Holding Company of Opportunity Bank of Montana
Holding Company of Opportunity Bank of Montana
2022 ANNUAL REPORT
OPPORTUNITY BANK OF MONTANA opened its doors in August of 1922 as
American Building and Loan with a single office in Helena, Montana. Since our first day, we have been
a Montana community financial institution committed to providing strong financial futures for Montanans.
A century later, we have grown to 31 locations across Montana, offering customers a full range of
banking, lending, and digital services. Our history of stability, growth and a relationship approach
to banking has stood the test of time for more than 100 years.
OUR HISTORY
American Building and Loan operated under this original name for more than 50 years, surviving
the turbulence of the early 20th century, including the crash of 1929 and the ensuing Great Depression.
In 1972, the business name became American Savings and Loan Association and then American
Federal Savings and Loan Association with the adoption of a federal thrift charter in 1975. The
late-1970s was a period of rapid expansion for the bank. By 1980, American Federal Savings
and Loan had grown to include branch locations in Townsend, Butte, and Bozeman, Montana.
American Federal Savings and Loan remained strong through the savings and loan crisis of the
1980s, and later, in 1991, American Federal Savings and Loan converted its charter to a federal
savings bank and accordingly changed its name to American Federal Savings Bank, the name
that would remain for the next 23 years.
Eagle Bancorp was established in 1999 as the holding company for the bank and began offering
shares to the public in 2000. A subsequent public offering in 2010 made it possible for Eagle stock
to be traded publicly on the NASDAQ stock exchange. In 2012, American Federal doubled its branch
network and further expanded its footprint across Montana through the purchase of seven Montana
bank branches owned by Sterling Financial Corporation. In 2014, American Federal applied to the
State of Montana to convert its charter from a Federal savings bank to a Montana state-chartered
bank. This charter change provided an opportunity to rebrand the bank as Opportunity Bank
of Montana, the name we proudly operate under today.
A series of acquisitions followed our rebranding. The bank acquired TwinCo, Inc. in 2018 adding
two branches in Madison County. In 2019, the bank acquired Big Muddy Bancorp, Inc. adding
branches in Teton and Fergus Counties, and, in January 2020, the bank completed the acquisition
of Western Holding Company of Wolf Point adding a branch in Roosevelt County. In April 2022,
the bank completed the acquisition of First Community Bancorp Inc., further expanding into Roosevelt
County, and adding branches in Rosebud and Valley Counties. These acquisitions solidified our
position as the fourth-largest bank headquartered in Montana and expanded our branch network
into the agriculturally focused Ruby Valley, Golden Triangle, and Hi-Line regions.
EAGLE BANCORP MT, INC. 1
FINANCI AL H IGHL I GHT S
(DOLLARS IN THOUSANDS)
SELECTED FINANCIAL CONDITION DATA:
2022
YEAR ENDED
2021
YEAR ENDED
2020
YEAR ENDED
2019
YEAR ENDED
2018
YEAR ENDED
Total Assets .....................................
$1,948,384
$1,435,926
$1,257,634
$1,054,260
$853,903
Net Loans .......................................
1,339,678
Total Securities ................................
349,495
920,639
271,262
829,503
162,946
Total Deposits ..................................
1,635,272
1,222,549
1,033,083
Total Shareholders’ Equity .................
158,416
156,729
152,938
SELECTED OPERATING DATA:
Net Interest Income ..........................
Loan Loss Provision ..........................
Noninterest Income ..........................
Noninterest Expense .........................
63,312
2,001
21,941
69,404
46,540
861
46,183
72,580
43,170
3,130
47,366
58,966
770,635
126,875
808,993
121,659
38,785
2,627
23,841
46,031
610,333
142,165
626,611
94,806
29,741
980
12,122
34,987
NET INCOME
10,701
$$10,701
14,419
$$14,419
21,206
$$21,206
10,872
$$10,872
4,982
$$4,982
DIVIDENDS - dollars per share
STOCK PRICE - in dollars
$0.52
0.50
0.48
0.46
0.44
0.42
0.40
0.38
0.36
$24
22
20
18
16
14
12
10
8
22
21
20
19
18 (annualized)
22
21
20
19
18
EARNINGS PER SHARE - basic in dollars
TOTAL ASSETS - dollars in millions
$3.20
3.00
2.80
2.60
2.40
2.20
2.00
1.80
1.60
1.40
1.20
1.00
0.80
0.60
0.40
0.20
0
22
21
20
19
18
$2,000
$1,900
$1,800
$1,700
$1,600
$1,500
$1,400
$1,300
$1,200
$1,100
$1,000
$900
$800
22
21
20
19
18
EAGLE BANCORP MT, INC. 2
MARCH 15, 2023
To Our Shareholders, Customers, and Friends:
I am pleased to present our Annual Report to Shareholders for the fiscal year ended December 31, 2022
particularly because this is also my first opportunity as President and CEO to communicate with you
regarding our results.
2022 was a year of growth for our Company. We closed our largest ever whole bank acquisition, with the
addition of the $370.4 million in assets of First Community Bancorp Inc., enabling us to add both a significant
physical presence in northeast Montana and a seasoned team of agricultural lenders.
We welcome First Community to our Company including Samuel D. Waters, First
Community’s CEO, who joined our Board in April 2022.
With First Community and its network of nine branches, Opportunity Bank of Montana
now has a meaningful presence in each of Montana’s primary agricultural regions
while fully implementing our strategy of diversifying our loan portfolio through
a significant agricultural lending presence in the state. We made substantial progress
toward that goal in 2022 as agricultural production and farmland loans outstanding increased by
112.1% to $240.4 million compared to $113.4 million a year earlier.
For the year, total assets also grew to $1.95 billion, an increase of 35.7%. That places our company
very near the important milestone of $2 billion in assets. When that occurs, it will have been achieved
using the same consistent approach that has been our hallmark for the past decade — prudent strategic
acquisitions and steady organic growth. In 2022 this strategy enabled us to increase total loans over
the prior year by 45.1% to $1.35 billion. Deposits also grew substantially, increasing by 33.8%
further adding to our strong core deposit base. It is important to note that this was not achieved solely
through acquisition, in that total loans grew organically by 24.6% while deposits grew organically
by 7.5%. Our deposit growth was likely impacted by the transitory nature of deposit inflows from the
government’s stimulus including PPP reimbursements. Not surprisingly, deposits began to ebb somewhat
due to the eventual deployment of PPP funds and the onset of higher rates. As we moved toward a more
normalized structure, our average cost of funds increased to 0.85% from 0.35% in the fourth quarter
of 2021.
We performed well with earnings of $10.7 million, and earnings per diluted share of $1.45, which followed
record per share earnings of the prior two years. This was achieved despite facing several challenges.
The lingering impact of operating during the Covid pandemic was certainly one challenge. Another was
working through the seven separate rate tightenings by the Federal Reserve Board to combat inflationary
pressures in the nation’s economy. These initiatives and the lingering possibility of a recession in 2023
will no doubt impact our approach going forward. The growth in all loan categories contributed to more
than 36.0% growth in net interest income before loan loss provision. Another important factor affecting
earnings was an increase of 35 basis points in our net interest margin from 3.75% in the fourth quarter
of 2021 to 4.10%. Following two record years mortgage originations slowed substantially by the end
of 2022 impacted in part by higher rates. As we look forward, we believe we will see moderate loan
growth while maintaining our traditionally strong credit culture and asset quality. Also at year-end 2022,
we were pleased to note that the level of non-performing assets held steady at 0.40% of assets, a slight
decrease from the level of 0.49% a year ago. We did, however, add to our allowance for loan losses
over the past year to keep pace with our growing loan portfolio.
EAGLE BANCORP MT, INC. 3
In addition to the challenges, 2022 was also a transitional year for Montana. As noted in past reports, Montana,
with its vast land area and relatively low population presents unique challenges for banks such as Opportunity
seeking to implement a growth strategy. Montana notwithstanding its size ranks only 43rd in terms of population.
However, there are trends, several of which emerged this year, suggesting that this traditional imbalance may be
changing. Montana has, for example, been buoyed by significant growth in population ranking sixth of all states
in percentage growth from 2021 to 2022. Last year, Montana’s population grew by 1.5% and total population
now exceeds 1.1 million. The growth rate trailed only Florida, Idaho, South Carolina, Texas, and South Dakota.
In addition, Montana’s new residents have tended to be wealthier and often are able to bring their jobs with
them as remote work is embraced. The influx of new residents could provide some insulation in an economic
downturn. We note that The Bureau of Business and Economic Research at the University of Montana projects
growth in nonfarm earnings will decrease to approximately -0.4% in 2023 but rebound to 1.1% in 2024.
The population influx has placed some pressure on real estate values and spurred increased construction. There
are many explanations for this trend including comparatively favorable home prices and the allure of the “Big
Sky lifestyle” fueled in part by the popularity of the television series, Yellowstone. Also, Montana’s favorable
unemployment rate of 2.8% remains well below the national average. For these reasons, including our Company’s
strong geographic presence represented by our 31-branch structure, we are well positioned to take advantage
of these significant tail winds as the “new Montana” continues to evolve. In the face of these changes our
foundational values and our focus on customers, communities and employees will leave us well positioned.
Any discussion of our foundational values would be incomplete if we did not note the retirement at the end of
2022 of our longtime CEO and President, Peter J. Johnson. During Pete’s 41 years with our Company including
15 years as CEO our Company grew substantially, becoming one of the largest Montana-based banks. During
his tenure, the Company made five acquisitions, increased the number of branches to 31 from five, and
diversified the loan portfolio with a robust agricultural presence. Pete led the company with foresight and good
judgment. On behalf of the Board of Directors and our employees, I thank Pete for his leadership. On a personal
level, I truly appreciated his support and guidance as we prepared for the change in leadership.
Finally, I want to share a personal highlight. In 2022 I had the opportunity to travel Montana and visit in person
our 31 locations and meet with our 430 employees. This journey totaled over 2,000 miles and I found it to be
tremendously rewarding. Meeting with our great people and witnessing firsthand their energy, their commitment
to putting our customers first and hearing their ideas for how we can do even better was an experience I shall
not soon forget. It reaffirmed our core belief that our employees’ dedication to customers and communities
is essential to our success. I am grateful and thank each of you.
As we close the book on our 100th year, I sincerely appreciate the continuing trust and loyalty that you, our
shareholders, have shown. We are working diligently to earn your continued confidence, and we thank you
for the privilege of serving you!
Very Sincerely,
Laura F. Clark
President/CEO
EAGLE BANCORP MT, INC. 4
EXECUTIVE TEAM
LAURA F. CLARK
President
Chief Executive Officer
RACHEL R. AMDAHL
Senior Vice President
Chief Operations Officer
ALANA M. BINDE
Senior Vice President
Chief Human Resource Officer
LINDA M. CHILTON
Senior Vice President
Chief Retail Officer
DALE F. FIELD
Senior Vice President
Chief Credit Officer
CHANTELLE R. NASH, J.D.
Senior Vice President
Chief Risk Officer
Chief Administrative Officer
Corporate Secretary
MARK A. O'NEILL
Senior Vice President
Chief Lending Officer
P. DARRYL RENSMON
Senior Vice President
Chief Operating Officer
MIRANDA J. SPAULDING
Senior Vice President
Chief Financial Officer
EAGLE BANCORP MT, INC. 5
BO ARD OF DIRECTORS
RICK F. HAYS
Board Chair
Retired
Helena
THOMAS J. MCCARVEL
Vice Chair
Retired
Helena
SHAVON R. CAPE
Co-Founder
JWT Restaurant Group, LLC
Bozeman
TANYA J. CHEMODUROW
President & Owner
Abatement Contractors of Montana, LLC
Missoula
COREY JENSEN
Retired
Billings
BENJAMIN G. RUDDY
Vice President
Agricultural Division Manager
Opportunity Bank of Montana
Great Falls
PETER J. JOHNSON
Retired
Helena
MAUREEN J. RUDE
Retired
Helena
CYNTHIA A. UTTERBACK CPA
Principal
Pinion
Helena
KENNETH M. WALSH
Retired
Twin Bridges
S A M U E L D . WAT E R S
Business Development Officer
Opportunity Bank of Montana
Glasgow
EAGLE BANCORP MT, INC. 6
OUR GROWING FOOTPRINT ACROSS MONTANA
Counties we serve
LOCATIONS
ASHLAND
300 Main St
Ashland MT
BIG TIMBER
101 McLeod St
Big Timber MT
BILL INGS
1112 Shiloh Crossing Blvd
Billings MT
1639 Main St
Billings MT
1005 N 27th St
Billings MT
BOZEMAN
5 W Mendenhall St
Bozeman MT
1455 W Oak St
Bozeman MT
4150 Valley Commons Dr
Bozeman MT
BU TTE
3401 Harrison Ave
Butte MT
C HO TE AU
27 1st St NW
Choteau MT
C UL BE RTS ON
205 Broadway Ave
Culbertson MT
DEN TO N
423 Broadway Ave
Denton MT
DU TT ON
101 Main St W
Dutton MT
F RO ID
109 Main St
Froid MT
G LA SG OW
540 2nd Ave S
Glasgow MT
G REAT FA LLS
501 River Dr S
Great Falls MT
EAGLE BANCORP MT, INC. 7
HA MILT ON
711 S 1st St
Hamilton MT
HE LEN A
Headquarters
Headquarters
1400 Prospect Ave
Helena MT
28 Neill Ave
Helena MT
2090 Cromwell Dixon Ln
Helena MT
7517 Roughsawn Dr
Helena MT
HINSD A LE
203 Montana St
Hinsdale MT
LIVINGST ON
123 S Main St
Livingston MT
MISS OULA
200 N Higgins Ave
Missoula MT
1821 South Ave W
Missoula MT
SHE RIDAN
103 N Main St
Sheridan MT
T HREE FORKS
120 S Montana St
Three Forks MT
T OWNSEND
400 Broadway St
Townsend MT
TWIN BRIDGES
107 S Main St
Twin Bridges MT
WINIF RED
205 Main St #2
Winifred MT
WOLF POINT
111 3rd Ave S
Wolf Point MT
FO RM 10-K
[ This Page Intentionally Left Blank ]
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended
December 31, 2022
or
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from
Commission file number
1-34682
to
Eagle Bancorp Montana, Inc.
(Exact name of registrant as specified in its charter)
Delaware
State or other jurisdiction of incorporation or organization
27-1449820
(I.R.S. Employer Identification No.)
1400 Prospect Avenue, Helena, MT
(Address of principal executive offices)
Registrant’s telephone number, including area code
406-442-3080
Securities registered pursuant to Section 12(b) of the Act:
59601
(Zip Code)
Title of each class
Common Stock par value $0.01 per share
Trading symbol(s)
EBMT
Name of each exchange on which registered
Nasdaq Global Market
Securities registered pursuant to section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. ☐ Yes ☒ No
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. ☐ Yes ☒ No
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and
(2) has been subject to such filing requirements for the past 90 days. ☒ Yes ☐ No
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant
to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was
required to submit such files). ☒ Yes ☐ No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting
company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company”
and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer ☐
Non-accelerated filer ☒
Accelerated filer ☐
Smaller reporting company ☒
Emerging growth company ☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for
complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant has filed a report on and attestation to its management's assessment of the effectiveness
of its internal control over financial reporting under Section 404(b) of Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public
accounting firm that prepared or issued its audit report. ☐
If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant
included in the filing reflect the correction of an error to previously issued financial statements. ☐
Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based
compensation received by any of the registrant's executive officers during the relevant recovery period pursuant to §240.10d-1(b). ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). ☐ Yes ☒ No
The aggregate market value of the common stock held by non-affiliates of Eagle, computed by reference to the closing price at which
the stock was sold as of June 30, 2022 was $145,646,000. The outstanding number of shares of common stock of Eagle as of February 28,
2023 was 8,006,033.
Portions of the Company’s definitive Proxy Statement relating to its 2023 annual meeting of stockholders (“2023 Proxy Statement”) are
incorporated by reference into Part III of this Form 10-K. The 2023 Proxy Statement will be filed with the Securities and Exchange
Commission within 120 days after the Company’s fiscal year end to which this report relates.
DOCUMENTS INCORPORATED BY REFERENCE
TABLE OF CONTENTS
Page
PART I
ITEM 1. DESCRIPTION OF BUSINESS .....................................................................................................................
3
ITEM 1A. RISK FACTORS ............................................................................................................................................. 15
ITEM 1B. UNRESOLVED STAFF COMMENTS .......................................................................................................... 24
PROPERTIES .................................................................................................................................................. 25
ITEM 2.
ITEM 3.
LEGAL PROCEEDINGS ................................................................................................................................ 25
ITEM 4. MINE SAFETY DISCLOSURES ................................................................................................................... 25
PART II
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND
ISSUER PURCHASES OF EQUITY SECURITIES................................................................................... 26
[RESERVED] .................................................................................................................................................. 27
ITEM 6.
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS ....................................................................................................................................... 27
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK ................................ 47
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA ................................................................ 47
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE ....................................................................................................................... 47
ITEM 9A. CONTROLS AND PROCEDURES ................................................................................................................ 47
ITEM 9B. OTHER INFORMATION ............................................................................................................................... 47
ITEM 9C. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS ............... 47
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE ......................................... 48
ITEM 11. EXECUTIVE COMPENSATION ................................................................................................................... 48
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS .................................................................................................. 48
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
INDEPENDENCE ....................................................................................................................................... 48
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES ................................................................................. 48
PART IV
ITEM 15. EXHIBIT AND FINANCIAL STATEMENT SCHEDULES ......................................................................... 48
ITEM 16. FORM 10-K SUMMARY ............................................................................................................................... 52
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Annual Report on Form 10-K includes “forward-looking statements” within the meaning and protections of Section 27A
of the Securities Act of 1933, as amended, or the Securities Act, and Section 21E of the Securities Exchange Act of 1934, as
amended, or the Exchange Act. All statements other than statements of historical fact are statements that could be forward-
looking statements. You can identify these forward-looking statements through our use of words such as “may,” “will,”
“anticipate,” “assume,” “should,” “indicate,” “would,” “believe,” “contemplate,” “expect,” “estimate,” “continue,” “plan,”
“project,” “could,” “intend,” “target” and other similar words and expressions of the future. These forward-looking statements
include, but are not limited to:
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statements of our goals, intentions and expectations;
statements regarding our business plans, prospects, growth and operating strategies;
statements regarding the current global COVID-19 pandemic;
statements regarding the asset quality of our loan and investment portfolios; and
estimates of our risks and future costs and benefits.
These forward-looking statements are based on current beliefs and expectations of the management of Eagle Bancorp
Montana, Inc. (“Eagle” or the “Company”) and Opportunity Bank of Montana (“OBMT” or the “Bank”), Eagle’s wholly-
owned subsidiary, and are inherently subject to significant business, economic and competitive uncertainties and
contingencies, many of which are beyond our control. In addition, these forward-looking statements are subject to
assumptions with respect to future business strategies and decisions that are subject to change.
The following factors, among others, could cause the Company’s actual results to differ materially from the anticipated results
or other expectations expressed in the forward-looking statements:
●
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changes in laws or government regulations or policies affecting financial institutions, including changes in
regulatory fees and capital requirements;
the potential adverse effects of the ongoing novel coronavirus, or COVID-19, pandemic, or other unusual and
infrequently occurring events and any governmental or societal responses thereto;
local, regional, national and international economic and market conditions and events and the impact they may have
on us, our customers and our assets and liabilities;
competition among depository and other traditional and non-traditional financial services businesses;
risks related to the concentration of our business in Montana, including risks associated with changes in the prices,
values and sales volume of residential and commercial real estate in Montana;
inflation and changes in the interest rate environment that reduce our margins or reduce the fair value of financial
instruments;
our ability to attract deposits and other sources of funding or liquidity;
changes or volatility in the securities markets;
the payment of dividends on our common stock is subject to regulatory supervision as well as the discretion of our
Board of Directors, our performance and other factors;
our ability to implement our growth strategy, including identifying and consummating suitable acquisitions, raising
additional capital to finance such transactions, entering new markets, possible failures in realizing the anticipated
benefits from such acquisitions and an inability of our personnel, systems and infrastructure to keep pace with such
growth;
the effect of acquisitions we may make, if any, including, without limitation, the failure to achieve expected revenue
growth and/or expense savings from such acquisitions;
risks related to the integration of any businesses we have acquired or expect to acquire, including exposure to
potential asset quality and credit quality risks and unknown or contingent liabilities, the time and costs associated
with integrating systems, technology platforms, procedures and personnel;
potential impairment on the goodwill we have recorded or may record in connection with business acquisitions;
ownership dilution risk associated with potential mergers and acquisitions in which our stock may be issued as
consideration for an acquired company;
political developments, uncertainties or instability;
our ability to enter new markets successfully and capitalize on growth opportunities;
the need to retain capital for strategic or regulatory reasons;
changes in consumer spending, borrowing and savings habits;
our ability to continue to increase and manage our commercial and residential real estate, multi-family and
commercial business loans;
1
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possible impairments of securities held by us, including those issued by government entities and government
sponsored enterprises;
the level of future deposit insurance premium assessments;
our ability to develop and maintain secure and reliable information technology systems, effectively defend ourselves
against cyberattacks, or recover from breaches to our cybersecurity infrastructure and our dependence on the
technology of outside service providers;
the failure of assumptions underlying the establishment of allowance for possible loan losses and other estimates;
changes in the financial performance and/or condition of our borrowers and their ability to repay their loans when
due; and
the effect of changes in accounting policies and practices, as may be adopted by the regulatory agencies, as well as
the Securities and Exchange Commission, the Public Company Accounting Oversight Board, the Financial
Accounting Standards Board and other accounting and auditing standard setters;
our ability to appropriately address any environmental, social, governmental and sustainability concerns that may
arise from our business activities.
Because of these and other uncertainties, our actual future results may be materially different from the results indicated by
these forward-looking statements. For a further list and description of various risks, relevant factors and uncertainties that
could cause future results or events to differ materially from those expressed or implied in our forward-looking statements,
see the Item 1A, “Risk Factors” and Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of
Operations” sections contained elsewhere in this report, as well as any subsequent Reports on Form 10-Q and Form 8-K, and
other filings with the SEC. We do not undertake any obligation to publicly update or correct any forward-looking statements
to reflect events or circumstances that subsequently occur, or of which we hereafter become aware. We caution that the
foregoing list of risk factors is not exclusive and not to place undue reliance on forward-looking statements.
2
PART I
ITEM 1.
DESCRIPTION OF BUSINESS.
Overview
Eagle Bancorp Montana, Inc. (“Eagle” or the “Company”), a Delaware corporation, is a bank holding company registered
under the Bank Holding Company Act of 1956 that holds 100% of the capital stock of Opportunity Bank of Montana (the
“Bank”), formerly American Federal Savings Bank (“AFSB”). The Bank was founded in 1922 as a Montana-chartered
building and loan association and has conducted operations and maintained its administrative office in Helena, Montana since
that time. In 1975, the Bank adopted a federal thrift charter and in October 2014 converted to a Montana chartered commercial
bank and became a member bank in the Federal Reserve System. The Bank currently has 31 full-service branches and
44 automated teller machines located in our market areas and we participate in the Money Pass® ATM network. The Bank
also operated certain branches under the brand names Dutton State Bank, Farmers State Bank of Denton and The State Bank
of Townsend. Effective January 3, 2022, these branches were rebranded and are now only operating as Opportunity Bank of
Montana.
We provide loan and deposit services to customers who are predominantly small businesses and individuals throughout
Montana. We are a diversified lender with a focus on residential mortgage loans, commercial real estate mortgage loans,
commercial business loans, agricultural loans and second mortgage/home equity loan products.
The Bank is headquartered at 1400 Prospect Avenue, Helena, Montana, 59601. Investor information for the Company may
be found at www.opportunitybank.com. The contents on or accessible through our website are not incorporated into this
report.
Recent Events
Acquisitions
As a continuing part of its growth strategy, the Company intends to enhance its market share in Montana through organic
growth and opportunistic acquisitions. Potential acquisitions are periodically evaluated by the Company's Merger
and Acquisition Committee.
In April 2022, the Company acquired First Community Bancorp, Inc. ("FCB"), a Montana corporation, and FCB's wholly-
owned subsidiary, First Community Bank, a Montana chartered commercial bank. In the transaction, Eagle acquired nine
retail bank branches and two loan production offices in Montana. The total consideration paid was $38.58 million and
included cash consideration of $10.23 million and common stock issued of $28.35 million.
In January 2020, the Company acquired Western Holding Company of Wolf Point, a Montana corporation (“WHC”), and
WHC’s wholly-owned subsidiary, Western Bank of Wolf Point, a Montana chartered commercial bank (“WB”) merged into
the Bank. In the transaction, Eagle acquired one retail branch in Wolf Point, Montana. The total consideration paid was $14.97
million and included cash consideration of $6.50 million and common stock issued of $8.47 million.
In January 2019, the Company acquired Big Muddy Bancorp, Inc. (“BMB”).This acquisition included four branches in
Townsend, Dutton, Denton and Choteau, Montana. The total consideration paid was $16.44 million of Eagle common stock
issued.
In January 2018, the Company acquired TwinCo, Inc. (“TwinCo”). This acquisition included two branches in Madison
County, Montana. The total consideration paid was $18.93 million and included cash consideration of $9.90 million and
common stock issued of $9.03 million.
Business Strategy
Our principal strategy is to continue our profitability through building a diversified loan portfolio and operating the Bank as
a full-service community bank that offers both retail and commercial loan and deposit products in all of its markets. We offer
mortgage loans, the majority of which are sold on the secondary market with loan servicing retained. We believe that this
focus will enable us to continue to grow our franchise, while maintaining our commitment to customer service, high asset
quality and sustained net earnings.
3
The following are the key elements of our business strategy:
● Continue to diversify our portfolio by emphasizing our growth in commercial real estate and commercial business
loans, including agricultural loans, as a complement to our single family residential real estate lending while
maintaining disciplined credit underwriting standards. As of December 31, 2022, commercial real estate and
commercial business loans constituted approximately 78.04% of total loans;
● Continue to emphasize the attraction and retention of lower cost core deposits;
● Seek opportunities where presented to acquire other institutions or expand our branch network through opening new
branches and/or loan production offices;
● Maintain our strong asset quality; and
● Operate as a community-oriented independent financial institution that offers a broad array of financial services with
high levels of customer service.
Our results of operations may be significantly affected by our ability to effectively implement our business strategy including
our plans for expansion through strategic acquisitions. If we are unable to effectively integrate and manage acquired or merged
businesses or attract significant new business through our branching efforts, our financial performance may be negatively
affected.
Market Areas
We conduct business through our headquarters in Helena, Montana, in addition to 30 other full-service branches located in
Ashland, Big Timber, Billings, Bozeman, Butte, Choteau, Culbertson, Denton, Dutton, Froid, Glasgow, Great Falls,
Hamilton, Helena, Hinsdale, Livingston, Missoula, Sheridan, Three Forks, Townsend, Twin Bridges, Winifred and Wolf
Point, Montana.
Montana is one of the largest states in terms of land mass but ranks as one of the least populated states. According to U.S.
Census Bureau data for 2020, it had a population of 1.08 million. Helena is Montana’s state capital and is the county seat of
Lewis and Clark County. It is located within 120 miles of four of Montana's other five largest cities: Missoula, Great Falls,
Bozeman and Butte, and is approximately midway between Yellowstone and Glacier National Parks. Significant contributors
to Montana's economy are agriculture, construction, energy production, forestry, healthcare, manufacturing, mining and the
service industry. Tourism is also a large part of Montana's economy and is highly influenced by national parks, ski resorts,
lakes and rural scenic areas.
The following table reflects our deposit market share and ranking by county:
County
Broadwater, MT
Cascade, MT
Fergus, MT
Gallatin, MT
Lewis and Clark, MT
Madison, MT
Missoula, MT
Park, MT
Ravalli, MT
Roosevelt, MT
Rosebud, MT
Silver Bow, MT
Sweet Grass, MT
Teton, MT
Valley, MT
Yellowstone, MT
(1) Source: FDIC.gov-data as of June 30, 2022.
4
Total Market Share
Percentage (1)
Deposit Market
Share Rank (1)
100.00 %
0.91
6.35
4.84
13.34
36.27
1.81
8.83
3.29
60.44
8.29
11.00
36.45
18.15
53.71
0.79
1
9
5
7
4
2
9
5
7
1
3
4
2
2
1
9
Competition
We face strong competition in our primary market areas for retail deposits and the origination of loans from both banks and
non-bank competitors. Historically, Montana was a unit banking state. This means that the ability of Montana state banks to
create branches was either prohibited or significantly restricted. As a result of unit banking, Montana has a significant number
of independent financial institutions serving a single community in a single location. While the state’s population is
approximately 1.12 million people, there are 45 credit unions in Montana as well as one state-chartered thrift institution and
37 commercial banks as of December 31, 2022. Our most direct competition for depositors has historically come from
national banks, super-regional banks, locally owned banks, nontraditional internet based banks, thrift institutions and credit
unions operating in our primary market areas. Competition in our primary market areas has increased in recent years. Our
competition for loans also comes from banks, thrifts, credit unions and government sponsored entities in addition to mortgage
bankers and brokers. Through successive acquisitions, the Company has entered several markets in Montana that are
predominantly reliant on agriculture. Accordingly, our lending activities in these markets focus on farm and ranch real estate,
annual operating lines of credit, and agriculture related term debt. Competition for agricultural loans comes from both
traditional Montana banks and an increasing number of nonbank lenders. These nonbank lenders range from government
sponsored entities to large national insurance companies.
Technological advances have made it possible for our competitors, including nonbank competitors, to offer products and
services that traditionally were banking products, and for financial institutions and other companies to provide electronic and
internet-based financial solutions, including online deposit accounts, electronic payment processing and marketplace lending,
without having a physical presence where their customers are located. In addition, many of our non-bank competitors are not
subject to the same extensive federal regulations that govern bank holding companies and federally insured banks. In many
cases, our competitors have substantially greater resources and lending limits and offer certain services that we do not
currently provide. Our principal market areas can be characterized as markets with moderately increasing incomes, relatively
low unemployment, increasing wealth (particularly in the growing resort areas such as Bozeman) and moderate population
growth.
Lending Activities
General
The Bank originates residential 1-4 family loans held for investment and originated for sale in the secondary market. The
banks also originates commercial real estate, home equity, consumer and commercial loans. Residential 1-4 family loans
include residential mortgages and construction of residential properties. Commercial real estate loans include loans on multi-
family dwellings, nonresidential property, commercial construction and development and farmland loans. Home equity loans
include loans secured by the borrower’s primary residence. Typically, the property securing such loans is subject to a prior
lien. Consumer loans consist of loans secured by collateral other than real estate, such as automobiles, recreational vehicles
and boats. Personal loans and lines of credit are made on deposits held by the Bank and on an unsecured basis. Commercial
business loans consist of business loans and lines of credit on a secured and unsecured basis and include agriculture production
loans.
Fee Income
The Bank receives lending related fee income from a variety of sources. Its principal source of this income is from the
origination and servicing of sold mortgage loans. Fees generated from mortgage loan servicing generally consist of collecting
mortgage payments, maintaining escrow accounts, disbursing payments to investors and foreclosure processing for loans held
by others. Mortgage loan servicing fees were $4.84 million and $4.10 million for the years ended December 31, 2022 and
2021, respectively. Other loan related fee income for late charges and other ancillary fees were $1.01 million and $839,000 for
the years ended December 31, 2022 and 2021, respectively.
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Residential 1-4 Family Loans
The Bank originates residential 1-4 family mortgage loans secured by property located in the Bank’s market areas. At
December 31, 2022, the Bank's balance of 1-4 family mortgage loans was $135.95 million or 10.03% of total loans. The Bank
generally originates residential 1-4 family mortgage loans in amounts of up to 80.0% of the lesser of the appraised value or
the selling price of the mortgaged property without requiring private mortgage insurance. A mortgage loan originated by the
Bank, whether fixed rate or adjustable rate, can have a term of up to 30 years. The Bank holds substantially all of its adjustable
rate and its 8, 10 and 12-year fixed rate loans in portfolio. Adjustable rate loans limit the periodic interest rate adjustment and
the minimum and maximum rates that may be charged over the term of the loan. The Bank’s fixed rate 15-year and 20-year
loans are held in portfolio or sold in the secondary market depending on market conditions. Generally, all 30-year fixed rate
loans are sold in the secondary market. The volume of loan sales is dependent on the volume, type and term of loan
originations, as well as market conditions.
The Bank derives a significant portion of its noninterest income from servicing of loans that it has sold. The Bank offers
many of the fixed rate loans it originates for sale in the secondary market on a servicing retained basis. This means that we
process the borrower’s payments and send them to the purchaser of the loan. This retention of servicing enables the Bank to
increase fee income and maintain a relationship with the borrower. At December 31, 2022, the Bank had $2.02 billion in
residential 1-4 family mortgage loans and $125.08 million in other loan categories sold with servicing retained. The Bank
does not ordinarily purchase home mortgage loans from other financial institutions.
Property appraisals on real estate securing the Bank’s single-family residential loans are made by state certified and licensed
independent appraisers who are approved annually by the Board. Appraisals are performed in accordance with applicable
regulations and policies. The Bank generally obtains title insurance policies on all first mortgage real estate loans originated.
On occasion, refinancing of mortgage loans are approved using title reports instead of title insurance. Title reports are also
allowed on home equity loans. Borrowers generally remit funds with each monthly payment of principal and interest, to a
loan escrow account from which the Bank makes disbursements for such items as real estate taxes and hazard and mortgage
insurance premiums as they become due.
The Bank also lends funds for the residential 1-4 family construction. Residential 1-4 family construction loans are made
both to individual homeowners for the construction of their primary residence and, to a lesser extent, to local builders for the
construction of pre-sold houses or houses that are being built for sale in the future. Residential 1-4 family construction loans
accounted for $59.76 million or 4.41% of the Bank’s total loan portfolio at December 31, 2022.
Commercial Real Estate Loans
The Bank originates commercial real estate loans including loans on multi-family dwellings. Commercial real estate loans
made up 39.76% of the Bank’s total loan portfolio, or $539.07 million at December 31, 2022. 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. Commercial real
estate loans are typically made with fixed rates of interest and 5 to 15-year maturities. Upon maturity, the loan is repaid or
the terms and conditions are renegotiated. Generally, all commercial real estate loans that we originate are secured by property
located in the state of Montana and within the market areas of the Bank. The Bank's largest single commercial real estate loan
at December 31, 2022 had an outstanding balance of $12.74 million and is collateralized by commercial real estate located
in Helena, Montana. At December 31, 2022, this loan is performing in accordance with its repayment terms.
The Bank also lends funds for commercial construction and development. Commercial construction and development loans
accounted for $151.15 million or 11.15% of the Bank’s total loan portfolio at December 31, 2022. In addition, the bank
originates loans secured by farm and ranch real estate. Farmland loans accounted for $136.33 million or 10.06% of the Bank’s
total loan portfolio at December 31, 2022.
Home Equity Loans
The Bank also originates home equity loans. These loans are secured by the borrowers’ primary residence, but are typically
subject to a prior lien, which may or may not be held by the Bank. At December 31, 2022, $74.27 million or 5.48% of our
total loans were home equity loans. Borrowers may use the proceeds from the Bank’s home equity loans for many purposes,
including home improvement, debt consolidation or other purchasing needs. The Bank offers fixed rate, fixed payment home
equity loans as well as variable and fixed rate home equity lines of credit. Fixed rate home equity loans typically have terms
of no longer than 15 years.
6
Home equity loans are secured by real estate but they have historically carried a greater risk than first lien residential
mortgages because of the existence of a prior lien on the property securing the loan, as well as the flexibility the borrower
has with respect to the loan proceeds. The Bank attempts to minimize this risk by maintaining conservative underwriting
policies on such loans. We generally make home equity loans for not more than 85.0% of appraised value of the underlying
real estate collateral, less the amount of any existing prior liens on the property securing the loan.
Consumer Loans
As part of its strategy to invest in higher yielding shorter term loans, the Bank emphasized growth of its consumer lending
portfolio in recent years. This portfolio includes personal loans secured by collateral other than real estate, unsecured personal
loans and lines of credit and loans secured by deposits held by the Bank. As of December 31, 2022, consumer loans totaled
$27.61 million or 2.04% of the Bank’s total loan portfolio. These loans consist primarily of auto loans, RV loans, boat loans,
personal loans and credit lines and deposit account loans. Consumer loans are originated in the Bank’s market areas and
generally have maturities of up to 7 years. For loans secured by savings accounts, the Bank will lend up to 90.0% of the
account balance on single payment loans and up to 100.0% for monthly payment loans.
Consumer loans have a shorter term and generally provide higher interest rates than residential loans. Consumer loans can be
helpful in improving the spread between average loan yield and cost of funds and at the same time improve the matching of
the maturities of rate sensitive assets and liabilities.
The underwriting standards employed by the Bank for consumer loans include a determination of the applicant’s credit history
and an assessment of the applicant’s ability to meet existing obligations and payments on the proposed loan. The stability of
the applicant’s monthly income may be determined by verification of gross monthly income from primary employment, and
additionally from any verifiable secondary income. Creditworthiness of the applicant is of primary consideration; however,
the underwriting process also includes a comparison of the value of the collateral in relation to the proposed loan amount.
Commercial Loans
Commercial business loans amounted to $127.26 million, or 9.39% of the Bank’s total loan portfolio at December 31,
2022. Agricultural production loans amounted to $104.04 million, or 7.68% of the Bank’s total loan portfolio at December
31, 2022. The Bank’s commercial business loans are traditional business loans and are not secured by real estate. Such loans
may be structured as unsecured lines of credit or may be secured by inventory, accounts receivable or other business assets.
Agricultural operating loans are generally secured with equipment, cattle, crops or other non-real property and at times the
underlying real property.
Commercial business loans of this nature usually involve greater credit risk than residential 1-4 family loans. The collateral
we receive is typically related directly to the performance of the borrower’s business which means that repayment of
commercial business loans is dependent on the successful operations and income stream of the borrower’s business. Such
risks can be significantly affected by economic conditions. In addition, commercial lending generally requires substantially
greater oversight efforts compared to residential real estate lending.
Loans to One Borrower
Under Montana law, commercial banks such as the Bank, are subject to certain exemptions and are allowed to select the
Office of the Comptroller of the Currency (“OCC”) formula used to determine limits on credit concentrations to single
borrowers to an amount equal to 15.0% of the institution’s total capital. As of December 31, 2022, the Bank’s limit to a single
borrower was $30.44 million. Our largest aggregation of loans to one borrower was approximately $28.00 million at
December 31, 2022. The total amount subject to the lending limit at December 31, 2022 was $63.82 million. This consisted
of seven loans: six commercial real estate loans each secured by a single property and one construction loan secured by a
single property. The first commercial real estate loan had a principal balance of $1.53 million at December 31, 2022. As of
December 31, 2022, the principal balance on the second commercial real estate loan was $209,000. The third commercial
real estate loan had a principal balance of $272,000 as of December 31, 2022. However, another bank is 50.0% participating
in this loan for $272,000. The fourth commercial real estate loan had a principal balance of $12.74 million as of December
31, 2022. The fifth commercial real estate loan had a principal balance of $3.95 million as of December 31, 2022.The sixth
commercial real estate loan had a principal balance of $9.26 million as of December 31, 2022. The seventh construction loan
had a principal balance of $123,000 as of December 31, 2022. However, another bank is 50.0% participating in this loan for
$123,000. At December 31, 2022, these loans were performing in accordance with their terms. The Bank maintains the
servicing for these loans.
7
Loan Solicitation and Processing
Our customary sources of mortgage loan applications include repeat customers, walk-ins and referrals from home builders
and real estate brokers. We also advertise in local newspapers and on local radio and television. We currently have the ability
to accept online mortgage loan applications through our website. Our branch managers and loan officers located at our
headquarters and in branches, have authority to approve certain types of loans when presented with a completed application.
Other loans must be approved at our main offices as disclosed below. Loan consultants or loan brokers are generally
not utilized for either residential or commercial lending activities.
After receiving a loan application from a prospective borrower, a credit report and verifications are obtained to confirm
specific information relating to the loan applicant’s employment, income and credit standing. When required by our policies,
an appraisal of the real estate intended to secure the proposed loan is undertaken by an independent fee appraiser. In
connection with the loan approval process, our staff analyzes the loan applications and the property involved. Officers and
branch managers are granted lending authority based on the nature of the loan and the managers’ level of experience. We
have established a series of loan committees to approve any loans which may exceed the lending authority of particular
officers or branch managers. Three Directors of the Board are required for approval of any loan, or aggregation of loans to a
single borrower, that currently exceeds $7.50 million.
Loan applicants are promptly notified of the decision by a letter setting forth the terms and conditions of the decision. If
approved, these terms and conditions include the amount of the loan, interest rate basis, amortization term, a brief description
of real estate to be mortgaged, tax escrow and the notice of requirement of insurance coverage to be maintained. We generally
require title insurance on first mortgage loans and fire and casualty insurance on all properties securing loans, which insurance
must be maintained during the entire term of the loan.
Loan Commitments
We generally provide commitments to fund fixed and adjustable-rate single-family mortgage loans for periods up to 60 days
at a specified term and interest rate, and other loan categories for shorter time periods. The total amount of loans in process
of origination for sale into the secondary market with interest rate lock commitments was $18.60 million as of December 31,
2022.
Investment Activities
General
State-chartered commercial banks such as the Bank have the authority to invest in various types of investment securities,
including United States Treasury obligations, securities of various Federal agencies (including securities collateralized by
mortgages), certificates of deposits of insured banks and savings institutions, municipal securities, corporate debt securities
and loans to other banking institutions.
Eagle maintains liquid assets that may be invested in specified short-term securities and other investments. Liquidity levels
may be increased or decreased depending on the yields on investment alternatives. They may also be increased based on
management’s judgment as to the attractiveness of yields available in relation to other opportunities. Liquidity levels can also
change based on management’s expectation of future yield levels, as well as management’s projections as to the short-term
demand for funds to be used in the Bank’s loan origination and other activities.
Investment Policies
The investment policy of Eagle, which is established by the Board, is designed to foster earnings and liquidity within prudent
interest rate risk guidelines, while complementing the Bank’s lending activities. The policy provides for available-for-sale
(including those accounted for under ASC Topic 825), held-to-maturity and trading classifications. However, Eagle currently
does not hold any securities for purposes of trading or held-to-maturity. The policy permits investments in high credit quality
instruments with diversified cash flows while permitting us to maximize total return within the guidelines set forth in our
interest rate risk and liquidity management policies. Permitted investments include but are not limited to U.S. government
obligations, government agency or government-sponsored agency obligations, state, county and municipal obligations, asset-
backed securities and mortgage-backed securities (“MBSs”). Collateralized mortgage obligations (“CMOs”), investment
grade corporate debt securities and commercial paper are also included.
8
Our investment policy also includes several specific guidelines and restrictions to ensure adherence with safe and sound
activities. The policy prohibits investments in high-risk mortgage derivative products (as defined within the policy) without
prior approval from the Board. To secure such approval, management must demonstrate the business advantage of such
investments.
We do not participate in the use of off-balance sheet derivative financial instruments, except interest rate caps and floors.
Further, Eagle does not invest in securities which are not rated investment grade at time of purchase.
The Board, through its asset/liability committee, has charged the President and CEO with implementation of the investment
policy. All transactions are reported to the Board monthly, as well as the current composition of the portfolio, including
market values and unrealized gains and losses.
Sources of Funds
General
Deposits are the major source of our funds for lending and other investment purposes. Borrowings are also used to compensate
for reductions in the availability of funds from other sources. In addition to deposits and borrowings, we derive funds from
loans and investment securities principal payments. Funds are also derived from proceeds for the maturity, call and sale of
investment securities and from the sale of loans. Loan and investment securities principal payments are a relatively stable
source of funds, while loan prepayments and deposit inflows are significantly influenced by general interest rates and financial
market conditions.
Deposits
We offer a variety of deposit accounts. Deposit account terms vary, primarily as to the required minimum balance amount,
the amount of time that the funds must remain on deposit and the applicable interest rate.
Our current deposit products include certificates of deposit accounts ranging in terms from 90 days to five years, as well as,
checking, savings and money market accounts. Individual retirement account (“IRA”) certificates are included in certificates
of deposit. The Bank may also enter into fixed rate brokered certificates when rates are competitive with other funding
sources.
Deposits are obtained primarily from residents of Montana. We believe we are able to attract deposit accounts by offering
outstanding service, competitive interest rates, convenient locations and service hours. We use traditional methods of
advertising to attract new customers and deposits, including radio, television, print media advertising, and sales training.
Management believes that nonresidents of Montana hold an insignificant number and amount of deposit accounts.
We pay interest rates on deposits which are competitive in our market. Interest rates on deposits are set by senior management,
based on a number of factors, including: projected cash flow; a current survey of a selected group of competitors’ rates for
similar products; external data which may influence interest rates; investment opportunities and loan demand; and scheduled
certificate maturities and loan and investment repayments.
Borrowings
Deposits are the primary source of funds for our lending and investment activities and for general business purposes.
However, as the need arises, or in order to take advantage of funding opportunities, we also borrow funds in the form of
advances from FHLB of Des Moines ("FHLB") to supplement our supply of lendable funds and to meet deposit withdrawal
requirements. We have Federal funds lines of credit with Pacific Coast Bankers Bank (“PCBB”), PNC Financial Services
Group, Inc. (“PNC”), United Bankers’ Bank (“UBB”) and Texas Independent Bank ("TIB"). Our Federal funds line of credit
with Zions Bank was terminated during 2021. In addition, Eagle has a line of credit with Bell Bank.
9
In January 2022, the Company completed the issuance of $40.00 million in aggregate principal amount of subordinated notes
due in 2032 in a private placement transaction to certain institutional accredited investors and qualified buyers. The notes
bear interest at an annual fixed rate of 3.50% payable semi-annually. Starting February 1, 2027, interest will accrue at a
floating rate per annum equal to a benchmark rate, which is expected to be three-month term Secured Overnight Financing
Rate ("SOFR") plus a spread of 218.0 basis points, payable quarterly. The notes are subject to redemption at the option of the
Company on or after February 1, 2027. A portion of the net proceeds were used to redeem $10.00 million of senior notes due
in February 2022. In June 2020, the Company completed the issuance of $15.00 million in aggregate principal amount of
subordinated notes due in 2030 in a private placement transaction to certain qualified institutional accredited investors. The
notes bear interest at an annual fixed rate of 5.50%. Starting July 1, 2025, interest will accrue at a floating rate per annum
equal to a benchmark rate, which is expected to be the three-month term SOFR plus a spread of 509.0 basis points. In February
2017, the Company completed the issuance, through a private placement, of $10.00 million aggregate principal amount of
5.75% fixed senior unsecured notes due in 2022. These notes were redeemed in February 2022 with proceeds from the
subordinated notes issued in January 2022. In September 2005, our predecessor entity formed a special purpose subsidiary,
Eagle Bancorp Statutory Trust I (the “Trust”), for the purpose of issuing trust preferred securities in the amount of $5.16
million. Our predecessor entity issued subordinated debentures to the Trust, and the coupon on the debentures matches the
dividend payment on the trust preferred securities. Upon the closing of the second-step conversion and reorganization, we
assumed the obligations of our predecessor in connection with the subordinated debentures and trust preferred securities.
Subsidiary Activity
We are permitted to invest in the capital stock of, or originate secured or unsecured loans to, subsidiary corporations. The
following are subsidiaries of the Company: Opportunity Bank of Montana, Eagle Bancorp Statutory Trust I, Western
Financial Services, Inc. and Opportunity Housing Fund, LLC, which is a subsidiary of the Bank.
Employees and Human Capital Resources
As of December 31, 2022, we had 399 full-time employees and 29 part-time employees. The employees are not represented
by a collective bargaining unit. We believe our relationship with our employees to be good. The Board of Directors oversees
the strategic management of our human capital resources. The Human Resources Department's day-to-day responsibility is
managing our human capital resources.
Opportunity Bank of Montana is committed to providing equal employment opportunity and maintaining an environment
that encourages appropriate conduct among all persons and fosters respect for and inclusion of individuals with diverse
perspectives, work experiences, lifestyles, and cultures. Embracing equal employment opportunity and the diversity and
inclusion of our workforce helps the Bank achieve its mission and each of us to live our core values.
Retention and Benefits
Employee retention helps us operate efficiently and achieve one of our business objectives, which is being a high-level service
provider. We believe our commitment to living out our core values, actively prioritizing concern for our employees’ well-
being, supporting our employees’ career goals, offering competitive wages and providing valuable benefits aids in retention
of our top-performing employees. We promote the health and wellness of our employees and strive to keep the employee
portion of health care premiums to a minimum. In addition, nearly all of our employees are shareholders of the Company
through participation in our ESOP, which aligns employee and shareholder interests by providing stock ownership on a tax-
deferred basis at no investment cost to our employees.
Growth and Development
We believe that the success of our business is largely due to the quality of our employees, the development of each employee's
full potential, and our ability to provide timely and satisfying recognition and rewards. Amid a competitive labor market, we
continue to develop and deliver job specific training programs, leadership and coaching opportunities, career development
opportunities including tuition reimbursement, and the retention of top talent through succession planning. Whenever
possible, we strive to fill vacancies from within. In addition, our internship programs, in partnership with state colleges and
technical schools, help ensure a steady pipeline of accomplished talent.
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Health and Safety
The safety, health and wellness of our employees is a top priority. Robust wellness initiatives supporting a healthy lifestyle
are encouraged through an established employee wellness program. All employees and their dependents have access to an
employee assistance program which provides expert referrals and consultation in support of mental well-being.
The COVID-19 pandemic presented a unique challenge with regard to maintaining employee safety while continuing
successful operations. Through teamwork and the adaptability of our management and staff, we were able to transition during
the peak of the pandemic, over a short period of time, to rotational work schedules allowing employees to effectively work
from remote locations and ensure a safely-distanced working environment for employees performing customer facing
activities at branches. All employees are encouraged to stay at home or work from home if they are experiencing signs or
symptoms of a possible illness.
Community Involvement
Employees are encouraged to become involved in their communities and are offered paid time off for participating in bank-
sponsored events. Employees may also take 12 hours of paid time off per calendar year during normal working hours for
individual volunteer efforts.
Regulation
Set forth below is a brief description of certain laws and regulations applicable to Eagle and the Bank. These descriptions of
laws and regulations as well as those contained elsewhere do not purport to be complete and are qualified in their entirety by
reference to applicable laws and regulations. Legislative or regulatory changes in the future could adversely affect our
operations or financial condition.
General
As a state-chartered commercial bank, the Bank is subject to extensive regulation, examination and supervision by the Federal
Reserve Bank of Minneapolis ("FRB") and Montana Division of Banking and Financial Institutions. The Bank is a member
of the FRB System and its deposit accounts are insured up to applicable limits by the Deposit Insurance Fund, which is
administered by the Federal Deposit Insurance Corporation (“FDIC”). There are periodic examinations to evaluate the Bank’s
safety and soundness and compliance with various regulatory requirements. Under certain circumstances, the FDIC may also
examine the Bank. This regulatory structure is intended primarily for the protection of the insurance fund and depositors. The
regulatory structure also gives the regulatory authorities extensive discretion in connection with their supervisory and
enforcement activities and examination policies, including policies with respect to the classification of assets and the
establishment of adequate allowance for loan losses for regulatory purposes. Eagle, as a bank holding company, is required
to file certain reports with, and is subject to examination by, and must otherwise comply with the rules and regulations of the
FRB. Eagle is also subject to the rules and regulations of the Securities and Exchange Commission (“SEC”) under the federal
securities laws. See Holding Company Regulation section below.
Federal Regulation of Commercial Banks
General
Deposits in the Bank, a Montana state-chartered commercial bank, are insured by the FDIC. The bank has no branches in any
other state. The Bank is subject to regulation and supervision by the Montana Department of Administration’s Banking and
Financial Institutions Division and the FRB. The federal laws that apply to the Bank regulate, among other things, the scope
of its business, its investments, its reserves against deposits, the timing of the availability of deposited funds, and the nature,
amount of, and collateral for loans. Federal laws also regulate community reinvestment and insider credit transactions and
impose safety and soundness standards.
The Bank’s general permissible lending limit for loans-to-one-borrower is 15.0% of unimpaired capital and surplus. An
additional amount may be lent, equal to 10.0% of total capital, if the loan is fully secured by certain readily marketable
collateral, which is defined to include certain financial instruments and bullion, but generally does not include real estate.
11
The federal banking agencies, have adopted guidelines establishing safety and soundness standards on such matters as loan
underwriting and documentation, asset quality, earnings standards, internal controls and audit systems, interest rate risk
exposure and compensation and other employee benefits. If the appropriate federal banking agency determines that an
institution fails to meet any standard prescribed by the guidelines, the agency may require the institution to submit to the
agency an acceptable plan to achieve compliance with the standard. If an institution fails to submit or implement an acceptable
plan, the appropriate federal banking agency may issue an enforceable order requiring correction of the deficiencies.
Federal Home Loan Bank System
The Bank is a member of the FHLB of Des Moines. FHLB of Des Moines is one of 11 regional FHLBs that administer the
home financing credit function of banks, credit unions and savings institutions. Each FHLB serves as a reserve or central
bank for its members within its assigned region. It is funded primarily from proceeds derived from the sale of consolidated
obligations of the FHLB System. It makes loans or advances to members in accordance with policies and procedures,
established by the Board of Directors of the FHLB, which are subject to the oversight of the Federal Housing Finance Board.
All advances from the FHLB are required to be fully secured by sufficient collateral as determined by the FHLB. In addition,
all long-term advances are required to provide funds for residential home financing. As a member, the Bank is required to
purchase and maintain a specified amount of shares of capital stock in the FHLB of Des Moines.
The FHLBs continue to contribute to low- and moderately-priced housing programs through direct loans or interest subsidies
on advances targeted for community investment and low- and moderate-income housing projects. These contributions have
affected adversely the level of FHLB dividends paid and could continue to do so in the future. These contributions could also
have an adverse effect on the value of FHLB stock in the future. A reduction in value of the Bank’s FHLB stock may result
in a corresponding reduction in the Bank’s capital.
Federal Reserve System
The Federal Reserve System requires all depository institutions to maintain noninterest-bearing reserves at specified levels
against their checking and non-personal time deposits. The balances maintained to meet the reserve requirements imposed
by the Federal Reserve System may be used to satisfy liquidity requirements.
As a member of the Federal Reserve System, the Bank is required to maintain a minimum level of investment in FRB stock
based on a specific percentage of its capital and surplus. A reduction in value of the Bank’s FRB stock may result in a
corresponding reduction in the Bank’s capital.
Insurance of Deposit Accounts
Deposit accounts at the Bank are insured by the FDIC, generally up to a maximum of $250,000 per separately insured
depositor and up to a maximum of $250,000 for self-directed retirement accounts. The Bank’s deposits, therefore, are subject
to FDIC deposit insurance assessments. Assessments paid to the FDIC by the Bank and other banking institutions are used
to fund the FDIC’s Federal Deposit Insurance Fund.
Insurance of Accounts and Regulation by the FDIC
As insurer of deposits in banks, the FDIC imposes deposit insurance premiums and is authorized to conduct examinations of
and to require reporting by FDIC-insured institutions. It also may prohibit any FDIC-insured institution from engaging in any
activity the FDIC determines by regulation or order to pose a serious risk to the fund. The FDIC also has the authority to
initiate enforcement actions against savings institutions, after giving FRB an opportunity to take such action. Insurance of
deposits may be terminated by the FDIC upon a finding that the institution has engaged in unsafe or unsound practices, is in
an unsafe or unsound condition to continue operations or has violated any applicable law, regulation, rule, order or condition
imposed by the FDIC or written agreement with the FDIC. We are not aware of any practice, condition or violation that might
lead to the termination of the Bank’s deposit insurance.
The FDIC assesses deposit insurance premiums on each insured institution quarterly based on annualized rates for one of
four risk categories. The assessment base for calculating deposit insurance assessments is an institution's average total assets
minus its average tangible equity (defined as Tier 1 capital). Under the FDIC’s risk-based assessment system, insured
institutions are assigned to one of four risk categories based on supervisory evaluations, regulatory capital levels and certain
other risk factors. Rates are based on each institution’s risk category and certain specified risk adjustments. Stronger
institutions pay lower rates while riskier institutions pay higher rates. The assessment rate schedule establishes assessments
ranging from 2.5 to 45 basis points. The FDIC may increase or decrease its rates for each quarter by 2 basis points without
further rulemaking. In an emergency, the FDIC may also impose a special assessment.
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A significant increase in insurance premiums would likely have an adverse effect on the operating expenses and results of
operations of the Bank. There can be no prediction as to what insurance assessment rates will be in the future. In addition to
the assessment for deposit insurance, through 2019, institutions were required to make payments on bonds issued in the late
1980s by the Financing Corporation to recapitalize a predecessor deposit insurance fund.
Capital Requirements
Federal regulations require Federal Reserve member banks, such as Opportunity Bank of Montana and all other FDIC insured
depository institutions to meet several minimum capital standards: a common equity Tier 1 capital to risk-based assets ratio
of 4.5%, a Tier 1 capital to risk-based assets ratio of 6.0%, a total capital to risk-based assets of 8.0%, and a 4.0% Tier 1
capital to total average assets leverage ratio.
Common equity Tier 1 capital is generally defined as common stockholders’ equity and retained earnings. Tier 1 capital is
generally defined as common equity Tier 1 and additional Tier 1 capital. Additional Tier 1 capital includes certain
noncumulative perpetual preferred stock and related surplus and minority interests in equity accounts of consolidated
subsidiaries. Total capital includes Tier 1 capital (common equity Tier 1 capital plus additional Tier 1 capital) and Tier 2
capital. Tier 2 capital is comprised of capital instruments and related surplus meeting specified requirements, and may include
cumulative preferred stock and long-term perpetual preferred stock, mandatory convertible securities, intermediate preferred
stock and subordinated debt. Also included in Tier 2 capital is the allowance for loan losses limited to a maximum of 1.25%
of risk-weighted assets and, for institutions that have exercised an opt-out election regarding the treatment of accumulated
other comprehensive income (“AOCI”), up to 45% of net unrealized gains on available-for-sale equity securities with readily
determinable fair market values. Institutions that have not exercised the AOCI opt-out have AOCI incorporated into common
equity Tier 1 capital (including unrealized gains and losses on available-for-sale-securities). The Bank exercised its AOCI
opt-out election. Calculation of all types of regulatory capital is subject to deductions and adjustments specified in the
regulations.
In determining the amount of risk-weighted assets for purposes of calculating risk-based capital ratios, all assets, including
certain off-balance sheet assets (e.g., recourse obligations, direct credit substitutes, residual interests) are multiplied by a risk
weight factor assigned by the regulations based on the risks believed inherent in the type of asset. Higher levels of capital are
required for asset categories believed to present greater risk. For example, a risk weight of 0% is assigned to cash and U.S.
government securities, a risk weight of 50% is generally assigned to prudently underwritten first lien 1-4 family residential
mortgage loans, a risk weight of 100% is assigned to commercial and consumer loans, a risk weight of 150% is assigned to
certain past due loans and a risk weight of between 0% to 600% is assigned to permissible equity interests, depending on
certain specified factors.
In addition to establishing the minimum regulatory capital requirements, the regulations limit capital distributions and certain
discretionary bonus payments to management if the institution does not hold a “capital conservation buffer” consisting of
2.5% of common equity Tier 1 capital to risk-weighted assets above the amount necessary to meet each of its minimum risk-
based capital requirements. The capital conservation buffer requirement was phased in beginning January 1, 2016 until fully
implemented at 2.5% on January 1, 2019. The Bank’s actual capital ratios are set out in Item 7. “Management’s Discussion
and Analysis of Financial Condition and Results of Operations.”
Prompt Corrective Action
Federal law establishes a prompt corrective action framework to resolve the problems of undercapitalized depository
institutions. The Federal Reserve has adopted regulations to implement the prompt corrective action legislation. Those
regulations were amended effective January 1, 2015 to incorporate the previously mentioned increased regulatory capital
standards that were effective on the same date. An institution is deemed to be “well capitalized” if it has a total risk-based
capital ratio of 10.0% or greater, a Tier 1 risk-based capital ratio of 8.0% or greater, a leverage ratio of 5.0% or greater and a
common equity Tier 1 ratio of 6.5% or greater. An institution is “adequately capitalized” if it has a total risk-based capital
ratio of 8.0% or greater, a Tier 1 risk-based capital ratio of 6.0% or greater, a leverage ratio of 4.0% or greater and a common
equity Tier 1 ratio of 4.5% or greater. An institution is “undercapitalized” if it has a total risk-based capital ratio of less than
8.0%, a Tier 1 risk-based capital ratio of less than 6.0%, a leverage ratio of less than 4.0% or a common equity Tier 1 ratio
of less than 4.5%. An institution is deemed to be “significantly undercapitalized” if it has a total risk-based capital ratio of
less than 6.0%, a Tier 1 risk-based capital ratio of less than 4.0%, a leverage ratio of less than 3.0% or a common equity Tier
1 ratio of less than 3.0%. An institution is considered to be “critically undercapitalized” if it has a ratio of tangible equity (as
defined in the regulations) to total assets that is equal to or less than 2.0%.
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Generally, a receiver or conservator must be appointed for an institution that is “critically undercapitalized” within specific
time frames. The regulations also provide that a capital restoration plan must be filed with the FDIC within 45 days of the
date a commercial bank receives notice that it is “undercapitalized,” “significantly undercapitalized” or “critically
undercapitalized.” Various restrictions, such as restrictions on capital distributions and growth, also apply to
“undercapitalized” institutions. The Federal Reserve may also take any one of a number of discretionary supervisory actions
against undercapitalized institutions, including the issuance of a capital directive and the replacement of senior executive
officers and directors.
The Bank was classified as “well-capitalized” under the prompt corrective action framework as of December 31, 2022.
Limitations on Capital Distributions
A principal source of the parent holding company’s cash is from dividends received from the Bank, which are subject to
government regulation and limitation. Regulatory authorities may prohibit banks and bank holding companies from paying
dividends in a manner that would constitute an unsafe or unsound banking practice. In addition, a bank may not pay cash
dividends if that payment could reduce the amount of its capital below that necessary to meet minimum applicable regulatory
capital requirements. The Bank is subject to Montana state law and, in certain circumstances, Montana law places limits or
restrictions on a bank’s ability to declare and pay dividends. Additionally, current guidance from the FRB provides, among
other things, that dividends per share on the Company’s common stock generally should not exceed earnings per common
share, measured over the previous four fiscal quarters. Federal regulations also limit banks’ ability to issue dividends by
imposing a capital conservation buffer requirement.
Transactions with Affiliates
The Bank’s authority to engage in transactions with “affiliates” is limited by regulations and by Sections 23A and 23B of the
Federal Reserve Act as implemented by the FRB’s Regulation W. The term “affiliates” for these purposes generally means
any company that controls or is under common control with an institution. Eagle and the Bank are separate and distinct legal
entities. Eagle is an affiliate of the Bank. In general, transactions with affiliates must be on terms that are as favorable to the
institution as comparable transactions with non-affiliates. In addition, certain types of transactions, i.e. “covered transactions,”
are restricted to an aggregate percentage of the institution’s capital. Collateral in specified amounts must be provided by
affiliates in order to receive loans from an institution. In addition, banks are prohibited from lending to any affiliate that is
engaged in activities that are not permissible for bank holding companies and no bank may purchase the securities of any
affiliate other than a subsidiary.
Our authority to extend credit to executive officers, directors and 10.0% or greater shareholders (“insiders”), as well as entities
controlled by these persons, is governed by Sections 22(g) and 22(h) of the Federal Reserve Act and its implementing
regulation, FRB Regulation O. Among other things, loans to insiders must be made on terms substantially the same as those
offered to unaffiliated individuals and not involve more than the normal risk of repayment. There is an exception for bank-
wide lending programs that do not discriminate in favor of insiders. Regulation O also places individual and aggregate limits
on the amount of loans that may be made to insiders based, in part, on the institution’s capital position, and requires that
certain prior board approval procedures be followed. Extensions of credit to executive officers are subject to additional
restrictions on the types and amounts of loans that may be made. At December 31, 2022, we were in compliance with these
regulations.
Holding Company Regulation
General
Eagle is a bank holding company subject to regulatory oversight of the FRB. Eagle is required to register and file reports with
the FRB and is subject to regulation and examination by the FRB. In addition, the FRB has enforcement authority over Eagle
and its nonbank institution subsidiaries which also permits the FRB to restrict or prohibit activities that are determined to
present a serious risk to the Bank.
Mergers and Acquisitions
Eagle must obtain approval from the FRB before acquiring more than 5.0% of the voting stock of another bank or bank
holding company or acquiring such an institution or holding company by merger, consolidation or purchase of its assets. In
evaluating an application for Eagle to acquire control of a bank, the FRB would consider the financial and managerial
resources and future prospects of Eagle and the target institution, the effect of the acquisition on the risk to the Deposit
Insurance Fund, the convenience and the needs of the community and competitive factors.
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Eagle obtained the necessary approvals from the FRB and the Montana Division of Banking and Financial Institutions before
acquiring each of its previous acquisitions.
Acquisition of Eagle
Under the Bank Holding Company Act and the Change in Bank Control Act, a notice or application must be submitted to the
FRB if any person (including a company), or a group acting in concert, seeks to acquire 10.0% or more of Eagle’s outstanding
voting stock, unless the FRB has found that the acquisition will not result in a change in control of Eagle. In acting on such
a notice or application, the FRB must take into consideration certain factors, including the financial and managerial resources
of the acquirer and the anti-trust effect of the acquisition. Any company that acquires control will be subject to regulation as
a bank holding company.
Federal Securities Laws
Eagle’s common stock is registered with the SEC under the Exchange Act. We are subject to the information, proxy
solicitation, insider trading restrictions and other requirements under the Exchange Act. Our Annual Reports on Form 10-K,
Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and all amendments to those reports, and proxy statements
filed with or furnished to the SEC, are available free of charge through our Internet website, www.opportunitybank.com, as
soon as reasonably practical after we have electronically filed such material with, or furnished it to, the SEC. The SEC
maintains an Internet site that contains reports, proxy and information statements and other information regarding issuers that
file electronically with the SEC at www.sec.gov. The contents on or accessible through, these websites are not incorporated
into this filing. Further, our references to the URLs for these websites are intended to be inactive textual references only.
Sarbanes-Oxley Act of 2002
The Sarbanes-Oxley Act addresses, among other issues, corporate governance, auditing and accounting, executive
compensation and enhanced and timely disclosure of corporate information. As directed by the Sarbanes-Oxley Act, our
Chief Executive Officer and Chief Financial Officer are required to certify that our quarterly and annual reports do not contain
any untrue statement of a material fact. The rules adopted by the Securities and Exchange Commission under the Sarbanes-
Oxley Act have several requirements, including having these officers certify that: they are responsible for establishing,
maintaining and regularly evaluating the effectiveness of our internal control over financial reporting; they have made certain
disclosures to our auditors and the audit committee of the board of directors about our internal control over financial reporting;
and they have included information in our quarterly and annual reports about their evaluation and whether there have been
changes in our internal control over financial reporting or in other factors that could materially affect internal control over
financial reporting.
ITEM 1A.
RISK FACTORS
Risks Related to Economic and Market Conditions
Our business may be adversely affected by conditions in the financial markets and economic conditions generally and
in our market areas in particular.
Our financial performance generally, and in particular the ability of our borrowers to pay interest on and repay principal of
outstanding loans and the value of collateral securing those loans, as well as demand for loans and other products and services
we offer and whose success we rely on to drive our future growth, is highly dependent upon the business environment in the
markets in which we operate, principally in Montana, and in the United States as a whole. Unlike larger banks that are more
geographically diversified, we provide banking and financial services to customers primarily in Montana. The economic
conditions in our local markets may be different from, and in some instances worse than, the economic conditions in the
United States as a whole. Some elements of the business environment that affect our financial performance include short-
term and long-term interest rates, the prevailing yield curve, inflation and price levels, monetary policy, unemployment and
strength of the domestic economy and local economy in the markets in which we operate. Unfavorable market conditions can
result in deterioration in the credit quality of our borrowers and the demand for our products and services, an increase in the
number of loan delinquencies, defaults and charge-offs, additional provisions for loan losses, adverse asset values and an
overall material adverse effect on the quality of our loan portfolio. Unfavorable or uncertain economic and market conditions
can be caused by declines in economic growth, business activity or investor or business confidence; limitations on the
availability or increases in the cost of credit and capital; increases in inflation or interest rates; high unemployment; natural
disasters; state or local government insolvency; or a combination of these or other factors.
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In recent years, economic growth and business activity across a wide range of industries and regions in the U.S. has been
slow and uneven. There are continuing concerns related to the level of U.S. government debt and fiscal actions that may be
taken to address that debt, further declining oil prices and ongoing federal budget negotiations that may have a destabilizing
effect on financial markets. There can be no assurance that economic conditions will continue to improve, and these
conditions could worsen. Economic pressure on consumers and uncertainty regarding continuing economic improvement
may result in changes in consumer and business spending, borrowing and saving habits. Such conditions could have a material
adverse effect on the credit quality of our loans or our business, financial condition or results of operations.
Additionally, financial markets may be adversely affected by the current or anticipated impact of military conflict, including
escalating military tension between Russia and Ukraine, terrorism and other geopolitical events.
Our success depends, to a certain extent, upon global, domestic and local economic and political conditions, as well as
governmental monetary policies. Conditions such as changes in interest rates, money supply, levels of employment and other
factors beyond our control may have a negative impact on economic activity. Any contraction of economic activity, including
an economic recession, may adversely affect our asset quality, deposit levels and loan demand and, therefore, our earnings.
In particular, interest rates are highly sensitive to many factors that are beyond our control, including global, domestic and
local economic conditions and the policies of various governmental and regulatory agencies and, specifically, the Federal
Reserve. Throughout 2022 the Federal Open Market Committee (“FOMC”) raised the target range for the federal funds rate
on seven separate occasions and-citing factors including the hardships caused by the ongoing Russia-Ukraine conflict,
continued global supply chain disruptions and imbalances, and increased inflationary pressure-the FOMC has indicated that
ongoing increases may be appropriate.
The tightening of the Federal Reserve’s monetary policies, including repeated and aggressive increases in target range for the
federal funds rate as well as the conclusion of the Federal Reserve’s tapering of asset purchases, together with ongoing
economic and geopolitical instability, increases the risk of an economic recession. Although forecasts have varied, many
economists are projecting that U.S. economic growth will slow and inflation will remain elevated in the coming quarters,
potentially resulting in a contraction of U.S. gross domestic output in 2023. Any such downturn, especially domestically and
in the regions in which we operate, may adversely affect our asset quality, deposit levels, loan demand and results of
operations.
As a result of the economic and geopolitical factors discussed above, financial institutions also face heightened credit risk,
among other forms of risk. Of note, because we have a significant amount of real estate loans, decreases in real estate values
could adversely affect the value of property used as collateral, which, in turn, can adversely affect the value of our loan and
investment portfolios. Adverse economic developments, specifically including inflation-related impacts, may have a negative
effect on the ability of our borrowers to make timely repayments of their loans or to finance future home purchases. Moreover,
while commercial real estate values have stabilized as demand has returned to pre-pandemic levels in several markets, the
outlook for commercial real estate remains dependent on the broader economic environment and, specifically, how major
subsectors respond to a rising interest rate environment and higher prices for commodities, goods and services. In each case,
credit performance over the medium- and long-term is susceptible to economic and market forces and therefore forecasts
remain uncertain. Instability and uncertainty in the commercial and residential real estate markets, as well as in the broader
commercial and retail credit markets, could have a material adverse effect on our financial condition and results of operations.
Declines in home values could decrease our loan originations and increase delinquencies and defaults.
Declines in home values in our markets could adversely impact results from operations. Like all financial institutions, we are
subject to the effects of any economic downturn, and in particular, a significant decline in home values would likely lead to
a decrease in new home equity loan originations and increased delinquencies and defaults in both the consumer home equity
loan and residential real estate loan portfolios and result in increased losses in these portfolios. Declines in the average sale
prices of homes in our primary markets could lead to higher loan losses.
Changes in interest rates could adversely affect our results of operations and financial condition.
Our results of operations and financial condition are significantly affected by changes in interest rates. Our results of
operations depend substantially on our net interest income, which is the difference between the interest income we earn on
our interest-earning assets, such as loans and securities, and the interest expense we pay on our interest-bearing liabilities,
such as deposits, borrowings and trust preferred securities.
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Changes in interest rates may also affect the average life of loans and mortgage-related securities. Decreases in interest rates
can result in increased prepayments of loans and mortgage-related securities, as borrowers refinance to reduce their borrowing
costs. Under these circumstances, we are subject to reinvestment risk to the extent that we are unable to reinvest the cash
received from such prepayments at rates that are comparable to the rates on existing loans and securities. Additionally,
increases in interest rates may decrease loan demand and make it more difficult for borrowers to repay adjustable rate loans.
Also, increases in interest rates may extend the life of fixed rate assets, which would restrict our ability to reinvest in higher
yielding alternatives, and may result in customers withdrawing certificates of deposit early so long as the early withdrawal
penalty is less than the interest they could receive as a result of the higher interest rates.
Changes in interest rates also affect the current fair value of our interest-earning securities portfolio. Generally, the value of
securities moves inversely with changes in interest rates.
We may be impacted by the retirement of London Interbank Offered Rate (“LIBOR”) as a reference rate.
Many of our lending products, securities, derivatives, and other financial transactions utilize a benchmark rate, such as
LIBOR, to determine the applicable interest rate or payment amount. The U.K. Financial Conduct Authority and the ICE
Benchmark Administration have announced that the publication of the most commonly used U.S. Dollar LIBOR tenors will
cease to be provided or cease to be representative after June 30, 2023. The publication of all other LIBOR settings ceased to
be provided or ceased to be representative as of December 31, 2021. The Adjustable Interest Rate (LIBOR) Act (LIBOR
Act), enacted in March 2022, provides a statutory framework to replace U. S. Dollar LIBOR with a benchmark rate based on
the Secured Overnight Financing Rate (“SOFR”) for contracts governed by U.S. law that have no fallbacks or fallbacks that
would require the use of a poll or LIBOR-based rate, and in December 2022, the FRB adopted rules which identify different
SOFR-based replacement rates for derivative contracts, for cash instruments such as floating-rate notes and preferred stock,
for consumer loans, for certain government-sponsored enterprise contracts and for certain asset-backed securities. We
continue to monitor market developments and regulatory updates related to the cessation of LIBOR. As the transition from
LIBOR is ongoing, there continues to be uncertainty as to the ultimate effect of the transition on the financial markets for
LIBOR-linked financial instruments.
The discontinuation of a benchmark rate, changes in a benchmark rate, or changes in market perceptions of the acceptability
of a benchmark rate, including LIBOR, could, among other things, adversely affect the value of and return on certain of our
financial instruments or products, result in changes to our risk exposures, or require renegotiation of previous transactions.
In addition, any such discontinuation or changes, whether actual or anticipated, could result in market volatility, increased
compliance, legal and operational costs, and risks associated with customer disclosures and contract negotiations. Although
the LIBOR Act includes safe harbors if the FRB-identified SOFR-based replacement rate is selected, these safe harbors are
untested. As a result, and despite the enactment of the LIBOR Act, for the most commonly used U.S. Dollar LIBOR settings,
the use or selection of a successor rate could also expose us to risks associated with disputes with customers and other market
participants in connection with implementing LIBOR fallback provisions.
Strong competition may limit growth and profitability.
Competition in the banking and financial services industry is intense. We compete with commercial banks, savings
institutions, mortgage brokerage firms, credit unions, finance companies, mutual funds, insurance companies, and brokerage
and investment banking firms operating locally and elsewhere. Many of these competitors (whether regional or national
institutions) have substantially greater resources and lending limits than we have and may offer certain services that we do
not or cannot provide. Our profitability depends upon our ability to successfully compete in our market areas.
We are subject to physical and financial risks associated with climate change and other weather and natural disaster
impacts.
The current and anticipated effects of climate change are creating an increasing level of concern for the state of the global
environment. As a result, political and social attention to the issue of climate change has increased. In recent years,
governments across the world have entered into international agreements to attempt to reduce global temperatures, in part by
limiting greenhouse gas emissions. Although the U.S. rejoined the Paris Agreement, effective as of February 19, 2021, and
the U.S. Congress, state legislatures and federal and state regulatory agencies have continued to propose and advance
numerous legislative and regulatory initiatives seeking to mitigate the effects of climate change, each of which may result in
the imposition of taxes and fees, the required purchase of emission credits, and the implementation of significant operational
changes, which may require us to expend significant capital and incur compliance, operating, maintenance and remediation
costs. Given the lack of empirical data on the credit and other financial risks posed by climate change, it is impossible to
predict how climate change may impact our financial condition and operations; however, as a banking organization, the
physical effects of climate change on the Bank may present certain unique risks.
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The physical risks of climate change include discrete events, such as flooding, hurricanes, tornadoes, and wildfires, and
longer-term shifts in climate patterns, such as extreme heat, sea level rise, and more frequent and prolonged drought. Physical
risks may alter the Company’s strategic direction in order to mitigate certain financial risks. Our operations are located in
Montana and are susceptible to severe weather events including severe droughts, wildfires, floods, severe winter storms and
tornadoes. Any of these, or any other severe weather event, could cause disruption to our operations and could have a material
adverse effect on our overall business, results of operations or financial condition. We have taken certain preemptive measures
that we believe will mitigate these adverse effects; however, such measures cannot prevent the disruption that a catastrophic
drought, wildfire, tornado or other severe weather event could cause to the markets that we serve and any resulting adverse
impact on our customers, such as hindering our borrowers’ ability to timely repay their loans, diminishing the value of any
collateral held by us, interrupting supply chains, causing significant property damage, causing us to incur additional expense
or resulting in a loss of revenue, and affecting the stability of our deposit base. The severity and impact of future droughts,
wildfires, floods, tornadoes and other weather-related events are difficult to predict and may be exacerbated by global climate
change. Such events may also cause reductions in regional and local economic activity that may have an adverse effect on
our customers, which could limit our ability to raise and invest capital in these areas and communities, each of which could
have a material adverse effect on our financial condition and results of operations.
Climate change may worsen the frequency and severity of future droughts, wildfires, floods, tornadoes and other extreme
weather-related events that could cause disruption to our business and operations. Chronic results of climate change such as
shifting weather patterns could also cause disruption to our business and operations. Climate change may also result in new
and/or more stringent regulatory requirements for the Company, which could materially affect the Company’s results of
operations by requiring the Company to take costly measures to comply with any new laws or regulations related to climate
change that may be forthcoming. New regulations, shift in customer behaviors, supply chain collapse or breakthrough
technologies that accelerate the transition to a lower carbon economy may negatively affect certain sectors and borrowers in
our loan portfolio, impacting their ability to timely repay their loans or decreasing the value of any collateral held by us.
The ongoing COVID-19 pandemic and measures intended to prevent its spread could have a material adverse effect
on our business, results of operations and financial condition, and such effects will depend on future developments,
which are highly uncertain and are difficult to predict.
While COVID-19 conditions have improved, past and potential future government actions taken to reduce the spread of the
virus have been weighing on the macroeconomic environment, and lingering economic uncertainty and reduced economic
activity remains.
New strains of the virus could adversely impact our workforce and operations and the operations of our borrowers, customers
and business partners. As a result, we may experience financial losses due to a number of operational factors impacting us or
our borrowers, customers or business partners. These factors may be prevalent for a significant period of time and may
adversely affect our business, results of operations and financial condition even after the COVID-19 outbreak has subsided.
Renewed spread of COVID-19 could cause us to modify our business practices (including restricting employee travel, and
developing work from home and social distancing plans for our employees), and we may take further actions if required by
government authorities or as we determine are in the best interests of our employees, customers and business partners. There
is no certainty that such measures would be sufficient to mitigate the risks posed by the virus or will otherwise be satisfactory
to government authorities.
The extent to which the COVID-19 outbreak impacts our business, results of operations and financial condition will depend
on future developments, which are highly uncertain and are difficult to predict, including, but not limited to, the duration and
spread of the outbreak and its variants, its severity, the actions to contain the virus or treat its impact, the effectiveness of
vaccination programs for the virus, vaccination rates, and how quickly and to what extent normal economic and operating
conditions can resume. Even after the COVID-19 outbreak has subsided, we may continue to experience materially adverse
impacts to our business as a result of the virus’s global economic impact, including the availability of credit, adverse impacts
on our liquidity and any recession that has occurred or may occur in the future.
There are no comparable recent events that provide guidance as to the effect the spread of COVID-19 as a global pandemic
may have, and, as a result, the ultimate impact of the outbreak is highly uncertain and subject to change. We do not yet know
the full extent of the impacts on our business, our operations or the global economy as a whole. However, the effects could
have a material impact on our results of operations and heighten many of our known risks described herein.
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Risks Related to Our Business
We hold certain intangible assets that could be classified as impaired in the future. If these assets are considered to be
either partially or fully impaired in the future, our earnings and the book values of these assets would decrease.
As a result of our branch and whole bank acquisitions we record goodwill. Our consolidated balance sheet at December 31,
2022 included goodwill of $34.74 million. We are required to test our goodwill for impairment on a periodic basis. The
impairment testing process considers a variety of factors, including the current market price of our common shares, the
estimated net present value of our assets and liabilities and information concerning the terminal valuation of similarly situated
insured depository institutions. It is possible that future impairment testing could result in a partial or full impairment of the
value of our goodwill. If an impairment determination is made in a future reporting period, our earnings and the book value
of goodwill will be reduced by the amount of the impairment.
Risks associated with system failures, interruptions, or breaches of security could negatively affect our earnings.
Information technology systems are critical to our business. We use various technology systems to manage our customer
relationships, general ledger, securities, deposits, and loans. We have established policies and procedures to prevent or limit
the impact of system failures, interruptions, and security breaches, but such events may still occur or may not be adequately
addressed if they do occur. In addition, any compromise of our systems could deter customers from using our products and
services. Although we rely on security systems to provide security and authentication necessary to effect the secure
transmission of data, these precautions may not protect our systems from compromises or breaches of security.
In addition, we outsource a majority of our data processing to certain third-party providers. If these third-party providers
encounter difficulties, or if we have difficulty communicating with them, our ability to adequately process and account for
transactions could be affected, and our business operations could be adversely affected. Threats to information security also
exist in the processing of customer information through various other vendors and their personnel.
The occurrence of any system failures, interruption, or breach of security could damage our reputation and result in a loss of
customers and business thereby subjecting us to additional regulatory scrutiny, or could expose us to litigation and possible
financial liability. Any of these events could have a material adverse effect on our financial condition and results of operations.
If the allowance for loan losses is not sufficient to cover actual loan losses, our earnings could decrease.
Our customers may not repay their loans according to the original terms, and the collateral, if any, securing the payment of
these loans may be insufficient to pay any remaining loan balance. We may experience significant loan losses, which may
have a material adverse effect on operating results. We make various assumptions and judgments about the collectability of
the loan portfolio, including the creditworthiness of borrowers and the value of the real estate and other assets serving as
collateral for the repayment of loans. If the assumptions prove to be incorrect, the allowance for loan losses may not be
sufficient to cover losses inherent in our loan portfolio, resulting in additions to the allowance. Material additions to the
allowance would materially decrease net income.
Our emphasis on the origination of consumer, commercial real estate and commercial business loans is one of the more
significant factors in evaluating the allowance for loan losses. As we continue to increase the amount of such loans, additional
or increased provisions for loan losses may be necessary and would decrease earnings.
Bank regulators periodically review our allowance for loan losses and may require an increase to the provision for loan losses
or further loan charge-offs. Any increase in our allowance for loan losses or loan charge-offs as required by these regulatory
authorities may have a material adverse effect on our results of operations or financial condition.
We could record future losses on our securities portfolio.
A number of factors or combinations of factors could require us to conclude in one or more future reporting periods that an
unrealized loss exists with respect to our investment securities portfolio that constitutes an impairment that is other than
temporary, which could result in material losses to us. These factors include, but are not limited to, continued failure by the
issuer to make scheduled interest payments, an increase in the severity of the unrealized loss on a particular security, an
increase in the continuous duration of the unrealized loss without an improvement in value or changes in market conditions
and/or industry or issuer specific factors that would render us unable to forecast a full recovery in value. In addition, the fair
values of securities could decline if the overall economy and the financial condition of some of the issuers deteriorates and
there is limited liquidity for these securities.
19
Changes in our accounting policies or in accounting standards could materially affect how we report our financial
condition and results of operations.
Our accounting policies are essential to understanding our financial results and condition. Some of these policies require the
use of estimates and assumptions that may affect the value of our assets or liabilities and financial results. Some of our
accounting policies are critical because they require management to make difficult, subjective, and complex judgments about
matters that are inherently uncertain and because it is likely that materially different amounts would be reported under
different conditions or using different assumptions. If such estimates or assumptions underlying our financial statements are
incorrect, we may experience material losses.
From time to time, the Financial Accounting Standards Board and the Securities and Exchange Commission change the
financial accounting and reporting standards or the interpretation of those standards that govern the preparation of our
financial statements. These changes are beyond our control, can be hard to predict and could materially impact how we report
our results of operations and financial condition. We could also be required to apply a new or revised standard retroactively,
resulting in our restating prior period financial statements in material amounts.
Because we have increased our commercial real estate and commercial business loan originations, our credit risk has
increased and continued downturns in the local real estate market or economy could adversely affect our earnings.
We intend to continue our recent emphasis on originating commercial real estate and commercial business loans. Commercial
real estate and commercial business loans generally have more risk than the residential real estate (1-4 family) loans we
originate. Because the repayment of commercial real estate and commercial business loans depends on the successful
management and operation of the borrower’s properties or related businesses, repayment of such loans can be affected by
adverse conditions in the local real estate market or economy. Commercial real estate and commercial business loans may
also involve relatively large loan balances to individual borrowers or groups of related borrowers. A downturn in the real
estate market or the local economy could adversely affect the value of properties securing the loan or the revenues from the
borrower’s business, thereby increasing the risk of nonperforming loans. As our commercial real estate and commercial
business loan portfolios increase, the corresponding risks and potential for losses from these loans may also increase.
Many of our commercial real estate and commercial business loans are made to small-to-mid-sized businesses. These small-
to-mid-sized businesses frequently have smaller market share than their competition, may be more vulnerable to economic
downturns, often need substantial additional capital to expand or compete and may experience significant volatility in
operating results. Any one or more of these factors may impair the borrower’s ability to repay a loan. In addition, the success
of a small-to-mid-sized business often depends on the management talents and efforts of one or two persons or a small group
of persons and the death, disability or resignation of one or more of these persons could have a material adverse impact on
the business and its ability to repay a loan. Economic downturns and other events that negatively impact our market areas
could cause us to incur substantial credit losses that could have an adverse effect on our business, financial condition and
results of operations.
We continually encounter technological change.
The financial services industry is continually undergoing rapid technological change with frequent introductions of new,
technology-driven products and services. The effective use of technology increases efficiency and enables financial
institutions to better serve customers and to reduce costs. Our future success depends, in part, upon our ability to address the
needs of our customers by using technology to provide products and services that will satisfy customer demands, as well as
to create additional efficiencies in our operations. Many of our competitors have substantially greater resources to invest in
technological improvements than we do. We may not be able to effectively implement new, technology-driven products and
services or be successful in marketing these products and services to our customers. In addition, the implementation of
technological changes and upgrades to maintain current systems and integrate new ones may also cause service interruptions,
transaction processing errors and system conversion delays and may cause us to fail to comply with applicable laws or be
vulnerable to cyberattacks. Failure to successfully keep pace with technological change affecting the financial services
industry and avoid interruptions, errors and delays could have a material adverse effect on our business, financial condition
or results of operations.
We expect that new technologies and business processes applicable to the consumer credit industry will continue to emerge,
and these new technologies and business processes may be better than those we currently use. Because the pace of
technological change is high and our industry is intensely competitive, we may not be able to sustain our investment in new
technology as critical systems and applications become obsolete or as better ones become available. A failure to maintain
current technology and business processes could cause disruptions in our operations or cause our products and services to be
less competitive, all of which could have a material adverse effect on our business, financial condition or results of operations.
20
We depend on the services of our executive officers and other key employees.
Our success depends upon the continued employment of certain members of our senior management team. We also depend
upon the continued employment of the individuals that manage several of our key functional areas. The departure of any
member of our senior management team may adversely affect our operations.
We earn a significant portion of our noninterest income through sales of residential mortgages in the secondary
market. We rely on the mortgage secondary market for some of our liquidity.
Our mortgage banking activities provide a significant portion of our noninterest income. We originate and sell mortgage
loans, including $551.02 million of mortgage loans sold during 2022. We rely on Federal National Mortgage Association
(“FNMA”), Federal Home Loan Mortgage Corporation (“FHLMC”) and other purchasers to purchase loans in order to reduce
our credit risk and provide funding for additional loans we desire to originate. We cannot provide assurance that these
purchasers will not materially limit their purchases from us due to capital constraints or other factors, including, with respect
to FNMA and FHLMC, a change in the criteria for conforming loans. In addition, various proposals have been made to reform
the U.S. residential mortgage finance market, including the role of FNMA and FHLMC. The exact effects of any such reforms
are not yet known, but may limit our ability to sell conforming loans to FNMA and FHLMC. In addition, mortgage lending
is highly regulated, and our inability to comply with all federal and state regulations and investor guidelines regarding the
origination, underwriting documentation and servicing of mortgage loans may also impact our ability to continue selling
mortgage loans. If we are unable to continue to sell loans in the secondary market or we experience a period of low mortgage
activity, our noninterest income as well as our ability to fund, and thus originate, additional mortgage loans may be adversely
affected, which could have a material adverse effect on our business, financial condition or results of operations.
There can be no assurance we will be able to continue paying dividends on our common stock at recent levels.
We may not be able to continue paying quarterly dividends commensurate with recent levels given that the ability to pay
dividends on our common stock depends on a variety of factors. The payment of dividends is subject to government regulation
in that the regulatory authorities may prohibit banks and bank holding companies from paying dividends that would constitute
an unsafe or unsound banking practice. Our ability to pay dividends is subject to certain regulatory requirements. The Federal
Reserve generally prohibits a bank holding company from declaring or paying a cash dividend which would impose undue
pressure on the capital of a subsidiary bank or would be funded only through borrowing or other arrangements that might
adversely affect a bank holding company’s financial position. The Federal Reserve Board policy is that a bank holding
company should not continue its existing rate of cash dividends on its common stock unless its net income is sufficient to
fully fund each dividend and its prospective rate of earnings retention appears consistent with its capital needs, asset quality
and overall financial condition. The power of the board of directors of an insured depository institution to declare a cash
dividend or other distribution with respect to capital is subject to statutory and regulatory restrictions which limit the amount
available for such distribution depending upon the earnings, financial condition and cash needs of the institution, as well as
general business conditions.
As a result, future dividends will generally depend on the level of earnings at the Bank. The Bank is subject to Montana law
and, in certain circumstances, Montana law places limits or restrictions on a bank’s ability to declare and pay dividends. Also,
in the event there shall occur an event of default on any of our debt instruments, we would be unable to pay any dividends on
our common stock.
Our business strategy includes significant growth plans, and our financial condition and results of operations could
be negatively affected if we fail to grow or fail to manage our growth effectively.
We intend to pursue an organic growth strategy for our business; however, we regularly evaluate potential acquisitions and
expansion opportunities. If appropriate opportunities present themselves, we expect to engage in selected acquisitions of
financial institutions, branch acquisitions and other business growth initiatives or undertakings. There can be no assurance
that we will successfully identify appropriate opportunities, that we will be able to negotiate or finance such activities or that
such activities, if undertaken, will be successful. There are risks associated with our growth strategy. To the extent that we
grow through acquisitions, we cannot ensure that we will be able to adequately or profitably manage this growth.
21
Acquiring other banks, branches or other assets, as well as other expansion activities, involves various risks including the
risks of incorrectly assessing the credit quality of acquired assets, encountering greater than expected costs of integrating
acquired banks or branches, the risk of loss of customers and/or employees of the acquired institution or branch, executing
cost savings measures, not achieving revenue enhancements and otherwise not realizing the transaction’s anticipated benefits.
Our ability to address these matters successfully cannot be assured. In addition, our strategic efforts may divert resources or
management’s attention from ongoing business operations, may require investment in integration and in development and
enhancement of additional operational and reporting processes and controls and may subject us to additional regulatory
scrutiny.
Our growth initiatives may also require us to recruit and retain experienced personnel to assist in such initiatives. Accordingly,
the failure to identify and retain such personnel would place significant limitations on our ability to successfully execute our
growth strategy. In addition, to the extent we expand our lending beyond our current market areas, we could incur additional
risks related to those new market areas. We may not be able to expand our market presence in our existing market areas or
successfully enter new markets.
If we do not successfully execute our acquisition growth plan, it could adversely affect our business, financial condition,
results of operations, reputation and growth prospects. In addition, if we were to conclude that the value of an acquired
business had decreased and that the related goodwill had been impaired, that conclusion would result in an impairment of
goodwill charge, which would adversely affect our results of operations. While we believe we will have the executive
management resources and internal systems in place to successfully manage our future growth, there can be no assurance
growth opportunities will be available or that we will successfully manage our growth.
We may be unsuccessful in integrating the operations of the business we have acquired or expect to acquire in the
future.
From time to time, we evaluate and acquire businesses that we believe complement our existing business. The acquisition
component of our growth strategy depends on the successful integration of these acquisitions. We face numerous risks and
challenges to the successful integration of acquired businesses, including the following:
●
●
●
●
●
the potential for unexpected costs, delays and challenges that may arise in integrating acquisitions into our existing
business;
limitations on our ability to realize the expected cost savings and synergies from an acquisition;
challenges related to integrating acquired operations, including our ability to retain key employees and maintain
relationships with significant customers and depositors;
challenges related to the integration of businesses that operate in new geographic areas, including difficulties in
identifying and gaining access to customers in new markets; and
the discovery of previously unknown liabilities following an acquisition associated with the acquired business.
If we are unable to successfully integrate the businesses we acquire, our business, financial condition and results of operations
may be materially adversely affected.
Failure to maintain effective internal control over financial reporting or disclosure controls and procedures could
adversely affect our ability to report our financial condition and results of operations accurately and on a timely basis.
A failure to maintain effective internal control over financial reporting or disclosure controls and procedures could adversely
affect our ability to report our financial results accurately and on a timely basis, which could result in a loss of investor
confidence in our financial reporting or adversely affect our access to sources of liquidity. Furthermore, because of the
inherent limitations of any system of internal control over financial reporting, including the possibility of human error, the
circumvention or overriding of controls and fraud, even effective internal controls may not prevent or detect all
misstatements.
Changes in interest rates may change the value of our mortgage servicing rights portfolio, which may increase the
volatility of our earnings.
As a result of our mortgage servicing business, which we may expand in the future, we have a portfolio of mortgage servicing
rights (“MSR”) assets. An MSR is the right to service a mortgage loan - collect principal, interest and escrow amounts - for
a fee. We measure and carry all of our residential MSR assets using the fair value measurement method. Fair value is
determined as the present value of estimated future net servicing income, calculated based on a number of variables, including
assumptions about the likelihood of prepayment by borrowers.
22
Current trends of rising interest rates have resulted in an increased valuation of the MSR asset, however one of the principal
risks associated with MSR assets is that in a declining interest rate environment, they will likely lose a substantial portion of
their value as a result of higher than anticipated prepayments. Moreover, if prepayments are greater than expected, the cash
we receive over the life of the mortgage loans would be reduced.
An increased size of our MSR portfolio could result in us carrying significant asset balances. This could result in a reduction
in our liquidity and cause a reduction in our capital ratios. The combination of these impacts along with other impacts, could
cause us to not have sufficient liquidity or capital.
At December 31, 2022, our MSR asset had a fair value of $15.41 million. All income related to retained servicing, including
changes in the value of the MSR asset, is included in noninterest income. Depending on the interest rate environment and
market trends related to MSR sales, it is possible that the fair value of our MSR asset may be reduced in the future. If such
changes in fair value significantly reduce the carrying value of our MSR asset, our financial condition and results of operations
would be negatively affected.
Farmland and agriculture production lending presents unique credit risk.
As of December 31, 2022, approximately 17.73% of our total gross loan portfolio was comprised of farmland and agricultural
production loans. As of December 31, 2022, we had $240.37 million in farmland and agricultural production loans, including
$136.33 million in farmland loans, and $104.04 million in agricultural production loans. Repayment of farmland and
agricultural production loans depends primarily on the successful raising and feeding of livestock or planting and harvest of
crops and marketing the harvested commodity. Collateral securing these loans may be a illiquid. In addition, the limited
purpose of some agricultural-related collateral affects credit risk because such collateral may have limited or no other uses to
support values when loan repayment problems emerge. Our farmland and agricultural production lending staff have specific
technical expertise that we depend on to mitigate our lending risks for these loans and we may have difficulty retaining or
replacing such individuals. Many external factors can impact our agricultural borrowers' ability to repay their loans, including
adverse weather conditions, water issues, commodity price volatility, diseases, land values, production costs, changing
government regulations and subsidy programs, changing
labor market
shortages/increased wages, and changes in consumers' preferences, over which our borrowers may have no control. These
factors, as well as recent volatility in certain commodity prices could adversely impact the ability of those to whom we have
made farmland and agricultural production loans to perform under the terms of their borrowing arrangements with us, which
in turn could result in credit losses and adversely affect our business, financial condition and results of operations.
technological changes,
treatment,
tax
Consumers may decide not to use banks to complete their financial transactions.
Technology and other changes are allowing parties to complete financial transactions through alternative methods that
historically have involved banks. For example, consumers can now maintain funds that would have historically been held as
bank deposits in brokerage accounts, mutual funds or general purpose reloadable prepaid cards. Consumers can also complete
transactions such as paying bills and/or transferring funds directly without the assistance of banks. The process of eliminating
banks as intermediaries could result in the loss of fee income, as well as the loss of customer deposits and the related income
generated from those deposits. The loss of these revenue streams and the lower cost of deposits as a source of funds could
have a material adverse effect on our financial condition and results of operations.
Rights Related to the Legal and Regulatory Environment
We face a risk of noncompliance and enforcement action with the Bank Secrecy Act and other anti-money laundering
statutes and regulations.
The Bank Secrecy Act, the Patriot Act and other laws and regulations require financial institutions, among other duties, to
institute and maintain an effective anti-money laundering program and file suspicious activity and currency transaction
reports as appropriate. The federal Financial Crimes Enforcement Network is authorized to impose significant civil money
penalties for violations of those requirements and has recently engaged in coordinated enforcement efforts with the individual
federal banking regulators, as well as the U.S. Department of Justice, Drug Enforcement Administration and IRS. We are
also subject to increased scrutiny of compliance with the rules enforced by the Office of Foreign Assets Control. If our
policies, procedures and systems are deemed deficient, we would be subject to liability, including fines and regulatory actions,
which may include restrictions on our ability to pay dividends and the necessity to obtain regulatory approvals to proceed
with certain aspects of our business plan, including any future acquisition plans. Failure to maintain and implement adequate
programs to combat money laundering and terrorist financing could also have serious reputational consequences for us. Any
of these results could have an adverse effect on our business, financial condition and results of operations.
23
We operate in a highly regulated environment and may be adversely affected by changes in laws and regulations.
We are subject to extensive regulation, supervision and examination by the Board of Governors of the Federal Reserve Board
and the Montana Division of Banking and Financial Institutions. The federal banking laws and regulations govern the
activities in which we may engage and are primarily for the protection of depositors and the Deposit Insurance Fund at the
FDIC. These regulatory authorities have extensive discretion in connection with their supervisory and enforcement activities,
including the ability to impose restrictions on a bank’s operations, reclassify assets, determine the adequacy of a bank’s
allowance for loan losses and determine the level of deposit insurance premiums assessed. Any change in such regulation
and oversight, whether in the form of regulatory policy, new regulations or legislation or additional deposit insurance
premiums could have a material impact on our operations. Because our business is highly regulated, the laws and applicable
regulations are subject to frequent change. Any new laws, rules and regulations could make compliance more difficult or
expensive or otherwise adversely affect our business, financial condition or prospects.
Future legislation, regulatory reform or policy changes under the current U.S. administration could have a material
effect on our business and results of operations.
New legislation, regulatory reform or policy changes under the current U.S. administration, including financial services
regulatory reform, tax reform, and GSE reform, could impact our business. At this time, we cannot predict the scope or nature
of these changes or assess what the overall effect of such potential changes could be on our results of operations or cash
flows.
If our investment in the Federal Home Loan Bank of Des Moines becomes impaired, our earnings and shareholders’
equity could decrease.
We are required to own common stock of FHLB to qualify for membership in the FHLB System and to be eligible to borrow
funds under the FHLB’s advance program. The aggregate cost of our FHLB common stock as of December 31, 2022 was
$5.09 million. FHLB common stock is not a marketable security and can only be redeemed by the FHLB.
FHLB’s may be subject to accounting rules and asset quality risks that could materially lower their regulatory capital. In an
extreme situation, it is possible that the capitalization of a FHLB, including the FHLB of Des Moines, could be substantially
diminished or reduced to zero. Consequently, we believe that there is a risk that our investment in FHLB of Des Moines
common stock could be deemed impaired at some time in the future, and if this occurs, it would cause our earnings and
shareholders’ equity to decrease by the amount of the impairment charge.
ITEM 1B.
UNRESOLVED STAFF COMMENTS.
None.
24
ITEM 2.
PROPERTIES.
The Company's executive office is located at 1400 Prospect Avenue in Helena, Montana. As of December 31, 2022, the Bank
conducted its business through 34 locations; including 31 full-service branches and three other buildings located in Helena
and Missoula, Montana. The following table includes the locations by city, as well as whether they are owned or leased.
Occupancy Type
Locations
Ashland, Montana
Big Timber, Montana
Billings, Montana
Bozeman, Montana
Butte, Montana
Choteau, Montana
Culbertson, Montana
Denton, Montana
Dutton, Montana
Froid, Montana
Glasgow, Montana
Great Falls, Montana
Hamilton, Montana
Helena, Montana
Hinsdale, Montana
Livingston, Montana
Missoula, Montana
Sheridan, Montana
Three Forks, Montana
Townsend, Montana
Twin Bridges, Montana
Winifred, Montana
Wolf Point, Montana
Total
Owned
1
1
3
2
1
1
1
1
1
1
1
-
1
5
1
1
1
1
1
1
1
-
1
28
Leased
-
-
-
1
-
-
-
-
-
-
-
1
-
1
-
-
2
-
-
-
-
1
-
6
Total Locations
1
1
3
3
1
1
1
1
1
1
1
1
1
6
1
1
3
1
1
1
1
1
1
34
Management believes all locations are in good condition and meet the operating needs of the Company. For additional
information regarding the Company's premises and equipment and lease obligations, see Note 6 to the Consolidated Financial
Statements in "Item 8. Financial Statements and Supplementary Data".
ITEM 3.
LEGAL PROCEEDINGS.
The Bank, from time to time, is a party to routine litigation, which arises in the normal course of business, such as claims to
enforce liens, condemnation proceedings on properties in which the Bank holds security interests, claims involving the
making and servicing of real property loans, and other issues incident to the business of the Bank. In the opinion of
management, the resolution of these legal actions is not expected to have a material adverse effect on the Company's results
of operations.
ITEM 4.
MINE SAFETY DISCLOSURES.
Not applicable.
25
PART II
ITEM 5.
MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER
MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES.
Our common stock is traded on the Nasdaq Global Market under the symbol “EBMT.” At the close of business on December
31, 2022, there were 8,006,033 shares of common stock outstanding, held by approximately 997 shareholders of record. The
closing price of the common stock on December 31, 2022, was $16.16 per share.
Payment of dividends on our shares of common stock is subject to determination and declaration by the Board of Directors
(the “Board’’) and will depend upon a number of factors, including capital requirements, regulatory limitations on the
payment of dividends, our results of operations and financial condition, tax considerations and general economic conditions.
No assurance can be given that dividends will be declared or, if declared, what the amount of dividends will be, or whether
such dividends, once declared, will continue.
Because we are a bank holding company and do not engage directly in business activities of a material nature, our ability to
pay dividends to our stockholders depends, in large part, upon our receipt of dividends from our bank subsidiary, which is
also subject to numerous limitations on the payment of dividends under federal and state banking laws, regulations and
policies. The present and future dividend policy of our bank subsidiary is subject to the discretion of its Board. Our subsidiary
bank is not obligated to pay dividends.
On April 21, 2022, Eagle's Board of Directors (the "Board") authorized the repurchase of up to 400,000 shares of its common
stock. Under the plan, shares may be purchased by the Company on the open market or in privately negotiated transactions.
The extent to which the company repurchases its shares and the timing of such repurchase will depend upon market conditions
and other corporate considerations. During the second quarter of 2022, 5,000 shares were purchased under this plan at an
average price of $19.75. During the third quarter of 2022, 99,517 shares were purchased under this plan at an average price
of $19.45. The following table summarizes the Company's purchase of its common stock for the three months ended
December 31, 2022 under this plan. The plan expires on April 21, 2023.
Total
Number of
Shares
Purchased
Average
Price Paid
Per Share
Total Number
of Shares
Purchased
as Part of
Publicly
Maximum
Number of
Shares that
May Yet Be
Purchased
Announced Plans Under the Plans
or Programs
or Programs
October 1, 2022 through October 31, 2022
6,608
$ 18.80
6,608
288,875
November 1, 2022 through November 30, 2022
December 1, 2022 through December 31, 2022
-
-
-
-
-
-
288,875
288,875
Total
6,608
$ 18.80
6,608
On July 22, 2021, the Board authorized the repurchase of up to 100,000 shares of its common stock. Under the plan, shares
could be purchased by the Company on the open market or in privately negotiated transactions. The extent to which the
company repurchased its shares and the timing of such repurchase depended upon market conditions and other corporate
considerations. No shares were purchased during the year ended December 31, 2021. However, during the first quarter of
2022, the Company purchased the total authorized amount of 100,000 shares at an average price of $22.71 per share. The
plan expired on July 22, 2022.
26
On July 23, 2020, the Board authorized the repurchase of up to 100,000 shares of its common stock. Under the plan, shares
could be purchased by the Company on the open market or in privately negotiated transactions. The extent to which the
company repurchased its shares and the timing of such repurchase depended upon market conditions and other corporate
considerations. During the third quarter of 2020, 41,337 shares were purchased under this plan at an average price of $15.75
per share. However, no shares were purchased during the fourth quarter of 2020 or during 2021. The plan expired on July 23,
2021.
ITEM 6.
[RESERVED]
ITEM 7.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
The following discussion and analysis of the financial condition and results of operations of Eagle is intended to help investors
understand our company and our operations. The financial review is provided as a supplement to, and should be read in
conjunction with the Consolidated Financial Statements and the related Notes included elsewhere in this report.
Introduction
The following Management's Discussion and Analysis of Financial Condition and Results of Operations ("MD&A") describes
Eagle and its subsidiaries' results of operations for the year ended December 31, 2022 as compared to the year ended
December 31, 2021, and also analyzes our financial condition as of December 31, 2022 as compared to December 31, 2021.
Like most banking institutions, our principal business consists of attracting deposits from the general public and the business
community and making loans secured by various types of collateral, including real estate and other consumer assets. We are
significantly affected by prevailing economic conditions, particularly interest rates, as well as government policies
concerning, among other things, monetary and fiscal affairs, housing and financial institutions and regulations regarding
lending and other operations, privacy and consumer disclosure. Attracting and maintaining deposits is influenced by a number
of factors, including interest rates paid on competing investments offered by other financial and nonfinancial institutions,
account maturities, fee structures and levels of personal income and savings. Lending activities are affected by the demand
for funds and thus are influenced by interest rates, the number and quality of lenders and regional economic conditions.
Sources of funds for lending activities include deposits, borrowings, repayments on loans, cash flows from maturities of
investment securities and income provided from operations.
Our earnings depend primarily on our level of net interest income, which is the difference between interest earned on our
interest-earning assets, consisting primarily of loans and investment securities, and the interest paid on interest-bearing
liabilities, consisting primarily of deposits, borrowed funds, and trust-preferred securities. Net interest income is a function
of our interest rate spread, which is the difference between the average yield earned on our interest-earning assets and the
average rate paid on our interest-bearing liabilities, as well as a function of the average balance of interest-earning assets
compared to interest-bearing liabilities. Also contributing to our earnings is noninterest income, which consists primarily of
service charges and fees on loan and deposit products and services, net gains and losses on sale of assets, and mortgage loan
service fees. Net interest income and noninterest income are offset by provisions for loan losses, general administrative and
other expenses, including salaries and employee benefits and occupancy and equipment costs, as well as by state and federal
income tax expense.
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.
As of December 31, 2022, commercial real estate and commercial business loans represented 60.97% and 17.07% 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, 2022, we had mortgage servicing rights, net of $15.41 million compared to $13.69 million
as of December 31, 2021. Gain on sale of loans also provides significant noninterest income in periods of high mortgage loan
origination volumes. Such income will be adversely affected in periods of lower mortgage activity.
27
Fee income is also supplemented with fees generated from deposit accounts. The Bank has a high percentage of non-maturity
deposits, such as checking accounts and savings accounts, which allows management flexibility in managing its spread. Non-
maturity deposits and certificates of deposit do not automatically reprice as interest rates rise.
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 operating expenses to achieve earnings
growth going forward. Management’s strategy of growing the loan portfolio and deposit base is expected to help achieve
these goals as follows: loans typically earn higher rates of return than investments; a larger deposit base should yield higher
fee income; increasing the asset base will reduce the relative impact of fixed operating costs. The biggest challenge to the
strategy is funding the growth of the statement of financial condition in an efficient manner. Though deposit growth has been
steady, it may become more difficult to maintain due to significant competition and possible reduced customer demand for
deposits as customers may shift into other asset classes.
Other than short term residential construction loans, we do not offer “interest only” mortgage loans on residential 1-4 family
properties (where the borrower pays interest but no principal for an initial period, after which the loan converts to a fully
amortizing loan). We also do not offer loans that provide for negative amortization of principal, such as “Option ARM” loans,
where the borrower can pay less than the interest owed on their loan, resulting in an increased principal balance during the
life of the loan. We do not offer “subprime loans” (loans that generally target borrowers with weakened credit histories
typically characterized by payment delinquencies, previous charge-offs, judgments, bankruptcies, or borrowers with
questionable repayment capacity as evidenced by low credit scores or high debt-burden ratios) or Alt-A loans (traditionally
defined as loans having less than full documentation).
The level and movement of interest rates impacts the Bank’s earnings as well. The Federal Open Market Committee held the
federal funds target rate at 0.25% during the year ended December 31, 2021. The rate increased to 4.50% during the year
ended December 31, 2022.
Acquisitions
The Bank has used growth through mergers or acquisition, in addition to its strategy of organic growth.
In April 2022, Eagle acquired First Community Bancorp, Inc. ("FCB"), a Montana corporation, and FCB's wholly-owned
subsidiary, First Community Bank, a Montana chartered commercial bank. In the transaction, Eagle acquired nine retail bank
branches and two loan production offices in Montana.
In January 2020, Eagle acquired Western Holding Company of Wolf Point (“WHC”), a Montana corporation, and WHC’s
wholly-owned subsidiary, Western Bank of Wolf Point (“WB”), a Montana chartered commercial bank. In the transaction,
Eagle acquired one retail bank branch in Wolf Point, Montana.
Critical Accounting Policies and Estimates
Certain accounting policies are important to the understanding of our financial condition, since they require management to
make difficult, complex or subjective judgments, some of which may relate to matters that are inherently uncertain. Estimates
associated with these policies are susceptible to material changes as a result of changes in facts and circumstances, including,
but without limitation, changes in interest rates, performance of the economy, financial condition of borrowers and laws and
regulations. The following are the accounting policies we believe are critical.
Allowance for Loan Losses
The allowance for loan losses is the estimated amount considered necessary to absorb losses inherent in the loan portfolio at
the balance sheet date. The allowance is established through the provision for loan losses, which is charged against income.
The provision for loan losses reflects the amount required to maintain the allowance for loan losses at an appropriate level
based upon management’s evaluation of the adequacy of loss reserves. The methodology for determining the allowance for
loan losses is considered a critical accounting policy by management due to the high degree of judgment involved, the
subjectivity of the assumptions utilized and the potential for changes in the economic environment that could result in changes
to the amount of the recorded allowance for loan losses.
28
We recognize that losses will be experienced on loans and that the risk of loss will vary with, among other things, the type of
loan, the creditworthiness of the borrower, general economic conditions and the quality of the collateral for the loan. The
analysis of the allowance for loan losses has two components: specific and general allocations. Specific allocations are made
for loans that are determined to be impaired, and have been individually evaluated. Impairment is measured by determining
the present value of expected future cash flows or, for collateral-dependent loans, the fair value of the collateral adjusted for
market conditions and selling expenses. The general allocation is determined by segregating the remaining loans by type of
loan, risk weighting (if applicable), and payment history. Using a three-year lookback period, historical loss experience,
delinquency trends and general economic conditions are analyzed. Separately evaluated but also taken into consideration are
call report, geographic, and industry concentrations. This analysis establishes factors that are applied to the loan groups to
determine the amount of the general allocations.
In addition, as an integral part of their examination process, banking regulators will periodically review our allowance for
loan losses and may require us to make additional provisions for estimated losses based upon judgments different from those
of management. Although management believes that it uses the best information available to establish the allowance for loan
losses, future adjustments to the allowance for loan losses may be necessary and results of operations could be adversely
affected if circumstances differ substantially from the assumptions used in making the determinations. Because future events
affecting borrowers and collateral cannot be predicted with certainty, there can be no assurance that the existing allowance
for loan losses is adequate or that increases will not be necessary should the quality of loans deteriorate as a result of the
factors discussed previously. Any material increase in the allowance for loan losses may adversely affect our financial
condition and results of operations. The allowance is based on information known at the time of the review. Changes in
factors underlying the assessment could have a material impact on the amount of the allowance that is necessary and the
amount of provision to be charged against earnings. Such changes could impact future results.
For the year ended December 31, 2022, we followed the incurred loss methodology for determining our allowance for loan
losses. We will adopt the current expected credit losses ("CECL") standard for determining the amount of our allowance for
credit losses beginning January 1, 2023.
Business Combinations
The Company accounts for business combinations under the acquisition method of accounting. The Company records assets
acquired, including identifiable intangible assets and liabilities assumed at their fair values as of the acquisition date.
Transaction costs related to the acquisition are expensed in the period incurred. Results of operations of the acquired entity
are included in the consolidated statements of income from the date of acquisition. Any measurement-period adjustments are
recorded in the period the adjustment is identified.
The excess of consideration paid over fair value of net assets acquired is recorded as goodwill. Determining the fair value of
assets acquired, including identifiable intangible assets and liabilities assumed often requires significant use of estimates and
assumptions. This may involve estimates based on third-party valuations, such as appraisals, or internal valuations based on
discounted cash flow analyses or other valuation techniques such as estimates of attrition, inflation, asset growth rates,
discount rates, multiples of earnings or other relevant factors. Goodwill is not amortized but is tested at least annually for
impairment. Other intangible assets are assigned useful lives and amortized. The determination of useful lives is subjective.
See Note 2 and 7 to the Consolidated Financial Statements in “Item 8. Financial Statements and Supplementary Data” for
further information.
The Company's accounting policies and discussion of recent accounting pronouncements is included in Note 1 to the
Consolidated Financial Statements in "Item 8. Financial Statements and Supplementary Data".
29
Financial Condition
December 31, 2022 compared to December 31, 2021
Total assets were $1.95 billion at December 31, 2022, an increase of $512.45 million, or 35.7% from $1.44 billion at
December 31, 2021. The increase was largely due to the FCB acquisition in April 2022, primarily reflected in loans
receivable. Loans receivable, net increased by $419.04 million or 45.5%, to $1.34 billion at December 31, 2022 from $920.64
million at December 31, 2021. In addition, securities available-for-sale increased by $78.24 million from $271.26 million at
December 31, 2021. Total liabilities were $1.79 billion at December 31, 2022, an increase of $510.77 million, or 39.9%, from
$1.28 billion at December 31, 2021. The increase in liabilities was mainly due to an increase in deposits. Total deposits
increased by $412.72 million from December 31, 2021, $321.11 million of which were brought on from the FCB acquisition.
FHLB advances and other borrowings also increased $64.39 million from December 31, 2021. Total shareholders’ equity
increased by $1.69 million from December 31, 2021.
Financial Condition Details
Investment Activities
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, 2022 or 2021. 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 $5.09 million and $1.70 million at December 31, 2022 and 2021, respectively. FRB stock was
$4.13 million and $2.97 million at December 31, 2022 and 2021, respectively.
The following table summarizes investment activities:
2022
December 31,
2021
Fair
Value
Percentage
of Total
Fair
Value
Percentage
of Total
2020
Fair
Value
Percentage
of Total
(Dollars in Thousands)
Securities available-for-sale:
U.S. government and agency obligations
U.S. treasury obligations
Municipal obligations
Corporate obligations
Mortgage-backed securities
Collateralized mortgage obligations
Asset-backed securities
Total securities available-for-sale
$ 2,390
51,951
172,849
6,990
29,653
82,131
3,531
$ 349,495
0.68% $
14.86
49.47
2.00
8.48
23.50
1.01
1,633
53,183
123,667
9,336
14,636
63,067
5,740
100.00% $271,262
0.60% $
2,245
5,657
19.61
45.58 99,088
3.44 10,663
7,669
5.40
23.25 31,189
6,435
100.00% $162,946
2.12
1.38%
3.47
60.81
6.54
4.71
19.14
3.95
100.00%
Securities available-for-sale were $349.50 million at December 31, 2022, an increase of $78.24 million, or 28.8%, from
$271.26 million at December 31, 2021. The FCB acquisition included acquired securities of $126.12 million. However,
immediately following the acquisition, a restructure of FCB's portfolio was incurred to better align the acquired portfolio
with Eagle's investment strategy. Excluding securities acquired, securities decreased by $47.89 million. The decrease was
primarily due to unrealized losses at December 31, 2022 resulting from increased interest rates. In addition, the decrease was
impacted by sales, maturity, principal payments and call activity, which were largely offset by purchases.
30
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3
Loans receivable, net increased $419.04 million, or 45.5%, to $1.34 billion at December 31, 2022 from $920.64 million
at December 31, 2021. The increase was impacted by the FCB acquisition, which included $190.89 million of acquired loans.
Excluding acquired loans, loans receivable, net increased by $228.15 million. Including acquired loans, total commercial real
estate loans increased $256.57 million, total commercial loans increased $83.42 million, total residential loans increased
$48.88 million, home equity loans increased $22.52 million and consumer loans increased $9.15 million.
Total loan originations were $1.13 billion for the year ended December 31, 2022. Total residential 1-4 family originations
were $635.03 million, which includes $532.56 million of originations of loans held-for-sale. Total commercial real estate
originations were $315.35 million. Total commercial originations were $124.92 million. Home equity loan originations
totaled $39.79 million. Consumer
totaled $14.97 million. Loans held-for-sale decreased by
loan originations
$17.57 million, to $8.25 million at December 31, 2022 from $25.82 million at December 31, 2021.
Loan Maturities. The following table sets forth the estimated maturity of the loan portfolio of the Bank at December 31, 2022.
Balances exclude deferred loan fees and allowance for loan losses. Scheduled principal repayments of loans do not necessarily
reflect the actual life of such assets. The average life of a loan is typically substantially less than its contractual terms because
of prepayments. In addition, due on sale clauses on loans generally give the Bank the right to declare loans immediately due
and payable in the event, among other things, the borrower sells the real property, subject to the mortgage, and the loan is not
paid off. All mortgage loans are shown to be maturing based on the date of the last payment required by the loan agreement,
except as noted.
Loans having no stated maturity, those without a scheduled payment, demand loans and matured loans, are shown as due
within six months.
After One
Year to
Five Years
After Five
Years to
Fifteen
Years
After
Fifteen
Years
One Year or
Less
Total
$
$
53,066 $
70,429
4,328
1,745
74,760
5,388 $
38,793
22,435
18,339
79,614
204,328 $ 164,569 $
24,663 $
172,134
46,158
7,206
73,815
323,976 $
112,586 $ 195,703
826,549
545,193
74,271
1,350
27,609
319
231,291
3,102
662,550 $ 1,355,423
Total residential 1-4 family (1)
Total commercial real estate
Home equity
Consumer
Total Commercial
Total loans (1)
(1) Excludes loans held-for-sale
The following table includes loans by fixed or adjustable rates at December 31, 2022:
Due after December 31, 2022
Total residential 1-4 family (1)
Total commercial real estate
Home equity
Consumer
Total commercial
Total due after December 31, 2022
Fixed
Adjustable Total
(Dollars in Thousands)
$
44,719 $
117,848
4,058
24,275
100,778
291,677
97,918 $
638,272
65,885
1,589
55,753
142,637
756,120
69,943
25,864
156,531
859,417 1,151,095
Due in less than one year
150,280
54,048
204,328
Total loans (1)
Percent of total
(1) Excludes loans held-for-sale
$
441,958 $ 913,465 $ 1,355,423
32.61%
67.39%
100.00%
33
Delinquent Loans. The following table provides information regarding the Bank’s delinquent loans:
December 31, 2022
30-89 Days
90 Days and Greater
Number
Amount
Percentage
of Total
Number
Amount
Percentage
of Total
(Dollars in Thousands)
(Dollars in Thousands)
7 $
1,798
32.02%
1 $
330
30.67%
2
2
6
4
58
8
87 $
500
780
1,620
226
93
597
5,614
8.91
13.89
28.86
4.03
1.66
10.63
100.00%
-
-
-
-
-
2
3 $
-
-
-
0.00
0.00
0.00
-
-
746
1,076
0.00
0.00
69.33
100.00%
Loan type:
Real estate loans:
Residential 1-4 family
Residential 1-4 family
construction
Commercial real estate
Farmland
Other loans:
Home equity
Consumer
Commercial
Total
34
Nonperforming Assets. The following table sets forth information regarding nonperforming assets:
Non-accrual loans
Real estate loans:
Residential 1-4 family
Residential 1-4 family construction
Commercial real estate
Commercial construction and development
Farmland
Other loans:
Home equity
Consumer
Commercial
Agricultural
Accruing loans delinquent 90 days or more
Real estate loans:
Residential 1-4 family
Residential 1-4 family construction
Commercial real estate
Other loans:
Commercial
Agricultural
Restructured loans
Real estate loans:
Commercial real estate
Commercial construction and development
Farmland
Other loans:
Home equity
Commercial
Agricultural
Total nonperforming loans
Real estate owned and other repossessed property, net
Total nonperforming assets
2022
2021
December 31,
2020
2019
2018
(Dollars in Thousands)
$
483 $
-
350
-
143
616 $
337
497
-
989
684 $
337
631
36
2,245
96
25
44
1,059
100
62
516
1,718
94
151
537
1,542
618 $
337
583
50
323
78
156
750
499
253
634
432
13
-
469
127
308
32
330
-
-
746
-
-
-
-
-
-
34
170
-
4
-
-
130
-
1,347
6
182
-
1,805
3,264
-
611
1,527
-
641
1,633
14
-
-
-
153
11
140
476
7,778
-
$ 7,778 $
15
-
41
7,059
4
17
-
160
8,473
25
7,063 $ 8,498 $
20
74
-
5,450
26
5,476 $
22
-
-
3,767
107
3,874
-
-
-
-
-
Total nonperforming loans to total loans
Total nonperforming loans to total assets
Total nonaccrual loans to total loans
Total nonperforming assets to total assets
0.57%
0.40%
0.24%
0.40%
0.76%
0.49%
0.59%
0.49%
1.00%
0.67%
0.74%
0.68%
0.70%
0.52%
0.47%
0.52%
0.61%
0.44%
0.37%
0.45%
Nonaccrual loans as of December 31, 2022 and 2021 include $694,000 and $492,000, respectively of acquired loans that
deteriorated subsequent to the acquisition date. During the year ended December 31, 2022 and 2021, an insignificant amount
of interest was recorded on loans previously accounted for on a nonaccrual basis.
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 write-up on real estate owned and other repossessed assets for a gain of $18,000 during
the year ended December 31, 2022. During the year ended December 31, 2021, the Bank sold three real estate owned and
other repossessed assets resulting in a net gain of $12,000. There was one write-up on real estate owned and other repossessed
assets for a gain of $10,000 during the year ended December 31, 2021.
35
Management, in compliance with regulatory guidelines, conducts an internal loan review program, whereby loans are placed
or classified in categories depending upon the level of risk of nonpayment or loss. These categories are special mention,
substandard, doubtful or loss. When a loan is classified as substandard or doubtful, management is required to evaluate the
loan for impairment and establish an allowance for loan loss if deemed necessary. When management classifies a loan as a
loss asset, an allowance equaling up to 100.0% of the loan balance is required to be established or the loan is required to be
charged-off. The allowance for loan losses is composed of an allowance for both inherent risk associated with lending
activities and specific problem assets.
Management’s evaluation of classification of assets and adequacy of the allowance for loan losses is reviewed by the Board
on a regular basis and by regulatory agencies as part of their examination process. We also utilize a third-party review as part
of our loan classification process. In addition, on an annual basis or more often if needed, the Company formally reviews the
ratings of all commercial real estate, real estate construction, and commercial business loans that have a principal balance of
$750,000 or more.
The following table reflects our classified assets:
December 31, 2022
Special
Mention
Substandard Doubtful
(In Thousands)
Loss
Total
Real estate loans:
Residential 1-4 family
Residential 1-4 family construction
Commercial real estate
Commercial construction and development
Farmland
Other loans:
$
Home equity
Consumer
Commercial
Agricultural
Total loans
Real estate owned/repossessed property, net
515 $
-
16,833
1,044
2,232
-
10
1,476
311
22,421
353 $
-
1,732
-
2,456
124
39
736
2,182
7,622
- $
-
-
-
-
-
-
8
102
110
- $
-
-
-
-
-
-
-
-
-
868
-
18,565
1,044
4,688
124
49
2,220
2,595
30,153
-
$
30,153
December 31, 2021
Special
Mention
Substandard Doubtful
(In Thousands)
Loss
Total
Real estate loans:
Residential 1-4 family
Residential 1-4 family construction
Commercial real estate
Commercial construction and development
Farmland
Other loans:
$
Home equity
Consumer
Commercial
Agricultural
Total loans
Real estate owned/repossessed property, net
- $
-
1,527
-
177
-
-
130
332
2,166
301 $
337
2,145
-
1,744
134
63
524
1,444
6,692
199 $
-
-
-
47
-
-
-
9
255
- $
-
-
-
-
-
-
-
-
-
500
337
3,672
-
1,968
134
63
654
1,785
9,113
4
$
9,117
36
The increase in special mention for commercial real estate of $15.30 million from December 31, 2021 to December 31,
2022 was largely related to one customer relationship. The outstanding balance of $10.08 million at December 31, 2022 was
paid off during the three months ended March 31, 2023.
Allowance for Loan Losses. The Bank segregates its loan portfolio for loan losses into the following broad categories:
residential 1-4 family, commercial real estate, home equity, consumer and commercial. The Bank provides for a general
allowance for losses inherent in the portfolio in the categories referenced above. General loss percentages which are calculated
based on historical analyses and other factors such as volume and severity of delinquencies, local and national economy,
underwriting standards and other factors. This portion of the allowance is calculated for inherent losses which probably exist
as of the evaluation date even though they might not have been identified by the more objective processes used. This is due
to the risk of error and/or inherent imprecision in the process. This portion of the allowance is subjective in nature and requires
judgments based on qualitative factors which do not lend themselves to exact mathematical calculations such as: trends in
delinquencies and nonaccruals; trends in volume; terms and portfolio mix; new credit products; changes in lending policies
and procedures; and changes in the outlook for the local and national economy.
At least quarterly, the management of the Bank evaluates the need to establish an allowance for losses on specific loans when
a finding is made that a loss is estimable and probable. Such evaluation includes a review of all loans for which full
collectability may not be reasonably assured and considers, among other matters: the estimated market value of the underlying
collateral of problem loans; prior loss experience; economic conditions; and overall portfolio quality.
Provisions for, or adjustments to, estimated losses are included in earnings in the period they are established. At December
31, 2022, we had $14.00 million in allowances for loan losses.
While we believe we have established our existing allowance for loan losses in accordance with generally accepted accounting
principles, there can be no assurance that bank regulators, in reviewing our loan portfolio, will not request that we significantly
increase our allowance for loan losses, or that general economic conditions, a deteriorating real estate market, or other factors
will not cause us to significantly increase our allowance for loan losses, therefore negatively affecting our financial condition
and earnings.
In originating loans, we recognize that credit losses will be experienced and that the risk of loss will vary with, among other
things, the type of loan being made, the creditworthiness of the borrower over the term of the loan and, in the case of a secured
loan, the quality of the security for the loan.
It is our policy to review our loan portfolio, in accordance with regulatory classification procedures, on at least a quarterly
basis.
37
The following table includes information for allowance for loan losses:
Beginning balance
Provision for loan losses
Charge-offs
Residential 1-4 Family
Commercial real estate
Home equity
Consumer
Commercial
Recoveries
Residential 1-4 Family
Commercial real estate
Home equity
Consumer
Commercial
Net loan (recoveries) charge-offs
Ending balance
Years Ended
December 31,
2021
(Dollars in Thousands)
2020
2022
$
12,500 $
11,600 $
8,600
2,001
861
3,130
(199)
-
(32)
(31)
(299)
4
30
-
4
22
(501)
-
(35)
-
(16)
(6)
-
21
-
8
67
39
-
(18)
-
(36)
(173)
-
12
-
16
69
(130)
14,000 $
12,500 $
11,600
s
$
Allowance for loan losses to total loans excluding loans held-for-sale
Allowance for loan losses to total nonperforming loans
Allowance for loan losses to nonaccrual loans
Net (recoveries) charge-offs to average loans outstanding during the period
1.03%
179.99%
424.50%
-0.04%
1.34%
177.08%
227.65%
0.00%
1.38%
136.91%
184.89%
-0.01%
Net charge-offs to average loans outstanding for each loan category are considered insignificant for the periods presented in
the table above.
The following table presents allocation of the allowance for loan losses by loan category and the percentage of loans in each
category to total loans:
2022
Percentage
of
Allowance
to Total
December 31,
2021
Percentage
of
Allowance
to Total
Loan
Category
to Total
Loans Amount
2020
Percentage
of
Allowance
to Total
Allowance
Loan
Category
to Total
Loans
Loan
Category
to Total
Loans Amount
Amount
Allowance
Allowance
(Dollars in Thousands)
Real estate loans:
Residential 1-4 family
Commercial real estate
Total real estate loans
$ 1,472
9,037
10,509
10.51% 14.44 % $ 1,596
64.55 60.97 7,470
75.06 75.41 9,066
12.77% 15.70% $ 1,506
59.76 60.97 6,951
72.53 76.67 8,457
12.98 % 18.63%
59.92 53.12
72.90 71.75
Other loans:
Home equity
Consumer
Commercial
Total other loans
509
342
2,640
3,491
3.64
2.44
5.48
2.04
533
365
18.86 17.07 2,536
24.94 24.59 3,434
5.54
1.97
515
4.26
2.92
364
20.29 15.82 2,264
27.47 23.33 3,143
6.71
4.44
3.14
2.39
19.52 19.15
27.10 28.25
Total
$ 14,000
100.00% 100.00 % $ 12,500
100.00% 100.00% $ 11,600
100.00 % 100.00%
38
Deposits and Other Sources of Funds
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
$1.41 billion or 86.1% of the Bank’s total deposits at December 31, 2022 ($1.38 billion or 84.4% excluding IRA certificates
of deposit). The presence of a high percentage of core deposits and, in particular, transaction accounts reflects in part of 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 remains in certificate of deposit form. These certificates of deposit, if they mature and are
renewed at higher rates, would result in an increase in our cost of funds.
The following table includes deposit accounts and associated weighted average interest rates for each category of deposits:
2022
December 31,
2021
2020
Percent Weighted
Percent Weighted
Percent Weighted
of
Amount
Total
Average
Rate
Amount
Total
of
Average
Rate
Amount
Total
of
Average
Rate
(Dollars in Thousands)
Noninterest
checking
Interest-bearing
checking
Savings
Money market
Total
$ 468,955 28.68 %
0.00% $ 368,846 30.16%
0.00% $ 318,389 30.82%
0.00%
252,922 15.47
273,790 16.74
387,947 23.72
1,383,614 84.61
0.11 203,410 16.64
0.06 223,069 18.25
1.12 277,469 22.7
0.34 1,072,794 87.75
0.02 160,614 15.55
0.06 179,868 17.41
0.25 202,407 19.59
0.08 861,278 83.37
0.02
0.06
0.24
0.07
Certificates of
deposit accounts:
IRA certificates
Brokered
certificates
Other
certificates
Total
certificates of
deposit
Total
deposits
24,907 1.52
0.48
25,333 2.07
0.44
24,693 2.39
0.50
- 0.00
0.00
- 0.00
0.00
495 0.05
1.35
226,751 13.87
251,658 15.39
$ 1,635,272 100.00 %
1.51 124,422 10.18
0.38 146,617 14.19
0.71
1.41 149,755 12.25
0.39 171,805 16.63
0.68
0.50% $1,222,549 100.00%
0.12% $1,033,083 100.00%
0.18%
Deposits increased by $412.72 million, or 33.8%, to $1.64 billion at December 31, 2022 from $1.22 billion at December 31,
2021. A large portion of the deposit increase was due to the FCB acquisition, which brought on $321.11 million in deposits.
Excluding acquired deposits, total deposits increased by $91.61 million. Including acquired deposits, money market increased
by $110.48 million, certificates of deposits increased by $101.90 million, noninterest checking increased by $100.11 million,
savings increased by $50.72 million, and interest-bearing checking increased by $49.51 million.
At December 31, 2022 and 2021, the Company held $642.02 million and $444.89 million, respectively, in deposit accounts
that met or exceeded the Federal Deposit Insurance Corporation ("FDIC") requirements of $250,000 and greater.
39
The following table shows the amount of certificates of deposit with balances of $250,000 and greater by time remaining
until maturity as of December 31, 2022:
3 months or less
Over 3 to 6 months
Over 6 to 12 months
Over 12 months
Total
Balance
$250,000
and Greater
(In Thousands)
$
$
33,410
4,550
11,557
15,686
65,203
Our depositors are primarily residents of the state of Montana.
Borrowings. Deposits are the primary source of funds for our lending and investment activities and for general business
purposes. However, as the need arises, or in order to take advantage of funding opportunities, we also borrow funds in the
form of advances from FHLB of Des Moines to supplement our supply of lendable funds and to meet deposit withdrawal
requirements. The Bank has Federal funds lines of credit with PCBB, PNC, TIB and UBB. Eagle has a line of credit with
Bell Bank.
Advances from FHLB and other borrowings increased by $64.39 million to $69.39 million at December 31, 2022
from $5.00 million at December 31, 2021. The increase was related to funding loan growth. The weighted average rate for
borrowings was 4.52% as of December 31, 2022, compared to 1.81% at December 31, 2021.
Other Long-Term Debt. The following table summarizes other long-term debt activity:
December 31,
2022
December 31,
2021
Net
Amount
Percent
of Total
Net
Percent
of Total
Amount
(Dollars in Thousands)
Senior notes fixed at 5.75%, due 2022
Subordinated debentures fixed at 5.50% to floating, due 2030
Subordinated debentures fixed at 3.50% to floating, due 2032
Subordinated debentures variable at 3-Month Libor plus 1.42%,
$
-
14,751
38,938
0.00% $
25.07
66.17
9,996
14,718
-
33.47%
49.27
0.00
due 2035
Total other long-term debt, net
5,155
58,844
8.76
100.00% $
5,155
29,869
17.26
100.00%
$
Total other long-term debt was $58.84 million at December 31, 2022 compared to $29.87 million at December 31, 2021. This
increase of $28.97 million primarily resulted from the issuance of $40.00 million of subordinated notes, slightly offset by the
redemption of $10.00 million of senior notes.
Shareholders’ Equity
Total shareholders’ equity increased slightly by $1.69 million or 1.1%, to $158.42 million at December 31, 2022 from
$156.73 million at December 31, 2021. This increase was primarily the result of stock issued in connection with the FCB
acquisition of $28.35 million in addition to net income of $10.70 million. The increase was largely offset by an increase in
other comprehensive loss of $29.85 million, net of tax, related to net unrealized losses in securities available-for-sale,
reflecting increases in market interest rates, as well as treasury stock purchases of $4.43 million and dividends paid of $4.06
million.
40
Analysis of Net Interest Income
The Bank’s earnings have historically depended primarily upon net interest income, which is the difference between interest
income earned on loans and investments and interest paid on deposits and any borrowed funds. It is the single largest
component of Eagle’s operating income. Net interest income is affected by (i) the difference between rates of interest earned
on loans and investments and rates paid on interest-bearing deposits and borrowings (the “interest rate spread”) and (ii) the
relative amounts of loans and investments and interest-bearing deposits and borrowings.
The following table includes average balances for 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.
Year Ended December 31, 2022
Average
Daily
Balance
Yield/
Dividends Cost(4)
Interest
and
Year Ended December 31, 2021
Average
Daily
Balance
Yield/
Dividends Cost(4)
Interest
and
Year Ended December 31, 2020
Average
Daily
Balance
Yield/
Dividends Cost(4)
Interest
and
(Dollars in Thousands)
Assets:
Interest earning assets:
Investment securities
FHLB and FRB stock
Loans receivable(1)
Other earning assets
Total interest earning assets
Noninterest earning assets
Total assets
Liabilities and equity:
Interest-bearing liabilities:
Deposit accounts:
Checking
Savings
Money market
Certificates of deposit
FHLB advances and other
borrowings
$ 336,779 $
6,369
8,579 2.55 % $ 215,978 $
4,831
4,238 1.96 % $ 166,577 $
6,534
34,170
302 4.74
1,194,788 60,353 5.05
228 0.67
1,572,106 69,462 4.42
196,813
$ 1,768,919
74,102
255 5.28
914,804 45,134 4.93
120 0.16
1,209,715 49,747 4.11
147,534
$ 1,357,249
3,742 2.24 %
370 5.65
874,669 45,381 5.17
161 0.36
1,092,551 49,654 4.54
127,339
$ 1,219,890
44,771
$ 244,208 $
269,033
358,122
188,954
173 0.07 % $ 190,645 $
198,648
128 0.05
244,113
1,711 0.48
158,959
1,112 0.59
47 0.02 % $ 151,745 $
154,224
169,531
213,696
117 0.06
545 0.22
765 0.48
58 0.04 %
145 0.09
473 0.28
2,938 1.37
Other long-term debt
Total interest-bearing liabilities
Noninterest checking
Other noninterest-bearing liabilities
Total liabilities
14,627
59,807
1,134,751
453,841
24,672
1,613,264
3.51
514
2,512
4.20
6,150 0.54
9,411
29,834
831,610
346,243
22,382
1,200,235
1.86
175
1,558
5.22
3,207 0.39
76,119
28,593
793,908
265,304
19,518
1,078,730
1.55
1,183
1,687
5.88
6,484 0.81
Total equity
155,655
157,014
141,160
Total liabilities and equity
$ 1,768,919
$ 1,357,249
$ 1,219,890
Net interest income/interest rate
spread(2)
Net interest margin(3)
Total interest earning assets to
interest-bearing liabilities
$ 63,312 3.88 %
$ 46,540 3.72 %
$ 43,170 3.73 %
4.03 %
3.85 %
3.94 %
138.54 %
145.47 %
137.62 %
(1) Includes loans held-for-sale.
(2) Interest rate spread represents the difference between the average yield on interest-earning assets and the average rate on interest-
bearing liabilities.
(3) Net interest margin represents income before the provision for loan losses divided by average interest-earning assets.
(4) For purposes of this table, tax exempt income is not calculated on a tax equivalent basis.
41
Rate/Volume Analysis
The following table presents the dollar amount of changes in interest income and interest expense for major components of
interest-earning assets and interest-bearing liabilities. For each category of interest-earning assets and interest-bearing
liabilities, information is provided on changes attributable to: (1) changes in volume multiplied by the old rate; (2) changes
in rate, which are changes in rate multiplied by the old volume; and (3) changes not solely attributable to rate or volume,
which have been allocated proportionately to the change due to volume and the change due to rate.
Year Ended
December 31, 2022
Due to
Year Ended
December 31, 2021
Due to
Volume Rate
Net
Volume Rate
Net
(In Thousands)
Interest earning assets:
Investment securities
FHLB and FRB stock
Loans receivable(1)
Other earning assets
Total interest earning assets
Interest-bearing liabilities:
Checking
Savings
Money market
Certificates of deposit
FHLB advances and other borrowings
Other long-term debt
Total interest-bearing liabilities
81
(34)
$ 2,370 $ 1,971 $ 4,341 $ 1,110 $
(96)
(614) $
(19)
13,814 1,405 15,219 2,082 (2,329)
(146)
16,200 3,515 19,715 3,201 (3,108)
108
173
105
(65)
47
496
(115)
(247)
(41)
93
13
41
255
144
97
1,565
2,115
(26)
(70)
(136)
(11)
15
126
113
(28)
42
(30)
11
208
72
911 1,166
(753) (1,420) (2,173)
347
203
29 (1,008)
339 (1,037)
242
(611)
(129)
73
954
828 2,943 (1,452) (1,825) (3,277)
(202)
Change in net interest income
$ 14,085 $ 2,687 $ 16,772 $ 4,653 $ (1,283) $ 3,370
(1) Includes loans held-for-sale.
Results of Operations
Comparison of Operating Results for the Years Ended December 31, 2022 and 2021
Net Income
Eagle’s net income for the year ended December 31, 2022 was $10.70 million compared to $14.42 million for the year ended
December 31, 2021. The decrease of $3.72 million was primarily due to a decrease in noninterest income of $19.96 million.
This decrease was largely offset by an increase in net interest income after loan loss provision of $15.63 million. Basic and
diluted earnings per common share were both $1.45 for the year ended December 31, 2022. Basic and diluted earnings per
common share were both $2.17 for the prior period.
Net Interest Income
Net interest income increased to $63.31 million for the year ended December 31, 2022, from $46.54 million for the year
ended December 31, 2021. This increase of $16.77 million, or 36.0%, was primarily the result of an increase in interest and
dividend income of $19.71 million. This increase was offset by an increase in interest expense of $2.94 million.
42
Interest and Dividend Income
Interest and dividend income was $69.46 million for the year ended December 31, 2022, compared to $49.75 million for the
year ended December 31, 2021, an increase of $19.71 million, or 39.6%. Interest and fees on loans increased to $60.35 million
for the year ended December 31, 2022 from $45.13 million for the same period ended December 31, 2021. This increase of
$15.22 million, or 33.7%, was largely due 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, 2022 were $1.19 billion, compared to $914.80
million for the year ended December 31, 2021. This increase of $279.99 million, or 30.6% was impacted by the FCB
acquisition, as well as organic growth. In addition, the average interest rate earned on loans receivable increased by 12 basis
points, from 4.93% for the year ended December 31, 2021, to 5.05% for the year ended December 31, 2022. Interest accretion
on purchased loans was $1.56 million for the year ended December 31, 2022, which resulted in a 10 basis point increase in
net interest margin compared to $579,000 for the year ended December 31, 2021, which resulted in a 5 basis point increase
in net interest margin. Interest on investment securities available-for-sale increased by $4.34 million or 102.4% period over
period. Average balances for investments increased to $336.78 million for the year ended December 31, 2022, from
$215.98 million for the year ended December 31, 2021. The increase in average investment balances was largely driven by
the FCB acquisition. Average interest rates earned on investments also increased to 2.55% for the year ended December 31,
2022 from 1.96% for the year ended December 31, 2021.
Interest Expense
Total interest expense was $6.15 million for the year ended December 31, 2022, increasing from $3.21 million for the year
ended December 31, 2021. The increase of $2.94 million, or 91.6%, was due to an increase of $1.65 million in interest
expense on deposits and a net increase of $1.28 million in interest expense on total borrowings. The average balance for total
deposits was $1.51 million for the year ended December 31, 2022, compared to $1.14 million for the year ended December
31, 2021. The increase in average deposit balances was due to the FCB acquisition but was also driven by organic growth. In
addition, the overall average rate on total deposits was 0.21% for the year ended December 31, 2022, compared to 0.13% for
the year ended December 31, 2021. The average balance for total borrowings increased from $39.25 million for the year
ended December 31, 2021 to $74.43 million for the year ended December 31, 2022. The increase was impacted by the
issuance of $40.00 million of subordinated notes in January 2022. A portion of the net proceeds were used to redeem $10.00
million of senior notes due in February 2022. However, the average rate paid on total borrowings decreased from 4.42% for
the year ended December 31, 2021, to 4.07% for the year ended December 31, 2022. The decrease in the average rate paid
was due to the change in the mix of the outstanding borrowings.
Loan Loss Provision
Loan loss provisions are charged to earnings to maintain the total allowance for loan losses at a level considered adequate by
the Bank to provide for probable loan losses based on prior loss experience, volume and type of lending we conduct and past
due loans in portfolio. The Bank’s policies require the review of assets on a quarterly basis. The Bank classifies loans if
warranted. While management believes it uses the best information available to make a determination with respect to the
allowance for loan losses, it recognizes that future adjustments may be necessary. Using this methodology, the Bank recorded
$2.00 million in loan loss provisions for the year ended December 31, 2022, compared to $861,000 in loan loss provisions
for the year ended December 31, 2021. The increase in the loan loss provision was largely due to loan growth. Management
believes the level of total allowances is adequate to cover estimated losses inherent in the portfolio. However, if the economic
outlook worsens relative to the assumptions we utilized, our allowance for loan losses will increase accordingly in future
periods. Total nonperforming loans, including restructured loans, net, was $7.78 million at December 31, 2022 compared to
$7.06 million at December 31, 2021. There was no other real estate owned and other repossessed assets at December 31,
2022 compared to $4,000 at December 31, 2021.
43
Noninterest Income
Total noninterest income was $26.22 million for the year ended December 31, 2022, compared to $46.18 million for the year
ended December 31, 2021. The decrease of $19.96 million, or 43.2% was primarily due to a decrease in a mortgage banking,
net of $21.55 million for the year ended December 31, 2022. Mortgage banking, net includes net gain on sale of mortgage
loans which decreased $27.48 million to $18.61 million for the year ended December 31, 2022, compared to $46.09 million
for the year ended December 31, 2021. This change reflects a mortgage market that has returned to more normal levels after
record levels were reached in 2020 and 2021. During the year ended December 31, 2022, $551.02 million residential
mortgage loans were sold compared to $1.06 billion in the prior year. In addition, gross margin on sale of mortgage loans for
the year ended December 31, 2022 was 3.38% compared to 4.34% for the year ended December 31, 2021. There has been
margin compression due to increased competition. 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 loss of
$1.84 million for the year ended December 31, 2022 compared to a loss of $5.44 million for the year ended December 31,
2021.
Noninterest Expense
Noninterest expense was $73.68 million for the year ended December 31, 2022, compared to $72.58 million for the year
ended December 31, 2021, a slight increase of $1.10 million, or 1.5%. Acquisition costs were $2.30 million during the year
ended December 31, 2022, compared to $761,000 during the prior year. Occupancy and equipment also increased by
$1.15 million due to office expansion and the corresponding depreciation and amortization expense, as well as utilization and
maintenance costs. These increases were largely offset by a decrease in salaries and employee benefits of $4.25 million due
to lower commissions paid on residential mortgage originations.
Provision for Income Taxes
Provision for income taxes was $3.15 million for the year ended December 31, 2022, compared to $4.86 million for the year
ended December 31, 2021 due to decreased income before provision for income taxes. The effective tax rate was 22.7% for
the year ended December 31, 2022 compared to 25.2% for the prior year.
Liquidity and Capital Resources
Liquidity
The Bank is required by regulation to maintain sufficient levels of liquidity for safety and soundness purposes. Appropriate
levels of liquidity will depend upon the types of activities in which the company engages. For internal reporting purposes,
the Bank uses policy minimums of 1.0%, and 8.0% for “basic surplus” and “basic surplus with FHLB” as internally defined.
In general, the “basic surplus” is a calculation of the ratio of unencumbered short-term assets reduced by estimated
percentages of CD maturities and other deposits that may leave the Bank in the next 90 days divided by total assets. “Basic
surplus with FHLB” adds to “basic surplus” the additional borrowing capacity the Bank has with the FHLB of Des Moines.
The Bank exceeded those minimum ratios as of December 31, 2022 and 2021.
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. In
addition, the Bank uses liquidity resources for investment purposes, to meet operating expenses and capital expenditures, for
dividend payments and stock repurchases and to maintain adequate liquidity levels.
Liquidity may be adversely affected by unexpected deposit outflows, higher interest rates paid by competitors, and similar
matters. Management monitors projected liquidity needs and determines the level desirable based in part on Eagle’s
commitments to make loans and management’s assessment of Eagle’s ability to generate funds.
44
Comparison of Cash Flow for Years Ended December 31, 2022 and 2021
Net cash provided by the Company’s operating activities, which is primarily comprised of cash transactions affecting net
income, was $41.91 million for the year ended December 31, 2022 compared to $56.45 million for the prior year. Net cash
provided by operating activities was lower for the year ended December 31, 2022 primarily due to changes in loans held-for-
sale activity.
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 $235.04 million for the year ended December 31, 2022 compared to
$232.92 million for the year ended December 31, 2021. 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. Available-for-sale securities purchases were $132.18 million during
the year ended December 31, 2021. Net cash used in investing activities for the year ended December 31, 2021, was also
impacted by loan originations being higher than loan pay-off and principal payments during the year. Loan origination and
principal collection, net was $98.67 million for the year ended December 31, 2021.
Net cash provided by the Company’s financing activities was $153.51 million for the year ended December 31, 2022
compared to $168.10 million for the year ended December 31, 2021. 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. Net cash provided by financing activities for the year ended December 31,
2021 was impacted by a net increase in deposits of $189.47 million. This was slightly offset by net payment on FHLB and
other borrowings of $12.07 million.
Capital Resources
At December 31, 2022, the Bank’s internally determined measurement of sensitivity to interest rate movements as measured
by a 200 basis point rise in interest rates scenario, decreased the economic value of equity (“EVE”) by 12.6% compared to
an increase of 8.90% at December 31, 2021. The Bank is within the guidelines set forth by the Board of Directors for interest
rate sensitivity.
The Bank’s Tier 1 leverage ratio, as measured under State of Montana and FRB rules, decreased from 10.96% as of December
31, 2021 to 9.82% as of December 31, 2022. The Bank’s strong capital position helps to mitigate its interest rate risk exposure.
As of December 31, 2022, 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, 2022, the Bank’s total capital,
Tier 1 capital, common equity Tier 1 capital and Tier 1 leverage ratios amounted to 13.04%, 12.14%, 12.14% and 9.82%,
respectively, compared to regulatory requirements of 10.50%, 8.50%, 7.00% and 4.00%, respectively.
Impact of Inflation and Changing Prices
Our consolidated financial statements and the accompanying notes, which are found in Item 8, have been prepared in
accordance with generally accepted accounting principles, which require the measurement of financial position and operating
results in terms of historical dollars without considering the change in the relative purchasing power of money over time and
due to inflation. The impact of inflation is reflected in the increased cost of our operations. Interest rates have a greater impact
on our performance than do the general levels of inflation. Interest rates do not necessarily move in the same direction or to
the same extent as the prices of goods and services.
Interest Rate Risk
Interest rate risk is the potential for loss of future earnings resulting from adverse changes in the level of interest rates. Interest
rate risk results from several factors and could have a significant impact on the Company’s net interest income, which is the
Company's primary source of net income. Net interest income is affected by changes in interest rates, the relationship between
rates on interest-earning assets and interest-bearing liabilities, the impact of interest fluctuations on asset prepayments and
the mix of interest-bearing assets and liabilities.
45
Although interest rate risk is inherent in the banking industry, banks are expected to have sound risk management practices
in place to measure, monitor and control interest rate exposures. The objective of interest rate risk management is to contain
the risks associated with interest rate fluctuations. The process involves identification and management of the sensitivity of
net interest income to changing interest rates.
The ongoing monitoring and management of this risk is an important component of the Company’s asset/liability committee,
which is governed by policies established by the Company’s Board that are reviewed and approved annually. The Board
delegates responsibility for carrying out the asset/liability management policies to the Bank’s asset/liability committee. In
this capacity, the asset/liability committee develops guidelines and strategies impacting the Company’s asset/liability
management related activities based upon estimated market risk sensitivity, policy limits and overall market interest rate
levels and trends. The Company’s goal of its asset and liability management practices is to maintain or increase the level of
net interest income within an acceptable level of interest rate risk. Our asset and liability policy and strategies are expected
to continue as described so long as competitive and regulatory conditions in the financial institution industry and market
interest rates continue as they have in recent years.
The Bank has established acceptable levels of interest rate risk as follows for an instantaneous and permanent shock in rates:
Projected net interest income over the next twelve months (i.e. year-1) and the subsequent twelve months (i.e. year-2) will
not be reduced by more than 15.0% given an immediate increase or decrease in interest rates of up to 200 basis points or by
more than 10.0% given an immediate increase or decrease in interest rates of up to 100 basis points.
The following table includes the Banks’s net interest income sensitivity analysis.
Changes in Market
Interest Rates
(Basis Points)
+200
+100
-100
-200
Rate Sensitivity
As of December 31, 2022
Year 1
-2.3%
-0.9%
-0.2%
-0.7%
Year 2
8.2%
7.8%
3.9%
0.6%
Policy
Limits
-15.0%
-10.0%
-10.0%
-15.0%
The following table discloses how the Bank’s economic value of equity (“EVE”) would react to interest rate changes.
Changes in Market
Interest Rates
(Basis Points)
+400
+300
+200
+100
0
-100
EVE as a % Change from 0 Shock
As of December 31, 2022
Projected EVE
4.4%
4.1%
3.2%
2.4%
0.0%
-5.4%
Board Policy
Limit
Maximum % change:
-40.0%
-35.0%
-30.0%
-20.0%
0.0%
-20.0%
Off-Balance Sheet Arrangements
As a financial services provider, we routinely are a party to various financial instruments with off-balance-sheet risks, such
as commitments to extend credit and unused lines of credit. While these contractual obligations represent our future cash
requirements, a significant portion of commitments to extend credit may expire without being drawn upon. Such
commitments are subject to the same credit policies and approval process accorded to loans we make.
Commitments are summarized as follows:
Commitments to extend credit
Letters of credit
46
December 31,
2022
2021
(In Thousands)
$
367,494 $
10,563
252,485
4,129
ITEM 7A.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
This item has been omitted based on Eagle’s status as a smaller reporting company.
ITEM 8.
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
Eagle’s audited consolidated financial statements, notes thereto, and auditor’s reports are found immediately following Part
III of this report.
ITEM 9.
None.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
ITEM 9A.
CONTROLS AND PROCEDURES.
Disclosure Controls and Procedures
We conducted an evaluation under the supervision and with the participation of our management including our Chief
Executive Officer (“CEO”) and our Chief Financial Officer (“CFO”) of the effectiveness of the design and operation of our
disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, as amended, as of
December 31, 2022, to ensure that information required to be disclosed by us in the reports filed or submitted by us under the
Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the Securities and
Exchange Commission’s rules and forms, including to ensure that information required to be disclosed by us in the reports
filed or submitted by us under the Exchange Act is accumulated and communicated to management to allow timely decisions
regarding required disclosure. Based on that evaluation, our CEO and CFO concluded that as of December 31, 2022, our
disclosure controls and procedures were effective.
Management Annual Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such
term is defined in Exchange Act Rules 13a-15(f) and 15d-15(f). Our management conducted an assessment of the
effectiveness of our internal control over financial reporting. This assessment was based upon the criteria for effective internal
control over financial reporting established in the 2013 Internal Control - Integrated Framework, issued by the Committee of
Sponsoring Organizations of the Treadway Commission.
The Company’s internal control over financial reporting involves a process designed to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance
with generally accepted accounting principles. Internal control over financial reporting includes the controls themselves, as
well as monitoring of the controls and internal auditing practices and actions to correct deficiencies identified. Because of its
inherent limitations, internal control over financial reporting may not prevent or detect all misstatements.
Management assessed the effectiveness of the Company’s internal control over financial reporting as of December 31, 2022.
Based on this assessment, management concluded that, as of December 31, 2022, the Company’s internal control over
financial reporting was effective.
Changes in Internal Control over Financial Reporting
There were no changes in the Company’s internal control over financial reporting identified in connection with the evaluation
required by paragraph (d) of Exchange Act Rules 13a-15 or 15d-15 that occurred during the quarter ended December 31,
2022 that have materially affected, or were reasonably likely to materially affect, the Company’s internal control over
financial reporting.
ITEM 9B.
OTHER INFORMATION.
None.
ITEM 9C.
DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTION.
Not applicable.
47
PART III
Except as provided below, the information required by Items 10, 11, 12, 13 and 14 is hereby incorporated by reference from
our definitive proxy statement to be filed with the Securities and Exchange Commission within 120 days after the close of
our year ended December 31, 2022.
ITEM 10.
DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE.
Information about our directors may be found under the caption “Proposal I – Election of Directors” in our Proxy Statement
for the 2023 Annual Meeting of Stockholders (the “Proxy Statement”). The information in the Proxy Statement set forth
under the captions of “Board Attendance and Committees,” “Board Leadership Structure,” “The Board’s Role in Risk
Oversight” and “Code of Ethics” is incorporated herein by reference.
Information about our executive officers may be found under the caption "Executive Officers" in our Proxy Statement and is
incorporated herein by reference.
Code of Ethics
We have a code of ethics that applies to all of our employees, including our principal executive officer, principal financial
officer, principal accounting officer and our Board. Our Code of Ethics and Conflict of Interest Policy is available on our
website at www.opportunitybank.com. We will disclose on our website any amendments to or waivers from any provision of
our Code of Ethics and Conflict of Interest Policy that applies to any of the directors or executive officers.
ITEM 11.
EXECUTIVE COMPENSATION.
The information in the Proxy Statement set forth under the captions of “Directors’ Compensation” and “Executive
Compensation” is incorporated herein by reference.
ITEM 12.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
AND RELATED STOCKHOLDER MATTERS.
The information in the Proxy Statement set forth under the caption of “Beneficial Ownership of Common Stock” is
incorporated herein by reference.
ITEM 13.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
INDEPENDENCE.
The information in the Proxy Statement set forth under the captions of “Transactions with Certain Related Persons” and
“Board Independence” is incorporated herein by reference.
ITEM 14.
PRINCIPAL ACCOUNTANT FEES AND SERVICES.
The information in the Proxy Statement set forth under the caption of “Proposal 2 – Ratification of Appointment of
Independent Registered Public Accounting Firm” is incorporated herein by reference.
ITEM 15.
EXHIBIT AND FINANCIAL STATEMENT SCHEDULES.
PART IV
(a)
(1)
The following documents are filed as part of this report: The audited Consolidated Statements of
Financial Condition of Eagle Bancorp Montana, Inc. and subsidiaries as of December 31, 2022 and 2021
and the related Consolidated Statements of Income, Consolidated Statements of Comprehensive Income,
Consolidated Statements of Changes in Shareholders' Equity and Consolidated Statements of Cash
Flows for the years then ended, together with the related notes and Report of Independent Registered
Public Accounting Firm.
(2)
(3)
Schedules omitted as they are not applicable.
Exhibits.
48
Exhibits 10.1 through 10.16 and 10.23 through 10.34 are management contracts or compensatory plans or arrangements.
2.1
2.2
2.3
2.4
3.1
3.2
3.3
4.1
4.2
4.3
4.4
4.5
4.6
10.1
10.2
10.3
Agreement and Plan of Merger, dated as of September 5, 2017, by and among Eagle Bancorp Montana,
Inc., Opportunity Bank of Montana, TwinCo, Inc. and Ruby Valley Bank (incorporated by reference to
Exhibit 2.1 of our Current Report on Form 8-K filed on September 6, 2017)*
Agreement and Plan of Merger, dated as of August 21, 2018, by and among Eagle Bancorp Montana,
Inc., Opportunity Bank of Montana, Big Muddy Bancorp, Inc. and The State Bank of Townsend
(incorporated by reference to Exhibit 2.1 of our Current Report on Form 8-K filed on August 21, 2018)*
Agreement and Plan of Merger, dated as of August 8, 2019, by and among Eagle Bancorp Montana, Inc.,
Opportunity Bank of Montana, Western Holding Company of Wolf Point and Western Bank of Wolf
Point (incorporated by reference to Exhibit 2.1 of our Current Report on Form 8-K filed on August 9,
2019)*
Agreement and Plan of Merger, dated as of September 30, 2021, by and among Eagle Bancorp Montana,
Inc., Opportunity Bank of Montana, First Community Bancorp, Inc. and First Community bank
(incorporated by reference to Exhibit 2.1 of our Current Report on Form 8-K filed on October 1, 2021)*
Amended and Restated Certificate of Incorporation of Eagle Bancorp Montana, Inc. (incorporated by
reference to Exhibit 3.1 of our Current Report on Form 8-K filed on February 23, 2010).
Certificate of Amendment to the Amended and Restated Certificate of Incorporation (incorporated by
reference to Exhibit 3.2 of our Quarterly Report on Form 10-Q filed on May 9, 2019).
Bylaws of Eagle Bancorp Montana, Inc., amended as of August 20, 2015 (incorporated by reference to
Exhibit 3.1 of our Current Report on Form 8-K filed on August 25, 2015).
Form of Common Stock Certificate of Eagle Bancorp Montana, Inc. (incorporated by reference to Exhibit
4 of our Registration Statement on Form S-1 filed on December 17, 2009).
Form of 6.75% Subordinated Note due 2025 (incorporated by reference to Exhibit 4.1 of our Current
Report on Form 8-K filed on June 19, 2015).
Form of 5.75% Subordinated Note due 2022 (incorporated by reference to Exhibit 4.1 of our Current
Report on Form 8-K filed on February 13, 2017).
Description of Eagle Bancorp Montana, Inc.’s Securities Registered under Section 12 of the Securities
Exchange Act of 1934 (incorporated by reference to Exhibit 4.4 of our Annual Report on Form 10-K
filed on March 11, 2020).
Form of 3.50% Subordinated Note due 2032 (incorporated by reference to Exhibit 4.1 of our Current
Report on Form 8-K filed on January 24, 2022).
Indenture dated January 21, 2022, by and between Eagle Bancorp Montana, Inc. and U.S. Bank National
Association, as trustee (incorporated by reference to Exhibit 4.1 of our Current Report on Form 8-K filed
on January 24, 2022).
Employment Contract, effective as of April 27, 2015, among Peter J. Johnson, Eagle Bancorp Montana,
Inc. and Opportunity Bank of Montana (incorporated by reference to Exhibit 10.2 of our Current Report
on Form 8-K filed on April 29, 2015).
Form of Change in Control Agreement entered into between Opportunity Bank of Montana and its
executive officers (incorporated by reference to Exhibit 10.1 of our Current Report on Form 8-K filed on
September 28, 2022).
Amended Salary Continuation Agreement, dated April 27, 2015, between Peter J. Johnson and
Opportunity Bank of Montana (incorporated by reference to Exhibit 10.7 of our Current Report on Form
8-K filed on August 24, 2015).
49
10.4
10.5
10.6
10.7
10.8
10.9
10.10
10.11
10.12
10.13
10.14
10.15
10.16
10.17
10.18
Amendment to Salary Continuation Agreement between Opportunity Bank of Montana and Peter J.
Johnson (incorporated by reference to Exhibit 10.2 of our Current Report on Form 8-K filed on October
11, 2018).
Second Amendment to the Salary Continuation Agreement between Opportunity Bank of Montana and
Peter J. Johnson dated August 20, 2021 (incorporated by reference to Exhibit 10.1 of our Current Report
on Form 8-K filed on August 24, 2021).
Salary Continuation Agreement, dated November 1, 2014, between Laura F. Clark and Opportunity Bank
of Montana (incorporated by reference to Exhibit 10.1 of our Quarterly Report on Form 10-Q filed on
May 9, 2019).
Amendment to Salary Continuation Agreement between Opportunity Bank of Montana and Laura F.
Clark (incorporated by reference to Exhibit 10.3 of our Current Report on Form 8-K filed on October 11,
2018).
Amendment to Salary Continuation Agreement between Opportunity Bank of Montana and Laura F.
Clark (incorporated by reference to Exhibit 10.1 of our Current Report on Form 8-K filed on September
22, 2020).
Salary Continuation Agreement, dated November 16, 2006, between Rachel R. Amdahl and American
Federal Savings Bank (incorporated by reference to Exhibit 10.18 of our Amendment No. 1 to
Registration Statement on Form S-1 filed on February 1, 2010).
American Federal Savings Bank Split-Dollar Plan, effective October 21, 2004 (incorporated by reference
to Exhibit 10.19 of our Amendment No. 1 to Registration Statement on Form S-1 filed on February 1,
2010).
Summary of American Federal Savings Bank Bonus Plan (incorporated by reference to Exhibit 10.20 of
our Amendment No. 2 to Registration Statement on Form S-1 filed on February 16, 2010).
2011 Stock Incentive Plan for Directors, Officers and Employees (incorporated by reference to Exhibit
10.1 of the Registration Statement on Form S-8 (File No. 333-182360) filed with the SEC on June 27,
2012).
Amendment No. 1 to the Eagle Bancorp Montana, Inc. 2011 Stock Incentive Plan for Directors, Officers,
and Employees (incorporated by reference to Exhibit 10.13 of our Annual Report on Form 10-K filed on
March 15, 2016).
Amendment No. 2 to the Eagle Bancorp Montana, Inc. 2011 Stock Incentive Plan for Directors, Officers
and Employees (incorporated by reference to Exhibit 10.1 of our Current Report on Form 8-K filed on
April 21, 2017).
Amendment No. 3 to the Eagle Bancorp Montana, Inc. 2011 Stock Incentive Plan for Directors, Officers
and Employees (incorporated by reference to Exhibit 10.1 of our Quarterly Report on Form 10-Q filed
on May 11, 2020).
Amendment No. 4 to the Eagle Bancorp Montana, Inc. 2011 Stock Incentive Plan for Directors, Officers
and Employees (incorporated by reference to Exhibit 10.1 of our Current Report on Form 8-K filed on
April 27, 2022.
Form of Subordinated Note Purchase Agreement (incorporated by reference to Exhibit 10.1 of our
Current Report on Form 8-K filed on June 19, 2015).
Form of Subordinated Note Purchase Agreement (incorporated by reference to Exhibit 10.1 of our
Current Report on Form 8-K filed on February 13, 2017).
50
10.19
10.20
10.21
10.22
10.23
10.24
10.25
10.26
10.27
10.28
10.29
10.30
10.31
10.32
10.33
Form of Subordinated Note Purchase Agreement dated June 10, 2020, by and among Eagle Bancorp
Montana, Inc. and the Purchasers (incorporated by reference to Exhibit 10.1 of our Current Report on
Form 8-K filed on June 10, 2020).
Form of Subordinated Note Purchase Agreement dated January 21, 2022, by and among Eagle Bancorp
Montana, Inc. and the Purchasers (incorporated by reference to Exhibit 10.1 of our Current Report on
Form 8-K filed on January 24, 2022).
Form of Registration Rights Agreement dated January 21, 2022, by and among Eagle Bancorp Montana,
Inc. and the Purchasers (incorporated by reference to Exhibit 10.2 of our Current Report on Form 8-K
filed on January 24, 2022).
Form of Eagle Bancorp Montana, Inc. Indemnification Agreement (incorporated by reference to Exhibit
10.15 of our Annual Report on Form 10-K filed on March 12, 2019).
Salary Continuation Agreement between Opportunity Bank of Montana and Patrick D. Rensmon
(incorporated herein by reference to Exhibit 10.1 of our Current Report on Form 8-K filed on October
11, 2018).
Salary Continuation Agreement between Opportunity Bank of Montana and Mark O’Neill (incorporated
by reference to Exhibit 10.4 of our Quarterly Report on Form 10-Q filed on November 14, 2018).
Salary Continuation Agreement between Opportunity Bank of Montana and Dale Field (incorporated by
reference to Exhibit 10.2 of our Quarterly Report on Form 10-Q filed on May 9, 2019).
Second Amendment to Salary Continuation Agreement between Opportunity Bank of Montana and Dale
Field (incorporated by reference to Exhibit 10.2 of our Quarterly Report on Form 10-Q filed on
November 4, 2022).
Amendment to Salary Continuation Agreement between Opportunity Bank of Montana and Dale Field
(incorporated by reference to Exhibit 10.5 of our Quarterly Report on Form 10-Q filed on November 14,
2018).
Salary Continuation Agreement between Opportunity Bank of Montana and Chantelle Nash
(incorporated by reference to Exhibit 10.3 of our Quarterly Report on Form 10-Q filed on May 9, 2019).
Amendment to Salary Continuation Agreement between Opportunity Bank of Montana and Chantelle
Nash (incorporated by reference to Exhibit 10.6 of our Quarterly Report on Form 10-Q filed on
November 14, 2018).
Salary Continuation Agreement between Opportunity Bank of Montana and Linda Chilton (incorporated
by reference to Exhibit 10.1 of our Quarterly Report on Form 10-Q filed on November 5, 2020).
2020 Non-Employee Director Award Plan (incorporated by reference to Exhibit 10.2 of our Quarterly
Report on Form 10-Q filed on May 11, 2020).
Salary Continuation Agreement between Opportunity Bank of Montana and Alana Binde (incorporated
by reference to Exhibit 10.1 of our Quarterly Report on Form 10-Q filed on November 4, 2022).
Salary Continuation Agreement between Opportunity Bank of Montana and Miranda Spaulding
(incorporated by reference to Exhibit 10.2 of our Quarterly Report on Form 10-Q filed on November 9,
2022).
10.34
Deferred Compensation Agreement between Eagle Bancorp Montana, Inc. and Peter J. Johnson (filed
herewith).
51
21.1
Subsidiaries of Registrant.
23.1
Consent of Moss Adams LLP.
31.1
31.2
32.1
Certification by Laura F. Clark, Chief Executive Officer, pursuant to Rule 13a-14(a) under the Securities
Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
Certification by Miranda J. Spaulding, Chief Financial Officer, pursuant to Rule 13a-14(a) under the
Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
Certification by Laura F. Clark, Chief Executive Officer and Miranda J. Spaulding, Chief Financial
Officer, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002.
*
(b)
(c)
The schedules have been omitted pursuant to Item 601(b)(2) of Regulation S-K. Eagle Bancorp Montana agrees to
furnish supplementally a copy of such schedules, or any section thereof, to the SEC upon request.
See item 15(a)(3) above.
See Item 15(a)(1) and 15(a)(2) above.
101.INS Inline XBRL Instance Document (the instance document does not appear in the Interactive Data File because its
XBRL tags are embedded within the Inline XBRL document)
101.SCH Inline XBRL Taxonomy Extension Schema Document
101.CAL Inline XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF Inline XBRL Taxonomy Extension Definition Linkbase Document
101.LAB Inline XBRL Taxonomy Extension Label Linkbase Document
101.PRE Inline XBRL Taxonomy Extension Presentation Linkbase Document
104
Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)
ITEM 16.
FORM 10-K SUMMARY.
None.
52
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused
this report to be signed on its behalf by the undersigned, thereunto duly authorized.
EAGLE BANCORP MONTANA, INC.
/s/ Laura F. Clark
Laura F. Clark
President and Chief Executive Officer
March 8, 2023
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following
persons on behalf of the registrant and in the capacities and on the dates indicated.
Signatures
Title
Date
/s/ Laura F. Clark
Laura F. Clark
President and Chief Executive Officer
Director (Principal Executive Officer)
March 8, 2023
March 8, 2023
Chief Financial Officer
(Principal Financial Officer and
Principal Accounting Officer)
Chairman
March 8, 2023
/s/ Miranda J. Spaulding
Miranda J. Spaulding
/s/ Rick F. Hays
Rick F. Hays
/s/ Thomas J. McCarvel
Vice Chairman
March 8, 2023
Thomas J. McCarvel
/s/ Peter J. Johnson
Director
Peter J. Johnson
/s/ Maureen J. Rude
Director
Maureen J. Rude
/s/ Shavon R. Cape
Director
Shavon R. Cape
/s/ Tanya J. Chemodurow
Director
Tanya J. Chemodurow
/s/ Kenneth M. Walsh
Director
Kenneth M. Walsh
/s/ Corey Jensen
Director
Corey Jensen
/s/ Benjamin G. Ruddy
Director
Benjamin G. Ruddy
/s/ Cynthia A. Utterback
Director
Cynthia A. Utterback
/s/ Samuel D. Waters
Director
Samuel D. Waters
53
March 8, 2023
March 8, 2023
March 8, 2023
March 8, 2023
March 8, 2023
March 8, 2023
March 8, 2023
March 8, 2023
March 8, 2023
Exhibit 31.1
CERTIFICATION PURSUANT TO RULE 13a-14(a) UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS
ADOPTED PURSUANT TO SECTION 302 (a) OF THE SARBANES-OXLEY ACT OF 2002
I, Laura F. Clark, Chief Executive Officer of Eagle Bancorp Montana, Inc., certify that:
1.
2.
3.
4.
I have reviewed this annual report on Form 10-K of Eagle Bancorp Montana, Inc.;
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a
material fact necessary to make the statements made, in light of the circumstances under which such statements were
made, not misleading with respect to the period covered by this report;
Based on my knowledge, the financial statements, and other financial information included in this report, fairly
present in all material respects the financial condition, results of operations and cash flows of the registrant as of,
and for, the periods presented in this report;
The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls
and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial
reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be
designed under our supervision, to ensure that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which
this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting
to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance with generally accepted accounting
principles;
(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report
our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered
by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred
during the registrant’s most recent fiscal quarter (the registrant’s fourth quarter in the case of an annual report) that
has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial
reporting; and
5.
The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal
control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of
directors (or persons performing the equivalent functions):
(a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial
reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and
report financial information; and
(b) any fraud, whether or not material, that involves management or other employees who have a significant role
in the registrant’s internal control over financial reporting.
Date: March 8, 2023
/s/ Laura F. Clark
Laura F. Clark
Chief Executive Officer
Exhibit 31.2
CERTIFICATION PURSUANT TO RULE 13a-14(a) UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS
ADOPTED PURSUANT TO SECTION 302 (a) OF THE SARBANES-OXLEY ACT OF 2002
I, Miranda J. Spaulding, Chief Financial Officer of Eagle Bancorp Montana, Inc., certify that:
1.
2.
3.
4.
I have reviewed this annual report on Form 10-K of Eagle Bancorp Montana, Inc.;
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a
material fact necessary to make the statements made, in light of the circumstances under which such statements were
made, not misleading with respect to the period covered by this report;
Based on my knowledge, the financial statements, and other financial information included in this report, fairly
present in all material respects the financial condition, results of operations and cash flows of the registrant as of,
and for, the periods presented in this report;
The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls
and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial
reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be
designed under our supervision, to ensure that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which
this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting
to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance with generally accepted accounting
principles;
(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report
our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered
by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred
during the registrant’s most recent fiscal quarter (the registrant’s fourth quarter in the case of an annual report) that
has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial
reporting; and
5.
The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal
control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of
directors (or persons performing the equivalent functions):
(a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial
reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and
report financial information; and
(b) any fraud, whether or not material, that involves management or other employees who have a significant role
in the registrant’s internal control over financial reporting.
Date: March 8, 2023
/s/ Miranda J. Spaulding
Miranda J. Spaulding
Chief Financial Officer
Principal Accounting Officer
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
Exhibit 32.1
In connection with the Annual Report of Eagle Bancorp Montana, Inc. (the “Company”) on Form 10-K for the year
ended December 31, 2022 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), we, Laura
F. Clark, Chief Executive Officer of the Company, and Miranda J. Spaulding, Chief Financial Officer of the Company, certify,
pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that, to the undersigned’s
knowledge:
(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934, as
amended; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of
operations of the Company.
A signed original of this written statement required by Section 906 will be retained by the Company and furnished to the
Securities and Exchange Commission or its staff upon request.
/s/ Laura F. Clark
Laura F. Clark
Chief Executive Officer
(Principal Executive Officer)
March 8, 2023
/s/ Miranda J. Spaulding
Miranda J. Spaulding
Chief Financial Officer and Principal Accounting Officer
(Principal Financial Officer)
March 8, 2023
A N D S U B S I D I A R Y
CONSOLIDATED FI NA NC IAL STATE ME NT S
a nd
RE PO RT OF IN DEPE NDE NT REGI S T ER E D P U B L I C A C CO U NT I N G F IRM
DECEMBER 31, 2022 A ND 2021
EAGLE BANCORP MONTANA, INC. AND SUBSIDIARIES
Contents
Report of Independent Registered Public Accounting Firm (Moss Adams LLP, Everett, Washington, PCAOB
ID: 659) ................................................................................................................................................................
Financial Statements
Consolidated Statements of Financial Condition ............................................................................................
Consolidated Statements of Income ................................................................................................................
Consolidated Statements of Comprehensive Income .......................................................................................
Consolidated Statements of Changes in Shareholders’ Equity .........................................................................
Consolidated Statements of Cash Flows .........................................................................................................
Notes to Consolidated Financial Statements ....................................................................................................
Page
1
3
4
5
6
7
9
Report of Independent Registered Public Accounting Firm
To the Shareholders and the Board of Directors of
Eagle Bancorp Montana, Inc. and Subsidiaries
Opinion on the Financial Statements
We have audited the accompanying consolidated statements of financial condition of Eagle Bancorp
Montana, Inc. and Subsidiaries (the “Company”) as of December 31, 2022 and 2021, the related
consolidated statements of income, comprehensive income, changes in shareholders’ equity and
cash flows for the years then ended, and the related notes (collectively referred to as the
“consolidated financial statements”). In our opinion, the consolidated financial statements present
fairly, in all material respects, the consolidated financial position of the Company as of December 31,
2022 and 2021, and the consolidated results of its operations and its cash flows for the years then
ended, in conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company’s management. Our
responsibility is to express an opinion on the Company’s consolidated financial statements based on
our audits. We are a public accounting firm registered with the Public Company Accounting Oversight
Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in
accordance with the U.S. federal securities laws and the applicable rules and regulations of the
Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require
that we plan and perform the audit to obtain reasonable assurance about whether the consolidated
financial statements are free of material misstatement, whether due to error or fraud. The Company is
not required to have, nor were we engaged to perform, an audit of its internal control over financial
reporting in accordance with the standards of the PCAOB. As part of our audits we are required to
obtain an understanding of internal control over financial reporting but not for the purpose of
expressing an opinion on the effectiveness of the Company’s internal control over financial reporting
in accordance with the standards of the PCAOB. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the
consolidated financial statements, whether due to error or fraud, and performing procedures to
respond to those risks. Such procedures included examining, on a test basis, evidence regarding the
amounts and disclosures in the consolidated financial statements. Our audits also included evaluating
the accounting principles used and significant estimates made by management, as well as evaluating
the overall presentation of the consolidated financial statements. We believe that our audits provide a
reasonable basis for our opinion.
1
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current period audit of the
consolidated financial statements that was communicated or required to be communicated to the
audit committee and that (1) relates to accounts or disclosures that are material to the consolidated
financial statements and (2) involved our especially challenging, subjective, or complex judgments.
The communication of critical audit matters does not alter in any way our opinion on the consolidated
financial statements, taken as a whole, and we are not, by communicating the critical audit matter
below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to
which it relates.
Allowance for Loan Losses
As described in the consolidated financial statements, the Company’s allowance for loan losses
balance was $14.0 million at December 31, 2022. The Company maintains an allowance for loan
losses to absorb losses inherent in the loan portfolio, which represents management’s estimate for
probable losses based on available information. The allowance consists of specific reserves on
impaired loans and also includes a general component. The general component covers loans not
classified as impaired and is based on historical loss experience adjusted for qualitative factors.
We identified management’s estimation of qualitative factors, which is used in the general component
of the allowance for loan losses calculation, as a critical audit matter. The Company uses qualitative
factors to estimate losses related to factors that are not captured in the historical loss rates. The
estimation of these factors, based on management’s evaluation of available internal and external
data, is subjective in nature and requires significant judgment by management. Auditing
management’s judgments regarding the determination of qualitative factors applied to the allowance
for loan losses involves a high degree of subjectivity.
The primary procedures we performed to address this critical audit matter included:
• Obtaining management’s analysis and supporting documentation related to the qualitative factors,
and testing whether the qualitative factors used in the calculation of the allowance for loan losses
are supported by the analysis provided by management.
• Testing the mathematical accuracy of the allowance for loan losses calculation, including
validating the completeness and accuracy of the data used in the calculation and application of
the qualitative factors within the calculation.
• Testing the appropriateness of the methodology and assumptions used in the calculation of the
allowance for loan losses, including whether the qualitative factors were reliable and relevant.
• Developing an independent expectation of the allowance for loan losses and the general reserve
component of the allowance for loan losses using a combination of internal and external data and
comparing the expected balance to the Company’s recorded amounts.
Everett, Washington
March 8, 2023
We have served as the Company’s auditor since 2019.
2
EAGLE BANCORP MONTANA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(Dollars in Thousands, Except for Per Share Data)
ASSETS:
Cash and due from banks
Interest-bearing deposits in banks
Federal funds sold
Total cash and cash equivalents
Securities available-for-sale
Federal Home Loan Bank ("FHLB") stock
Federal Reserve Bank ("FRB") stock
Mortgage loans held-for-sale, at fair value
Loans receivable, net of allowance for loan losses of $14,000 and $12,500 at
December 31, 2022 and 2021, respectively
Accrued interest and dividends receivable
Mortgage servicing rights, net
Assets held-for-sale, at fair value
Premises and equipment, net
Cash surrender value of life insurance, net
Goodwill
Core deposit intangible, net
Deferred tax asset, net
Other assets
Total assets
LIABILITIES:
Deposit accounts:
Noninterest-bearing
Interest-bearing
Total deposits
Accrued expenses and other liabilities
Deferred tax liability, net
FHLB advances and other borrowings
Other long-term debt:
Principal amount
Unamortized debt issuance costs
Total other long-term debt, net
Total liabilities
$
$
$
December 31,
2022
2021
19,321 $
2,490
-
21,811
349,495
5,089
4,131
8,250
1,339,678
11,284
15,412
1,305
84,323
47,724
34,740
7,459
10,808
6,875
1,948,384 $
10,938
43,669
6,827
61,434
271,262
1,702
2,974
25,819
920,639
5,751
13,693
-
67,266
36,474
20,798
1,780
-
6,334
1,435,926
468,955 $
1,166,317
1,635,272
368,846
853,703
1,222,549
26,458
-
69,394
60,155
(1,311)
58,844
21,131
648
5,000
30,155
(286)
29,869
1,789,968
1,279,197
COMMITMENTS AND CONTINGENCIES (NOTE 11)
SHAREHOLDERS' EQUITY:
Preferred stock (par value $0.01 per share; 1,000,000 shares authorized; no shares issued or
outstanding)
Common stock ($0.01 par value; 20,000,000 shares authorized; 8,507,429 and 7,110,833 shares
issued at December 31, 2022 and 2021 respectively; 8,006,033 and 6,794,811 shares outstanding
at December 31, 2022 and 2021, respectively)
Additional paid-in capital
Unallocated common stock held by Employee Stock Ownership Plan ("ESOP")
Treasury stock, at cost (501,396 and 316,022 shares at December 31, 2022 and 2021, respectively)
Retained earnings
Accumulated other comprehensive (loss) income, net of tax
Total shareholders' equity
-
-
85
109,164
(5,156)
(11,343)
92,023
(26,357)
158,416
71
80,832
(5,729)
(7,321)
85,383
3,493
156,729
Total liabilities and shareholders' equity
$
1,948,384 $
1,435,926
The accompanying notes are an integral part of these consolidated financial statements.
- 3 -
EAGLE BANCORP MONTANA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Dollars in Thousands, Except for Per Share Data)
INTEREST AND DIVIDEND INCOME:
Interest and fees on loans
Securities available-for-sale
FHLB and FRB dividends
Other interest income
Total interest and dividend income
INTEREST EXPENSE:
Deposits
FHLB advances and other borrowings
Other long-term debt
Total interest expense
NET INTEREST INCOME
Loan loss provision
$
Years Ended
December 31,
2022
2021
60,353 $
8,579
302
228
69,462
3,124
514
2,512
6,150
45,134
4,238
255
120
49,747
1,474
175
1,558
3,207
63,312
46,540
2,001
861
NET INTEREST INCOME AFTER LOAN LOSS PROVISION
61,311
45,679
NONINTEREST INCOME:
Service charges on deposit accounts
Mortgage banking, net
Interchange and ATM fees
Appreciation in cash surrender value of life insurance
Other noninterest income
Total noninterest income
NONINTEREST EXPENSE:
Salaries and employee benefits
Occupancy and equipment expense
Data processing
Advertising
Amortization
Loan costs
Federal Deposit Insurance Corporation ("FDIC") insurance premiums
Professional and examination fees
Acquisition costs
Other noninterest expense
Total noninterest expense
INCOME BEFORE PROVISION FOR INCOME TAXES
Provision for income taxes
NET INCOME
BASIC EARNINGS PER COMMON SHARE
DILUTED EARNINGS PER COMMON SHARE
1,668
19,489
2,375
1,035
1,653
26,220
44,521
7,601
5,995
1,419
1,334
2,036
559
1,469
2,296
6,453
73,683
1,213
41,035
1,982
721
1,232
46,183
48,766
6,448
5,035
1,276
573
2,736
332
1,756
761
4,897
72,580
13,848
19,282
3,147
4,863
10,701 $
14,419
1.45 $
2.17
1.45 $
2.17
$
$
$
The accompanying notes are an integral part of these consolidated financial statements.
- 4 -
EAGLE BANCORP MONTANA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Dollars in Thousands)
Years Ended
December 31,
2022
2021
NET INCOME
$
10,701 $
14,419
OTHER ITEMS OF COMPREHENSIVE (LOSS) INCOME BEFORE TAX:
Change in fair value of investment securities available-for-sale
Reclassification for net realized losses (gains) on investment securities available-for-sale
Total other comprehensive loss
Income tax benefit related to securities available-for-sale
(40,526)
6
(40,520)
(3,178)
(23)
(3,201)
10,670
843
COMPREHENSIVE (LOSS) INCOME
$
(19,149) $
12,061
The accompanying notes are an integral part of these consolidated financial statements.
- 5 -
EAGLE BANCORP MONTANA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
(Dollars in Thousands, Except for Per Share Data)
Additional Unallocated
Accumulated
Other
Preferred Common Paid-In ESOP
Stock Stock Capital Shares
Treasury Retained Comprehensive
Stock Earnings Income (Loss) Total
Balance at January 1, 2022
$
Net income
Other comprehensive loss
Dividends paid ($0.525 per share)
Stock issued in connection with First
Community Bancorp, Inc.
acquisition
Stock compensation expense
Treasury stock reissued for stock
incentive plans (25,751 shares at
$15.85 average cost per share )
ESOP shares allocated (23,990 shares)
Treasury stock purchased (211,125
shares at $20.98 average cost per
share)
$
$
Balance at December 31, 2022
Balance at January 1, 2021
Net income
Other comprehensive loss
Dividends paid ($0.445 per share)
Stock compensation expense
Treasury stock reissued for stock
incentive plans (18,108 shares at
$17.09 average cost per share )
ESOP shares allocated (25,716 shares)
Treasury stock purchased through
tender offer (250,000 shares at
$25.12 average cost per share)
Sale of shares to ESOP (251,256 shares
at $23.88 average price per share)
Balance at December 31, 2021
$
- $
-
-
-
-
-
-
-
- $
- $
-
-
-
-
-
-
-
-
- $
71 $ 80,832 $
-
-
-
-
-
-
(5,729) $ (7,321) $ 85,383 $
- 10,701
-
-
- (4,061)
-
-
-
3,493 $156,729
- 10,701
(29,850) (29,850)
(4,061)
-
14
-
28,337
491
-
-
-
28,351
491
-
-
-
(408)
(88)
-
573
408
-
-
-
-
-
-
485
-
-
85 $ 109,164 $
- (4,430)
-
(5,156) $(11,343) $ 92,023 $
-
(4,430)
(26,357) $158,416
71 $ 77,602 $
-
-
-
439
-
-
-
-
(145) $ (4,423) $ 73,982 $
- 14,419
-
-
- (3,018)
-
-
-
-
-
-
5,851 $152,938
- 14,419
(2,358)
(3,018)
439
(2,358)
-
-
-
-
-
(310)
172
-
416
310
-
-
-
-
-
-
588
-
- (6,279)
-
-
(6,279)
-
2,929
71 $ 80,832 $
-
(6,000) 3,071
(5,729) $ (7,321) $ 85,383 $
-
-
3,493 $156,729
The accompanying notes are an integral part of these consolidated financial statements.
- 6 -
EAGLE BANCORP MONTANA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in Thousands)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income
Adjustments to reconcile net income to net cash provided by operating activities:
Loan loss provision
Recovery of servicing rights
Depreciation
Net amortization of investment securities premiums and discounts
Amortization of mortgage servicing rights
Amortization of right-of-use assets
Amortization
Compensation expense related to restricted stock awards
ESOP compensation expense for allocated shares
Deferred income tax provision
Net gain on sale of loans
Originations of loans held-for-sale
Proceeds from sales of loans held-for-sale
Net gain on sale of real estate owned and other repossessed assets
Net gain on sale/disposal of premises and equipment
Net appreciation in cash surrender value of life insurance
Net change in:
Accrued interest and dividends receivable
Other assets
Accrued expenses and other liabilities
Net cash provided by operating activities
CASH FLOWS FROM INVESTING ACTIVITIES:
Activity in available-for-sale securities:
Sales
Maturities, principal payments and calls
Purchases
FHLB stock (purchased) redeemed
FRB stock purchased
Net cash received from acquisitions
Loan origination and principal collection, net
Purchases of bank owned life insurance
Proceeds from sale of real estate and other repossessed assets acquired in settlement of loans
Proceeds from sale of premises and equipment
Purchases of premises and equipment, net
Net cash used in investing activities
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in deposits
Net decrease in repurchase agreements
Net short-term advances from FHLB and other borrowings
Payments on long-term FHLB and other borrowings
Proceeds from issuance of subordinated debentures
Repayment of subordinated debentures
Payments for debt issuance costs
Purchase of treasury stock
Dividends paid
Net cash provided by financing activities
NET INCREASE IN CASH AND CASH EQUIVALENTS
CASH AND CASH EQUIVALENTS, beginning of period
Years Ended
December 31,
2022
2021
$
10,701 $
14,419
2,001
(56)
3,576
1,486
2,118
681
1,334
491
485
2,069
(18,610)
(532,558)
568,737
(203)
(105)
(1,035)
(2,779)
14
3,564
41,911
43,794
39,157
(77,073)
(2,762)
(317)
13,397
(234,255)
(1,600)
535
845
(16,762)
(235,041)
91,616
(22,853)
69,394
(5,000)
40,000
(10,000)
(1,159)
(4,430)
(4,061)
153,507
861
(736)
2,917
1,264
3,709
628
573
439
588
1,034
(46,086)
(1,040,753)
1,115,635
(23)
(70)
(721)
14
3,899
(1,137)
56,454
4,921
11,333
(132,180)
358
-
-
(98,666)
(8,000)
152
1,379
(12,218)
(232,921)
189,466
-
-
(12,070)
-
-
-
(6,279)
(3,018)
168,099
(39,623)
(8,368)
61,434
69,802
CASH AND CASH EQUIVALENTS, end of period
$
21,811 $
61,434
The accompanying notes are an integral part of these consolidated financial statements.
- 7 -
EAGLE BANCORP MONTANA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
(Dollars in Thousands)
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid during the year for interest
Cash paid during the year for income taxes
Acquisitions:
Assets acquired, excluding cash
Liabilities assumed
NON-CASH INVESTING AND FINANCING ACTIVITIES:
Decrease in fair value of securities available-for-sale
Mortgage servicing rights recognized
Right-of-use assets obtained in exchange for lease liabilities
Loans transferred to real estate and other assets acquired in foreclosure
Stock issued in connection with acquisitions
Sale of shares from Eagle to ESOP in exchange for loan
Years Ended
December 31,
2022
2021
(In Thousands)
$
4,951 $
2,930
3,467
4,440
346,739
345,727
-
-
$
(40,520) $
3,781
204
328
28,351
-
(3,201 )
6,561
1,140
108
-
6,000
The accompanying notes are an integral part of these consolidated financial statements.
- 8 -
EAGLE BANCORP MONTANA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1: Organization and Summary of Significant Accounting Policies
Organization
Eagle Bancorp Montana, Inc. (“Eagle” or the “Company”), is a Delaware corporation that holds 100% of the
capital stock of Opportunity Bank of Montana (“OBMT” or the “Bank”), formerly American Federal Savings
Bank (“AFSB”). The Bank was founded in 1922 as a Montana chartered building and loan association and has
conducted operations and maintained its administrative office in Helena, Montana since that time. In 1975, the
Bank adopted a federal thrift charter and in October 2014 converted to a Montana chartered commercial bank
and became a member bank in the Federal Reserve System.
Eagle Bancorp Statutory Trust I (the “Trust”) was established in September 2005 and is owned 100% by Eagle.
In September 2021, the Company entered into an Agreement and Plan of Merger ("Merger Agreement") with
First Community Bancorp, Inc. ("FCB"), a Montana corporation, and FCB's wholly-owned subsidiary, First
Community Bank, a Montana chartered commercial bank. The Merger Agreement provided that, upon the terms
and subject to the conditions set forth in the Merger Agreement, FCB would merge with and into Eagle, with
Eagle continuing as the surviving corporation. The merger closed on April 30, 2022. First Community Bank
operated nine branches in Ashland, Culbertson, Froid, Glasgow, Helena, Hinsdale, Three Forks and Wolf Point,
Montana.
In March 2021, The Bank established a subsidiary, Opportunity Housing Fund, LLC (“OHF”), to invest in Low-
Income Housing Tax Credit (“LIHTC”) projects. The LIHTC program is designed to encourage capital
investment in construction and rehabilitation of low-income housing. Tax credits are allowable over a 10-year
period.
On January 1, 2020, the Company acquired Western Holding Company of Wolf Point (“WHC”), a Montana
corporation, and WHC’s wholly-owned subsidiary, Western Bank of Wolf Point ("WB"), a Montana chartered
commercial bank. The acquisition included one branch in Wolf Point, Montana. In addition, Western Financial
Services, Inc. ("WFS") was acquired through the WHC merger. WFS facilitates deferred payment contracts for
customers that produce agricultural products.
The Bank is headquartered in Helena, Montana, and has additional branches in Ashland, Big Timber, Billings,
Bozeman, Butte, Choteau, Culbertson, Denton, Dutton, Froid, Glasgow, Great Falls, Hamilton, Hinsdale,
Livingston, Missoula, Sheridan, Three Forks, Townsend, Twin Bridges, Winifred and Wolf Point, Montana.
The Bank’s principal business is accepting deposits and, together with funds generated from operations and
borrowings, investing in various types of loans and securities.
Basis of Financial Statement Presentation and Use of Estimates
The consolidated financial statements have been prepared in accordance with accounting principles generally
accepted in the United States of America (“GAAP”). In preparing consolidated financial statements,
management is required to make estimates and assumptions that affect the reported amounts of assets and
liabilities as of the date of the consolidated statement of financial condition and reported amounts of revenues
and expenses during the reporting period. Actual results could differ from estimates. Material estimates that are
particularly susceptible to significant change in the near term relate to the determination of the allowance for
loan losses, mortgage servicing rights, the fair value of financial instruments, the fair value of assets acquired
and liabilities assumed for acquisitions, the valuation of goodwill and deferred tax assets and liabilities.
Principles of Consolidation
The consolidated financial statements include Eagle, the Bank, the Trust, WFS and OHF. All significant
intercompany transactions and balances have been eliminated in consolidation.
- 9 -
EAGLE BANCORP MONTANA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1: Organization and Summary of Significant Accounting Policies – continued
Reclassifications
Certain prior period amounts were reclassified to conform to the presentation for 2022. These reclassifications
had no impact on net income or total shareholders’ equity.
Subsequent Events
The Company has evaluated events and transactions subsequent to December 31, 2022 for recognition and/or
disclosure.
Significant Group Concentrations of Credit Risk
Most of the Company’s business activity is with customers located within Montana. Note 3: Investment
Securities discusses the types of securities that the Company invests in. Note 4: Loans discusses the types of
lending that the Company engages in. The Company does not have any significant concentrations to any one
industry or customer.
Cash and Cash Equivalents
For the purpose of presentation in the consolidated statements of cash flows, cash and cash equivalents are
defined as those amounts included in the statements of financial condition captions “cash and due from banks,”
“interest-bearing deposits in banks” and “federal funds sold,” all of which mature within ninety days.
Investment Securities
The Company can designate debt and equity securities as held-to-maturity, available-for-sale or trading. At
December 31, 2022 and 2021 all securities were designated as available-for-sale.
Held-to-Maturity – Debt investment securities that management has the positive intent and ability to hold until
maturity are classified as held-to-maturity and are carried at their remaining unpaid principal balance, net of
unamortized premiums or unaccreted discounts.
Available-for-Sale – Investment securities that will be held for indefinite periods of time, including securities
that may be sold in response to changes in market interest or prepayment rates, need for liquidity and changes
in the availability of and the yield of alternative investments, are classified as available-for-sale. These assets
are carried at fair value. Unrealized gains and losses, net of tax, are reported as other comprehensive income.
Gains and losses on the sale of available-for-sale securities are recorded on the trade date and determined using
the specific identification method. In general, premiums are amortized and discounts are accreted over the
period remaining to maturity, except for premiums on callable bonds which are amortized to the earliest call
date.
Trading – Investments that are purchased with the intent of selling them within a short period of time.
Management evaluates securities for other-than-temporary impairment (“OTTI”) at least quarterly, and more
frequently when economic or market concerns warrant such evaluation. The Company considers, among other
things, the length of time and the extent to which the fair value has been less than cost, the financial condition
and near-term prospects of the issuer and the intent and ability of the Company to retain its investment in the
issuer for a period of time sufficient to allow for any anticipated recovery in fair value. Declines in the fair value
of individual securities below their cost that are other than temporary are recognized by write-downs of the
individual securities to their fair value. Such write-downs would be included in earnings as realized losses.
- 10 -
EAGLE BANCORP MONTANA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1: Organization and Summary of Significant Accounting Policies – continued
Federal Home Loan Bank Stock
The Company’s investment in Federal Home Loan Bank (“FHLB”) of Des Moines stock is a restricted
investment carried at cost ($100 per share par value), which approximates its fair value. As a member of the
FHLB system, the Company is required to maintain a minimum level of investment in FHLB stock based on
total assets and a specific percentage of its outstanding FHLB advances. The Company had 50,888 and
17,019 FHLB shares at December 31, 2022 and 2021, respectively. Dividends are paid quarterly and are subject
to FHLB board approval. Management evaluates FHLB stock for impairment as needed.
Federal Reserve Bank Stock
The Company’s investment in FRB stock is a restricted investment carried at cost, which approximates its fair
value. Although the par value of the stock is $100 per share, banks pay only $50 per share at the time of purchase,
with the understanding that the other half of the subscription amount is subject to call at any time. As a member
of the Federal Reserve System, the Company is required to maintain a minimum level of investment in FRB
stock based on a specific percentage of its capital and surplus. The Company had 82,618 and 59,472 FRB shares
at December 31, 2022 and 2021, respectively. Dividends are received semi-annually at a fixed rate of 6.00% on
the total number of shares.
Mortgage Loans Held-for-Sale
Mortgage loans originated and intended for sale in the secondary market are carried at fair value. Mortgage
loans held-for-sale are sold with mortgage servicing rights either released or retained by the Bank. Fair value
for loans held-for-sale is determined by commitments from investors or current secondary market prices for
loans with similar coupons and maturities. Loan origination fees and costs are recognized in earnings at the time
of origination.
Loans
The Bank originates mortgage, commercial, agricultural and consumer loans primarily to customers located in
Montana. The ability of the Bank’s debtors to honor their contracts is dependent upon the general economic
conditions in this area.
Loans receivable that management has the intent and ability to hold for the foreseeable future or until maturity
or payoff are reported at their outstanding unpaid principal balances net of any unearned income, allowance for
loan losses, and unamortized deferred fees or costs on originated loans and unamortized premiums or unaccreted
discounts on purchased loans. Interest income is accrued on the unpaid principal balance. Loan origination fees,
net of certain direct origination costs are deferred and amortized over the contractual life of the loan, and
recorded as an adjustment to the yield, using the interest method.
Nonaccrual and Past Due Loans – Loans are considered past due if the required principal and interest payments
have not been received as of the date such payments were due. Loans are placed on nonaccrual status when, in
management's opinion, the borrower may be unable to meet payment obligations as they become due, as well
as when required by regulatory provisions. In determining whether or not a borrower may be unable to meet
payment obligations for each class of loans, the Bank considers the borrower's debt service capacity through
the analysis of current financial information, if available, and/or current information with regards to the Bank's
collateral position. Regulatory provisions would typically require the placement of a loan on nonaccrual status
if (i) principal or interest has been in default for a period of 90 days or more unless the loan is both well secured
and in the process of collection or (ii) full payment of principal and interest is not expected. Loans may be
placed on nonaccrual status regardless of whether or not such loans are considered past due. When interest
accrual is discontinued, all unpaid accrued interest is reversed. The interest on these loans is accounted for on
the cash-basis or cost-recovery method, until qualifying for return to accrual. Loans are returned to accrual
status when all the principal and interest amounts contractually due are brought current and future payments are
reasonably assured.
- 11 -
EAGLE BANCORP MONTANA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1: Organization and Summary of Significant Accounting Policies – continued
Loans – continued
A loan is considered impaired when, based on current information and events, it is probable that the Company
will be unable to collect the scheduled payments of principal or interest when due according to the contractual
terms of the loan agreement. Factors considered by management in determining impairment include payment
status, collateral value, and the probability of collecting scheduled principal and interest payments when due.
Loans that experience insignificant payment delays and payment shortfalls generally are not classified as
impaired. Impairment is measured on a loan by loan basis for commercial, agricultural and construction loans
by either the present value of expected future cash flows discounted at the loan's effective interest rate, the loan's
obtainable market price, or the fair value of the collateral if the loan is collateral dependent. Large groups of
smaller balance homogeneous loans are collectively evaluated for impairment.
Residential 1-4 Family Loans – The Bank originates 1-4 family residential mortgage loans collateralized by
owner-occupied and non-owner-occupied real estate. Repayment of these loans may be subject to adverse
conditions in the real estate market or the economy to a greater extent than other types of loans. Loans
collateralized by 1-4 family residential real estate generally have been originated in amounts up to 80.00% of
appraised values before requiring private mortgage insurance. The underwriting analysis includes credit
verification, appraisals and a review of the financial condition of the borrower. The Company will either hold
these loans in its portfolio or sell them on the secondary market, depending upon market conditions and the type
and term of the loan originations. Generally, all 30-year fixed rate loans are sold in the secondary market.
Commercial Real Estate Loans – The Bank makes commercial real estate loans, land loans (both developed and
undeveloped) and loans on multi-family dwellings. Commercial real estate loans are collateralized by owner-
occupied and non-owner-occupied real estate. Payments on loans secured by such properties are often dependent
on the successful operation or management of the properties. Accordingly, repayment of these loans may be
subject to adverse conditions in the real estate market or the economy to a greater extent than other types of
loans. When underwriting these loans, the Bank seeks to minimize these risks in a variety of ways, including
giving careful consideration to the property’s operating history, future operating projections, current and
projected occupancy, location and physical condition. The underwriting analysis also includes credit
verification, analysis of global cash flow, appraisals and a review of the financial condition of the borrower.
Construction Loans – The Bank makes loans to finance the construction of residential properties. The majority
of the Bank’s residential construction loans are made to individual homeowners for the construction of their
primary residence and, to a lesser extent, to local builders for the construction of pre-sold houses or houses that
are being built for sale in the future. The Bank also originates commercial construction and development loans.
Construction loans involve additional risks attributable to the fact that loan funds are advanced upon the security
of a project under construction, and the project is of uncertain value prior to its completion. Because of
uncertainties inherent in estimating construction costs, the market value of the completed project and the effects
of governmental regulation on real property, it can be difficult to accurately evaluate the total funds required to
complete a project and the related loan to value ratio. As a result of these uncertainties, construction lending
often involves the disbursement of substantial funds with repayment dependent, in part, on the success of the
ultimate project rather than the ability of a borrower or guarantor to repay the loan. If the Company is forced to
foreclose on a project prior to completion, there is no assurance that the Company will be able to recover the
entire unpaid portion of the loan. In addition, the Company may be required to fund additional amounts to
complete a project and may have to hold the property for an indeterminable period of time. While the Bank has
underwriting procedures designed to identify what it believes to be acceptable levels of risks in construction
lending, no assurance can be given that these procedures will prevent losses from the risks described above.
- 12 -
EAGLE BANCORP MONTANA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1: Organization and Summary of Significant Accounting Policies – continued
Loans – continued
Agricultural Loans – The Bank makes agricultural operating loans as well as long term agricultural real estate
loans. Agricultural operating loans are generally secured with equipment, cattle, crops or other non-real property
and at times the underlying real property. Agricultural real estate loans are secured with farm and ranch real
estate. Payments on both types of agricultural loans are dependent on successful operation of the farm and/or
ranch. Repayment is also affected by agricultural conditions that may include adverse weather conditions such
as, drought, hail, flooding and severe winters. Also impacting the borrower’s ability to repay are commodity
prices associated with the agricultural operation. When underwriting these loans, the Bank seeks to minimize
these risks in a variety of ways, including giving careful consideration to the farm or ranch’s operating history,
future operating projections, current and projected commodity prices and crop insurance. The underwriting
analysis also includes credit verification, analysis of global cash flow, appraisals and a review of the financial
condition of the borrower.
Home Equity Loans – The Bank originates home equity loans that are secured by the borrowers’ primary
residence. These loans are typically subject to a prior lien, which may or may not be held by the Bank. Although
these loans are secured by real estate, they carry a greater risk than first lien 1-4 family residential mortgages
because of the existence of a prior lien on the property as well as the flexibility the borrower has with respect
to the proceeds. The Bank attempts to minimize this risk by maintaining conservative underwriting policies on
these types of loans. Generally, home equity loans are made for up to 85.00% of the appraised value of the
underlying real estate collateral, less the amount of any existing prior liens on the property securing the loan.
Consumer Loans – Consumer loans made by the Bank include automobile loans, recreational vehicle loans,
boat loans, personal loans, credit lines, loans secured by deposit accounts and other personal loans. Risk is
minimized due to relatively small loan amounts that are spread across many individual borrowers.
Commercial Loans – A broad array of commercial lending products are made available to businesses for
working capital (including inventory and accounts receivable), purchases of equipment and machinery and
business. Bank’s commercial loans are underwritten on the basis of the borrower’s ability to service such debt
as reflected by cash flow projections. Commercial loans are generally collateralized by business assets, accounts
receivable and inventory, certificates of deposit, securities, guarantees or other collateral. The Bank also
generally obtains personal guarantees from the principals of the business. Working capital loans are primarily
collateralized by short-term assets, whereas term loans are primarily collateralized by long-term assets. As a
result, commercial loans involve additional complexities, variables and risks and require more thorough
underwriting and servicing than other types of loans. Payroll Protection Program ("PPP") loans typically have
a 24-month term, are unsecured and are fully guaranteed by the Small Business Administration ("SBA").
Borrowers may apply for forgiveness from the SBA and upon approval the loan will be paid off.
Allowance for Loan Losses
The Bank mitigates the risks inherent in lending by focusing on businesses and individuals with demonstrated
payment history, historically favorable profitability trends and stable cash flows. In addition to these primary
sources of repayment, the Bank considers tangible collateral and personal guarantees as secondary sources of
repayment. Lending officers are provided with detailed underwriting policies covering all lending activities in
which the Bank is engaged and require all lenders to obtain appropriate approvals for the extension of credit.
The Bank also maintains documentation requirements and extensive credit quality assurance practices in order
to identify credit portfolio weaknesses as early as possible so any exposures that are discovered may be reduced.
A reporting system supplements the loan review process by providing management with frequent reports related
to loan production, loan quality, concentrations of credit, loan delinquencies and nonperforming and potential
problem loans. Diversification in the loan portfolio is a means of managing risk associated with fluctuations in
economic conditions.
- 13 -
EAGLE BANCORP MONTANA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1: Organization and Summary of Significant Accounting Policies – continued
Allowance for Loan Losses – continued
The allowance for loan losses is established as losses are estimated to have occurred through a provision for
loan losses charged to earnings. Loan losses are charged against the allowance when management believes the
uncollectability of a loan balance is probable. Subsequent recoveries, if any, are credited to the allowance.
The allowance for loan losses is evaluated on a regular basis by management and is based upon management's
periodic review of the collectability of the loans in light of historical experience, the nature and volume of the
loan portfolio, adverse situations that may affect the borrower's ability to repay, estimated value of any
underlying collateral and prevailing economic conditions. This evaluation is inherently subjective as it requires
estimates that are susceptible to significant revisions as more information becomes available.
The allowance consists of specific and general components. For such loans that are classified as impaired, a
specific allowance is established when the discounted cash flows (or collateral value or observable market price)
of the impaired loan is lower than the carrying value of that loan. The general component covers loans not
classified as impaired and is based on historical loss experience adjusted for qualitative factors, as well as
uncertainties that could affect management's estimate of probable losses.
Troubled Debt Restructured Loans
A troubled debt restructured (“TDR”) loan is a loan in which the Bank grants a concession to the borrower that
it would not otherwise consider, for reasons related to a borrower's financial difficulties. The loan terms which
have been modified or restructured due to a borrower's financial difficulty, include but are not limited to a
reduction in the stated interest rate; an extension of the maturity at an interest rate below current market rates;
a reduction in the face amount of the debt; a reduction in the accrued interest; or re-aging, extensions, deferrals,
renewals and rewrites or a combination of these modification methods. TDR’s are included in impaired loans.
The provisions of the Coronavirus Aid, Relief, and Economic Security Act ("CARES Act") allowed companies
to suspend application of TDR guidance to loan modifications if (i) the modification was related to COVID-19;
(ii) the borrower was not more than 30 days past due as of December 31, 2019; and (iii) the modifications were
related to arrangements that defer payment of principal and interest, or modify an interest rate on the loan. The
applicable period for this relief was originally for modifications occurring between March 1, 2020 and the
earlier of (i) December 31, 2020 or (ii) 60 days after the end of the COVID-19 national emergency, but the
Consolidated Appropriations Act (CAA) extended the provisions of the CARES Act to January 1, 2022. The
Company elected to adopt these provisions of the CARES Act and CAA.
Mortgage Servicing Rights
Servicing assets are recognized as separate assets when rights are acquired through sale of financial assets. For
sales of mortgage loans, a portion of the cost of originating the loan is allocated to the servicing right based on
relative fair value. Fair value is based on a market price valuation model that calculates the present value of
estimated future net servicing income. The valuation model incorporates assumptions that market participants
would use in estimating future net servicing income, such as the cost to service, the discount rate, the custodial
earnings rate, an inflation rate, ancillary income, prepayment speeds and default rates and losses.
Servicing assets are evaluated for impairment based upon the fair value of the rights as compared to amortized
cost. Impairment is determined by stratifying rights into tranches based on predominant characteristics, such as
interest rate, loan type and investor type. Impairment is recognized through a valuation allowance for an
individual tranche, to the extent that the fair value is less than the capitalized amount for the tranches. If the
Company later determines that all or a portion of the impairment no longer exists for a particular tranche, a
reduction of the allowance may be recorded as an increase to income. Capitalized servicing rights are reported
as assets and are amortized in proportion to, and over the period of, the estimated future net servicing income
of the underlying financial assets.
Servicing fee income is recorded for fees earned for servicing loans. The fees are based on a contractual
percentage of the outstanding principal and are recorded as income when earned. The amortization of mortgage
servicing rights is netted against loan servicing fee income.
- 14 -
EAGLE BANCORP MONTANA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1: Organization and Summary of Significant Accounting Policies – continued
Premises and Equipment
Land is carried at cost. Property and equipment are recorded at cost less accumulated depreciation. Depreciation
is computed using the straight-line method over the expected useful lives of the assets, ranging from 3 to 40
years. The costs of maintenance and repairs are expensed as incurred, while major expenditures for renewals
and betterments are capitalized.
The Company leases certain premises from third parties under various operating lease agreements. Operating
leases are included in premises and equipment, net and other liabilities on the consolidated statements of
financial position. Lease expense for lease payments is recognized on a straight-line basis over the life of the
lease. Right-of-use assets and corresponding lease liabilities are recognized at lease commencement date based
on the present value of lease payments over the lease term. If an implicit rate is not available in the lease, the
Company uses an incremental borrowing rate to determine the present value of lease payments. Lease and non-
lease components are accounted for separately. Leases with a lease term of 12 months or less are not recorded
on the consolidated statements of financial condition.
Cash Surrender Value of Bank Owned Life Insurance
Bank Owned Life Insurance (“BOLI”) policies are reflected on the consolidated statements of financial
condition at cash surrender value, net of other charges or amounts due that are probable at settlement. Changes
in the net cash surrender value of the policies, as well as insurance proceeds received, are reflected in noninterest
income on the consolidated statements of income and are not subject to income taxes.
Real Estate and Other Repossessed Assets
Assets acquired through, or in lieu of, loan foreclosure are initially recorded at fair value less estimated selling
cost at the date of foreclosure, establishing a new carrying value. All write-downs based on the asset’s fair value
at the date of acquisition are charged to the allowance for loan losses. Costs of significant property
improvements are capitalized, whereas costs relating to holding property are expensed. Valuations are
periodically performed by management, and any subsequent write-downs are recorded as a charge to operations,
if necessary, to reduce the carrying value of a property to the lower of its cost or fair value less cost to sell. Real
estate and other repossessed properties was $0 and $4,000 at December 31, 2022 and 2021, respectively.
Revenue Recognition
The majority of our revenue-generating transactions are not subject to Accounting Standards Codification
(“ASC”) Topic 606, including revenue generated from financial instruments, such as our loans, guarantees,
derivatives and investment securities, as well as revenue related to our mortgage servicing activities, as these
activities are subject to other GAAP discussed elsewhere within our disclosures. ASC Topic 606 is applicable
to noninterest revenue streams such as service charges on deposit accounts, interchange and other fees and
commodity sales income. Descriptions of our revenue-generating activities that are within the scope of ASC
Topic 606 and are recorded in noninterest income on the consolidated statements of income are discussed below:
Service Charges on Deposit Accounts – Revenue from service charges consists of service charges and fees on
deposit accounts under depository agreements with customers to provide access to deposited funds and, when
applicable, pay interest on deposits. Service charges on deposit accounts may be transactional or non-
transactional in nature. Transactional service charges occur in the form of a service or penalty and are charged
upon the occurrence of an event (e.g., overdraft fees, ATM fees, wire transfer fees). Transactional service
charges are recognized as services are delivered to and consumed by the customer, or as penalty fees are
charged. Non-transactional service charges are charges that are based on a broader service, such as account
maintenance fees and dormancy fees, and are recognized on a monthly basis. Service charges on deposit
accounts were $1,668,000 and $1,213,000 for the years ended December 31, 2022 and 2021, respectively.
- 15 -
EAGLE BANCORP MONTANA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1: Organization and Summary of Significant Accounting Policies – continued
Revenue Recognition – continued
Interchange and ATM Fees – Revenue from debit card fees includes interchange fee income from debit cards
processed through card association networks. Interchange fees represent a portion of a transaction amount that
the Company and other involved parties retain to compensate themselves for giving the cardholder immediate
access to funds. Interchange rates are generally set by the card association networks and are based on purchase
volumes and other factors. The Company records interchange fees as services are provided. Interchange and
ATM fees were $2,375,000 and $1,982,000 for the years ended December 31, 2022 and 2021, respectively.
Commodity Sales Income – The Company's subsidiary, WFS, processes deferred payment contracts between
suppliers and customers of agricultural commodities. The revenue from these contracts is accounted for in
accordance with ASC Topic 606. The Company is considered an agent in these contracts, as: (i) the Company
facilitates payment from customer to supplier, (ii) the Company does not take inventory of commodities as they
are delivered by supplier to the customer, (iii) pricing of commodities is determined by the market, (iv)
consideration on deferred payment contracts is insignificant to the Company and (v) the Company’s exposure
to credit risk is minimal. Revenue is recognized net of expenses and reported in other noninterest income in the
financial statements. Commodity sales
the corresponding commodity sales expense
were $4,279,000 and $1,586,000 for the years ended December 31, 2022 and 2021, respectively, for a net
impact of $0.
income and
Income Taxes
The Company adopted authoritative guidance related to accounting for uncertainty in income taxes, which sets
out a consistent framework to determine the appropriate level of tax reserves to maintain for uncertain tax
positions.
The Company’s income tax expense consists of the following components: current and deferred. Current income
tax expense reflects taxes to be paid or refunded for the current period by applying the provisions of the enacted
tax law to the taxable income or excess of deductions over revenues. The Company determines deferred income
taxes using the liability (or balance sheet) method. Under this method, the net deferred tax asset or liability is
based on the tax effects of the differences between the book and tax bases of assets and liabilities, and enacted
changes in tax rates and laws are recognized in the period in which they occur.
Deferred income tax expense results from changes in deferred tax assets and liabilities between periods.
Deferred tax assets are recognized if it is more likely than not, based on the technical merits, that the tax position
will be realized or sustained upon examination. The term more likely than not means a likelihood of more than
50 percent; the terms examined and upon examination also include resolution of the related appeals or litigation
processes, if any. A tax position that meets the more-likely-than-not recognition threshold is initially and
subsequently measured as the largest amount of tax benefit that has a greater than 50 percent likelihood of being
realized upon settlement with a taxing authority that has full knowledge of all relevant information. The
determination of whether or not a tax position has met the more-likely-than-not recognition threshold considers
the facts, circumstances, and information available at the reporting date and is subject to management’s
judgment. Deferred tax assets are reduced by a valuation allowance if, based on the weight of evidence available,
it is more likely than not that some portion or all of a deferred tax asset will not be realized.
The Company recognizes income tax related penalties and interest, if any, in the provision for income taxes in
the consolidated statements of income. Based on management's analysis, the Company did not have any
uncertain tax positions as of December 31, 2022 and 2021. The Company files tax returns in the U.S. federal
jurisdiction and the State of Montana. There are currently no income tax examinations underway for these
jurisdictions. The Company's income tax returns are subject to examination by relevant taxing authorities as
follows: U.S. Federal income tax returns for tax years 2019 and forward; Montana income tax returns for tax
years 2019 and forward.
- 16 -
EAGLE BANCORP MONTANA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1: Organization and Summary of Significant Accounting Policies – continued
Income Taxes – continued
Compensation expense recognized for the Company’s Employee Stock Ownership Plan (“ESOP”) equals the
fair value of shares that have been allocated or committed to be released for allocation to participants during the
year. Any difference between the fair value of the shares at the time and the ESOP’s original acquisition cost is
charged or credited to shareholders’ equity (additional paid-in capital). The cost of ESOP shares that have not
yet been allocated or committed to be released is deducted from shareholders’ equity.
Treasury Stock
Treasury stock is accounted for on the cost method.
Advertising Costs
The Company expenses advertising costs as they are incurred. Advertising costs were $1,419,000 and
$1,276,000 for the years ended December 31, 2022 and 2021, respectively.
Stock-Based Compensation
Compensation cost is recognized for restricted stock awards, based on the fair value of the awards at the grant
date. Compensation cost is recognized over the required service period, generally defined as the vesting period.
Shares of restricted stock granted through the 2011 Stock Incentive Plan, as amended, vest in equal installments
over five years beginning one year from the grant date. Shares of restricted stock granted through the 2020 Non-
Employee Director Award Plan vest one year from the grant date.
Earnings Per Common Share
Basic earnings per common share is computed by dividing net earnings allocated to common stock by the
weighted-average number of common shares outstanding during the applicable period. Diluted earnings per
common share is computed using the weighted-average number of shares determined for the basic earnings per
common share computation plus the dilutive effect of stock compensation using the treasury stock method.
Comprehensive Income (Loss)
Comprehensive income (loss) is comprised of net income and other comprehensive income (loss). Other
comprehensive income (loss) includes items recorded directly to equity, such as unrealized holding gains and
losses on securities available-for-sale.
Loan Commitments and Related Financial Instruments
Financial instruments include off-balance-sheet credit instruments, such as commitments to make loans and
commercial letters of credit, issued to meet customer financing needs. The face amount for these items
represents the exposure to loss, before considering customer collateral or ability to repay. Such financial
instruments are recorded when they are funded.
Derivatives
The Company’s derivatives are primarily the result of its mortgage banking activities and are in the form of
interest rate lock commitments (“IRLCs), To-Be-Announced (“TBA”) mortgage-backed securities and bulk
mandatory forward loan sale commitments. The derivatives are accounted for as free-standing or economic
derivatives and are measured at fair value. The derivatives are recognized as either assets or liabilities on the
consolidated statements of financial condition and the changes in the fair value of the derivatives are recorded
in noninterest income on the consolidated statements of income within mortgage banking.
- 17 -
EAGLE BANCORP MONTANA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1: Organization and Summary of Significant Accounting Policies – continued
Fair Value of Financial Instruments
Fair values of financial instruments are estimated using relevant market information and other assumptions. Fair
value estimates involve uncertainties and matters of significant judgment regarding interest rates, credit risk,
prepayments and other factors, especially in the absence of broad markets for particular items. Changes in
assumptions or in market conditions could significantly affect the estimates. See Note 18. Fair Value of
Financial Instruments for more information.
Transfers of Financial Assets
Transfers of an entire financial asset, a group of entire financial assets, or participating interest in an entire
financial asset are accounted for as sales when control over the assets has been surrendered. Control over
transferred assets is deemed to be surrendered when (1) the assets have been isolated from the Company, (2)
the transferee obtains the right (free of conditions that constrain it from taking advantage of that right) to pledge
or exchange the transferred assets, and (3) the Company does not maintain effective control over the transferred
assets through an agreement to repurchase them before their maturity.
Goodwill and Other Intangible Assets
Goodwill is recorded upon completion of a business combination as the difference between the purchase price
and the fair value of net identifiable assets acquired. Subsequent to initial recognition, the Company tests
goodwill for impairment annually, or more often if events or circumstances, such as adverse changes in the
business climate indicate there may be impairment. Our annual impairment tests as of October 31, 2022 and
October 31, 2021 did not result in impairment.
Goodwill recorded for the FCB acquisition during the second quarter of 2022 was $13,942,000. Goodwill
related to acquisitions prior to 2022 totaled $20,798,000. Other identifiable intangible assets recorded by the
Company represent the future benefit associated with the acquisition of the core deposits. Core deposit
intangible assets are being amortized over 10 years utilizing methods that approximate the expected attrition of
the deposits. The amortization expense is included in the noninterest expense section of the consolidated
statements of income.
Segment Reporting
While management monitors the revenue streams of the various products and services, operations are managed
and financial performance is evaluated on a Company-wide basis. Accordingly, all of the operations are
considered by management to be aggregated in one reportable operating segment.
Recently Issued Accounting Pronouncements
In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments – Credit Losses (Topic 326) intended
to improve financial reporting by requiring timelier recording of credit losses on loans and other financial
instruments held by financial institutions and other organizations. The standard requires an organization to
measure all expected credit losses for financial assets held at the reporting date based on historical experience,
current conditions and reasonable and supportable forecasts. Financial institutions and other organizations will
now use forward-looking information to better inform their credit loss estimates. The standard also requires
enhanced disclosures to help investors and other financial statement users better understand significant estimates
and judgments used in estimating credit losses, as well as the credit quality and underwriting standards of an
organization’s portfolio. These disclosures include qualitative and quantitative requirements that provide
additional information about the amounts recorded in the financial statements. Additionally, the standard
amends the accounting for credit losses on available-for-sale debt securities and purchased financial assets with
credit deterioration.
- 18 -
EAGLE BANCORP MONTANA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1: Organization and Summary of Significant Accounting Policies – continued
Recently Issued Accounting Pronouncements – continued
In February 2022, the FASB issued ASU No. 2022-02, an update to ASU No. 2016-13. The amendments in the
update eliminate TDR recognition and measurement guidance. Instead, entities must evaluate whether the
modification represents a new loan or a continuation of an existing loan. Existing disclosure requirements are
enhanced and the new requirements are introduced related to certain modifications of receivables made to
borrowers experiencing financial difficulty. In addition, for public business entities, the amendments in the
update require that entities disclosure current period gross write-offs by year of origination for financing
receivables. This information must be included in the vintage disclosures, which require an entity to disclose
the amortized cost basis of financing receivables by credit-quality indicator and class of financing receivable
by year of origination.
The Company believes the amendments in these updates will have an impact on the Company's consolidated
financial statements and is finalizing its evaluation of the adoption. In that regard, we have established a working
group composed of individuals from the finance and credit administration areas of the Company. We have
developed a current expected credit losses ("CECL") model with the assistance of a third-party vendor. The
Company is concluding its assessment of qualitative factors, forecasted losses based on economic and forward-
looking data and controls around the model. The final impact will be influenced by the composition,
characteristics and quality of our loan and securities portfolios, as well as the general economic conditions and
forecasts as of the adoption date which is effective January 1, 2023.
In January 2017, the FASB issued ASU No. 2017-04, Intangibles – Goodwill and Other (Topic 350) to amend
and simplify current goodwill impairment testing to eliminate Step 2 from the current provisions. Under the
new guidance, an entity should perform the goodwill impairment test by comparing the fair value of a reporting
unit with its carrying value and recognize an impairment charge for the amount by which the carrying amount
exceeds the reporting unit’s fair value. An entity still has the option to perform the qualitative assessment for a
reporting unit to determine if a quantitative impairment test is necessary. The guidance will be effective for the
Company on January 1, 2023 and is not expected to have a significant impact on the Company’s consolidated
financial statements.
In March 2020, the FASB issued ASU No. 2020-04, Reference Rate Reform (Topic 848) which provides
temporary optional expedients to ease the financial reporting burdens of the expected market transition from
London Interbank Offered Rate (“LIBOR”) to an alternative reference rate such as Secured Overnight Financing
Rate ("SOFR"). The guidance was effective upon issuance and generally can be applied through December 31,
2024. The Company evaluated this guidance and identified substitution rates for impacted loans. In January
2021, the FASB issued ASU No. 2021-01, Reference Rate Reform (Topic 848), which clarifies that certain
optional expedients and exceptions in Topic 848 for contract modifications and hedge accounting apply to
derivatives that are affected by the discounting transition. ASU No. 2021-01 was effective upon issuance and
generally can be applied through December 31, 2024. ASU No. 2021-01 has not had and is not expected to have
a significant impact on the Company's consolidated financial statements.
NOTE 2: Mergers and Acquisitions
Effective April 30, 2022, Eagle completed its previously announced merger with FCB. The acquisition closed
after receipt of approvals from regulatory authorities, approval of FCB shareholders and the satisfaction of other
closing conditions. The total consideration paid was $38,577,000 and included cash consideration of
$10,226,000 and common stock issued of $28,351,000.
This transaction was accounted for under the acquisition method of accounting.
- 19 -
EAGLE BANCORP MONTANA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2: Mergers and Acquisitions – continued
All of the assets acquired and liabilities assumed were recognized at their acquisition-date fair value, while
transaction costs and restructuring costs associated with the business combination were expensed as incurred.
Determining the fair value of assets and liabilities is a complicated process involving significant judgment
regarding methods and assumptions used to calculate estimated fair values. The excess of the acquisition
consideration over the fair value of assets acquired and liabilities assumed, if any, is allocated to goodwill. The
goodwill recorded is not deductible for federal income tax purposes.
The following table summarizes the fair values of the assets acquired and liabilities assumed, consideration paid
and the resulting goodwill.
Assets acquired:
Cash and cash equivalents
Securities available-for-sale
Loans receivable
Premises and equipment
Cash surrender value of life insurance
Core deposit intangible
Other assets
Total assets acquired
Liabilities assumed:
Deposits
Accrued expenses and other liabilities
Other borrowings
Total liabilities assumed
Net assets acquired
Consideration paid:
Cash
Common stock issued (1,396,596 shares)
Total consideration paid
Goodwill resulting from acquisition
FCB
April 30,
2022
(In Thousands)
$
$
$
$
$
$
$
$
23,623
126,123
190,894
6,393
8,638
7,004
7,687
370,362
321,107
1,767
22,853
345,727
24,635
10,226
28,351
38,577
13,942
FCB investments were written down an additional $4,559,000 to fair value on the date of acquisition based on
market prices obtained from an independent third-party.
For acquisitions, the fair value analysis of the loan portfolios resulted in a valuation adjustment for each loan
based on an amortization schedule of expected cash flow. Individual amortization schedules were used for each
loan over a certain amount and those with specifically identified loss exposure. The remainder of the loans were
grouped by type and risk rating into loan pools (based on loans type, fixed or variable interest rate, revolving or
term payments and risk rating). Yield inputs for the amortization schedules included contractual interest rates,
estimated prepayment speeds, liquidity adjustments and market yields. Credit inputs for the amortization
schedules included probability of payment default, loss given default rates and individually identified loss
exposure.
- 20 -
EAGLE BANCORP MONTANA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2: Mergers and Acquisitions – continued
The total accretable discount on FCB acquired loans was $5,416,000 as of April 30, 2022. During the period
from April 30, 2022 to December 31, 2022, accretion of the loan discount totaled $1,297,000. The remaining
accretable loan discount was $4,119,000 as of December 31, 2022. Three impaired loans were acquired through
the FCB acquisition with insignificant balances as of April 30, 2022.
Fair value adjustments recorded for FCB related to premises and equipment were insignificant overall. The
Company used independent third-party appraisals in the determination of the fair value of acquired assets.
Core deposit intangible assets of $7,004,000 were recorded for FCB and are being amortized using an
accelerated method over the estimated useful lives of the related deposits of 10 years from the date of
acquisition. For acquisitions, the core deposit intangible value is a function of the difference between the cost
of the acquired core deposits and the alternative cost of funds. These cash flow streams were discounted to
present value. The fair value of other deposit accounts acquired were valued by estimating future cash flows to
be received or paid from individual or homogenous groups of assets and liabilities and then discounting those
cash flows to a present value using rates of return that were available in financial markets for similar financial
instruments on or near the acquisition date.
Direct costs related to the acquisitions were expensed as incurred. The Company recorded acquisition costs
related to FCB of $2,296,000 during the year ended December 31, 2022. Acquisition costs included professional
fees and data processing expenses incurred related to the acquisitions.
Operations of acquired entities have been included in the consolidated financial statements since date of
acquisition. The Company does not consider them as separate reporting segments and does not track the amount
of revenues and net income attributable since acquisition. As such, it is impracticable to determine such amounts
for the period from acquisition through December 31, 2022.
- 21 -
EAGLE BANCORP MONTANA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2: Mergers and Acquisitions – continued
The accompanying consolidated statements of income include the results of operations of FCB since the April
30, 2022 acquisition date. The following table presents unaudited pro forma results of operations for the year
ended December 31, 2022 as if the acquisition had occurred on January 1, 2022. This pro forma information
gives the effect to certain adjustments, including purchase accounting fair value adjustments and amortization
of the core deposit intangible asset. The pro forma information does not necessarily reflect the results of
operations that would have occurred had the Company purchased and assumed the assets and liabilities of FCB
on January 1, 2022. Cost savings are also not reflected in the unaudited pro forma amounts for the year ended
December 31, 2022.
Pro forma net income(1)
Net interest income after loan loss provision
Noninterest income
Noninterest expense
Income before income taxes
Income tax provision
Net income
Pro forma earnings per common share(1)
Basic earnings per common share
Diluted earnings per common share
Weighted average shares outstanding, basic
Weighted average shares outstanding, diluted
Year Ended
December 31,
2021
(Dollars in
Thousands,
Except Per
Share Data)
$
$
$
$
59,016
54,142
87,381
25,777
6,444
19,333
2.91
2.90
6,653,935
6,655,735
(1) Significant assumptions utilized include the acquisition costs noted above and a 25.00% effective tax rate.
- 22 -
EAGLE BANCORP MONTANA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 3:
Investment Securities
The amortized cost and fair values of securities, together with unrealized gains and losses, were as follows:
Available-for-sale:
U.S. government and agency obligations
U.S. treasury obligations
Municipal obligations
Corporate obligations
Mortgage-backed securities
Collateralized mortgage obligations
Asset-backed securities
Total
Available-for-sale:
U.S. government obligations
U.S. treasury obligations
Municipal obligations
Corporate obligations
Mortgage-backed securities
Collateralized mortgage obligations
Asset-backed securities
Total
December 31, 2022
Gross
Gross
Amortized Unrealized Unrealized
Cost
Gains
Losses
(In Thousands)
Fair
Value
$
2,575 $
58,715
190,811
7,240
31,553
90,812
3,569
$ 385,275 $
2 $
-
77
1
-
-
-
80 $
(187 ) $
(6,764 )
(18,039 )
(251 )
(1,900 )
(8,681 )
(38 )
(35,860 ) $
2,390
51,951
172,849
6,990
29,653
82,131
3,531
349,495
December 31, 2021
Gross
Gross
Amortized Unrealized Unrealized
Cost
Gains
Losses
(In Thousands)
Fair
Value
$
1,618 $
52,707
119,381
9,251
14,662
63,286
5,617
$ 266,522 $
15 $
580
4,616
103
92
416
123
5,945 $
- $
(104 )
(330 )
(18 )
(118 )
(635 )
-
(1,205 ) $
1,633
53,183
123,667
9,336
14,636
63,067
5,740
271,262
- 23 -
EAGLE BANCORP MONTANA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 3:
Investment Securities – continued
Proceeds from sales of available-for-sale securities and the associated gross realized gains and losses were as
follows:
Years Ended
December 31,
2022
2021
(In Thousands)
Proceeds from sale of available-for-sale securities
Gross realized gain on sale of available-for-sale securities
Gross realized loss on sale of available-for-sale securities
Net realized gain on sale of available-for-sale securities
$
$
$
43,794 $
4,921
- $
(6 )
(6 ) $
23
-
23
The amortized cost and fair value of securities by contractual maturity are shown below. Expected maturities
will differ from contractual maturities because borrowers may have the right to call or prepay obligations with
or without call or prepayment penalties.
Amortized
December 31, 2022
Fair
Value
Cost
Due in one year or less
Due from one to five years
Due from five to ten years
Due after ten years
Mortgage-backed securities
Collateralized mortgage obligations
Total
$
(In Thousands)
14,253 $
18,962
92,716
136,979
262,910
14,197
18,545
81,316
123,653
237,711
31,553
90,812
385,275 $
29,653
82,131
349,495
$
At December 31, 2022 and 2021, securities with a fair value of $58,942,000 and $22,245,000, respectively,
were pledged to secure public deposits and for other purposes required or permitted by law.
- 24 -
EAGLE BANCORP MONTANA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 3:
Investment Securities – continued
The Company’s investment securities that have been in a continuous unrealized loss position for less than 12
months and those that have been in a continuous unrealized loss position for 12 or more months were as follows:
December 31, 2022
Less than 12 Months
Gross
Unrealized
Losses
Fair
Value
12 Months or Longer
Gross
Unrealized
Losses
Fair
Value
(In Thousands)
(187 ) $
- $
(196 ) 40,982
(8,781 ) 33,092
995
(246 )
-
(6,568 )
(9,258 )
(5 )
U.S. government and agency obligations
U.S. treasury obligations
Municipal obligations
Corporate obligations
Mortgage-backed securities and collateralized
$
1,773 $
10,969
128,036
4,994
mortgage obligations
Asset-backed securities
Total
67,310
3,531
$ 216,613 $
(3,647 ) 44,444
-
(13,095 ) $ 119,513 $
(38 )
(6,934 )
-
(22,765 )
December 31, 2021
U.S. government and agency obligations
U.S. treasury obligations
Municipal obligations
Corporate obligations
Mortgage-backed securities and collateralized
mortgage obligations
Asset-backed securities
Total
12 months or Longer
Gross
Unrealized
Losses
Fair
Value
Less than 12 months
Gross
Unrealized Fair
Value
Losses
(In Thousands)
- $
(104 )
(330 )
(18 )
$
- $
19,301
17,973
2,982
- $
-
-
-
50,002
-
$ 90,258 $
(741 )
-
1,296
-
(1,193 ) $ 1,296 $
-
-
-
-
(12 )
-
(12 )
Unrealized losses associated with investments are believed to be caused by changes in market interest rates or
the widening of market spreads subsequent to the initial purchase of the securities and not due to concerns
regarding the underlying credit of the issuers or the underlying collateral. The Company does not intend to sell
the securities, and it is not likely to be required to sell these securities prior to maturity. Based on the Company’s
evaluation of these securities, no other-than-temporary impairment was recorded for the year ended December
31, 2022, or 2021. As of December 31, 2022 and 2021, there were, respectively, 388 and 43 securities in
unrealized loss positions that were considered to be temporarily impaired and therefore an impairment charge
has not been recorded.
- 25 -
EAGLE BANCORP MONTANA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 4: Loans
Loans receivable consisted of the following:
Real estate loans:
Residential 1-4 family
Commercial real estate
Other loans:
Home equity
Consumer
Commercial
Total
Deferred loan fees, net
Allowance for loan losses
Total loans, net
December 31,
2022
2021
(In Thousands)
$ 195,703 $
826,549
146,815
569,976
74,271
27,609
231,291
51,748
18,455
147,870
1,355,423
934,864
(1,745 )
(14,000 )
$ 1,339,678 $
(1,725 )
(12,500 )
920,639
Included in the above are loans guaranteed by U.S. government agencies totaling $24,605,000 and
$25,730,000 at December 31, 2022 and December 31, 2021, respectively.
- 26 -
EAGLE BANCORP MONTANA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 4: Loans – continued
Allowance for loan losses activity was as follows:
Residential Commercial Home
1-4 Family Real Estate Equity Consumer Commercial Total
(In Thousands)
Allowance for loan losses:
Balance, January 1, 2022
$
Charge-offs
Recoveries
Provision
Balance, December 31,
1,596 $
(199 )
4
71
7,470 $
-
30
1,537
533 $
(32 )
-
8
365 $
(31 )
4
4
2,536 $
(299 )
22
381
12,500
(561 )
60
2,001
2022
$
1,472 $
9,037 $
509 $
342 $
2,640 $
14,000
Balance, December 31,
2022 allocated to loans
individually evaluated
for impairment
Balance, December 31,
2022 allocated to loans
collectively evaluated
for impairment
Loans receivable:
Balance, December 31,
$
- $
- $
- $
- $
150 $
150
$
1,472 $
9,037 $
509 $
342 $
2,490 $
13,850
2022
$ 195,703 $ 826,549 $ 74,271 $ 27,609 $ 231,291 $ 1,355,423
Balance, December 31,
2022 of loans
individually evaluated
for impairment
Balance, December 31,
2022 of loans
collectively evaluated
for impairment
$
483 $
4,368 $
107 $
25 $
1,719 $
6,702
$ 195,220 $ 822,181 $ 74,164 $ 27,584 $ 229,572 $ 1,348,721
- 27 -
EAGLE BANCORP MONTANA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 4: Loans – continued
Residential Commercial Home
1-4 Family Real Estate Equity Consumer Commercial Total
(In Thousands)
Allowance for loan losses:
Balance, January 1, 2021
$
Charge-offs
Recoveries
Provision
Balance, December 31,
1,506 $
-
-
90
6,951 $
(35 )
21
533
515 $
-
-
18
364 $
(16 )
8
9
2,264 $ 11,600
(57 )
96
861
(6 )
67
211
2021
$
1,596 $
7,470 $
533 $
365 $
2,536 $ 12,500
Balance, December 31,
2021 allocated to loans
individually evaluated for
impairment
Balance, December 31,
2021 allocated to loans
collectively evaluated for
impairment
Loans receivable:
Balance, December 31,
$
199 $
- $
- $
- $
401 $
600
$
1,397 $
7,470 $
533 $
365 $
2,135 $ 11,900
2021
$ 146,815 $
569,976 $ 51,748 $ 18,455 $
147,870 $ 934,864
Balance, December 31,
2021 of loans
individually evaluated
for impairment
Balance, December 31,
2021 of loans
collectively evaluated
for impairment
$
953 $
3,654 $
115 $
62 $
2,275 $ 7,059
$ 145,862 $
566,322 $ 51,633 $ 18,393 $
145,595 $ 927,805
- 28 -
EAGLE BANCORP MONTANA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 4: Loans – continued
The Company utilizes an 8-point internal loan rating system, largely based on regulatory classifications, as
follows:
Loans Rated Pass – these are loans in categories 1 – 5 that are considered to be protected by the current net
worth and paying capacity of the obligor, or by the value of the asset or the underlying collateral.
Loans Rated Special Mention – these loans in category 6 have potential weaknesses and are watched closely by
management. If left uncorrected, these potential weaknesses may result in deterioration of the repayment
prospects for the asset at some future date.
Loans Rated Substandard – these loans in category 7 are inadequately protected by the current net worth and
paying capacity of the obligor or the collateral pledged, if any. Loans so classified have a well-defined weakness
or weaknesses. They are characterized by the distinct possibility that the Company will sustain some loss if the
deficiencies are not corrected.
Loans Rated Doubtful – these loans in category 8 have all the weaknesses inherent in those classified
Substandard with the added characteristic that the weaknesses make collection or liquidation in full, on the basis
of currently existing facts, conditions, and values, highly questionable and improbable.
Loans Rated Loss – these loans are considered uncollectible and are not part of the 8-point rating system. They
are of such small value that their continuance as assets without establishment of a specific reserve is not
warranted. This classification does not mean that an asset has absolutely no recovery or salvage value, but,
rather, that it is not practical or desirable to defer writing off a basically worthless asset even though practical
recovery may be affected in the future.
- 29 -
EAGLE BANCORP MONTANA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 4: Loans – continued
Internal classification of the loan portfolio was as follows:
December 31, 2022
Special
Mention Substandard Doubtful Loss Total
Pass
(In Thousands)
$
135,079 $
515 $
353 $
- $
- $ 135,947
59,756
-
520,505 16,833
150,101
131,646
1,044
2,232
74,147
27,560
125,035
101,441
-
10
1,476
311
$ 1,325,270 $ 22,421 $
-
1,732
-
2,456
124
39
736
2,182
7,622 $
-
-
-
-
-
59,756
- 539,070
- 151,145
- 136,334
-
-
8
102
110 $
74,271
-
27,609
-
- 127,255
- 104,036
- $ 1,355,423
December 31, 2021
Special
Mention Substandard Doubtful Loss Total
Pass
(In Thousands)
$ 100,680 $
- $
301 $
199 $
- $ 101,180
Real estate loans:
Residential 1-4 family
Residential 1-4 family
construction
Commercial real estate
Commercial construction
and development
Farmland
Other loans:
Home equity
Consumer
Commercial
Agricultural
Total
Real estate loans:
Residential 1-4 family
Residential 1-4 family
construction
337
2,145
-
1,744
134
63
524
1,444
6,692 $
-
-
- 45,635
- 410,568
-
47
- 92,403
- 67,005
-
-
-
9
255 $
- 51,748
- 18,455
- 101,535
- 46,335
- $ 934,864
Commercial real estate
Commercial construction and
45,298
406,896
-
1,527
development
Farmland
Other loans:
Home equity
Consumer
Commercial
Agricultural
Total
92,403
65,037
-
177
51,614
18,392
100,881
44,550
$ 925,751 $
-
-
130
332
2,166 $
- 30 -
EAGLE BANCORP MONTANA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 4: Loans – continued
The following tables include information regarding delinquencies within the loan portfolio.
Loans Past Due and Still Accruing
December 31, 2022
30-89
Days
90 Days
and
Past Due Greater
Non-
Accrual Current
Loans
Total
Loans
(In Thousands)
Total
Loans
Real estate loans:
Residential 1-4 family
Residential 1-4 family
construction
Commercial real estate
Commercial construction
and development
Farmland
Other loans:
Home equity
Consumer
Commercial
Agricultural
Total
$
1,798 $
330 $
2,128 $
483 $
133,336 $ 135,947
500
780
-
1,620
-
-
-
-
500
780
-
350
59,256
59,756
537,940 539,070
-
1,620
-
754
151,145 151,145
133,960 136,334
226
93
597
-
-
-
746
-
5,614 $ 1,076 $
$
226
93
1,343
-
74,271
73,938
27,491
27,609
125,868 127,255
102,501 104,036
6,690 $ 3,298 $ 1,345,435 $ 1,355,423
107
25
44
1,535
December 31, 2021
Loans Past Due and Still Accruing
90 Days
and
30-89
Days
Past Due Greater
Non-
Accrual Current
Loans
Loans
Total
Loans
Total
(In Thousands)
Real estate loans:
Residential 1-4 family
Residential 1-4 family
construction
Commercial real estate
Commercial construction
and development
Farmland
Other loans:
Home equity
Consumer
Commercial
Agricultural
Total
$
21 $
- $
21 $
616 $ 100,543 $ 101,180
-
788
-
61
-
55
6
-
931 $
$
-
-
-
-
-
-
-
-
- $
-
788
45,298 45,635
337
497 409,283 410,568
-
61
-
1,630
92,403 92,403
65,314 67,005
-
55
6
-
931 $
51,633 51,748
115
62
18,338 18,455
516 101,013 101,535
1,718
44,617 46,335
5,491 $ 928,442 $ 934,864
- 31 -
EAGLE BANCORP MONTANA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 4: Loans – continued
The following tables include information regarding impaired loans.
December 31, 2022
Unpaid
Recorded Principal Related
Investment Balance Allowance
Average
Recorded
Investment
Real estate loans:
Residential 1-4 family
Residential 1-4 family construction
Commercial real estate
Commercial construction and development
Farmland
Other loans:
Home equity
Consumer
Commercial
Agricultural
Total
(In Thousands)
$
$
483 $
-
3,614
-
754
585 $
-
3,697
-
866
133
107
30
25
232
184
1,535
1,633
6,702 $ 7,176 $
- $
-
-
-
-
-
-
35
115
150 $
550
169
2,818
-
1,192
111
44
350
1,647
6,881
December 31, 2021
Unpaid
Recorded Principal Related
Investment Balance Allowance
Average
Recorded
Investment
Real estate loans:
Residential 1-4 family
Residential 1-4 family construction
Commercial real estate
Commercial construction and development
Farmland
Other loans:
Home equity
Consumer
Commercial
Agricultural
Total
(In Thousands)
$
$
616 $
337
2,024
-
1,630
703 $
387
2,078
-
1,721
139
115
73
62
639
516
1,862
1,759
7,059 $ 7,602 $
199 $
-
-
-
-
-
-
101
300
600 $
910
337
2,143
25
1,937
113
107
527
1,731
7,830
Interest income recognized on impaired loans for the years ended December 31, 2022 and 2021 is considered
insignificant. Interest payments received on a cash basis related to impaired loans were $415,000 and
$405,000 at December 31, 2022 and 2021, respectively.
- 32 -
EAGLE BANCORP MONTANA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 4: Loans – continued
As of December 31, 2022 and 2021, TDR loans totaled $4,502,000 and $2,224,000, respectively.
During the year ended December 31, 2022, there were eight new TDR loans. Four of the eight loans were
commercial real estate loans and the recorded investments at time of restructure were $471,000, $1,552,000,
$812,000 and $429,000. No charge-offs were incurred and the loans are on accrual status. Two of the loans
were commercial loans and the recorded investments at time of restructure were $6,000 and $134,000. No
charge-offs were incurred and the loans are on accrual status. The remaining two loans were agricultural loans
and the recorded investments at time of restructure were $145,000 and $331,000. No charge-offs were incurred
and the loans are on nonaccrual status.
During the year ended December 31, 2021, there were four new TDR loans. Three of the four loans were
farmland loans, and the recorded investments at time of restructure were $180,000, $391,000 and $70,000. The
fourth loan was a commercial real estate loan, and the recorded investment at the time of restructure was
$115,000. The commercial real estate loan was paid off during the year ended December 31, 2021. At December
31, 2021, the recorded investments for the remaining farmland loans were $180,000, $391,000 and $70,000,
respectively. No charge-offs were incurred for the remaining loans and they continue to be on nonaccrual status.
The recorded investments for the farmland loans at December 31, 2022 were $180,000, $366,000 and $65,000,
respectively.
There were two farmland loans modified as TDRs that defaulted during the year ended December 31, 2022
where the default occurred within 12 months of restructuring. However, subsequent payments were made and
the loans are no longer in default as of December 31, 2022.
As of December 31, 2022, the Company had no commitments to lend additional funds to loan customers whose
terms had been modified in troubled debt restructures.
Loans are granted to directors and officers of the Company in the ordinary course of business on substantially
the same terms as those prevailing at the time for comparable transactions with other persons.
Loans receivable (including loans sold and serviced for others) from related parties, including directors and
executive officers were as follows:
Balance, January 1, 2021
Principal additions
Principal payments
Balance, December 31, 2021
Principal additions
Principal payments
Balance, December 31, 2022
(In Thousands)
2,363
$
1,487
(1,925 )
1,925
241
(282 )
1,884
$
$
Loans serviced, for the benefit of others, for directors, executive officers
and their related parties
$
1,480 $
1,583
December 31,
2022
2021
(In Thousands)
- 33 -
EAGLE BANCORP MONTANA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 4: Loans – continued
Years Ended
December 31,
2022
2021
(In Thousands)
Interest income from loans owned for directors, executive officers and their
related parties
$
67 $
20
NOTE 5: Mortgage Servicing Rights
The Company is servicing mortgage loans for the benefit of others which are not included in the consolidated
statements of financial condition and have unpaid principal balances of $2,022,066,000 and $1,835,561,000 at
December 31, 2022 and 2021, respectively. Servicing loans for others generally consists of collecting mortgage
payments, maintaining escrow accounts, disbursing payments to investors and foreclosure processing. Mortgage
loan servicing fees were $4,839,000 and $4,101,000 for the years ended December 31, 2022 and 2021,
respectively. These fees, net of amortization, are included in mortgage banking, net which is a component of
noninterest income on the consolidated statements of income.
Custodial balances maintained in connection with the foregoing loan servicing are included in noninterest
checking deposits and were $11,912,000 and $11,613,000 at December 31, 2022 and 2021, respectively.
The following table is a summary of activity in mortgage servicing rights:
Mortgage servicing rights:
Beginning balance
Mortgage servicing rights capitalized
Amortization of mortgage servicing rights
Ending balance
Valuation allowance:
Beginning balance
Recovery (impairment) of mortgage servicing rights
Ending balance
Mortgage servicing rights, net
Years Ended
December 31,
2022
2021
(In Thousands)
$
$
13,749 $
3,781
(2,118 )
15,412
(56 )
56
-
15,412 $
10,897
6,561
(3,709 )
13,749
(792 )
736
(56 )
13,693
Recovery of servicing rights is included in other noninterest expense on the consolidated statements of income.
- 34 -
EAGLE BANCORP MONTANA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 5: Mortgage Servicing Rights – continued
The fair values of these rights were $19,288,000 and $14,686,000 at December 31, 2022 and 2021, respectively.
The fair value of servicing rights was determined at loan level, depending on the interest rate and term of the
specific loan, using the following valuation assumptions:
Key assumptions:
Discount rate
Prepayment speed range
Weighted average prepayment speed
December 31,
2022
12%
2021
12%
116-210% 184-265%
131%
204%
NOTE 6:
Premises and Equipment
The cost and accumulated depreciation of premises and equipment was as follows:
Land
Buildings and improvements
Furniture and equipment
Construction in progress
Accumulated depreciation
Premises and equipment, net, excluding right-of-use assets
Right-of-use assets
Premises and equipment, net
December 31,
2022
2021
(In Thousands)
13,070 $
66,371
15,575
10,435
105,451
(24,088)
81,363
2,960
84,323 $
9,656
52,469
13,305
8,911
84,341
(20,512)
63,829
3,437
67,266
$
$
Depreciation expense was $3,576,000 and $2,917,000 for the years ended December 31, 2022 and 2021,
respectively.
The Company leases four full-service branch locations, and two administrative office locations under various
operating lease agreements. Leases with a lease term of 12 months at commencement are not recorded on the
statements of financial position. The Company’s leases have maturities ranging from 2023 to 2028, some of
which include lessee options to extend the leases for up to 10 years.
- 35 -
EAGLE BANCORP MONTANA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 6:
Premises and Equipment – continued
The following table summarizes the Company’s leases:
Right-of-use assets, net of amortization
Lease liabilities
Weighted average remaining lease term (years)
Weighted average discount rate
$
December 31
2022
2021
(In Thousands)
2,960 $
1,984
5.12
2.70 %
3,437
2,292
6.05
2.45%
The components of lease cost, which were included in occupancy and equipment expense on the consolidated
statements of income, were as follows:
Operating lease cost
Short-term lease cost
Total lease cost
December 31
2022
2021
(In Thousands)
$
$
734 $
1,767
2,501 $
679
40
719
The following table presents the maturities of lease liabilities at December 31, 2022 for future periods:
2023
2024
2025
2026
2027
Thereafter
Total lease payments
Less imputed interest
Present value of lease liabilities
(In Thousands)
531
$
368
342
342
298
238
2,119
(135)
1,984
$
The Company also leases office space to third parties through operating leases. The rent income from these
leases for the years ending December 31, 2022 and 2021 was not significant.
- 36 -
EAGLE BANCORP MONTANA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 7: Other Intangible Assets
The components of core deposit intangible assets were as follows:
Core deposit intangible
Accumulated amortization
Core deposit intangible, net
December 31,
2022
2021
(In Thousands)
11,840 $
(4,381 )
7,459 $
4,836
(3,056 )
1,780
$
$
Core deposit intangible assets are amortized on an accelerated basis over their estimated life of 10 years.
Amortization expense related to intangible assets was $1,325,000 and $563,000 for the years ended December
31, 2022 and 2021. The estimated aggregate future amortization expense for core deposit intangible assets
remaining as of December 31, 2022 was as follows:
Years ending December 31:
2023
2024
2025
2026
2027
Thereafter
Total
NOTE 8: Deposits
Deposits are summarized as follows:
(In Thousands)
1,578
$
1,382
1,185
989
792
1,533
7,459
$
December 31,
2022
Balance
Weighted
Average
Rate
Balance
(Dollars in Thousands)
2021
Weighted
Average
Rate
$ 468,955
252,922
273,790
387,947
251,658
$ 1,635,272
0.00 % $ 368,846
203,410
0.11
223,069
0.06
277,469
1.12
1.41
149,755
0.50 % $ 1,222,549
0.00 %
0.02
0.06
0.25
0.39
0.12 %
Noninterest checking
Interest-bearing checking
Savings
Money market
Time certificates of deposits
Total
Time certificates of deposits include $247,000 and $0 related to fixed rate brokered certificates through the
Certificate of Deposit Account Registry Services ("CDARS") at December 31, 2022 and 2021, respectively.
At December 31, 2022 and 2021, the Company held $642,017,000 and $444,891,000, respectively, in deposit
accounts that met or exceeded the Federal Deposit Insurance Corporation (“FDIC”) requirements of $250,000
and greater.
Time certificates of deposits with balances of $250,000 and greater were $65,203,000 and $24,472,000 at
December 31, 2022 and 2021, respectively.
- 37 -
EAGLE BANCORP MONTANA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 8: Deposits – continued
At December 31, 2022, the scheduled maturities of time deposits were as follows:
Years ending December 31:
2023
2024
2025
2026
2027
Thereafter
Total
Interest expense on deposits was as follows:
Checking
Savings
Money market
Time certificates of deposits
Total
(In Thousands)
$
$
199,186
40,238
4,134
4,403
3,693
4
251,658
Years Ended
December 31,
2022
2021
(In Thousands)
$
$
173 $
99
1,711
1,141
3,124 $
47
78
545
804
1,474
At December 31, 2022 and 2021, the Company reclassified $436,000 and $178,000, respectively, in overdrawn
deposits as loans.
Related party deposits, including directors’ and executive officers’ deposit accounts at December 31, 2022 and
2021 were $5,326,000 and $7,554,000, respectively.
NOTE 9: Advances from the Federal Home Loan Bank and Other Borrowings
At December 31, 2022, advances from the FHLB of Des Moines and other borrowings mature as follows:
Years ending December 31:
2023
2024
2025
2026
2027
Thereafter
Total
(In Thousands)
69,394
$
-
-
-
-
-
69,394
$
- 38 -
EAGLE BANCORP MONTANA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 9: Advances from the Federal Home Loan Bank and Other Borrowings – continued
Federal Home Loan Bank Advances
FHLB advances include both fixed and amortizing advances. Fixed advances are due at maturity. Advances are
subject to prepayment penalties. Interest rates on these advances are fixed. Advances are collateralized by a
blanket pledge of the Bank’s loan portfolio. The Company’s investment in FHLB stock is also pledged as
collateral on these advances. The total FHLB funding available to the Company at December 31, 2022, was
45.00% of total Bank assets as determined by FHLB, or approximately $860,071,000. The balance of advances
was $69,394,000 and $5,000,000 at December 31, 2022 and 2021, respectively. The Bank also has a contingent
letter of credit with FHLB for $520,000 at both December 31, 2022 and 2021.
Other Borrowings
During the year ended December 31, 2021, Eagle established a $10,000,000 line of credit with Bell Bank. The
balance of this line of credit was $0 at both December 31, 2022 and 2021.
Federal Funds Purchased
At December 31, 2022, the Bank had $85,000,000 in Federal funds lines of credit with unaffiliated institutions,
including Pacific Coast Bankers Bank ("PCBB"), PNC Financial Services Group, Inc. ("PNC"), United Bankers'
Bank ("UBB") and Texas Independent Bank ("TIB"). The balance of these lines of credit was $0 at
both December 31, 2022 and 2021.
The Bank had a $20,000,000 Federal funds line of credit with Zions Bank, which terminated during the year
ended December 31, 2021.
All Borrowings Outstanding
For all borrowings outstanding the weighted average interest rate for advances at December 31, 2022 and 2021
was 4.52% and 1.81%, respectively. The average amount outstanding was $14,518,000 and $9,410,000 for 2022
and 2021, respectively. The maximum amount outstanding at any month-end was $69,394,000 and $16,917,000
for 2022 and 2021, respectively.
- 39 -
EAGLE BANCORP MONTANA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 10: Other Long-Term Debt
Other long-term debt consisted of the following:
December 31,
2022
Unamortized
Debt
Issuance
Costs
Principal
Amount
Principal
Amount
2021
Unamortized
Debt
Issuance
Costs
(In Thousands)
Senior notes fixed at 5.75%, due 2022
Subordinated debentures fixed at 5.50% to
$
- $
- $ 10,000 $
(4 )
floating, due 2030
15,000
(249 ) 15,000
(282 )
Subordinated debentures fixed at 3.50% to
floating, due 2032
40,000
(1,062)
-
Subordinated debentures variable at 3-Month
Libor plus 1.42%, due 2035
Total other long-term debt
5,155
$ 60,155 $
-
5,155
(1,311 ) $ 30,155 $
-
-
(286 )
In January 2022, the Company completed the issuance of $40,000,000 in aggregate principal amount of
subordinated notes due in 2032 in a private placement transaction to certain institutional accredited investors
and qualified buyers. The notes bear interest at an annual fixed rate of 3.50% payable semi-annually. Starting
February 1, 2027, interest will accrue at a floating rate per annum equal to a benchmark rate, which is
expected to be three-month term SOFR plus a spread of 218.0 basis points, payable quarterly. The notes are
subject to redemption at the option of the Company on or after February 1, 2027. The subordinated debentures
qualify as Tier 2 capital for regulatory capital purposes. A portion of the net proceeds were used to redeem the
$10,000,000 senior notes due in February 2022.
In June 2020, the Company completed the issuance of $15,000,000 in aggregate principal amount of
subordinated notes due in 2030 in a private placement transaction to certain qualified institutional accredited
investors. The notes bear interest at an annual fixed rate of 5.50% payable semi-annually. Starting July 1, 2025,
interest will accrue at a floating rate per annum equal to a benchmark rate, which is expected to be three-month
term Secured Overnight Financing Rate ("SOFR") plus a spread of 509.0 basis points, payable quarterly. The
notes are subject to redemption at the option of the Company on or after July 1, 2025. The subordinated
debentures qualify as Tier 2 capital for regulatory capital purposes.
In February 2017, the Company completed the issuance, through a private placement, of $10,000,000 aggregate
principal amount of 5.75% fixed senior unsecured notes due in 2022. The interest was paid semi-annually
through maturity date. The notes were not subject to redemption at the option of the Company. The notes were
redeemed on February 15, 2022.
In September 2005, the Company completed the private placement of $5,155,000 in subordinated debentures to
the Trust. The Trust funded the purchase of the subordinated debentures through the sale of trust preferred
securities to First Tennessee Bank, N.A. with a liquidation value of $5,155,000. Using interest payments made
by the Company on the debentures, the Trust began paying quarterly dividends to preferred security holders on
December 15, 2005. The annual percentage rate of the interest payable on the subordinated debentures and
distributions payable on the preferred securities was fixed at 6.02% until December 2010 then became variable
at 3-Month LIBOR plus 1.42%, making the rate 6.20% and 1.63% as of December 31, 2022 and 2021,
respectively. Dividends on the preferred securities are cumulative and the Trust may defer the payments for up
to five years. The preferred securities mature in December 2035 unless the Company elects and obtains
regulatory approval to accelerate the maturity date. The subordinated debentures qualify as Tier 1 capital for
regulatory capital purposes.
- 40 -
EAGLE BANCORP MONTANA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 10: Other Long-Term Debt – continued
For 2022 and 2021, interest expense on all other long-term debt was $2,512,000 and $1,558,000, respectively,
which includes $134,000 and $78,000 in amortization for debt issuance costs, respectively. Debt issuance costs
consisting primarily of underwriting discounts and professional fees were capitalized and are being amortized
through maturity to interest expense using the straight-line method.
NOTE 11: Commitments and Contingencies
Financial Instruments and Off-Balance-Sheet Activities
All financial instruments held or issued by the Company are held or issued for purposes other than trading. In
the ordinary course of business, the Bank enters into off-balance-sheet financial instruments consisting of
commitments to extend credit and forward delivery commitments for the sale of whole loans to the secondary
market.
In response to marketplace demands, the Bank routinely makes commitments to extend credit for fixed rate and
variable rate loans with or without rate lock guarantees. When rate lock guarantees are made to customers, the
Bank becomes subject to market risk for changes in interest rates that occur between the rate lock date and the
date that a firm commitment to purchase the loan is made by a secondary market investor.
Commitments to extend credit are agreements to lend to a customer as long as the borrower satisfies the Bank’s
underwriting standards and related provisions of the borrowing agreements. Commitments generally have fixed
expiration dates or other termination clauses. The Bank uses the same credit policies in making commitments
to extend credit as it does for on-balance-sheet instruments. Collateral is required for substantially all loans, and
normally consists of real property. The Bank’s experience has been that substantially all loan commitments are
completed or terminated by the borrower within 3 to 12 months.
Commitments are summarized as follows:
Commitments to extend credit
Letters of credit
December 31,
2022
2021
(In Thousands)
$
367,494 $
10,563
252,485
4,129
- 41 -
EAGLE BANCORP MONTANA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 11: Commitments and Contingencies – continued
Employment Contracts
The Company has entered into change of control agreements with its executive officers other than the Chief
Executive Officer. The change in control agreements provide a double trigger benefit equal to the sum of the
executive’s annual salary and incentive bonus for the most recently completed year. The benefits are payable in
the event that four months prior to, in connection with or within 18 months after a change in control the
executive’s employment is terminated without cause or if the executive resigns for good reason. The change in
control agreements are for two years, renewing automatically for successive one-year periods unless Eagle
or the executive provide written notice of nonrenewal 60 days before the contract anniversary date. If the officer
timely and properly elects health continuation coverage under the Consolidated Omnibus Budget Reconciliation
Act of 1985 ("COBRA"), the Bank will pay the Executive's monthly COBRA premium paid for himself/herself
and his/her dependents for all applicable group health plan benefits until the earliest of (i) the expiration of
twelve months of coverage, (ii) the date the executive is no longer eligible to receive COBRA continuation
coverage, and (iii) the date on which the executive receives or becomes eligible to receive substantially similar
coverage from another employer or source.
Legal Proceedings
Various legal claims also arise from time to time in the normal course of business which, in the opinion of
management, will have no material effect on the Company’s financial statements.
NOTE 12: Income Taxes
The components of the Company’s income tax provision (benefit) were as follows:
Current
U.S. federal
Montana
Total current income tax provision
Deferred
U.S. federal
Montana
Total deferred income tax provision
Total income tax provision
Years Ended
December 31,
2022
2021
(In Thousands)
$
$
535 $
543
1,078
1,650
419
2,069
3,147 $
2,717
1,112
3,829
825
209
1,034
4,863
- 42 -
EAGLE BANCORP MONTANA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 12: Income Taxes – continued
The nature and components of deferred tax assets and liabilities were as follows:
Deferred tax assets:
Loans receivable
Deferred loan fees
Lease liability
Deferred compensation
Employee benefits
Unrealized losses on securities available-for-sale
Acquisition costs
Acquisition fair value adjustments
Other
Total deferred tax assets
Deferred tax liabilities:
Premises and equipment
Right-of-use asset
FHLB stock
Mortgage servicing rights
Unrealized gains on securities available-for-sale
Goodwill
Intangibles
Other
Total deferred tax liabilities
Net deferred tax asset (liability)
December 31,
2022
2021
(In Thousands)
$
$
3,687 $
460
523
1,817
533
9,423
167
3,513
257
20,380
757
779
130
4,059
-
1,242
1,964
641
9,572
10,808 $
3,292
454
604
1,495
435
-
202
345
903
7,730
891
905
25
3,606
1,247
1,119
464
121
8,378
(648 )
The Company believes, based upon the available evidence, that all deferred tax assets will be realized in the
normal course of operations. Accordingly, these assets have not been reduced by a valuation allowance.
- 43 -
EAGLE BANCORP MONTANA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 12: Income Taxes – continued
A reconciliation of the Company’s effective income tax provision (benefit) to the statutory federal income tax
rate was as follows:
Years Ended
December 31,
2022
2021
Amount
% of
Pretax
Income
Amount
(Dollars in Thousands)
% of
Pretax
Income
$
$
2,908
738
(605 )
241
(217 )
82
3,147
21.00% $
5.33
-4.37
1.74
-1.57
0.60
22.73% $
4,049
1,047
(292 )
160
(151 )
50
4,863
21.00%
5.43
-1.51
0.83
-0.78
0.25
25.22%
Federal income taxes at the statutory rate
State income taxes
Tax-exempt interest income
Transaction costs
Income from bank-owned life insurance
Other, net
Actual tax expense and effective tax rate
NOTE 13: Accumulated Other Comprehensive Income (Loss)
The following table includes information regarding the activity in accumulated other comprehensive income
(loss):
Unrealized
Gains (Losses)
on Securities
Available for Sale
(In Thousands)
$
$
$
$
3,493
(40,526 )
6
10,670
(29,850)
(26,357)
5,851
(3,178 )
(23 )
843
(2,358 )
3,493
Balance, January 1, 2022
Other comprehensive loss, before reclassifications and income taxes
Amounts reclassified from accumulated other comprehensive loss, before income
taxes
Income tax benefit
Total other comprehensive loss
Balance, December 31, 2022
Balance, January 1, 2021
Other comprehensive loss, before reclassifications and income taxes
Amounts reclassified from accumulated other comprehensive income, before
income taxes
Income tax benefit
Total other comprehensive loss
Balance, December 31, 2021
- 44 -
EAGLE BANCORP MONTANA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 14: Earnings Per Common Share
The computations of basic and diluted earnings per common share are below.
Basic weighted average shares outstanding
Dilutive effect of stock compensation
Diluted weighted average shares outstanding
Net income available to common shareholders
Basic earnings per common share
Diluted earnings per common share
Years Ended
December 31,
2022
2021
(Dollars in Thousands, Except for Per Share Data)
6,653,935
1,800
6,655,735
7,376,275
9,978
7,386,253
$
$
$
10,701 $
14,419
1.45 $
1.45 $
2.17
2.17
There were an insignificant number of weighted average shares outstanding that were not included in the
computation of diluted earnings per common share because the effect would be anti-dilutive for the year ended
December 31, 2022. There were no anti-dilutive shares at December 31, 2021.
NOTE 15: Capital Management and Regulatory Matters
Federal regulations require Federal Reserve member banks, such as Opportunity Bank of Montana and all other
FDIC insured depository institutions, to meet several minimum capital standards: a common equity Tier 1
capital to risk-based assets ratio of 4.5%, a Tier 1 capital to risk-based assets ratio of 6.0%, a total capital to
risk-based assets of 8.0%, and a Tier 1 capital to total average assets leverage ratio of 4.0%. Federal
law establishes a prompt corrective action framework to resolve the problems of undercapitalized depository
institutions. Failure to meet minimum capital requirements can initiate certain mandatory and possibly
additional discretionary actions that, if undertaken, could have a direct material effect on the Company’s
financial statements. Prompt corrective action provisions are not applicable to bank holding companies.
In addition to establishing the minimum regulatory capital requirements, the regulations limit capital
distributions and certain discretionary bonus payments to management if the institution does not hold a “capital
conservation buffer” consisting of 2.5% of common equity Tier 1 capital to risk-weighted assets above the
amount necessary to meet each of its minimum risk-based capital requirements. An institution is considered
"adequately capitalized" if it has a leverage ratio of 4.0%, and including the conservation buffer, a common
equity Tier 1 capital to risk-based assets ratio of 7.0%, a Tier 1 capital to risk-weighted assets ratio of 8.5% and
a total capital to risk-weighted assets ratio of 10.5%.
- 45 -
EAGLE BANCORP MONTANA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 15: Capital Management and Regulatory Matters – continued
Management believes that, as of December 31, 2022, the Company and the Bank meet all capital adequacy
requirements.
As of December 31, 2022, the most recent notification from the FRB categorized the Bank as well capitalized
under the regulatory framework for prompt corrective action. There are no conditions or events since the
notification that management believes have changed the Banks’s category. The Company's and the Bank’s
actual capital amounts and ratios as of December 31, 2022 are presented in the table below and all of the ratios,
with the exception of the Tier 1 capital to adjusted total average assets ratio, include the capital conservation
buffer of 2.50%:
Minimum
To Be Well
Actual
Amount Ratio
Minimum Required
Capitalized Under
for Capital Adequacy Prompt Corrective
Action Provisions
Amount Ratio
Amount Ratio
Purposes
December 31, 2022:
Total risk-based capital to
risk weighted assets
Consolidated
Bank
$ 219,595
202,905
14.10% $ 163,560
13.04 163,444
10.50%
N/A
10.50 155,661
N/A
10.00%
(Dollars in Thousands)
Tier 1 capital to risk weighted
assets
Consolidated
Bank
150,595
188,905
9.67 132,406
12.14 132,312
8.50
N/A
8.50 124,529
N/A
8.00
Common equity Tier 1 capital
to risk weighted assets
Consolidated
Bank
145,594
188,905
9.35 109,040
12.14 108,962
7.00
N/A
7.00 101,179
N/A
6.50
Tier 1 capital to adjusted total
average assets
Consolidated
Bank
150,595
188,905
7.78
9.82
77,422
76,947
N/A
4.00
4.00 96,184
N/A
5.00
- 46 -
EAGLE BANCORP MONTANA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 15: Capital Management and Regulatory Matters – continued
The Company's and the Bank’s actual capital amounts and ratios as of December 31, 2021 are presented in the
table below and all of the ratios, with the exception of the Tier 1 capital to adjusted total average assets ratio,
include the capital conservation buffer of 2.50%.
Minimum Required
for Capital Adequacy
Purposes
Actual
Amount Ratio
Amount Ratio
(Dollars in Thousands)
Minimum
To Be Well
Capitalized Under
Prompt Corrective
Action Provisions
Amount Ratio
December 31, 2021:
Total risk-based capital to
risk weighted assets
Consolidated
Bank
Tier 1 capital to risk
weighted assets
Consolidated
Bank
Common equity Tier 1
capital to risk weighted
assets
$ 164,639 15.18 % $ 113,904 10.50 %
165,786 15.32
113,591 10.50
N/A
108,182
N/A
10.00 %
137,139 12.64
153,286 14.17
92,208
91,955
8.50
8.50
N/A
86,546
N/A
8.00
Consolidated
Bank
132,139 12.18
153,286 14.17
75,936
75,727
7.00
7.00
N/A
70,318
N/A
6.50
Tier 1 capital to adjusted
total average assets
Consolidated
Bank
Dividend Limitations
137,139
9.75
153,286 10.96
56,290
55,929
4.00
4.00
N/A
69,911
N/A
5.00
Under State of Montana banking regulation, member banks such as the Bank generally may declare annual cash
dividends up to an amount equal to the previous two years’ net earnings. Dividends in excess of such amount
require approval of the Division of Banking. The Bank paid dividends of $0 and $5,800,000 during the years
ended December 31, 2022 and 2021, respectively, to Eagle. Eagle paid dividends of $0.525 and $0.445 per
share to its shareholders during the years ended December 31, 2022 and 2021, respectively.
Tender Offer
The Company completed a modified "Dutch auction" tender offer (the "Tender Offer") in June 2021. The
Company accepted for purchase 250,000 shares of its common stock at a price of $24.00 per share. The
aggregate purchase price for the shares purchased in the Tender Offer was approximately $6,279,000, including
fees and expenses related to the Tender Offer. Therefore, the total price including fees and expenses was $25.12
per share.
- 47 -
EAGLE BANCORP MONTANA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 15: Capital Management and Regulatory Matters – continued
Stock Repurchase Program
On April 21, 2022, Eagle's Board of Directors (the "Board") authorized the repurchase of up to 400,000 shares
of its common stock. Under the plan, shares may be purchased by the Company on the open market or in
privately negotiated transactions. The extent to which the company repurchases its shares and the timing of such
repurchase will depend upon market conditions and other corporate considerations. There are 288,875 shares
available to be repurchased under this plan as of December 31, 2022. The plan expires on April 21, 2023.
On July 22, 2021, the Board authorized the repurchase of up to 100,000 shares of its common stock. Under the
plan, shares could be purchased by the Company on the open market or in privately negotiated transactions. The
extent to which the company repurchased its shares and the timing of such repurchase depended upon market
conditions and other corporate considerations. No shares were purchased during the year ended December 31,
2021 under this plan. The Company repurchased the total authorized amount of 100,000 shares during the first
quarter of 2022. The plan expired on July 22, 2022.
On July 23, 2020, the Board authorized the repurchase of up to 100,000 shares of its common stock. Under the
plan, shares could be purchased by the Company on the open market or in privately negotiated transactions. The
extent to which the company repurchased its shares and the timing of such repurchase depended upon market
conditions and other corporate considerations. No shares were purchased during the year ended December 31,
2021 under this plan. The plan expired on July 23, 2021.
Liquidation Rights
Eagle Bancorp Montana, Inc. holds a liquidation account for the benefit of certain depositors of the Bank who
remain depositors of the Bank at the time of liquidation. The liquidation account is designed to provide payments
to these depositors of their liquidation interests in the event of a liquidation of Eagle and the Bank, or the Bank
alone. In the unlikely event that Eagle and the Bank were to liquidate in the future, all claims of creditors,
including those of depositors, would be paid first, followed by distribution to depositors as of November 30,
2008 (who continue to be the Bank’s depositors) of the liquidation account maintained by Eagle. Also, in a
complete liquidation of both entities, or of just the Bank, when Eagle has insufficient assets to fund the
liquidation account distribution due to depositors and the Bank has positive net worth, the Bank would
immediately pay amounts necessary to fund Eagle’s remaining obligations under the liquidation account. If
Eagle is completely liquidated or sold apart from a sale or liquidation of the Bank, then the rights of such
depositors in the liquidation account maintained by Eagle would be surrendered and treated as a liquidation
account in the Bank, the “bank liquidation account” and these depositors shall have an equivalent interest in the
bank liquidation account and the same rights and terms as the liquidation account.
After two years from the date of the 2010 conversion and upon the written request of the FDIC, Eagle will
eliminate or transfer the liquidation account and the interests in such account to the Bank and the liquidation
account would become the liquidation account of the Bank and not subject in any manner or amount to Eagle’s
creditors. Also, under the rules and regulations of the FDIC, no post-conversion merger, consolidation, or
similar combination or transaction with another depository institution in which Eagle or the Bank is not the
surviving institution would be considered a liquidation and, in such a transaction, the liquidation account would
be assumed by the surviving institution.
- 48 -
EAGLE BANCORP MONTANA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 16: Benefit Plans
Profit Sharing Plan
The Company provides a noncontributory profit sharing plan for eligible employees who have completed one
year of service. The amount of the Company’s annual contribution is determined by the Board. Profit sharing
expense was $1,365,000 and $1,183,000 for the years ended December 31, 2022 and 2021, respectively.
The Company’s profit sharing plan includes a 401(k) feature. At the discretion of the Board, the Company may
match up to 50.00% of participants’ contributions up to a maximum of 4.00% of participants’ salaries. For the
years ended December 31, 2022 and 2021, the Company’s match totaled $575,000 and $569,000, respectively.
Deferred Compensation Plans
The Company has entered into deferred compensation contracts with current key employees. The contracts
provide fixed benefits payable in equal annual installments upon retirement. The Company purchased life
insurance contracts that may be used to fund the payments. The charge to expense is based on the present value
computations of anticipated liabilities. For the years ended December 31, 2022 and 2021, the total expense was
$1,039,000 and $760,000, respectively. The Company recorded a liability for the deferred compensation plan
of $6,410,000 and $5,215,000 at December 31, 2022 and 2021, respectively, which are included in accrued
expenses and other liabilities in the consolidated statements of financial condition.
Employee Stock Ownership Plan
The Company established an ESOP in 2000 for eligible employees who meet certain age and service
requirements. In April 2010, the ESOP borrowed approximately $1,971,000 from Eagle Bancorp Montana, Inc.
and used the funds to purchase 197,142 shares of common stock, at $10 per share. The Bank made annual
contributions to the ESOP sufficient to satisfy the debt service requirements of the loan that had a twelve-year
term that matured December 31, 2021 and an 8.00% interest rate.
The Company sold 251,256 shares of common stock to the ESOP at a price of $23.88 per share in June 2021.
The shares were purchased from Eagle by the ESOP in exchange for a loan totaling $6,000,000. The loan has a
ten-year term and bears interest at 3.00%. The Bank makes annual contributions to the ESOP sufficient to satisfy
the debt service requirements of the loan. The ESOP uses these contributions, and dividends received by the
ESOP on unallocated shares, to make principal and interest payments on the loan to the Company. The shares
held by the ESOP will be used for allocations to employees of the Company over a ten-year period.
Shares purchased by the ESOP are held in a suspense account by the plan trustee until allocated to participant
accounts. Shares released from the suspense account are allocated to participants on the basis of their relative
compensation in the year of allocation. Participants become vested in the allocated shares over a period not to
exceed seven years. Any forfeited shares are allocated to other participants in the same proportion as
contributions. As shares are committed to be released, the Company reports compensation expense equal to the
average daily market prices of the shares. The compensation expense is accrued throughout the year. Dividends
on ESOP shares are recorded as a reduction to retained earnings.
- 49 -
EAGLE BANCORP MONTANA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 16: Employee Benefits – continued
Employee Stock Ownership Plan – continued
Total ESOP expenses of $359,000 and $520,000 were recognized for the years ended December 31, 2022 and
2021, respectively.
The following table shows the components of the ESOP shares:
Allocated shares
Unallocated shares
Total ESOP shares
December 31,
2022
2021
235,340
215,912
451,252
225,947
239,902
465,849
Fair value of unallocated shares (in thousands)
$
3,489 $
5,513
Stock Incentive Plans
The Company adopted the stock incentive plan on November 1, 2011. This plan provides for different types of
awards including stock options, restricted stock and performance shares. Under this plan, awards of Eagle's
common stock may be made to eligible directors, officers and employees. This plan was amended during
2015, 2017, 2020 and 2022 and increased the maximum number of shares of restricted stock for issuance under
this plan to 393,571. The number of shares of restricted stock available to award under this plan was 109,732 as
of December 31, 2022.
The following table shows the activity of the restricted stock awards granted under this plan:
Unvested awards as of January 1, 2021
Awards granted
Awards vested
Awards forfeited
Unvested awards as of December 31, 2021
Awards granted
Awards vested
Awards forfeited
Unvested awards as of December 31, 2022
Number of
Shares
58,337
43,515
(16,084 )
(3,816 )
81,952
13,450
(23,983 )
(1,058 )
70,361
At December 31, 2022, the Company has unrecognized expense of approximately $1,395,000 for this plan,
which it expects to recognize ratably through November 2027. This plan also includes shares of stock which
may be issued for awards of stock options totaling 246,427. However, no stock options have been awarded
under this plan.
The Company established a nonemployee director award plan effective April 23, 2020. Under this plan, awards
of Eagle's common stock may be made to eligible directors. The maximum number of shares of restricted stock
for issuance under this plan is 13,000. The number of shares of restricted stock available to award under this
plan was 688 as of December 31, 2022.
- 50 -
EAGLE BANCORP MONTANA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 16: Employee Benefits – continued
Stock Incentive Plans – continued
The following table shows the activity of the restricted stock awards granted under this plan:
Unvested awards as of January 1, 2021
Awards granted
Awards vested
Awards forfeited
Unvested awards as of December 31, 2021
Awards granted
Awards vested
Awards forfeited
Unvested awards as of December 31, 2022
Number of
Shares
2,024
1,768
(2,024 )
-
1,768
8,520
(1,768 )
-
8,520
At December 31, 2022, the Company has unrecognized expense of approximately $133,000 for this plan, which
it expects to recognize ratably through November 2023.
The Company recognized total compensation expense of $491,000 and $439,000 for these plans during the
years ended December 31, 2022 and 2021, respectively.
- 51 -
EAGLE BANCORP MONTANA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 17: Derivatives and Hedging Activities
The Company enters into commitments to originate and sell mortgage loans. The Bank uses derivatives to hedge
the risk of changes in fair values of interest rate lock commitments and mortgage loans held-for-sale. An optimal
amount of mortgage loans are sold directly into bulk commitments with investors at the time an interest rate is
locked, other loans are sold on an individual best efforts basis at the time an interest rate is locked, and the
remaining balance of locked loans are hedged using TBA mortgage-backed securities or bulk mandatory
forward loan sale commitments.
Derivatives are accounted for as free-standing or economic derivatives and are measured at fair value.
Derivatives are recorded as either other assets or other liabilities on the consolidated statements of condition.
Derivatives are summarized as follows:
December 31, 2022
December 31, 2021
Notional
Amount Asset
Fair Value
Liability
Notional
Amount Asset
Fair Value
Liability
Interest rate lock
commitments
Forward TBA mortgage-
(In Thousands)
$ 18,603 $
- $
81 $ 84,674 $
1,218 $
backed securities
13,000
11
- 51,000
-
-
94
Changes in the fair value of the derivatives are recorded in mortgage banking, net within noninterest income on
the consolidated statements of income. A net loss of $1,194,000 and $3,836,000 was recorded for the years
ended December 31, 2022 and 2021, respectively.
NOTE 18: Fair Value of Financial Instruments
Fair value is the exchange price that would be received for an asset or paid to transfer a liability (exit price) in
the principal or most advantageous market for the asset or liability in an orderly transaction between market
participants on the measurement date.
Assets and liabilities that are measured at fair value are grouped in three levels within the fair value hierarchy
based on the markets in which the assets and liabilities are traded and the reliability of the assumptions used to
determine fair value.
The fair value hierarchy is as follows:
■ Level 1 Inputs – Valuations are based on unadjusted quoted prices in active markets for identical assets or
liabilities.
■ Level 2 Inputs – Valuations are based on quoted prices for similar instruments in active markets, quoted
prices for identical or similar instruments in markets that are not active and model-based valuations for
which all significant assumptions are observable or can be corroborated by observable market data.
■ Level 3 Inputs – Valuations are based on unobservable inputs that may include significant management
judgment and estimation.
- 52 -
EAGLE BANCORP MONTANA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 18: Fair Value of Financial Instruments – continued
A description of the valuation methodologies used for assets and liabilities measured at fair value, as well as
the general classification of such instruments pursuant to the valuation hierarchy at the reporting date, is set
forth below.
Available-for-Sale Securities – Securities classified as available-for-sale are reported at fair value utilizing
Level 1 (nationally recognized securities exchanges) and Level 2 inputs. For Level 2 securities, the Company
obtains fair value measurements from an independent pricing service. The fair value measurements consider
observable data that may include but is not limited to dealer quotes, market spreads, cash flows, the U.S.
Treasury yield curve, live trading levels, trade execution data, market consensus prepayments speeds, credit
information and the bond’s terms and conditions.
Loans Held-for-Sale – These loans are reported at fair value. Fair value is determined based on expected
proceeds based on committed sales contracts and commitments of similar loans if not already committed and
are considered to be Level 2.
Derivative Instruments – The fair value of the interest rate lock commitments, forward TBA mortgage-backed
securities and mandatory forward commitments are estimated using quoted or published market prices for
similar instruments, adjusted for factors such as pull-through rate assumptions based on historical information,
where appropriate. Interest rate lock commitments are considered to be Level 3 and the forward TBA mortgage-
backed securities and mandatory forward commitments are considered to be Level 2.
Impaired Loans – Impaired loans are reported at the fair value of the underlying collateral if repayment is
expected solely from the collateral or using a discounted cash flow if the loan is not collateral dependent.
Collateral values are estimated using Level 3 inputs based on internally customized discounting criteria.
Real Estate and Other Repossessed Assets – Fair values are determined at the time the loan is foreclosed upon
and the asset is transferred from loans. The value is based primarily on third-party appraisals, less costs to sell
and are considered Level 3 inputs for determining fair value. Repossessed assets are reviewed and evaluated
periodically for additional impairment and adjusted accordingly.
Mortgage Servicing Rights – The fair value of mortgage servicing rights are estimated using present value of
expected cash flows based on a third-party model that incorporated industry assumptions and is adjusted for
factors such as prepayment speeds and are considered level 3 inputs.
- 53 -
EAGLE BANCORP MONTANA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 18: Fair Value of Financial Instruments – continued
The following table summarizes financial assets and liabilities measured at fair value on a recurring basis,
segregated by the level of the valuation inputs within the fair value hierarchy utilized to measure fair value:
Financial assets:
Available-for-sale securities
U.S. government and agency obligations
U.S. treasury obligations
Municipal obligations
Corporate obligations
Mortgage-backed securities
Collateralized mortgage obligations
Asset-backed securities
Loans held-for-sale
Forward TBA mortgage-backed securities
Financial liabilities:
Interest rate lock commitments
Financial assets:
Available-for-sale securities
U.S. government obligations
U.S. treasury obligations
Municipal obligations
Corporate obligations
Mortgage-backed securities
Collateralized mortgage obligations
Asset-backed securities
Loans held-for-sale
Interest rate lock commitments
Financial liabilities:
Level 1
Inputs
December 31, 2022
Level 3
Inputs
Level 2
Inputs
(In Thousands)
Total Fair
Value
$
- $
51,951
2,390 $
-
- 172,849
6,990
-
29,653
-
82,131
-
3,531
-
8,250
-
11
-
2,390
- $
-
51,951
- 172,849
6,990
-
29,653
-
82,131
-
3,531
-
8,250
-
11
-
-
-
81
81
December 31, 2021
Level 1 Level 2 Level 3 Total Fair
Inputs
Inputs
Inputs
Value
(In Thousands)
$
- $
53,183
1,633 $
-
- 123,667
9,336
-
14,636
-
63,067
-
5,740
-
25,819
-
-
-
1,633
- $
-
53,183
- 123,667
9,336
-
14,636
-
63,067
-
5,740
-
25,819
-
1,218
1,218
Forward TBA mortgage-backed securities
-
94
-
94
- 54 -
EAGLE BANCORP MONTANA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 18: Fair Value of Financial Instruments – continued
Certain financial assets may be measured at fair value on a nonrecurring basis. These assets are subject to fair
value adjustments that result from the application of lower of cost or fair value accounting or write-downs of
individual assets, such as impaired loans that are collateral dependent, real estate and other repossessed assets
and mortgage servicing rights.
The following tables summarize financial assets measured at fair value on a nonrecurring basis for which a
nonrecurring change in fair value has been recorded during the reporting periods presented:
Impaired loans
Real estate and other repossessed assets
Mortgage servicing rights
Impaired loans
Real estate and other repossessed assets
Mortgage servicing rights
Level 1
Inputs
December 31, 2022
Level 3
Inputs
Level 2
Inputs
Total Fair
Value
$
(In Thousands)
- $
-
-
281 $
-
1,346
- $
-
-
281
-
1,346
December 31, 2021
Level 1 Level 2 Level 3 Total Fair
Inputs
Inputs
Inputs
Value
$
(In Thousands)
- $
-
-
376 $
4
14,686
- $
-
-
376
4
14,686
The following table represents the Bank's financial assets and liabilities measured at fair value on a recurring
and nonrecurring basis, the valuation techniques used to measure the fair value of those assets and liabilities,
and the significant unobservable inputs and the ranges of values for those inputs:
Principal
Valuation
Technique
Significant
Unobservable
Inputs
Range of
Significant Input
Values
Discount applied to the
obtained appraisal
Discount applied to the
obtained appraisal
Discount rate
Prepayment speeds
Pull-through expectations
10 - 30%
10 - 30%
10 - 15%
110-265%
80 - 95%
Instrument
Impaired loans
Real estate and other repossessed
assets
Fair value of underlying
collateral
Fair value of collateral
Mortgage servicing rights
Discounted cash flows
Interest rate lock commitments
Internal pricing model
- 55 -
EAGLE BANCORP MONTANA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 18: Fair Value of Financial Instruments – continued
The following table provides a reconciliation of assets and liabilities measured at fair value using significant
unobservable inputs (Level 3) on a recurring basis during the year ended December 31, 2022.
December 31,
2022
December 31,
2021
Balance, January 1, 2022
Purchases and issuances
Sales and settlements
Balance, December 31, 2022
Unrealized losses relating to items held at end of period
$
Interest Rate Lock Commitments
(In Thousands)
1,218 $
227
(1,526)
(81) $
(1,299) $
6,017
12,408
(17,207)
1,218
(4,799)
$
$
The tables below summarize the estimated fair values of financial instruments of the Company, whether or not
recognized at fair value on the consolidated statements of condition. The tables are followed by methods and
assumptions that were used by the Company in estimating the fair value of the classes of financial instruments.
Level 1
Inputs
Level 2
Inputs
December 31, 2022
Level 3
Inputs
Total
Carrying
Fair Value Amount
Financial assets:
Cash and cash equivalents
FHLB stock
FRB stock
Loans receivable, gross
Accrued interest and dividends
receivable
Mortgage servicing rights
Financial liabilities:
Non-maturing interest-bearing
deposits
Noninterest-bearing deposits
Time certificates of deposit
Accrued expenses and other
liabilities
FHLB advances and other
borrowings
Other long-term debt
(In Thousands)
$ 21,811 $
-
-
-
- $
5,089
4,131
21,811
5,089
4,131
- 1,322,814 1,322,814 1,353,678
21,811 $
5,089
4,131
- $
-
-
11,284
-
-
-
-
19,288
11,284
19,288
11,284
468,955
-
- 914,659
-
-
-
-
246,348
914,659 914,659
468,955 468,955
246,348 251,658
26,377
-
-
-
-
-
-
26,377
26,377
69,373
56,721
69,373
56,721
69,394
60,155
- 56 -
EAGLE BANCORP MONTANA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 18: Fair Value of Financial Instruments – continued
December 31, 2021
Level 1
Inputs
Level 2
Inputs
Level 3
Inputs
(In Thousands)
Total
Fair Value Amount
Carrying
$
61,434 $
-
-
-
5,751
-
- $
1,702
2,974
61,434
1,702
2,974
- 939,204 939,204 933,139
61,434 $
1,702
2,974
- $
-
-
-
-
-
14,686
5,751
14,686
5,751
13,693
Financial assets:
Cash and cash equivalents
FHLB stock
FRB stock
Loans receivable, gross
Accrued interest and dividends
receivable
Mortgage servicing rights
Financial liabilities:
Non-maturing interest-bearing
deposits
Noninterest-bearing deposits
Time certificates of deposit
Accrued expenses and other liabilities
FHLB advances and other borrowings
Other long-term debt
368,846
-
21,037
-
-
- 703,948 703,948
- 703,948
-
- 368,846 368,846
- 149,605 149,605 149,755
21,037
-
5,000
-
30,155
-
-
5,003
29,299
21,037
5,003
29,299
- 57 -
EAGLE BANCORP MONTANA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 19: Condensed Parent Company Financial Statements
Included below are the condensed financial statements of the Parent Company, Eagle Bancorp Montana, Inc.:
Assets:
Cash and cash equivalents
Securities available-for-sale
Investment in Eagle Bancorp Statutory Trust I
Investment in Subsidiaries
Other assets
Total assets
Liabilities and Shareholders' Equity:
Accounts payable and accrued expenses
Other long-term debt
Shareholders' equity
Total liabilities and shareholders' equity
Interest income
Interest expense
Noninterest income
Noninterest expense
Loss before income taxes
Income tax benefit
Loss before equity in undistributed earnings of Subsidiaries
Equity in undistributed earnings of Subsidiaries
Net income
December 31,
2022
2021
(In Thousands)
5,038 $
5,851
155
201,734
5,526
218,304 $
1,044 $
58,844
158,416
218,304 $
980
4,078
155
177,892
4,203
187,308
710
29,869
156,729
187,308
Years Ended
December 31,
2022
2021
(In Thousands)
137 $
(2,598)
-
(3,015)
(5,476)
(1,139)
(4,337)
15,038
10,701 $
118
(1,560)
7
(1,514)
(2,949)
(579)
(2,370)
16,789
14,419
$
$
$
$
$
$
- 58 -
EAGLE BANCORP MONTANA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 19: Condensed Parent Company Financial Statements – continued
Years Ended
December 31,
2022
2021
(In Thousands)
Cash Flows from Operating Activities:
Net income
$
Adjustments to reconcile net income to net cash used in operating activities:
10,701 $
14,419
Equity in undistributed earnings of Subsidiaries
Other adjustments, net
Net cash used in operating activities
(15,038 )
(997 )
(5,334 )
(16,789 )
(706 )
(3,076 )
Cash Flows from Investing Activities:
Cash contributions from Opportunity Bank of Montana
Cash paid for acquisitions, net of cash received
Activity in available-for-sale securities:
Sales
Maturities, principal payments and calls
Purchases
Net cash (used in) provided by investing activities
Cash Flows from Financing Activities:
Proceeds from issuance of subordinated debentures
Repayment of subordinated debentures
Payments for debt issuance costs
ESOP payments and dividends
Payments to purchase treasury stock
Treasury shares reissued for compensation
Dividends paid
Net cash provided by (used in) financing activities
-
(10,227 )
-
18,118
(20,158 )
(12,267 )
40,000
(10,000)
(918 )
585
(4,430 )
484
(4,062 )
21,659
5,800
-
387
557
-
6,744
-
-
-
425
(6,279 )
409
(3,018 )
(8,463 )
Net Increase (Decrease) in Cash and Cash Equivalents
4,058
(4,795 )
Cash and Cash Equivalents, beginning of period
980
5,775
Cash and Cash Equivalents, end of period
$
5,038 $
980
- 59 -
[ This Page Intentionally Left Blank ]
S HAREHOLDER INFORMATION
STOCK LISTING
Symbol: EBMT
Nasdaq Global Market
SHAREHOLDER SERVICES AGENT
COMPUTERSHARE INVESTOR SERVICES
PO Box 43006
Providence RI 02940-3006
1.800.368.5948
CORPORATE HEADQUARTERS
1400 Prospect Ave
Helena MT 59601
406.442.3080
INVESTOR INFORMATION
Copies of reports filed with the Securities
and Exchange Commission are available
without charge online at www.sec.gov
or the Investor Relations section of our
website at www.opportunitybank.com
INDEPENDENT REGISTERED PUBLIC
ACCOUNTING FIRM
MOSS A DA MS LLP
2707 Colby Ave Ste 801
Everett WA 98201
425.303.3037
SHAREHOLDER CONTACT
C HA N TE LLE NA SH,
C O RP O RATE SE C RETARY
Opportunity Bank of Montana
PO Box 4999
Helena MT 59604-4999
406.442.3080
cnash@oppbank.com
CORPORATE COUNSEL
N IXO N P E ABOD Y, LLP
799 9th St NW Ste 500
Washington DC 20001
202.585.8000
www.nixonpeabody.com
EAGLE BANCORP MT, INC.
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OUR MISSION
TO PROVIDE STRONG FINANCIAL FUTURES FOR MONTANANS
TO PROVIDE STRONG FINANCIAL FUTURES FOR MONTANANS
1400 PROSPECT AVE, HELENA, MT 59601
EAGLE BANCORP MONTANA, INC. 1400 PROSPECT AVE, HELENA, MT 59601
EAGLE BANCORP MONTANA, INC.