Eagle Bancorp Montana, Inc.

Previous wording

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 our portfolio, both real estate and non-real estate. We have made significant progress in this initiative over the past decade. As of December 31, 2023, commercial real estate and commercial business loans represented 61.25% and 17.39% of the total loan portfolio, respectively. The purpose of this diversification is to mitigate our 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 maintains a significant loan serviced portfolio, which provides a steady source of fee income. As of December 31, 2023, we had mortgage servicing rights, net of $15.85 million compared to $15.41 million as of December 31, 2022. Gain on sale of loans also provides significant noninterest income in periods of high mortgage loan origination volumes. Such income will be, and has recently been, adversely affected in periods of lower mortgage activity.

Current wording

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 our portfolio, both real estate and non-real estate. We have made significant progress in this initiative over the past decade. As of December 31, 2024, commercial real estate loans represented 60.3% of the total loan portfolio, including farmland loans representing 9.6% of the total loan portfolio. Commercial business loans represented 18.3% of the total loan portfolio, including agricultural loans representing 8.8% of the total loan portfolio. The purpose of this diversification is to mitigate our 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 maintains a significant loan serviced portfolio, which provides a steady source of fee income. As of December 31, 2024, we had mortgage servicing rights, net of $15.38 million compared to $15.85 million as of December 31, 2023. Gain on sale of loans also provides significant noninterest income in periods of high mortgage loan origination volumes. Such income will be, and has recently been, adversely affected in periods of lower mortgage activity.

Previous wording

The level and movement of interest rates impacts the Bank’s earnings as well. The Federal Open Market Committee increased the federal funds target rate to 4.50% during the year ended December 31, 2022. The rate increased to 5.50% during the year ended December 31, 2023.

Current wording

The level and movement of interest rates impacts the Bank’s earnings as well. The Federal Open Market Committee increased the federal funds target rate to 5.50% during the year ended December 31, 2023. The rate decreased to 4.50% during the year ended December 31, 2024.

Previous wording

The excess of consideration paid over fair value of net assets acquired for acquisitions is recorded as goodwill. Goodwill is not amortized but is tested at least annually for impairment or more frequently if events occur or circumstances change that indicate impairment may exist. A goodwill impairment test is performed by comparing the fair value of the reporting unit with its carrying value. An impairment charge is recorded for the amount by which the carrying amount exceeds the reporting unit's fair value. A blend of both the market and income approaches is used in valuing the reporting unit’s fair value. Weightings are assigned to the approaches regarding fair value and the sensitivity of other weighting scenarios is considered. The market approach incorporates comparable public company information, valuation multiples and consideration of a market control premium along with data related to comparable observed purchase transactions in the financial services industry. The income approach consists of discounting projected future cash flows, which are derived from internal forecasts and economic expectations for the reporting unit. The significant inputs and assumptions for the income approach include projected earnings of the Company in future years for which there is inherent uncertainty and the discount rate. The sensitivity of a range of reasonable discount rates based on the current economic environment is considered.

Current wording

The excess of consideration paid over fair value of net assets acquired for acquisitions is recorded as goodwill. Goodwill is not amortized but is tested at least annually for impairment or more frequently if events occur or circumstances change that indicate impairment may exist. A goodwill impairment test is performed by comparing the fair value of the reporting unit with its carrying value. An impairment charge is recorded for the amount by which the carrying amount exceeds the reporting unit's fair value. A weighted average of both the market and income approaches is used in valuing the reporting unit’s fair value. Weightings are assigned to the approaches regarding fair value and the sensitivity of other weighting scenarios is considered. The market approach incorporates comparable public company information, valuation multiples and consideration of a market control premium along with data related to comparable observed purchase transactions in the financial services industry. The income approach consists of discounting projected future cash flows, which are derived from internal forecasts and economic expectations for the reporting unit. The significant inputs and assumptions for the income approach include a discount rate and projected earnings of the Company in future years for which there is inherent uncertainty. The sensitivity of a range of reasonable discount rates based on the current economic environment is considered.

Previous wording

During the quarter ended September 30, 2023, Management determined that a triggering event had occurred because of a decrease in the Company's stock price and a revision in the earnings outlook in comparison to budget. These conditions were primarily due to economic uncertainty and market volatility from the rising interest rate environment. As a result, the Company performed an interim goodwill impairment assessment as of August 31, 2023, and concluded that goodwill was not impaired. Our annual impairment tests as of October 31, 2023 and 2022 also did not result in impairment. However, changing economic conditions that may adversely affect the Company's performance, the fair value of its assets and liabilities, or its stock price could result in future impairment. Any resulting impairment loss could have a material adverse impact on the Company's financial condition and results of operations. Management will continue to monitor events that could influence this conclusion in the future. See Note 2 and 7 to the Consolidated Financial Statements in “Item 8. Financial Statements and Supplementary Data” for further information.

Current wording

During the quarter ended September 30, 2024, management performed a quantitative goodwill impairment test with assistance from a third-party valuation specialist. The interim determination was primarily driven by a revision in the Company's earnings outlook in comparison to budget. The interim goodwill impairment assessment as of August 31, 2024 concluded that goodwill was not impaired. Our quantitative annual impairment tests as of October 31, 2024 and 2023 also did not result in impairment. However, changing economic conditions that may adversely affect the Company's performance, the fair value of its assets and liabilities, or its stock price could result in future impairment. Any resulting impairment loss could have a material adverse impact on the Company's financial condition and results of operations. Management will continue to monitor events that could influence this conclusion in the future. See Note 7 to the Consolidated Financial Statements in “Item 8. Financial Statements and Supplementary Data” for further information.

Previous wording

Total assets were $2.08 billion at December 31, 2023, an increase of $127.29 million, or 6.5% from $1.95 billion at December 31, 2022. Loans receivable, net increased by $128.37 million or 9.6%, to $1.47 billion at December 31, 2023 from $1.34 billion at December 31, 2022. However, securities available-for-sale decreased by $31.22 million or 8.9% from December 31, 2022. Total borrowings increased $106.50 million to $234.74 million at December 31, 2023, from $128.24 million at December 31, 2022. Total liabilities were $1.91 billion at December 31, 2023, an increaseof $116.42 million, or 6.5%, from$1.79 billionat December 31, 2022. Total deposits decreased slightly by $77,000 from December 31, 2022. Total shareholders’ equity increased by $10.85 million or 6.8% from December 31, 2022.

Current wording

Total assets were$2.10 billion at December 31, 2024, anincreaseof$27.42 million, or 1.3% from $2.08 billion at December 31, 2023. Loans receivable, netincreased by $35.75 million or 2.4%, to $1.50 billion at December 31, 2024 from $1.47 billion at December 31, 2023. However, securities available-for-sale decreasedby $25.69 million or 8.1%from December 31, 2023. Total borrowings decreased $34.66 million to $200.08 million at December 31, 2024, from $234.74 million at December 31, 2023. Total liabilities were $1.93 billion at December 31, 2024, an increase of $21.94 million, or 1.2%, from$1.91 billionat December 31, 2023. Total deposits increased by $46.03 million or 2.8% to $1.68 billion from $1.64 billion at December 31, 2023. Total shareholders’ equity increased by $5.50 million or 3.2% from December 31, 2023.

Previous wording

We maintain a portfolio of investment securities, classified as either available-for-sale or held-to-maturity to enhance total return on investments. Our investment securities generally include U.S. government and agency obligations, U.S. treasury obligations, Small Business Administration pools, municipal securities, corporate obligations, mortgage-backed securities (“MBSs”), collateralized mortgage obligations (“CMOs”) and asset-backed securities (“ABSs”), all with varying characteristics as to rate, maturity and call provisions. There were no held-to-maturity investment securities included in the investment portfolio at December 31, 2023 or 2022. All investment securities included in the investment portfolio are available-for-sale. Eagle also has interest-bearing deposits in other banks and federal funds sold, as well as stock in FHLB and FRB. FHLB stock was $9.19 million and $5.09 million at December 31, 2023 and 2022, respectively. FRB stock was $4.13 million for both at December 31, 2023 and 2022.

Current wording

We maintain a portfolio of investment securities, classified as either available-for-sale or held-to-maturity to enhance total return on investments. Our investment securities generally include U.S. government and agency obligations, U.S. treasury obligations, Small Business Administration pools, municipal securities, corporate obligations, mortgage-backed securities (“MBSs”), collateralized mortgage obligations (“CMOs”) and asset-backed securities (“ABSs”), all with varying characteristics as to rate, maturity and call provisions. There were no held-to-maturity investment securities included in the investment portfolio at December 31, 2024 or 2023. All investment securities included in the investment portfolio are available-for-sale. Eagle also has interest-bearing deposits in other banks and federal funds sold, as well as stock in FHLB and FRB. FHLB stock was $7.78 million and $9.19 million at December 31, 2024 and 2023, respectively. FRB stock was $4.13 million for both at December 31, 2024 and 2023.

Previous wording

Securities available-for-sale were $318.28 million at December 31, 2023, a decrease of $31.22 million, or 8.9%, from $349.50 million at December 31, 2022. The decrease was due to sales of $34.02 million and maturity, principal payments and call activity of $32.70 million. These decreases were partially offset by $28.13 million in investment purchases. In addition, unrealized losses on securities improved from prior year, decreasing by $8.70 million.

Current wording

Securities available-for-sale were $292.59 million at December 31, 2024, a decrease of $25.69 million, or 8.1%, from $318.28 million at December 31, 2023. The decrease was due to sales of $14.12 million and maturity, principal payments and call activity of $21.45 million. These decreases were partially offset by $10.98 million in investment purchases. In addition, unrealized losses on securities increased from prior year by $273,000.

Previous wording

(2) Deferred loan fees, net included in individual loan buckets above for the year ended December 31, 2023.

Current wording

(2) Deferred loan fees, net included in individual loan buckets above for the years ended December 31, 2024 and 2023.

Previous wording

(3) Allowance for credit losses for the year ended December 31, 2023; allowance for loan losses for the year ended December 31, 2022.

Current wording

(3) Allowance for credit losses for the years ended December 31, 2024 and 2023; allowance for loan losses for the years ended December 31, 2022, 2021 and 2020.

Previous wording

Loans receivable, net increased$128.37 million, or 9.6%, to $1.47 billion at December 31, 2023 from $1.34 billion at December 31, 2022. Total commercial real estate loans increased $82.86 million, total commercial loans increased$26.72 million, home equity loans increased$12.66 million, total residential loans increased$4.31 million, and consumer loans increased$2.52 million.

Current wording

Loans receivable, net increased$35.75 million, or 2.4%, to $1.50 billion at December 31, 2024 from $1.47 billion at December 31, 2023. Total commercial loans increased $20.38 million, total home equity loans increased $10.61 million, and total commercial real estate loans increased $7.37 million. These increases were slightly offset by decreases in consumer loans of $1.62 million and residential loans of $590,000.

Previous wording

Total loan originations were $750.68 million for the year ended December 31, 2023. Total residential 1-4 family originations were $400.51 million, which includes $347.71 millionof originations of loans held-for-sale. Total commercial originations were $162.18 million. Total commercial real estate originations were $140.60 million. Home equity loan originations totaled $30.41 million. Consumer loan originations totaled $16.98 million. Loans held-for-sale increased by $3.18 million, to $11.43 million at December 31, 2023 from $8.25 million at December 31, 2022.

Current wording

Total loan originations were $607.73 million for the year ended December 31, 2024. Total residential 1-4 family originations were $271.79 million, which includes $214.32 million of originations of loans held-for-sale. Total commercial originations were $155.11 million. Total commercial real estate originations were $135.55 million. Home equity loan originations totaled $31.63 million. Consumer loan originations totaled $13.65 million. Loans held-for-sale increased by $1.94 million, to $13.37 million at December 31, 2024 from $11.43 million at December 31, 2023.

Previous wording

Nonaccrual loans as of December 31, 2023 and 2022 include $1,681,000 and $694,000, respectively of acquired loans that deteriorated subsequent to the acquisition date.

Current wording

Nonaccrual loans as of December 31, 2024 and 2023 include $591,000 and $1,681,000, respectively of acquired loans that deteriorated subsequent to the acquisition date.

Previous wording

During the year ended December 31, 2023, the Bank had one real estate owned and other repossessed asset. There were no subsequent write-downs on real estate owned or other repossessed assets during the year ended December 31, 2023. During the year ended December 31, 2022, the Bank sold three real estate owned and other repossessed assets resulting in a net gain of $185,000. There was one subsequent write-up on real estate owned and other repossessed assets for a gain of $18,000 during the year ended December 31, 2022.

Current wording

During the year ended December 31, 2024, the Bank sold two real estate owned and other repossessed assets resulting in a net loss of $6,000. There were no subsequent write-downs on real estate owned or other repossessed assets during the year ended December 31, 2024. During the year ended December 31, 2023, the Bank sold one real estate owned and other repossessed asset. There were no subsequent write-up on real estate owned and other repossessed assets during the year ended December 31, 2023.

Previous wording

Provisions for, or adjustments to, estimated losses are included in earnings in the period they are established. At December 31, 2023, we had $16.44 million in allowance for credit losses. At December 31, 2022, we had $14.00 million in allowance for loan losses.

Current wording

Provisions for, or adjustments to, estimated losses are included in earnings in the period they are established. At December 31, 2024, we had $16.85 million in allowance for credit losses. At December 31, 2023, we had $16.44 million in allowance for loan losses.

Previous wording

Deposits. Deposits are the Company’s primary source of funds. Core deposits are deposits that are more stable and somewhat less sensitive to rate changes. They also represent a lower cost source of funds than rate sensitive, more volatile accounts such as certificates of deposit. We believe that our core deposits are checking, savings, money market and IRA accounts. Based on our historical experience, we include IRA accounts funded by certificates of deposit as core deposits because they exhibit the principal features of core deposits in that they are stable and generally are not rate sensitive. Core deposits were $1.21 billion or 74.2% of the Bank’s total deposits at December 31, 2023 ($1.19 billion or 72.8%excluding IRA certificates of deposit). The presence of a high percentage of core deposits and, in particular, transaction accounts reflects in part due to our strategy to restructure our liabilities to more closely resemble the lower cost of liabilities of a commercial bank. However, a significant portion of our deposits is in certificate of deposit form and there was growth in this area during 2023. This shift to certificate of deposits has added to our overall cost of funds and could continue to in the future.

Current wording

Deposits. Deposits are the Company’s primary source of funds. Core deposits are deposits that are more stable and somewhat less sensitive to rate changes. They also represent a lower cost source of funds than rate sensitive, more volatile accounts such as certificates of deposit. We believe that our core deposits are checking, savings, money market and IRA accounts. Based on our historical experience, we include IRA accounts funded by certificates of deposit as core deposits because they exhibit the principal features of core deposits in that they are stable and generally are not rate sensitive. Core deposits were $1.24 billion or 73.7% of the Bank’s total deposits at December 31, 2024 ($1.22 billion or 72.5%excluding IRA certificates of deposit). The presence of a high percentage of core deposits and, in particular, transaction accounts reflects in part due to our strategy to restructure our liabilities to more closely resemble the lower cost of liabilities of a commercial bank. However, a significant portion of our deposits is in certificate of deposit form and there was growth in this area during 2024. This shift to certificate of deposits has added to our overall cost of funds and could continue to in the future.

Previous wording

Overall deposits remained consistent year over year at $1.64 billion. Certificates of deposits increased $192.72 million and includes $72.17 million in brokered certificates. All other categories of deposits decreased as follows: money market decreased by $57.67 million, noninterest checking decreased by $50.23 million, savings decreased $43.08 million and interest-bearing checking decreased $41.82 million. There was migration during the year from lower yielding deposit accounts to certificates of deposit as consumers shifted funds to higher yielding deposits.

Current wording

Overall deposits increased year over year by $46.03 million. Certificates of deposits increased $18.49 million while savings decreased by $20.14 million. All other categories of deposits increased as follows: money market increased by $36.82 million, interest-bearing checking increased $10.38 million, and noninterest checking increased by $484,000. There was migration during the year from lower yielding deposit accounts to certificates of deposit as consumers shifted funds to higher yielding deposits.

Previous wording

At December 31, 2023 and 2022, the Company held $618.78 million and $642.02 million, respectively, in deposit accounts that met or exceeded the Federal Deposit Insurance Corporation ("FDIC") requirements of $250,000 and greater. However, the estimated amount of uninsured deposits was approximately $275.00 million or 17% of total deposits at December 31, 2023 considering other factors such as joint accounts, deposits collateralized by Bank securities and deposit sharing programs like Intrafi Cash Service.

Current wording

At December 31, 2024 and 2023, the Company held $632.95 million and $618.78 million, respectively, in deposit accounts that met or exceeded the Federal Deposit Insurance Corporation ("FDIC") requirements of $250,000 and greater. However, the estimated amount of uninsured deposits was approximately $323.12 million or 18.9% of total deposits at December 31, 2024 considering other factors such as joint accounts, deposits collateralized by Bank securities and deposit sharing programs like Intrafi Cash Service.

Previous wording

Advances from FHLB and other borrowings increased by $106.35 million to $175.74 million at December 31, 2023 from $69.39 millionat December 31, 2022. The increase was related to funding loan growth. The weighted average rate for borrowings was 5.48% as of December 31, 2023, compared to 4.52% at December 31, 2022.

Current wording

Advances from FHLB and other borrowings decreased by $34.81 million to $140.93 million at December 31, 2024 from $175.74 million at December 31, 2023. The decrease was related to an increase in deposits. The weighted average rate for borrowings was 4.72% as of December 31, 2024, compared to 5.48% at December 31, 2023.

Previous wording

Total other long-term debt was $59.00 million at December 31, 2023 compared to $58.84 million at December 31, 2022.

Current wording

Total other long-term debt was $59.15 million at December 31, 2024 compared to $59.00 million at December 31, 2023.

Previous wording

Total shareholders’ equity increased by$10.85 million or 6.8%, to$169.27 million at December 31, 2023 from $158.42 million at December 31, 2022. This increase was primarily the result of net income of $10.06 million and other comprehensive income of $6.41 million. These increases were partially offset by dividends paid of $4.44 million and a net of tax cumulative adjustment of $1.62 million related to the adoption of the CECL standard.

Current wording

Total shareholders’ equity increased by $5.50 million or 3.2%, to $174.77 million at December 31, 2024 from $169.27 million at December 31, 2023. This increase was primarily the result of net income of $9.78 million. This increase was partially offset by dividends paid of $4.54 million.

Previous wording

The following table includes average balances for statement of financial position 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.

Current wording

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.

Previous wording

(3)Net interest margin represents income before the provision for credit losses (for year ended December 31, 2023) or provision for loan losses (for the year ended December 31, 2022) divided by average interest-earning assets.

Current wording

(3)Net interest margin represents income before the provision for credit losses (for years ended December 31, 2024 and December 31, 2023) or provision for loan losses (for the year ended December 31, 2022) divided by average interest-earning assets.

Previous wording

Eagle’s net income for the year ended December 31, 2023 was $10.06 million compared to $10.70 million for the year ended December 31, 2022. The decrease of $645,000 of 6.0% was driven by a decrease in noninterest income of $3.50 million. This decrease was largely offset by a decrease in noninterest expense of $1.59 million and a decrease in provision for income taxes of $1.55 million. Basic and diluted earnings per common share were both $1.29 for the year ended December 31, 2023. Basic and diluted earnings per common share were both $1.45 for the prior period.

Current wording

Eagle’s net income for the year ended December 31, 2024 was $9.78 million compared to $10.06 million for the year ended December 31, 2023. The decrease of $278,000 or 2.8% was driven by a decrease in noninterest income of $4.94 million. This decrease was largely offset by decrease in noninterest expense of $2.78 million and an increase in net interest income after provision for credit losses of $1.90 million. Basic and diluted earnings per common share were $1.25 and $1.24, respectively, for the year ended December 31, 2024. Basic and diluted earnings per common share were both $1.29 for the year ended December 31, 2023.

Previous wording

Net interest income decreased slightlyto $62.48 million for the year ended December 31, 2023, from$63.31 million for the year ended December 31, 2022. This decrease of $835,000, or 1.3%, was primarily the result of an increase in interest expense of $22.99 million largely offset by an increase in interest and dividend income of $22.16 million.

Current wording

Net interest income increased slightly to $63.44 million for the year ended December 31, 2024, from $62.48 million for the year ended December 31, 2023. This increase of $961,000, or 1.5%, was primarily the result of an increase in interest and dividend income of $12.59 million largely offset by an increase in interest expense of $11.63 million.

Previous wording

Interest and dividend income was $91.62 million for the year ended December 31, 2023, compared to $69.46 million for the year ended December 31, 2022, an increase of $22.16 million, or 31.9%. Interest and fees on loans increased to $79.42 million for the year ended December 31, 2023 from $60.35 million for the same period ended December 31, 2022. This increase of $19.07 million, or 31.6%, was due in part to an increase in the average balance of loans. Average balances for loans receivable, including loans held-for-sale, for the year ended December 31, 2023 were $1.44 billion, compared to $1.19 billion for the year ended December 31, 2022. This represents an increase of $241.88 million, or 20.2%. In addition, the average interest rate earned on loans receivable increased by 48 basis points, from 5.05% for the year ended December 31, 2022, to 5.53% for the year ended December 31, 2023. Interest accretion on purchased loans was $1.01 million for the year ended December 31, 2023, which resulted in a 6 basis point increase in net interest margin compared to $1.56 million for the year ended December 31, 2022, which resulted in a 10 basis point increase in net interest margin. Interest on investment securities available-for-sale increased by $2.80 million or 32.6% period over period. This was driven by an increase in average interest rates earned on investments from 2.55% for the year ended December 31, 2022, to 3.46% for the year ended December 31, 2023. Average balances for investments decreased modestly from $336.78 million for the year ended December 31, 2022, to $328.53 million for the year ended December 31, 2023.

Current wording

Interest and dividend income was $104.21 million for the year ended December 31, 2024, compared to $91.62 million for the year ended December 31, 2023, an increase of $12.59 million, or 13.7%. Interest and fees on loans increased to $92.28 million for the year ended December 31, 2024 from $79.42 million for the same period ended December 31, 2023. This increase of $12.86 million, or 16.2%, was due in part to an increase in the average yield of loans. The average interest rate earned on loans receivable increased by 51 basis points, from 5.53% for the year ended December 31, 2023, to 6.04% for the year ended December 31, 2024. Interest accretion on purchased loans was $751,000 for the year ended December 31, 2024, which resulted in a 4 basis point increase in net interest margin, compared to $1.01 million for the year ended December 31, 2023, which resulted in a 6 basis point increase in net interest margin. In addition, average balances for loans receivable, including loans-held-for-sale, for the year ended December 31, 2024 were $1.52 billion, compared to $1.44 billion for the year ended December 31, 2023. This represents an increase of $86.71 million, or 6.00% and was due to organic growth. Interest on investment securities available-for-sale decreased by $948,000 or 8.3% period over period, primarily due to the decrease in average balances for investments from $328.53 million for the year ended December 31, 2023, to $306.54 million for the year ended December 31, 2024. In addition, average interest rates earned on investments decreased from 3.46% for the year ended December 31, 2023, to 3.39% for the year ended December 31, 2024.

Previous wording

Total interest expense was $29.14 million for the year ended December 31, 2023, increasing from $6.15 million for the year ended December 31, 2022. The increase of $22.99 million, was due to an increase of $14.74 million in interest expense on deposits and a net increase of $8.26 million in interest expense on total borrowings. The overall average rate on total deposits was 1.11% for the year ended December 31, 2023, compared to 0.21% for the year ended December 31, 2022. In addition, the average balance for total deposits was $1.60 billion for the year ended December 31, 2023, compared to $1.51 billion for the year ended December 31, 2022. The average balance for total borrowings increased from $74.43 million for the year ended December 31, 2022 to $218.60 million for the year ended December 31, 2023. The increase was due to FHLB advances and other borrowings being deployed to fund loan growth. The average rate paid on total borrowings also increased from 4.07% for the year ended December 31, 2022, to 5.16% for the year ended December 31, 2023 due to FHLB advances and other borrowings.

Current wording

Total interest expense was $40.77 million for the year ended December 31, 2024, increasing from $29.14 million for the year ended December 31, 2023. The increase of $11.63 million was due to an increase of $9.98 million in interest expense on deposits and a net increase of $1.65 million in interest expense on total borrowings. The overall average rate on total deposits was 1.70% for the year ended December 31, 2024, compared to 1.11% for the year ended December 31, 2023. In addition, the average balance for total deposits was $1.64 billion for the year ended December 31, 2024, compared to $1.60 billion for the year ended December 31, 2023. The average balance for total borrowings increased from $218.60 million for the year ended December 31, 2023 to $249.16 million for the year ended December 31, 2024. The increase was due to FHLB advances and other borrowings being deployed to fund loan growth. The average rate paid on total borrowings also increased from 5.16% for the year ended December 31, 2023, to 5.18% for the year ended December 31, 2024.

Previous wording

Provision for credit losses was $1.46 million for the year ended December 31, 2023, compared to $2.00 million in loan loss provisions, prior to the adoption of the Current Expected Credit Losses standard, for the year ended December 31, 2022. The provision for credit losses for the year ended December 31, 2023 includes a provision for credit losses on loans of $1.67 million and a decrease in the provision for unfunded commitments of $210,000.

Current wording

Provision for credit losses was $518,000 for the year ended December 31, 2024, compared to $1.46 million in loan loss provisions for the year ended December 31, 2023. The provision for credit losses for the year ended December 31, 2024 includes a provision for credit losses on loans of $408,000 and a provision for unfunded commitments of $110,000.

Previous wording

Total noninterest income was $22.72 million for the year ended December 31, 2023, compared to $26.22 million for the year ended December 31, 2022. The decrease of $3.50 million, or 13.3% was primarily due to a decrease in a mortgage banking, net of $4.52 million for the year ended December 31, 2023. Mortgage banking, net includes net gain on sale of mortgage loans which decreased $7.21 million to $11.40 million for the year ended December 31, 2023, compared to $18.61 million for the year ended December 31, 2022. During the year ended December 31, 2023, $344.31 million residential mortgage loans were sold compared to $551.02 million in the prior year. Gross margin on sale of mortgage loans remained relatively consistent year over year. Gross margin was 3.31% for the year ended December 31, 2023 compared to 3.38% for the year ended December 31, 2022. Mortgage banking, net also includes the impact of fair value changes of loans held-for sale and derivatives. The net change in fair value of loans held-for-sale and derivatives was a gain of $194,000 million for the year ended December 31, 2023 compared to a loss of $1.84 million for the year ended December 31, 2022.

Current wording

Total noninterest income was $17.78 million for the year ended December 31, 2024, compared to $22.72 million for the year ended December 31, 2023. The decrease of $4.94 million, or 21.7% was primarily due to a decrease in mortgage banking, net of $4.96 million for the year ended December 31, 2024. Mortgage banking, net includes net gain on sale of mortgage loans which decreased $4.66 million to $6.74 million for the year ended December 31, 2024, compared to $11.40 million for the year ended December 31, 2023. During the year ended December 31, 2024, $211.78 million residential mortgage loans were sold compared to $344.31 million in the prior year. In addition, gross margin on sale of mortgage loans has compressed due to increased competition and less volume. For the year ended December 31, 2024, gross margin was 3.18% compared to 3.31% for the year ended December 31, 2023.

Previous wording

Noninterest expense was $72.09 million for the year ended December 31, 2023, compared to $73.68 million for the year ended December 31, 2022, a decrease of $1.59 million, or 2.2%. The largest driver of the decrease was acquisition costs of $2.30 million incurred during the year ended December 31, 2022 related to the completed merger with FCB. In addition, salaries and employee benefits decreased $1.55 million due to lower commissions paid on residential mortgage originations.

Current wording

Noninterest expense was $69.31 million for the year ended December 31, 2024, compared to $72.09 million for the year ended December 31, 2023, a decrease of $2.78 million, or 3.9%. The largest driver of the decrease was salaries and employee benefits, decreasing 7.6% or $3.25 million to $39.72 millionfor the year ended December 31, 2024 compared to $42.97 million for the year ended December 31, 2023. This decrease was due to fewer full-time employees in 2024, resulting in lower salaries and lower group health insurance costs. In addition, commissions paid decreased due to lower commissions paid on residential mortgage originations.

Previous wording

Provision for income taxes was $1.60 million for the year ended December 31, 2023, compared to $3.15 million for the year ended December 31, 2022 due to the increase in proportion of tax-exempt income compared to pretax earnings. In addition, during the year ended December 31, 2023, the Company recorded tax credits and other tax benefits related to Low-Income Housing Tax Credit ("LIHTC") projects. The effective tax rate was 13.7% for the year ended December 31, 2023 compared to 22.7%for the prior year.

Current wording

Provision for income taxes was $1.61 million for the year ended December 31, 2024, compared to $1.60 million for the year ended December 31, 2023. The effective tax rate was 14.2% for the year ended December 31, 2024 compared to 13.7% for the prior year and is due to the increase in proportion of tax-exempt income compared to pretax earnings, as well as tax credits from investments in low-income housing tax projects.

Previous wording

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

Current wording

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

Previous wording

The Bank's available borrowing capacity was approximately $398.50 million as of December 31, 2023 and $419.20 million as of December 31, 2022.

Current wording

The Bank's available borrowing capacity was approximately $404.0 million as of December 31, 2024 and $398.50 million as of December 31, 2023.

Previous wording

During the first quarter of 2023, the FRB offered a new Bank Term Funding Program ("BTFP") for eligible depository institutions. The BTFP offers loans of up to one year in length to institutions pledging collateral eligible for purchase by FRB such as U.S. treasuries, agency securities, and mortgage-backed securities. These assets are valued at par. The Company did not utilize the program during 2023; however, this is another available funding source.

Current wording

During the first quarter of 2023, the FRB offered a new Bank Term Funding Program ("BTFP") for eligible depository institutions. The BTFP offers loans of up to one year in length to institutions pledging collateral eligible for purchase by FRB such as U.S. treasuries, agency securities, and mortgage-backed securities. These assets are valued at par. The Company did not utilize the program during 2023. In March of 2024, the Company accessed borrowings through the BTFP. In September of 2024, the Company paid off the borrowings.

Previous wording

Brokered deposits are another source of funding the Bank may utilize from time to time. As of December 31, 2023, the Bank had $72.17 million in brokered certificates and $5.3 million in brokered money market deposits. As of December 31, 2022, the Bank had no brokered certificates and $5.3 million in brokered money market deposits. Policy limits for brokered deposits are set at 10% of assets.

Current wording

Brokered deposits are another source of funding the Bank may utilize from time to time. As of December 31, 2024, the Bank had no brokered certificates and $5.57 million in brokered money market deposits. As of December 31, 2023, the Bank had $72.17 million in brokered certificates and $5.28 million in brokered money market deposits. Policy limits for brokered deposits are set at 10% of assets.

Previous wording

Net cash provided by the Company’s operating activities, which is primarily comprised of cash transactions affecting net income, was $9.35 million for the year ended December 31, 2023 compared to $41.91 million for the prior year. Net cash provided by operating activities was lower for the year ended December 31, 2023 primarily due to changes in loans held-for-sale activity. Mortgage volumes have been impacted by the current interest rate environment.

Current wording

Net cash provided by the Company’s operating activities, which is primarily comprised of cash transactions affecting net income, was $28.54 million for the year ended December 31, 2024 compared to $9.35 million for the prior year. Net cash provided by operating activities was higher for the year ended December 31, 2024 primarily due to changes in loans held-for-sale activity. Mortgage volumes have been impacted by the current interest rate environment.

Previous wording

Net cash used in the Company’s investing activities, which is primarily comprised of cash transactions related to activity in the loan portfolio and investment securities, was $108.21 million for the year ended December 31, 2023 compared to $235.04 million for the year ended December 31, 2022. Net cash used in investing activities for the year ended December 31, 2023, was impacted by loan originations being higher than loan pay-off and principal payments during the year. Loan origination and principal collection, net was $130.74 million for the year ended December 31, 2023. Pay-off activity has slowed with current interest rate levels. Available-for-sale securities sales and maturities, principal payments and calls were $66.72 million for the year ended December 31, 2023. A portion of the proceeds were used to purchase additional available-for-sale securities totaling $28.13 million. Net cash used in investing activities for the year ended December 31, 2022 was due in part to loan originations being higher than loan pay-off and principal payments during the year. Loan origination and principal collection, net was $234.26 million for the year ended December 31, 2022. In addition, available-for-sale securities purchases were $77.07 million during the year ended December 31, 2022, more than offset by available-for sale securities sales and maturities, principal payments and calls of $82.95 million. Investing activities was also impacted by net cash received from acquisitions of $13.40 million.

Current wording

Net cash used in the Company’s investing activities, which is primarily comprised of cash transactions related to activity in the loan portfolio and investment securities, was $27.80 million for the year ended December 31, 2024 compared to $108.21 million for the year ended December 31, 2023. Net cash used in investing activities for the year ended December 31, 2024, was impacted by loan originations being higher than loan pay-off and principal payments during the year. Loan origination and principal collection, net was $36.20 million for the year ended December 31, 2024. Pay-off activity has slowed with current interest rate levels. Available-for-sale securities sales and maturities, principal payments and calls were $35.27 million for the year ended December 31, 2024. A portion of the proceeds were used to purchase additional available-for-sale securities totaling $10.98 million. Net cash used in investing activities for the year ended December 31, 2023 was due in part to loan originations being higher than loan pay-off and principal payments during the year. Loan origination and principal collection, net was $130.74 million for the year ended December 31, 2023. In addition, available-for-sale securities purchases were $28.13 million during the year ended December 31, 2023, more than offset by available-for sale securities sales and maturities, principal payments and calls of $66.72 million.

Previous wording

Net cash provided by the Company’s financing activities was $101.59 million for the year ended December 31, 2023 compared to $153.51 million for the year ended December 31, 2022. Net cash provided by financing activities for the year ended December 31, 2023 was driven by borrowings of $106.34 million utilized to fund continued loan growth. Net cash provided by financing activities for the year ended December 31, 2022 was largely impacted by a net increase in deposits of $91.62 million. In addition, net short-term advances from FHLB and other borrowings increased by $69.39 million and subordinated debentures of $40.00 million were issued. These increases were partially offset by a net decrease in repurchase agreements of $22.85 million and the repayment of $10.00 million of subordinated debentures.

Current wording

Net cash provided by the Company’s financing activities was $6.27 million for the year ended December 31, 2024 compared to $101.59 million for the year ended December 31, 2023. Net cash provided by financing activities for the year ended December 31, 2024 was driven by an increase in deposits of $46.03 million, largely offset by a decrease in borrowings of $34.81 million. Net cash provided by financing activities for the year ended December 31, 2023 was largely impacted by borrowings of $106.34 million utilized to fund continued loan growth.

Previous wording

At December 31, 2023, the Bank’s internally determined measurement of sensitivity to interest rate movements as measured by a 200-basis point rise in interest rates scenario, decreased the economic value of equity (“EVE”) by 1.3% compared to an decrease of 12.6% at December 31, 2022. The Bank is within the guidelines set forth by the Board of Directors for interest rate sensitivity.

Current wording

At December 31, 2024, 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 1.7% compared to a decrease of 1.3% at December 31, 2023. The Bank is within the guidelines set forth by the Board of Directors for interest rate sensitivity.

Previous wording

The Bank’s Tier 1 leverage ratio, as measured under State of Montana and FRB rules, decreased from 9.82% as of December 31, 2022 to 9.75% as of December 31, 2023. The Bank’s strong capital position helps to mitigate its interest rate risk exposure.

Current wording

The Bank’s Tier 1 leverage ratio, as measured under State of Montana and FRB rules, increased from 9.75% as of December 31, 2023 to 10.07% as of December 31, 2024. The Bank’s strong capital position helps to mitigate its interest rate risk exposure.

Previous wording

As of December 31, 2023, the Company’s regulatory capital was in excess of all applicable regulatory requirements and is deemed “well capitalized” pursuant to State of Montana and FRB rules. At December 31, 2023, the Bank’s total capital, Tier 1 capital, common equity Tier 1 capital and Tier 1 leverage ratios amounted to 13.01%, 11.96%, 11.96% and 9.75%, respectively, compared to regulatory requirements of 10.50%, 8.50%, 7.00% and 4.00%, respectively.

Current wording

As of December 31, 2024, the Company’s regulatory capital was in excess of all applicable regulatory requirements and is deemed “well capitalized” pursuant to State of Montana and FRB rules. At December 31, 2024, the Bank’s total capital, Tier 1 capital, common equity Tier 1 capital and Tier 1 leverage ratios amounted to 13.49%, 12.41%, 12.41% and 10.07%, respectively, compared to regulatory requirements of 10.50%, 8.50%, 7.00% and 4.00%, respectively.