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 and nine months ended September 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 nine months ended September 30, 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 months ended March 31, 2025, as compared to 2024. The following should be read in conjunction with the Company's Consolidated Financial Statements, and accompanying Notes thereto, for the year ended December 31, 2024, included in Eagle's Annual Report on Form 10-K filed with the United States Securities and Exchange Commission (SEC) on March 14, 2025, 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 months ended March 31, 2025, are not necessarily indicative of the future results that may be attained for the entire year or other interim periods.

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 was decreased to 5.00% during the nine months ended September 30, 2024.

Current wording

The level and movement of interest rates impacts the Bank’s earningsas well. The Federal Open Market Committee decreased the federal funds target rate to 4.50% during the year ended December 31, 2024. The rate remained at 4.50% during the three months ended March 31, 2025.

Previous wording

Total assets were$2.15 billion at September 30, 2024, an increase of $69.44 million, or 3.3% from $2.08 billion at December 31, 2023. Loans receivable, net increased by $49.47 million or 3.4% from December 31, 2023. Total cash and cash equivalents also increased $17.64 million or 71.9% from December 31, 2023. However, securities available-for-sale decreased $11.30 million, or 3.6% from December 31, 2023. Total liabilities were $1.97 billion at September 30, 2024, an increase of $60.99 million, or 3.2% from $1.91 billion at December 31, 2023. The increase was largely due to an increase in FHLB advances and other borrowings and an increase in total deposits. Total borrowings increased $43.54 million from December 31, 2023, and total deposits increased $15.31 million from December 31, 2023. Total shareholders’ equity increased $8.46 million, or 5.0% from December 31, 2023.

Current wording

Total assets were $2.09 billion at March 31, 2025, a decrease of $14.67 million, or 0.7% from $2.10 billion at December 31, 2024. Loans receivable, net increased by $2.99 million or 0.2% from December 31, 2024. Securities available-for-sale decreased $930,000, or 0.3% from December 31, 2024. Total liabilities were $1.91 billion at March 31, 2025, a decrease of $17.49 million, or 0.9% from $1.93 billion at December 31, 2024. The decrease was largely due to a decrease in FHLB advances and other borrowings and offset by an increase in total deposits. Total borrowings decreased $15.94 million from December 31, 2024, and total deposits increased $8.74 million from December 31, 2024. Total shareholders’ equity increased $2.80 million, or 1.6% from December 31, 2024.

Previous wording

Securities available-for-sale were$306.98 million at September 30, 2024, a decrease of $11.30 million, or 3.6%, from$318.28 million at December 31, 2023. The decrease was primarily due to maturity, principal payments and call activity of $17.13 million offset by an increase in fair value of $6.58 million.

Current wording

Securities available-for-sale were $291.66 million at March 31, 2025, a decrease of $930,000, or 0.3%, from $292.59 million at December 31, 2024. The decrease was primarily due to maturity, principal payments and call activity of $5.33 million offset by a security purchase of $3.02 million and an increase in fair value of $1.64 million.

Previous wording

Loans receivable, netincreased $49.47 million, or 3.4%, to $1.52 billion at September 30, 2024 from $1.47 billion at December 31, 2023. The increase was largely driven by an increase in total commercial loans of$29.83 million in addition to increases in total residential loans of $9.02 million, home equity loans of $6.72 million and commercial real estate loans of $5.29 million. The increase was slightly offset by a decrease of $680,000 in consumer loans.

Current wording

Loans receivable, netincreased $2.99 million, or 0.2%, to $1.51 billion at March 31, 2025 from $1.50 billion at December 31, 2024. The increase was largely driven by an increase in total commercial real estate loans of $13.05 million in addition to an increase in home equity loans of $3.13 million. The increase was largely offset by a decrease of $7.56 million in commercial loans in additional to decreases in total residential loans of $4.21 million and a decrease of $1.53 million in consumer loans.

Previous wording

Total loan originations were $398.50 million for thenine months ended September 30, 2024. Total residential 1-4 family originations were $191.03 million, which includes $150.24 million of loans held-for-sale originations. Total commercial real estate originations were $90.70 million. Total commercial originations were $83.94 million. Home equity loan originations totaled $22.33 million. Consumer loan originations totaled $10.50 million. Loans held-for-sale increased by $2.00 million to$13.43 million at September 30, 2024 from$11.43 million at December 31, 2023.

Current wording

Total loan originations were $99.77 million for thethree months ended March 31, 2025. Total residential 1-4 family originations were $43.19 million, which includes $35.56 million of loans held-for-sale originations. Total commercial real estate originations were $27.53 million. Total commercial originations were $20.26 million. Home equity loan originations totaled $6.02 million. Consumer loan originations totaled $2.77 million. Loans held-for-sale decreased by $7.15 million to$6.22 million at March 31, 2025 from$13.37 million at December 31, 2024.

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 September 30, 2024 and December 31, 2023 there was $4,000 and $5,000 of 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 March 31, 2025 and December 31, 2024 there was $46,000 and $45,000, respectively, of real estate owned and other repossessed property.

Previous wording

Nonaccrual loans as of September 30, 2024 and December 31, 2023 include $1.34 million and $1.68 million, respectively of acquired loans that deteriorated subsequent to the acquisition date.

Current wording

Nonaccrual loans as of March 31, 2025 and December 31, 2024 include $583,000 and $591,000, respectively of acquired loans that deteriorated subsequent to the acquisition date.

Previous wording

Commercial real estate loans made up $644.02 million or 42.0% of the Bank's total loan portfolio at September 30, 2024, compared to $608.69 million or 41.0% at December 31, 2023. The Bank's commercial real estate loans are primarily permanent loans secured by improved property such as office buildings, retail stores, commercial warehouses, and apartment buildings. The terms and conditions of each loan are tailored to the needs of the borrower and based on the financial strength of the project and any guarantors. Generally, commercial real estate loans originated by the Bank will not exceed 80.0% of the appraised value or the selling price of the property, whichever is less. The Bank's commercial real estate portfolio's average loan-to-value ratio range was 26% to 51% as of September 30, 2024.

Current wording

Commercial real estate loans made up $666.27 million or 43.7% of the Bank's total loan portfolio at March 31, 2025, compared to $645.96 million or 42.5% at December 31, 2024. The Bank's commercial real estate loans are primarily permanent loans secured by improved property such as office buildings, retail stores, commercial warehouses, and apartment buildings. The terms and conditions of each loan are tailored to the needs of the borrower and based on the financial strength of the project and any guarantors. Generally, commercial real estate loans originated by the Bank will not exceed 80.0% of the appraised value or the selling price of the property, whichever is less. The Bank's commercial real estate portfolio's average loan-to-value ratio range was 30% to 49% as of March 31, 2025.

Previous wording

Deposits increased by $15.31 million, or 0.9%, from December 31, 2023 to September 30, 2024. Money market deposits increased $20.82 million, time certificates of deposit increased $13.97 million, and noninterest checking increased $1.03 million. These increases were partially offset by decreases in savings of $18.47 million and interest-bearing checking of $2.04 million. Brokered certificates decreased by $50.07 million and IRA certificates decreased by $1.03 million. These decreases were offset by an increase in other certificates of deposit of $65.08 million.

Current wording

Deposits increased by $8.74 million, or 0.5%, from December 31, 2024 to March 31, 2025. Money market deposits increased $29.31 million, brokered certificates of deposit increased $6.15 million, and savings increased $1.89 million. These increases were partially offset by decreases in other certificates of deposit of $10.19 million, interest-bearing checking of $10.06 million, noninterest checking of $7.94 million, and IRA certificates of $425,000.

Previous wording

The estimated amount of uninsured deposits was approxima tely $307.00 million or 18% of total deposits at September 30, 2024 compared to approximately $275.00 million or 17% of total deposits at December 31, 2023.

Current wording

The estimated amount of uninsured deposits was approximately $309.0 million or 18% of total deposits at March 31, 2025 compared to approximately $323.0 million or 19% of total deposits at December 31, 2024.

Previous wording

Total shareholders’ equity increased by $8.46 million, or 5.0%, to $177.73 million at September 30, 2024 from $169.27 million at December 31, 2023. The increase was primarily attributed to net income of $6.35 million and a decrease in unrealized losses of securities available for sale of $4.85 million. These were offset by an increase in dividends paid of $3.39 million.

Current wording

Total shareholders’ equity increased by $2.80 million, or 1.6%, to $177.57 million at March 31, 2025 from $174.77 million at December 31, 2024. The increase was primarily attributed to net income of $3.24 million and a decrease in unrealized losses of securities available for sale of $1.20 million. These were offset by dividends paid of $1.14 million and treasury stock repurchases of $755,000.

Previous wording

*Net Income.*Eagle’s net income for the three months ended September 30, 2024 was $2.71 million compared to $2.64 million for the three months ended September 30, 2023. The increase of $74,000 was due to a decrease in noninterest expense of $605,000 and an increase in net interest income after provision for credit losses of $526,000. These were largely offset by a decrease in noninterest income of $1.06 million and an increase in provision for income taxes of $5,000. For the current period, basic earnings per common share was $0.35 and diluted earnings per common share was $0.34. Basic and diluted earnings per common share were both $0.34 for the prior year comparable period.

Current wording

*Net Income.*Eagle’s net income for the three months ended March 31, 2025 was $3.24 million compared to $1.90 million for the three months ended March 31, 2024. The increase of $1.34 million was largely driven by an increase in net interest income after provision for credit losses of $1.51 million. For the current period, basic and diluted earnings per common share were both $0.41. Basic and diluted earnings per common share were both $0.24 for the three months ended March 31, 2024.

Previous wording

Net Interest Income. Net interest income decreased to $46.65 million for the nine months ended September 30, 2024, from $47.28 million for the nine months ended September 30, 2023. The decrease of $631,000 was the result of an increase in interest expense of $11.08 million partially offset by an increase in interest and dividend income of $10.45 million.

Current wording

*Net Interest Income.*Net interest income increased to $16.90 million for the three months ended March 31, 2025, from $15.21 million for the three months ended March 31, 2024. The increase of $1.69 million, or 11.1%, was the result of an increase in interest and dividend income of $1.13 million and a decrease in interest expense of $561,000.

Previous wording

*Interest and Dividend Income.*Interest and dividend income was $26.76 million for the three months ended September 30, 2024, compared to $24.09 million for the three months ended September 30, 2023. The increase of $2.67 million, or 11.1% was driven by interest and fees on loans, which increased to $23.80 million for the three months ended September 30, 2024, from $21.07 million for the three months ended September 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 44 basis points, from 5.66% for the three months ended September 30, 2023, to 6.10% for the current period. Interest accretion on purchased loans was $167,000 for the three months ended September 30, 2024, which resulted in a 3 basis point increase in net interest margin compared to $175,000 for the three months ended September 30, 2023, which resulted in a 4 basis point increase in net interest margin. Average balances for loans receivable, including loans held-for-sale, for the three months ended September 30, 2024 were $1.55 billion compared to $1.48 billion for the prior year period. This represents an increase of $70.67 million, or 4.8% and was due to organic growth. Interest on investment securities available-for-sale decreased by $196,000 period over period, primarily due to the decrease in average balances for investments from $319.31 million for the three months ended September 30, 2023 to $305.73 million for the three months ended September 30, 2024.

Current wording

*Interest and Dividend Income.*Interest and dividend income was $26.07 million for the three months ended March 31, 2025, compared to $24.94 million for the three months ended March 31, 2024. The increase of $1.13 million, or 4.5%, was driven by interest and fees on loans, which increased to $23.32 million for the three months ended March 31, 2025, from $21.94 million for the three months ended March 31, 2024. 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 32 basis points, from 5.87% for the three months ended March 31, 2024, to 6.19% for the current period. Interest accretion on purchased loans was $172,000 for the three months ended March 31, 2025, which resulted in a four basis point increase in net interest margin compared to $118,000 for the three months ended March 31, 2024, which resulted in a three basis point increase in net interest margin. Average balances for loans receivable, including loans held-for-sale, for the three months ended March 31, 2025 were $1.53 billion compared to $1.50 billion for the three months ended March 31, 2024. This represents an increase of $27.48 million, or 1.8% and was due to organic growth. Interest on investment securities available-for-sale decreased by $273,000 period over period, primarily due to the decrease in average balances for investments from $314.13 million for the three months ended March 31, 2024 to $293.27 million for the three months ended March 31, 2025. In addition, average interest rates earned on investments decreased from 3.48% for the three months ended March 31, 2024 to 3.39% for the three months ended March 31, 2025.

Previous wording

*Interest Expense.*Total interest expense was $10.96 million for the three months ended September 30, 2024, compared to $8.51 million for the three months ended September 30, 2023. The increase of $2.45 million was due to an increase of $2.04 million in interest expense on deposits, as well as a net increase of $413,000 in interest expense on total borrowings. The overall average rate on total deposits was up from 1.28% for the three months ended September 30, 2023, compared to 1.76% for the three months ended September 30, 2024. In addition, the average balance for total deposits was $1.62 billion for the three months ended September 30, 2024, compared to $1.60 billion for the three months ended September 30, 2023. The increase in interest expense on total borrowings was driven by the average balance of FHLB advances and other borrowings, increasing from $192.88 million for the three months ended September 30, 2023, to $228.47 million for the three months ended September 30, 2024. Short-term borrowings have increased to fund loan growth. However, the average rate paid on FHLB advances and other borrowings decreased from 5.50% for the three months ended September 30, 2023, to 5.36% for the three months ended September 30, 2024.

Current wording

*Interest Expense.*Total interest expense was $9.17 million for the three months ended March 31, 2025, compared to $9.73 million for the three months ended March 31, 2024. The decrease of $561,000 was due to a net decrease of $884,000 in interest expense on total borrowings and partially offset by an increase of $323,000 in interest expense on deposits. The decrease in interest expense on total borrowings was driven by the average balance of FHLB advances and other borrowings decreasing from $181.19 million for the three months ended March 31, 2024, to $138.83 million for the three months ended March 31, 2025. The average rate paid on FHLB advances and other borrowings also decreased from 5.53% for the three months ended March 31, 2024, to 4.75% for the three months ended March 31, 2025. The average balance for total deposits was $1.67 billion for the three months ended March 31, 2025, compared to $1.63 billion for the three months ended March 31, 2024. The overall average rate on total deposits was also up slightly from 1.62% for the three months ended March 31, 2024, compared to 1.67% for the three months ended March 31, 2025.

Previous wording

*Provision for Credit Losses.*Provision for credit losses was $277,000 for the three months ended September 30, 2024, compared to $588,000 in provision for credit losses for the three months ended September 30, 2023. The provision for credit losses for the three months ended September 30, 2024 includes a provision for credit losses on loans of $317,000 and a decrease in the provision for unfunded commitments of $40,000.

Current wording

*Provision (Recapture) for Credit Losses.*Provision for credit losses was $42,000 for the three months ended March 31, 2025, compared to a recapture in provision for credit losses of $135,000 for the three months ended March 31, 2024. The provision for credit losses for the three months ended March 31, 2025 included an increase in the provision for unfunded commitments of $170,000 and offset by a recapture in provision for credit losses on loans of $128,000.

Previous wording

*Noninterest Income.*Total noninterest income was $4.98 million for the three months ended September 30, 2024, compared to $6.04 million for the three months ended September 30, 2023. The decrease of $1.06 million, or 17.5%, was primarily due to a decrease in mortgage banking, net, of $1.74 million. Mortgage banking, net, includes net gain on sale of mortgage loans which decreased to $1.69 million for the three months ended September 30, 2024, compared to $3.59 million for the three months ended September 30, 2023. During the three months ended September 30, 2024, $51.02 million residential mortgage loans were sold compared to $109.02 million in the same period in the prior year. Mortgage volumes continued to be impacted by the interest rate environment. Gross margin levels increased 2 basis points from 3.29% for the three months ended September 30, 2023, to 3.31% for the three months ended September 30, 2024. The decrease in mortgage banking, net, was partially offset by an increase in income from bank owned life insurance of $656,000, increasing to $1.04 million for the three months ended September 30, 2024, compared to $382,000 for the three months ended September 30, 2023.

Current wording

*Noninterest Income.*Total noninterest income was $4.02 million for the three months ended March 31, 2025, compared to $3.95 million for the three months ended March 31, 2024. The increase of $64,000 or 1.8%, was primarily due to an increase in appreciation in cash surrender value of life insurance of $62,000 due to bank owned life insurance policies purchased in 2024. The increase was largely offset by a decrease in mortgage banking, net, of $52,000. Mortgage banking, net, includes net gain on sale of mortgage loans which decreased to $1.35 million for the three months ended March 31, 2025, compared to $1.41 million for the three months ended March 31, 2024. During the three months ended March 31, 2025, $42.80 million residential mortgage loans were sold compared to $43.56 million in the three months ended March 31, 2024. Mortgage volumes continued to be impacted by the interest rate environment. Gross margin levels decreased 10 basis points from 3.25% for the three months ended March 31, 2024, to 3.15% for the three months ended March 31, 2025.

Previous wording

*Provision for Income Taxes.*Provision for income taxes was $529,000 for the three months ended September 30, 2024, compared to $524,000 for the three months ended September 30, 2023. The effective tax rate was 16.3% for the current period compared to 16.6% for the prior period.

Current wording

*Provision for Income Taxes.*Provision for income taxes was $631,000 for the three months ended March 31, 2025, compared to $370,000 for the three months ended March 31, 2024. The effective tax rate was 16.3% for the current and prior periods.

Previous wording

The Company's available borrowing capacity was approximately $348.10 million as of September 30, 2024 and $398.50 million as of December 31, 2023.

Current wording

The Company's available borrowing capacity was approximately$437.40 million as of March 31, 2025 and$404.00 million as of December 31, 2024.

Previous wording

As of September 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, increased the economic value of equity (“EVE”) by 2.3%compared to a decrease of 1.9% at December 31, 2023. A 300 basis point decrease in interest rates scenario decreased EVE by 17.0%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 March 31, 2025, 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 0.8% compared to an increase of 1.7% at December 31, 2024. A 200-basis point decrease in interest rates scenario decreased EVE by 7.3% compared to a decrease of 7.9%at December 31, 2024. The Bank is within the guidelines set forth by the Board of Directors for interest rate risk sensitivity in rising interest rate scenarios.

Previous wording

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) will not be reduced by more than 15% given an immediate increase or decrease in interest rates of up to 300 basis points, and the subsequent twelve months (i.e. year-2) will not be reduced by more than 20.0% given an immediate increase or decrease in interest rates of up to 300 basis points.

Current wording

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) will not be reduced by more than 15.0% given an immediate increase or decrease in interest rates of up to 300 basis points, and the subsequent twelve months (i.e. year-2) will not be reduced by more than 20.0% given an immediate increase or decrease in interest rates of up to 300 basis points.

Previous 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. A weighted average of both the market and income approaches was used in valuing the reporting unit’s fair value. The interim goodwill impairment assessment as of August 31, 2024 concluded that goodwill was not impaired. 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.

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. A weighted average of both the market and income approaches was used in valuing the reporting unit’s fair value. The interim goodwill impairment assessment as of August 31, 2024 concluded that goodwill was not impaired. Our quantitative annual impairment test as of October 31, 2024 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.