Equibles

10-Q

Eagle Bancorp Montana, Inc. (EBMT)

10-Q 2022-05-05 For: 2022-03-31
View Original
Added on April 06, 2026

Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

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

For the quarterly period ended March 31, 2022

☐ 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 1-34682

Eagle Bancorp Montana, Inc.

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

Delaware 27-1449820
(State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.)

1400 Prospect Avenue, Helena, MT 59601

(Address of principal executive offices)

(406) 442-3080

(Issuer's telephone number)

Website address: www.opportunitybank.com

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

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

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

Large accelerated filer     ☐ Accelerated filer       ☐
Non-accelerated filer       ☒ 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 13(a) of the Exchange Act. ☐

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

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

Title of each class Trading symbol(s) Name of each exchange on which registered
Common Stock par value $0.01 per share EBMT Nasdaq Global Market

Table of Contents

APPLICABLE ONLY TO CORPORATE ISSUERS

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

Common stock, par value $0.01 per share 6,694,811 shares outstanding

As of April 29, 2022

Table of Contents

EAGLE BANCORP MONTANA, INC. AND SUBSIDIARIES

TABLE OF CONTENTS

PART I. FINANCIAL INFORMATION PAGE
Item 1. Financial Statements (Unaudited)
Condensed Consolidated Statements of Financial Condition as of March 31, 2022 and December 31, 2021 1
Condensed Consolidated Statements of Income for the three months ended March 31, 2022 and 2021 3
Condensed Consolidated Statements of Comprehensive Income for the three months ended March 31, 2022 and 2021 5
Condensed Consolidated Statements of Changes in Shareholders' Equity for the three months ended March 31, 2022 and 2021 6
Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2022 and 2021 7
Notes to the Unaudited Condensed Consolidated Financial Statements 9
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 26
Item 3. Quantitative and Qualitative Disclosures About Market Risk 36
Item 4. Controls and Procedures 37
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 38
Item 1A. Risk Factors 38
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 38
Item 3. Defaults Upon Senior Securities 38
Item 4. Mine Safety Disclosures 38
Item 5. Other Information 39
Item 6. Exhibits 39
Signatures 40

Table of Contents

EAGLE BANCORP MONTANA, INC. AND SUBSIDIARIES

Cautionary Note Regarding Forward-Looking Statements ****

This report includes “forward-looking statements” within the meaning and protections of Section 27A of the Securities Act of 1933, as amended, or the Securities Act, and Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act. All statements other than statements of historical fact are statements that could be forward-looking statements. You can identify these forward-looking statements through our use of words such as “may,” “will,” “anticipate,” “assume,” “should,” “indicate,” “would,” “believe,” “contemplate,” “expect,” “estimate,” “continue,” “plan,” “project,” “could,” “intend,” “target” and other similar words and expressions of the future. These forward-looking statements include, but are not limited to:

● statements of our goals, intentions and expectations;
● statements regarding our business plans, prospects, growth and operating strategies;
--- ---
● statements regarding the current global COVID-19 pandemic;
--- ---
● statements regarding the asset quality of our loan and investment portfolios; and
● estimates of our risks and future costs and benefits.
--- ---

These forward-looking statements are based on current beliefs and expectations of the management of Eagle Bancorp Montana, Inc. (“Eagle” or the “Company”) and Opportunity Bank of Montana (“OBMT” or the “Bank”), Eagle’s wholly-owned subsidiary, and are inherently subject to significant business, economic and competitive uncertainties and contingencies, many of which are beyond our control. In addition, these forward-looking statements are subject to assumptions with respect to future business strategies and decisions that are subject to change.

The following factors, among others, could cause the Company’s actual results to differ materially from the anticipated results or other expectations expressed in the forward-looking statements:

● changes in laws or government regulations or policies affecting financial institutions, including changes in regulatory fees and capital requirements;
● the negative impacts and disruptions resulting from the continuing outbreak of the novel coronavirus, or COVID-19, and the steps taken by governmental and other authorities to contain, mitigate and combat the pandemic, on the economies and communities we serve, which may likely have an adverse impact on our credit portfolio, goodwill, stock price, borrowers and the economy as a whole both globally and domestically;
--- ---
● local, regional, national and international economic and market conditions and events and the impact they may have on us, our customers and our assets and liabilities;
● competition among depository and other financial institutions;
--- ---
● risks related to the concentration of our business in Montana, including risks associated with changes in the prices, values and sales volume of residential and commercial real estate in Montana;
--- ---
● inflation and changes in the interest rate environment that reduce our margins or reduce the fair value of financial instruments;
--- ---
● our ability to attract deposits and other sources of funding or liquidity;
--- ---
● changes or volatility in the securities markets;
--- ---
● our ability to implement our growth strategy, including identifying and consummating suitable acquisitions, raising additional capital to finance such transactions, entering new markets, possible failures in realizing the anticipated benefits from such acquisitions and an inability of our personnel, systems and infrastructure to keep pace with such growth;
--- ---
● the effect of acquisitions we may make, if any, including, without limitation, the failure to achieve expected revenue growth and/or expense savings from such acquisitions, including our recent acquisition of First Community Bancorp, Inc.;
--- ---
● risks related to the integration of any businesses we have acquired or expect to acquire, including exposure to potential asset quality and credit quality risks and unknown or contingent liabilities, the time and costs associated with integrating systems, technology platforms, procedures and personnel, including our recent acquisition of First Community Bancorp, Inc.;
--- ---
● potential impairment on the goodwill we have recorded or may record in connection with business acquisitions;
--- ---
● political developments, uncertainties or instability;
--- ---
● our ability to enter new markets successfully and capitalize on growth opportunities;
--- ---
● the need to retain capital for strategic or regulatory reasons;
● changes in consumer spending, borrowing and savings habits;
● our ability to continue to increase and manage our commercial and residential real estate, multi-family and commercial business loans;
● possible impairments of securities held by us, including those issued by government entities and government sponsored enterprises;
--- ---
● the level of future deposit insurance premium assessments;
--- ---
● our ability to develop and maintain secure and reliable information technology systems, effectively defend ourselves against cyberattacks, or recover from breaches to our cybersecurity infrastructure;
--- ---
● the failure of assumptions underlying the establishment of allowance for possible loan losses and other estimates;
--- ---
● changes in the financial performance and/or condition of our borrowers and their ability to repay their loans when due; and
--- ---
● the effect of changes in accounting policies and practices, as may be adopted by the regulatory agencies, as well as the Securities and Exchange Commission, the Public Company Accounting Oversight Board, the Financial Accounting Standards Board and other accounting standard setters.
--- ---

Because of these and other uncertainties, our actual future results may be materially different from the results indicated by these forward-looking statements. For a further list and description of various risks, relevant factors and uncertainties that could cause future results or events to differ materially from those expressed or implied in our forward-looking statements, see the Part II, Item 1A, “Risk Factors” and Part I, Item 2, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” sections contained elsewhere in this report, as well as our Annual Report on Form 10-K for the year ended December 31, 2021, any subsequent Reports on Form 10-Q and Form 8-K, and other filings with the SEC. We do not undertake any obligation to publicly update or correct any forward-looking statements to reflect events or circumstances that subsequently occur, or of which we hereafter become aware.

Table of Contents

EAGLE BANCORP MONTANA, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION

(Dollars in Thousands, Except for Per Share Data)

(Unaudited)

December 31,
2021
ASSETS:
Cash and due from banks 17,516 $ 10,938
Interest-bearing deposits in banks 62,697 43,669
Federal funds sold 14,889 6,827
Total cash and cash equivalents 95,102 61,434
Securities available-for-sale 264,635 271,262
Federal Home Loan Bank ("FHLB") stock 1,723 1,702
Federal Reserve Bank ("FRB") stock 2,974 2,974
Mortgage loans held-for-sale, at fair value 22,295 25,819
Loans receivable, net of allowance for loan losses of 12,700 at March 31, 2022 and 12,500 at December 31, 2021 945,981 920,639
Accrued interest and dividends receivable 5,750 5,751
Mortgage servicing rights, net 14,288 13,693
Premises and equipment, net 69,536 67,266
Cash surrender value of life insurance, net 36,681 36,474
Goodwill 20,798 20,798
Core deposit intangible, net 1,660 1,780
Deferred tax asset, net 3,776 -
Other assets 6,854 6,334
Total assets 1,492,053 $ 1,435,926

All values are in US Dollars.

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

  • 1 -

Table of Contents

EAGLE BANCORP MONTANA, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION (Continued)

(Dollars in Thousands, Except for Per Share Data)

(Unaudited)

December 31,
2021
LIABILITIES: **** ****
Deposit accounts:
Noninterest-bearing 371,818 $ 368,846
Interest-bearing 898,758 853,703
Total deposits 1,270,576 1,222,549
Accrued expenses and other liabilities 18,968 21,131
Deferred tax liability, net - 648
FHLB advances and other borrowings - 5,000
Other long-term debt:
Principal amount 60,155 30,155
Unamortized debt issuance costs (1,169 ) (286 )
Total other long-term debt, net 58,986 29,869
Total liabilities 1,348,530 1,279,197
SHAREHOLDERS' EQUITY: **** ****
Preferred stock (par value 0.01 per share; 1,000,000 shares authorized; no shares issued or outstanding) - -
Common stock (par value 0.01 per share; 20,000,000 shares authorized; 7,110,833 shares issued; 6,694,811 shares outstanding at March 31, 2022 and December 31, 2021, respectively) 71 71
Additional paid-in capital 80,960 80,832
Unallocated common stock held by Employee Stock Ownership Plan ("ESOP") (5,586 ) (5,729 )
Treasury stock, at cost (416,022 and 316,022 shares at March 31, 2022 and December 31, 2021, respectively) (9,592 ) (7,321 )
Retained earnings 86,750 85,383
Accumulated other comprehensive (loss) income, net of tax (9,080 ) 3,493
Total shareholders' equity 143,523 156,729
Total liabilities and shareholders' equity 1,492,053 $ 1,435,926

All values are in US Dollars.

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

  • 2 -

Table of Contents

EAGLE BANCORP MONTANA, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(Dollars in Thousands, Except for Per Share Data)

(Unaudited)

Three Months Ended
March 31,
2022 2021
INTEREST AND DIVIDEND INCOME:
Interest and fees on loans $ 11,373 $ 11,029
Securities available-for-sale 1,297 877
FHLB and FRB dividends 59 69
Other interest income 39 26
Total interest and dividend income 12,768 12,001
INTEREST EXPENSE:
Deposits 312 402
FHLB advances and other borrowings 6 70
Other long-term debt 605 390
Total interest expense 923 862
NET INTEREST INCOME 11,845 11,139
Loan loss provision 279 299
NET INTEREST INCOME AFTER LOAN LOSS PROVISION 11,566 10,840
NONINTEREST INCOME:
Service charges on deposit accounts 331 273
Mortgage banking, net 6,245 11,763
Interchange and ATM fees 453 425
Appreciation in cash surrender value of life insurance 207 158
Other noninterest income 1,057 774
Total noninterest income $ 8,293 $ 13,393

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

  • 3 -

Table of Contents

EAGLE BANCORP MONTANA, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF INCOME (Continued)

(Dollars in Thousands, Except for Per Share Data)

(Unaudited)

Three Months Ended
March 31,
2022 2021
NONINTEREST EXPENSE:
Salaries and employee benefits $ 10,381 $ 12,086
Occupancy and equipment expense 1,678 1,430
Data processing 1,251 1,297
Advertising 285 273
Amortization of core deposit intangible 122 144
Loan costs 546 722
Federal Deposit Insurance Corporation ("FDIC") insurance premiums 93 81
Professional and examination fees 322 282
Acquisition costs 317 -
Other noninterest expense 1,953 898
Total noninterest expense 16,948 17,213
INCOME BEFORE PROVISION FOR INCOME TAXES 2,911 7,020
Provision for income taxes 695 1,755
NET INCOME $ 2,216 $ 5,265
BASIC EARNINGS PER SHARE $ 0.34 $ 0.78
DILUTED EARNINGS PER SHARE $ 0.34 $ 0.78

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

  • 4 -

Table of Contents

EAGLE BANCORP MONTANA, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Dollars in Thousands)

(Unaudited)

Three Months Ended
March 31,
2022 2021
NET INCOME $ 2,216 $ 5,265
OTHER ITEMS OF COMPREHENSIVE (LOSS) INCOME BEFORE TAX: **** ****
Change in fair value of investment securities available-for-sale (17,067 ) (2,572 )
Reclassification for net realized gain (loss) on investment securities available-for-sale - -
Total other comprehensive loss (17,067 ) (2,572 )
Income tax benefit related to securities available-for-sale 4,494 677
COMPREHENSIVE (LOSS) INCOME $ (10,357 ) $ 3,370

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

  • 5 -

Table of Contents

EAGLE BANCORP MONTANA, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY

For the Three Months Ended March 31, 2022 and 2021

(Dollars in Thousands, Except for Per Share Data)

(Unaudited)

**** **** **** **** ACCUMULATED ****
ADDITIONAL UNALLOCATED **** **** OTHER ****
COMMON PAID-IN ESOP TREASURY RETAINED COMPREHENSIVE ****
STOCK CAPITAL SHARES STOCK EARNINGS INCOME (LOSS) TOTAL
Balance at January 1, 2022 - $ 71 $ 80,832 $ (5,729 ) $ (7,321 ) $ 85,383 $ 3,493 $ 156,729
Net income - - - - - 2,216 - 2,216
Other comprehensive loss - - - - - - (12,573 ) (12,573 )
Dividends paid (0.125 per share) - - - - - (849 ) - (849 )
Stock compensation expense - - 135 - - - - 135
ESOP shares allocated (5,997 shares) - - (7 ) 143 - - - 136
Treasury stock purchased (100,000 shares at 22.71 average cost per share) - - - - (2,271 ) - - (2,271 )
Balance at March 31, 2022 - $ 71 $ 80,960 $ (5,586 ) $ (9,592 ) $ 86,750 $ (9,080 ) $ 143,523
Balance at January 1, 2021 - $ 71 $ 77,602 $ (145 ) $ (4,423 ) $ 73,982 $ 5,851 $ 152,938
Net income - - - - - 5,265 - 5,265
Other comprehensive loss - - - - - - (1,895 ) (1,895 )
Dividends paid (.0975 per share) - - - - - (661 ) - (661 )
Stock compensation expense - - 90 - - - - 90
ESOP shares allocated (4,154 shares) - - 52 42 - - - 94
Balance at March 31, 2021 - $ 71 $ 77,744 $ (103 ) $ (4,423 ) $ 78,586 $ 3,956 $ 155,831

All values are in US Dollars.

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

  • 6 -

Table of Contents

EAGLE BANCORP MONTANA, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Dollars in Thousands)

(Unaudited)

Three Months Ended
March 31,
2022 2021
CASH FLOWS FROM OPERATING ACTIVITIES: **** ****
Net income $ 2,216 $ 5,265
Adjustments to reconcile net income to net cash provided by operating activities:
Loan loss provision 279 299
Recovery of mortgage servicing rights (56 ) (677 )
Depreciation 842 649
Net amortization of investment securities premiums and discounts 380 238
Amortization of mortgage servicing rights 609 994
Amortization of right-of-use assets 172 128
Amortization of core deposit intangible 122 144
Compensation expense related to restricted stock awards 135 90
ESOP compensation expense for allocated shares 136 94
Deferred income tax provision 71 66
Net gain on sale of loans (6,233 ) (14,277 )
Originations of loans held-for-sale (170,074 ) (267,168 )
Proceeds from sales of loans held-for-sale 179,831 275,451
Net (gain) loss on sale of real estate owned and other repossessed assets (14 ) 9
Net gain on sale/disposal of premises and equipment (1 ) -
Net appreciation in cash surrender value of life insurance (207 ) (158 )
Net change in:
Accrued interest and dividends receivable (1 ) 314
Other assets (145 ) 3,084
Accrued expenses and other liabilities (2,168 ) (614 )
Net cash provided by operating activities 5,894 3,931
CASH FLOWS FROM INVESTING ACTIVITIES: **** ****
Activity in available-for-sale securities:
Maturities, principal payments and calls 9,338 2,355
Purchases (20,158 ) (25,663 )
FHLB stock (purchased) redeemed (21 ) 83
Loan origination and principal collection, net (27,096 ) 10,233
Proceeds from sale of real estate and other repossessed assets acquired in settlement of loans 5 16
Purchases of premises and equipment, net (3,284 ) (3,986 )
Net cash used in investing activities $ (41,216 ) $ (16,962 )

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

  • 7 -

Table of Contents

EAGLE BANCORP MONTANA, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)

(Dollars in Thousands)

(Unaudited)

Three Months Ended
March 31,
2022 2021
CASH FLOWS FROM FINANCING ACTIVITIES: **** ****
Net increase in deposits $ 48,027 $ 60,321
Payments on long-term FHLB and other borrowings (5,000 ) (5,208 )
Proceeds from issuance of subordinated debentures 40,000 -
Repayment of senior debt (10,000 ) -
Payments for debt issuance costs (917 ) -
Purchase of treasury stock (2,271 ) -
Dividends paid (849 ) (661 )
Net cash provided by financing activities 68,990 54,452
NET INCREASE IN CASH AND CASH EQUIVALENTS 33,668 41,421
CASH AND CASH EQUIVALENTS, beginning of period 61,434 69,802
CASH AND CASH EQUIVALENTS, end of period $ 95,102 $ 111,223
SUPPLEMENTAL CASH FLOW INFORMATION: **** ****
Cash paid during the period for interest $ 1,092 $ 1,415
Cash paid during the period for income taxes - -
NONCASH INVESTING AND FINANCING ACTIVITIES: **** ****
Decrease in fair value of securities available-for-sale $ (17,067 ) $ (2,572 )
Mortgage servicing rights recognized 1,148 1,532
Right-of-use assets obtained in exchange for lease liabilities 4 -
Loans transferred to real estate and other assets acquired in foreclosure 328 -

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

  • 8 -

Table of Contents

EAGLE BANCORP MONTANA, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

NOTE 1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Organization

Eagle Bancorp Montana, Inc. (“Eagle” or the “Company”), is a Delaware corporation that holds 100% of the capital stock of Opportunity Bank of Montana (“OBMT” or the “Bank”), formerly American Federal Savings Bank (“AFSB”). The Bank was founded in 1922 as a Montana chartered building and loan association and has conducted operations and maintained its administrative office in Helena, Montana since that time. In 1975, the Bank adopted a federal thrift charter and in October 2014 converted to a Montana chartered commercial bank and became a member bank in the Federal Reserve System.

In March 2021, the Bank established a subsidiary, Opportunity Housing Fund, LLC ("OHF"), to invest in Low-Income Housing Tax Credit ("LIHTC") projects. The LIHTC program is designed to encourage capital investment in construction and rehabilitation of low-income housing. Tax credits are allowable over a 10-year period. During the year ended December 31, 2021, OHF made initial investments in two LIHTC projects. Investments in LIHTC projects are included in other assets on the statement of financial condition and totaled $1,237,000 and $935,000 as of March 31, 2022 and December 31, 2021, respectively.

In  *August 2019,*the Company entered into an Agreement and Plan of Merger ("Merger Agreement") with Western Holding Company of Wolf Point (“WHC”), a Montana corporation, and WHC’s wholly-owned subsidiary, Western Bank of Wolf Point, a Montana chartered commercial bank (“WB”). The Merger Agreement provided that, upon the terms and subject to the conditions set forth in the Merger Agreement, WHC would merge with and into Eagle, with Eagle continuing as the surviving corporation. The merger closed on  *January 1, 2020.*WB operated one branch in Wolf Point, Montana. In addition, Western Financial Services, Inc. ("WFS") was acquired through the WHC merger. WFS facilitates deferred payment contracts for customers that produce agricultural products.

In August 2018, the Company entered into an Agreement and Plan of Merger with Big Muddy Bancorp, Inc. (“BMB”), a Montana corporation and BMB’s wholly-owned subsidiary, The State Bank of Townsend (“SBOT”), a Montana chartered commercial bank to acquire 100% of BMB’s equity voting interests. On January 1, 2019, BMB merged with and into Eagle, with Eagle continuing as the surviving corporation. SBOT operated four branches in Townsend, Dutton, Denton and Choteau, Montana.

In September 2017, the Company entered into an Agreement and Plan of Merger with TwinCo, Inc. ("TwinCo"), a Montana corporation, and TwinCo’s wholly-owned subsidiary, Ruby Valley Bank, a Montana chartered commercial bank to acquire 100% of TwinCo’s equity voting interests. On January 31, 2018, TwinCo merged with and into Eagle, with Eagle continuing as the surviving corporation. Ruby Valley Bank operated two branches in Madison County, Montana.

The Bank currently has 23 full service branches. The Bank’s principal business is accepting deposits and, together with funds generated from operations and borrowings, investing in various types of loans and securities. The Bank also operated certain branches under the names Dutton State Bank, Farmers State Bank of Denton and The State Bank of Townsend. Effective January 3, 2022, these branches were rebranded and are now only operating as Opportunity Bank of Montana.

Basis of Financial Statement Presentation and Use of Estimates

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”) for interim financial information and in accordance with the instructions to Form 10-Q and Article 10 of Regulation S-X as promulgated by the Securities and Exchange Commission (“SEC”). It is recommended that these unaudited interim condensed consolidated financial statements be read in conjunction with the Company’s Annual Report on Form 10-K with all of the audited information and footnotes required by U.S. GAAP for complete financial statements for the year ended December 31, 2021, as filed with the SEC on March 9, 2022. In the opinion of management, all normal adjustments and recurring accruals considered necessary for a fair presentation of the financial position and results of operations for the periods presented have been included.

The results of operations for the three-month period ended  March 31, 2022 are not necessarily indicative of the results to be expected for the year ending  December 31, 2022or any other period. In preparing condensed consolidated financial statements, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the condensed consolidated statement of financial condition and reported amounts of revenues and expenses during the reporting period. Actual results could differ from estimates. Material estimates that are particularly susceptible to significant change in the near term relate to the determination of the allowance for loan losses, mortgage servicing rights, the fair value of financial instruments, the valuation of goodwill and deferred tax assets and liabilities.

Principles of Consolidation

The condensed consolidated financial statements include Eagle, the Bank, OHF, Eagle Bancorp Statutory Trust I (the “Trust”) and WFS. All significant intercompany transactions and balances have been eliminated in consolidation.

- 9 -

Table of Contents

EAGLE BANCORP MONTANA, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

NOTE 1.

 **ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued**

Reclassifications

Certain prior period amounts were reclassified to conform to the presentation for 2022. These reclassifications had no impact on net income or shareholders’ equity.

Subsequent Events ******

The Company has evaluated events and transactions subsequent to  March 31, 2022 for recognition and/or disclosure.

On April 21, 2022, Eagle's Board of Directors (the "Board") authorized the repurchase of up to 400,000 shares of its common stock. Under the plan, shares may be purchased by the Company on the open market or in privately negotiated transactions. The extent to which the company repurchases its shares and the timing of such repurchase will depend upon market conditions and other corporate considerations. The plan expires on April 21, 2023.

In September 2021, the Company entered into an Agreement and Plan of Merger with First Community Bancorp, Inc., a Montana corporation ("FCB") and FCB's wholly-owned subsidiary, First Community Bank, a Montana chartered commercial bank. The Merger Agreement provided that, upon the terms and subject to the conditions set forth in the Merger Agreement, FCB would merge with and into Eagle, with Eagle continuing as the surviving corporation. The acquisition closed on *April 30, 2022.*The fair value of assets acquired and liabilities assumed as of April 30, 2022 are still being determined.

NOTE 2. INVESTMENT SECURITIES

The amortized cost and fair values of securities, together with unrealized gains and losses, were as follows:

March 31, 2022 December 31, 2021
Gross Gross
Amortized Unrealized Fair Amortized Unrealized Fair
Cost Gains (Losses) Value Cost Gains (Losses) Value
(In Thousands)
Available-for-Sale: **** ****
U.S. government obligations $ 1,428 $ 2 $ (5 ) $ 1,425 $ 1,618 $ 15 $ - $ 1,633
U.S. Treasury obligations 72,848 29 (3,390 ) 69,487 52,707 580 (104 ) 53,183
Municipal obligations 116,530 558 (5,808 ) 111,280 119,381 4,616 (330 ) 123,667
Corporate obligations 6,250 65 (41 ) 6,274 9,251 103 (18 ) 9,336
Mortgage-backed securities 13,770 2 (647 ) 13,125 14,662 92 (118 ) 14,636
Collateralized mortgage obligations 61,959 9 (3,169 ) 58,799 63,286 416 (635 ) 63,067
Asset-backed securities 4,177 68 - 4,245 5,617 123 - 5,740
Total $ 276,962 $ 733 $ (13,060 ) $ 264,635 $ 266,522 $ 5,945 $ (1,205 ) $ 271,262

For the three months ended March 31, 2022 and 2021, there were no sales of available-for-sale securities. As a result, there were no associated gross gains or losses.

- 10 -

Table of Contents

EAGLE BANCORP MONTANA, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

NOTE 2.

INVESTMENT SECURITIES

– continued

The amortized cost and fair value of securities by contractual maturity are shown below. Expected maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.

March 31, 2022
Amortized Fair
Cost Value
(In Thousands)
Due in one year or less $ 21,343 $ 21,284
Due from one to five years 11,113 11,098
Due from five to ten years 80,534 76,056
Due after ten years 88,243 84,273
201,233 192,711
Mortgage-backed securities 13,770 13,125
Collateralized mortgage obligations 61,959 58,799
Total $ 276,962 $ 264,635

As of  March 31, 2022 and December 31, 2021, securities with a fair value of $22,175,000 and $22,245,000, respectively, were pledged to secure public deposits and for other purposes required or permitted by law.

The Company’s investment securities that have been in a continuous unrealized loss position for less than twelve months and those that have been in a continuous unrealized loss position for twelve or more months were as follows:

March 31, 2022
Less Than 12 Months 12 Months or Longer
Gross Gross
Fair Unrealized Fair Unrealized
Value Losses Value Losses
(In Thousands)
U.S. government obligations $ 303 $ (5 ) $ - $ -
U.S. Treasury obligations 64,255 (3,390 ) - -
Municipal obligations 87,226 (5,808 ) - -
Corporate obligations 3,959 (41 ) - -
Mortgage-backed securities and collateralized mortgage obligations 66,967 (3,792 ) 1,202 (24 )
Total $ 222,710 $ (13,036 ) $ 1,202 $ (24 )

- 11 -

Table of Contents

EAGLE BANCORP MONTANA, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

NOTE 2.

INVESTMENT SECURITIES

– continued

December 31, 2021
Less Than 12 Months 12 Months or Longer
Gross Gross
Fair Unrealized Fair Unrealized
Value Losses Value Losses
(In Thousands)
U.S. government obligations $ - $ - $ - $ -
U.S. Treasury obligations 19,301 (104 ) - -
Municipal obligations 17,973 (330 ) - -
Corporate obligations 2,982 (18 ) - -
Mortgage-backed securities and collateralized mortgage obligations 50,002 (741 ) 1,296 (12 )
Total $ 90,258 $ (1,193 ) $ 1,296 $ (12 )

Unrealized losses associated with investments are believed to be caused by changes in market interest rates or the widening of market spreads subsequent to the initial purchase of the securities and not due to concerns regarding the underlying credit of the issuers or the underlying collateral. The Company does not intend to sell the securities, and it is not likely to be required to sell these securities prior to maturity. Based on the Company's evaluation of these securities, no other-than-temporary impairment was recorded for the three months ended March 31, 2022 or the year ended December 31, 2021. As of  March 31, 2022 and December 31, 2021, there were, respectively, 156 and 43 securities in unrealized loss positions that were considered to be temporarily impaired and therefore an impairment charge has not been recorded.

NOTE 3. LOANS RECEIVABLE

Loans receivable consisted of the following:

March 31, December 31,
2022 2021
(In Thousands)
Real estate loans:
Residential 1-4 family $ 140,210 $ 146,815
Commercial real estate 599,093 569,976
Other loans:
Home equity 53,828 51,748
Consumer 18,834 18,455
Commercial 148,307 147,870
Total 960,272 934,864
Deferred loan fees, net (1,591 ) (1,725 )
Allowance for loan losses (12,700 ) (12,500 )
Total loans, net $ 945,981 $ 920,639

Within the commercial real estate loan category above, $10,012,000 and $10,232,000 was guaranteed by the United States Department of Agriculture Rural Development at  March 31, 2022 and  December 31, 2021, respectively. Also within the loan categories above, $6,270,000 and $7,333,000 was guaranteed by the United States Department of Agriculture Farm Service Agency at  March 31, 2022 and  December 31, 2021, respectively. In addition, within the commercial loan category above, $1,570,000 and $4,172,000 was guaranteed by the Small Business Administration ("SBA") under their Payroll Protection Program ("PPP") at  March 31, 2022 and December 31, 2021, respectively. Deferred loan fees, net includes $108,000 and $286,000 of remaining deferred fees related to the PPP at March 31, 2022 and  December 31, 2021, respectively.

- 12 -

Table of Contents

EAGLE BANCORP MONTANA, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

NOTE 3.

LOANS RECEIVABLE

– continued

Allowance for loan losses activity was as follows:

Residential Commercial Home
1-4 Family Real Estate Equity Consumer Commercial Total
(In Thousands)
Allowance for loan losses:
Beginning balance, January 1, 2022 $ 1,596 $ 7,470 $ 533 $ 365 $ 2,536 $ 12,500
Charge-offs - - - (8 ) (84 ) (92 )
Recoveries - 6 - - 7 13
Provision 20 183 3 - 73 279
Ending balance, March 31, 2022 $ 1,616 $ 7,659 $ 536 $ 357 $ 2,532 $ 12,700
Ending balance, March 31, 2022 allocated to loans individually evaluated for impairment $ 199 $ - $ - $ - $ 300 $ 499
Ending balance, March 31, 2022 allocated to loans collectively evaluated for impairment $ 1,417 $ 7,659 $ 536 $ 357 $ 2,232 $ 12,201
Loans receivable:
Ending balance, March 31, 2022 $ 140,210 $ 599,093 $ 53,828 $ 18,834 $ 148,307 $ 960,272
Ending balance, March 31, 2022 of loans individually evaluated for impairment $ 587 $ 3,473 $ 111 $ 44 $ 1,775 $ 5,990
Ending balance, March 31, 2022 of loans collectively evaluated for impairment $ 139,623 $ 595,620 $ 53,717 $ 18,790 $ 146,532 $ 954,282
Residential Commercial Home
--- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- ---
1-4 Family Real Estate Equity Consumer Commercial Total
(In Thousands)
Allowance for loan losses:
Beginning balance, January 1, 2021 $ 1,506 $ 6,951 $ 515 $ 364 $ 2,264 $ 11,600
Charge-offs - (10 ) - (2 ) (6 ) (18 )
Recoveries - 2 - 4 13 19
Provision 36 188 6 3 66 299
Ending balance, March 31, 2021 $ 1,542 $ 7,131 $ 521 $ 369 $ 2,337 $ 11,900
Ending balance, March 31, 2021 allocated to loans individually evaluated for impairment $ 296 $ - $ - $ - $ 40 $ 336
Ending balance, March 31, 2021 allocated to loans collectively evaluated for impairment $ 1,246 $ 7,131 $ 521 $ 369 $ 2,297 $ 11,564
Loans receivable:
Ending balance, March 31, 2021 $ 136,506 $ 464,082 $ 53,270 $ 19,424 $ 158,598 $ 831,880
Ending balance, March 31, 2021 of loans individually evaluated for impairment $ 1,532 $ 4,282 $ 109 $ 145 $ 1,952 $ 8,020
Ending balance, March 31, 2021 of loans collectively evaluated for impairment $ 134,974 $ 459,800 $ 53,161 $ 19,279 $ 156,646 $ 823,860

- 13 -

Table of Contents

EAGLE BANCORP MONTANA, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

NOTE 3.

LOANS RECEIVABLE

– continued

Internal classification of the loan portfolio was as follows:

March 31, 2022
Special
Pass Mention Substandard Doubtful Loss Total
(In Thousands)
Real estate loans:
Residential 1-4 family $ 98,768 $ - $ 275 $ 199 $ - $ 99,242
Residential 1-4 family construction 40,968 - - - - 40,968
Commercial real estate 429,481 1,498 1,997 - - 432,976
Commercial construction and development 105,754 - - - - 105,754
Farmland 59,114 177 1,030 42 - 60,363
Other loans:
Home equity 53,699 - 129 - - 53,828
Consumer 18,789 - 45 - - 18,834
Commercial 98,235 128 108 - - 98,471
Agricultural 48,080 327 1,429 - - 49,836
Total $ 952,888 $ 2,130 $ 5,013 $ 241 $ - $ 960,272
December 31, 2021
--- --- --- --- --- --- --- --- --- --- --- --- ---
Special
Pass Mention Substandard Doubtful Loss Total
(In Thousands)
Real estate loans:
Residential 1-4 family $ 100,680 $ - $ 301 199 $ - $ 101,180
Residential 1-4 family construction 45,298 - 337 - - 45,635
Commercial real estate 406,896 1,527 2,145 - - 410,568
Commercial construction and development 92,403 - - - - 92,403
Farmland 65,037 177 1,744 47 - 67,005
Other loans:
Home equity 51,614 - 134 - - 51,748
Consumer 18,392 - 63 - - 18,455
Commercial 100,881 130 524 - - 101,535
Agricultural 44,550 332 1,444 9 - 46,335
Total $ 925,751 $ 2,166 $ 6,692 $ 255 $ - $ 934,864

- 14 -

Table of Contents

EAGLE BANCORP MONTANA, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

NOTE 3.

LOANS RECEIVABLE

– continued

The following tables include information regarding delinquencies within the loan portfolio.

March 31, 2022
Loans Past Due and Still Accruing
90 Days
30-89 Days and Nonaccrual Current Total
Past Due Greater Total Loans Loans Loans
(In Thousands)
Real estate loans:
Residential 1-4 family $ - $ - $ - $ 587 $ 98,655 $ 99,242
Residential 1-4 family construction - - - - 40,968 40,968
Commercial real estate 1,005 - 1,005 368 431,603 432,976
Commercial construction and development - - - - 105,754 105,754
Farmland 71 270 341 1,607 58,415 60,363
Other loans:
Home equity - - - 111 53,717 53,828
Consumer 57 - 57 44 18,733 18,834
Commercial 807 - 807 53 97,611 98,471
Agricultural 604 - 604 1,722 47,510 49,836
Total $ 2,544 $ 270 $ 2,814 $ 4,492 $ 952,966 $ 960,272
December 31, 2021
--- --- --- --- --- --- --- --- --- --- --- --- ---
Loans Past Due and Still Accruing
90 Days
30-89 Days and Nonaccrual Current Total
Past Due Greater Total Loans Loans Loans
(In Thousands)
Real estate loans:
Residential 1-4 family $ 21 $ - $ 21 $ 616 $ 100,543 $ 101,180
Residential 1-4 family construction - - - 337 45,298 45,635
Commercial real estate 788 - 788 497 409,283 410,568
Commercial construction and development - - - - 92,403 92,403
Farmland 61 - 61 1,630 65,314 67,005
Other loans:
Home equity - - - 115 51,633 51,748
Consumer 55 - 55 62 18,338 18,455
Commercial 6 - 6 516 101,013 101,535
Agricultural - - - 1,718 44,617 46,335
Total $ 931 $ - $ 931 $ 5,491 $ 928,442 $ 934,864

- 15 -

Table of Contents

EAGLE BANCORP MONTANA, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

NOTE 3. LOANS RECEIVABLE

– continued

The following tables include information regarding impaired loans.

March 31, 2022
Unpaid
Recorded Principal Related
Investment Balance Allowance
(In Thousands)
Real estate loans:
Residential 1-4 family $ 587 $ 675 $ 199
Residential 1-4 family construction - - -
Commercial real estate 1,866 1,925 -
Commercial construction and development - - -
Farmland 1,607 1,720 -
Other loans:
Home equity 111 138 -
Consumer 44 54 -
Commercial 53 63 -
Agricultural 1,722 1,759 300
Total $ 5,990 $ 6,334 $ 499
December 31, 2021
--- --- --- --- --- --- ---
Unpaid
Recorded Principal Related
Investment Balance Allowance
(In Thousands)
Real estate loans:
Residential 1-4 family $ 616 $ 703 $ 199
Residential 1-4 family construction 337 387 -
Commercial real estate 2,024 2,078 -
Commercial construction and development - - -
Farmland 1,630 1,721 -
Other loans:
Home equity 115 139 -
Consumer 62 73 -
Commercial 516 639 101
Agricultural 1,759 1,862 300
Total $ 7,059 $ 7,602 $ 600

- 16 -

Table of Contents

EAGLE BANCORP MONTANA, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

NOTE 3.

LOANS RECEIVABLE

– continued

Three Months Ended
March 31,
2022 2021
Average Recorded Investment
(In Thousands)
Real estate loans:
Residential 1-4 family $ 601 $ 1,199
Residential 1-4 family construction 169 337
Commercial real estate 1,945 2,340
Commercial construction and development - 25
Farmland 1,619 2,056
Other loans:
Home equity 113 110
Consumer 53 148
Commercial 285 542
Agricultural 1,740 1,554
Total $ 6,525 $ 8,311

Interest income recognized on impaired loans for the three months ended March 31, 2022 and 2021 is considered insignificant. Interest payments received on a cash basis related to impaired loans were $344,000 and $405,000 at  March 31, 2022 and December 31, 2021, respectively.

As of  March 31, 2022 and December 31, 2021, there were troubled debt restructured (“TDR”) loans of $2,611,000 and $2,224,000, respectively.

During the three months ended March 31, 2022, there were two new TDR loans. The recorded investments for both agricultural loans at the time of restructure were $331,000 and $145,000. No charge-offs were incurred and the loans are on nonaccrual status.

During the three months ended March 31, 2021, there was one new TDR loan. The recorded investment for the commercial real estate loan at time of restructure was $115,000. The loan was paid off during the three months ended September 30, 2021.

There were two farmland loans modified as TDRs that defaulted during the three months ended  March 31, 2022 where the default occurred within 12 months of restructuring. A default for purposes of this disclosure is a TDR loan in which the borrower is 90 days past due or results in the foreclosure and repossession of the applicable collateral. The recorded investments for the farmland loans were $374,000 and $70,000 at March 31, 2022and the Company has initiated foreclosure on these loans.

As of March 31, 2022, the Company had no commitments to lend additional funds to loan customers whose terms had been modified in TDRs.

The Company has offered borrowers accommodations due to the impact from COVID-19, including 90-day deferrals, interest only payments and forbearances, which are not considered TDRs as they met the criteria established in the Coronavirus Aid, Relief, and Economic Security Act ("CARES Act"). In addition, the Montana Board of Investments ("MBOI") offered 12-months of interest payment assistance to qualified borrowers. As of both March 31, 2022 and December 31, 2021, one modified nonresidential loan with an insignificant balance remained.

- 17 -

Table of Contents

EAGLE BANCORP MONTANA, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

NOTE 4. MORTGAGE SERVICING RIGHTS

The Company is servicing mortgage loans for the benefit of others which are not included in the condensed consolidated statements of financial condition and have unpaid principal balances of $1,903,450,000 and $1,835,561,000 at  March 31, 2022 and December 31, 2021, respectively. Servicing loans for others generally consists of collecting mortgage payments, maintaining escrow accounts, disbursing payments to investors and foreclosure processing. Mortgage loan servicing fees were $1,156,000 and $937,000 for the three months ended March 31, 2022 and 2021, respectively. These fees, net of amortization, are included in mortgage banking, net which is a component of noninterest income on the condensed consolidated statements of income.

Custodial balances maintained in connection with the foregoing loan servicing are included in noninterest checking deposits and were $17,459,000 and $11,613,000 at  March 31, 2022 and December 31, 2021, respectively.

The following table is a summary of activity in mortgage servicing rights:

As of or For the
Three Months Ended
March 31,
2022 2021
(In Thousands)
Mortgage servicing rights:
Beginning balance $ 13,749 $ 10,897
Mortgage servicing rights capitalized 1,148 1,532
Amortization of mortgage servicing rights (609 ) (994 )
Ending balance $ 14,288 $ 11,435
Valuation allowance:
Beginning balance (56 ) (792 )
Recovery of mortgage servicing rights 56 677
Ending balance - (115 )
Mortgage servicing rights, net $ 14,288 $ 11,320

Impairment expense on mortgage servicing rights was recording during the year ended December 31, 2020 as a result of increased prepayment speed assumptions. Recoveries of $56,000 and $677,000 were recorded during the three months ended March 31, 2022 and 2021, respectively. Recovery (impairment) of servicing rights is included in other noninterest expense on the condensed consolidated statements of income.

The fair values of these rights were $16,565,000 and $14,686,000 at  March 31, 2022 and December 31, 2021, respectively. The fair value of servicing rights was determined at loan level, depending on the interest rate and term of the specific loan, using the following valuation assumptions:

March 31, December 31,
2022 2021
Key assumptions:
Discount rate 12 % 12 %
Prepayment speed range 148-249 % 184-265 %
Weighted average prepayment speed 163 % 204 %

- 18 -

Table of Contents

EAGLE BANCORP MONTANA, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

NOTE 5. DEPOSITS

Deposits are summarized as follows:

March 31, December 31,
2022 2021
(In Thousands)
Noninterest checking $ 371,818 $ 368,846
Interest-bearing checking 210,247 203,410
Savings 232,166 223,069
Money market 312,485 277,469
Time certificates of deposit 143,860 149,755
Total $ 1,270,576 $ 1,222,549

NOTE 6. OTHER LONG-TERM DEBT

Other long-term debt consisted of the following:

March 31, 2022 December 31, 2021
Unamortized Unamortized
Debt Debt
Principal Issuance Principal Issuance
Amount Costs Amount Costs
(In Thousands)
Senior notes fixed at 5.75%, due 2022 $ - $ - $ 10,000 $ (4 )
Subordinated debentures fixed at 5.50% to floating, due 2030 15,000 (274 ) 15,000 (282 )
Subordinated debentures fixed at 3.50% to floating, due 2032 40,000 (895 ) - -
Subordinated debentures variable at 3-Month Libor plus 1.42%, due 2035 5,155 - 5,155 -
Total other long-term debt $ 60,155 $ (1,169 ) $ 30,155 $ (286 )

In January 2022, the Company completed the issuance of $40,000,000 in aggregate principal amount of subordinated notes due in 2032 in a private placement transaction to certain institutional accredited investors and qualified buyers. The notes will bear interest at an annual fixed rate of 3.50% payable semi-annually. Starting August 1, 2027, interest will accrue at a floating rate per annum equal to a benchmark rate, which is expected to be three-month term Secured Overnight Financing Rate ("SOFR") plus a spread of 218.0 basis points, payable quarterly. The notes are subject to redemption at the option of the Company on or after February 1, 2027. The subordinated debentures qualify as Tier 2 capital for regulatory capital purposes. A portion of the net proceeds were used to redeem the $10,000,000 senior notes due in February 2022.

In June 2020, the Company completed the issuance of $15,000,000 in aggregate principal amount of subordinated notes due in 2030 in a private placement transaction to certain qualified institutional accredited investors. The notes will bear interest at an annual fixed rate of 5.50% payable semi-annually. Starting *July 1, 2025,*interest will accrue at a floating rate per annum equal to a benchmark rate, which is expected to be three-month term SOFR plus a spread of 509.0 basis points, payable quarterly. The notes are subject to redemption at the option of the Company on or after July 1, 2025. The subordinated debentures qualify as Tier 2 capital for regulatory capital  purposes.

In February 2017, the Company completed the issuance, through a private placement, of $10,000,000 aggregate principal amount of 5.75% fixed senior unsecured notes due in 2022. The interest was paid semi-annually through maturity date. The notes were not subject to redemption at the option of the Company. The notes were redeemed on February 15, 2022.

In September 2005, the Company completed the private placement of $5,155,000 in subordinated debentures to the Trust. The Trust funded the purchase of the subordinated debentures through the sale of trust preferred securities to First Tennessee Bank, N.A. with a liquidation value of $5,155,000. Using interest payments made by the Company on the debentures, the Trust began paying quarterly dividends to preferred security holders in December 2005. The annual percentage rate of the interest payable on the subordinated debentures and distributions payable on the preferred securities was fixed at 6.02% until December 2010 then became variable at three-month LIBOR plus 1.42%, making the rate 2.38% and 1.63% as of March 31, 2022 and December 31, 2021, respectively. Dividends on the preferred securities are cumulative and the Trust may defer the payments for up to five years. The preferred securities mature in December 2035 unless the Company elects and obtains regulatory approval to accelerate the maturity date. The subordinated debentures qualify as Tier 1 capital for regulatory purposes.

- 19 -

Table of Contents

EAGLE BANCORP MONTANA, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

NOTE 7. ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)

The following table includes information regarding the activity in accumulated other comprehensive income (loss).

Unrealized
Gains (Losses)
on Securities
Available-for-Sale
(In Thousands)
Balance, January 1, 2022 $ 3,493
Other comprehensive loss, before reclassifications and income taxes (17,067 )
Amounts reclassified from accumulated other comprehensive income, before income taxes -
Income tax benefit 4,494
Total other comprehensive loss (12,573 )
Balance, March 31, 2022 $ (9,080 )
Balance, January 1, 2021 $ 5,851
Other comprehensive loss, before reclassifications and income taxes (2,572 )
Amounts reclassified from accumulated other comprehensive income, before income taxes -
Income tax benefit 677
Total other comprehensive loss (1,895 )
Balance, March 31, 2021 $ 3,956

NOTE 8. EARNINGS PER SHARE

The computations of basic and diluted earnings per share are as follows:

Three Months Ended
March 31,
2022 2021
(Dollars in Thousands, Except Per Share Data)
Basic weighted average shares outstanding 6,506,133 6,775,447
Dilutive effect of stock compensation 12,714 13,232
Diluted weighted average shares outstanding 6,518,847 6,788,679
Net income available to common shareholders $ 2,216 $ 5,265
Basic earnings per share $ 0.34 $ 0.78
Diluted earnings per share $ 0.34 $ 0.78

There were no anti-dilutive shares at March 31, 2022 and December 31, 2021.

- 20 -

Table of Contents

EAGLE BANCORP MONTANA, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

NOTE 9. DERIVATIVES AND HEDGING ACTIVITIES

The Company enters into commitments to originate and sell mortgage loans. The Bank uses derivatives to hedge the risk of changes in fair values of interest rate lock commitments and mortgage loans held-for-sale. An optimal amount of mortgage loans are sold directly into bulk commitments with investors at the time an interest rate is locked, other loans are sold on an individual best efforts basis at the time an interest rate is locked, and the remaining balance of locked loans are hedged using To-Be-Announced (“TBA”) mortgage-backed securities or bulk mandatory forward loan sale commitments.

Derivatives are accounted for as free-standing or economic derivatives and are measured at fair value. Derivatives are recorded as either other assets or other liabilities on the condensed consolidated statements of condition.

Derivatives are summarized as follows:

March 31, 2022 December 31, 2021
Notional Fair Value Notional Fair Value
Amount Asset Liability Amount Asset Liability
(In Thousands)
Interest rate lock commitments $ 83,746 $ 91 $ - $ 84,674 $ 1,218 $ -
Forward TBA mortgage-backed securities 75,000 1,093 - 51,000 - 94

Changes in the fair value of the derivatives are recorded in mortgage banking, net within noninterest income on the condensed consolidated statements of income.Net losses of $60,000 and $1,283,000 were recorded for the three months ended March 31, 2022 and 2021, respectively.

NOTE 10. FAIR VALUE OF FINANCIAL INSTRUMENTS

Fair value is the exchange price that would be received for an asset or paid to transfer a liability (exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date.

Assets and liabilities that are measured at fair value are grouped in three levels within the fair value hierarchy based on the markets in which the assets and liabilities are traded and the reliability of the assumptions used to determine fair value.

The fair value hierarchy is as follows:

■ Level 1 Inputs – Valuations are based on unadjusted quoted prices in active markets for identical assets or liabilities.
■ Level 2 Inputs – Valuations are based on quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active and model-based valuations for which all significant assumptions are observable or can be corroborated by observable market data.
--- ---
■ Level 3 Inputs – Valuations are based on unobservable inputs that may include significant management judgment and estimation.
--- ---

A description of the valuation methodologies used for assets and liabilities measured at fair value, as well as the general classification of such instruments pursuant to the valuation hierarchy at the reporting date, is set forth below.

Available-for-Sale Securities – Securities classified as available-for-sale are reported at fair value utilizing Level 1 (nationally recognized securities exchanges) and Level 2 inputs. For level 2 securities, the Company obtains fair value measurements from an independent pricing service. The fair value measurements consider observable data that may include but is not limited to dealer quotes, market spreads, cash flows, the U. S. Treasury yield curve, live trading levels, trade execution data, market consensus prepayments speeds, credit information and the bond’s terms and conditions.

Loans Held-for-Sale – These loans are reported at fair value. Fair value is determined based on expected proceeds based on committed sales contracts and commitments of similar loans if not already committed and are considered Level 2 inputs.

Derivative Instruments – The fair value of the interest rate lock commitments, forward TBA mortgage-backed securities and mandatory forward commitments are estimated using quoted or published market prices for similar instruments and adjusted for factors such as pull-through rate assumptions based on historical information, where appropriate. Interest rate lock commitments are considered Level 3 inputs and forward TBA mortgage-backed securities and mandatory forward commitments are considered Level 2 inputs.

Impaired Loans – Impaired loans are reported at the fair value of the underlying collateral if repayment is expected solely from the collateral or using a discounted cash flow if the loan is not collateral dependent. Collateral values are estimated using Level 3 inputs based on internally customized discounting criteria.

Real Estate and Other Repossessed Assets – Fair values are determined at the time the loan is foreclosed upon and the asset is transferred from loans. The value is based primarily on third party appraisals, less costs to sell and are considered Level 3 inputs for determining fair value. Repossessed assets are reviewed and evaluated periodically for additional impairment and adjusted accordingly.

Mortgage Servicing Rights ****** – The fair value of mortgage servicing rights are estimated using net present value of expected cash flows based on a third party model that incorporates industry assumptions and is adjusted for factors such as prepayment speeds and are considered Level 3 inputs.

  •  *21* -

Table of Contents

EAGLE BANCORP MONTANA, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

NOTE 10. FAIR VALUE OF FINANCIAL INSTRUMENTS

– continued

The following tables summarize financial assets and financial liabilities measured at fair value on a recurring basis, segregated by the level of the valuation inputs within the fair value hierarchy utilized to measure fair value.

March 31, 2022
Level 1 Level 2 Level 3 Total Fair
Inputs Inputs Inputs Value
(In Thousands)
Financial assets:
Available-for-sale securities
U.S. government obligations $ - $ 1,425 $ - $ 1,425
U.S. treasury obligations 69,487 - - 69,487
Municipal obligations - 111,280 - 111,280
Corporate obligations - 6,274 - 6,274
Mortgage-backed securities - 13,125 - 13,125
Collateralized mortgage obligations - 58,799 - 58,799
Asset-backed securities - 4,245 - 4,245
Loans held-for-sale - 22,295 - 22,295
Interest rate lock commitments - - 91 91
Forward TBA mortgage-backed securities - 1,093 - 1,093
December 31, 2021
--- --- --- --- --- --- --- --- ---
Level 1 Level 2 Level 3 Total Fair
Inputs Inputs Inputs Value
(In Thousands)
Financial assets:
Available-for-sale securities
U.S. government obligations $ - $ 1,633 $ - $ 1,633
U.S. treasury obligations 53,183 - - 53,183
Municipal obligations - 123,667 - 123,667
Corporate obligations - 9,336 - 9,336
Mortgage-backed securities - 14,636 - 14,636
Collateralized mortgage obligations - 63,067 - 63,067
Asset-backed securities - 5,740 - 5,740
Loans held-for-sale - 25,819 - 25,819
Interest rate lock commitments - - 1,218 1,218
Financial liabilities:
Forward TBA mortgage-backed securities - 94 - 94

- 22 -

Table of Contents

EAGLE BANCORP MONTANA, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

NOTE 10. FAIR VALUE OF FINANCIAL INSTRUMENTS – continued

Certain financial assets may be measured at fair value on a nonrecurring basis. These assets are subject to fair value adjustments that result from the application of lower of cost or fair value accounting or write-downs of individual assets, such as impaired loans that are collateral dependent, real estate and other repossessed assets and mortgage servicing rights.

The following table summarizes financial assets measured at fair value on a nonrecurring basis for which a nonrecurring change in fair value has been recorded during the reporting periods presented:

March 31, 2022
Level 1 Level 2 Level 3 Total Fair
Inputs Inputs Inputs Value
(In Thousands)
Impaired loans $ - $ - $ - $ -
Real estate and other repossessed assets - - 346 346
Mortgage servicing rights - - 1,653 1,653
December 31, 2021
--- --- --- --- --- --- --- --- ---
Level 1 Level 2 Level 3 Total Fair
Inputs Inputs Inputs Value
(In Thousands)
Impaired loans $ - $ - $ 376 $ 376
Real estate and other repossessed assets - - 4 $ 4
Mortgage servicing rights - - 14,686 $ 14,686

The following table represents the Banks’s Level 3 financial assets and liabilities, the valuation techniques used to measure the fair value of those financial assets and liabilities, and the significant unobservable inputs and the ranges of values for those inputs.

Principal Significant Range of
Valuation Unobservable Significant Input
Instrument Technique Inputs Values
Impaired loans Fair value of underlying collateral Discount applied to the obtained appraisal 10-30%
Real estate and other repossessed assets Fair value of collateral Discount applied to the obtained appraisal 10-30%
Mortgage servicing rights Discounted cash flows Discount rate 10-15%
Prepayment speeds 145-265%
Interest rate lock commitments Internal pricing model Pull-through expectations 90-95%

The following tables provide a reconciliation of assets and liabilities measured at fair value using significant unobservable inputs (Level 3) on a recurring basis during the three months ended March 31, 2022.

Three Months Ended
March 31,
2022 2021
Interest Rate Lock Commitments
(In Thousands)
Balance, January 1, 2022 $ 1,218 $ 6,017
Purchases and issuances 287 738
Sales and settlements (1,414 ) (4,868 )
Balance, March 31, 2022 $ 91 $ 1,887
Net change in unrealized gains relating to items held at end of period $ (1,127 ) $ (4,130 )

- 23 -

Table of Contents

EAGLE BANCORP MONTANA, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

NOTE 10. FAIR VALUE OF FINANCIAL INSTRUMENTS – continued

The tables below summarize the estimated fair values of financial instruments of the Company, whether or not recognized at fair value on the condensed consolidated statements of condition. The tables are followed by methods and assumptions that were used by the Company in estimating the fair value of the classes of financial instruments.

March 31, 2022
Total
Level 1 Level 2 Level 3 Estimated Carrying
Inputs Inputs Inputs Fair Value Amount
(In Thousands)
Financial assets:
Cash and cash equivalents $ 95,102 $ - $ - $ 95,102 $ 95,102
FHLB stock 1,723 - - 1,723 1,723
FRB stock 2,974 - - 2,974 2,974
Loans receivable, gross - - 963,187 963,187 958,681
Accrued interest and dividends receivable 5,750 - - 5,750 5,750
Mortgage servicing rights - - 16,565 16,565 14,288
Financial liabilities:
Non-maturing interest-bearing deposits - 754,898 - 754,898 754,898
Noninterest-bearing deposits 371,818 - - 371,818 371,818
Time certificates of deposit - - 142,306 142,306 143,860
Accrued expenses and other liabilities 18,968 - - 18,968 18,968
FHLB advances and other borrowings - - - - -
Other long-term debt - - 58,399 58,399 60,155
December 31, 2021
--- --- --- --- --- --- --- --- --- --- ---
Total
Level 1 Level 2 Level 3 Estimated Carrying
Inputs Inputs Inputs Fair Value Amount
(In Thousands)
Financial assets:
Cash and cash equivalents $ 61,434 $ - $ - $ 61,434 $ 61,434
FHLB stock 1,702 - - 1,702 1,702
FRB stock 2,974 - - 2,974 2,974
Loans receivable, gross - - 939,204 939,204 933,139
Accrued interest and dividends receivable 5,751 - - 5,751 5,751
Mortgage servicing rights - - 14,686 14,686 13,693
Financial liabilities:
Non-maturing interest-bearing deposits - 703,948 - 703,948 703,948
Noninterest-bearing deposits 368,846 - - 368,846 368,846
Time certificates of deposit - - 149,605 149,605 149,755
Accrued expenses and other liabilities 21,037 - - 21,037 21,037
FHLB advances and other borrowings - - 5,003 5,003 5,000
Other long-term debt - - 29,299 29,299 30,155

- 24 -

Table of Contents

EAGLE BANCORP MONTANA, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

NOTE 11. RECENT ACCOUNTING PRONOUNCEMENTS

Recently Issued Accounting Pronouncements ******

In September 2016, the FASB issued ASU No. 2016-13, Financial Instruments – Credit Losses (Topic 326) intended to improve financial reporting by requiring timelier recording of credit losses on loans and other financial instruments held by financial institutions and other organizations. The standard requires an organization to measure all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions and reasonable and supportable forecasts. Financial institutions and other organizations will now use forward-looking information to better inform their credit loss estimates. The standard also requires enhanced disclosures to help investors and other financial statement users better understand significant estimates and judgments used in estimating credit losses, as well as the credit quality and underwriting standards of an organization’s portfolio. These disclosures include qualitative and quantitative requirements that provide additional information about the amounts recorded in the financial statements. Additionally, the standard amends the accounting for credit losses on available-for-sale debt securities and purchased financial assets with credit deterioration.

In October 2019, the FASB amended the effective date of the standard. The amendments in this update are effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. An entity will apply the amendments in this update through a cumulative-effect adjustment to retained earnings as of the beginning of the first reporting period in which the guidance is effective (that is, a modified-retrospective approach).

In February 2022, the FASB issued ASU No. 2022-02, an update to ASU No. 2016-13. The amendments in the update eliminate TDR recognition and measurement guidance. Instead, entities must evaluate whether the modification represents a new loan or a continuation of an existing loan. Existing disclosure requirements are enhanced and the new requirements are introduced related to certain modifications of receivables made to borrowers experiencing financial difficulty. In addition, for public business entities, the amendments in the update require that entities disclose current-period gross write-offs by year of origination for financing receivables. This information must be included in the vintage disclosures, which require an entity to disclose the amortized cost basis of financing receivables by credit-quality indicator and class of financing receivable by year of origination.

The Company believes the amendments in these updates will have an impact on the Company’s condensed consolidated financial statements and is continuing to evaluate the significance of that impact, even though the adoption date has been deferred. In that regard, we have established a working group composed of individuals from the finance and credit administration areas of the Company. We have developed a current expected credit loss model and plan on utilizing this model concurrently with our existing allowance for loan loss model during 2022. While we currently cannot reasonably estimate the impact of adopting this standard, we expect the impact will be influenced by the composition, characteristics and quality of our loan and securities portfolios, as well as the general economic conditions and forecasts as of the adoption date.

In January 2017, the FASB issued ASU No. 2017-04, Intangibles – Goodwill and Other (Topic 350) to amend and simplify current goodwill impairment testing to eliminate Step 2 from the current provisions. Under the new guidance, an entity should perform the goodwill impairment test by comparing the fair value of a reporting unit with its carrying value and recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value. An entity still has the option to perform the qualitative assessment for a reporting unit to determine if a quantitative impairment test is necessary. The guidance is effective for the Company on January 1, 2023 and adoption of the standard is being evaluated to assess the impact on the Company’s condensed consolidated financial statements.

In March 2020, the FASB issued ASU No. 2020-04, Reference Rate Reform (Topic 848) which provides temporary optional expedients to ease the financial reporting burdens of the expected market transition from London Interbank Offered Rate (“LIBOR”) to an alternative reference rate such as SOFR. The guidance was effective upon issuance and generally can be applied through December 31, 2022. The Company is currently evaluating this guidance to determine the date of adoption and the potential impact. In January 2021, the FASB issued ASU No. 2021-01, Reference Rate Reform (Topic 848), which clarifies that certain optional expedients and exceptions in Topic 848 for contract modifications and hedge accounting apply to derivatives that are affected by the discounting transition. ASU No. 2021-01 was effective upon issuance and generally can be applied through December 31, 2022. ASU No. 2021-01 has not had and is not expected to have a significant impact on the Company's consolidated financial statements.

- 25 -

Table of Contents

EAGLE BANCORP MONTANA, INC. AND SUBSIDIARIES

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Introduction ****

The Company’s primary business activity is the ownership of its wholly owned subsidiary, Opportunity Bank of Montana (the “Bank”). The Bank is a Montana chartered commercial bank that focuses on both consumer and commercial lending. It engages in typical banking activities: acquiring deposits from local markets and originating loans and investing in securities. The Bank’s primary component of earnings is its net interest margin (also called spread or margin), the difference between interest income and interest expense. The net interest margin is managed by management (through the pricing of its products and by the types of products offered and kept in portfolio), and is affected by changes in market interest rates. The Bank also generates noninterest income in the form of fee income and gain on sale of loans.

The Bank has a strong mortgage lending focus, with a large portion of its loan originations represented by single-family residential mortgages, which has enabled it to successfully market home equity loans, as well as a wide range of shorter term consumer loans for various personal needs (automobiles, recreational vehicles, etc.). The Bank has also focused on adding commercial loans to its portfolio, both real estate and non-real estate. We have made significant progress in this initiative. The purpose of this diversification is to mitigate the Bank’s dependence on the residential mortgage market, as well as to improve our ability to manage our interest rate spread. Recent acquisitions have added to our agricultural loans, which generally have shorter maturities and nominally higher interest rates. This has provided additional interest income and improved interest rate sensitivity. The Bank’s management recognizes that fee income will also enable it to be less dependent on specialized lending and it now maintains a significant loan serviced portfolio which provides a steady source of fee income. Fee income is also supplemented with fees generated from deposit accounts. The Bank has a high percentage of non-maturity deposits, such as checking accounts and savings accounts, which allows management flexibility in managing its spread. Non-maturity deposits and certificates of deposits do not automatically reprice as interest rates rise. Gain on sale of loans also provides significant noninterest income in periods of high mortgage loan origination volumes. Such income will be adversely affected in periods of lower mortgage activity.

Management continues to focus on improving the Bank’s earnings. Management believes the Bank needs to continue to concentrate on increasing net interest margin, other areas of fee income and control of operating expenses to achieve earnings growth going forward. Management’s strategy of growing the loan portfolio and deposit base is expected to help achieve these goals as follows: loans typically earn higher rates of return than investments; a larger deposit base should yield higher fee income; increasing the asset base will reduce the relative impact of fixed operating costs. The biggest challenge to the strategy is funding the growth of the statement of financial condition in an efficient manner. Though deposit growth has been steady, it may become more difficult to maintain due to significant competition and possible reduced customer demand for deposits as customers may shift into other asset classes.

The level and movement of interest rates impacts the Bank’s earnings as well. The Federal Open Market Committee changed the federal funds target rate from 1.75% to 0.25% during the year ended December 31, 2020 and it remained at 0.25% through the year ended December 31, 2021. The rate increased to 0.50% during the three months ended March 31, 2022.

Recent Events

On January 21, 2022, the Company entered into a subordinated note purchase agreement with certain institutional accredited investors and qualified institutional buyers to which the Company sold and issued $40.00 million in aggregate principal amount of its 3.50% fixed-to-floating rate subordinated notes due in 2032. A portion of the net proceeds were used to redeem $10.00 million of 5.75% fixed senior notes due February 15, 2022. The Company intends to use the remaining net proceeds for other general corporate purposes and $10.2 million for the acquisition of First Community Bancorp, Inc. ("FCB").

Acquisitions

On September 30, 2021, the Company entered into an Agreement and Plan of Merger with First Community Bancorp, Inc., a Montana corporation and FCB's wholly-owned subsidiary, First Community Bank, a Montana chartered commercial bank. The Merger Agreement provided that, upon the terms and subject to the conditions set forth in the Merger Agreement, FCB would merge with and into Eagle, with Eagle continuing as the surviving corporation. The transaction closed on April 30, 2022. Upon completion of the transaction, Eagle acquired approximately $388 million of assets, $320 million of deposits and $194 million in gross loans, based on December 31, 2021 information. The fair value of assets acquired and liabilities assumed as of April 30, 2022 are still being determined.

### COVID-19

The Bank remains focused on supporting our customers, communities and employees while prudently managing risk.

Eagle began taking loan applications from its small business clients immediately after the Small Business Administration ("SBA") Paycheck Protection Program ("PPP") was implemented, and as of the close of the initial round of the program, had helped 764 borrowers receive $45.71 million in SBA PPP loans. The Bank processed applications for PPP loan forgiveness for customers, with 759 loans representing $45.31 million paid in full as of December 31, 2021. As of March 31, 2022, $357,000 of initial round SBA PPP loans remain unforgiven.  As of the close of the second round of the program, Eagle supported 646 borrowers in receiving $19.51 million in new PPP funding. The Bank processed applications for PPP loan forgiveness for customers, with 514 loans representing $15.45 million paid in full as of December 31, 2021. Of the 132 PPP loans representing $4.06 million remaining as of December 31, 2021, 80 loans or $2.56 million were forgiven during the three months ended March 31,2022. The remaining 52 PPP loans represent $1.50 million.

As of March 31, 2022, our capital ratios were in excess of all regulatory requirements. While we believe that we have sufficient capital to withstand an extended economic recession brought about by COVID-19, our reported and regulatory capital ratios could be adversely impacted by further credit losses. We rely on cash on hand as well as dividends from our subsidiary Bank to service our debt. If our capital deteriorates such that our subsidiary Bank is unable to pay dividends to us for an extended period of time, we may not be able to service our debt.

While certain valuation assumptions and judgments will change to account for pandemic-related circumstances such as widening credit spreads, we do not anticipate significant changes in methodology used to determine the fair value of assets measured in accordance with GAAP.

  • 26 -

Table of Contents

EAGLE BANCORP MONTANA, INC. AND SUBSIDIARIES

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Financial Condition

Comparisons of financial condition in this section are between March 31, 2022 and December 31, 2021.

Total assets were $1.49 billion at March 31, 2022, an increase of $56.12 million, or 3.9% from $1.44 billion at December 31, 2021. Cash and cash equivalents increased $33.67 million from December 31, 2021. In addition, loans receivable, net increased $25.34 million from December 31, 2021. Total liabilities were $1.35 billion at March 31, 2022, an increase of $69.33 million, or 5.4%, from $1.28 billion at December 31, 2021. The increase was largely due to an increase in deposits, as well as a net increase in total borrowings. Total deposits increased $48.03 million from December 31, 2021. Total borrowings increased $24.12 million from December 31, 2021. Total shareholders’ equity decreased $13.21 million or 8.4% from December 31, 2021.

Financial Condition Details

Investment Activities

The following table summarizes investment activities:

March 31, December 31,
2022 2021
Fair Value Percentage of Total Fair Value Percentage of Total
(Dollars in Thousands)
Securities available-for-sale:
U.S. Government obligations $ 1,425 0.54 % $ 1,633 0.60 %
U.S. Treasury obligations 69,487 26.26 53,183 19.61
Municipal obligations 111,280 42.05 123,667 45.58
Corporate obligations 6,274 2.37 9,336 3.44
Mortgage-backed securities 13,125 4.96 14,636 5.40
Collateralized mortgage obligations 58,799 22.22 63,067 23.25
Asset-backed securities 4,245 1.60 5,740 2.12
Total securities available-for-sale $ 264,635 100.00 % $ 271,262 100.00 %

Securities available-for-sale were $264.64 million at March 31, 2022, a decrease of $6.62 million, or 2.4%, from $271.26 million at December 31, 2021. The decrease was due in part to unrealized losses at March 31, 2022 caused by recent increases in interest rates. The decrease was also impacted by maturity, principal payments and call activity. These decreases were largely offset by $20.16 million in investment purchases.

  • 27 -

Table of Contents

EAGLE BANCORP MONTANA, INC. AND SUBSIDIARIES

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Financial Condition – continued

Lending Activities

The following table includes the composition of the Bank’s loan portfolio by loan category:

March 31, December 31,
2022 2021
Amount Percent of Total Amount Percent of Total
(Dollars in thousands)
Real estate loans:
Residential 1-4 family ^(1)^ $ 99,242 10.33 % $ 101,180 10.82 %
Residential 1-4 family construction 40,968 4.27 45,635 4.88
Total residential 1-4 family 140,210 14.60 146,815 15.70
Commercial real estate 432,976 45.09 410,568 43.92
Commercial construction and development 105,754 11.01 92,403 9.88
Farmland 60,363 6.29 67,005 7.17
Total commercial real estate 599,093 62.39 569,976 60.97
Total real estate loans 739,303 76.99 716,791 76.67
Other loans:
Home equity 53,828 5.61 51,748 5.54
Consumer 18,834 1.96 18,455 1.97
Commercial 98,471 10.25 101,535 10.86
Agricultural 49,836 5.19 46,335 4.96
Total commercial loans 148,307 15.44 147,870 15.82
Total other loans 220,969 23.01 218,073 23.33
Total loans 960,272 100.00 % 934,864 100.00 %
Deferred loan fees (1,591 ) (1,725 )
Allowance for loan losses (12,700 ) (12,500 )
Total loans, net $ 945,981 $ 920,639
^(1)^ Excludes loans held-for-sale.
--- ---

Loans receivable, net increased $25.34 million, or 2.8%, to $945.98 million at March 31, 2022 from $920.64 million at December 31, 2021. The increase was largely driven by an increase in total commercial real estate loans of $29.11 million. Home equity loans of $2.08 million, total commercial loans increased $437,000 and consumer loans increased $379,000. However, these increases were partially offset by a decrease in total residential loans of $6.61 million.

Total loan originations were $288.10 million for the three months ended March 31, 2022. Total residential 1-4 family originations were $184.71 million, which includes $170.07 million of loans held-for-sale originations. Total commercial real estate originations were $76.67 million. Total commercial originations were $19.33 million. Home equity loan originations totaled $4.96 million. Consumer loan originations totaled $2.43 million. Loans held-for-sale decreased by $3.52 million to $22.30 million at March 31, 2022 from $25.82 million at December 31, 2021.

Generally, our collection procedures provide that when a loan is 15 or more days delinquent, the borrower is sent a past due notice. If the loan becomes 30 days delinquent, the borrower is sent a written delinquency notice requiring payment. If the delinquency continues, subsequent efforts are made to contact the delinquent borrower, including face to face meetings and counseling to resolve the delinquency. All collection actions are undertaken with the objective of compliance with the Fair Debt Collection Act.

For mortgage loans and home equity loans, if the borrower is unable to cure the delinquency or reach a payment agreement, we will institute foreclosure actions. If a foreclosure action is taken and the loan is not reinstated, paid in full or refinanced, the property is sold at judicial sale at which we may be the buyer if there are no adequate offers to satisfy the debt. Any property acquired as the result of foreclosure, or by deed in lieu of foreclosure, is classified as real estate owned until such time as it is sold or otherwise disposed of. When real estate owned is acquired, it is recorded at its fair market value less estimated selling costs. The initial recording of any loss is charged to the allowance for loan losses. Subsequent write-downs are recorded as a charge to operations. As of March 31, 2022 there was $346,000 of real estate owned and other repossessed property. As of December 31, 2021, there was $4,000 of real estate owned and other repossessed property.

  • 28 -

Table of Contents

EAGLE BANCORP MONTANA, INC. AND SUBSIDIARIES

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Financial Condition – continued

Lending Activities– continued

The following table sets forth information regarding nonperforming assets:

March 31, December 31,
2022 2021
(Dollars in Thousands)
Nonaccrual loans
Real estate loans:
Residential 1-4 family $ 587 $ 616
Residential 1-4 family construction - 337
Commercial real estate 368 497
Farmland 983 989
Other loans:
Home equity 98 100
Consumer 44 62
Commercial 53 516
Agricultural 1,246 1,718
Accruing loans delinquent 90 days or more
Real estate loans:
Farmland 270 -
Restructured loans:
Real estate loans:
Commercial real estate 1,498 1,527
Farmland 624 641
Other loans:
Home equity 13 15
Agricultural 476 41
Total nonperforming loans 6,260 7,059
Real estate owned and other repossessed property, net 346 4
Total nonperforming assets $ 6,606 $ 7,063
Total nonperforming loans to total loans 0.65 % 0.76 %
Total nonperforming loans to total assets 0.42 % 0.49 %
Total nonaccrual loans to total loans 0.47 % 0.59 %
Total allowance for loan loss to nonperforming loans 202.88 % 177.08 %
Total nonperforming assets to total assets 0.44 % 0.49 %

Nonaccrual loans as of March 31, 2022 and December 31, 2021 include $468,000 and $492,000, respectively of acquired loans that deteriorated subsequent to the acquisition date.

  • 29 -

Table of Contents

EAGLE BANCORP MONTANA, INC. AND SUBSIDIARIES

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Financial Condition – continued

Deposits and Other Sources of Funds

The following table includes deposit accounts by category:

March 31, December 31,
2022 2021
Percent Percent
Amount of Total Amount of Total
(Dollars in Thousands)
Noninterest checking $ 371,818 29.26 % $ 368,846 30.16 %
Interest-bearing checking 210,247 16.55 203,410 16.64
Savings 232,166 18.27 223,069 18.25
Money market 312,485 24.60 277,469 22.70
Total 1,126,716 88.68 1,072,794 87.75
Certificates of deposit accounts:
IRA certificates 25,099 1.98 25,333 2.07
Other certificates 118,761 9.34 124,422 10.18
Total certificates of deposit 143,860 11.32 149,755 12.25
Total deposits $ 1,270,576 100.00 % $ 1,222,549 100.00 %

Deposits increased by $48.03 million, or 3.9%, to $1.27 billion at March 31, 2022 from $1.22 billion at December 31, 2021. Money market increasedby $35.02 million, savings increased by $9.10 million, interest-bearing checking increased by $6.84 million, and noninterest checking increased by $2.97 million. However, certificates of deposit decreased by $5.90 million.

The following table summarizes borrowing activity:

March 31, December 31,
2022 2021
Net Percent Net Percent
Amount of Total Amount of Total
(Dollars in Thousands)
FHLB advances and other borrowings $ - 0.00 % $ 5,000 14.34 %
Other long-term debt:
Senior notes fixed at 5.75%, due 2022 - - 9,996 28.67
Subordinated debentures fixed at 3.50% to floating, due 2032 39,105 66.29 - -
Subordinated debentures fixed at 5.50% to floating, due 2030 14,726 24.97 14,718 42.21
Subordinated debentures variable, due 2035 5,155 8.74 5,155 14.78
Total other long-term debt 58,986 100.00 29,869 85.66
Total borrowings $ 58,986 100.00 % $ 34,869 100.00 %

Total borrowings increased by $24.12 million, or 69.2% to $58.99 million at March 31, 2022 from $34.87 million at December 31, 2021. This increase is largely due to issuance of $40.00 million of subordinated notes, slightly offset by the redemption of $10.00 million of senior notes and the maturity of $5.00 million of FHLB advances.

****** Shareholders’ Equity

Total shareholders’ equity decreased by $13.21 million, or 8.4%, to $143.52 million at March 31, 2022 from $156.73 million at December 31, 2021. The decrease was largely due to other comprehensive loss of $12.57 million, treasury stock purchases of $2.27 million and dividends paid of $849,000. The other comprehensive loss was due to unrealized losses on securities available-for-sale caused by the recent increase in interest rates. These decreases were partially offset by net income of $2.22 million.

  • 30 -

Table of Contents

EAGLE BANCORP MONTANA, INC. AND SUBSIDIARIES

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Analysis of Net Interest Income

The Bank’s earnings have historically depended primarily upon net interest income, which is the difference between interest income earned on loans and investments and interest paid on deposits and any borrowed funds. It is the single largest component of Eagle’s operating income. Net interest income is affected by (i) the difference between rates of interest earned on loans and investments and rates paid on interest-bearing deposits and borrowings (the “interest rate spread”) and (ii) the relative amounts of loans and investments and interest-bearing deposits and borrowings.

The following table includes average balances for financial condition items, as well as, interest and dividends and average yields related to the average balances. All average balances are daily average balances. Nonaccrual loans were included in the computation of average balances, but have been reflected in the table as loans carrying a zero yield. The yields include the effect of deferred fees and discounts and premiums that are amortized or accreted to interest income or expense.

For the Three Months Ended March 31,
2022 2021
Average Interest Average Interest
Daily and Yield/ Daily and Yield/
Balance Dividends Cost(4) Balance Dividends Cost(4)
(Dollars in Thousands)
Assets:
Interest-earning assets:
Investment securities $ 273,004 $ 1,297 1.93 % $ 163,423 $ 877 2.18 %
FHLB and FRB stock 4,540 59 5.27 4,947 69 5.66
Loans receivable^(1)^ 974,177 11,373 4.73 890,042 11,029 5.03
Other earning assets 68,278 39 0.23 79,620 26 0.13
Total interest-earning assets 1,319,999 12,768 3.92 1,138,032 12,001 4.28
Noninterest-earning assets 155,050 138,933
Total assets $ 1,475,049 $ 1,276,965
Liabilities and equity:
Interest-bearing liabilities:
Deposit accounts:
Checking $ 207,239 $ 13 0.03 % $ 171,721 $ 10 0.02 %
Savings 221,531 31 0.06 182,566 27 0.06
Money market 294,136 192 0.27 215,138 110 0.21
Certificates of deposit 146,211 76 0.21 168,321 255 0.61
Advances from FHLB and other borrowings including long-term debt 63,628 611 3.89 44,375 460 4.20
Total interest-bearing liabilities 932,745 923 0.40 782,121 862 0.45
Noninterest checking 368,223 317,036
Other noninterest-bearing liabilities 20,879 21,837
Total liabilities 1,321,847 1,120,994
Total equity 153,202 155,971
Total liabilities and equity $ 1,475,049 $ 1,276,965
Net interest income/interest rate spread^(2)^ $ 11,845 3.52 % $ 11,139 3.83 %
Net interest margin^(3)^ 3.64 % 3.97 %
Total interest-earning assets to interest-bearing liabilities 141.52 % 145.51 %
^(1)^Includes loans held-for-sale.
---
^(2)^Interest rate spread represents the difference between the average yield on interest-earning assets and the average rate on interest-bearing liabilities.
^(3)^ Net interest margin represents income before the provision for loan losses divided by average interest-earning assets.
^(4)^For purposes of this table, tax exempt income is not calculated on a tax equivalent basis.
  • 31 -

Table of Contents

EAGLE BANCORP MONTANA, INC. AND SUBSIDIARIES

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Rate/Volume Analysis

The following tables present the dollar amount of changes in interest income and interest expense for major components of interest-earning assets and interest-bearing liabilities. For each category of interest-earning assets and interest-bearing liabilities, information is provided on changes attributable to: (1) changes in volume multiplied by the old rate; (2) changes in rate, which are changes in rate multiplied by the old volume; and (3) changes not solely attributable to rate or volume, which have been allocated proportionately to the change due to volume and the change due to rate.

For the Three Months Ended March 31,
2022 2021
Due to Due to
Volume Rate Net Volume Rate Net
(In Thousands)
Interest-earning assets:
Investment securities $ 588 $ (168 ) $ 420 $ (47 ) $ (103 ) $ (150 )
FHLB and FRB stock (6 ) (4 ) (10 ) (31 ) 6 (25 )
Loans receivable^(1)^ 1,043 (699 ) 344 675 (1,078 ) (403 )
Other earning assets (4 ) 17 13 233 (285 ) (52 )
Total interest-earning assets 1,621 (854 ) 767 830 (1,460 ) (630 )
Interest-bearing liabilities:
Checking 2 1 3 5 (13 ) (8 )
Savings 6 (2 ) 4 14 (33 ) (19 )
Money Market 40 42 82 74 (140 ) (66 )
Certificates of deposit (33 ) (146 ) (179 ) (372 ) (472 ) (844 )
Advances from FHLB and other borrowings including long-term debt 200 (49 ) 151 (494 ) 139 (355 )
Total interest-bearing liabilities 215 (154 ) 61 (773 ) (519 ) (1,292 )
Change in net interest income $ 1,406 $ (700 ) $ 706 $ 1,603 $ (941 ) $ 662
^(1)^Includes loans held-for-sale.
---
  • 32 -

Table of Contents

EAGLE BANCORP MONTANA, INC. AND SUBSIDIARIES

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Results of Operations for the Three Months Ended March 31, 2022 and 2021

Net Income. Eagle’s net income for the three months ended March 31, 2022 was $2.22 million compared to $5.27 million for the three months ended March 31, 2021. The decrease of $3.05 million was largely due to a decrease in noninterest income of $5.10 million. This decrease was partially offset by an increase in net interest income after loan loss provision of $726,000 and a decrease in provision for income taxes of $1.06 million. Basic and diluted earnings per share were both $0.34 for the current period. Basic and diluted earnings per share were both $0.78 for the prior year comparable period.

Net Interest Income. Net interest income increased to $11.85 million for the three months ended March 31, 2022, from $11.14 million for the same quarter in the prior year. The increase of $706,000, or 6.3%, was primarily the result of an increase in interest and dividend income of $767,000, partially offset by an increase in interest expense of $61,000.

Interest and Dividend Income. Interest and dividend income was $12.77 million for the three months ended March 31, 2022 compared to $12.00 million for the three months ended March 31, 2021. Interest on investment securities available-for-sale increased by $420,000, or 47.9% period over period. Average balances for investments increased to $273.00 million for the three months ended March 31, 2022, from $163.42 million for the three months ended March 31, 2021. The increase in average investment balances was largely driven by purchase activity due to excess liquidity levels. However, average interest rates earned on investments decreased to 1.93% for the three months ended March 31, 2022 from 2.18% for the three months ended March 31, 2021. Interest and fees on loans increased to $11.37 million for the three months ended March 31, 2022 from $11.03 million for the three months ended March 31, 2021. This increase of $344,000, or 3.1%, was due to an increase in the average balance of loans, partially offset by a decrease in the average yield on loans. Average balances for loans receivable, including loans held-for-sale, for the three months ended March 31, 2022 were $974.18 million, compared to $890.04 million for the prior year period. This represents an increase of $84.14 million, or 9.5%. The average interest rate earned on loans receivable decreased by 30 basis points, from 5.03% for the three months ended March 31, 2021 to 4.73% for the current period. Interest accretion on purchased loans was $108,000 for the three months ended March 31, 2022 which resulted in a 3 basis point increase in net interest margin compared to $189,000 for the three months ended March 31, 2021 which resulted in a 7 basis point increase in net interest margin. PPP fee income on loans was $177,000 for the three months ended March 31, 2022, which resulted in a 5 basis point increase in net interest margin compared to $500,000 for the three months ended March 31, 2021  which resulted in an 18 basis point increase in net interest margin.

Interest Expense. Total interest expense was $923,000 for the three months ended March 31, 2022 compared to $862,000 for the three months ended March 31, 2021. The increase of $61,000, or 7.1%, was due to a net increase of $151,000 in interest expense on total borrowings, partially offset by a decrease of $90,000 in interest expense on deposits. The average balance for total borrowings increased from $44.38 million for the three months ended  March 31, 2021 to $63.63 million for the three months ended March 31, 2022. The increase was impacted by the issuance of $40.00 million of subordinated notes in January 2022. A portion of the net proceeds were used to redeem $10.00 million of senior notes due in February 2022. However, the average rate paid on total borrowings decreased from 4.20% for the three months ended March 31, 2021, to 3.89% for the three months ended March 31, 2022. The decrease in the average rate paid is due to the change in the mix of the outstanding borrowings. The overall average rate on total deposits was 0.10% for the three months ended March 31, 2022 compared to 0.15% for the three months ended March 31, 2021. However, the average balance for total deposits was $1.24 billion for the three months ended March 31, 2022 compared to $1.05 billion for the three months ended March 31, 2021.

Loan Loss Provision. Loan loss provisions are charged to earnings to maintain the total allowance for loan losses at a level considered adequate by the Bank to provide for probable loan losses based on prior loss experience, volume and type of lending we conduct and past due loans in portfolio. The Bank’s policies require the review of assets on a quarterly basis. The Bank classifies loans if warranted. While management believes it uses the best information available to make a determination with respect to the allowance for loan losses, it recognizes that future adjustments may be necessary. The Bank recorded $279,000 in loan loss provisions for the three months ended March 31, 2022 and $299,000 for the three months ended March 31, 2021. Management believes the level of total allowances is adequate to cover estimated losses inherent in the portfolio. However, if the economic forecast worsens relative to the assumptions we utilized, our allowance for credit losses will increase accordingly in future periods.

Noninterest Income. Total noninterest income was $8.29 million for the three months ended March 31, 2022 compared to $13.39 million for the three months ended March 31, 2021. The decrease of $5.10 million was primarily driven by a decrease in mortgage banking, net of $5.51 million. Mortgage banking, net includes net gain on sale of mortgage loans which decreased $8.05 million to $6.23 million for the three months ended March 31, 2022 compared to $14.28 million for the three months ended March 31, 2021. This change reflects a mortgage market that is returning to more normal levels after record levels were reached in 2021. During the three months ended March 31, 2022, $172.14 million residential mortgage loans were sold compared to $260.49 million in the same period in the prior year. In addition, gross margin on sale of mortgage loans for the three months ended March 31, 2022 was 3.62% compared to 5.48% for the three months ended March 31, 2021. There has been some margin compression due to increased competition. Mortgage banking, net also includes the impact of fair value changes of loans held-for sale and derivatives which can fluctuate due to changes in the market. The net change in fair value of loans held-for sale and derivatives was a loss of $535,000 for the three months ended March 31, 2022 compared to a loss of $2.46 million for the prior period.

Noninterest Expense. Noninterest expense was $16.95 million for the three months ended March 31, 2022 compared to $17.21 million for the three months ended March 31, 2021, a decrease of $265,000 or 1.5%. The decrease was impacted by lower commissions paid on residential mortgage originations. However, acquisition costs were also incurred during the three months ended March 31, 2022 related to the recently completed merger with FCB.

Provision for Income Taxes . Provision for income taxes was $695,000 for the three months ended March 31, 2022, compared to $1.76 million for the three months ended March 31, 2021 due to decreased income before provision for income taxes. The effective tax rate for the three months ended March 31, 2022 was 23.9% compared to 25.0% for the three months ended March 31, 2021.

  • 33 -

Table of Contents

EAGLE BANCORP MONTANA, INC. AND SUBSIDIARIES

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Liquidity and Capital Resources ****

Liquidity

The Bank is required by regulation to maintain sufficient levels of liquidity for safety and soundness purposes. Appropriate levels of liquidity will depend upon the types of activities in which the company engages. For internal reporting purposes, the Bank uses policy minimums of 1.0%, and 8.0% for “basic surplus” and “basic surplus with FHLB” as internally defined. In general, the “basic surplus” is a calculation of the ratio of unencumbered short-term assets reduced by estimated percentages of CD maturities and other deposits that may leave the Bank in the next 90 days divided by total assets. “Basic surplus with FHLB” adds to “basic surplus” the additional borrowing capacity the Bank has with the FHLB of Des Moines. The Bank exceeded those minimum ratiosas of March 31, 2022 and December 31, 2021.

The Bank’s primary sources of funds are deposits, repayment of loans and mortgage-backed securities, maturities of investments, funds provided from operations, advances from the FHLB of Des Moines and other borrowings. Scheduled repayments of loans and mortgage-backed securities and maturities of investment securities are generally predictable. However, other sources of funds, such as deposit flows and loan prepayments, can be greatly influenced by the general level of interest rates, economic conditions and competition. The Company uses liquidity resources principally to fund existing and future loan commitments. It also uses them to fund maturing certificates of deposit and demand deposit withdrawals. In addition, the Company uses liquidity resources for investment purposes, to meet operating expenses and capital expenditures, for dividend payments and stock repurchases and to maintain adequate liquidity levels.

Liquidity may be adversely affected by unexpected deposit outflows, higher interest rates paid by competitors, and similar matters. Management monitors projected liquidity needs and determines the level desirable based in part on Eagle’s commitments to make loans and management’s assessment of Eagle’s ability to generate funds.

Through the three months ended March 31, 2022, liquidity levels remained strong. The Company completed a $40.00 million subordinated debt offering in January 2022. A portion of the net proceeds were used to repay at maturity the $10.00 million of senior notes due in February 2022.

Capital Resources

As of March 31, 2022, the Bank’s internally determined measurement of sensitivity to interest rate movements as measured by a 200 basis point rise in interest rates scenario, increased the economic value of equity (“EVE”) by 13.30% compared to an increase of 8.90% at December 31, 2021. The Bank is within the guidelines set forth by the Board of Directors for interest rate risk sensitivity in rising interest rate scenarios.

The Bank’s regulatory capital was in excess of all applicable regulatory requirements and the Bank is deemed "well capitalized" pursuant to State of Montana and FRB rules as of March 31, 2022. The Bank's Tier 1 leverage ratio decreased slightly from 10.96% as of December 31, 2021 to 10.95% as of March 31, 2022, compared to a regulatory requirement of 4.00%. The Bank’s total capital, Tier 1 capital and common equity Tier 1 capital leverage ratios were 15.13%, 13.99% and 13.99%, respectively, compared to regulatory requirements of 10.50%, 8.50% and 7.00%, respectively. All of these ratios with the exception of the Tier 1 leverage ratio include the capital conservation buffer of 2.50%. The Bank’s capital position helps to mitigate its interest rate risk exposure.

March 31, 2022
(Unaudited)
Dollar % of
Amount Assets
(Dollars in Thousands)
Total risk-based capital to risk weighted assets:
Actual capital level $ 169,151 15.13 %
Minimum required for capital adequacy purposes 117,394 10.50
Excess capital $ 51,757 4.63 %
Tier 1 capital to risk weighted assets:
Actual capital level $ 156,451 13.99 %
Minimum required for capital adequacy purposes 95,033 8.50
Excess capital $ 61,418 5.49 %
Common equity tier 1 capital to risk weighted assets:
Actual capital level $ 156,451 13.99 %
Minimum required for capital adequacy purposes 78,263 7.00
Excess capital $ 78,188 6.99 %
Tier 1 capital to adjusted total average assets:
Actual capital level $ 156,451 10.95 %
Minimum required for capital adequacy purposes 57,173 4.00
Excess capital $ 99,278 6.95 %
  • 34 -

Table of Contents

EAGLE BANCORP MONTANA, INC. AND SUBSIDIARIES

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Impact of Inflation and Changing Prices

Our condensed consolidated financial statements and the accompanying notes, which are found in Part I, Item 1, have been prepared in accordance with generally accepted accounting principles, which require the measurement of financial position and operating results in terms of historical dollars without considering the change in the relative purchasing power of money over time and due to inflation. The impact of inflation is reflected in the increased cost of our operations. Interest rates have a greater impact on our performance than do the general levels of inflation. Interest rates do not necessarily move in the same direction or to the same extent as the prices of goods and services.

Interest Rate Risk

Interest rate risk is the potential for loss of future earnings resulting from adverse changes in the level of interest rates. Interest rate risk results from several factors and could have a significant impact on the Company’s net interest income, which is the Company primary source of net income. Net interest income is affected by changes in interest rates, the relationship between rates on interest-bearing assets and liabilities, the impact of interest fluctuations on asset prepayments and the mix of interest-bearing assets and liabilities.

Although interest rate risk is inherent in the banking industry, banks are expected to have sound risk management practices in place to measure, monitor and control interest rate exposures. The objective of interest rate risk management is to contain the risks associated with interest rate fluctuations. The process involves identification and management of the sensitivity of net interest income to changing interest rates.

The ongoing monitoring and management of this risk is an important component of the Company’s asset/liability committee, which is governed by policies established by the Company’s Board that are reviewed and approved annually. The Board delegates responsibility for carrying out the asset/liability management policies to the Bank’s asset/liability committee. In this capacity, the asset/liability committee develops guidelines and strategies impacting the Company’s asset/liability management related activities based upon estimated market risk sensitivity, policy limits and overall market interest rate levels and trends. The Company’s goal of its asset and liability management practices is to maintain or increase the level of net interest income within an acceptable level of interest rate risk. Our asset and liability policy and strategies are expected to continue as described so long as competitive and regulatory conditions in the financial institution industry and market interest rates continue as they have in recent years.

The Bank has established acceptable levels of interest rate risk as follows for an instantaneous and permanent shock in rates: Projected net interest income over the next twelve months (i.e. year-1) and the subsequent twelve months (i.e. year-2) will not be reduced by more than 15.0% given an immediate increase in interest rates of up to 200 basis points or by more than 10.0% given an immediate increase or decrease in interest rates of up to 100 basis points.

The following table includes the Bank’s net interest income sensitivity analysis.

Changes in Market Rate Sensitivity
Interest Rates As of March 31, 2022 Policy
(Basis Points) Year 1 Year 2 Limits
+200 4.1% 10.4% -15.0%
+100 2.3% 6.0% -10.0%
-100 -3.4% -6.6% -10.0%
  • 35 -

Table of Contents

EAGLE BANCORP MONTANA, INC. AND SUBSIDIARIES

Quantitative and Qualitative Disclosures About Market Risk

Item 3. Quantitative and Qualitative Disclosures About Market Risk

This item has been omitted based on Eagle’s status as a smaller reporting company.

  • 36 -

Table of Contents

EAGLE BANCORP MONTANA, INC. AND SUBSIDIARIES

CONTROLS AND PROCEDURES

Item 4. Controls and Procedures ****

As of the end of the period covered by this report, we conducted an evaluation under the supervision and with the participation of our management including our Chief Executive Officer (“CEO”) and our Chief Financial Officer (“CFO”) of the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, to ensure that information required to be disclosed by us in the reports filed or submitted by us under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission’s rules and forms, including to ensure that information required to be disclosed by us in the reports filed or submitted by us under the Exchange Act is accumulated and communicated to management to allow timely decisions regarding required disclosure. Based on that evaluation, our CEO and CFO concluded that as of March 31, 2022, our disclosure controls and procedures were effective. During the last quarter, there were no changes in the Company’s internal control over financial reporting that have materially affected, or were reasonably likely to materially affect, the Company’s internal control over financial reporting.

  • 37 -

Table of Contents

EAGLE BANCORP MONTANA, INC. AND SUBSIDIARIES

Part II - OTHER INFORMATION

Item 1. Legal Proceedings.

Neither the Company nor the Bank is involved in any pending legal proceeding other than non-material legal proceedings occurring in the ordinary course of business.

Item 1A. Risk Factors

There have not been any material changes in the risk factors previously disclosed in Part 1, Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2021 and any subsequently filed Quarterly Reports on Form 10-Q.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

On April 21, 2022, Eagle's Board authorized the repurchase of up to 400,000 shares of its common stock. Under the plan, shares may be purchased by the Company on the open market or in privately negotiated transactions. The extent to which the company repurchases its shares and the timing of such repurchase will depend upon market conditions and other corporate considerations. The plan expires on April 21, 2023.

On July 22, 2021, Eagle's Board authorized the repurchase of up to 100,000 shares of its common stock. Under the plan, shares could be purchased by the Company on the open market or in privately negotiated transactions. The extent to which the company repurchases its shares and the timing of such repurchase will depend upon market conditions and other corporate considerations. No shares were purchased during the third or fourth quarter of 2021. However, during February 2022, the Company repurchased the total authorized amount of 100,000 shares at an average price of $22.71 per share. The plan expires on July 22, 2022.

The following table summarizes the Company's purchase of its common stock for the three months ended March 31, 2022.

Total Number Maximum
of Shares Number of
Purchased Shares that
Total as Part of May Yet Be
Number of Average Publicly Purchased
Shares Price Paid Announced Plans Under the Plans
Purchased Per Share or Programs or Programs
January 1, 2022 through January 31, 2022 - $ - - -
February 1, 2022 through February 28, 2022 100,000 22.71 100,000 -
March 1, 2022 through March 31, 2022 - - - -
Total 100,000 $ 22.71 100,000

On July 23, 2020, Eagle's Board authorized the repurchase of up to 100,000 shares of its common stock. Under the plan, shares could be purchased by the Company on the open market or in privately negotiated transactions. The extent to which the company repurchased its shares and the timing of such repurchases depended upon market conditions and other corporate considerations. During the third quarter of 2020, 41,337 shares were purchased under this plan at an average price of $15.75 per share. However, no shares were purchased during the fourth quarter of 2020 or during 2021. The plan expired on July 23, 2021.

Item 3. Defaults Upon Senior Securities.

Not applicable.

Item 4. Mine Safety Disclosures

Not applicable.

  • 38 -

Table of Contents

EAGLE BANCORP MONTANA, INC. AND SUBSIDIARIES

Part II - OTHER INFORMATION - continued

Item 5. Other Information.

None.

Item 6. Exhibits. ****
Exhibit<br> <br>Number Description
--- ---
2.1 Agreement and Plan of Merger, dated as of September 30, 2021, by and among Eagle Bancorp Montana, Inc., Opportunity Bank of Montana, First Community Bancorp, Inc. and First Community Bank (incorporated by reference to Exhibit 2.1 of our Current Report on Form 8-K filed on October 1, 2021).
3.1 Amended and Restated Certificate of Incorporation of Eagle Bancorp Montana, Inc. (incorporated by reference to Exhibit 3.1 of our Current Report on Form 8-K filed on February 23, 2010).
3.2 Certificate of Amendment to the Amended and Restated Certificate of Incorporation. (incorporated by reference to Exhibit 3.2 of our Quarterly Report on Form 10-Q filed on May 9, 2019).
3.3 Bylaws of Eagle Bancorp Montana, Inc., amended as of August 20, 2015 (incorporated by reference to 3.1 of our Current Report on Form 8-K filed on August 25, 2015).
10.1 Amendment No. 4 to the Eagle Bancorp Montana, Inc. 2011 Stock Incentive Plan for Directors, Officers and Employees (incorporated by reference to Exhibit 10.1 of our Current Report on Form 8-K filed on April 27, 2022).
31.1 Certification by Peter J. Johnson, Chief Executive Officer, pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934, as adopted pursuant to Section 302 (a) of the Sarbanes-Oxley Act of 2002.
31.2 Certification by Miranda J. Spaulding, Chief Financial Officer, pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934, as adopted pursuant to Section 302 (a) of the Sarbanes-Oxley Act of 2002.
32.1 Certification by Peter J. Johnson, Chief Executive Officer, and Miranda J. Spaulding, Chief Financial Officer, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS Inline XBRL Instance Document (the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document)^(1)^
101.SCH Inline XBRL Taxonomy Extension Schema Document^(1)^
101.CAL Inline XBRL Taxonomy Extension Calculation Linkbase Document^(1)^
101.DEF Inline XBRL Taxonomy Extension Definition Linkbase Document^(1)^
101.LAB Inline XBRL Taxonomy Extension Label Linkbase Document^(1)^
101.PRE Inline XBRL Taxonomy Extension Presentation Linkbase Document^(1)^
104 Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)
^(1)^These interactive data files shall not be deemed filed for purposes of Section 11 or 12 of the Securities Act of 1933, as amended, or Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to liability under those sections.
  • 39 -

Table of Contents

SIGNATURES

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

EAGLE BANCORP MONTANA, INC.
Date: May 5, 2022 By: /s/ Peter J. Johnson
Peter J. Johnson
CEO
Date: May 5, 2022 By: /s/ Miranda J. Spaulding
Miranda J. Spaulding
SVP/CFO
  • 40 -

ex_347263.htm

Exhibit 31.1

CERTIFICATION PURSUANT TO RULE 13a-14(a) UNDER THE SECURITIES

EXCHANGE ACT OF 1934, AS ADOPTED PURSUANT TO SECTION 302(a) OF THE

SARBANES-OXLEY ACT OF 2002

I, Peter J. Johnson certify that:

1. I have reviewed this quarterly report on Form 10-Q of Eagle Bancorp Montana, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
--- ---
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
--- ---
4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
--- ---
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
--- ---
b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
--- ---
c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
--- ---
d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent quarter (the registrant's fourth quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
--- ---
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):
--- ---
a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
--- ---
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
--- ---

Date: May 5, 2022

/s/ Peter J. Johnson
Peter J. Johnson
Chief Executive Officer
(Principal Executive Officer)

ex_347264.htm

Exhibit 31.2

CERTIFICATION PURSUANT TO RULE 13a-14(a) UNDER THE SECURITIES

EXCHANGE ACT OF 1934, AS ADOPTED PURSUANT TO SECTION 302(a) OF THE

SARBANES-OXLEY ACT OF 2002

I, Miranda J. Spaulding certify that:

1. I have reviewed this quarterly report on Form 10-Q of Eagle Bancorp Montana, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
--- ---
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
--- ---
4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
--- ---
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
--- ---
b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
--- ---
c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
--- ---
d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent quarter (the registrant's fourth quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
--- ---
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):
--- ---
a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
--- ---
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
--- ---

Date: May 5, 2022

/s/ Miranda J. Spaulding
Miranda J. Spaulding
Senior Vice President, Chief Financial Officer<br><br> <br>(Principal Financial Officer)

ex_347265.htm

Exhibit 32.1

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of Eagle Bancorp Montana, Inc. (the ‘Company’) on Form 10-Q for the period ended March 31, 2022, as filed with the Securities and Exchange Commission on the date hereof (the ‘Report’), we, Peter J. Johnson, Chief Executive Officer of the Company, and Miranda J. Spaulding, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. §1350, as adopted pursuant to §906 of the Sarbanes-Oxley Act of 2002, that to the undersigned’s best knowledge and belief:

(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
--- ---
/s/ Peter J. Johnson /s/ Miranda J. Spaulding
--- ---
Peter J. Johnson Miranda J. Spaulding
Chief Executive Officer<br><br> <br>(Principal Executive Officer)<br><br> <br>May 5, 2022 Chief Financial Officer and Principal Accounting Officer<br><br> <br>(Principal Financial Officer)<br><br> <br>May 5, 2022

A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.

The foregoing certification is being furnished to the Securities and Exchange Commission and shall not be considered filed as part of the Report.

Report a Problem

Category
Description
Email (optional, for follow-up)