Eagle Bancorp Montana, Inc. - Quarter Report: 2022 September (Form 10-Q)

ebmt20220930_10q.htm

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 September 30, 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

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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

7,980,282 shares outstanding

As of October 31, 2022

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EAGLE BANCORP MONTANA, INC. AND SUBSIDIARIES

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PART I.	FINANCIAL INFORMATION	PAGE

Item 1.	Financial Statements (Unaudited)

	Condensed Consolidated Statements of Financial Condition as of September 30, 2022 and December 31, 2021	1

	Condensed Consolidated Statements of Income for the three and nine months ended September 30, 2022 and 2021	3

	Condensed Consolidated Statements of Comprehensive Income (Loss) for the three and nine months ended September 30, 2022 and 2021	5

	Condensed Consolidated Statements of Changes in Shareholders' Equity for the three and nine months ended September 30, 2022 and 2021	6

	Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2022 and 2021	7

	Notes to Condensed Consolidated Financial Statements (Unaudited)	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	39

Item 4.	Controls and Procedures	40

PART II.	OTHER INFORMATION
Item 1.	Legal Proceedings	41
Item 1A.	Risk Factors	41
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	41
Item 3.	Defaults Upon Senior Securities	41
Item 4.	Mine Safety Disclosures	41
Item 5.	Other Information	42
Item 6.	Exhibits	42

Signatures		43

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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 ongoing 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 traditional and non-traditional financial service providers;

●

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 that lead to impairment in the value of our investment securities and goodwill;

●

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 implement new technologies and maintain secure and reliable technology systems;
	●	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.

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EAGLE BANCORP MONTANA, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION

(Dollars in Thousands, Except for Per Share Data)

(Unaudited)

	September 30,		December 31,
	2022		2021
ASSETS:
Cash and due from banks	$	22,154	$	10,938
Interest-bearing deposits in banks		3,043		43,669
Federal funds sold		-		6,827
Total cash and cash equivalents		25,197		61,434

Securities available-for-sale		351,949		271,262
Federal Home Loan Bank ("FHLB") stock		2,939		1,702
Federal Reserve Bank ("FRB") stock		4,206		2,974
Mortgage loans held-for-sale, at fair value		24,408		25,819
Loans receivable, net of allowance for loan losses of $13,850 at September 30, 2022 and $12,500 at December 31, 2021		1,298,304		920,639
Accrued interest and dividends receivable		10,778		5,751
Mortgage servicing rights, net		15,141		13,693
Assets held-for-sale, at fair value		2,041		-
Premises and equipment, net		79,374		67,266
Cash surrender value of life insurance, net		45,845		36,474
Goodwill		34,740		20,798
Core deposit intangible, net		7,895		1,780
Other assets		21,103		6,334

Total assets	$	1,923,920	$	1,435,926

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

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EAGLE BANCORP MONTANA, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION (Continued)

(Dollars in Thousands, Except for Per Share Data)

(Unaudited)

	September 30,			December 31,
	2022			2021
LIABILITIES:
Deposit accounts:
Noninterest-bearing	$	507,034		$	368,846
Interest-bearing		1,167,216			853,703
Total deposits		1,674,250			1,222,549

Accrued expenses and other liabilities		23,748			21,779
FHLB advances and other borrowings		15,600			5,000
Other long-term debt:
Principal amount		60,155			30,155
Unamortized debt issuance costs		(1,107	)		(286	)
Total other long-term debt, net		59,048			29,869

Total liabilities		1,772,646			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; 8,507,429 and 7,110,833 shares issued; 7,986,890 and 6,794,811 shares outstanding at September 30, 2022 and December 31, 2021, respectively)		85			71
Additional paid-in capital		109,488			80,832
Unallocated common stock held by Employee Stock Ownership Plan ("ESOP")		(5,300	)		(5,729	)
Treasury stock, at cost (520,539 and 316,022 shares at September 30, 2022 and December 31, 2021, respectively)		(11,627	)		(7,321	)
Retained earnings		89,502			85,383
Accumulated other comprehensive (loss) income, net of tax		(30,874	)		3,493
Total shareholders' equity		151,274			156,729

Total liabilities and shareholders' equity	$	1,923,920		$	1,435,926

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

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EAGLE BANCORP MONTANA, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(Dollars in Thousands, Except for Per Share Data)

(Unaudited)

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2022		2021		2022			2021
INTEREST AND DIVIDEND INCOME:
Interest and fees on loans	$	16,665	$	11,619	$	42,933		$	33,660
Securities available-for-sale		2,555		1,094		5,863			2,989
FHLB and FRB dividends		63		62		160			194
Other interest income		59		32		206			90
Total interest and dividend income		19,342		12,807		49,162			36,933

INTEREST EXPENSE:
Deposits		717		350		1,451			1,118
FHLB advances and other borrowings		136		37		157			152
Other long-term debt		602		389		1,855			1,168
Total interest expense		1,455		776		3,463			2,438

NET INTEREST INCOME		17,887		12,031		45,699			34,495

Loan loss provision		517		255		1,654			576

NET INTEREST INCOME AFTER LOAN LOSS PROVISION		17,370		11,776		44,045			33,919

NONINTEREST INCOME:
Service charges on deposit accounts		498		318		1,223			884
Mortgage banking, net		4,447		11,665		16,183			33,360
Interchange and ATM fees		594		570		1,668			1,489
Appreciation in cash surrender value of life insurance		291		181		748			512
Net gain (loss) on sale of available-for-sale securities		-		11		(6	)		11
Other noninterest income		1,587		608		3,236			1,798
Total noninterest income	$	7,417	$	13,353	$	23,052		$	38,054

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

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EAGLE BANCORP MONTANA, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF INCOME (Continued)

(Dollars in Thousands, Except for Per Share Data)

(Unaudited)

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2022		2021		2022		2021
NONINTEREST EXPENSE:
Salaries and employee benefits	$	11,699	$	12,262	$	33,511	$	37,093
Occupancy and equipment expense		1,946		1,665		5,441		4,746
Data processing		1,964		1,171		4,628		3,666
Advertising		464		326		1,052		850
Amortization of core deposit intangible		333		144		895		431
Loan costs		491		654		1,624		2,126
Federal Deposit Insurance Corporation ("FDIC") insurance premiums		93		81		330		243
Professional and examination fees		420		790		1,098		1,400
Acquisition costs		103		35		2,296		35
Other noninterest expense		3,151		1,672		6,783		4,460
Total noninterest expense		20,664		18,800		57,658		55,050

INCOME BEFORE PROVISION FOR INCOME TAXES		4,123		6,329		9,439		16,923

Provision for income taxes		1,031		1,583		2,360		4,231

NET INCOME	$	3,092	$	4,746	$	7,079	$	12,692

BASIC EARNINGS PER SHARE	$	0.40	$	0.73	$	0.98	$	1.90

DILUTED EARNINGS PER SHARE	$	0.40	$	0.73	$	0.98	$	1.89

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

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EAGLE BANCORP MONTANA, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(Dollars in Thousands)

(Unaudited)

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2022			2021			2022			2021

NET INCOME	$	3,092		$	4,746		$	7,079		$	12,692

OTHER ITEMS OF COMPREHENSIVE (LOSS) INCOME BEFORE TAX:
Change in fair value of investment securities available-for-sale		(16,009	)		(578	)		(46,657	)		(1,818	)
Reclassification for net realized (gains) losses on investment securities available-for-sale		-			(11	)		6			(11	)
Total other comprehensive loss		(16,009	)		(589	)		(46,651	)		(1,829	)

Income tax benefit related to securities available-for-sale		4,216			155			12,284			482

COMPREHENSIVE (LOSS) INCOME	$	(8,701	)	$	4,312		$	(27,288	)	$	11,345

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

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EAGLE BANCORP MONTANA, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY

For the Three and Nine Months Ended September 30, 2022 and 2021

(Dollars in Thousands, Except for Per Share Data)

(Unaudited)

																	*ACCUMULATED*
					*ADDITIONAL*			*UNALLOCATED*									*OTHER*
	*PREFERRED*		*COMMON*		*PAID-IN*			*ESOP*			*TREASURY*			*RETAINED*			*COMPREHENSIVE*
	*STOCK*		*STOCK*		*CAPITAL*			*SHARES*			*STOCK*			*EARNINGS*			*(LOSS) INCOME*			*TOTAL*

Balance at July 1, 2022	$	-	$	85	$	109,410		$	(5,443	)	$	(9,691	)	$	87,510		$	(19,081	)	$	162,790
Net income		-		-		-			-			-			3,092			-			3,092
Other comprehensive loss		-		-		-			-			-			-			(11,793	)		(11,793	)
Dividends paid ($0.1375 per share)		-		-		-			-			-			(1,100	)		-			(1,100	)
Stock compensation expense		-		-		135			-			-			-			-			135
ESOP shares allocated (5,997 shares)		-		-		(57	)		143			-			-			-			86
Treasury stock purchased (99,517 shares at $19.45 average cost per share)		-		-		-			-			(1,936	)		-			-			(1,936	)
Balance at September 30, 2022	$	-	$	85	$	109,488		$	(5,300	)	$	(11,627	)	$	89,502		$	(30,874	)	$	151,274

Balance at July 1, 2021	$	-	$	71	$	80,820		$	(6,061	)	$	(7,631	)	$	80,607		$	4,938		$	152,744
Net income		-		-		-			-			-			4,746			-			4,746
Other comprehensive loss		-		-		-			-			-			-			(434	)		(434	)
Dividends paid ($0.1250 per share)		-		-		-			-			-			(848	)		-			(848	)
Stock compensation expense		-		-		90			-			-			-			-			90
ESOP shares allocated (9,831) shares)		-		-		47			178			-			-			-			225
Balance at September 30, 2021	$	-	$	71	$	80,957		$	(5,883	)	$	(7,631	)	$	84,505		$	4,504		$	156,523

Balance at January 1, 2022	$	-	$	71	$	80,832		$	(5,729	)	$	(7,321	)	$	85,383		$	3,493		$	156,729
Net income		-		-		-			-			-			7,079			-			7,079
Other comprehensive loss		-		-		-			-			-			-			(34,367	)		(34,367	)
Dividends paid ($0.3875 per share)		-		-		-			-			-			(2,960	)		-			(2,960	)
Stock issued in connection with First Community Bancorp, Inc. acquisition		-		14		28,337			-			-			-			-			28,351
Stock compensation expense		-		-		405			-			-			-			-			405
ESOP shares allocated (17,991 shares)		-		-		(86	)		429			-			-			-			343
Treasury stock purchased (204,517 shares at $21.05 average cost per share)		-		-		-			-			(4,306	)		-			-			(4,306	)
Balance at September 30, 2022	$	-	$	85	$	109,488		$	(5,300	)	$	(11,627	)	$	89,502		$	(30,874	)	$	151,274

Balance at January 1, 2021	$	-	$	71	$	77,602		$	(145	)	$	(4,423	)	$	73,982		$	5,851		$	152,938
Net income		-		-		-			-			-			12,692			-			12,692
Other comprehensive loss		-		-		-			-			-			-			(1,347	)		(1,347	)
Dividends paid ($0.3200 per share)		-		-		-			-			-			(2,169	)		-			(2,169	)
Stock compensation expense		-		-		270			-			-			-			-			270
ESOP shares allocated (18,139 shares)		-		-		156			262			-			-			-			418
Treasury stock purchased through tender offer (250,000 shares at $25.12 average cost per share)		-		-		-			-			(6,279	)		-			-			(6,279	)
Sale of shares to ESOP (251,256 shares at $23.88 average price per share)		-				2,929			(6,000	)		3,071			-			-			-
Balance at September 30, 2021	$	-	$	71	$	80,957		$	(5,883	)	$	(7,631	)	$	84,505		$	4,504		$	156,523

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

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EAGLE BANCORP MONTANA, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Dollars in Thousands)

(Unaudited)

	Nine Months Ended
	September 30,
	2022			2021
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$	7,079		$	12,692
Adjustments to reconcile net income to net cash provided by operating activities:
Loan loss provision		1,654			576
Recovery of mortgage servicing rights		(56	)		(702	)
Depreciation		2,615			2,137
Net amortization of investment securities premiums and discounts		1,182			874
Amortization of mortgage servicing rights		1,710			2,881
Amortization of right-of-use assets		512			457
Amortization of core deposit intangible		895			431
Compensation expense related to restricted stock awards		405			270
ESOP compensation expense for allocated shares		343			418
Net gain on sale of loans		(15,645	)		(36,261	)
Originations of loans held-for-sale		(449,013	)		(814,854	)
Proceeds from sales of loans held-for-sale		466,069			863,671
Net loss (gain) on sale of available-for-sale securities		6			(11	)
Net gain on sale of real estate owned and other repossessed assets		(203	)		-
Net gain on sale/disposal of premises and equipment		(1	)		(70	)
Net appreciation in cash surrender value of life insurance		(748	)		(512	)
Net change in:
Accrued interest and dividends receivable		(2,273	)		(453	)
Other assets		241			1,707
Accrued expenses and other liabilities		891			(429	)
Net cash provided by operating activities		15,663			32,822

CASH FLOWS FROM INVESTING ACTIVITIES:
Activity in available-for-sale securities:
Sales		43,794			3,910
Maturities, principal payments and calls		30,876			8,906
Purchases		(77,073	)		(95,762	)
FHLB stock (purchased) redeemed		(612	)		358
FRB stock purchased		(392	)		-
Net cash received from acquisition		13,397			-
Loan origination and principal collection, net		(191,855	)		(48,901	)
Purchases of bank owned life insurance		-			(8,000	)
Proceeds from sale of real estate and other repossessed assets acquired in settlement of loans		535			16
Proceeds from sale of premises and equipment		5			1,379
Purchases of premises and equipment, net		(10,733	)		(10,538	)
Net cash used in investing activities	$	(192,058	)	$	(148,632	)

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

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EAGLE BANCORP MONTANA, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)

(Dollars in Thousands)

(Unaudited)

	Nine Months Ended
	September 30,
	2022			2021
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in deposits	$	130,594		$	161,466
Net decrease in repurchase agreements		(22,853	)		-
Net short-term advances from FHLB and other borrowings		15,600			-
Payments on long-term FHLB and other borrowings		(5,000	)		(12,070	)
Proceeds from issuance of subordinated debentures		40,000			-
Repayment of senior debt		(10,000	)		-
Payments for debt issuance costs		(917)			-
Purchase of treasury stock		(4,306	)		(6,279	)
Dividends paid		(2,960	)		(2,169	)
Net cash provided by financing activities		140,158			140,948

NET INCREASE IN CASH AND CASH EQUIVALENTS		(36,237	)		25,138

CASH AND CASH EQUIVALENTS, beginning of period		61,434			69,802

CASH AND CASH EQUIVALENTS, end of period	$	25,197		$	94,940


SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid during the period for interest	$	3,423		$	3,052
Cash paid during the period for income taxes		2,720			3,940

NONCASH INVESTING AND FINANCING ACTIVITIES:
Decrease in fair value of securities available-for-sale	$	(46,651	)	$	(1,829	)
Mortgage servicing rights recognized		3,102			5,015
Right-of-use assets obtained in exchange for lease liabilities		154			1,140
Loans transferred to real estate and other assets acquired in foreclosure		328			108
Stock issued in connection with acquisitions		28,351			-
Sale of shares from Eagle to ESOP in exchange for loan		-			6,000

See Note 2. Mergers and Acquisitions for additional information related to assets acquired and liabilities assumed in acquisitions.

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

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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 September 30, 2022 and December 31, 2021, respectively.

In September 2021, the Company entered into an Agreement and Plan of Merger ("Merger Agreement") with First Community Bancorp, Inc. ("FCB"), 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 merger closed on April 30, 2022. First Community Bank operated nine branches in Ashland, Culbertson, Froid, Glasgow, Helena, Hinsdale, Three Forks and Wolf Point, Montana.

On January 1, 2020, the Company acquired Western Holding Company of Wolf Point, ("WHC"), a Montana corporation, and WHC's wholly-owned subsidiary, Western Bank of Wolf Point ("WB"), a Montana chartered commercial bank. The acquisition included 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.

The Bank currently has 30 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 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 nine-month period ended September 30, 2022 are not necessarily indicative of the results to be expected for the year ending December 31, 2022 or 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.

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.

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EAGLE BANCORP MONTANA, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

NOTE 2. MERGERS AND ACQUISITIONS

Effective April 30, 2022 Eagle completed its previously announced merger with FCB. The acquisition closed after receipt of approvals from regulatory authorities, approval of FCB shareholders and the satisfaction of other closing conditions. The total consideration paid was $38,577,000 and included cash consideration of $10,226,000 and common stock issued of $28,351,000.

This transaction was accounted for under the acquisition method of accounting.

All of the assets acquired and liabilities assumed were recognized at their acquisition-date fair value, while transaction costs and restructuring costs associated with the business combinations were expensed as incurred. Determining the fair value of assets and liabilities is a complicated process involving significant judgment regarding methods and assumptions used to calculate estimated fair values. The excess of the acquisition consideration over the fair value of assets acquired and liabilities assumed, if any, is allocated to goodwill. The goodwill recorded is not deductible for federal income tax purposes.

The following table summarizes the fair values of the assets acquired and liabilities assumed, consideration paid and the resulting goodwill.

	FCB
	April 30,
	2022
	(In Thousands)
Assets acquired:
Cash and cash equivalents	$	23,623
Securities available-for-sale		126,123
Loans receivable		190,894
Premises and equipment		6,393
Cash surrender value of life insurance		8,638
Core deposit intangible		7,004
Other assets		7,687
Total assets acquired	$	370,362

Liabilities assumed:
Deposits	$	321,107
Accrued expenses and other liabilities		1,767
Other borrowings		22,853
Total liabilities assumed	$	345,727

Net assets acquired	$	24,635

Consideration paid:
Cash	$	10,226
Common stock issued (1,396,596 shares)		28,351
Total consideration paid	$	38,577

Goodwill resulting from acquisition	$	13,942

Goodwill recorded for the FCB acquisition during the three months ended June 30, 2022 was $13,942,000.

FCB investments were written down an additional $4,559,000 to fair value on the date of acquisition based on market prices obtained from an independent third party.

For acquisitions, the fair value analysis of the loan portfolios resulted in a valuation adjustment for each loan based on an amortization schedule of expected cash flow. Individual amortization schedules were used for each loan over a certain amount and those with specifically identified loss exposure. The remainder of the loans were grouped by type and risk rating into loan pools (based on loan type, fixed or variable interest rate, revolving or term payments and risk rating). Yield inputs for the amortization schedules included contractual interest rates, estimated prepayment speeds, liquidity adjustments and market yields. Credit inputs for the amortization schedules included probability of payment default, loss given default rates and individually identified loss exposure.

The total accretable discount on FCB acquired loans was $5,416,000 as of April 30, 2022. During the three and nine months ended September 30, 2022, accretion of the loan discount was $333,000 and $1,060,000, respectively. The remaining accretable loan discount was $4,352,000 as of September 30, 2022. Three impaired loans were acquired through the FCB acquisition with insignificant balances as of April 30, 2022.

Fair value adjustments recorded for FCB related to premises and equipment were insignificant overall. The Company used independent third party appraisals in the determination of the fair value of acquired properties.

Core deposit intangible assets of $7,004,000 were recorded for FCB and are being amortized using an accelerated method over the estimated useful lives of the related deposits of 10 years from date of acquisition. For acquisitions, the core deposit intangible value is a function of the difference between the cost of the acquired core deposits and the alternative cost of funds. These cash flow streams were discounted to present value. The fair value of other deposit accounts acquired were valued by estimating future cash flows to be received or paid from individual or homogenous groups of assets and liabilities and then discounting those cash flows to a present value using rates of return that were available in financial markets for similar financial instruments on or near the acquisition date.

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EAGLE BANCORP MONTANA, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

NOTE 2. MERGERS AND ACQUISITIONS – continued

Direct costs related to the acquisition were expensed as incurred. The Company recorded acquisition costs related to FCB of $103,000 and $2,296,000 during the three and nine months ended September 30, 2022, respectively, and $35,000 during both the three and nine months ended September 30, 2021. Acquisition costs included professional fees and data processing expenses incurred related to the acquisitions.

Operations of acquired entities have been included in the condensed consolidated financial statements since date of acquisition. The Company does not consider them as separate reporting segments and does not track the amount of revenues and net income attributable since acquisition. As such, it is impracticable to determine such amounts for the period from acquisition date through September 30, 2022.

The accompanying consolidated statements of income include the results of operations of FCB since the April 30, 2022 acquisition date. The following table presents unaudited pro forma results of operations for the three and nine months ended September 30, 2021 as if the acquisition had occurred on January 1, 2021. This pro forma information gives the effect to certain adjustments, including purchase accounting fair value adjustments and amortization of the core deposit intangible asset. The pro forma information does not necessarily reflect the results of operations that would have occurred had the Company purchased and assumed the assets and liabilities of FCB on January 1, 2021. Cost savings are also not reflected in the unaudited pro forma amounts for the three and nine months ended September 30, 2021.

	Three Months Ended		Nine Months Ended
	September 30, 2021		September 30, 2021
	(Dollars in Thousands, Except Per Share Data)		(Dollars in Thousands, Except Per Share Data)
Pro forma net income⁽¹⁾
Net interest income after loan loss provision	$	15,110	$	43,921
Noninterest income		14,946		42,833
Noninterest expense		22,104		64,962
Income before provision for income taxes		7,952		21,792
Income tax provision		1,988		5,448
Net income	$	5,964	$	16,344

Pro forma earnings per share⁽¹⁾
Basic earnings per share	$	0.91	$	2.44
Diluted earnings per share	$	0.91	$	2.44

Weighted average shares outstanding, basic		6,525,509		6,691,256
Weighted average shares outstanding, diluted		6,544,044		6,709,376

⁽¹⁾Significant assumptions utilized include the acquisition costs noted above and a 25.00% effective tax rate.

NOTE 3. INVESTMENT SECURITIES

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

	September 30, 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 and agency obligations	$	2,674	$	3	$	(214	)	$	2,463	$	1,618	$	15	$	-		$	1,633
U.S. Treasury obligations		63,708		-		(7,639	)		56,069		52,707		580		(104	)		53,183
Municipal obligations		191,252		9		(22,379	)		168,882		119,381		4,616		(330	)		123,667
Corporate obligations		7,239		2		(212	)		7,029		9,251		103		(18	)		9,336
Mortgage-backed securities		32,729		1		(2,244	)		30,486		14,662		92		(118	)		14,636
Collateralized mortgage obligations		92,450		-		(9,280	)		83,170		63,286		416		(635	)		63,067
Asset-backed securities		3,808		46		(4	)		3,850		5,617		123		-			5,740
Total	$	393,860	$	61	$	(41,972	)	$	351,949	$	266,522	$	5,945	$	(1,205	)	$	271,262

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EAGLE BANCORP MONTANA, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

NOTE 3. INVESTMENT SECURITIES – continued

Proceeds from sale of available-for sale securities and the associated realized gains and losses were as follows:

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2022		2021		2022			2021
	(In Thousands)

Proceeds from sale of available-for-sale securities	$	-	$	3,910	$	43,794		$	3,910

Gross realized gain on sale of available-for-sale securities	$	-	$	11	$	-		$	11
Gross realized loss on sale of available-for-sale securities		-		-		(6	)		-
Net realized loss on sale of available-for-sale securities	$	-	$	11	$	(6	)	$	11

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.

	September 30, 2022
	Amortized		Fair
	Cost		Value
	(In Thousands)

Due in one year or less	$	18,821	$	18,694
Due from one to five years		19,187		18,552
Due from five to ten years		90,566		78,291
Due after ten years		140,107		122,756
		268,681		238,293
Mortgage-backed securities		32,729		30,486
Collateralized mortgage obligations		92,450		83,170
Total	$	393,860	$	351,949

As of September 30, 2022 and December 31, 2021, securities with a fair value of $59,927,000 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:

	September 30, 2022
	Less Than 12 Months					12 Months or Longer
			Gross					Gross
	Fair		Unrealized			Fair		Unrealized
	Value		Losses			Value		Losses
	(In Thousands)
U.S. government and agency obligations	$	1,739	$	(214	)	$	-	$	-
U.S. Treasury obligations		39,485		(4,861	)		16,584		(2,778	)
Municipal obligations		152,894		(18,422	)		12,821		(3,957	)
Corporate obligations		6,026		(212	)		-		-
Mortgage-backed securities and collateralized mortgage obligations		80,102		(6,028	)		33,355		(5,496	)
Asset-backed securities		743		(4	)		-		-
Total	$	280,989	$	(29,741	)	$	62,760	$	(12,231	)

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EAGLE BANCORP MONTANA, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

NOTE 3. 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 and agency 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	)
Asset-backed securities		-		-			-		-
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 September 30, 2022 and 2021, respectively or the nine months ended September 30, 2022 and 2021, respectively. As of September 30, 2022 and December 31, 2021, there were, respectively, 400 and 43 securities in unrealized loss positions that were considered to be temporarily impaired and therefore an impairment charge has not been recorded.

NOTE 4. LOANS RECEIVABLE

Loans receivable consisted of the following:

	September 30,			December 31,
	2022			2021
	(In Thousands)
Real estate loans:
Residential 1-4 family	$	195,265		$	146,815
Commercial real estate		781,843			569,976

Other loans:
Home equity		67,409			51,748
Consumer		27,703			18,455
Commercial		241,608			147,870

Total		1,313,828			934,864

Deferred loan fees, net		(1,674	)		(1,725	)
Allowance for loan losses		(13,850	)		(12,500	)
Total loans, net	$	1,298,304		$	920,639

Included in the above are loans guaranteed by U.S. government agencies totaling $26,983,000 and $25,730,000 at September 30, 2022 and December 31, 2021, respectively.

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EAGLE BANCORP MONTANA, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

NOTE 4. 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, July 1, 2022	$	1,643	$	8,337	$	507		$	361		$	2,477		$	13,325
Charge-offs		-		-		-			(6	)		-			(6	)
Recoveries		-		6		-			3			5			14
Provision		17		400		1			1			98			517
Ending balance, September 30, 2022	$	1,660	$	8,743	$	508		$	359		$	2,580		$	13,850

Allowance for loan losses:
Beginning balance, January 1, 2022	$	1,596	$	7,470	$	533		$	365		$	2,536		$	12,500
Charge-offs		-		-		(32	)		(14	)		(299	)		(345	)
Recoveries		-		20		-			4			17			41
Provision		64		1,253		7			4			326			1,654
Ending balance, September 30, 2022	$	1,660	$	8,743	$	508		$	359		$	2,580		$	13,850

Ending balance, September 30, 2022 allocated to loans individually evaluated for impairment	$	199	$	-	$	-		$	-		$	79		$	278

Ending balance, September 30, 2022 allocated to loans collectively evaluated for impairment	$	1,461	$	8,743	$	508		$	359		$	2,501		$	13,572

Loans receivable:
Ending balance, September 30, 2022	$	195,265	$	781,843	$	67,409		$	27,703		$	241,608		$	1,313,828

Ending balance, September 30, 2022 of loans individually evaluated for impairment	$	687	$	1,173	$	97		$	34		$	1,655		$	3,646

Ending balance, September 30, 2022 of loans collectively evaluated for impairment	$	194,578	$	780,670	$	67,312		$	27,669		$	239,953		$	1,310,182

	Residential		Commercial			Home
	1-4 Family		Real Estate			Equity		Consumer			Commercial			Total
	(In Thousands)
Allowance for loan losses:
Beginning balance, July 1, 2021	$	1,544	$	7,127		$	522	$	363		$	2,344		$	11,900
Charge-offs		-		-			-		(4	)		-			(4	)
Recoveries		-		6			-		1			42			49
Provision		26		155			8		3			63			255
Ending balance, September 30, 2021	$	1,570	$	7,288		$	530	$	363		$	2,449		$	12,200

Allowance for loan losses:
Beginning balance, January 1, 2021	$	1,506	$	6,951		$	515	$	364		$	2,264		$	11,600
Charge-offs		-		(35	)		-		(14	)		(6	)		(55	)
Recoveries		-		15			-		7			57			79
Provision		64		357			15		6			134			576
Ending balance, September 30, 2021	$	1,570	$	7,288		$	530	$	363		$	2,449		$	12,200

Ending balance, September 30, 2021 allocated to loans individually evaluated for impairment	$	199	$	-		$	-	$	-		$	109		$	308

Ending balance, September 30, 2021 allocated to loans collectively evaluated for impairment	$	1,371	$	7,288		$	530	$	363		$	2,340		$	11,892

Loans receivable:
Ending balance, September 30, 2021	$	142,921	$	522,953		$	52,990	$	18,940		$	149,199		$	887,003

Ending balance, September 30, 2021 of loans individually evaluated for impairment	$	1,122	$	4,341		$	121	$	78		$	2,111		$	7,773

Ending balance, September 30, 2021 of loans collectively evaluated for impairment	$	141,799	$	518,612		$	52,869	$	18,862		$	147,088		$	879,230

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EAGLE BANCORP MONTANA, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

NOTE 4. LOANS RECEIVABLE – continued

Internal classification of the loan portfolio was as follows:

	September 30, 2022
			Special
	Pass		Mention		Substandard		Doubtful		Loss		Total
	(In Thousands)
Real estate loans:
Residential 1-4 family	$	136,505	$	519	$	575	$	199	$	-	$	137,798
Residential 1-4 family construction		57,467		-		-		-		-		57,467
Commercial real estate		491,965		12,954		1,797		-		-		506,716
Commercial construction and development		144,247		1,053		-		-		-		145,300
Farmland		125,169		2,450		2,208		-		-		129,827
Other loans:
Home equity		67,295		-		114		-		-		67,409
Consumer		27,653		2		48		-		-		27,703
Commercial		129,004		1,113		850		8		-		130,975
Agricultural		107,536		610		2,378		109		-		110,633
Total	$	1,286,841	$	18,701	$	7,970	$	316	$	-	$	1,313,828

	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

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

	September 30, 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	$	452	$	-	$	452	$	687	$	136,659	$	137,798
Residential 1-4 family construction		149		-		149		-		57,318		57,467
Commercial real estate		76		-		76		403		506,237		506,716
Commercial construction and development		109		-		109		-		145,191		145,300
Farmland		31		-		31		770		129,026		129,827
Other loans:
Home equity		62		-		62		97		67,250		67,409
Consumer		121		-		121		34		27,548		27,703
Commercial		324		874		1,198		68		129,709		130,975
Agricultural		35		-		35		1,587		109,011		110,633
Total	$	1,359	$	874	$	2,233	$	3,646	$	1,307,949	$	1,313,828

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EAGLE BANCORP MONTANA, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

NOTE 4. LOANS RECEIVABLE – continued

	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

The following tables include information regarding impaired loans.

	September 30, 2022
			Unpaid
	Recorded		Principal		Related
	Investment		Balance		Allowance
	(In Thousands)
Real estate loans:
Residential 1-4 family	$	687	$	785	$	199
Residential 1-4 family construction		-		-		-
Commercial real estate		403		486		-
Commercial construction and development		-		-		-
Farmland		770		868		-
Other loans:
Home equity		97		122		-
Consumer		34		40		-
Commercial		68		124		-
Agricultural		1,587		1,686		79
Total	$	3,646	$	4,111	$	278

	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

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EAGLE BANCORP MONTANA, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

NOTE 4. LOANS RECEIVABLE – continued

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2022		2021		2022		2021
	Average Recorded Investment				Average Recorded Investment
	(In Thousands)				(In Thousands)
Real estate loans:
Residential 1-4 family	$	629	$	715	$	652	$	994
Residential 1-4 family construction		-		337		169		337
Commercial real estate		403		2,239		1,213		2,166
Commercial construction and development		-		-		-		25
Farmland		770		2,125		1,200		2,259
Other loans:
Home equity		108		126		106		116
Consumer		35		78		48		114
Commercial		76		536		292		536
Agricultural		1,587		1,366		1,673		1,640
Total	$	3,608	$	7,522	$	5,353	$	8,187

Interest income recognized on impaired loans for the three and nine months ended September 30, 2022 and 2021 is considered insignificant. Interest payments received on a cash basis related to impaired loans were $406,000 and $405,000 at September 30, 2022 and December 31, 2021, respectively.

As of September 30, 2022 and December 31, 2021, there were troubled debt restructured (“TDR”) loans of $1,112,000 and $2,224,000, respectively.

During the three months ended September 30, 2022, there werenonew TDR loans. During the nine months ended September 30, 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 September 30, 2021, there were two new TDR loans. The recorded investments for both farmland loans at the time of restructure were $391,000 and $70,000. No charge-offs were incurred and the loans are on nonaccrual status. During the nine months ended September 30, 2021, there were three new TDR loans. The recorded investments for the two farmland loans at time of restructure as stated above were $391,000 and $70,000. The recorded investment for the commercial real estate loan at time of restructure during the first quarter of 2021 was $115,000. The commercial real estate loan was paid off during the nine months ended September 30, 2021.

There were no loans modified as TDR's that defaulted during the three months ended September 30, 2022. There were two farmland loans modified as TDRs that defaulted during the nine months ended September 30, 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 $70,000at September 30, 2022 and the Company has initiated foreclosure on these loans.

As of September 30, 2022, the Company had no commitments to lend additional funds to loan customers whose terms had been modified in TDRs.

NOTE 5. 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 $1,992,699,000 and $1,835,561,000 at September 30, 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 $1,225,000 and $1,060,000 for the three months ended September 30, 2022 and 2021, respectively. Mortgage loan servicing fees were $3,581,000 and $2,984,000 for the nine months ended September 30, 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 $18,000,000 and $11,613,000 at September 30, 2022 and December 31, 2021, respectively.

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EAGLE BANCORP MONTANA, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

NOTE 5. MORTGAGE SERVICING RIGHTS – continued

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

	As of or For the
	Three Months Ended
	September 30,
	2022			2021
	(In Thousands)
Mortgage servicing rights:
Beginning balance	$	14,809		$	12,232
Mortgage servicing rights capitalized		924			1,662
Amortization of mortgage servicing rights		(592	)		(863	)
Ending balance	$	15,141		$	13,031
Valuation allowance:
Beginning balance	$	-		$	(104	)
Recovery of mortgage servicing rights		-			14
Ending balance	$	-		$	(90	)
Mortgage servicing rights, net	$	15,141		$	12,941

	As of or For the
	Nine Months Ended
	September 30,
	2022			2021
	(In Thousands)
Mortgage servicing rights:
Beginning balance	$	13,749		$	10,897
Mortgage servicing rights capitalized		3,102			5,015
Amortization of mortgage servicing rights		(1,710	)		(2,881	)
Ending balance	$	15,141		$	13,031
Valuation allowance:
Beginning balance	$	(56	)	$	(792	)
Recovery of mortgage servicing rights		56			702
Ending balance		-			(90	)
Mortgage servicing rights, net	$	15,141		$	12,941

Impairment expense on mortgage servicing rights was recorded during the year ended December 31, 2020 as a result of increased prepayment speed assumptions. Recoveries of $14,000 and $702,000 were recorded during the three and nine months ended September 30, 2021, respectively. There was no recovery or impairment recorded during the three months ended September 30, 2022. However, a recovery of $56,000 was recorded during the nine months ended September 30, 2022. 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 $19,303,000 and $14,686,000 at September 30, 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:

	September 30,			December 31,
	2022			2021
Key assumptions:
Discount rate		12	%		12	%
Prepayment speed range		111-208	%		184-265	%
Weighted average prepayment speed		123	%		204	%

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EAGLE BANCORP MONTANA, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

NOTE 6. DEPOSITS

Deposits are summarized as follows:

	September 30,		December 31,
	2022		2021
	(In Thousands)

Noninterest checking	$	507,034	$	368,846
Interest-bearing checking		252,258		203,410
Savings		284,303		223,069
Money market		398,647		277,469
Time certificates of deposit		232,008		149,755
Total	$	1,674,250	$	1,222,549

NOTE 7. OTHER LONG-TERM DEBT

Other long-term debt consisted of the following:

	September 30, 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		(257	)		15,000		(282	)
Subordinated debentures fixed at 3.50% to floating, due 2032		40,000		(850	)		-		-
Subordinated debentures variable at 3-Month Libor plus 1.42%, due 2035		5,155		-			5,155		-
Total other long-term debt	$	60,155	$	(1,107	)	$	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 bear interest at an annual fixed rate of 3.50% payable semi-annually. Starting February 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 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 5.17% and 1.63% as of September 30, 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.

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EAGLE BANCORP MONTANA, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

NOTE 8. ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)

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

	Unrealized
	(Losses) Gains
	on Securities
	Available-for-Sale
	(In Thousands)
Balance, July 1, 2022	$	(19,081	)
Other comprehensive loss, before reclassifications and income taxes		(16,009	)
Amounts reclassified from accumulated other comprehensive loss, before income taxes		-
Income tax benefit		4,216
Total other comprehensive loss		(11,793	)
Balance, September 30, 2022	$	(30,874	)

Balance, July 1, 2021	$	4,938
Other comprehensive loss, before reclassifications and income taxes		(578	)
Amounts reclassified from accumulated other comprehensive income, before income taxes		(11	)
Income tax benefit		155
Total other comprehensive loss		(434	)
Balance, September 30, 2021	$	4,504

Balance, January 1, 2022	$	3,493
Other comprehensive loss, before reclassifications and income taxes		(46,657	)
Amounts reclassified from accumulated other comprehensive loss, before income taxes		6
Income tax benefit		12,284
Total other comprehensive loss		(34,367	)
Balance, September 30, 2022	$	(30,874	)

Balance, January 1, 2021	$	5,851
Other comprehensive loss, before reclassifications and income taxes		(1,818	)
Amounts reclassified from accumulated other comprehensive income, before income taxes		(11	)
Income tax benefit		482
Total other comprehensive loss		(1,347	)
Balance, September 30, 2021	$	4,504

NOTE 9. EARNINGS PER SHARE

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

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2022		2021		2022		2021
	(Dollars in Thousands, Except Per Share Data)

Basic weighted average shares outstanding		7,793,485		6,525,509		7,241,520		6,691,256
Dilutive effect of stock compensation		14,565		18,535		12,722		18,120
Diluted weighted average shares outstanding		7,808,050		6,544,044		7,254,242		6,709,376

Net income available to common shareholders	$	3,092	$	4,746	$	7,079	$	12,692

Basic earnings per share	$	0.40	$	0.73	$	0.98	$	1.90

Diluted earnings per share	$	0.40	$	0.73	$	0.98	$	1.89

There were no anti-dilutive shares at September 30, 2022 and December 31, 2021.

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EAGLE BANCORP MONTANA, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

NOTE 10. 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:

	September 30, 2022						December 31, 2021
	Notional		Fair Value				Notional		Fair Value
	Amount		Asset		Liability		Amount		Asset		Liability
	(In Thousands)
Interest rate lock commitments	$	53,275	$	-	$	772	$	84,674	$	1,218	$	-
Forward TBA mortgage-backed securities		45,000		1,614		-		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 gains of $209,000 and $373,000 were recorded for the three months ended September 30, 2022 and 2021, respectively. Net losses of $282,000 and $1,953,000 were recorded for the nine months ended September 30, 2022 and 2021, respectively.

NOTE 11. 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.

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EAGLE BANCORP MONTANA, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

NOTE 11. FAIR VALUE OF FINANCIAL INSTRUMENTS – continued

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.

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.

	September 30, 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	$	-	$	2,463	$	-	$	2,463
U.S. Treasury obligations		56,069		-		-		56,069
Municipal obligations		-		168,882		-		168,882
Corporate obligations		-		7,029		-		7,029
Mortgage-backed securities		-		30,486		-		30,486
Collateralized mortgage obligations		-		83,170		-		83,170
Asset-backed securities		-		3,850		-		3,850
Loans held-for-sale		-		24,408		-		24,408
Forward TBA mortgage-backed securities		-		1,614		-		1,614
Financial liabilities:
Interest rate lock commitments		-		-		772		772

	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

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EAGLE BANCORP MONTANA, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

NOTE 11. 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:

	September 30, 2022
	Level 1		Level 2		Level 3		Total Fair
	Inputs		Inputs		Inputs		Value
	(In Thousands)
Impaired loans	$	-	$	-	$	218	$	218
Real estate and other repossessed assets		-		-		-		-
Mortgage servicing rights		-		-		1,383		1,383

	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	110-265%
Interest rate lock commitments	Internal pricing model	Pull-through expectations	80-95%

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 nine months ended September 30, 2022.

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2022			2021			2022			2021
	Interest Rate Lock Commitments						Interest Rate Lock Commitments
	(In Thousands)						(In Thousands)
Beginning balance	$	334		$	2,949		$	1,218		$	6,017
Purchases and issuances		(640	)		4,468			95			10,218
Sales and settlements		(466	)		(5,089	)		(2,085	)		(13,907	)
Ending balance	$	(772	)	$	2,328		$	(772	)	$	2,328
Net change in fair value for (losses) gains relating to items held at end of period	$	(1,106	)	$	(621	)	$	(1,990	)	$	(3,689	)

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EAGLE BANCORP MONTANA, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

NOTE 11. 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.

	September 30, 2022
							Total
	Level 1		Level 2		Level 3		Estimated		Carrying
	Inputs		Inputs		Inputs		Fair Value		Amount
	(In Thousands)
Financial assets:
Cash and cash equivalents	$	25,197	$	-	$	-	$	25,197	$	25,197
FHLB stock		2,939		-		-		2,939		2,939
FRB stock		4,206		-		-		4,206		4,206
Loans receivable, gross		-		-		1,302,575		1,302,575		1,312,154
Accrued interest and dividends receivable		10,778		-		-		10,778		10,778
Mortgage servicing rights		-		-		19,303		19,303		15,141
Financial liabilities:
Non-maturing interest-bearing deposits		-		935,208		-		935,208		935,208
Noninterest-bearing deposits		507,034		-		-		507,034		507,034
Time certificates of deposit		-		-		226,649		226,649		232,008
Accrued expenses and other liabilities		22,976		-		-		22,976		22,976
FHLB advances and other borrowings		-		-		15,580		15,580		15,600
Other long-term debt		-		-		55,988		55,988		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

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EAGLE BANCORP MONTANA, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

NOTE 12. 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. 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 are 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.

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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

This discussion and analysis provides information that management believes is necessary to understand Eagle's financial condition, changes in financial condition, results of operations, and cash flows for the three and nine months ended September 30, 2022, as compared to 2021. The following should be read in conjunction with the Company's Consolidated Financial Statements, and accompanying Notes thereto, for the year ended December 31, 2021, included in Eagle's Annual Report on Form 10-K filed with the United States Securities and Exchange Commission (SEC) on March 9, 2022, and in conjunction with the Condensed Consolidated Financial Statements, and accompanying Notes thereto, included in Part I - Item 1. Financial Statements. The results of operations for the three and nine months ended September 30, 2022, are not necessarily indicative of the future results that may be attained for the entire year or other interim periods.

Executive Summary

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 held the federal funds target rate at 0.25% during the year ended December 31, 2021. The rate increased to 3.25% during the nine months ended September 30, 2022.

Recent Events

Acquisitions

On September 30, 2021, the Company entered into an Agreement and Plan of Merger with First Community Bancorp, Inc. ("FCB"), 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. In the transaction, Eagle acquired nine retail bank branches and two loan production offices in Montana. The total consideration paid was $38.58 million and included cash consideration of $10.23 million and common stock issued of $28.35 million.

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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 September 30, 2022 and December 31, 2021.

Total assets were $1.92 billion at September 30, 2022, an increase of $487.99 million, or 34.0% from $1.44 billion at December 31, 2021. The increase was largely due to the change in loans receivable and securities available-for-sale which were impacted by the acquisition of FCB in April 2022. Loans receivable, net increased by $377.66 million from December 31, 2021. Securities available-for-sale increased by $80.69 million from December 31, 2021. Total liabilities were $1.77 billion at September 30, 2022, an increase of $493.45 million, or 38.6%, from $1.28 billion at December 31, 2021. The increase was mainly due to an increase in deposits which was also impacted by the FCB acquisition. Total deposits increased $451.70 million from December 31, 2021 and total borrowings increased $39.78 million from December 31, 2021. Total shareholders’ equity decreased $5.46 million or 3.5% from December 31, 2021.

Financial Condition Details

Investment Activities

The following table summarizes investment activities:

	September 30,					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	$	2,463		0.70	%	$	1,633		0.60	%
U.S. Treasury obligations		56,069		15.93			53,183		19.61
Municipal obligations		168,882		47.99			123,667		45.58
Corporate obligations		7,029		2.00			9,336		3.44
Mortgage-backed securities		30,486		8.66			14,636		5.40
Collateralized mortgage obligations		83,170		23.63			63,067		23.25
Asset-backed securities		3,850		1.09			5,740		2.12
Total securities available-for-sale	$	351,949		100.00	%	$	271,262		100.00	%

Securities available-for-sale were $351.95 million at September 30, 2022, an increase of $80.69 million, or 29.7%, from $271.26 million at December 31, 2021. Securities were impacted by the FCB acquisition, which included acquired securities of $126.12 million. Excluding securities acquired, securities decreased by $45.43 million. The decrease was primarily due to unrealized losses at September 30, 2022 caused by recent increases in interest rates. In addition, the decrease was impacted by sales and maturity, principal payments and call activity, which were largely offset by purchases. Immediately following the acquisition, a restructure of FCB's portfolio was incurred to better align the acquired portfolio with Eagle's investment strategy.

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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:

	September 30,						December 31,
	2022						2021
	Amount			Percent of Total			Amount			Percent of Total
	(Dollars in thousands)
Real estate loans:
Residential 1-4 family ⁽¹⁾	$	137,798			10.49	%	$	101,180			10.82	%
Residential 1-4 family construction		57,467			4.37			45,635			4.88
Total residential 1-4 family		195,265			14.86			146,815			15.70

Commercial real estate		506,716			38.57			410,568			43.92
Commercial construction and development		145,300			11.06			92,403			9.88
Farmland		129,827			9.88			67,005			7.17
Total commercial real estate		781,843			59.51			569,976			60.97

Total real estate loans		977,108			74.37			716,791			76.67

Other loans:
Home equity		67,409			5.13			51,748			5.54
Consumer		27,703			2.11			18,455			1.97

Commercial		130,975			9.97			101,535			10.86
Agricultural		110,633			8.42			46,335			4.96
Total commercial loans		241,608			18.39			147,870			15.82

Total other loans		336,720			25.63			218,073			23.33

Total loans		1,313,828			100.00	%		934,864			100.00	%

Deferred loan fees		(1,674	)					(1,725	)
Allowance for loan losses		(13,850	)					(12,500	)
Total loans, net	$	1,298,304					$	920,639

⁽¹⁾

Excludes loans held-for-sale.

Loans receivable, net increased $377.66 million, or 41.0%, to $1.30 billion at September 30, 2022 from $920.64 million at December 31, 2021. The increase was impacted by the FCB acquisition, which included $190.89 million of acquired loans. Excluding acquired loans, loans receivable, net increased by $186.77 million. Including acquired loans, total commercial real estate loans increased $211.86 million, total commercial loans increased $93.74 million, total residential loans increased $48.45 million, home equity loans increased $15.66 million, and consumer loans increased $9.24 million.

Total loan originations were $880.15 million for the nine months ended September 30, 2022. Total residential 1-4 family originations were $521.14 million, which includes $449.01 million of loans held-for-sale originations. Total commercial real estate originations were $236.51 million. Total commercial originations were $84.72 million. Home equity loan originations totaled $26.19 million. Consumer loan originations totaled $11.59 million. Loans held-for-sale decreased by $1.41 million to $24.41 million at September 30, 2022 from $25.82 million at December 31, 2021.

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EAGLE BANCORP MONTANA, INC. AND SUBSIDIARIES

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

Financial Condition – continued

Lending Activities– continued

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 September 30, 2022 there was no real estate owned and other repossessed property. As of December 31, 2021, there was $4,000 of real estate owned and other repossessed property.

The following table sets forth information regarding nonperforming assets:

	September 30,			December 31,
	2022			2021
	(Dollars in Thousands)
Nonaccrual loans
Real estate loans:
Residential 1-4 family	$	687		$	616
Residential 1-4 family construction		-			337
Commercial real estate		403			497
Farmland		146			989
Other loans:
Home equity		85			100
Consumer		34			62
Commercial		69			516
Agricultural		1,110			1,718
Accruing loans delinquent 90 days or more
Real estate loans:
Commercial		874			-
Restructured loans:
Real estate loans:
Commercial real estate					1,527
Farmland		624			641
Other loans:
Home equity		12			15
Agricultural		476			41
Total nonperforming loans		4,520			7,059
Real estate owned and other repossessed property, net		-			4
Total nonperforming assets	$	4,520		$	7,063

Total nonperforming loans to total loans		0.34	%		0.76	%
Total nonperforming loans to total assets		0.23	%		0.49	%
Total nonaccrual loans to total loans		0.28	%		0.59	%
Total allowance for loan loss to nonperforming loans		306.42	%		177.08	%
Total nonperforming assets to total assets		0.23	%		0.49	%

Nonaccrual loans as of September 30, 2022 and December 31, 2021 include $603,000 and $492,000, respectively of acquired loans that deteriorated subsequent to the acquisition date.

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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:

	September 30,					December 31,
	2022					2021
			Percent					Percent
	Amount		of Total			Amount		of Total
	(Dollars in Thousands)
Noninterest checking	$	507,034		30.28	%	$	368,846		30.16	%
Interest-bearing checking		252,258		15.07			203,410		16.64
Savings		284,303		16.98			223,069		18.25
Money market		398,647		23.81			277,469		22.70
Total		1,442,242		86.14			1,072,794		87.75
Certificates of deposit accounts:
IRA certificates		25,384		1.52			25,333		2.07
Other certificates		206,624		12.34			124,422		10.18
Total certificates of deposit		232,008		13.86			149,755		12.25
Total deposits	$	1,674,250		100.00	%	$	1,222,549		100.00	%

Deposits increased by $451.70 million, or 36.9%, to $1.67 billion at September 30, 2022 from $1.22 billion at December 31, 2021. The increase was impacted by the FCB acquisition. Excluding acquired deposits, total deposits increased by $107.74 million. Including acquired deposits, noninterest checking increased by $138.18 million, money market increased by $121.18 million, certificates of deposit increased by $82.25 million, savings increased by $61.24 million, and interest-bearing checking increased by $48.85 million.

The following table summarizes borrowing activity:

	September 30,					December 31,
	2022					2021
	Net		Percent			Net		Percent
	Amount		of Total			Amount		of Total
	(Dollars in Thousands)
FHLB advances and other borrowings	$	15,600		20.90	%	$	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		39,150		52.44			-		-
Subordinated debentures fixed at 5.50% to floating, due 2030		14,743		19.75			14,718		42.21
Subordinated debentures variable, due 2035		5,155		6.91			5,155		14.78
Total other long-term debt		59,048		79.10			29,869		85.66
Total borrowings	$	74,648		100.00	%	$	34,869		100.00	%

Total borrowings increased by $39.78 million, or 114.1% to $74.65 million at September 30, 2022 from $34.87 million at December 31, 2021. This increase is largely due to an increase in other long-term debt of $29.18 million which primarily resulted from the issuance of $40.00 million of subordinated notes, slightly offset by the redemption of $10.00 million of senior notes. In addition, FHLB advances and other borrowings increased $10.60 million to $15.60 million at September 30, 2022 compared to $5.00 million at December 31, 2021.

Shareholders’ Equity

Total shareholders’ equity decreased by $5.46 million, or 3.5%, to $151.27 million at September 30, 2022 from $156.73 million at December 31, 2021. The decrease was largely due to an increase in other comprehensive loss of $34.37 million related to unrealized losses on securities available-for-sale. These unrealized losses were a result of increased interest rates. The decrease was largely offset by an increase of stock issued in connection with the FCB acquisition of $28.35 million.

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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 September 30,
	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	$	378,680	$	2,555		2.68	%	$	233,882	$	1,094		1.86	%
FHLB and FRB stock		6,932		63		3.61			4,812		62		5.11
Loans receivable⁽¹⁾		1,301,358		16,665		5.08			926,748		11,619		4.97
Other earning assets		12,057		59		1.94			68,058		32		0.19
Total interest-earning assets		1,699,027		19,342		4.52			1,233,500		12,807		4.12
Noninterest-earning assets		214,683							148,686
Total assets	$	1,913,710						$	1,382,186

Liabilities and equity:
Interest-bearing liabilities:
Deposit accounts:
Checking	$	261,426	$	68		0.10	%	$	197,245	$	12		0.02	%
Savings		318,322		25		0.03			204,223		30		0.06
Money market		369,216		307		0.33			254,019		146		0.23
Certificates of deposit		203,359		317		0.62			155,006		162		0.41
Advances from FHLB and other borrowings including long-term debt		69,870		738		4.19			38,022		426		4.45
Total interest-bearing liabilities		1,222,193		1,455		0.47			848,515		776		0.36
Noninterest checking		503,905							353,486
Other noninterest-bearing liabilities		23,020							23,107
Total liabilities		1,749,118							1,225,108

Total equity		164,592							157,078

Total liabilities and equity	$	1,913,710						$	1,382,186
Net interest income/interest rate spread⁽²⁾			$	17,887		4.05	%			$	12,031		3.76	%

Net interest margin⁽³⁾						4.18	%						3.87	%
Total interest-earning assets to interest-bearing liabilities						139.01	%						145.37	%

⁽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.

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EAGLE BANCORP MONTANA, INC. AND SUBSIDIARIES

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

Analysis of Net Interest Income – continued

	For the Nine Months Ended September 30,
	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	$	332,950	$	5,863		2.35	%	$	200,392	$	2,989		1.99	%
FHLB and FRB stock		5,827		160		3.67			4,880		194		5.32
Loans receivable⁽¹⁾		1,144,459		42,933		5.02			905,478		33,660		4.97
Other earning assets		44,456		206		0.62			77,264		90		0.16
Total interest-earning assets		1,527,692		49,162		4.30			1,188,014		36,933		4.16
Noninterest-earning assets		186,200							143,974
Total assets	$	1,713,892						$	1,331,988

Liabilities and equity:
Interest-bearing liabilities:
Deposit accounts:
Checking	$	238,032	$	106		0.06	%	$	185,496	$	34		0.02	%
Savings		268,244		94		0.05			193,943		86		0.06
Money market		348,568		759		0.29			234,188		381		0.22
Certificates of deposit		171,642		492		0.38			161,521		617		0.51
Advances from FHLB and other borrowings including long-term debt		68,012		2,012		3.96			40,703		1,320		4.34
Total interest-bearing liabilities		1,094,498		3,463		0.42			815,851		2,438		0.40
Noninterest checking		440,625							337,961
Other noninterest-bearing liabilities		22,698							21,560
Total liabilities		1,557,821							1,175,372

Total equity		156,071							156,616

Total liabilities and equity	$	1,713,892						$	1,331,988
Net interest income/interest rate spread⁽²⁾			$	45,699		3.88	%			$	34,495		3.76	%

Net interest margin⁽³⁾						4.00	%						3.88	%
Total interest-earning assets to interest-bearing liabilities						139.58	%						145.62	%

⁽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.

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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 September 30,
	2022									2021
				Due to									Due to
	Volume			Rate			Net			Volume			Rate			Net
	(In Thousands)
Interest-earning assets:
Investment securities	$	677		$	784		$	1,461		$	379		$	(159	)	$	220
FHLB and FRB stock		27			(26	)		1			(22	)		(11	)		(33	)
Loans receivable⁽¹⁾		4,697			349			5,046			304			(25	)		279
Other earning assets		(26	)		53			27			17			(15	)		2
Total interest-earning assets		5,375			1,160			6,535			678			(210	)		468

Interest-bearing liabilities:
Checking		4			52			56			3			(4	)		(1	)
Savings		17			(22	)		(5	)		9			(12	)		(3	)
Money Market		66			95			161			45			(1	)		44
Certificates of deposit		51			104			155			(143	)		(326	)		(469	)
Advances from FHLB and other borrowings including long-term debt		357			(45	)		312			(508	)		152			(356	)
Total interest-bearing liabilities		495			184			679			(594	)		(191	)		(785	)

Change in net interest income	$	4,880		$	976		$	5,856		$	1,272		$	(19	)	$	1,253

⁽¹⁾Includes loans held-for-sale.

	For the Nine Months Ended September 30,
	2022									2021
				Due to									Due to
	Volume			Rate			Net			Volume			Rate			Net
	(In Thousands)
Interest earning assets:
Investment securities	$	1,977		$	897		$	2,874		$	547		$	(411	)	$	136
FHLB and FRB stock		38			(72	)		(34	)		(84	)		(6	)		(90	)
Loans receivable(1)		8,884			389			9,273			1,374			(1,546	)		(172	)
Other earning assets		(38	)		154			116			168			(212	)		(44	)
Total interest earning assets		10,861			1,368			12,229			2,005			(2,175	)		(170	)

Interest bearing liabilities:
Checking		10			62			72			12			(25	)		(13	)
Savings		33			(25	)		8			36			(68	)		(32	)
Money Market		186			192			378			166			(147	)		19
Certificates of deposit		39			(164	)		(125	)		(710	)		(1,209	)		(1,919	)
Advances from FHLB and other borrowings including long-term debt		886			(194	)		692			(1,532	)		490			(1,042	)
Total interest bearing liabilities		1,154			(129	)		1,025			(2,028	)		(959	)		(2,987	)

Change in net interest income	$	9,707		$	1,497		$	11,204		$	4,033		$	(1,216	)	$	2,817

⁽¹⁾Includes loans held-for-sale.

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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 September 30, 2022 and 2021

Net Income. Eagle’s net income for the three months ended September 30, 2022 was $3.09 million compared to $4.75 million for the three months ended September 30, 2021. The decrease of $1.66 million was due to a decrease in noninterest income of $5.93 million and an increase in noninterest expense of $1.86 million. These decreases were largely offset by an increase in net interest income after loan loss provision of $5.59 million. Basic and diluted earnings per share were both $0.40 for the current period. Basic and diluted earnings per share were both $0.73 for the prior year comparable period.

Net Interest Income. Net interest income increased to $17.89 million for the three months ended September 30, 2022, from $12.03 million for the same quarter in the prior year. The increase of $5.86 million, or 48.7%, was primarily the result of an increase in interest and dividend income of $6.53 million.

Interest and Dividend Income. Interest and dividend income was $19.34 million for the three months ended September 30, 2022 compared to $12.81 million for the three months ended September 30, 2021. Interest and fees on loans increased to $16.67 million for the three months ended September 30, 2022 from $11.62 million for the three months ended September 30, 2021. This increase of $5.05 million, or 43.5%, was due to an increase in the average balance of loans, as well as an increase in the average yield on loans. Average balances for loans receivable, including loans held-for-sale, for the three months ended September 30, 2022 were $1.30 billion, compared to $926.75 million for the prior year period. This represents an increase of $374.61 million, or 40.4%. The increase was impacted by the FCB acquisition and organic loan growth. The average interest rate earned on loans receivable also increased by 11 basis points, from 4.97% for the three months ended September 30, 2021 to 5.08% for the current period. Interest accretion on purchased loans was $392,000 for the three months ended September 30, 2022 which resulted in a 9 basis point increase in net interest margin compared to $94,000 for the three months ended September 30, 2021 which resulted in a 3 basis point increase in net interest margin. The Small Business Administration’s Payroll Protection Program (“PPP”) fee income on loans was $27,000 for the three months ended September 30, 2022, which resulted in a 1 basis point increase in net interest margin compared to $701,000 for the three months ended September 30, 2021, which resulted in a 23 basis point increase in net interest margin. Interest on investment securities available-for-sale increased by $1.47 million period over period. Average balances for investments increased to $378.68 million for the three months ended September 30, 2022 from $233.88 million for the three months ended September 30, 2021. The increase in average investment balances was largely driven by the FCB acquisition. Average interest rates earned on investments also increased to 2.68% for the three months ended September 30, 2022 from 1.86% for the three months ended September 30, 2021.

Interest Expense. Total interest expense was $1.46 million for the three months ended September 30, 2022 compared to $776,000 for the three months ended September 30, 2021. The increase of $679,000, or 87.5%, was largely due to an increase of $367,000 in interest expense on deposits, as well as a net increase of $312,000 in interest expense on total borrowings. The average balance for total deposits was $1.66 billion for the three months ended September 30, 2022 compared to $1.16 for the three months ended September 30, 2021. The increase in average deposits balances was impacted by the FCB acquisition. In addition, the overall average rate on total deposits was up from 0.12% for the three months ended September 30, 2021 compared to 0.17% for the three months ended September 30, 2022. The average balance for total borrowings increased from $38.02 million for the three months ended September 30, 2021 to $69.87 million for the three months ended September 30, 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 4.45% for the three months ended September 30, 2021, to 4.19% for the three months ended September 30, 2022. The decrease in the average rate paid is due to the change in the mix of the outstanding borrowings.

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 $517,000 in loan loss provisions for the three months ended September 30, 2022 and $255,000 for the three months ended September 30, 2021. The increase in the loan loss provision was primarily related to loan growth. 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, additional provisions will be necessary in future periods in order to increase our allowance for credit losses.

Noninterest Income. Total noninterest income was $7.42 million for the three months ended September 30, 2022 compared to $13.35 million for the three months ended September 30, 2021. The decrease of $5.93 million was primarily driven by a decrease in mortgage banking, net of $7.22 million. Mortgage banking, net includes net gain on sale of mortgage loans which decreased $7.31 million to $4.19 million for the three months ended September 30, 2022 compared to $11.50 million for the three months ended September 30, 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 September 30, 2022, $121.26 million residential mortgage loans were sold compared to $270.84 million in the same period in the prior year. In addition, gross margin on sale of mortgage loans for the three months ended September 30, 2022 was 3.46% compared to 4.25% for the three months ended September 30, 2021. The decrease in mortgage banking, net was slightly offset by an increase of $979,000 in other noninterest income which was $1.59 million for the three months ended September 30, 2022, compared to $608,000 for the three months ended September 30, 2021. Other noninterest income includes $1.17 million for the three months ended September 30, 2022, compared to $361,000 for the three months ended September 30, 2021 related to commodity sales income from Eagle's subsidiary, Western Financial Services ("WFS"). WFS facilitates deferred payment contracts for customers that produce agricultural products.

Noninterest Expense. Noninterest expense was $20.66 million for the three months ended September 30, 2022 compared to $18.80 million for the three months ended September 30, 2021, an increase of $1.86 million or 9.9%. The increase was largely impacted by an increase in other noninterest expense of $1.48 million incurred during the three months ended September 30, 2022. The commodity sales income for WFS mentioned above has a corresponding sales expense included in other noninterest expense of $1.17 million and $361,000 for the three months ended September 2022 and 2021, respectively. The increase in noninterest was partially offset by a decrease in salaries and employee benefits expense due to lower commissions paid on residential mortgage originations.

Provision for Income Taxes. Provision for income taxes was $1.03 million for the three months ended September 30, 2022, compared to $1.58 million for the three months ended September 30, 2021 due to decreased income before provision for income taxes. The effective tax rate was 25.0% for both the current and prior period.

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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 Nine Months Ended September 30, 2022 and 2021

Net Income. Eagle’s net income for the nine months ended September 30, 2022 was $7.08 million compared to $12.69 million for the nine months ended September 30, 2021. The decrease of $5.61 million was primarily due to a decrease in noninterest income of $15.00 million. This decrease was largely offset by an increase in net interest income after loan loss provision of $10.13 million. Basic and diluted earnings per share were both $0.98 for the current period. Basic and diluted earnings per share were $1.90 and $1.89 for the prior year comparable period, respectively.

Net Interest Income. Net interest income increased to $45.70 million for the nine months ended September 30, 2022, from $34.50 million for the same period in the prior year. The increase of $11.20 million, or 32.50%, was primarily the result of an increase in interest and dividend income of $12.23 million.

Interest and Dividend Income. Interest and dividend income was $49.16 million for the nine months ended September 30, 2022 compared to $36.93 million for the nine months ended September 30, 2021. Interest and fees on loans increased to $42.93 million for the nine months ended September 30, 2022 from $33.66 million for the nine months ended September 30, 2021. This increase of $9.27 million, or 27.5%, was due to an increase in the average balance of loans. Average balances for loans receivable, including loans held-for-sale, for the nine months ended September 30, 2022 were $1.14 billion, compared to $905.48 million for the prior year period. This represents an increase of $238.98 million, or 26.4%. The increase was impacted by the FCB acquisition, as well as organic loan growth. The average interest rate earned on loans receivable increased 5 basis points, from 4.97% for the nine months ended September 30, 2021 to 5.02% for the current period. Interest accretion on purchased loans was $1.29 million for the nine months ended September 30, 2022 which resulted in a 11 basis point increase in net interest margin compared to $408,000 for the nine months ended September 30, 2021 which resulted in a 4 basis point increase in net interest margin. PPP fee income on loans was $283,000 for the nine months ended September 30, 2022, which resulted in a 3 basis point increase in net interest margin compared to $1.67 million for the nine months ended September 30, 2021 which resulted in a 19 basis point increase in net interest margin. Interest on investment securities available-for-sale increased by $2.87 million period over period. Average balances for investments increased to $332.95 million for the nine months ended September 30, 2022, from $200.39 million for the nine months ended September 30, 2021. The increase in average investment balances was largely driven by the FCB acquisition. Average interest rates earned on investments also increased to 2.35% for the nine months ended September 30, 2022 from 1.99% for the nine months ended September 30, 2021.

Interest Expense. Total interest expense was $3.46 million for the nine months ended September 30, 2022 compared to $2.44 million for the nine months ended September 30, 2021. The increase of $1.02 million, or 41.8%, was due to a net increase of $692,000 in interest expense on total borrowings. The average balance for total borrowings increased from $40.70 million for the nine months ended September 30, 2021 to $68.01 million for the nine months ended September 30, 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 4.34% for the nine months ended September 30, 2021, to 3.96% for the nine months ended September 30, 2022. The decrease in the average rate paid was due to the change in the mix of the outstanding borrowings. Interest expense on deposits increased $333,000, or 29.8% compared to prior year period. The average balance for total deposits was $1.47 billion for the nine months ended September 30, 2022 compared to $1.11 billion for the nine months ended September 30, 2021. The increase in avaerage deposit balances was impacted by the FCB acquisition. The overall average rate on total deposits was 0.13% for both the current and prior period.

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 $1.65 million in loan loss provisions for the nine months ended September 30, 2022 and $576,000 for the nine months ended September 30, 2021. The increase in the loan loss provision was largely due to loan growth. 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, additional provisions will be necessary in future periods in order to increase our allowance for credit losses.

Noninterest Income. Total noninterest income was $23.05 million for the nine months ended September 30, 2022 compared to $38.05 million for the nine months ended September 30, 2021. The decrease of $15.00 million was primarily driven by a decrease in mortgage banking, net of $17.18 million. Mortgage banking, net includes net gain on sale of mortgage loans which decreased $20.61 million to $15.65 million for the nine months ended September 30, 2022 compared to $36.26 million for the nine months ended September 30, 2021. This change reflects a mortgage market that is returning to more normal levels after record levels were reached in 2021. During the nine months ended September 30, 2022, $443.92 million residential mortgage loans were sold compared to $823.41 million in the same period in the prior year. In addition, gross margin on sale of mortgage loans for the nine months ended September 30, 2022 was 3.52% compared to 4.40% for the nine months ended September 30, 2021. There has been some margin compression due to increased competition. The decrease in mortgage banking, net was slightly offset by an increase of $1.44 million in other noninterest income to $3.24 million for the nine months ended September 30, 2022, compared to $1.8 million for the nine months ended September 30, 2021. Other noninterest income includes WFS commodity sales income of $2.13 million for the nine months ended September 30, 2022, compared to $962,000 for the prior period.

Noninterest Expense. Noninterest expense was $57.66 million for the nine months ended September 30, 2022 compared to $55.05 million for the nine months ended September 30, 2021, a slight increase of $2.61 million or 4.7%. The increase was impacted by an increase in other noninterest expense of $2.32 million. The commodity sales income in other noninterest income has a corresponding sales expense included in other noninterest expense of $2.13 million and $962,000 for the nine months ended September 30, 2022 and 2021, respectively. In addition, $2.30 million of acquisition costs were incurred during the nine months ended September 30, 2022 compared to $35,000 for the same period in the prior period. These increases were largely offset by a decrease in salaries and employee benefits due to lower commissions paid on residential mortgage originations.

Provision for Income Taxes. Provision for income taxes was $2.36 million for the nine months ended September 30, 2022, compared to $4.23 million for the nine months ended September 30, 2021 due to decreased income before provision for income taxes. The effective tax rate was 25.0% for both the current and prior period.

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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 ratios as of September 30, 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. In addition, during the year ended December 31, 2021, the Company established a $10.00 million line of credit with a correspondent bank. 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, 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 the Bank's commitments to make loans and management’s assessment of the Bank's ability to generate funds.

Through the nine months ended September 30, 2022, liquidity levels have 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 September 30, 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 5.20% 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 Company's and 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 September 30, 2022. The Company's and the Bank's actual capital amounts and ratios as of September 30, 2022 are presented in the table below and all of the ratios, with the exception of the Tier 1 capital adjusted total average assets ratio, include the capital conservation buffer of 2.50%.

											Minimum
											To Be Well
						Minimum Required					Capitalized Under
						for Capital Adequacy					Prompt Corrective
	Actual					Purposes					Action Provisions
	Amount		Ratio			Amount		Ratio			Amount		Ratio
	(Dollars in Thousands)
September 30, 2022:
Total risk-based capital to risk weighted assets
Consolidated	$	216,561		14.18	%	$	160,400		10.50	%		N/A		N/A
Bank		198,458		13.00			160,282		10.50			152,650		10.00

Tier 1 capital to risk weighted assets
Consolidated		147,711		9.67			129,848		8.50			N/A		N/A
Bank		184,608		12.09			129,752		8.50			122,120		8.00

Common equity Tier 1 capital to risk weighted assets
Consolidated		142,711		9.34			106,933		7.00			N/A		N/A
Bank		184,608		12.09			106,855		7.00			99,222		6.50

Tier 1 capital to adjusted total average assets
Consolidated		147,711		7.78			75,897		4.00			N/A		N/A
Bank		184,608		9.83			75,112		4.00			93,890		5.00

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Table of Contents

EAGLE BANCORP MONTANA, INC. AND SUBSIDIARIES

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

											Minimum
											To Be Well
						Minimum Required					Capitalized Under
						for Capital Adequacy					Prompt Corrective
	Actual					Purposes					Action Provisions
	Amount		Ratio			Amount		Ratio			Amount		Ratio
	(Dollars in Thousands)
December 31, 2021:
Total risk-based capital to risk weighted assets
Consolidated		$164,639		15.18	%	$	113,904		10.50	%		N/A		N/A
Bank		165,786		15.32			113,591		10.50			108,182		10.00

Tier 1 capital to risk weighted assets
Consolidated		137,139		12.64			92,208		8.50			N/A		N/A
Bank		153,286		14.17			91,955		8.50			86,546		8.00

Common equity Tier 1 capital to risk weighted assets
Consolidated		132,139		12.18			75,936		7.00			N/A		N/A
Bank		153,286		14.17			75,727		7.00			70,318		6.50

Tier 1 capital to adjusted total average assets
Consolidated		137,139		9.75			56,290		4.00			N/A		N/A
Bank		153,286		10.96			55,929		4.00			69,911		5.00

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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's primary source of revenue. 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 or decrease 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 September 30, 2022		Policy
(Basis Points)	Year 1	Year 2	Limits

+200	1.0%	7.5%	-15.0%
+100	0.7%	5.1%	-10.0%
-100	-2.3%	-3.1%	-10.0%
-200	-6.3%	-11.1%	-15.0%

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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.

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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 September 30, 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.

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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. During the second quarter of 2022, 5,000 shares were purchased under this plan at an average price of $19.75. The following table summarizes the Company's purchase of its common stock for the three months ended September 30, 2022 under this plan. The plan expires on April 21, 2023.

					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

July 1, 2022 through July 31, 2022		50,000	$	19.50		50,000		345,000

August 1, 2022 through August 31, 2022		44,477		19.41		44,477		300,523

September 1, 2022 through September 30, 2022		5,040		19.32		5,040		295,483

Total		99,517	$	19.45		99,517

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 the first quarter of 2022, the Company repurchased the total authorized amount of 100,000 shares at an average price of $22.71 per share. The plan expired on July 22, 2022.

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.

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Table of Contents

EAGLE BANCORP MONTANA, INC. AND SUBSIDIARIES

Part II - OTHER INFORMATION - continued

Item 5.

Other Information.

None.

Item 6.

Exhibits.

Exhibit 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	Form of Change in Control Agreement between Opportunity Bank of Montana and executive officers (incorporated by reference to Exhibit 10.1 of our Current Report on Form 8-K filed on September 28, 2022).

10.2	Salary Continuation Agreement between Opportunity Bank of Montana and Miranda Spaulding (filed herewith).

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.

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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: November 9, 2022	By:	/s/ Peter J. Johnson
		Peter J. Johnson
		CEO



Date: November 9, 2022	By:	/s/ Miranda J. Spaulding
		Miranda J. Spaulding
		SVP/CFO

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