Eagle Bancorp Montana Inc

Previous wording

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 months ended March 31, 2024, as compared to 2023. The following should be read in conjunction with the Company's Consolidated Financial Statements, and accompanying Notes thereto, for the year ended December 31, 2023, included in Eagle's Annual Report on Form 10-K filed with the United States Securities and Exchange Commission (SEC) on March 6, 2024, 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 ended March 31, 2024, are not necessarily indicative of the future results that may be attained for the entire year or other interim periods.

Current wording

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 six months ended June 30, 2024, as compared to 2023. The following should be read in conjunction with the Company's Consolidated Financial Statements, and accompanying Notes thereto, for the year ended December 31, 2023, included in Eagle's Annual Report on Form 10-K filed with the United States Securities and Exchange Commission (SEC) on March 6, 2024, 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 six months ended June 30, 2024, are not necessarily indicative of the future results that may be attained for the entire year or other interim periods.

Previous wording

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. It may become more difficult to maintain deposit growth due to significant competition, the current conditions in the banking industry and possible reduced customer demand for deposits as customers may shift into other asset classes.

Current wording

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 this strategy is funding growth in an efficient manner. It may become more difficult to maintain deposit growth due to significant competition, the current conditions in the banking industry and possible reduced customer demand for deposits as customers may shift into other asset classes.

Previous wording

The level and movement of interest rates impacts the Bank’s earningsas well. The Federal Open Market Committee increased the federal funds target rate to 5.50% during the year ended December 31, 2023. The rate remained at 5.50% during the three months ended March 31, 2024.

Current wording

The level and movement of interest rates impacts the Bank’s earningsas well. The Federal Open Market Committee increased the federal funds target rate to 5.50% during the year ended December 31, 2023. The rate remained at 5.50% during the six months ended June 30, 2024.

Previous wording

Total assets were$2.08 billion at March 31, 2024, an increase of $408,000 from December 31, 2023. Loans receivable, net increased by $12.93 million from December 31, 2023. However, securities available-for-sale decreased $7.05 million, from December 31, 2023. Total liabilities were $1.91 billion at March 31, 2024, an increase of $733,000, from December 31, 2023. Total borrowings increased $1.84 million from December 31, 2023 and total deposits increased $404,000 from December 31, 2023. Total shareholders’ equity decreased $325,000 from December 31, 2023.

Current wording

Total assets were$2.10 billion at June 30, 2024, an increase of $23.29 million, or 1.1% from $2.08 billion at December 31, 2023. Loans receivable, net increased by $32.61 million from December 31, 2023. However, securities available-for-sale decreased $11.41 million, or 3.6% from December 31, 2023. Total liabilities were $1.93 billion at June 30, 2024, an increase of $22.40 million, or 1.2% from $1.91 billion at December 31, 2023. The increase was largely due to an increase in FHLB advances and other borrowings, partially offset by a reduction in deposits. Total borrowings increased $39.38 million from December 31, 2023, and total deposits decreased $16.33 million from December 31, 2023. Total shareholders’ equity increased $889,000 from December 31, 2023.

Previous wording

Securities available-for-sale were$311.23 million at March 31, 2024, a decrease of $7.05 million, or 2.2%, from$318.28 million at December 31, 2023. The decrease was due to maturity, principal payments and call activity of $5.04 million and a decrease in fair value of $1.79 million.

Current wording

Securities available-for-sale were$306.87 million at June 30, 2024, a decrease of $11.41 million, or 3.6%, from$318.28 million at December 31, 2023. The decrease was due to maturity, principal payments and call activity of $9.34 million and a decrease in fair value of $1.27 million.

Previous wording

Total loan originations were $106.50 million for the three months ended March 31, 2024. Total residential 1-4 family originations were $53.49 million, which includes $41.97 million of loans held-for-sale originations. Total commercial originations were $24.05 million. Total commercial real estate originations were $20.64 million. Home equity loan originations totaled $5.43 million. Consumer loan originations totaled $2.89 million. Loans held-for-sale decreased by $1.82 million to $9.61 million at March 31, 2024 from $11.43 million at December 31, 2023.

Current wording

Total loan originations were $251.56 million for thesix months ended June 30, 2024. Total residential 1-4 family originations were $122.99 million, which includes $96.31 million of loans held-for-sale originations. Total commercial originations were $61.06 million. Total commercial real estate originations were $48.53 million. Home equity loan originations totaled $12.66 million. Consumer loan originations totaled $6.32 million. Loans held-for-sale decreased by $914,000 to$10.52 million at June 30, 2024 from$11.43 million at December 31, 2023.

Previous wording

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 credit losses. Subsequent write-downs are recorded as a charge to operations. As of March 31, 2024 and December 31, 2023 there was no real estate owned and other repossessed property.

Current wording

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 credit losses. Subsequent write-downs are recorded as a charge to operations. As of June 30, 2024 and December 31, 2023 there was $4,000 and $5,000 of real estate owned and other repossessed property.

Previous wording

Nonaccrual loans as of March 31, 2024 and December 31, 2023 include $1.44 and $1.68 million, respectively of acquired loans that deteriorated subsequent to the acquisition date.

Current wording

Nonaccrual loans as of June 30, 2024 and December 31, 2023 include $1.86 million and $1.68 million, respectively of acquired loans that deteriorated subsequent to the acquisition date.

Previous wording

Deposits increased slightly by $404,000, from December 31, 2023 to March 31, 2024. Money market increased by $9.52 million and interest-bearing checking increased by $6.55 million. However, noninterest checking decreased by $9.95 million and savings decreased by $1.46 million. Total certificates of deposit also decreased by $4.26 million. Brokered certificates of deposits decreased $22.17 million, which was largely offset by an increase in IRA and other certificates of deposits of $17.91 million.

Current wording

Deposits decreased by $16.33 million, or 1.0%, from December 31, 2023 to June 30, 2024. Money market deposits increased by $29.48 million. Noninterest checking decreased by $18.61 million, total certificates of deposits decreased $15.80 million, savings decreased $10.58 million and interest-bearing checking decreased $824,000. Brokered certificates decreased by $45.98 million and IRA certificates decreased by $506,000. These decreases were offset by an increase in other certificates of deposits of $30.69 million.

Previous wording

The estimated amount of uninsured deposits was approximately $284.00 million or 17% of total deposits at March 31, 2024. compared to approximately $275.00 million of 17% at December 31, 2023.

Current wording

The estimated amount of uninsured deposits was approxima tely $284.00 million or 18% of total deposits at June 30, 2024 compared to approximately $275.00 million or 17% of total deposits at December 31, 2023.

Previous wording

Total borrowings increased by $1.84 million, or 0.8%, to $236.58 million at March 31, 2024 from $234.74 million at December 31, 2023. The increase is due to a slight increase in FHLB advances and other borrowings.

Current wording

Total borrowings increased by $39.38 million, or 16.8%, to $274.12 million at June 30, 2024 from $234.74 million at December 31, 2023. The increase is due to an increase in FHLB advances and other borrowings and continues to be a source to help fund loan growth.

Previous wording

Total shareholders’ equity decreased by $325,000, or 0.2%, to $168.95 million at March 31, 2024 from $169.27 million at December 31, 2023. The decrease was primarily attributed to an increase in unrealized losses on securities available-for-sale of $1.32 million and dividends paid of $1.12 million, which was offset by net income of $1.90 million.

Current wording

Total shareholders’ equity increased by $889,000, or 0.5%, to $170.16 million at June 30, 2024 from $169.27 million at December 31, 2023. The increase was primarily attributed to net income of $3.64 million, offset by an increase in unrealized losses of securities available for sale of $932,000 and dividends paid of $2.24 million.

Previous wording

*Net Income.*Eagle’s net income for the three months ended March 31, 2024 was $1.90 million compared to $3.24 million for the three months ended March 31, 2023. The decrease of $1.34 million was due to a decrease in net interest income after provision for credit losses of $800,000 and noninterest income of $719,000. Noninterest expense also increased $500,000. These decreases were partially offset by a decrease in the provision for income taxes of $675,000. Basic and diluted earnings per common share were both$0.24 for the current period. Basic and diluted earnings per common share were both $0.42 for the prior year comparable period.

Current wording

*Net Income.*Eagle’s net income for the three months ended June 30, 2024 was $1.74 million compared to $2.02 million for the three months ended June 30, 2023. The decrease of $277,000 was due to a decrease in noninterest income of $1.93 million and an increase in the provision for income taxes of $100,000. These were partially offset by a decrease in noninterest expense of $1.48 million and an increase in net interest income after provision for credit losses of $275,000. Basic and diluted earnings per common share were both $0.22 for the current period. Basic and diluted earnings per common share were both $0.26 for the prior year comparable period.

Previous wording

*Net Interest Income.*Net interest income decreased to $15.21 million for the three months ended March 31, 2024, from $16.43 million for the same quarter in the prior year. The decrease of $1.22 million, or 7.4%, was the result of an increase in interest expense of $5.45 million largely offset by an increase in interest and dividend income of $4.23 million.

Current wording

*Net Interest Income.*Net interest income increased to $15.63 million for the three months ended June 30, 2024, from $15.26 million for the same quarter in the prior year. The increase of $368,000, or 2.4%, was the result of an increase in interest and dividend income of $3.55 million largely offset by an increase in interest expense of $3.18 million.

Previous wording

*Interest and Dividend Income.*Interest and dividend income was $24.94 million for the three months ended March 31, 2024 compared to $20.71 million for the three months ended March 31, 2023. The increase of $4.23 million, or 20.4% was driven by interest and fees on loans which increased to $21.94 million for the three months ended March 31, 2024 from $17.74 million for the three months ended March 31, 2023. The increase in interest and fees on loans was due to an increase in the average yield on loans, as well as an increase in the average balance of loans. The average interest rate earned on loans receivable increased by 61 basis points, from 5.26% for the three months ended March 31, 2023 to 5.87% for the current period. Interest accretion on purchased loans was $118,000 for the three months ended March 31, 2024 which resulted in a 3 basis point increase in net interest margin compared to $354,000 for the three months ended March 31, 2023 which resulted in an 8 basis point increase in net interest margin. Average balances for loans receivable, including loans held-for-sale, for the three months ended March 31, 2024 were $1.50 billion, compared to $1.37 million for the prior year period. This represents an increase of $132.52 million, or 9.7% and was impacted by organic growth.

Current wording

*Interest and Dividend Income.*Interest and dividend income was $25.82 million for the three months ended June 30, 2024, compared to $22.27 million for the three months ended June 30, 2023. The increase of $3.55 million, or 15.9% was driven by interest and fees on loans, which increased to $22.78 million for the three months ended June 30, 2024, from $19.14 million for the three months ended June 30, 2023. The increase in interest and fees on loans was due to an increase in the average yield on loans, as well as an increase in the average balance of loans. The average interest rate earned on loans receivable increased by 59 basis points, from 5.45% for the three months ended June 30, 2023, to 6.04% for the current period. Interest accretion on purchased loans was $304,000 for the three months ended June 30, 2024, which resulted in a 7 basis point increase in net interest margin compared to $309,000 for the three months ended June 30, 2023, which also resulted in a 7 basis point increase in net interest margin. Average balances for loans receivable, including loans held-for-sale, for the three months ended June 30, 2024 were $1.51 billion compared to $1.41 billion for the prior year period. This represents an increase of $105.99 million, or 7.5% and was impacted by organic growth. Interest on investment securities available-for-sale decreased by $318,000 period over period, primarily due to the decrease in average balances for investments from $343.63 million for the three months ended June 30, 2023 to $306.21 million for the three months ended June 30, 2024.

Previous wording

*Interest Expense.*Total interest expense was $9.73 million for the three months ended March 31, 2024 compared to $4.28 million for the three months ended March 31, 2023. The increase of $5.45 million was due to an increase of $4.09 million in interest expense on deposits, as well as a net increase of $1.36 million in interest expense on total borrowings. The overall average rate on total deposits was up from 0.62% for the three months ended March 31, 2023 compared to 1.62% for the three months ended March 31, 2024. In addition, the average balance for total deposits was $1.63 billion for the three months ended March 31, 2024 compared to $1.61 billion for the three months ended March 31, 2023. The increase in interest expense on total borrowings was driven by the average balance of FHLB advances and other borrowings, which increased from $96.53 million for the three months ended March 31, 2023 to $181.19 million for the three months ended March 31, 2024. Short-term borrowings have increased to fund loan growth. In addition, the average rate paid on FHLB advances and other borrowings increased from 4.80% for the three months ended March 31, 2023, to 5.53% for the three months ended March 31, 2024.

Current wording

*Interest Expense.*Total interest expense was $10.19 million for the three months ended June 30, 2024, compared to $7.01 million for the three months ended June 30, 2023. The increase of $3.18 million was due to an increase of $2.72 million in interest expense on deposits, as well as a net increase of $453,000 in interest expense on total borrowings. The overall average rate on total deposits was up from 1.05% for the three months ended June 30, 2023, compared to 1.70% for the three months ended June 30, 2024. In addition, the average balance for total deposits was $1.63 billion for the three months ended June 30, 2024, compared to $1.58 billion for the three months ended June 30, 2023. The increase in interest expense on total borrowings was driven by the average rate paid on FHLB advances and other borrowings, increasing from 5.30% for the three months ended June 30, 2023, to 5.47% for the three months ended June 30, 2024. In addition, the average balance of FHLB advances and other borrowings increased from $164.99 million for the three months ended June 30, 2023, to $192.35 million for the three months ended June 30, 2024. Short-term borrowings have increased to fund loan growth.

Previous wording

*Provision for Credit Losses.*The Company recorded a recapture in its provision for credit losses of $135,000 for the three months ended March 31, 2024, compared to $279,000 in provision for credit losses for the three months ended March 31, 2023. The recapture in provision for credit losses for three months ended March 31, 2024 includes a recapture in provision for credit losses on loans of $95,000 and a decrease in the provision for unfunded commitments of $40,000.

Current wording

*Provision for Credit Losses.*Provision for credit losses was $412,000 for the three months ended June 30, 2024, compared to $319,000 in provision for credit losses for the three months ended June 30, 2023. The provision for credit losses for three months ended June 30, 2024 includes a provision for credit losses on loans of $422,000 and a decrease in the provision for unfunded commitments of $10,000.

Previous wording

*Noninterest Income.*Total noninterest income was $3.95 million for the three months ended March 31, 2024 compared to $4.67 million for the three months ended March 31, 2023. The decrease of $719,000, or 15.4% was largely due to a decrease in mortgage banking, net, of $873,000. Mortgage banking, net, includes net gain on sale of mortgage loans which decreased to $1.41 million for the three months ended March 31, 2024 compared to $2.20 million for the three months ended March 31, 2023. During the three months ended March 31, 2024, $43.56 million residential mortgage loans were sold compared to $62.39 million in the same period in the prior year. Mortgage volumes continue to be impacted by the current interest rate environment. Gross margin levels decreased 28 basis points from 3.53% for the three months ended March 31, 2023 to 3.25% for the three months ended March 31, 2024.

Current wording

*Noninterest Income.*Total noninterest income was $4.27 million for the three months ended June 30, 2024, compared to $6.20 million for the three months ended June 30, 2023. The decrease of $1.93 million, or 31.1%, was largely due to a decrease in mortgage banking, net, of $1.44 million. Mortgage banking, net, includes net gain on sale of mortgage loans which decreased to $1.60 million for the three months ended June 30, 2024, compared to $2.76 million for the three months ended June 30, 2023. During the three months ended June 30, 2024, $53.23 million residential mortgage loans were sold compared to $84.76 million in the same period in the prior year. Mortgage volumes continue to be impacted by the current interest rate environment. Gross margin levels decreased 24 basis points from 3.25% for the three months ended June 30, 2023, to 3.01% for the three months ended June 30, 2024.

Previous wording

*Provision for Income Taxes.*Provision for income taxes was $370,000 for the three months ended March 31, 2024, compared to $1.05 million for the three months ended March 31, 2023 due to the increase in proportion of tax-exempt income compared to the pretax earnings. In addition, the effective tax rate for the current period includes tax credits and other benefits related to investments in low-income housing tax credit projects. The effective tax rate was 16.3% for the current period, decreasing from 24.4% for the prior period.

Current wording

Provision for Income Taxes. Provision for income taxes was $814,000 for the six months ended June 30, 2024, compared to $1.39 million for the six months ended June 30, 2023, due to the increase in proportion of tax-exempt income compared to pretax earnings. In addition, the effective tax rate for the current period includes tax credits and other benefits related to investments in low-income housing tax credit projects. The year-to-date effective tax rate was 18.3% for the current period compared to 20.9% for same period in 2023.

Previous wording

The Company's available borrowing capacity was approximately $418.15 million as of March 31, 2024 and $398.50 million as of December 31, 2023.

Current wording

The Company's available borrowing capacity was approximately $374.55 million as of June 30, 2024 and $398.50 million as of December 31, 2023.

Previous wording

As of March 31, 2024, the Bank’s internally determined measurement of sensitivity to interest rate movements as measured by a 300 basis point rise in interest rates scenario, decreased the economic value of equity (“EVE”) by 1.5% compared to a decrease of 1.9% at December 31, 2023. A 300 basis point decrease in interest rates scenario, decreased EVE by 11.1% compared to a decrease of 18.2% at December 31, 2023. The Bank is within the guidelines set forth by the Board of Directors for interest rate risk sensitivity in rising interest rate scenarios.

Current wording

As of June 30, 2024, the Bank’s internally determined measurement of sensitivity to interest rate movements as measured by a 300 basis point rise in interest rates scenario, decreased the economic value of equity (“EVE”) by 1.4%compared to a decrease of 1.9% at December 31, 2023. A 300 basis point decrease in interest rates scenario, decreased EVE by 11.2%compared to a decrease of 18.2% at December 31, 2023. The Bank is within the guidelines set forth by the Board of Directors for interest rate risk sensitivity in rising interest rate scenarios.