and recognize the expected credit losses as allowances for loan losses. This will change the current method of providing allowances for loan losses that are probable, which would likely require us to increase our allowance for loan losses, and to greatly increase the types of data we would need to collect and review to determine the appropriate level of the allowance for loan losses. Any increase in our allowance for loan losses or expenses incurred to determine the appropriate level of the allowance for loan losses may have a material adverse effect on our financial condition and results of operations.

If our risk management framework does not effectively identify or mitigate our risks, we could suffer losses.

Our risk management framework seeks to mitigate risk and appropriately balance risk and return. We have established processes and procedures intended to identify, measure, monitor and report the types of risk to which we are subject, including credit risk, operations risk, compliance risk, reputation risk, strategic risk, market risk and liquidity risk. We seek to monitor and control our risk exposure through a framework of policies, procedures and reporting requirements. Management of our risks in some cases depends upon the use of analytical and/or forecasting models. If the models used to mitigate these risks are inadequate, we may incur losses. In addition, there may be risks that exist, or that develop in the future, that we have not appropriately anticipated, identified or mitigated. If our risk management framework does not effectively identify or mitigate our risks, we could suffer unexpected losses and could be materially adversely affected.

We are subject to environmental liability risk associated with lending activities.

A significant portion of our loan portfolio is secured by real estate, and we could become subject to environmental liabilities with respect to one or more of these properties. During the ordinary course of business, we may foreclose on and take title to properties securing defaulted loans. In doing so, there is a risk that hazardous or toxic substances could be found on these properties. If hazardous conditions or toxic substances are found on these properties, we may be liable for remediation costs, as well as for personal injury and property damage, civil fines and criminal penalties, regardless of when the hazardous conditions or toxic substances first affected any particular property. Environmental laws may require us to incur

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substantial expenses to address unknown liabilities and may materially reduce the affected property’s value or limit our ability to use or sell the affected property. In addition, future laws or more stringent interpretations or enforcement policies with respect to existing laws may increase our exposure to environmental liability. Our loan foreclosure policy, which requires us to perform an environmental review before initiating any foreclosure action on non-residential real property, may not be sufficient to detect all potential environmental hazards. The remediation costs and any other financial liabilities associated with an environmental hazard could have a material adverse effect on us.

If our real estate owned is not properly valued our earnings could be reduced.

We obtain updated valuations when a loan has been foreclosed and the property taken in as real estate owned and at certain other times during the holding period of the asset. Our net book value (“NBV”) in the loan at the time of foreclosure and thereafter is compared to the updated fair value of the foreclosed property less estimated selling costs (fair value). A charge-off is recorded for any excess in the asset’s NBV over its fair value less estimated selling costs. If our valuation process is incorrect, or if property values decline, the fair value of our real estate owned may not be sufficient to recover our carrying value in such assets, resulting in the need for additional charge-offs. Significant charge-offs to our real estate owned could have a material adverse effect on our financial condition and results of operations. In addition, bank regulators periodically review our real estate owned and may require us to recognize further charge-offs. Any increase in our charge-offs may have a material adverse effect on our financial condition and results of operations.

Liquidity risk could impair our ability to fund operations and jeopardize our financial condition, growth and prospects.

Liquidity is essential to our business. An inability to raise funds through deposits, borrowings, the sale of loans and other sources could have a substantial negative effect on our liquidity. We rely on customer deposits and advances from the FHLB-Cincinnati and other borrowings to fund our operations. At December 31, 2019, we had no FHLB-Cincinnati advances outstanding with an additional $48.8 million of available borrowing capacity. Although we have historically been able to replace maturing deposits and advances if desired, we may not be able to replace such funds in the future if, among other things, our financial condition, the financial condition of the FHLB-Cincinnati, or market conditions change. Our access to funding sources in amounts adequate to finance our activities or the terms of which are acceptable could be impaired by factors that affect us specifically or the financial services industry or economy in general. Factors that could detrimentally impact our access to liquidity sources include a decrease in the level of our business activity as a result of a downturn in the markets where our loans are concentrated, or adverse regulatory action against us. Our ability to borrow could also be impaired by factors that are not specific to us, such as a disruption in the financial markets or negative views and expectations about the prospects for the financial services industry in light of the recent turmoil faced by banking organizations and the continued deterioration in credit markets.

Our financial flexibility will be severely constrained if we are unable to maintain our access to funding or if adequate financing is not available to accommodate future growth at acceptable interest rates. Although we consider our sources of funds adequate for our liquidity needs, we may seek additional debt in the future to achieve our long-term business objectives. Additional borrowings, if sought, may not be available to us or, if available, may not be available on reasonable terms. If additional financing sources are unavailable, or are not available on reasonable terms, our financial condition, results of operations, growth and future prospects could be materially adversely affected. Finally, if we are required to rely more heavily on more expensive funding sources to support future growth, our revenues may not increase proportionately to cover our costs. In this case, our operating margins and profitability would be adversely affected.

The trading market in our common stock is limited, which could hinder your ability to sell our common stock. In addition, we have recently delisted our common stock from the Nasdaq Capital Market, which could decrease your ability to sell our common stock.

The development of an active trading market depends on the existence of willing buyers and sellers, the presence of which is not within our control, or that of any market maker. The number of active buyers and sellers of the shares of our common stock at any particular time may be limited. Under such

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circumstances, you could have difficulty selling your shares of common stock on short notice, and, therefore, you should not view the shares of common stock as a short-term investment. In addition, we have recently voluntarily delisted our common stock from the Nasdaq Stock Market, which could further decrease market liquidity and your ability to sell your shares.

ITEM 1B.

Unresolved Staff Comments

Not applicable.

ITEM 2.

Properties

At December 31, 2019, the net book value of our properties was $3.7 million, and the net book value of our furniture, fixtures and equipment (including computer software) was $330,000. The following table sets forth information regarding our offices.

Location	Leased or Owned	Year Acquired or Leased	Net Book Value of Real Property
			(In thousands)
Main Office:
6415 Bridgetown Road Cincinnati, OH 45248	Owned	2003	$2,405
Branch Offices:
5681 Rapid Run Rapid Run Plaza (at Neeb Rd.) Cincinnati, OH 45238	Leased	2009	22
3420 Edwards Road Cincinnati, OH 45208	Owned	2014	1,303

We believe that our current facilities are adequate to meet our present and foreseeable needs, other than modest and customary repair and replacement needs.

ITEM 3.

Legal Proceedings

At December 31, 2019, we were not involved in any pending legal proceedings other than routine legal proceedings occurring in the ordinary course of business which, in the aggregate, involve amounts which management believes are immaterial to our financial condition, our results of operations and our cash flows.

ITEM 4.

Mine Safety Disclosures.

None.

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PART II

ITEM 5.

Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

Our shares of common stock are quoted on the OTCQB market place maintained by the OTC Market Groups, Inc. under the symbol “EFBI”. Over-the-counter market quotations reflect inter-dealer prices, without retail markup, markdown or commission, and may not represent actual transactions. The approximate number of holders of record of Eagle Financial Bancorp, Inc.’s common stock as of March 26, 2020 was 195. Certain shares of Eagle Financial Bancorp, Inc. are held in “nominee” or “street” name and accordingly, the number of beneficial owners of such shares is not known or included in the foregoing number. From July 21, 2017 to December 20, 2019, the common stock of Eagle Financial Bancorp, Inc. traded on the NASDAQ Capital Market.

Eagle Financial Bancorp, Inc. has never paid a cash dividend. The Board of Directors has the authority to declare cash dividends on shares of common stock, subject to statutory and regulatory requirements. In determining whether and in what amount to pay a cash dividend, the Board takes into account a number of factors, including capital requirements, our consolidated financial condition and results of operations, tax considerations, statutory and regulatory limitations and general economic conditions. No assurances can be given that cash dividends will ever be paid or that, if paid, will not be reduced.

The equity compensation plan information presented under subparagraph (b) in Part III, Item 12 of this report is incorporated herein by reference.

The following table provides information regarding the Company’s purchase of its common stock during the quarter ended December 31, 2019.

Period	Total number of shares purchased			Average price paid per share			Total number of shares purchased as part of publicly announced program(1)		Maximum number of shares that may yet be purchased under the program(1)
October 2019			6,100		$	16.00		48,700		32,585
November 2019			—			—		48,700		32,585
December 2019			11,400			16.08		60,100		21,185
Total		$	17,500			16.05

(1)

On December 12, 2018, the Company announced the adoption of a stock repurchase program under which the Company could repurchase up to 81,285 shares of its common stock, or approximately 5% of the then current outstanding shares. The timing of the purchases will depend on certain factors, including but not limited to, market conditions and prices, available funds and alternative uses of capital. The stock repurchase program may be carried out through open-market purchases, block trades, negotiated private transactions and pursuant to a trading plan that will be adopted in accordance with Rule 10b5-1 under the Securities Exchange Act of 1934. Any repurchased shares will be held by the Company as authorized but unissued shares. The repurchase program has no expiration date, but may be suspended, terminated or modified at any time for any reason, including market conditions, the cost of repurchasing shares, the availability of alternative investment opportunities, liquidity, and other factors deemed appropriate. The repurchase program does not obligate the Company to purchase any particular number of shares.

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ITEM 6.

Selected Financial Data

The following tables set forth selected consolidated historical financial and other data of Eagle Financial Bancorp, Inc. and subsidiary at or for the year ended December 31, 2019. The following information is only a summary, and should be read in conjunction with the business and financial information contained elsewhere in this annual report. The information at and for the years ended December 31, 2019 and 2018 is derived in part from, and should be read together with, the audited consolidated financial statements and notes thereto of Eagle Financial Bancorp, Inc. and subsidiary in Item 8 of this annual report.

	At December 31,
	2019			2018
	(In thousands)
Selected Financial Condition Data:
Total assets		$	142,788		$	137,085
Cash and cash equivalents			15,301			7,434
Interest-bearing time deposits in other banks			2,988			3,486
Loans held for sale			6,390			1,827
Loans, net			106,568			113,317
Premises and equipment at depreciated cost			4,062			4,210
Bank-owned life insurance			2,005			1,958
FHLB lender risk account receivable			3,646			3,377
Deposits			111,991			106,369
FHLB advances			—			—
Total shareholders’ equity			27,903			27,774

	For the Years Ended December 31,
	2019			2018
	(In thousands)
Selected Operations Data:
Interest and dividend income		$	5,403		$	5,046
Interest expense			1,105			770
Net interest income			4,298			4,276
Provision for loan losses			—			99
Net interest income after provision for loan losses			4,298			4,177
Non-interest income			2,775			1,732
Non-interest expense			6,228			5,471
Income before income taxes			845			438
Income tax			187			94
Net Income		$	658		$	344

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	At or For the Years Ended December 31,
	2019		2018
Selected Financial Ratios and Other Data:
Performance Ratios:
Return on average assets		0.47%		0.26%
Return on average equity		2.36%		1.25%
Interest rate spread(1)		3.26%		3.42%
Net interest margin(2)		3.44%		3.56%
Efficiency ratio(3)		88.05%		91.06%
Non-interest expense to average total assets		4.46%		4.08%
Average interest-earning assets to average interest-bearing liabilities		121.38%		121.54%
Average equity to average total assets		19.98%		20.61%
Asset Quality Ratios:
Non-performing assets to total assets		0.80%		0.70%
Non-performing loans to total loans		1.00%		0.60%
Non-performing assets excluding accruing troubled debt restructurings to total assets		0.60%		0.47%
Non-performing loans excluding accruing troubled debt restructurings to total loans		0.74%		0.35%
Allowance for loan losses to non-performing loans		101.83%		160.41%
Allowance for loan losses to total loans		1.02%		0.96%
Capital Ratios:
Total capital (to risk-weighted assets)		17.2%		16.9%
Common equity Tier 1 capital (to risk-weighted assets)		16.3%		15.9%
Tier 1 capital (to risk-weighted assets)		16.3%		15.9%
Tier 1 capital (to average assets)		15.4%		15.2%
Other Data:
Number of full service offices		3		3

(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 non-interest expense divided by the sum of net interest income and non-interest income.

ITEM 7.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

This section is intended to help investors understand the financial performance of Eagle Financial Bancorp, Inc. and its subsidiary through a discussion of the factors affecting our financial condition at December 31, 2019 and 2018 and our results of operations for the years ended December 31, 2019 and 2018. This section should be read in conjunction with the consolidated financial statements and notes to the consolidated financial statements that appear in Item 8.

Overview

Eagle Savings Bank provides financial services to individuals and businesses from our main office and two branch offices in Cincinnati, Ohio. Our primary deposit-taking market includes the local communities

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surrounding our bank offices. Our primary lending market is Hamilton County, Ohio, and the adjoining counties of Butler, Warren and Clermont Counties in Ohio, Boone, Kenton and Campbell Counties in Kentucky, and Dearborn County in Indiana.

Our business consists primarily of taking deposits from the general public and investing those deposits, together with funds generated from operations and borrowings, in one- to four-family residential real estate loans, commercial real estate and land loans, home equity loans and lines of credit and construction loans. To a lesser extent, we also make commercial business loans, multi-family real estate loans and other consumer loans. At December 31, 2019, $65.4 million, or 57.1% of our total loan portfolio, was comprised of one- to four-family residential real estate loans. At that same date, $20.8 million, or 18.2% of our total loan portfolio, was comprised of commercial real estate and land loans, and $9.7 million, or 8.5% of our total loan portfolio, was comprised of home equity and other consumer loans, all but $8,000 of which were home equity loans and lines of credit.

In connection with our mutual to stock conversion and related stock offering in 2017, we have hired a new Mortgage Operations Manager and credit support staff to support the managed growth of our lending operations using the proceeds of the offering. We intend to increase our commercial real estate, construction and home equity lending. We consider these areas to be part of our core competencies and historical strengths.

We also emphasize mortgage banking with four mortgage loan officers. Our revenue from gain on sales of loans was $2.4 million and $1.5 million for the years ended December 31, 2019 and 2018, respectively. We intend to expand our mortgage lending business, including the addition of up to six new commission-based mortgage lenders locally over the next three years.

We offer a variety of deposit accounts, including checking accounts, savings accounts, money market demand accounts and certificate of deposit accounts. We utilize advances from the FHLB-Cincinnati for liquidity and for asset/liability management purposes. At December 31, 2019, we had no advances outstanding with the FHLB-Cincinnati.

Our results of operations depend primarily on our net interest income and our noninterest income, including from our mortgage banking operations. Net interest income is the difference between the interest income we earn on our interest-earning assets and the interest we pay on our interest-bearing liabilities. Our results of operations also are affected by our provisions for loan losses, non-interest income and non-interest expense.

Our non-interest income currently consists primarily of gain on sale of mortgage loans, checking account service fee income, interchange fees from debit card transactions and income from bank owned life insurance. Non-interest expense currently consists primarily of expenses related to compensation and employee benefits, occupancy and equipment, data processing, legal and other professional expenses, franchise taxes, advertising expense, federal deposit insurance premiums, impairment losses on foreclosed real estate and other operating expenses.

We invest in bank-owned life insurance to provide us with a funding source to offset some of the costs of our supplemental retirement plan obligations. Bank owned life insurance provides us with non-interest income that is nontaxable. Federal regulations generally limit our investment in bank owned life insurance to 25% of our Tier 1 capital. At December 31, 2019, this limit was $5.5 million, and we had invested $2.0 million in bank-owned life insurance.

Business Strategy

Our current business strategy is to operate as a well-capitalized and profitable community bank dedicated to serving the needs of our consumer and business customers, and offering personalized and efficient customer service. We are a very small financial institution, and we believe that managing prudent yet consistent asset growth in order to increase revenue is critical to our long-term success. Since the conversion and offering, we have focused on increasing our portfolio of shorter term, higher yielding loans, continuing to grow our mortgage banking operations and increasing our “core” deposit base.

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Highlights of our business strategy include:

•

Continuing to expand our mortgage banking operations. Since 2001, we have expanded our mortgage banking operations, and we intend to further increase this part of our business. In 2019, we originated $91.0 million of one- to four-family residential loans, of which we sold $82.4 million to the secondary market, compared to $69.3 million of such loans originated in fiscal 2018, of which $52.1 million were sold. We currently employ four residential mortgage loan originators. We intend to hire another five or six new loan officers over the next three years, as well as additional support staff, in order to continue to increase our mortgage banking operations. The majority of these loans are currently sold to the FHLB-Cincinnati, although we are approved for sale of loans to Freddie Mac and expect to increase our sale of residential mortgage loans to other third parties in the future. Although we have no specific plans to do so at this time, we may also seek to add one or more loan production offices in attractive areas in our lending market should the opportunity arise in the future.

•

Growing our portfolios of shorter term, higher yielding loans, including commercial business loans, commercial real estate loans, construction loans, and home equity loans and lines of credit. In 2020, we intend to continue to leverage our existing lending capabilities to grow our portfolios of commercial real estate, commercial business and construction loans and home equity loans and lines of credit. These types of loans generally have shorter terms and higher yields than loans secured by one- to four-family residential properties. Continuing to increase the percentage of such loans in our portfolio will help increase our net interest income and assist us in managing interest rate risk. Commercial real estate, construction and home equity lending will continue to be part of our core competencies and historical strengths. The additional capital raised in the stock offering has allowed us, and will continue to also allow us to leverage our existing infrastructure and lending team to increase our commercial real estate, commercial business, construction and home equity lending. See “Business of Eagle Savings Bank — Lending Activities.

•

Increasing our “core” deposit base. We intend to continue to increase our core deposit base, particularly checking accounts. Core deposits include all deposit account types except certificates of deposit. Core deposits are our least costly source of funds and our least rate sensitive deposits, and improve our interest rate spread and interest rate risk. These deposits also represent our best opportunity to develop customer relationships that enable us to cross-sell our full complement of products and services. In addition, core deposits contribute non-interest income from account-related fees and services and are generally less sensitive to withdrawal when interest rates fluctuate. In recent years, we have significantly expanded and improved the products and services we offer our retail and business deposit customers who maintain core deposit accounts and have improved our infrastructure for electronic banking services, including online banking, mobile banking, bill pay, and e-statements. The deposit infrastructure we have established can accommodate significant increases in retail and business deposit accounts without additional capital expenditure. We expect that our increased commercial lending will continue to help us increase our business deposit customers above 2019 numbers.

•

Continue to implement a managed growth strategy while maintaining high asset quality. We emphasize a disciplined credit culture based on sound underwriting standards and credit administration, market knowledge, close ties to our customers and experienced loan officers. At December 31, 2019, our non-performing assets equaled 0.80% of total assets, as compared to 0.70% at December 31, 2018. We intend to pursue a managed growth strategy for the foreseeable future, with the goal of improving the profitability of our business through increased net interest income and non-interest income from our mortgage banking operations. However, we intend to maintain strict, quality-oriented loan underwriting and credit monitoring processes as we grow our operations.

•

Remaining a community-oriented institution. We were organized in 1882 and have been operating continuously in and around our market since that time. We have trained our employees to focus on high quality service in order to maintain and build a loyal customer base. The Eagle Savings Bank Charitable Foundation made great progress in 2019 to promote community relationships and exposure in our market. We intend to expand our support of charitable organizations operating in our local community in 2020 and beyond.

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These strategies are intended to guide our investment of the net proceeds from the offering. We intend to continue to pursue our business strategy with the proceeds from the offering, subject to changes necessitated by future market conditions, regulatory restrictions and other factors.

Achieving our growth targets will require us to attract customers that currently bank at other financial institutions in our market area. Our ability to successfully grow will depend on a variety of factors, including our ability to attract and retain experienced employees, the continued availability of desirable business opportunities, the competitive responses from other financial institutions in our market area and our ability to manage our growth. Growth opportunities may not be available or we may not be able to manage our growth successfully. If we do not manage our growth effectively, our financial condition and operating results could be negatively affected.

Management of Non-interest Expense

Following the completion of the conversion and stock offering, our non-interest expense has increased because of the increased costs associated with operating as a public company, and the increased compensation expenses associated with the purchase of shares of common stock by our employee stock ownership plan. The implementation of our stock-based benefit plans has also increased our non-interest expenses. In December 2019 we delisted from the Nasdaq Stock Market to save approximately $32,000 in annual costs. We also may deregister with the SEC in 2020, which would reduce costs associated with SEC reporting requirements.

Critical Accounting Policies

The discussion and analysis of the financial condition and results of operations are based on our financial statements, which are prepared in conformity with U.S. generally accepted accounting principles. The preparation of these financial statements requires management to make estimates and assumptions affecting the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities, and the reported amounts of income and expenses. We consider the accounting policies discussed below to be our critical accounting policies. The estimates and assumptions that we use are based on historical experience and various other factors and are believed to be reasonable under the circumstances. Actual results may differ from these estimates under different assumptions or conditions, resulting in a change that could have a material impact on the carrying value of our assets and liabilities and our results of operations.

On April 5, 2012, the JOBS Act was signed into law. The JOBS Act contains provisions that, among other things, reduce certain reporting requirements for qualifying public companies. As an “emerging growth company” we may delay adoption of new or revised accounting pronouncements applicable to public companies until such pronouncements are made applicable to private companies. We intend to take advantage of the benefits of this extended transition period. Accordingly, our financial statements may not be comparable to companies that comply with such new or revised accounting standards.

The following represents our critical accounting policies:

Allowance for Loan Losses. The allowance for loan losses is established as losses are estimated to have occurred through a provision for loan losses charged to income. Loan losses are charged against the allowance when management believes the uncollectability of a loan balance is confirmed. Subsequent recoveries, if any, are credited to the allowance. The allowance for loan losses is evaluated on a regular basis by management and is based upon management’s periodic review of the collectability of the loans in light of historical experience, the nature and volume of the loan portfolio, adverse situations that may affect the borrower’s ability to repay, estimated value of any underlying collateral and prevailing economic conditions. This evaluation is inherently subjective as it requires estimates that are susceptible to significant revision as more information becomes available.

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internal risk rating process. Other qualitative adjustments are made to the allowance for pools of loans after an assessment of internal or external influences on credit quality that are not fully reflected in the historical loss or risk rating data.

A loan is considered impaired when, based on current information and events, it is probable that we will be unable to collect the scheduled payments of principal or interest when due according to the contractual terms of the loan agreement. Factors considered by management in determining impairment include payment status, collateral value and the probability of collecting scheduled principal and interest payments when due. Loans that experience insignificant payment delays and payment shortfalls generally are not classified as impaired. Management determines the significance of payment delays and payment shortfalls on a case-by-case basis, taking into consideration all of the circumstances surrounding the loan and the borrower, including the length of the delay, the reasons for the delay, the borrower’s prior payment record and the amount of the shortfall in relation to the principal and interest owed. Impairment is measured on a loan-by-loan basis by either the present value of expected future cash flows discounted at the loan’s effective interest rate, the loan’s obtainable market price or the fair value of the collateral if the loan is collateral dependent.

FHLB-Cincinnati Lender Risk Account Receivable. Certain loan sale transactions with the FHLB-Cincinnati provide for establishment of a LRA. The LRA consists of amounts withheld from loan sale proceeds by the FHLB-Cincinnati for absorbing inherent losses that are probable on those sold loans. These withheld funds are an asset as they are scheduled to be paid to us in future years, net of any credit losses on those loans sold. The receivables are initially measured at fair value. The fair value is estimated by discounting the cash flows over the life of each master commitment contract. The accretable yield is amortized over the life of the master commitment contract. Expected cash flows are re-evaluated at each measurement date. If there is an adverse change in expected cash flows, the accretable yield would be adjusted on a prospective basis and the asset would be evaluated for impairment.

Comparison of Financial Condition at December 31, 2019 and December 31, 2018

Total Assets. Total assets were $142.8 million at December 31, 2019, an increase of $5.7 million, or 4.2%, over the $137.1 million at December 31, 2018. The increase was primarily comprised of an increase in cash and cash equivalents of $7.9 million, partially offset by a decrease in net loans of $6.7 million, and a decrease in interest-bearing time deposits in other banks of $498,000.

Net Loans. Net loans decreased by $6.7 million, or 6.0%, to $106.6 million at December 31, 2019 from $113.3 million at December 31, 2018. During the year ended December 31, 2019, we originated $119.1 million of loans, $91.0 million of which were one- to four-family residential real estate loans, and sold $82.4 million of loans in the secondary market. During the year ended December 31, 2019, one- to four-family residential real estate loans decreased $8.3 million, or 11.2%, to $65.4 million at December 31, 2019, from $73.6 million at December 31, 2018; multi-family loans decreased $120,000, or 10.1%, to $1.1 million at December 31, 2019; construction loans decreased $72,000, or 0.6%, to $11.7 million at December 31, 2019; home equity and other consumer loans decreased $4.1 million, or 29.6% to $9.7 million at December 31, 2019; and commercial loans decreased $120,000, or 2.0% to $5.9 million at December 31, 2019. Commercial real estate loans and land loans increased $3.2 million, or 18.3%, to $20.8 million at December 31, 2019. The increase in the balance of commercial real estate loans reflects our strategy to grow and diversify our loan portfolio, with an emphasis on increasing commercial and commercial real estate loans, as a shift in strategy from our traditional portfolio focus on one- to four-family residential loans. Such growth has been achieved amid strong competition for commercial real estate loans. We primarily sell one- to four-family residential loans on a servicing released basis. We sell loans in transactions with the FHLB-Cincinnati, through its mortgage purchase program, and to other investors. We sold $82.4 million of loans in fiscal 2019. Loans serviced for these investors were $1.6 million at December 31, 2019. Management intends to continue this sales activity in future periods.

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Interest-Bearing Deposits in Other Banks. The Bank’s investment in certificates of deposit in other banks decreased by $498,000, or 14.3%, to a total of $3.0 million at December 31, 2019, compared to $3.5 million at December 31, 2018.

Foreclosed Real Estate Held for Sale, Net. Foreclosed assets decreased $217,000, or 100.0%, to $0 at December 31, 2019. Two properties valued at $217,000 were sold in February 2019 for $245,000 resulting in a gain of $28,000.

Deposits. Deposits increased by $5.6 million, or 5.3%, to $112.0 million at December 31, 2019 from $106.4 million at December 31, 2018. Our core deposits, which are deposits other than certificates of deposit, increased $4.6 million, or 7.6%, to $64.4 million at December 31, 2019 from $59.9 million at December 31, 2018. Certificates of deposit increased $1.1 million, or 2.3%, to $47.6 million at December 31, 2019 from $46.5 million at December 31, 2018. During the year ended December 31, 2019, management continued its strategy of pursuing growth in demand accounts and other lower cost core deposits, while also increasing emphasis on certificates of deposit. Management intends to continue its efforts to increase core deposits, with a special emphasis on growth in consumer and business demand deposits and money market accounts.

Federal Home Loan Bank Advances. The Bank had no advances from the Federal Home Loan Bank at December, 31 2019 and 2018. At both December 31, 2019 and 2018, the Bank had an unused line of credit with the Federal Home Loan Bank of $10.0 million

Shareholders’ Equity. Total shareholders’ equity increased $129,000, or 0.5%, to $27.9 million at December 31, 2019 from $27.8 million at December 31, 2018. The increase was primarily due to net income of $658,000, stock based compensation expense of $246,000, and ESOP shares earned of $102,000, offset by repurchases of the company’s common stock of $877,000 during the year ended December 31, 2019.

Comparison of Operating Results for the Years Ended December 31, 2019 and December 31, 2018

General. Our net income for the year ended December 31, 2019 was $658,000, compared to net income of $344,000 for the year ended December 31, 2018, an increase of $314,000, or 91.3%. The increase in net income was primarily due to an increase in total noninterest income of $1.1 million, and an increase in net interest income after provision for loan losses of $121,000, offset by an increase in noninterest expense of $757,000, and an increase in tax expense of $93,000 for the year ended December 31, 2019.

Interest Income. Interest income increased $357,000, or 7.1%, to $5.4 million for the year ended December 31, 2019 from $5.0 million for the year ended December 31, 2018. This increase was primarily attributable to a $332,000 increase in interest income on loans and an increase of $25,000 on other interest earning deposits and dividends on FHLB stock. The average balance of loans during the year ended December 31, 2019 increased by $4.2 million, or 3.9%, from the average balance for the year ended December 31, 2018, while the average yield on loans increased by 13 basis points to 4.63% for the year ended December 31, 2019 from 4.50% for the year ended December 31, 2018. The increase in average yield on loans was due in large part to the rising interest rate environment. Interest income on interest-earning deposits, including certificates of deposit in other financial institutions and dividends on FHLB stock, increased $25,000, or 9.1%, for the year ended December 31, 2019, as a result of an increase in the average balance of $576,000 and the average yield of ten basis points, to 2.06%.

Interest Expense. Total interest expense increased $335,000, or 43.5%, to $1.1 million for the year ended December 31, 2019 from $770,000 for the year ended December 31, 2018. The increase was due primarily to an increase in the average cost of total interest-bearing deposits of 29 basis points to 1.07% for the year ended December 31, 2019 from 0.78% for the year ended December 31, 2018, as well as an increase in the average balance of interest bearing deposits of $4.0 million or 4.1%

Interest expense on FHLB advances was $0 for the year ended December 31, 2019 and 2018.

Net Interest Income. Net interest income increased $22,000, or 0.5%, to $4.3 million for the year ended December 31, 2019. The increase reflected an increase in total interest and dividend income of $357,000. Our net interest margin decreased to 3.44% for the year ended December 31, 2019 from 3.56% for the year ended December 31, 2018. The interest rate spread and net interest margin were impacted by the

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effect of rising interest rates on total interest bearing deposits for the year ended December 31, 2019, compared to the year ended December 31, 2018.

Provision for Loan Losses. Based on our analysis of the factors described in “Critical Accounting Policies — Allowance for Loan Losses,” we recorded a provision for loan losses of $0 for the year ended December 31, 2019 and $99,000 for the year ended December 31, 2018. The allowance for loan losses was $1.2 million, or 1.02% of total loans, at December 31, 2019, compared to $1.2 million, or 0.96% of total loans, at December 31, 2018. Total non-performing loans were $1.1 million at December 31, 2019, compared to $740,000 at December 31, 2018. Classified and special mention loans were $1.4 million at December 31, 2019, compared to $1.7 million at December 31, 2018. Total loans past due 30 days or more were $952,000 and $1.2 million at December 31, 2019 and 2018, respectively. Net charge-offs totaled $21,000 for the year ended December 31, 2019, compared to $93,000 for the year ended December 31, 2018.

Non-Interest Income. Non-interest income increased $1.1 million, or 60.2%, to $2.8 million for the year ended December 31, 2019 from $1.7 million for the year ended December 31, 2018. The increase was primarily due to an increase in the net gain on loan sales of $890,000, and an increase in other service charges and fees of $128,000 for the year ended December 31, 2019.

Non-Interest Expense. Non-interest expense increased $757,000, or 13.8%, to $6.2 million for the year ended December 31, 2019, compared to $5.5 million for the year ended December 31, 2018. The increase is reflective of an increase in compensation and benefits. Compensation and benefits increased by $859,000, or 25.0%, to $4.3 million for the year ended December 31, 2019 from $3.4 million for the year ended December 31, 2018, offset by decreases in other noninterest expenses of $102,000 for the year ended December 31, 2019 from the year ended December 31, 2018.

Federal Income Taxes. Federal income taxes increased by $93,000 to a tax expense of $187,000 for the year ended December 31, 2019, compared to tax expense of $94,000 for the year ended December 31, 2018. The increase in tax expense of $93,000 was largely the result of the increase in non-interest income of $1.0 million, resulting in an increase of income before income taxes of $407,000 for the year ended December 31 2019.

Average Balances and Yields

The following table sets forth average balance sheets, average yields and costs, and certain other information at and for the years indicated. No tax-equivalent yield adjustments were made, as the effect thereof was not material. All average balances are daily average balances. Non-accrual loans were included in the computation of average balances, but have been reflected in the table as loans carrying a zero yield. The yields set forth below include the effect of deferred fees, discounts and premiums that are amortized or accreted to interest income or interest expense.

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	At December 31, 2019		For the Year Ended December 31,
	At December 31, 2019		2019								2018
	Yield/ Cost		Average Outstanding Balance			Interest			Yield/ Rate(1)		Average Outstanding Balance			Interest			Yield/ Rate(1)
	(Dollars in thousands)
Interest-earning assets:
Loans, net		4.39%		$	110,229		$	5,103		4.63%		$	106,051		$	4,771		4.50%
Other interest-earning assets		1.65			14,578			300		2.06			14,002			275		1.96
Total interest-earning assets		3.98			124,807			5,403		4.33			120,053			5,046		4.20
Non-interest-earning assets					14,747								13,966
Total assets				$	139,554							$	134,019
Interest-bearing liabilities:
Interest-bearing checking		0.18%		$	19,632			33		0.17		$	18,339			28		0.15%
Savings		0.14			16,623			24		0.14			17,287			25		0.14
Money market demand		0.63			18,559			91		0.49			18,825			42		0.22
Certificates of deposit		2.07			47,984			957		1.99			44,325			675		1.52
Total interest-bearing deposits		1.11			102,798			1,105		1.07			98,776			770		0.78
FHLB advances		2.58			22			—		2.58			2			—		3.33
Total interest-bearing liabilities		1.11			102,820			1,105		1.07			98,778			770		0.78
Other non-interest-bearing liabilities					8,852								7,616
Total liabilities					111,672								106,394
Shareholders’ Equity					27,882								27,625
Total liabilities and shareholders’ equity				$	139,554							$	134,019
Net interest income							$	4,298							$	4,276
Net interest rate spread(1)		2.87								3.26%								3.42%
Net interest-earning assets(2)				$	21,987							$	21,275
Net interest margin(3)										3.44%								3.56%
Average of interest-earning assets to interest-bearing liabilities					121.38%								121.54%

(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-earning assets represents total interest-earning assets less total interest-bearing liabilities.

(3)

Net interest margin represents net interest income divided by total interest-earning assets.

Rate/Volume Analysis

The following table presents the effects of changing rates and volumes on our net interest income for the years indicated. The rate column shows the effects attributable to changes in rate (changes in rate multiplied by prior volume). The volume column shows the effects attributable to changes in volume (changes in volume multiplied by prior rate). The total column represents the sum of the prior columns. For purposes of this table, changes attributable to both rate and volume, which cannot be segregated, have been allocated proportionately, based on the changes due to rate and the changes due to volume.

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	Years Ended December 31, 2019 vs. 2018
	Increase (Decrease) Due to						Total Increase (Decrease)
	Volume			Rate			Total Increase (Decrease)
	(In thousands)
Interest-earning assets:
Loans		$	209		$	123		$	332
Other interest-earning assets			8			17			25
Total interest-earning assets			217			140			357
Interest-bearing liabilities:
Interest-bearing checking			1			4			5
Savings			(1)			—			(1)
Money market demand			(1)			50			49
Certificates of deposit			50			232			282
Total deposits			49			286			335
FHLB advances			—			—			—
Total interest-bearing liabilities			49			286			335
Change in net interest income		$	168		$	(146)		$	22

Management of Market Risk

General. A significant form of market risk is interest rate risk because, as a financial institution, the majority of our assets and liabilities are sensitive to changes in interest rates. Therefore, a principal part of our operations is to manage interest rate risk and limit the exposure of our financial condition and results of operations to changes in market interest rates. Our Asset-Liability Committee is responsible for evaluating the interest rate risk inherent in our assets and liabilities, for determining the level of risk that is appropriate, given our business strategy, operating environment, capital, liquidity and performance objectives, and for managing this risk consistent with the policy and guidelines approved by our board of directors.

Our asset/liability management strategy attempts to manage the impact of changes in interest rates on net interest income, our primary source of earnings. Among the techniques we use to manage interest rate risk are:

•

originating commercial real estate and multi-family, commercial business and construction loans, and home equity loans and lines of credit, all of which tend to have shorter terms to maturity or repricing and higher interest rates than one- to four-family residential real estate loans, and can generate non-interest-bearing checking accounts;

•

selling substantially all of our newly-originated longer-term fixed-rate one- to four-family residential real estate loans and retaining the shorter-term fixed- and adjustable-rate one- to four-family residential real estate loans that we originate, subject to market conditions and periodic review of our asset/liability management needs; and

•

increasing core deposits, including checking accounts, money market accounts and savings accounts, which are less interest rate sensitive than certificates of deposit.

Our board of directors is responsible for the review and oversight of our Asset/Liability Committee, which is comprised of our executive management team and other essential operational staff. This committee is charged with developing and implementing an asset/liability management plan, and meets at least monthly to review pricing and liquidity needs and assess our interest rate risk. We look at two types of simulations impacted by changes in interest rates, which are net portfolio value analysis and net interest income analysis.

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Net Portfolio Value. We compute amounts by which the net present value of our cash flow from assets, liabilities and off-balance sheet items (net portfolio value or “NPV”) would change in the event of a range of assumed changes in market interest rates. We measure our interest rate risk and potential change in our NPV through the use of an internal financial model integrated with our core service provider. This model uses a discounted cash flow analysis and an option-based pricing approach to measure the interest rate sensitivity of net portfolio value. Historically, the model estimated the economic value of each type of asset, liability and off-balance sheet contract under the assumption that the United States Treasury yield curve increases or decreases instantaneously by 100 to 300 basis points in 100 basis point increments. However, given the current low level of market interest rates, an NPV calculation for an interest rate decrease of greater than 100 basis points has not been prepared. A basis point equals one-hundredth of one percent, and 100 basis points equals one percent. An increase in interest rates from 3% to 4% would mean, for example, a 100 basis point increase in the “Change in Interest Rates” column below.

The table below sets forth, as of December 31, 2019, the calculation of the estimated changes in our net portfolio value that would result from the specified immediate changes in interest rates.

Change in Interest Rates (basis points)(1)	Estimated NPV(2)			Estimated Increase (Decrease) in NPV					NPV as a Percentage of Present Value of Assets(3)
Change in Interest Rates (basis points)(1)	Estimated NPV(2)			Amount			Percent		NPV Ratio(4)		Increase (Decrease) (basis points)
				(Dollars in thousands)
+300		$	34,602		$	(6,671)		(16.16)%		24.78%		(451)
+200			36,600			(4,673)		(11.32)%		25.85%		(344)
+100			38,824			(2,449)		(5.93)%		27.02%		(227)
–			41,273			—		—		29.29%		—
-100			39,120			(2,153)		(5.22)%		26.36%		(293)

(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.

The table above indicates that at December 31, 2019, in the event of an instantaneous parallel 100 basis point decrease in interest rates, we would experience a 5.2% decrease in net portfolio value. In the event of an instantaneous 100 basis point increase in interest rates, we would experience a 5.9% decrease in net portfolio value. The net portfolio value as calculated in our model decreases in both rising and falling interest rate environments. The value of assets move inversely to interest rates while the value of liabilities move directly with interest rates. In a rising interest rate environment, the economic value of assets would decrease while liabilities would increase. In a falling interest rate environment, the increase in economic value for deposits (i.e., the value of our liabilities) would exceed that of loans. Due to the historically low current interest rate environment, the discount rate applied to the deposits drive the economic value higher while cash flows are stable.

Net Interest Income Analysis. We analyze our sensitivity to changes in interest rates through our net interest income simulation model. Net interest income is the difference between the interest income we earn on our interest-earning assets, such as loans and securities, and the interest we pay on our interest-bearing liabilities, such as deposits and borrowings. We estimate what our net interest income would be for a one-year period based on current interest rates. We then calculate what the net interest income would be for the same period under different interest rate assumptions. The following table shows the estimated impact on net interest income for the one-year period beginning December 31, 2019 resulting from potential changes in interest rates, expressed in basis points. These estimates require certain assumptions to be made, including loan and mortgage-related investment prepayment speeds, reinvestment rates, and deposit maturities and

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decay rates. These assumptions are inherently uncertain. As a result, no simulation model can precisely predict the impact of changes in interest rates on our net interest income.

Although the net interest income table below provides an indication of our interest rate risk exposure at a particular point in time, such estimates are not intended to, and do not, provide a precise forecast of the effect of changes in market interest rates on our net interest income and will differ from actual results.

Rate Shift(1)	Net Interest Income Year 1 Forecast			Year 1 Change from Level
	(Dollars in thousands)
+400		$	3,414		(22.67)%
+300			3,672		(16.83)%
+200			3,923		(11.14)%
+100			4,169		(5.57)%
Level			4,415		—
-100			4,364		(1.16)%

(1)

The calculated changes assume an immediate shock of the static yield curve.

Depending on the relationship between long- and short-term interest rates, market conditions and consumer preference, we may place greater emphasis on maximizing our net interest margin than on strictly matching the interest rate sensitivity of our assets and liabilities. We believe that the increased net income which may result from an acceptable mismatch in the actual maturity or re-pricing of our assets and liabilities can, during periods of declining or stable interest rates, provide sufficient returns to justify an increased exposure to sudden and unexpected increases in interest rates.

We do not engage in hedging activities, such as engaging in futures, options or swap transactions, or investing in high-risk mortgage derivatives, such as collateralized mortgage obligation residual interests, real estate mortgage investment conduit residual interests or stripped mortgage backed securities.

Liquidity and Capital Resources

Liquidity describes our ability to meet the financial obligations that arise in the ordinary course of business. Liquidity is primarily needed to meet the borrowing and deposit withdrawal requirements of our customers and to fund current and planned expenditures. Our primary sources of funds are deposits, principal and interest payments on loans and proceeds from the sale of loans. We also have the ability to borrow from the FHLB-Cincinnati. At December 31, 2019, we had the capacity to borrow approximately $48.8 million from the FHLB-Cincinnati. At December 31, 2019, we had no outstanding advances from the FHLB-Cincinnati.

While maturities and scheduled amortization of loans are predictable sources of funds, deposit flows and loan prepayments are greatly influenced by general interest rates, economic conditions, and competition. Our most liquid assets are cash and short-term investments including interest-bearing demand deposits. The levels of these assets are dependent on our operating, financing, lending, and investing activities during any given period.

Our cash flows are comprised of three primary classifications: cash flows from operating activities, investing activities, and financing activities. Net cash used in operating activities was $4.2 million for the year ended December 31, 2019, while net cash provided by operating activities was $2.5 million for the year ended December 31, 2018, respectively. Net cash provided by investing activities, which consists primarily of disbursements for loan originations, offset by principal collections on loans, was $7.4 million for the year ended December 31, 2019, while the net cash used in investing activities was $15.6 million for the year ended December 31, 2018, respectively. Net cash provided by financing activities, consisting primarily of a net increase in deposits was $4.7 million and $5.2 million for the years ended December 31, 2019 and 2018, respectively.

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We are committed to maintaining a strong liquidity position. We monitor our liquidity position on a daily basis. We anticipate that we will have sufficient funds to meet our current funding commitments. Based on our deposit retention experience and current pricing strategy, we anticipate that a significant portion of maturing time deposits will be retained.

At December 31, 2019, we exceeded all of our regulatory capital requirements with a Tier 1 leverage capital level of $22.0 million, or 15.4% of adjusted total assets, which is above the well-capitalized required level of $7.1 million, or 5.0%; and total risk-based capital of $23.2 million, or 17.2% of risk-weighted assets, which is above the well-capitalized required level of $13.5 million, or 10.0%. Accordingly, Eagle Savings Bank was categorized as well capitalized at December 31, 2019 and 2018. Management is not aware of any conditions or events since the most recent notification that would change our category.

Off-Balance Sheet Arrangements and Aggregate Contractual Obligations

Commitments. As a financial services provider, we routinely are a party to various financial instruments with off-balance-sheet risks, such as commitments to extend credit and unused lines of credit. While these contractual obligations represent our future cash requirements, a significant portion of commitments to extend credit may expire without being drawn upon. Such commitments are subject to the same credit policies and approval process accorded to loans we make. At December 31, 2019, we had outstanding commitments to originate loans of $22.3 million, including undisbursed funds on construction loans and funds available on undrawn lines of credit. We anticipate that we will have sufficient funds available to meet our current lending commitments. Certificates of deposit that are scheduled to mature within one year from December 31, 2019 totaled $26.4 million. Management expects that a substantial portion of the maturing certificates of deposit will be renewed. However, if a substantial portion of these deposits is not retained, we may utilize FHLB-Cincinnati advances or raise interest rates on deposits to attract new accounts, which may result in higher levels of interest expense.

Contractual Obligations. In the ordinary course of our operations, we enter into certain contractual obligations. Such obligations include data processing services, operating leases for premises and equipment, agreements with respect to borrowed funds and deposit liabilities.

Recent Accounting Pronouncements

Please refer to Note 19 to the Financial Statements for the years ended December 31, 2019 and 2018 contained elsewhere in this Annual Report for a description of recent accounting pronouncements that may affect our financial condition and results of operations.

Impact of Inflation and Changing Price

The financial statements and related data presented herein have been prepared in accordance with generally accepted accounting principles in the United States of America which require the measurement of financial position and operating results in terms of historical dollars without considering changes in the relative purchasing power of money over time due to inflation. The primary impact of inflation on our operations is reflected in increased operating costs. Unlike most industrial companies, virtually all of the assets and liabilities of a financial institution are monetary in nature. As a result, interest rates, generally, have a more significant impact on a financial institution’s performance than does inflation. Interest rates do not necessarily move in the same direction or to the same extent as the prices of goods and services.

ITEM 7A.

Quantitative and Qualitative Disclosures about Market Risk

Not required for smaller reporting companies.

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ITEM 8.

Financial Statements and Supplementary Data

Index to Financial Statements of
Eagle Financial Bancorp, Inc.

	Report of Independent Registered Public Accounting Firm					57
	Consolidated Balance Sheets at December 31, 2019 and 2018					58
	Consolidated Statements of Income and Comprehensive Income for the Years Ended December 31, 2019 and 2018					59
	Consolidated Statements of Shareholders’ Equity for the Years Ended December 31, 2019 and 2018					60
	Consolidated Statements of Cash Flows for the years ended December 31, 2019 and 2018					61
	Notes to the Consolidated Financial Statements					62

* * *

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Report of Independent Registered Public Accounting Firm

To the Shareholders, Board of Directors and Audit Committee
Eagle Financial Bancorp, Inc.
Cincinnati, Ohio

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of Eagle Financial Bancorp, Inc. (the “Company”) as of December 31, 2019 and 2018, the related consolidated statements of income and comprehensive income, shareholders’ equity and cash flows for each of the years then ended, and the related notes (collectively, referred to as the “financial statements”). In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2019 and 2018, and the results of its operations and its cash flows for each of the years then ended, in conformity with accounting principles generally accepted in the United States of America.

Basis for Opinion

These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits.

We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures include examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.

/s/ BKD, LLP

BKD, LLP

We have served as the Company’s auditor since 2012.

Cincinnati, Ohio
March 26, 2020

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Eagle Financial Bancorp, Inc.

Consolidated Balance Sheets
December 31, 2019 and 2018
(Amounts in thousands, except share and per share data)

	December 31,
	2019			2018
Assets
Cash and due from banks		$	408		$	471
Federal Reserve Bank and Federal Home Loan Bank (FHLB) demand accounts			14,893			6,963
Cash and cash equivalents			15,301			7,434
Interest-bearing time deposits in other banks			2,988			3,486
Loans held for sale			6,390			1,827
Loans, net of allowance for loan losses of $1,166 and $1,187 for 2019 and 2018, respectively			106,568			113,317
Premises and equipment – at depreciated cost			4,062			4,210
FHLB stock – at cost			816			754
Foreclosed real estate held for sale, net			—			217
Bank-owned life insurance (BOLI)			2,005			1,958
FHLB lender risk account receivable			3,646			3,377
Accrued interest receivable			326			354
Deferred federal tax asset			77			—
Other assets			609			151
Total assets		$	142,788		$	137,085
Liabilities and Shareholders’ Equity
Liabilities
Deposits
Noninterest-bearing		$	5,967		$	5,878
Interest-bearing			106,024			100,491
Total deposits			111,991			106,369
Advances from borrowers for taxes and insurance			858			950
Accrued interest payable			2			1
Accrued supplemental retirement plans			1,518			1,301
Accrued federal income tax			9			182
Deferred federal tax liability			—			131
Other liabilities			507			377
Total liabilities			114,885			109,311
Shareholders’ Equity
Preferred stock, $0.01 par value, 5,000,000 shares authorized; none issued and outstanding			—			—
Common stock, $0.01 par value, 50,000,000 shares authorized at December 31, 2019 and 2018; issued 1,654,758 at December 31, 2019 and 2018; outstanding 1,594,658 and 1,649,758 at December 31, 2019 and 2018			16			16
Additional paid-in capital			14,165			14,758
Retained earnings			14,819			14,161
Unearned Employee Stock Ownership Plan (“ESOP”) shares			(1,097)			(1,161)
Total shareholders’ equity			27,903			27,774
Total liabilities and shareholders’ equity		$	142,788		$	137,085

See Notes to the Consolidated Financial Statements

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Eagle Financial Bancorp, Inc.

Consolidated Statements of Income and Comprehensive Income
Years Ended December 31, 2019 and 2018
(Amounts in thousands, except share and per share data)

	2019			2018
Interest and Dividend Income
Interest earned on loans		$	5,103		$	4,771
Dividends on FHLB stock			38			45
Other interest-earning deposits			262			230
Total interest and dividend income			5,403			5,046
Interest Expense
Interest on deposits			1,105			770
Total interest expense			1,105			770
Net Interest Income			4,298			4,276
Provision for Loan Losses			—			99
Net Interest Income After Provision for Loan Losses			4,298			4,177
Noninterest Income
Net gains on loan sales			2,386			1,496
Other service charges and fees			314			186
Income from BOLI			47			46
Other Income			28			4
Total noninterest income			2,775			1,732
Noninterest Expense
Compensation and benefits			4,292			3,433
Occupancy and equipment, net			255			253
Data processing			317			304
Legal and professional services			359			388
FDIC premium expense			16			37
Foreclosed real estate impairments and expenses, net			21			14
Franchise and other taxes			222			219
Advertising			96			104
ATM processing expense			85			83
Charitable contribution expense			6			9
Other expenses			559			627
Total noninterest expense			6,228			5,471
Income Before Income Taxes			845			438
Income Taxes
Current			395			278
Deferred			(208)			(184)
Total income taxes			187			94
Net Income and Comprehensive Income		$	658		$	344
Earnings per share – basic and diluted		$	0.43		$	0.23
Weighted-average shares outstanding – basic and diluted			1,475,876			1,493,608

See Notes to the Consolidated Financial Statements

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Eagle Financial Bancorp, Inc.

Consolidated Statements of Shareholders’ Equity
Years Ended December 31, 2019 and 2018
(Amounts in thousands, except share and per share data)

	Common Stock			Additional Paid-In Capital			Retained Earnings			Unearned ESOP Shares			Total
Balance at January 1, 2018		$	16		$	14,730		$	13,817		$	(1,226)		$	27,337
Net income			—			—			344			—			344
ESOP shares earned			—			38			—			65			103
Stock based compensation expense						68									68
Repurchase of common stock			—			(78)			—			—			(78)
Balance at December 31, 2018		$	16		$	14,758		$	14,161		$	(1,161)		$	27,774
Net income			—			—			658			—			658
ESOP shares earned			—			38			—			64			102
Stock based compensation expense			—			246			—			—			246
Repurchase of common stock			—			(877)			—			—			(877)
Balance at December 31, 2019		$	16		$	14,165		$	14,819		$	(1,097)		$	27,903

See Notes to the Consolidated Financial Statements

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Eagle Financial Bancorp, Inc.

Consolidated Statements of Cash Flows
Years ended December 31, 2019 and 2018
(Amounts in thousands, except share and per share data)

	2019			2018
Operating Activities
Net income		$	658		$	344
Items not requiring (providing) cash:
Depreciation and amortization			199			248
Proceeds on sale of loans in the secondary market			84,893			54,036
Loans originated for sale in the secondary market			(87,070)			(51,031)
Gain on sale of loans			(2,386)			(1,496)
Provision for loan losses			—			99
(Gain) loss on sale of foreclosed real estate			(28)			1
Deferred federal taxes			(208)			(184)
Increase in cash surrender value of BOLI			(47)			(46)
Stock based compensation expense			246			68
ESOP compensation expense			102			103
Changes in:
FHLB lender risk account receivable			(269)			(209)
Accrued interest receivable			28			(67)
Other assets and prepaid federal income taxes			(458)			173
Accrued federal income taxes			(173)			182
Accrued supplemental retirement plans			217			222
Accrued expenses and other liabilities			131			20
Net cash flows (used in) provided by operating activities			(4,165)			2,463
Investing Activities
Net decrease in interest-bearing time deposits in other banks			498			1,593
Net decrease (increase) in loans			6,751			(17,189)
Purchase of FHLB stock			(62)			(18)
Purchase of premises and equipment			(53)			(58)
Proceeds from sale of foreclosed real estate			245			45
Net cash provided by (used in) investing activities			7,379			(15,627)
Financing Activities
Net increase in deposits			5,622			5,251
Repayment of FHLB advances			—			(9)
Repurchase of common stock			(877)			(78)
Net increase in advances from borrowers for taxes and insurance			(92)			84
Net cash provided by financing activities			4,653			5,248
Increase (Decrease) in Cash and Cash Equivalents			7,867			(7,916)
Cash and Cash Equivalents, Beginning of Year			7,434			15,350
Cash and Cash Equivalents, End of Year		$	15,301		$	7,434
Supplemental Cash Flows Information:
Interest paid		$	1,104		$	770
Income taxes paid			388			60
Transfers to foreclosed assets held for sale			—			263

See Notes to the Consolidated Financial Statements

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Eagle Financial Bancorp, Inc.

Notes to the Consolidated Financial Statements
For the years ended December 31, 2019 and 2018
(Amounts in thousands, except share and per share data)

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

General

Eagle Financial Bancorp, Inc. (the “Company”), a Maryland corporation and registered bank holding company, was formed on February 21, 2017 to become the bank holding company for Eagle Savings Bank (the “Bank”). The Bank, an Ohio chartered savings and loan association, completed its mutual-to-stock conversion on July 20, 2017. In connection with the Bank’s conversion, the Company acquired 100% ownership of the Bank and the Company offered and sold 1,572,808 shares of its common stock at $10.00 per share, for gross offering proceeds of $15,728. The cost of the conversion and issuance of common stock was approximately $1,423, which was deducted from the gross offering proceeds. The Company also contributed 40,000 shares of its common stock and $100 of cash to Eagle Savings Bank Charitable Foundation (the “Foundation”), a charitable foundation formed in connection with the Bank’s conversion. The Bank’s employee stock ownership plan (“ESOP”) purchased 129,024 shares of the common stock sold by the Company, which was 8% of the 1,612,808 shares of common stock issued by the Company, including the shares contributed to the Foundation. The ESOP purchased the shares using a loan from the Company. The Company contributed $7,153 of the net proceeds from the offering to the Bank, loaned $1,290 of the net proceeds to the ESOP, contributed $100 to the Foundation and retained approximately $5,763 of the net proceeds.

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

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

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

Basis of Presentation and Consolidation

The consolidated financial statements as of and for the year ended December 31, 2019 include Eagle Financial Bancorp, Inc. and its wholly-owned subsidiary, Eagle Savings Bank, together referred to as “the Company”. Intercompany transactions and balances have been eliminated in consolidation.

Revenue Recognition

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

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Eagle Financial Bancorp, Inc.

Notes to the Consolidated Financial Statements
For the years ended December 31, 2019 and 2018
(Amounts in thousands, except share and per share data)

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

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

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

Use of Estimates

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

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

Cash Equivalents

For purposes of reporting cash flows, cash and cash equivalents include cash and due from banks and interest-earning deposits in other financial institutions. The Company considers all liquid investments with original maturities of three months or less to be cash equivalents.

From time to time, the Bank’s cash accounts may exceed the FDIC’s insured limit of $250. Management considers the risk of loss to be very low and management monitors the account balance and periodically assesses the financial condition of its correspondent banks. The Company had no funds in banks that exceeded federally insured limits at December 31, 2019. Funds of $9,876 held at Federal Home Loan Bank, and $4,651 at Federal Reserve Bank are not subject to FDIC insurance.

Interest-bearing Time Deposits in Other Banks

Interest-bearing time deposits in other banks mature within one year and are carried at cost.

Loans Held for Sale

Mortgage loans originated and intended for sale in the secondary market are carried at the lower of cost or fair value in the aggregate. Net unrealized losses, if any, are recognized through a valuation allowance by charges to noninterest income. Gains and losses on loan sales are recorded in noninterest income, and direct loan origination costs and fees are deferred at origination of the loan and are recognized in noninterest income upon sale of the loan.

Loans

Loans that management has the intent and ability to hold for the foreseeable future or until maturity or payoff are reported at their outstanding principal balances adjusted for charge-offs, the allowance for

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Eagle Financial Bancorp, Inc.

Notes to the Consolidated Financial Statements
For the years ended December 31, 2019 and 2018
(Amounts in thousands, except share and per share data)

loan losses, any unamortized deferred fees or costs on originated loans and unamortized premiums or discounts on purchased loans.

Loan origination fees, net of certain direct origination costs are deferred and amortized as a level yield adjustment over the respective term of the loan.

The accrual of interest on mortgage and commercial loans is discontinued at the time the loan is 90 days past due unless the credit is well-secured and in process of collection. Past due status is based on contractual terms of the loan. In all cases, loans are placed on nonaccrual or charged off at an earlier date if collection of principal or interest is considered doubtful.

All interest accrued but not collected for loans that are placed on nonaccrual or charged off are reversed against interest income. The interest on these loans is accounted for on the cash-basis or cost-recovery method, until qualifying for return to accrual status. Loans are returned to accrual status when all the principal and interest amounts contractually due are brought current and future payments are reasonably assured.

When cash payments are received on impaired loans in each loan class, the Company records the payment as interest income unless collection of the remaining recorded principal amount is doubtful, at which time payments are used to reduce the principal balance of the loan. Troubled debt restructured loans recognize interest income on an accrual basis at the renegotiated rate if the loan is in compliance with the modified terms, no principal reduction has been granted and the loan has demonstrated the ability to perform in accordance with the renegotiated terms for a period of at least six consecutive months.

Allowance for Loan Losses

The allowance for loan losses is established as losses are estimated to have occurred through a provision for loan losses charged to income. Loan losses are charged against the allowance when management believes the uncollectability of a loan balance is confirmed. Subsequent recoveries, if any, are credited to the allowance.

The allowance for loan losses is evaluated on a regular basis by management and is based upon management’s periodic review of the collectability of the loans in light of historical experience, the nature and volume of the loan portfolio, adverse situations that may affect the borrower’s ability to repay, estimated value of any underlying collateral and prevailing economic conditions. This evaluation is inherently subjective as it requires estimates that are susceptible to significant revision as more information becomes available.

The allowance consists of allocated and general components. The allocated component relates to loans that are classified as impaired. For those loans that are classified as impaired, an allowance is established when the discounted cash flows (or collateral value or observable market price) of the impaired loan is lower than the carrying value of that loan. The general component covers nonclassified loans and is based on a historical three-year charge-off experience and expected loss given default derived from the Company’s internal risk rating process. Other adjustments related to changes in lending policies, changes in economic conditions, trends in volume and terms of loans, delinquency levels and trends, changes in value of underlying collateral and the effect of the concentrations of credit are made to the allowance for pools of loans after an assessment of internal or external influences on credit quality that are not fully reflected in the historical losses or risk rating data.

A loan is considered impaired when, based on current information and events, it is probable that the Company will be unable to collect the scheduled payments of principal or interest when due according to the contractual terms of the loan agreement. Factors considered by management in determining impairment include payment status, collateral value and the probability of collecting scheduled principal and interest

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Eagle Financial Bancorp, Inc.

Notes to the Consolidated Financial Statements
For the years ended December 31, 2019 and 2018
(Amounts in thousands, except share and per share data)

payments when due. Loans that experience insignificant payment delays and payment shortfalls generally are not classified as impaired. Management determines the significance of payment delays and payment shortfalls on a case-by-case basis, taking into consideration all of the circumstances surrounding the loan and the borrower, including the length of the delay, the reasons for the delay, the borrower’s prior payment record and the amount of the shortfall in relation to the principal and interest owed. Impairment is measured on a loan-by-loan basis for commercial real estate and land loans, multi-family loans, commercial loans, construction loans and troubled debt restructurings by either the present value of expected future cash flows discounted at the loan’s effective interest rate, the loan’s obtainable market price or the fair value of the collateral if the loan is collateral dependent.

Groups of loans with similar risk characteristics are collectively evaluated for impairment based on the group’s historical loss experience adjusted for changes in trends, conditions and other relevant factors that affect repayment of the loans. Accordingly, the Company does not separately identify individual consumer and residential loans for impairment measurements, unless such loans are the subject of a restructuring agreement due to financial difficulties of the borrower.

Premises and Equipment

Depreciable assets are stated at cost less accumulated depreciation. Depreciation is charged to expense using the straight-line method over the estimated useful lives of the assets.

The estimated useful lives for each major depreciable classification of premises and equipment are as follows:

	Buildings and improvements			35 – 40 years
	Furniture, fixtures and equipment			3 – 5 years

Long-lived Asset Impairment

The Company evaluates the recoverability of the carrying value of long-lived assets whenever events or circumstances indicate the carrying amount may not be recoverable. If a long-lived asset is tested for recoverability and the undiscounted estimated future cash flows expected to result from the use and eventual disposition of the asset is less than the carrying amount of the asset, the asset cost is adjusted to fair value and an impairment loss is recognized as the amount by which the carrying amount of a long-lived asset exceeds its fair value.

No long-lived asset impairment was recognized during the years ended December 31, 2019 and 2018.

Federal Home Loan Bank Stock

Federal Home Loan Bank stock is a required investment for institutions that are members of the Federal Home Loan Bank system. The required investment in the common stock is based on a predetermined formula, carried at cost and evaluated for impairment.

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Eagle Financial Bancorp, Inc.

Notes to the Consolidated Financial Statements
For the years ended December 31, 2019 and 2018
(Amounts in thousands, except share and per share data)

Foreclosed Real Estate Held for Sale, Net

Assets acquired through, or in lieu of, loan foreclosure are held for sale and are initially recorded at fair value less cost to sell at the date of foreclosure, establishing a new cost basis. Subsequent to foreclosure, valuations are periodically performed by management and the assets are carried at the lower of carrying amount or fair value less cost to sell. Revenue and expenses from operations of foreclosed real estate are included in noninterest expense.

Bank-owned Life Insurance

The Company has purchased life insurance policies on certain key executives. Bank-owned life insurance is recorded at the amount that can be realized under the insurance contract at the balance sheet date, which is the cash surrender value adjusted for other charges or other amounts due that are probable at settlement. Death benefit proceeds received in excess of the policy’s cash surrender value are recognized to noninterest income. Investment returns on the bank-owned life insurance assets are added to the carrying value and included as non-interest income in the statement of income. Any receipt of benefit proceeds is recorded as a reduction of the carrying value of the bank-owned life insurance asset.

FHLB Lender Risk Account Receivable

Certain loan sales transactions with the FHLB of Cincinnati provide for establishment of a Lender Risk Account (LRA). The LRA consists of amounts withheld from loan sale proceeds by the FHLB for absorbing inherent losses that are probable on those sold loans. These withheld funds are an asset to the Company as they are scheduled to be paid to the Company in future years, net of any credit losses on those loans sold. The receivables are initially measured at fair value. The fair value is estimated by discounting the cash flows over the life of each master commitment contract. The accretable yield is amortized over the life of the master commitment contract. Expected cash flows are re-evaluated at each measurement date. If there is an adverse change in expected cash flows, the accretable yield would be adjusted on a prospective basis and the asset would be evaluated for impairment.

Accrued Interest Receivable

For loans amortized at cost, interest income is accrued based on the unpaid principal balance. The accrual of interest on mortgage and commercial loans is discontinued at the time the loan is 90 days past due unless the credit is well-secured and in process of collection. Past due status is based on contractual terms of the loan. In all cases, loans are placed on nonaccrual or charged off at an earlier date if collection of principal or interest is considered doubtful.

All interest accrued but not collected for loans that are placed on nonaccrual or charged off are reversed against interest income. The interest on these loans is accounted for on the cash-basis or cost-recovery method, until qualifying for return to accrual. Loans are returned to accrual status when all the principal and interest amounts contractually due are brought current and future payments are reasonably assured.

Accrued interest receivable was as follows:

	December 31,
	2019			2018
Loans		$	314		$	338
FHLB stock and other			12			16
		$	326		$	354

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Eagle Financial Bancorp, Inc.

Notes to the Consolidated Financial Statements
For the years ended December 31, 2019 and 2018
(Amounts in thousands, except share and per share data)

Income Taxes

The Company accounts for income taxes in accordance with authoritative guidance (ASC 740, Income Taxes). The guidance results in two components of income tax expense: current and deferred. Current income tax expense reflects taxes to be paid or refunded for the current period by applying the provisions of the enacted tax law to the taxable income or excess of deductions over revenues. The Company determines deferred income taxes using the liability (or balance sheet) method. Under this method, the net deferred tax asset or liability is based on the tax effects of the differences between the book and tax bases of assets and liabilities, and enacted changes in tax rates and laws are recognized in the period in which they occur. Deferred income tax expense results from changes in deferred tax assets and liabilities between periods. Deferred tax assets are reduced by a valuation allowance if, based on the weight of evidence available, it is more likely than not that some portion or all of a deferred tax asset will not be realized.

Uncertain tax positions are recognized if it is more likely than not, based on the technical merits, that the tax position will be realized or sustained upon examination. The term more likely than not means a likelihood of more than 50 percent; the terms examined and upon examination also include resolution of the related appeals or litigation processes, if any. A tax position that meets the more likely than not recognition threshold is initially and subsequently measured as the largest amount of tax benefit that has a greater than 50 percent likelihood of being realized upon settlement with a taxing authority that has full knowledge of all relevant information. The determination of whether or not a tax position has met the more likely than not recognition threshold considers the facts, circumstances and information available at the reporting date and is subject to management’s judgment.

The Company recognizes interest and penalties on income taxes as a component of income tax expense. With few exceptions, the Company is no longer subject to U.S. federal, state and local income tax examinations by tax authorities for years before 2016. At December 31, 2019 and 2018, the Company had no uncertain income tax positions.

Stock Options and Restricted Stock Awards Plan

The cost of employee services received in exchange for stock option grants is the grant-date fair value of the awards estimated using an option pricing model. The Company uses a Black-Scholes pricing model and related assumptions for estimating the fair value of stock option grants. The compensation costs for restricted stock awards is based on the market price of the Company’s common stock at the date of grant multiplied by the number of shares granted. The impact of forfeitures on compensation cost is recognized in the period the award is forfeited. The estimated cost is recognized on a straight-line basis over the period the employee is required to provide services in exchange for the awards.

Revisions

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

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Eagle Financial Bancorp, Inc.

Notes to the Consolidated Financial Statements
For the years ended December 31, 2019 and 2018
(Amounts in thousands, except share and per share data)

Recently Adopted Accounting Pronouncements

ASU No. 2016-01 was issued in January 2016 and applies to all entities that hold financial assets or owe financial liabilities. ASU 2016-01 is intended to improve the recognition and measurement of financial instruments by requiring equity investments to be measured at fair value with changes in fair value recognized in net income; requiring public entities to use the exit price notion when measuring the fair value of financial instruments for disclosure purposes; requiring separate presentation of financial assets and financial liabilities by measurement category and form of financial asset on the balance sheet or the accompanying notes to the financial statements; eliminating the requirement for public business entities to disclose the method(s) and significant assumptions used to estimate the fair value that is required to be disclosed for financial instruments measured and amortized at cost on the balance sheet; and requiring a reporting organization to present separately in other comprehensive income the portion of the total change in the fair value of a liability resulting from a change in the instruments specific credit risk when the organization has elected to measure the liability at fair value in accordance with the fair value option for financial instruments. ASU 2016-01 is effective for annual periods and interim periods within those periods, beginning after December 15, 2018. The amendments should be applied by means of a cumulative-effect adjustment to the balance sheet as of the beginning of the fiscal year of adoption. The Company adopted ASU 2016-01 on January 1, 2019 and it did not have a material effect on its fair value disclosures and other disclosure requirements. These amendments did have an impact on certain items that were disclosed at fair value that did not utilize the exit price notion when measuring fair value. For additional information on fair value of assets and liabilities, see Note 16.

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

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

Note 2: Earnings per Share

Basic earnings per common share (“EPS”) allocated to common shareholders is calculated using the two-class method and is computed by dividing net income allocated to common shareholders by the weighted average number of common shares outstanding during the period. Unallocated common shares held by the Company’s Employee Stock Ownership Plan (“the ESOP”) are shown as a reduction in shareholder’s

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Eagle Financial Bancorp, Inc.

Notes to the Consolidated Financial Statements
For the years ended December 31, 2019 and 2018
(Amounts in thousands, except share and per share data)

equity and are excluded from weighted-average common shares outstanding for both basic and diluted EPS calculations until they are committed to be released. Diluted earnings per share is adjusted for the dilutive effects of stock-based compensation and is calculated using the two-class method or the treasury method. There were no dilutive effects at December 31, 2019 or 2018.

The computation for the years ended December 31, 2019 and December 31, 2018 are as follows:

	Year Ended December 31, 2019			Year Ended December 31, 2018
Net Income		$	658		$	344
Less allocation of earnings to participating securities			17			2
Net income allocated to common shareholders		$	641		$	342
Shares Outstanding for basic earnings per common share:
Weighted Average shares outstanding:			1,588,504			1,612,714
Less: Average Unearned ESOP shares:			112,628			119,106
Weighted average number of shares outstanding used in the calculation of basic earnings per common share			1,475,876			1,493,608
Basic earnings per common share:		$	0.43		$	0.23
Effect of dilutive securities:
Stock Options			—			—
Weighted average number of shares outstanding used in the calculation of dilutive earnings per common share			1,475,876			1,493,608
Diluted earnings per common share:		$	0.43		$	0.23

Note 3: Loans and Allowance for Loan Losses

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

	December 31,
	2019			2018
Residential mortgage loans		$	59,859		$	67,169
Commercial real estate and land loans			20,800			17,587
Home equity and other consumer			9,690			13,773
Residential construction loans			11,684			11,756
Residential mortgage loans, non-owner occupied			5,522			6,464
Multi-family real estate loans			1,065			1,185
Commercial loans			5,921			6,041
			114,541			123,975
Net deferred loan costs			4			14
Loans in process			(6,811)			(9,485)
Allowance for loan losses			(1,166)			(1,187)
Net loans		$	106,568		$	113,317

Loans serviced for the benefit of others at December 31, 2019 and 2018 amounted to $1,633 and $1,816, respectively. Loans in process relates to primarily residential mortgage loans.

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

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Eagle Financial Bancorp, Inc.

Notes to the Consolidated Financial Statements
For the years ended December 31, 2019 and 2018
(Amounts in thousands, except share and per share data)

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

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

Commercial Real Estate and Multi-Family Real Estate: Commercial real estate loans typically involve larger principal amounts, and repayment of these loans is generally dependent on the successful operations of the property securing the loan or the business conducted on the property securing the loan. Multi-family real estate loans are generally secured by apartment complexes.

These loans are viewed primarily as cash flow loans and secondarily as loans secured by real estate. Credit risk in these loans may be impacted by the creditworthiness of a borrower, property values and the local economies in the Bank’s market areas.

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

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

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Eagle Financial Bancorp, Inc.

Notes to the Consolidated Financial Statements
For the years ended December 31, 2019 and 2018
(Amounts in thousands, except share and per share data)

The following tables present the activity in the allowance for loan losses and the recorded investment in loans based on portfolio segment and impairment method as of December 31, 2019 and 2018:

December 31, 2019	Residential Mortgage Loans			Commercial Real Estate and Land Loans			Home Equity and Other Consumer			Residential Construction Loans			Residential Mortgage Loans Non-Owner Occupied			Multi-Family Real Estate Loans			Commercial Loans			Total
Allowance for loan losses:
Balance, beginning of year		$	409		$	260		$	313		$	128		$	42		$	14		$	21		$	1,187
Provision (credit) charged to expense			(30)			86			(50)			11			(15)			(1)			(1)			—
Losses charged off			—			—			(39)			—			—			—			—			(39)
Recoveries			15			—			1			—			2			—			—			18
Balance, end of year		$	394		$	346		$	225		$	139		$	29		$	13		$	20		$	1,166
Ending balance: individually evaluated for impairment		$	11		$	—		$	—		$	—		$	—		$	—		$	—		$	11
Ending balance: collectively evaluated for impairment		$	383		$	346		$	225		$	139		$	29		$	13		$	20		$	1,155
Loans:
Ending balance		$	59,859		$	20,800		$	9,690		$	11,684		$	5,522		$	1,065		$	5,921		$	114,541
Ending balance: individually evaluated for impairment		$	105		$	—		$	39		$	—		$	671		$	—		$	—		$	815
Ending balance: collectively evaluated for impairment		$	59,754		$	20,800		$	9,651		$	11,684		$	4,851		$	1,065		$	5,921		$	113,726

December 31, 2018	Residential Mortgage Loans			Commercial Real Estate and Land Loans			Home Equity and Other Consumer			Residential Construction Loans			Residential Mortgage Loans Non-Owner Occupied			Multi-Family Real Estate Loans			Commercial Loans			Total
Allowance for loan losses:
Balance, beginning of year		$	283		$	199		$	276		$	116		$	122		$	25		$	160		$	1,181
Provision (credit) charged to expense			146			129			44			12			(82)			(11)			(139)			99
Losses charged off			(35)			(68)			(7)			—			—			—			—			(110)
Recoveries			15			—			—			—			2			—			—			17
Balance, end of year		$	409		$	260		$	313		$	128		$	42		$	14		$	21		$	1,187
Ending balance: individually evaluated for impairment		$	3		$	—		$	—		$	—		$	—		$	—		$	—		$	3
Ending balance: collectively evaluated for impairment		$	406		$	260		$	313		$	128		$	42		$	14		$	21		$	1,184
Loans:
Ending balance		$	67,169		$	17,587		$	13,773		$	11,756		$	6,464		$	1,185		$	6,041		$	123,975
Ending balance: individually evaluated for impairment		$	74		$	—		$	43		$	—		$	190		$	—		$	—		$	307
Ending balance: collectively evaluated for impairment		$	67,095		$	17,587		$	13,730		$	11,756		$	6,274		$	1,185		$	6,041		$	123,668

Internal Risk Categories

Loan grades are numbered 1 through 8. Grades 5 through 8 are considered satisfactory grades. The grade of 1, or Special Mention, represents loans of lower quality and is considered criticized. The grades of

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Eagle Financial Bancorp, Inc.

Notes to the Consolidated Financial Statements
For the years ended December 31, 2019 and 2018
(Amounts in thousands, except share and per share data)

2, or Substandard, 3, or Doubtful, and 4, or Loss refer to assets that are classified. The use and application of these grades by the Company will be uniform and shall conform to the Bank’s policy.

Special Mention (grade 1) assets have potential weaknesses that deserve management’s close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the asset or in the institution’s credit position at some future date. Special mention assets are not adversely classified and do not expose an institution to sufficient risk to warrant adverse classification. Ordinarily, special mention credits have characteristics which corrective management action would remedy.

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

Doubtful (grade 3) loans classified as doubtful have all the weaknesses inherent in those classified Substandard with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of current known facts, conditions and values, highly questionable and improbable.

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

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

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

December 31, 2019	Residential Mortgage Loans			Commercial Real Estate and Land Loans			Home Equity and Other Consumer			Residential Construction Loans			Residential Mortgage Loans Non-Owner Occupied			Multi-Family Real Estate Loans			Commercial Loans			Total
Rating
Satisfactory (5 – 8)		$	59,395		$	20,611		$	9,566		$	11,684		$	5,033		$	1,065		$	5,773		$	113,127
Special mention(1)			—			—			—			—			—			—			—			—
Substandard(2)			464			189			124			—			489			—			148			1,414
Doubtful(3)			—			—			—			—			—			—			—			—
Loss(4)			—			—			—			—			—			—			—			—
Total		$	59,859		$	20,800		$	9,690		$	11,684		$	5,522		$	1,065		$	5,921		$	114,541

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

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Eagle Financial Bancorp, Inc.

Notes to the Consolidated Financial Statements
For the years ended December 31, 2019 and 2018
(Amounts in thousands, except share and per share data)

The following tables present the Company’s loan portfolio aging analysis as of December 31, 2019 and 2018:

December 31, 2019	30 – 59 Days Past Due			60 – 89 Days Past Due			90 Days Past Due or More			Total Past Due			Current			Total Loans Receivable			Recorded Investment 90 Days and Accruing
Residential mortgage loans		$	75		$	—		$	364		$	439		$	59,420		$	59,859		$	—
Commercial real estate and land loans			—			—			—			—			20,800			20,800			—
Home equity and other consumer			6			18			—			24			9,666			9,690			—
Residential construction loans			—			—			—			—			11,684			11,684			—
Residential mortgage loans, non-owner occupied			—			—			489			489			5,033			5,522			—
Multi-family real estate loans			—			—			—			—			1,065			1,065			—
Commercial loans			—			—			—			—			5,921			5,921			—
Total		$	81		$	18		$	853		$	952		$	113,589		$	114,541		$	—

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

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

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Eagle Financial Bancorp, Inc.

Notes to the Consolidated Financial Statements
For the years ended December 31, 2019 and 2018
(Amounts in thousands, except share and per share data)

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

December 31, 2019	Recorded Balance			Unpaid Principal Balance			Allocated Allowance			Average Investment in Impaired Loans			Interest Income Recognized
Loans without an allocated allowance:
Residential mortgage loans		$	71		$	71		$	—		$	73		$	4
Commercial real estate and land loans			—			—			—			—			—
Home equity and other consumer			39			39			—			41			2
Residential construction loans			—			—			—			—			—
Residential mortgage loans, non-owner occupied			671			671			—			307			19
Multi-family real estate loans			—			—			—			—			—
Commercial loans			—			—			—			—			—
Loans with an allocated allowance:
Residential mortgage loans			34			34			11			8			1
Commercial real estate and land loans			—			—			—			—			—
Home equity and other consumer			—			—			—			—			—
Residential construction loans			—			—			—			—			—
Residential mortgage loans, non-owner occupied			—			—			—			—			—
Multi-family real estate loans			—			—			—			—			—
Commercial loans			—			—			—			—			—
Total		$	815		$	815		$	11		$	429		$	26

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

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

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Eagle Financial Bancorp, Inc.

Notes to the Consolidated Financial Statements
For the years ended December 31, 2019 and 2018
(Amounts in thousands, except share and per share data)

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

	December 31,
	2019			2018
Residential mortgage loans		$	364		$	362
Commercial real estate and land loans			—			—
Home equity and other consumer			—			71
Residential construction loans			—			—
Residential mortgage loans, non-owner occupied			489			—
Multi-family real estate loans			—			—
Commercial loans			—			—
Total		$	853		$	433

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

	Number of Contracts		Recorded Investment
At December 31, 2019
Residential mortgage loans		1		$	71
Commercial real estate and land loans		—			—
Home equity and other consumer		2			39
Residential construction loans		—			—
Residential mortgage loans, non-owner occupied		4			182
Multi-family real estate loans		—			—
Commercial loans		—			—
		7		$	292
At December 31, 2018
Residential mortgage loans		1		$	74
Commercial real estate and land loans		—			—
Home equity and other consumer		2			43
Residential construction loans		—			—
Residential mortgage loans, non-owner occupied		4			190
Multi-family real estate loans		—			—
Commercial loans		—			—
		7		$	307

As of December 31, 2019, the Company had total troubled debt restructurings of $292. There were five residential mortgage loans and residential non-owner occupied loans totaling $253 in troubled debt restructurings with the largest totaling $71. The remaining $39 in troubled debt restructurings consisted of two home equity loans. As of December 31, 2018, the Company had total troubled debt restructurings of $307. There were five residential mortgage loans and residential non-owner occupied loans totaling $264 in troubled debt restructurings with the largest totaling $74. The remaining $43 in troubled debt restructurings consisted of two home equity loans. These loans were modified due to short term concessions. The Company made no commitments to lend additional funds to these debtors owing receivables whose terms have been modified in troubled debt restructurings.

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Eagle Financial Bancorp, Inc.

Notes to the Consolidated Financial Statements
For the years ended December 31, 2019 and 2018
(Amounts in thousands, except share and per share data)

During the years ended December 31, 2019 and 2018 there were no loans modified as troubled debt restructurings.

Loans to executive officers, directors and their affiliates of the Company for the years ended December 31, 2018 and 2017 are summarized as follows:

	December 31,
	2019			2018
Balance, beginning of year		$	79		$	89
Loan disbursements			—			—
Principal repayments			(20)			(10)
Balance, end of year		$	59		$	79

At December 31, 2019 and 208, there was an additional $50 and $33 in available credit on loans to executive officers, directors and their affiliates.

In management’s opinion, such loans and other extensions of credit were made in the ordinary course of business and were made on substantially the same terms (including interest rates and collateral) as those prevailing at the time for comparable transactions with other persons. Further, in management’s opinion, these loans did not involve more than normal risk of collectability or present other unfavorable features.

Note 4: Premises and Equipment

Major classifications of premises and equipment, stated at cost, at December 31, 2019 and 2018, are as follows:

	December 31,
	2019			2018
Land		$	1,169		$	1,169
Buildings and improvements			3,629			3,629
Furniture, fixtures and equipment			1,865			1,812
			6,663			6,610
Less accumulated depreciation			2,601			2,400
Net premises and equipment		$	4,062		$	4,210

Depreciation expense for the years ended December 31, 2019 and 2018 was $201 and $209, respectively.

Note 5: FHLB Lender Risk Account (LRA) Receivable

The Company has an established LRA with the FHLB of Cincinnati consisting of amounts withheld from loan sale proceeds by the FHLB for absorbing inherent losses that are probable on sold loans. The funds withheld to settle these inherent losses that are probable totaled $6,191 and $5,881 at December 31, 2019 and 2018, respectively; however, these receivables are recorded at fair value at the time of sale, which includes consideration for inherent losses that are probable. In the event that the credit losses do not exceed the withheld funds, the LRA agreements provide for payment of these funds from the FHLB to the Company in 26 annual installments, beginning five years after the sale date. The carrying value of the LRA totaled $3,646 and $3,377 at December 31, 2019 and 2018, respectively. The Company had mandatory delivery contracts outstanding of $6.7 million at December 31, 2019.

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Eagle Financial Bancorp, Inc.

Notes to the Consolidated Financial Statements
For the years ended December 31, 2019 and 2018
(Amounts in thousands, except share and per share data)

Note 6: Foreclosed Real Estate Held for Sale, Net

Foreclosed real estate held for sale, net is summarized as follows:

	December 31,
	2019			2018
Commercial real estate		$	—		$	127
Owner-occupied residential real estate			—			90
		$	—		$	217

At December 31, 2019, there was no foreclosed real estate. At December 31, 2018 foreclosed real estate included one owner-occupied residential property totaling $90, and one commercial real estate property totaling $127.

Activity in foreclosed real estate held for sale, net is summarized as follows:

	December 31,
	2019			2018
Balance, beginning of year		$	217		$	—
Foreclosures			—			263
Proceeds from sale			(245)			(45)
Loans to facilitate sales			—			—
Impairment			—			—
Gain (loss) on sale			28			(1)
Balance, end of year		$	—		$	217

The Company had two loans in the process of foreclosure totaling $523 at December 31, 2019.

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Eagle Financial Bancorp, Inc.

Notes to the Consolidated Financial Statements
For the years ended December 31, 2019 and 2018
(Amounts in thousands, except share and per share data)

Note 7: Deposits

Deposits are summarized as follows:

Description and weighted-average interest rates:

	December 31,
	2019			2018
Non-interest bearing checking accounts
2019 – 0.00%		$	5,967
2018 – 0.00%					$	5,878
Interest bearing checking accounts
2019 – 0.18%			20,786
2018 – 0.16%						19,909
Savings accounts
2019 – 0.14%			17,313
2018 – 0.14%						17,010
Money market demand accounts
2019 – 0.63%			20,356
2018 – 0.22%						17,074
Total checking, savings and money market deposits			64,422			59,871
Certificates of deposits
0.00 – 0.99%			2,410			5,506
1.00 – 1.99%			19,431			31,681
2.00 – 2.99%			24,860			9,311
3.00 – 3.99%			868			—
Total certificates – average rate 2.07% and 1.72%			47,569			46,498
Total deposits – average rate 1.07% and 0.85%		$	111,991		$	106,369

At December 31, 2019, the scheduled maturities of certificates of deposits are summarized as follows:

	December 31, 2019
2020		$	26,409
2021			11,091
2022			5,052
2023			998
2024			4,019
		$	47,569

Certificates of deposits in denominations of $250 or more were $5,018 and $4,491 at December 31, 2019 and 2018, respectively. There were no brokered deposits at December 31, 2019 and 2018. Under the Federal Deposit Insurance Act and the FDIC’s implementing regulations, $250 is the standard maximum deposit insurance amount for deposits in an insured depository institution that are maintained in the same ownership right and capacity. Deposits maintained in different rights and capacities are insured separately from each other.

Deposits from executive officers, directors and affiliates held by the Bank at December 31, 2019 and 2018 totaled $576 and $866, respectively.

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Eagle Financial Bancorp, Inc.

Notes to the Consolidated Financial Statements
For the years ended December 31, 2019 and 2018
(Amounts in thousands, except share and per share data)

Interest expense on deposits is summarized as follows:

	Years Ended December 31,
	2019			2018
Checking accounts		$	33		$	28
Savings accounts			24			25
Money market demand accounts			91			42
Certificates of deposits			957			675
		$	1,105		$	770

Note 8: FHLB Advances

The Bank had no advances from the Federal Home Loan Bank at December, 31 2019 and 2018. At December 31, 2019, the Bank had an additional $48.8 million of available borrowing capacity.

At both December 31, 2019 and 2018, the Bank had an unused line of credit with the Federal Home Loan Bank of $10,000.

Note 9: Income Taxes

The provision for income taxes includes these components:

	Years Ended December 31,
	2019			2018
Federal taxes currently payable		$	395		$	278
Federal deferred income taxes			(208)			(184)
Federal income tax expense		$	187		$	94

In lieu of state income taxes, the Company pays a franchise tax. Franchise taxes for 2019 and 2018 were $222 and $219, respectively.

A reconciliation of federal income tax expense at the statutory rate to the Company’s actual federal income tax expense is shown below:

	Years Ended December 31,
	2019			2018
Computed at the statutory rate of 21%		$	177		$	92
Increase (decrease) resulting from
Tax-exempt BOLI income			(10)			(10)
Incentive Stock Options			16			4
ESOP			7			13
Other			(3)			(5)
Actual federal income tax expense		$	187		$	94

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Eagle Financial Bancorp, Inc.

Notes to the Consolidated Financial Statements
For the years ended December 31, 2019 and 2018
(Amounts in thousands, except share and per share data)

The tax effects of temporary differences related to the deferred federal tax asset (liability) shown on the balance sheets were:

	December 31,
	2019			2018
Deferred tax assets
Allowance for loan losses		$	245		$	249
Deferred compensation			282			237
Charitable contributions			20			66
Non-Incentive Stock Options			10			2
Other assets			33			6
			590			560
Deferred tax liabilities
FHLB stock basis difference			(87)			(87)
Depreciation			(92)			(103)
Restricted stock and 83B elections			(1)			(2)
FHLB lender risk account receivable			(333)			(499)
			(513)			(691)
Net deferred federal tax asset (liability)		$	77		$	(131)

Retained earnings at December 31, 2019 and 2018, includes approximately $577, for which no deferred federal income tax liability has been recognized. This amount represents an allocation of income to bad debt deductions for tax purposes only. Reduction of amounts so allocated for purposes other than tax bad debt losses or adjustments arising from carryback of net operating losses would create income for tax purposes only, which would be subject to the then-current corporate income tax rate. The deferred federal income tax liabilities on the preceding amount that would have been recorded if they were expected to reverse into taxable income in the foreseeable future was approximately $117 and $121 at December 31, 2019 and 2018.

Note 10: Regulatory Matters

The Bank is subject to various regulatory capital requirements administered by the federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have a direct material effect on the Bank’s financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Bank must meet specific capital guidelines that involve quantitative measures of the Bank’s assets, liabilities and certain off-balance-sheet items as calculated under United States Generally Accepted Accounting Principles, regulatory reporting requirements and regulatory capital standards. The Bank’s capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings and other factors. Furthermore, the Bank’s regulators could require adjustments to regulatory capital not reflected in these financial statements.

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

As of December 31, 2019 and 2018, the most recent notification from the Bank’s regulators categorized the Bank as well capitalized under the regulatory framework for prompt corrective action. To be categorized

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Eagle Financial Bancorp, Inc.

Notes to the Consolidated Financial Statements
For the years ended December 31, 2019 and 2018
(Amounts in thousands, except share and per share data)

as well capitalized, the Bank must maintain minimum total risk-based capital, Tier I risk-based capital, common equity Tier 1 risk-based capital and Tier I leverage ratios as set forth in the table. There are no conditions or events since that notification that management believes have changed the Bank’s category.

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

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

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

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Eagle Financial Bancorp, Inc.

Notes to the Consolidated Financial Statements
For the years ended December 31, 2019 and 2018
(Amounts in thousands, except share and per share data)

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

	Actual					Minimum Capital Requirement					Minimum to Be Well Capitalized Under Prompt Corrective Action Provisions
As of December 31, 2019:	Amount			Ratio		Amount			Ratio		Amount			Ratio
Equity		$	22,013
Allowance for loan losses			1,166
Total risk-based capital (to risk-weighted assets)		$	23,179		17.2%		$	10,809		8.0%		$	13,511		10.0%
Tier I capital (to risk-weighted assets)			22,013		16.3%			8,107		6.0%			10,809		8.0%
Common equity Tier I capital (to risk-weighted assets)			22,013		16.3%			6,080		4.5%			8,782		6.5%
Tier I capital (to adjusted total assets)			22,013		15.4%			5,709		4.0%			7,136		5.0%

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

Note 11: Employee Benefits

The Company has supplemental retirement plans for directors, certain senior officers and key employees. Participants in the directors plan, shall be fully vested upon retirement and will receive an annual benefit for five years equal to $1 for each year of service provided by the director to the Company. Participants in the plan for certain senior officers and key employees, upon retirement, will receive annually, for fifteen years, 45% of their final three-year annual base salary amount average. The plans are uniquely designed for each participant. The charge to expense for 2019 and 2018 for both plans was approximately $218 and $222, respectively. Such charges reflect the straight-line accrual over the period until full eligibility date at normal retirement of 66 years of age of the present value of benefits due each participant, using a 5% discount factor at both December 31, 2019 and December 31, 2018. The resulting liability at December 31, 2019 and 2018 for both plans was approximately $1,518 and $1,301, respectively. The Company purchased life insurance on the participants. The cash surrender value of such insurance was $2,005 and $1,958 at December 31, 2019 and 2018, respectively.

The Bank has a 401(k) profit-sharing plan covering substantially all employees who have attained the age of 21 and have completed one year of eligibility service. The Company may, in its sole discretion, make a matched employee contribution during the plan year in an amount as determined by the Company. The Internal Revenue Code may also further restrict matching contributions for highly compensated employees. The Company may, in its sole discretion, make a Profit Sharing Contribution to the Profit Sharing Plan.

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Eagle Financial Bancorp, Inc.

Notes to the Consolidated Financial Statements
For the years ended December 31, 2019 and 2018
(Amounts in thousands, except share and per share data)

Employees will be eligible to receive an allocation if they have completed at least 1000 hours of service during the Plan Year and are employed by the Company on the last day of the Plan Year. Profit Sharing Contributions will be allocated to the Profit Sharing Contribution Accounts of each Participant eligible to share in such allocation after the end of the Plan Year. The Company’s contributions to the plan are determined annually by the Board of Directors. Contributions to the plan were $95 and $65 for the years ended December 31, 2019 and 2018, respectively.

Note 12: Equity Incentive Plan

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

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

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

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

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

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

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

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

At December 31, 2019, 6,450 of the stock options granted to the Board of Directors were exercisable at an average price of $15.89, and 13,871 of the stock options granted to the Executive Officers were exercisable at an average price of $15.75. At December 31, 2019, no stock options were exercised.

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Eagle Financial Bancorp, Inc.

Notes to the Consolidated Financial Statements
For the years ended December 31, 2019 and 2018
(Amounts in thousands, except share and per share data)

The table below represents the stock option activity for the period shown:

	Options		Weighted- Average Exercise Price			Remaining Contractual Life (Years)
Options outstanding at January 1, 2019		101,611		$	15.79		4.7
Granted		—			—		—
Exercised		—			—		—
Forfeited		—			—		—
Expired		—			—		—
Options outstanding at December 31, 2019		101,611		$	15.79		3.7
Options Exercisable at December 31, 2019		20,321		$	15.79		3.7
Options outstanding at January 1, 2018		—		$	—
Granted		101,611			15.79		5.0
Exercised		—			—
Forfeited		—			—
Expired		—			—
Options outstanding at December 31, 2018		101,611			15.79		4.7
Options Exercisable at December 31, 2018		—			—		—

In September 2018, the Company awarded 12,900 restricted shares to members of the Board of Directors. The restricted stock awards have a five year vesting period. During the restricted period, the holder is entitled to full voting rights and dividends, thus are considered participating securities. At December 31, 2019, 2,580 restricted shares awarded to the Board of Directors were vested.

In October 2018, the Company awarded 29,050 restricted shares to Executive Officers and other employees of the Company. The restricted stock awards have a five year vesting period. During the restricted period, the holder is entitled to full voting rights and dividends, thus are considered participating securities. At December 31, 2019, 5,810 restricted shares awarded to Executive Officers were vested.

The table below presents the restricted stock activity for the period shown:

	Restricted stock awards		Weighted-Average grant date fair value
Non-vested at January 1, 2019		41,950		$	15.79
Granted		—			—
Vested		8,390			15.95
Forfeited		—			—
Non-vested at December 31, 2019		33,560		$	15.79

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Eagle Financial Bancorp, Inc.

Notes to the Consolidated Financial Statements
For the years ended December 31, 2019 and 2018
(Amounts in thousands, except share and per share data)

	Restricted stock awards		Weighted-Average grant date fair value
Non-vested at January 1, 2018		—		$	—
Granted		41,950			15.79
Vested		—			—
Forfeited		—			—
Non-vested at December 31, 2018		41,950		$	15.79

Total compensation cost recognized in the income statement for share-based payment arrangements during 2019 was $246.

As of December 31, 2019, there was approximately $916 of total unrecognized compensation cost related to unvested share-based compensation arrangements granted under the Plan. That cost is expected to be recognized over a remaining weighted-average period of 3.7 years.

Note 13: Employee Stock Ownership Plan

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

The debt of the ESOP is eliminated in consolidation. Contributions to the ESOP shall be sufficient to pay principal and interest currently due under the loan agreement. As shares are committed to be released from collateral, the Company reports the compensation expense equal to the average market price of the shares for the respective period, and the shares become outstanding for earnings per share computations. Dividends on unallocated ESOP shares, if any, are recorded as a reduction of debt and accrued interest. ESOP compensation was $102 for the years ended December 31, 2019 and 2018.

A summary of the ESOP shares as of December 31 are as follows:

	Year Ended December 31, 2019			Year Ended December 31, 2018
Shares released to participants			6,451			6,451
Shares allocated to participants			12,902			6,451
Unreleased shares			109,671			116,122
Total			129,024			129,024
Fair Value of unreleased shares		$	1,738,285		$	1,761,571

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Eagle Financial Bancorp, Inc.

Notes to the Consolidated Financial Statements
For the years ended December 31, 2019 and 2018
(Amounts in thousands, except share and per share data)

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

Note 14: Operating Leases (Lessee)

The Company has a noncancellable operating lease for a branch that expires in 2020. The remaining future minimum lease payments for 2020 are $32. Rental expense for this lease was $45, and $44 for both years ended December 31, 2019 and 2018.

Note 15: Operating Leases (Lessor)

The Company has entered into agreements as lessor for office space for its main corporate building. The leases all have an initial term of five years with options to renew at various terms. Rental income for these leases, included in occupancy and equipment, net of noninterest expense, was approximately $178 and $177 for the years ended December 31, 2019 and 2018, respectively.

Future minimum payments to be received at December 31, 2019 are:

2020		114
2021		63
2022		30
Total minimum lease receipts	$	207

Note 16: Disclosures About Fair Value of Assets and Liabilities

ASC Topic 820, Fair Value Measurements, defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Topic 820 also specifies a fair value hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The standard describes three levels of inputs that may be used to measure fair value:

Level 1

Quoted prices in active markets for identical assets or liabilities

Level 2

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

Level 3

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

Nonrecurring Measurements

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

				Fair Value Measurements Using
December 31, 2019	Fair Value			Quoted Prices in Active Markets for Identical Assets (Level 1)			Significant Other Observable Inputs (Level 2)			Significant Unobservable Inputs (Level 3)
Impaired loans (collateral dependent)		$	105		$	—		$	—		$	105

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Eagle Financial Bancorp, Inc.

Notes to the Consolidated Financial Statements
For the years ended December 31, 2019 and 2018
(Amounts in thousands, except share and per share data)

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

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

Collateral-dependent Impaired Loans, Net of ALLL

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

Unobservable (Level 3) Inputs

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

Fair Value at
12/31/2019

Valuation
Technique

Unobservable
Inputs

Range

Impaired loans (collateral dependent)

105

Market comparable
properties

Marketability
discount

10% – 15%

Fair Value at
12/31/2018

Valuation
Technique

Unobservable Inputs

Range

Impaired loans (collateral dependent)

Market comparable
properties

Marketability
discount

10% – 15%

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

Cash and Cash Equivalents and Interest-bearing Time Deposits in other Banks

The carrying amount approximates fair value.

Loans Held For Sale

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

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Eagle Financial Bancorp, Inc.

Notes to the Consolidated Financial Statements
For the years ended December 31, 2019 and 2018
(Amounts in thousands, except share and per share data)

Loans

The estimated fair value of loans as of December 31, 2019 follows the guidance in ASU 2016-01, which prescribes an “exit price” approach in estimating and disclosing fair value of financial instruments. The fair value calculation at that date discounted estimated future cash flows using rates that incorporated discounts for credit, liquidity and marketability factors. The fair value estimate shown as of December 31, 2018 used an “entry price” approach. The fair value calculation for that date discounted estimated future cash flows using the market rates at which similar notes would be made to borrowers with similar credit ratings and for the same remaining maturities. The market rates used are based on current rates the Bank would impose for similar loans and reflect a market participant assumption about risks associated with nonperformance, illiquidity, and the structure and term of the loans along with local economic and market conditions. Consequently, the fair value disclosures for December 31, 2019 and December 31, 2018 are not directly comparable.

FHLB Stock

Fair value is estimated at book value due to restrictions that limit the sale or transfer of such securities.

FHLB Lender Risk Account Receivable

The fair value of the Federal Home Loan Bank lender risk account receivable is estimated by discounting the estimated remaining cash flows of each strata of the receivable at current rates applicable to each strata for the same remaining maturities.

Accrued Interest Receivable and Payable

The carrying amount approximates fair value. The carrying amount is determined using the interest rate, balance and last payment date.

Deposits

Fair value of term deposits is estimated by discounting the future cash flows using rates of similar deposits with similar maturities. The market rates used were obtained from a knowledgeable independent third party and reviewed by the Company. The rates were the average of current rates offered by local competitors of the Company.

The estimated fair value of checking, NOW, savings and money market deposits is the book value since rates are regularly adjusted to market rates and amounts are payable on demand at the reporting date.

FHLB Advances

Fair value is estimated by discounting the future cash flows using rates of similar advances with similar maturities. These rates were obtained from current rates offered by FHLB.

Advances from Borrowers for Taxes and Insurance

The carrying amount approximates fair value.

Commitments to Originate Loans, Forward Sale Commitments, Letters of Credit and Lines of Credit

The fair value of commitments to originate loans is estimated using the fees currently charged to enter into similar agreements, taking into account the remaining terms of the agreements and the present creditworthiness of the counterparties. For fixed-rate loan commitments, fair value also considers the difference between current levels of interest rates and the committed rates. The fair value of commitments

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Eagle Financial Bancorp, Inc.

Notes to the Consolidated Financial Statements
For the years ended December 31, 2019 and 2018
(Amounts in thousands, except share and per share data)

to sell securities is estimated based on current market prices for securities of similar terms and credit quality. The fair values of letters of credit and lines of credit are based on fees currently charged for similar agreements or on the estimated cost to terminate or otherwise settle the obligations with the counterparties at the reporting date. At December 31, 2019 and 2018, the fair value of such commitments was not material.

The following tables present estimated fair values of the Company’s financial instruments at December 31, 2019 and 2018.

December 31, 2019	Carrying Amount			Fair Value			Fair Value Measurements Using
December 31, 2019	Carrying Amount			Fair Value			(Level 1)			(Level 2)			(Level 3)
Financial Assets
Cash and cash equivalents		$	15,301		$	15,301		$	15,301		$	—		$	—
Interest-bearing time deposits			2,988			2,988			2,988			—			—
Loans held for sale			6,390			6,390			—			—			6,390
Loans, net of allowance for losses			106,568			107,360			—			—			107,360
FHLB stock			816			816			—			816			—
FHLB lender risk account receivable			3,646			3,805			—			—			3,805
Interest receivable			326			326			—			326			—
Financial Liabilities
Deposits			111,991			112,197			64,423			47,774			—
Advances from borrowers for taxes and insurance			858			858			—			858			—
Interest payable			2			2			—			2			—

December 31, 2018	Carrying Amount			Fair Value			Fair Value Measurements Using
December 31, 2018	Carrying Amount			Fair Value			(Level 1)			(Level 2)			(Level 3)
Financial Assets
Cash and cash equivalents		$	7,434		$	7,434		$	7,434		$	—		$	—
Interest-bearing time deposits			3,486			3,486			3,486			—			—
Loans held for sale			1,827			1,827			—			—			1,827
Loans, net of allowance for losses			113,317			114,248			—			—			114,248
FHLB stock			754			754			—			754			—
FHLB lender risk account receivable			3,377			3,294			—			—			3,294
Interest receivable			354			354			—			354			—
Financial Liabilities
Deposits			106,369			105,829			59,872			45,957			—
FHLB advances			—			—			—			—			—
Advances from borrowers for taxes and insurance			950			950			—			950			—
Interest payable			1			1			—			1			—

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Eagle Financial Bancorp, Inc.

Notes to the Consolidated Financial Statements
For the years ended December 31, 2019 and 2018
(Amounts in thousands, except share and per share data)

Note 17: Significant Estimates and Concentrations

Accounting principles generally accepted in the United States of America require disclosure of certain significant estimates and current vulnerabilities due to certain concentrations. Estimates related to the allowance for loan losses are reflected in Note 3 regarding loans. Current vulnerabilities due to certain concentrations of credit risk are discussed in the footnote on commitments and credit risk.

At December 31, 2019 and 2018, the Company held $20,800 and $17,587, respectively, in commercial real estate and land loans collateralized by commercial real estate and land in the Cincinnati geographic area. The accompanying financial statements have been prepared using values and information currently available to the Company.

Note 18: Commitments and Credit Risk

Commitments to Originate Loans

Commitments to originate loans are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since a portion of the commitments may expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. Each customer’s creditworthiness is evaluated on a case-by-case basis. The amount of collateral obtained, if deemed necessary, is based on management’s credit evaluation of the counterparty. Collateral held varies, but may include accounts receivable, inventory, property, plant and equipment, commercial real estate and residential real estate.

At December 31, 2019 and 2018, the Bank had no loans approved but yet to close. At December 31, 2019 and 2018, the Company had undisbursed loans in process of $6,811 with interest rate ranges of 3.875% — 4.875% and $9,485 with interest rate ranges of 3.125% — 5.730%, respectively.

Lines of Credit

Lines of credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Lines of credit generally have fixed expiration dates. Since a portion of the line may expire without being drawn upon, the total unused lines do not necessarily represent future cash requirements. Each customer’s creditworthiness is evaluated on a case-by-case basis. The amount of collateral obtained, if deemed necessary, is based on management’s credit evaluation of the counterparty. Collateral held varies but may include accounts receivable, inventory, property, plant and equipment, commercial real estate and residential real estate.

Management uses the same credit policies in granting lines of credit as it does for on-balance-sheet instruments.

Lines of credit at December 31, 2019 were as follows:

Unused lines of credit	$	4,659
Standby letters of credit		—
Unused home equity lines		10,850
Total commitments	$	15,509

Subsequent Events

As a result of the spread of the COVID-19 coronavirus, economic uncertainties have arisen which may negatively affect the financial position, results of operations and cash flows of the Company. The duration of these uncertainties and the ultimate financial effects cannot be reasonably estimated at this time.

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Eagle Financial Bancorp, Inc.

Notes to the Consolidated Financial Statements
For the years ended December 31, 2019 and 2018
(Amounts in thousands, except share and per share data)

Note 19: Recent Accounting Pronouncements

Eagle Financial Bancorp, Inc. is an “emerging growth company. As an “emerging growth company”, we have elected to use the extended transition period to delay adoption of new or revised accounting pronouncements applicable to public companies until such pronouncements are made applicable to private companies. Accordingly, our financial statements may not be comparable to the financial statements of public companies that comply with such new or revised accounting standards.

In February 2016, the FASB issued ASU No. 2016-02 “Leases (Topic 842).” ASU 2016-02 establishes a right of use model that requires a lessee to record a right of use asset and a lease liability for all leases with terms longer than 12 months. Leases will be classified as either finance or operating, with classification affecting the pattern of expense recognition in the income statement. For lessors, the guidance modifies the classification criteria and the accounting for sales-type and direct financing leases. A lease will be treated as sale if it transfers all of the risks and rewards, as well as control of the underlying asset, to the lessee. If risks and rewards are conveyed without the transfer of control, the lease is treated as a financing. If the lessor doesn’t convey risks and rewards or control, an operating lease results. Public business entities should apply the amendments in ASU 2016-02 for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. On October 16, 2019 FASB voted to delay implementation of ASU No. 2016-02 “Leases (Topic 842).” Nonpublic business entities should now apply the amendments for fiscal years beginning after December 15, 2020 and interim periods within fiscal years beginning after December 15, 2021. Entities are required to use a modified retrospective approach for leases that exist or are entered into after the beginning of the earliest comparative period in the financial statements, with certain practical expedients available. The impact is not expected to have a material effect on the Company’s financial position or results of operations since the Company does not have a material amount of lease agreements. The Company is continuing to evaluate the amendments and will subsequently implement new processes to comply with the ASU. In addition, the Company will change its current accounting practice to comply with the amendments and such changes as mentioned above.

In June 2016, the FASB issued ASU No. 2016-13, “Financial Instruments — Credit Losses (Topic 326) — Measurement of Credit Losses on Financial Instruments.” The provisions of ASU 2016-13 were issued to provide financial statement users with more decision-useful information about the expected credit losses on financial instruments that are not accounted for at fair value through net income, including loans held for investment, held-to-maturity debt securities, trade and other receivables, net investment in leases and other commitments to extend credit held by a reporting entity at each reporting date. ASU 2016-13 requires that financial assets measured at amortized cost be presented at the net amount expected to be collected, through an allowance for credit losses that is deducted from the amortized cost basis. The amendments in ASU 2016-13 eliminate the probable incurred loss recognition in current GAAP and reflect an entity’s current estimate of all expected credit losses. The measurement of expected credit losses is based upon historical experience, current conditions, and reasonable and supportable forecasts that affect the collectibility of the financial assets. For public business entities that are U.S. Securities and Exchange Commission (SEC) filers, the amendments are effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. For all other public business entities, the amendments are effective for fiscal years beginning after December 15, 2020, including interim periods within those fiscal years. For all other entities, the amendments are effective for fiscal years beginning after December 15, 2020, and interim periods within fiscal years beginning after December 15, 2021. On October 16, 2019 FASB voted to delay implementation of ASU No. 2016-13, “Financial Instruments-Credit Losses (Topic 326) -Measurement of Credit Losses on Financial Instruments.” For all other entities, the amendments are now effective for fiscal years beginning after December 15, 2021, and interim periods within fiscal years beginning after December 15, 2022. Early adoption is permitted for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. The Company continues to evaluate the impact of these amendments to the Company’s financial position and results of operations and currently does not know or cannot reasonably quantify the impact of the adoption of the amendments as a result of the

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Eagle Financial Bancorp, Inc.

Notes to the Consolidated Financial Statements
For the years ended December 31, 2019 and 2018
(Amounts in thousands, except share and per share data)

complexity and extensive changes from the amendments. The Allowance for Loan Losses (ALL) estimate is material to the Company and given the change from an incurred loss model to a methodology that considers the credit loss over the life of the loan, there is the potential for an increase in the ALL at the adoption date. The Company is anticipating a significant change in processes and procedures to calculate the ALL, including changes in assumptions and estimates to consider the expected credit losses over the life of the loan versus the current accounting practice that utilizes the incurred loss model. In addition, the current accounting policy and procedures for the other-than temporary impairment on available-for-sale securities will be replaced with an allowance approach. The Company has continued developing processes during the fourth quarter of 2019. Management continues to focus its attention on collecting historical loan loss data, loan level data, and evaluating data capabilities to ensure it is fully compliant with the amendments at adoption date. For additional information on the allowance for loan losses, see Note 3.

In August 2016, the FASB issued ASU No. 2016-15 “Statement of Cash Flows (Topic 230) — Classification of Certain Cash Receipts and Cash Payments.” ASU 2016-15 provides cash flow statement classification guidance for certain transactions including how the predominance principle should be applied when cash receipts and cash payments have aspects of more than one class of cash flows. The amendments are effective for public business entities for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. For all other entities, the amendments are effective for fiscal years beginning after December 15, 2018, and interim periods within fiscal years beginning after December 15, 2019. Early adoption is permitted, including adoption in an interim period. ASU 2016-15 did not have a significant impact on the Company’s accounting and disclosures.

In November 2016, the FASB issued ASU No. 2016-18 “Statement of Cash Flows (Topic 230) — Restricted Cash.” ASU 2016-18 provides amendments to cash flow statement classification and presentation to explain the change during the period in the total of cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents. The amendments are effective for public business entities for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. For all other entities, the amendments are effective for fiscal years beginning after December 15, 2018 and interim periods within fiscal years beginning after December 15, 2019. Early adoption is permitted, including adoption in an interim period. The amendments should be applied using a retrospective transition method to each period presented. ASU 2016-18 did not have a significant impact on the Company’s accounting and disclosures.

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Eagle Financial Bancorp, Inc.

Notes to the Consolidated Financial Statements
For the years ended December 31, 2019 and 2018
(Amounts in thousands, except share and per share data)

Note 20: Condensed Financial Information (Parent Company Only)

Presented below is condensed financial information as to the financial position, results of operations and cash flows of the company:

Condensed Balance Sheet

	2019			2018
Assets
Cash		$	4,658		$	5,616
Prepaid expenses			—			—
Loan receivable – ESOP			1,132			1,177
Investment in Eagle Savings Bank			22,013			20,849
Deferred federal income tax			20			66
Prepaid federal income tax			92			66
Total assets		$	27,915		$	27,774
Liabilities and Shareholders’ Equity
Liabilities
Total liabilities		$	12		$	—
Shareholder’ Equity
Total shareholders’ equity			27,903			27,774
Total liabilities and shareholders’ equity		$	27,915		$	27,774

Condensed Statement of Income and Comprehensive Income

	2019			2018
Income
Interest Income – ESOP			50			52
Equity in earnings of Eagle Savings Bank			816			481
Total income			866			533
Expense
Legal and professional services			142			77
Other expense			110			148
Total expense			252			225
Earnings before federal income tax benefit			614			308
Federal income tax benefit			(44)			(36)
Net Income and Comprehensive Income		$	658		$	344

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Eagle Financial Bancorp, Inc.

Notes to the Consolidated Financial Statements
For the years ended December 31, 2019 and 2018
(Amounts in thousands, except share and per share data)

Condensed Statement of Cash Flows

	2019			2018
Operating Activities
Net income		$	658		$	344
Items not requiring (providing) cash:
Equity in undistributed income of subsidiary			(816)			(481)
Changes in:
Accrued expenses and other liabilities			12			—
Other assets and prepaid federal income taxes			20			3
Net cash flows used in operating activities			(126)			(134)
Investing Activities
Payments received on ESOP loan			45			43
Net cash provided by investing activities			45			43
Financing Activities
Repurchase of common stock			(877)			(78)
Net cash used in financing activities			(877)			(78)
Increase in Cash and Cash Equivalents			(958)			(169)
Cash and Cash Equivalents, Beginning of Year			5,616			5,785
Cash and Cash Equivalents, End of Year		$	4,658		$	5,616

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ITEM 9.

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

None.

ITEM 9A.

Controls and Procedures

(a) Evaluation of disclosure controls and procedures

An evaluation was performed under the supervision and with the participation of the Company’s management, including the President and Chief Executive Officer and the Vice President, Chief Financial Officer and Treasurer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures (as defined in Rule 13a-15(e) promulgated under the Securities and Exchange Act of 1934, as amended) as of December 31, 2019. Based on that evaluation, the Company’s management, including the President and Chief Executive Officer and the Vice President, Chief Financial Officer and Treasurer, concluded that the Company’s disclosure controls and procedures were effective.

(b) Management’s Report on Internal Control over Financial Reporting

See Management’s Report On Internal Control Over Financial Reporting — filed herewith under Part II, Item 8. “Financial Statements and Supplementary Data.

There were no significant changes made in our internal control over financial reporting during the Company’s fourth quarter of the year ended December 31, 2019 that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

ITEM 9B.

Other Information

None.

PART III

ITEM 10.

Directors, Executive Officers and Corporate Governance

The Company has adopted a Code of Ethics that applies to its principal executive officer, principal financial officer, principal accounting officer or controller or persons performing similar functions. A copy of the Code is available on the Company website at www.eaglesavings.com under “Investor Relations — Corporate Governance.” The Company intends to disclose any changes or amendments to or waivers from this code of ethics on its website as well as the required filing of Form 8-K, under Item 5.05.

The information contained under the sections captioned “Proposal I — Election of Directors” and “Section 16(a) Beneficial Ownership Reporting Compliance” in the Company’s definitive Proxy Statement for the 2020 Annual Meeting of Stockholders (The “Proxy Statement”) is incorporated herein by reference or will be filed by amendment to this Annual Report on Form 10-K.

ITEM 11.

Executive Compensation

The information contained under the section captioned “Executive Compensation” in the definitive Proxy Statement is incorporated herein by reference or will be filed by amendment to this Annual Report on Form 10-K.

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ITEM 12.

Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

The “Proposal I — Election of Directors” section of the Proxy Statement is incorporated herein by reference.

(d) Equity Compensation Plan Information

The following table summarizes share and exercise price information about the Company’s equity plan as of December 31, 2019.

	Equity Compensation Plan Information
	Number of securities to be issued upon exercise of outstanding options, warrants and rights		Weighted-average exercise price of outstanding options, warrants and rights			Number of securities remaining available for future issuance under stock-based compensation plans (excluding securities reflected in first column)
Equity compensation plans approved by security holders		101,611		$	15.79		82,231
Equity compensation plans not approved by security holders		N/A			N/A		N/A
Total		101,611		$	15.79

ITEM 13.

Certain Relationships and Related Transactions and Director Independence

The “Transactions with Certain Related Persons” section of the Proxy Statement is incorporated herein by reference.

ITEM 14.

Principal Accountant Fees and Services

The “Proposal II — Ratification of Appointment of Independent Registered Public Accounting Firm” Section of the Proxy Statement is incorporated herein by reference.

PART IV

ITEM 15.

Exhibits and Financial Statement Schedules

(a)(1)

Financial Statements

The documents filed as a part of this Form 10-K are:

(A)

Report of Independent Registered Public Accounting Firm;

(B)

Consolidated Balance Sheets — December 31, 2019 and 2018;

(C)

Consolidated Statements of Income — years ended December 31, 2019 and 2018;

(D)

Consolidated Statements of Retained Earnings — years ended December 31, 2019 and 2018;

(E)

Consolidated Statements of Cash Flows — years ended December 31, 2019 and 2018; and

(F)

Notes to Consolidated Financial Statements.

(a)(2)

Financial Statement Schedules

None.

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(a)(3)

Exhibits

	3.1			Articles of Incorporation of Eagle Financial Bancorp, Inc.(1)
	3.2			Bylaws of Eagle Financial Bancorp, Inc.(2)
	4			Form of Common Stock Certificate of Eagle Financial Bancorp, Inc.(3)
	10.1			Employment Agreement between Eagle Savings Bank and Gary J. Koester
	10.2			Employment Agreement between Eagle Savings Bank and Patricia L. Walter
	10.3			Employment Agreement between Eagle Savings Bank and Kevin R. Schramm
	10.4			Eagle Savings Bank Amended and Restated Supplemental Executive Retirement Plan
	10.5			Eagle Savings Bank Amended and Restated Supplemental Director Retirement Plan
	21			Subsidiaries of Registrant(4)
	23.1			Consent of BKD LLP
	31.1			Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
	31.2			Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
	32			Certification of Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
	101			Interactive data files pursuant to Rule 405 of Regulation S-T: (i) the Consolidated Balance Sheets as of December 31, 2019 and 2018, (ii) the Consolidated Statements of Income for the years ended December 31, 2019 and 2018, (iii) the Consolidated Statements of Retained Earnings for the years ended December 31, 2019 and 2018, (iv) the Consolidated Statements of Cash Flows for the years ended December 31, 2019 and 2018, and (v) the notes to the Consolidated Financial Statements

(1)

Incorporated by reference to Exhibit 3.1 to the Registration Statement on Form S-1 filed with the Securities and Exchange Commission on March 9, 2017 (File No. 333-216576).

(2)

Incorporated by reference to Exhibit 3.2 to the Registration Statement on Form S-1 filed with the Securities and Exchange Commission on March 9, 2017 (File No. 333-216576).

(3)

Incorporated by reference to Exhibit 4 to the Registration Statement on Form S-1 filed with the Securities and Exchange Commission on March 9, 2017 (File No. 333-216576).

(4)

Incorporated by reference to Exhibit 21 to the Registration Statement on Form S-1 filed with the Securities and Exchange Commission on March 9, 2017 (File No. 333-216576).

ITEM 16.

Form 10-K Summary

None.

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Signatures

Pursuant to the requirements of Section 13 of the Securities Exchange Act of 1934, the Company has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

				Eagle Financial Bancorp, Inc.
	Date: March 26, 2020			By:			/s/Gary J. Koester Gary J. Koester President and Chief Executive Officer (Duly Authorized Representative)

Pursuant to the requirements of the Securities Exchange of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.

Signatures	Title	Date
/s/ Gary J. Koester Gary J. Koester	President, Chief Executive Officer and Director (Principal Executive Officer)	March 26, 2020
/s/ Kevin R. Schramm Kevin R. Schramm	Vice President, Chief Financial Officer and Treasurer (Principal Financial and Accounting Officer)	March 26, 2020
/s/ James W. Braun James W. Braun	Chairman of the Board	March 26, 2020
/s/ Guy W. Cagney Guy W. Cagney	Director	March 26, 2020
/s/ Steven J. Dulle Steven J. Dulle	Director	March 26, 2020
/s/ Adam B. Goetzman Adam B. Goetzman	Director	March 26, 2020
/s/ Steven C. Kehoe Steven C. Kehoe	Director	March 26, 2020

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EXHIBIT INDEX

	3.1			Articles of Incorporation of Eagle Financial Bancorp, Inc.(1)
	3.2			Bylaws of Eagle Financial Bancorp, Inc.(2)
	4			Form of Common Stock Certificate of Eagle Financial Bancorp, Inc.(3)
	10.1			Employment Agreement between Eagle Savings Bank and Gary J. Koester
	10.2			Employment Agreement between Eagle Savings Bank and Patricia L. Walter
	10.3			Employment Agreement between Eagle Savings Bank and Kevin R. Schramm
	10.4			Eagle Savings Bank Amended and Restated Supplemental Executive Retirement Plan
	10.5			Eagle Savings Bank Amended and Restated Supplemental Director Retirement Plan
	21			Subsidiaries of Registrant(4)
	23.1			Consent of BKD LLP
	31.1			Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
	31.2			Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
	32			Certification of Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
	101			Interactive data files pursuant to Rule 405 of Regulation S-T: (i) the Consolidated Balance Sheets as of December 31, 2019 and 2018, (ii) the Consolidated Statements of Income for the years ended December 31, 2019 and 2018, (iii) the Consolidated Statements of Retained Earnings for the years ended December 31, 2019 and 2018, (iv) the Consolidated Statements of Cash Flows for the years ended December 31, 2019 and 2018, and (v) the notes to the Consolidated Financial Statements

(1)

Incorporated by reference to Exhibit 3.1 to the Registration Statement on Form S-1 filed with the Securities and Exchange Commission on March 9, 2017 (File No. 333-216576).

(2)

Incorporated by reference to Exhibit 3.2 to the Registration Statement on Form S-1 filed with the Securities and Exchange Commission on March 9, 2017 (File No. 333-216576).

(3)

Incorporated by reference to Exhibit 4 to the Registration Statement on Form S-1 filed with the Securities and Exchange Commission on March 9, 2017 (File No. 333-216576).

(4)

Incorporated by reference to Exhibit 21 to the Registration Statement on Form S-1 filed with the Securities and Exchange Commission on March 9, 2017 (File No. 333-216576).

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Eagle Financial Bancorp (EFBI) 10-K2019 FY Annual report

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