# Eagle Bancorp Montana, Inc. (EBMT) FY 2023 MD&A

Verbatim Item 7 Management's Discussion and Analysis from Eagle Bancorp Montana, Inc.'s 10-K for fiscal year 2023.

SEC filing source: https://www.sec.gov/Archives/edgar/data/1478454/000143774924006812/ebmt20231231_10k.htm
Accession: 0001437749-24-006812
Filing date: 2024-03-06
Report date: 2023-12-31
Extracted structurally from real Item 7 body heading to real Item 7A/8 boundary.
Confidence: high

Company profile: /company/EBMT/
All MD&A years: /company/EBMT/mda/
Previous year: /company/EBMT/mda/fy2022/ (FY 2022)
Next year: /company/EBMT/mda/fy2024/ (FY 2024)

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, 2023 as compared to the year ended December 31, 2022, and also analyzes our financial condition as of December 31, 2023 as compared to December 31, 2022. 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 credit 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 over the past decade. As of December 31, 2023, commercial real estate and commercial business loans represented 61.25% and 17.39% of the total loan portfolio, respectively. The purpose of this diversification is to mitigate our dependence on the residential mortgage market, as well as to improve our ability to manage our interest rate spread. Recent acquisitions have added to our agricultural loans, which generally have shorter maturities and nominally higher interest rates. This has provided additional interest income and improved interest rate sensitivity. The Bank’s management recognizes that fee income will also enable it to be less dependent on specialized lending and it maintains a significant loan serviced portfolio, which provides a steady source of fee income. As of December 31, 2023, we had mortgage servicing rights, net of $15.85 million compared to $15.41 million as of December 31, 2022. Gain on sale of loans also provides significant noninterest income in periods of high mortgage loan origination volumes. Such income will be, and has recently been, adversely affected in periods of lower mortgage activity.

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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 increased the federal funds target rate to 4.50% during the year ended December 31, 2022. The rate increased to 5.50% during the year ended December 31, 2023. 

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. 

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Critical Accounting Policies and Estimates 

The accounting and financial reporting policies of Eagle are in accordance with generally accepted accounting principles ("GAAP") and conform to the accounting and reporting guidelines prescribed by bank regulatory authorities. Eagle has identified certain of its accounting policies as “critical accounting policies,” consisting of those related to the allowance for credit losses and goodwill. In determining which accounting policies are critical in nature, Eagle has identified the policies that require significant judgment or involve complex estimates. Eagle’s financial results could differ significantly if different judgments or estimates are used in the application of these policies. The critical accounting policies and related estimates are summarized below.

Allowance for Credit Losses  

The allowance for credit losses ("ACL") on loans is a valuation account that is management’s estimate of the amount considered necessary to absorb expected losses in the loan portfolio at the balance sheet date. The allowance is deducted from the loans’ amortized cost basis to present the net amount expected to be collected on the loans and is established through the provision for credit losses. Increases in the allowance are charged against income, and decreases in the allowance are recorded through net income as a reversal of the provision for credit losses.

Quarterly, an assessment is performed of the risks expected in the loan portfolio. A detailed review is conducted for significant loans identified as having weaknesses that do not share common risk characteristics with other loans. The methodology for determining the adequacy of the allowance for credit losses is considered a critical accounting policy by management due to its complexity and the high degree of judgment involved. The primary factors and assumptions considered include loan volume, credit ratings, delinquency status, prepayment speeds, weighted average lives, and other relevant available information from internal and external sources related to past events and historical loss experience. Management uses qualitative judgment to adjust loss rates to reflect management’s assessment of current economic conditions, along with reasonable and supportable forecasts. The allowance is based on information known at the time of the review. Changes in factors underlying the assessment for subsequent evaluations of the loan portfolio could have a material impact on the amount of the allowance that is necessary and the amount of provision to be charged against earnings. See Note 4 to the Consolidated Financial Statements in “Item 8. Financial Statements and Supplementary Data” for further information.

Goodwill

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

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

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".

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Financial Condition

December 31, 2023 compared to December 31, 2022

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

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, 2023 or 2022. All investment securities included in the investment portfolio are available-for-sale. Eagle also has interest-bearing deposits in other banks and federal funds sold, as well as stock in FHLB and FRB. FHLB stock was $9.19 million and $5.09 million at December 31, 2023 and 2022, respectively. FRB stock was $4.13 million for both at December 31, 2023 and 2022. 

The following table summarizes investment activities:

[[GREPCENT_TABLE]]
[["","","December 31,"],["","","2023","","","2022","","","2021"],["","","Fair Value","","","Percentage of Total","","","Fair Value","","","Percentage of Total","","","Fair Value","","","Percentage of Total"],["","","(Dollars in Thousands)"],["Securities available-for-sale:"],["U.S. government and agency obligations","","$","6,543","","","","2.06","%","","$","2,390","","","","0.68","%","","$","1,633","","","","0.60","%"],["U.S. treasury obligations","","","46,815","","","","14.71","%","","","51,951","","","","14.86","","","","53,183","","","","19.61"],["Municipal obligations","","","137,950","","","","43.33","%","","","172,849","","","","49.47","","","","123,667","","","","45.58"],["Corporate obligations","","","3,905","","","","1.23","%","","","6,990","","","","2.00","","","","9,336","","","","3.44"],["Mortgage-backed securities","","","26,753","","","","8.41","%","","","29,653","","","","8.48","","","","14,636","","","","5.40"],["Collateralized mortgage obligations","","","86,568","","","","27.20","%","","","82,131","","","","23.50","","","","63,067","","","","23.25"],["Asset-backed securities","","","9,745","","","","3.06","%","","","3,531","","","","1.01","","","","5,740","","","","2.12"],["Total securities available-for-sale","","$","318,279","","","","100.00","%","","$","349,495","","","","100.00","%","","$","271,262","","","","100.00","%"]]
[[/GREPCENT_TABLE]]

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

The following table sets forth information regarding fair values, weighted average yields and maturities of investments. The yields have been computed on a tax equivalent basis. Maturities are based on the final contractual payment dates and do not reflect the impact of prepayments or early redemptions that may occur.

[[GREPCENT_TABLE]]
[["","","December 31, 2023"],["","","One Year or Less","","","One to Five Years","","","Five to Ten Years","","","After Ten Years","","","Total Investment Securities"],["","","Fair Value","","","Weighted Average Yield","","","Fair Value","","","Weighted Average Yield","","","Fair Value","","","Weighted Average Yield","","","Fair Value","","","Weighted Average Yield","","","Fair Value","","","Approximate Market Value","","","Weighted Average Yield"],["","","(Dollars in Thousands)"],["Securities available-for-sale:"],["U.S. government and agency obligations","","$","-","","","","0.00","%","","$","-","","","","0.00","%","","$","4,298","","","","5.02","%","","$","2,245","","","","7.49","%","","$","6,543","","","$","6,543","","","","5.86","%"],["U.S. treasury obligations","","","-","","","","0.00","","","","31,001","","","","1.45","","","","15,814","","","","1.66","","","","-","","","","0.00","","","","46,815","","","","46,815","","","","1.52"],["Municipal obligations","","","2,546","","","","3.19","","","","7,710","","","","2.77","","","","38,809","","","","2.72","","","","88,885","","","","3.13","","","","137,950","","","","137,950","","","","2.93"],["Corporate obligations","","","-","","","","0.00","","","","975","","","","3.00","","","","2,930","","","","4.99","","","","-","","","","0.00","","","","3,905","","","","3,905","","","","4.49"],["Mortgage-backed securities","","","505","","","","3.03","","","","3,052","","","","3.29","","","","3,145","","","","3.37","","","","20,051","","","","4.51","","","","26,753","","","","26,753","","","","4.21"],["Collateralized mortgage obligations","","","4,084","","","","2.74","","","","5,347","","","","3.97","","","","763","","","","2.93","","","","76,374","","","","3.89","","","","86,568","","","","86,568","","","","3.84"],["Asset-backed securities","","","-","","","","0.00","","","","-","","","","0.00","","","","-","","","","0.00","","","","9,745","","","","6.65","","","","9,745","","","","9,745","","","","6.65"],["Total securities available-for-sale","","$","7,135","","","","2.92","%","","$","48,085","","","","2.09","%","","$","65,759","","","","2.43","%","","$","197,300","","","","3.70","%","","$","318,279","","","$","318,279","","","","3.27","%"]]
[[/GREPCENT_TABLE]]

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Lending Activities 

The following table includes the composition of the Bank’s loan portfolio by loan category:

[[GREPCENT_TABLE]]
[["","","December 31,"],["","","2023","","","2022","","","2021","","","2020","","","2019"],["","","Amount","","","Percent of Total","","","Amount","","","Percent of Total","","","Amount","","","Percent of Total","","","Amount","","","Percent of Total","","","Amount","","","Percent of Total"],["","","(Dollars in thousands)"],["Real estate loans:"],["Residential 1-4 family (1)","","$","156,578","","","","10.55","%","","$","135,947","","","","10.03","%","","$","101,180","","","","10.82","%","","$","110,802","","","","13.14","%","","$","119,296","","","","15.28","%"],["Residential 1-4 family construction","","","43,434","","","","2.93","","","","59,756","","","","4.41","","","","45,635","","","","4.88","","","","46,290","","","","5.49","","","","38,602","","","","4.95"],["Total residential 1-4 family","","","200,012","","","","13.48","","","","195,703","","","","14.44","","","","146,815","","","","15.70","","","","157,092","","","","18.63","","","","157,898","","","","20.23"],["Commercial real estate","","","608,691","","","","40.99","","","","539,070","","","","39.76","","","","410,568","","","","43.92","","","","316,668","","","","37.56","","","","331,062","","","","42.41"],["Commercial construction and development","","","158,132","","","","10.65","","","","151,145","","","","11.15","","","","92,403","","","","9.88","","","","65,281","","","","7.74","","","","52,670","","","","6.75"],["Farmland","","","142,590","","","","9.61","","","","136,334","","","","10.06","","","","67,005","","","","7.17","","","","65,918","","","","7.82","","","","50,293","","","","6.44"],["Total commercial real estate","","","909,413","","","","61.25","","","","826,549","","","","60.97","","","","569,976","","","","60.97","","","","447,867","","","","53.12","","","","434,025","","","","55.60"],["Total real estate loans","","","1,109,425","","","","74.73","","","","1,022,252","","","","75.41","","","","716,791","","","","76.67","","","","604,959","","","","71.75","","","","591,923","","","","75.83"],["Other loans:"],["Home equity","","","86,932","","","","5.86","","","","74,271","","","","5.48","","","","51,748","","","","5.54","","","","56,563","","","","6.71","","","","56,414","","","","7.23"],["Consumer","","","30,125","","","","2.03","","","","27,609","","","","2.04","","","","18,455","","","","1.97","","","","20,168","","","","2.39","","","","18,882","","","","2.42"],["Commercial","","","132,709","","","","8.94","","","","127,255","","","","9.39","","","","101,535","","","","10.86","","","","109,209","","","","12.95","","","","72,797","","","","9.33"],["Agricultural","","","125,298","","","","8.44","","","","104,036","","","","7.68","","","","46,355","","","","4.96","","","","52,242","","","","6.20","","","","40,522","","","","5.19"],["Total commercial loans","","","258,007","","","","17.38","","","","231,291","","","","17.07","","","","147,870","","","","15.82","","","","161,451","","","","19.15","","","","113,319","","","","14.52"],["Total other loans","","","375,064","","","","25.27","","","","333,171","","","","24.59","","","","218,073","","","","23.33","","","","238,182","","","","28.25","","","","188,615","","","","24.17"],["Total loans","","","1,484,489","","","","100.00","%","","","1,355,423","","","","100.00","%","","","934,864","","","","100.00","%","","","843,141","","","","100.00","%","","","780,538","","","","100.00","%"],["Deferred loan fees(2)","","","-","","","","","","","","(1,725",")","","","","","","","(1,725",")","","","","","","","(2,038",")","","","","","","","(1,303",")"],["Allowance for credit losses (3)","","","(16,440",")","","","","","","","(14,000",")","","","","","","","(12,500",")","","","","","","","(11,600",")","","","","","","","(8,600",")"],["Total loans, net","","$","1,468,049","","","","","","","$","1,339,678","","","","","","","$","920,639","","","","","","","$","829,503","","","","","","","$","770,635"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["(1) Excludes loans held-for-sale"],["(2) Deferred loan fees, net included in individual loan buckets above for the year ended December 31, 2023."],["(3) Allowance for credit losses for the year ended December 31, 2023; allowance for loan losses for the year ended December 31, 2022."]]
[[/GREPCENT_TABLE]]

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

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

The following table includes the composition of the commercial real estate loan category:

[[GREPCENT_TABLE]]
[["","","December 31,"],["","","2023","","","2022"],["","","(In Thousands)"],["Non-owner occupied:"],["Multifamily","","$","86,980","","","$","75,472"],["Industrial/warehouse","","","43,983","","","","28,279"],["Office space","","","20,150","","","","20,891"],["Lessors of nonresidential buildings","","","63,515","","","","62,727"],["Hotels and other traveler accommodations","","","58,157","","","","47,846"],["Construction and related industries","","","17,530","","","","9,754"],["Wholesale and retail trade","","","14,575","","","","12,589"],["Lessors of mini warehouses and self-storage units","","","13,959","","","","11,255"],["Car washes","","","10,792","","","","-"],["Healthcare and social assistance","","","10,206","","","","9,603"],["Lessors of other real estate property","","","9,778","","","","10,782"],["Bars and restaurants","","","5,565","","","","3,853"],["Other real estate rental and leasing","","","4,877","","","","7,473"],["Other","","","54,556","","","","45,956"],["Total CRE non-owner occupied","","","414,623","","","","346,480"],["Owner occupied:"],["Office space","","","40,657","","","","36,457"],["Real estate leasing activities","","","28,998","","","","28,140"],["Automotive related","","","22,241","","","","23,974"],["Healthcare and social assistance","","","21,564","","","","23,333"],["Bars and restaurants","","","14,954","","","","12,500"],["Hospitality industry related","","","14,756","","","","6,035"],["Wholesale and retail trade","","","13,861","","","","4,138"],["Construction and related","","","11,840","","","","9,123"],["Other","","","25,197","","","","50,205"],["Total CRE owner occupied","","","194,068","","","","193,905"],["Deferred loan fees","","","-","","","","(1,315",")"],["Total commercial real estate","","$","608,691","","","$","539,070"]]
[[/GREPCENT_TABLE]]

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

Loan Maturities. The following table sets forth the estimated maturity of the loan portfolio of the Bank at December 31, 2023. Balances exclude deferred loan fees and allowance for credit 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. 

[[GREPCENT_TABLE]]
[["","","One Year or Less","","","After One Year to Five Years","","","After Five Years to Fifteen Years","","","After Fifteen Years","","","Total"],["Total residential 1-4 family (1)","","$","36,220","","","$","13,180","","","$","24,665","","","$","125,947","","","$","200,012"],["Total commercial real estate","","","72,612","","","","34,672","","","","186,346","","","","615,783","","","","909,413"],["Home equity","","","4,826","","","","28,637","","","","52,288","","","","1,181","","","","86,932"],["Consumer","","","2,071","","","","19,881","","","","7,799","","","","374","","","","30,125"],["Total Commercial","","","89,461","","","","83,978","","","","77,324","","","","7,244","","","","258,007"],["Total loans (1)","","$","205,190","","","$","180,348","","","$","348,422","","","$","750,529","","","$","1,484,489"]]
[[/GREPCENT_TABLE]]

(1) Excludes loans held-for-sale

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The following table includes loans by fixed or adjustable rates at December 31, 2023:  

[[GREPCENT_TABLE]]
[["","","Fixed","","","Adjustable","","","Total"],["","","(Dollars in Thousands)"],["Due after December 31, 2023"],["Total residential 1-4 family (1)","","$","43,207","","","$","120,585","","","$","163,792"],["Total commercial real estate","","","145,412","","","","691,389","","","","836,801"],["Home equity","","","5,694","","","","76,412","","","","82,106"],["Consumer","","","26,656","","","","1,398","","","","28,054"],["Total commercial","","","98,049","","","","70,497","","","","168,546"],["Total due after December 31, 2023","","","319,018","","","","960,281","","","","1,279,299"],["Due in less than one year","","","109,140","","","","96,050","","","","205,190"],["Total loans (1)","","$","428,158","","","$","1,056,331","","","$","1,484,489"],["Percent of total","","","28.84","%","","","71.16","%","","","100.00","%"]]
[[/GREPCENT_TABLE]]

(1) Excludes loans held-for-sale

Delinquent Loans. The following table provides information regarding the Bank’s delinquent loans:

[[GREPCENT_TABLE]]
[["","","December 31, 2023"],["","","30-89 Days","","","90 Days and Greater"],["","","Number","","","Amount","","","Percentage of Total","","","Number","","","Amount","","","Percentage of Total"],["","","(Dollars in Thousands)","","","(Dollars in Thousands)"],["Loan type:"],["Real estate loans:"],["Residential 1-4 family","","","3","","","$","305","","","","16.74","%","","","-","","","$","-","","","","0.00","%"],["Commercial real estate","","","1","","","","697","","","","38.28","","","","-","","","","-","","","","0.00"],["Commercial construction and development","","","1","","","","194","","","","10.65","","","","-","","","","-","","","","0.00"],["Farmland","","","1","","","","404","","","","22.19","","","","1","","","","26","","","","100.00"],["Other loans:"],["Home equity","","","1","","","","32","","","","1.76","","","","-","","","","-","","","","0.00"],["Consumer","","","57","","","","115","","","","6.32","","","","-","","","","-","","","","0.00"],["Agricultural","","","2","","","","74","","","","4.06","","","","","","","","","","","","0.00"],["Total","","","66","","","$","1,821","","","","100.00","%","","","1","","","$","26","","","","100.00","%"]]
[[/GREPCENT_TABLE]]

31

Table of Contents

Nonperforming Assets. The following table sets forth information regarding nonperforming assets:

[[GREPCENT_TABLE]]
[["","","December 31,"],["","","2023","","","2022","","","2021","","","2020","","","2019"],["","","(Dollars in Thousands)"],["Non-accrual loans"],["Real estate loans:"],["Residential 1-4 family","","$","297","","","$","483","","","$","616","","","$","684","","","$","618"],["Residential 1-4 family construction","","","757","","","","-","","","","337","","","","337","","","","337"],["Commercial real estate","","","340","","","","350","","","","497","","","","631","","","","583"],["Commercial construction and development","","","-","","","","-","","","","-","","","","36","","","","50"],["Farmland","","","3,716","","","","143","","","","989","","","","2,245","","","","323"],["Other loans:"],["Home equity","","","182","","","","96","","","","100","","","","94","","","","78"],["Consumer","","","60","","","","25","","","","62","","","","151","","","","156"],["Commercial","","","27","","","","44","","","","516","","","","537","","","","750"],["Agricultural","","","3,016","","","","1,059","","","","1,718","","","","1,542","","","","499"],["Accruing loans delinquent 90 days or more"],["Real estate loans:"],["Residential 1-4 family","","","-","","","","330","","","","-","","","","34","","","","4"],["Residential 1-4 family construction","","","-","","","","-","","","","-","","","","170","","","","-"],["Farmland","","","26","","","","-","","","","-","","","","-","","","","-"],["Other loans:"],["Commercial","","","-","","","","746","","","","-","","","","6","","","","-"],["Agricultural","","","-","","","","-","","","","-","","","","182","","","","1,805"],["Restructured loans","","","-","","","","4,502","","","","2,224","","","","1,824","","","","247"],["Total nonperforming loans","","","8,421","","","","7,778","","","","7,059","","","","8,473","","","","5,450"],["Real estate owned and other repossessed property, net","","","5","","","","-","","","","4","","","","25","","","","26"],["Total nonperforming assets","","$","8,426","","","$","7,778","","","$","7,063","","","$","8,498","","","$","5,476"],["Total nonperforming loans to total loans","","","0.57","%","","","0.57","%","","","0.76","%","","","1.00","%","","","0.70","%"],["Total nonperforming loans to total assets","","","0.41","%","","","0.40","%","","","0.49","%","","","0.67","%","","","0.52","%"],["Total nonaccrual loans to total loans","","","0.57","%","","","0.24","%","","","0.59","%","","","0.74","%","","","0.47","%"],["Total nonperforming assets to total assets","","","0.41","%","","","0.40","%","","","0.49","%","","","0.68","%","","","0.52","%"]]
[[/GREPCENT_TABLE]]

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

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

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. Management utilizes relevant available information to establish an allowance for credit losses on loans. The allowance is measured on a collective pool basis when similar risk characteristics exist. Loans considered to have different risk characteristics that do not fall within any pool will be analyzed individually on a quarterly basis for potential individual reserve requirements. Collateral-dependent loans and nonperforming loans will generally be evaluated individually.

32

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Management’s evaluation of classification of assets and adequacy of the allowance for credit 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: 

[[GREPCENT_TABLE]]
[["","","December 31, 2023"],["","","","","","","","Special"],["","","Pass","","","Mention","","","Substandard","","","Doubtful","","","Total"],["","","(In Thousands)"],["Real estate loans:"],["Residential 1-4 family","","$","155,235","","","$","1,168","","","$","175","","","$","-","","","$","156,578"],["Residential 1-4 family construction","","","42,677","","","","-","","","","757","","","","-","","","","43,434"],["Commercial real estate","","","600,492","","","","7,860","","","","339","","","","-","","","","608,691"],["Commercial construction and development","","","156,056","","","","2,076","","","","-","","","","-","","","","158,132"],["Farmland","","","140,848","","","","-","","","","1,742","","","","-","","","","142,590"],["Other loans:"],["Home equity","","","86,735","","","","-","","","","197","","","","-","","","","86,932"],["Consumer","","","30,038","","","","18","","","","69","","","","-","","","","30,125"],["Commercial","","","129,644","","","","3,006","","","","59","","","","-","","","","132,709"],["Agricultural","","","123,542","","","","-","","","","1,756","","","","-","","","","125,298"],["Total loans","","","1,465,267","","","","14,128","","","","5,094","","","","-","","","","1,484,489"],["Real estate owned/repossessed property, net","","","","","","","","","","","","","","","","","","","5"],["","","","","","","","","","","","","","","","","","","$","1,484,494"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","","December 31, 2022"],["","","Special"],["","","Mention","","","Substandard","","","Doubtful","","","Loss","","","Total"],["","","(In Thousands)"],["Real estate loans:"],["Residential 1-4 family","","$","515","","","$","353","","","$","-","","","$","-","","","$","868"],["Residential 1-4 family construction","","","-","","","","-","","","","-","","","","-","","","","-"],["Commercial real estate","","","16,833","","","","1,732","","","","-","","","","-","","","","18,565"],["Commercial construction and development","","","1,044","","","","-","","","","-","","","","-","","","","1,044"],["Farmland","","","2,232","","","","2,456","","","","-","","","","-","","","","4,688"],["Other loans:"],["Home equity","","","-","","","","124","","","","-","","","","-","","","","124"],["Consumer","","","10","","","","39","","","","-","","","","-","","","","49"],["Commercial","","","1,476","","","","736","","","","8","","","","-","","","","2,220"],["Agricultural","","","311","","","","2,182","","","","102","","","","-","","","","2,595"],["Total loans","","","22,421","","","","7,622","","","","110","","","","-","","","","30,153"],["Real estate owned/repossessed property, net","","","","","","","","","","","","","","","","","","","-"],["","","","","","","","","","","","","","","","","","","$","30,153"]]
[[/GREPCENT_TABLE]]

33

Table of Contents

Allowance for Credit Losses. The Bank segregates its loan portfolio for credit 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 expected losses 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 expected 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 credit 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, 2023, we had $16.44 million in allowance for credit losses. At December 31, 2022, we had $14.00 million in allowance for loan losses.

While we believe we have established our existing allowance for credit 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 credit losses, or that general economic conditions, a deteriorating real estate market, or other factors will not cause us to significantly increase our allowance for credit 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.

34

Table of Contents

The following table includes information for allowance for credit losses: 

[[GREPCENT_TABLE]]
[["","","Years Ended"],["","","December 31,"],["","","2023","","","2022","","","2021"],["","","(Dollars in Thousands)"],["Beginning balance","","$","14,000","","","$","12,500","","","$","11,600"],["Impact of adopting ASC 326","","","700","","","","-","","","","-"],["Provision for credit losses","","","1,666","","","","2,001","","","","861"],["Charge-offs"],["Residential 1-4 Family","","","-","","","","(199",")","","","-"],["Commercial real estate","","","-","","","","-","","","","(35",")"],["Home equity","","","-","","","","(32",")","","","-"],["Consumer","","","(50",")","","","(31",")","","","(16",")"],["Commercial","","","(129",")","","","(299",")","","","(6",")"],["Recoveries"],["Residential 1-4 Family","","","195","","","","4","","","","-"],["Commercial real estate","","","23","","","","30","","","","21"],["Home equity","","","13","","","","-","","","","-"],["Consumer","","","3","","","","4","","","","8"],["Commercial","","","19","","","","22","","","","67"],["Net loan charge-offs (recoveries)","","","74","","","","(501",")","","","39"],["Ending balance","","$","16,440","","","$","14,000","","","$","12,500"],["Allowance for credit losses to total loans excluding loans held-for-sale","","","1.11","%","","","1.03","%","","","1.34","%"],["Allowance for credit losses to total nonperforming loans","","","195.23","%","","","179.99","%","","","177.08","%"],["Allowance for credit losses to nonaccrual loans","","","249.96","%","","","424.50","%","","","199.23","%"],["Net charge-offs (recoveries) to average loans outstanding during the period","","","0.01","%","","","-0.04","%","","","0.00","%"]]
[[/GREPCENT_TABLE]]

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 credit losses by loan category and the percentage of loans in each category to total loans:

[[GREPCENT_TABLE]]
[["","","December 31,"],["","","2023","","","2022","","","2021"],["","","Amount","","","Percentage of Allowance to Total Allowance","","","Loan Category to Total Loans","","","Amount","","","Percentage of Allowance to Total Allowance","","","Loan Category to Total Loans","","","Amount","","","Percentage of Allowance to Total Allowance","","","Loan Category to Total Loans"],["","","(Dollars in Thousands)"],["Real estate loans:"],["Residential 1-4 family","","$","1,866","","","","11.35","%","","","13.48","%","","$","1,472","","","","10.51","%","","","14.44","%","","$","1,596","","","","12.77","%","","","15.70","%"],["Commercial real estate","","","10,691","","","","65.03","","","","61.25","","","","9,037","","","","64.55","","","","60.97","","","","7,470","","","","59.76","","","","60.97"],["Total real estate loans","","","12,557","","","","76.38","","","","74.73","","","","10,509","","","","75.06","","","","75.41","","","","9,066","","","","72.53","","","","76.67"],["Other loans:"],["Home equity","","","540","","","","3.28","","","","5.86","","","","509","","","","3.64","","","","5.48","","","","533","","","","4.26","","","","5.54"],["Consumer","","","304","","","","1.85","","","","2.03","","","","342","","","","2.44","","","","2.04","","","","365","","","","2.92","","","","1.97"],["Commercial","","","3,039","","","","18.49","","","","17.38","","","","2,640","","","","18.86","","","","17.07","","","","2,536","","","","20.29","","","","15.82"],["Total other loans","","","3,883","","","","23.62","","","","25.27","","","","3,491","","","","24.94","","","","24.59","","","","3,434","","","","27.47","","","","23.33"],["Total","","$","16,440","","","","100.00","%","","","100.00","%","","$","14,000","","","","100.00","%","","","100.00","%","","$","12,500","","","","100.00","%","","","100.00","%"]]
[[/GREPCENT_TABLE]]

35

Table of Contents

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 $1.21 billion or 74.2% of the Bank’s total deposits at December 31, 2023 ($1.19 billion or 72.8% excluding IRA certificates of deposit). The presence of a high percentage of core deposits and, in particular, transaction accounts reflects in part due to our strategy to restructure our liabilities to more closely resemble the lower cost of liabilities of a commercial bank. However, a significant portion of our deposits is in certificate of deposit form and there was growth in this area during 2023. This shift to certificate of deposits has added to our overall cost of funds and could continue to in the future. 

The following table includes deposit accounts and associated weighted average interest rates for each category of deposits:

[[GREPCENT_TABLE]]
[["","","December 31,"],["","","2023","","","2022","","","2021"],["","","","","","","","","","","Weighted","","","","","","","","","","","Weighted","","","","","","","","","","","Weighted"],["","","","","","","Percent","","","Average","","","","","","","Percent","","","Average","","","","","","","Percent","","","Average"],["","","Amount","","","of Total","","","Rate","","","Amount","","","of Total","","","Rate","","","Amount","","","of Total","","","Rate"],["","","(Dollars in Thousands)"],["Noninterest checking","","$","418,727","","","","25.61","%","","","0.00","%","","$","468,955","","","","28.68","%","","","0.00","%","","$","368,846","","","","30.16","%","","","0.00","%"],["Interest-bearing checking","","","211,101","","","","12.91","","","","0.05","","","","252,922","","","","15.47","","","","0.11","","","","203,410","","","","16.64","","","","0.02"],["Savings","","","230,711","","","","14.11","","","","0.06","","","","273,790","","","","16.74","","","","0.06","","","","223,069","","","","18.25","","","","0.06"],["Money market","","","330,274","","","","20.20","","","","1.66","","","","387,947","","","","23.7","","","","1.12","","","","277,469","","","","22.7","","","","0.25"],["Total","","","1,190,813","","","","72.83","","","","0.40","","","","1,383,614","","","","84.61","","","","0.34","","","","1,072,794","","","","87.75","","","","0.08"],["Certificates of deposit accounts:"],["IRA certificates","","","22,960","","","","1.40","","","","0.75","","","","24,907","","","","1.52","","","","0.48","","","","25,333","","","","2.07","","","","0.44"],["Brokered certificates","","","72,168","","","","4.41","","","","5.28","","","","-","","","","0.00","","","","0.00","","","","-","","","","0.00","","","","0.00"],["Other certificates","","","349,254","","","","21.36","","","","4.04","","","","226,751","","","","13.87","","","","1.51","","","","134,422","","","","10.18","","","","0.38"],["Total certificates of deposit","","","444,382","","","","27.17","","","","4.08","","","","251,658","","","","15.39","","","","1.41","","","","149,755","","","","12.25","","","","0.39"],["Total deposits","","$","1,635,195","","","","100.00","%","","","1.45","%","","$","1,635,272","","","","100.00","%","","","0.50","%","","$","1,222,549","","","","100.00","%","","","0.12","%"]]
[[/GREPCENT_TABLE]]

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

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

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, 2023:

[[GREPCENT_TABLE]]
[["","","Balance"],["","","$250,000"],["","","and Greater"],["","","(In Thousands)"],["3 months or less","","$","104,172"],["Over 3 to 6 months","","","39,107"],["Over 6 to 12 months","","","33,343"],["Over 12 months","","","3,988"],["Total","","$","180,610"]]
[[/GREPCENT_TABLE]]

Our depositors are primarily residents of the state of Montana.

36

Table of Contents

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

Other Long-Term Debt. The following table summarizes other long-term debt activity:

[[GREPCENT_TABLE]]
[["","","December 31,","","","December 31,"],["","","2023","","","2022"],["","","Net","","","Percent","","","Net","","","Percent"],["","","Amount","","","of Total","","","Amount","","","of Total"],["","","(Dollars in Thousands)"],["Subordinated debentures fixed at 5.50% to floating, due 2030","","$","14,781","","","$","25.05","","","$","14,751","","","$","25.07"],["Subordinated debentures fixed at 3.50% to floating, due 2032","","","39,063","","","","66.21","","","","38,938","","","","66.17"],["Subordinated debentures variable at 3-Month Secured Overnight Financing Rate plus 1.68%, due 2035","","","5,155","","","","8.74","","","","5,155","","","","8.76"],["Total other long-term debt, net","","$","58,999","","","","100.00","%","","$","58,844","","","","100.00","%"]]
[[/GREPCENT_TABLE]]

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

Shareholders’ Equity

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

37

Table of Contents

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.

[[GREPCENT_TABLE]]
[["","","Year Ended December 31, 2023","","","Year Ended December 31, 2022","","","Year Ended December 31, 2021"],["","","Average","","","Interest","","","","","","","Average","","","Interest","","","","","","","Average","","","Interest"],["","","Daily","","","and","","","Yield/","","","Daily","","","and","","","Yield/","","","Daily","","","and","","","Yield/"],["","","Balance","","","Dividends","","","Cost(4)","","","Balance","","","Dividends","","","Cost(4)","","","Balance","","","Dividends","","","Cost(4)"],["","","(Dollars in Thousands)"],["Assets:"],["Interest earning assets:"],["Investment securities","","$","328,533","","","$","11,376","","","","3.46","%","","$","336,779","","","$","8,579","","","","2.55","%","","$","215,978","","","$","4,238","","","","1.96","%"],["FHLB and FRB stock","","","12,851","","","","727","","","","5.66","","","","6,369","","","","302","","","","4.74","","","","4,831","","","","255","","","","5.28"],["Loans receivable(1)","","","1,436,672","","","","79,423","","","","5.53","","","","1,194,788","","","","60,353","","","","5.05","","","","914,804","","","","45,134","","","","4.93"],["Other earning assets","","","2,671","","","","89","","","","3.33","","","","34,170","","","","228","","","","0.67","","","","74,102","","","","120","","","","0.16"],["Total interest earning assets","","","1,780,727","","","","91,615","","","","5.14","","","","1,572,106","","","","69,462","","","","4.42","","","","1,209,715","","","","49,747","","","","4.11"],["Noninterest earning assets","","","234,859","","","","","","","","","","","","196,813","","","","","","","","","","","","147,534"],["Total assets","","$","2,015,586","","","","","","","","","","","$","1,768,919","","","","","","","","","","","$","1,357,249"],["Liabilities and equity:"],["Interest-bearing liabilities:"],["Deposit accounts:"],["Checking","","$","237,006","","","$","595","","","","0.25","%","","$","244,208","","","$","173","","","","0.07","%","","$","190,645","","","$","47","","","","0.02","%"],["Savings","","","238,695","","","","146","","","","0.06","","","","269,033","","","","128","","","","0.05","","","","198,648","","","","117","","","","0.06"],["Money market","","","331,199","","","","5,548","","","","1.68","","","","358,122","","","","1,711","","","","0.48","","","","244,113","","","","545","","","","0.22"],["Certificates of deposit","","","357,573","","","","11,568","","","","3.24","","","","188,954","","","","1,112","","","","0.59","","","","158,959","","","","765","","","","0.48"],["FHLB advances and other borrowings","","","159,667","","","","8,562","","","","5.36","","","","14,627","","","","514","","","","3.51","","","","9,411","","","","175","","","","1.86"],["Other long-term debt","","","58,930","","","","2,719","","","","4.61","","","","59,807","","","","2,512","","","","4.2","","","","29,834","","","","1,558","","","","5.22"],["Total interest-bearing liabilities","","","1,383,070","","","","29,138","","","","2.11","","","","1,134,751","","","","6,150","","","","0.54","","","","831,610","","","","3,207","","","","0.39"],["Noninterest checking","","","439,388","","","","","","","","","","","","453,841","","","","","","","","","","","","346,243"],["Other noninterest-bearing liabilities","","","34,321","","","","","","","","","","","","24,672","","","","","","","","","","","","22,382"],["Total liabilities","","","1,856,779","","","","","","","","","","","","1,613,264","","","","","","","","","","","","1,200,235"],["Total equity","","","158,807","","","","","","","","","","","","155,655","","","","","","","","","","","","157,014"],["Total liabilities and equity","","$","2,015,586","","","","","","","","","","","$","1,768,919","","","","","","","","","","","$","1,357,249"],["Net interest income/interest rate spread(2)","","","","","","$","62,477","","","","3.04","%","","","","","","$","63,312","","","","3.88","%","","","","","","$","46,540","","","","3.72","%"],["Net interest margin(3)","","","","","","","","","","","3.51","%","","","","","","","","","","","4.03","%","","","","","","","","","","","3.85","%"],["Total interest earning assets to interest-bearing liabilities","","","","","","","","","","","128.75","%","","","","","","","","","","","138.54","%","","","","","","","","","","","145.47","%"]]
[[/GREPCENT_TABLE]]

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

(4)   For purposes of this table, tax exempt income is not calculated on a tax equivalent basis.

38

Table of Contents

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.

[[GREPCENT_TABLE]]
[["","","Year Ended December 31, 2023","","","Year Ended December 31, 2022"],["","","","","","","Due to","","","","","","","","","","","Due to"],["","","Volume","","","Rate","","","Net","","","Volume","","","Rate","","","Net"],["","","(In Thousands)"],["Interest earning assets:"],["Investment securities","","$","(210",")","","$","3,007","","","$","2,797","","","$","2,370","","","$","1,971","","","$","4,341"],["FHLB and FRB stock","","","307","","","","118","","","","425","","","","81","","","","(34",")","","","47"],["Loans receivable(1)","","","12,218","","","","6,852","","","","19,070","","","","13,814","","","","1,405","","","","15,219"],["Other earning assets","","","(210",")","","","71","","","","(139",")","","","(65",")","","","173","","","","108"],["Total interest earning assets","","","12,105","","","","10,048","","","","22,153","","","","16,200","","","","3,515","","","","19,715"],["Interest-bearing liabilities:"],["Checking","","","(5)","","","","427","","","","422","","","","13","","","","113","","","","126"],["Savings","","","(14)","","","","32","","","","18","","","","41","","","","(30)","","","","11"],["Money market","","","(129)","","","","3,966","","","","3,837","","","","255","","","","911","","","","1,166"],["Certificates of deposit","","","992","","","","9,464","","","","10,456","","","","144","","","","203","","","","347"],["FHLB advances and other borrowings","","","5,097","","","","2,951","","","","8,048","","","","97","","","","242","","","","339"],["Other long-term debt","","","(37",")","","","244","","","","207","","","","1,565","","","","(611",")","","","954"],["Total interest-bearing liabilities","","","5,904","","","","17,084","","","","22,988","","","","2,115","","","","828","","","","2,943"],["Change in net interest income","","$","6,201","","","$","(7,036",")","","$","(835",")","","$","14,085","","","$","2,687","","","$","16,772"]]
[[/GREPCENT_TABLE]]

(1)     Includes loans held-for-sale.

Results of Operations 

Comparison of Operating Results for the Years Ended December 31, 2023 and 2022

Net Income

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

Net Interest Income

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

Interest and Dividend Income 

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

39

Table of Contents

Interest Expense 

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

Provision for Credit Losses

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

Noninterest Income

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

Noninterest Expense

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

Provision for Income Taxes

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

40

Table of Contents

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, 2023 and 2022.

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

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.

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

[[GREPCENT_TABLE]]
[["","","December 31,","","","December 31,"],["","","2023","","","2022"],["","","Borrowings","","","Remaining Borrowing","","","Borrowings","","","Remaining Borrowing"],["","","Outstanding","","","Capacity","","","Outstanding","","","Capacity"],["","","(Dollars in Thousands)"],["Federal Home Loan Bank advances","","$","175,737","","","$","266,017","","","$","69,394","","","$","296,200"],["Federal Reserve Bank discount window","","","-","","","","32,472","","","","-","","","","38,000"],["Correspondent bank lines of credit","","","-","","","","100,000","","","","-","","","","85,000"],["Total","","$","175,737","","","$","398,489","","","$","69,394","","","$","419,200"]]
[[/GREPCENT_TABLE]]

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

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

In addition to Bank level liquidity management, Eagle must manage liquidity at the parent company level for various operating needs, including the servicing of debt, the payment of dividends on our common stock, share repurchases, payment of general corporate expense, and potential capital infusions into subsidiaries. The primary source of liquidity for Eagle consists of dividends from the Bank, which is governed by certain rules and regulations of the Montana Division of Banking and Financial Institutions and the Federal Reserve, and access to capital markets. Eagle also has a line of credit with a correspondent bank, which was increased from $10.00 million to $15.00 million as of October 30, 2023. There was no outstanding balance for this line of credit at December 31, 2023 or December 31, 2022. Eagle's ability to receive dividends from the Bank in future periods will depend on several factors, including, without limitation, the Bank's future profits, asset quality, liquidity, and overall condition. In addition, both the Montana Division of Banking and Financial Institutions and Federal Reserve may require approval to pay dividends, based on certain regulatory statutes and limitations.

Eagle presently believes that the sources of liquidity discussed above, including existing liquid funds on hand, are sufficient to meet its anticipated funding needs in the short and long term. However, if economic conditions were to significantly deteriorate, regulatory capital requirements for Eagle or the Bank were to increase as the result of regulatory directives or otherwise, or Eagle were to believe it is prudent to enhance current liquidity levels, then Eagle may seek additional liquidity from external sources.

41

Table of Contents

Comparison of Cash Flow for Years Ended December 31, 2023 and 2022

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

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

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

Capital Resources 

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

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

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

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.

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.

42

Table of Contents

The following table includes the Bank's net interest income sensitivity analysis.

[[GREPCENT_TABLE]]
[["Changes in Market","","Rate Sensitivity"],["Interest Rates","","As of December 31, 2023","","Policy"],["(Basis Points)","","Year 1","","Year 2","","Limits"],["+200","","-8.4%","","6.3%","","-15.0%"],["+100","","-3.8%","","9.0%","","-10.0%"],["-100","","4.0%","","12.0%","","-10.0%"],["-200","","7.7%","","12.6%","","-15.0%"]]
[[/GREPCENT_TABLE]]

The following table discloses how the Bank’s economic value of equity (“EVE”) would react to interest rate changes.

[[GREPCENT_TABLE]]
[["Changes in Market","","EVE as a % Change from 0 Shock"],["Interest Rates","","As of December 31, 2023","","Board Policy"],["(Basis Points)","","Projected EVE","","Limit"],["","","","","Maximum % change:"],["+400","","-3.1%","","-40.0%"],["+300","","-1.9%","","-35.0%"],["+200","","-1.3%","","-30.0%"],["+100","","0.4%","","-20.0%"],["0","","0.0%","","0.0%"],["-100","","-3.1%","","-20.0%"]]
[[/GREPCENT_TABLE]]

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:

[[GREPCENT_TABLE]]
[["","","December 31,"],["","","2023","","","2022"],["","","(In Thousands)"],["Commitments to extend credit","","$","271,552","","","$","367,494"],["Letters of credit","","","9,457","","","","10,563"]]
[[/GREPCENT_TABLE]]