Eagle Bancorp Montana, Inc. 10-Q

ebmt20210930_10q.htm   Table of Contents   UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549   FORM 10-Q   ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934   For the quarterly period ended  September 30, 2021   ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934   For the transition period from _____ to _____.   Commission file number 1-34682   Eagle Bancorp Montana, Inc.   (Exact name of small business issuer as specified in its charter)   Delaware 27-1449820 (State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.)   1400 Prospect Avenue , Helena , MT 59601 (Address of principal executive offices)   ( 406 ) 442-3080 (Issuer's telephone number)   Website address: www.opportunitybank.com   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     ☐ Accelerated filer       ☐ Non-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 is a shell company (defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒   Securities registered pursuant to Section 12(b) of the Act:   Title of each class Trading symbol(s) Name of each exchange on which registered Common Stock par value $0.01 per share EBMT Nasdaq Global Market     Table of Contents   APPLICABLE ONLY TO CORPORATE ISSUERS   Indicate the number of shares outstanding of each of the issuer's classes of common equity, as of the latest practicable date:   Common stock, par value $0.01 per share 6,776,703   shares outstanding As of October 29, 2021     Table of Contents       EAGLE BANCORP MONTANA, INC. AND SUBSIDIARIES TABLE OF CONTENTS   PART I. FINANCIAL INFORMATION PAGE       Item 1. Financial Statements (Unaudited)           Condensed Consolidated Statements of Financial Condition as of September 30, 2021 and December 31, 2020 1         Condensed Consolidated Statements of Income for the three and nine months ended September 30, 2021 and 2020 3         Condensed Consolidated Statements of Comprehensive Income for the three and nine months ended September 30, 2021 and 2020 5         Condensed Consolidated Statements of Changes in Shareholders' Equity for the three and nine months ended September 30, 2021 and 2020 6         Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2021 and 2020 7         Notes to the Unaudited Condensed Consolidated Financial Statements 9       Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 27       Item 3. Quantitative and Qualitative Disclosures About Market Risk 40       Item 4. Controls and Procedures 41       PART II. OTHER INFORMATION   Item 1. Legal Proceedings 42 Item 1A. Risk Factors 42 Item 2.  Unregistered Sales of Equity Securities and Use of Proceeds 42 Item 3. Defaults Upon Senior Securities 42 Item 4.  Mine Safety Disclosures 42 Item 5. Other Information 43 Item 6.  Exhibits 43       Signatures 44     Table of Contents     EAGLE BANCORP MONTANA, INC. AND SUBSIDIARIES   Cautionary Note Regarding Forward-Looking Statements     This report 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:   ● 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:   ● changes in laws or government regulations or policies affecting financial institutions, including changes in regulatory fees and capital requirements;   ● the negative impacts and disruptions resulting from the continuing outbreak of the novel coronavirus, or COVID-19, and the steps taken by governmental and other authorities to contain, mitigate and combat the pandemic, on the economies and communities we serve, which may likely have an adverse impact on our credit portfolio, goodwill, stock price, borrowers and the economy as a whole both globally and domestically;   ● 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 financial institutions;   ● 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;   ● 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, including our proposed acquisition of First Community Bancorp, Inc.;   ● 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, including our proposed acquisition of First Community Bancorp, Inc.;   ● potential impairment on the goodwill we have recorded or may record in connection with business acquisitions;   ● 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;   ● 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;   ● 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 standard setters.   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 Part II, Item 1A, “Risk Factors” and Part I, Item 2, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” sections contained elsewhere in this report, as well as our Annual Report on Form 10-K for the year ended December 31, 2020, 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.     Table of Contents       EAGLE BANCORP MONTANA, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION (Dollars in Thousands, Except for Per Share Data) (Unaudited)       September 30,     December 31,       2021     2020   ASSETS:                 Cash and due from banks   $ 16,320     $ 14,455   Interest-bearing deposits in banks     71,609       47,733   Federal funds sold     7,011       7,614   Total cash and cash equivalents     94,940       69,802                     Securities available-for-sale     240,033       162,946   Federal Home Loan Bank ("FHLB") stock     1,702       2,060   Federal Reserve Bank ("FRB") stock     2,974       2,974   Mortgage loans held-for-sale, at fair value     42,059       54,615   Loans receivable, net of allowance for loan losses of $12,200 at September 30, 2021 and $11,600 at December 31, 2020     872,705       829,503   Accrued interest and dividends receivable     6,218       5,765   Mortgage servicing rights, net     12,941       10,105   Premises and equipment, net     66,537       58,762   Cash surrender value of life insurance, net     36,265       27,753   Goodwill     20,798       20,798   Core deposit intangible, net     1,919       2,343   Other assets     7,832       10,208                     Total assets   $ 1,406,923     $ 1,257,634     The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.   - 1 - Table of Contents   EAGLE BANCORP MONTANA, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION (Continued) (Dollars in Thousands, Except for Per Share Data) (Unaudited)       September 30,     December 31,       2021     2020   LIABILITIES:                 Deposit accounts:                 Noninterest-bearing   $ 367,127     $ 318,389   Interest-bearing     827,422       714,694   Total deposits     1,194,549       1,033,083                     Accrued expenses and other liabilities     19,745       24,295   Deferred tax liability, net     1,256       457   FHLB advances and other borrowings     5,000       17,070   Other long-term debt:                 Principal amount     30,155       30,155   Unamortized debt issuance costs     ( 305 )     ( 364 ) Total other long-term debt, net     29,850       29,791                     Total liabilities     1,250,400       1,104,696                     SHAREHOLDERS' EQUITY:                 Preferred stock (par value $0.01 per share; 1,000,000 shares authorized; no shares issued or outstanding)     -       -   Common stock (par value $0.01 per share; 20,000,000 shares authorized; 7,110,833 shares issued; 6,776,703 and 6,775,447 shares outstanding at September 30, 2021, and December 31, 2020, respectively)     71       71   Additional paid-in capital     80,957       77,602   Unallocated common stock held by Employee Stock Ownership Plan ("ESOP")     ( 5,883 )     ( 145 ) Treasury stock, at cost ( 334,130 and 335,386 shares at September 30, 2021 and December 31, 2020, respectively)     ( 7,631 )     ( 4,423 ) Retained earnings     84,505       73,982   Accumulated other comprehensive income, net of tax     4,504       5,851   Total shareholders' equity     156,523       152,938                     Total liabilities and shareholders' equity   $ 1,406,923     $ 1,257,634     The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.   - 2 - Table of Contents     EAGLE BANCORP MONTANA, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF INCOME  (Dollars in Thousands, Except for Per Share Data) (Unaudited)       Three Months Ended     Nine Months Ended       September 30,     September 30,       2021     2020     2021     2020   INTEREST AND DIVIDEND INCOME:                                 Interest and fees on loans   $ 11,619     $ 11,340     $ 33,660     $ 33,832   Securities available-for-sale     1,094       874       2,989       2,853   FHLB and FRB dividends     62       95       194       284   Other interest income     32       30       90       134   Total interest and dividend income     12,807       12,339       36,933       37,103                                     INTEREST EXPENSE:                                 Deposits     350       779       1,118       3,063   FHLB advances and other borrowings     37       261       152       1,066   Other long-term debt     389       521       1,168       1,296   Total interest expense     776       1,561       2,438       5,425                                     NET INTEREST INCOME     12,031       10,778       34,495       31,678                                     Loan loss provision     255       854       576       2,751                                     NET INTEREST INCOME AFTER LOAN LOSS PROVISION     11,776       9,924       33,919       28,927                                     NONINTEREST INCOME:                                 Service charges on deposit accounts     318       282       884       814   Mortgage banking, net     11,665       13,305       33,360       31,596   Interchange and ATM fees     570       407       1,489       1,123   Appreciation in cash surrender value of life insurance     181       160       512       480   Net gain on sale of available-for-sale securities     11       -       11       1,068   Other noninterest income     608       817       1,798       1,892   Total noninterest income     13,353       14,971       38,054       36,973     The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.   - 3 - Table of Contents   EAGLE BANCORP MONTANA, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF INCOME (Continued) (Dollars in Thousands, Except for Per Share Data) (Unaudited)       Three Months Ended     Nine Months Ended       September 30,     September 30,       2021     2020     2021     2020   NONINTEREST EXPENSE:                                 Salaries and employee benefits   $ 12,262     $ 11,325     $ 37,093     $ 28,274   Occupancy and equipment expense     1,665       1,280       4,746       3,677   Data processing     1,171       1,168       3,666       3,507   Advertising     326       208       850       624   Amortization of core deposit intangible     144       165       431       495   Loan costs     654       566       2,126       1,211   Federal Deposit Insurance Corporation ("FDIC") insurance premiums     81       75       243       147   Postage     93       76       302       260   Professional and examination fees     790       389       1,400       1,081   Acquisition costs     35       -       35       157   Other noninterest expense     1,579       1,093       4,158       4,893   Total noninterest expense     18,800       16,345       55,050       44,326                                     INCOME BEFORE PROVISION FOR INCOME TAXES     6,329       8,550       16,923       21,574                                     Provision for income taxes     1,583       2,170       4,231       5,532                                     NET INCOME   $ 4,746     $ 6,380     $ 12,692     $ 16,042                                     BASIC EARNINGS PER SHARE   $ 0.73     $ 0.94     $ 1.90     $ 2.36                                     DILUTED EARNINGS PER SHARE   $ 0.73     $ 0.94     $ 1.89     $ 2.35       The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.   - 4 - Table of Contents   EAGLE BANCORP MONTANA, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Dollars in Thousands) (Unaudited)       Three Months Ended     Nine Months Ended       September 30,     September 30,       2021     2020     2021     2020                                     NET INCOME   $ 4,746     $ 6,380     $ 12,692     $ 16,042                                     OTHER ITEMS OF COMPREHENSIVE (LOSS) INCOME BEFORE TAX:                                 Change in fair value of securities available-for-sale     ( 578 )     1,263       ( 1,818 )     6,074   Reclassification for net realized gains on investment securities available-for-sale     ( 11 )     -       ( 11 )     ( 1,068 ) Total other comprehensive (loss) income     ( 589 )     1,263       ( 1,829 )     5,006                                     Income tax benefit (provision) related to securities available-for-sale     155       ( 332 )     482       ( 1,318 )                                   COMPREHENSIVE INCOME   $ 4,312     $ 7,311     $ 11,345     $ 19,730     The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.   - 5 - Table of Contents     EAGLE BANCORP MONTANA, INC. AND SUBSIDIARIES   CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY For the Three and Nine Months Ended September 30, 2021 and 2020 (Dollars in Thousands, Except for Per Share Data) (Unaudited)                                                       ACCUMULATED                               ADDITIONAL     UNALLOCATED                     OTHER               PREFERRED     COMMON     PAID-IN     ESOP     TREASURY     RETAINED     COMPREHENSIVE               STOCK     STOCK     CAPITAL     SHARES     STOCK     EARNINGS     INCOME (LOSS)     TOTAL                                                                     Balance at July 1, 2021   $ -     $ 71     $ 80,820     $ ( 6,061 )   $ ( 7,631 )   $ 80,607     $ 4,938     $ 152,744   Net income     -       -       -       -       -       4,746       -       4,746   Other comprehensive loss     -       -       -       -       -       -       ( 434 )     ( 434 ) Dividends paid ( $0.1250 per share)     -       -       -       -       -       ( 848 )     -       ( 848 ) Stock compensation expense     -       -       90       -       -       -       -       90   ESOP shares allocated ( 9,831 shares)     -       -       47       178       -       -       -       225   Balance at September 30, 2021   $ -     $ 71     $ 80,957     $ ( 5,883 )   $ ( 7,631 )   $ 84,505     $ 4,504     $ 156,523                                                                     Balance at July 1, 2020   $ -     $ 71     $ 77,506     $ ( 227 )   $ ( 3,664 )   $ 63,757     $ 4,086     $ 141,529   Net income     -       -       -       -       -       6,380       -       6,380   Other comprehensive income     -       -       -       -       -       -       931       931   Dividends paid ( $0.0975 per share)     -       -       -       -       -       ( 659 )     -       ( 659 ) Stock compensation expense     -       -       78       -       -       -       -       78   ESOP shares allocated ( 4,154 shares)     -       -       28       42       -       -       -       70   Treasury stock purchased ( 61,495 shares at $15.70 average cost per share)     -       -       -       -       ( 966 )     -       -       ( 966 ) Balance at September 30, 2020   $ -     $ 71     $ 77,612     $ ( 185 )   $ ( 4,630 )   $ 69,478     $ 5,017     $ 147,363                                                                     Balance at January 1, 2021   $ -     $ 71     $ 77,602     $ ( 145 )   $ ( 4,423 )   $ 73,982     $ 5,851     $ 152,938   Net income     -       -       -       -       -       12,692       -       12,692   Other comprehensive loss     -       -       -       -       -       -       ( 1,347 )     ( 1,347 ) Dividends paid ( $0.3200 per share)     -       -       -       -       -       ( 2,169 )     -       ( 2,169 ) Stock compensation expense     -       -       270       -       -       -       -       270   ESOP shares allocated ( 18,139 shares)     -       -       156       262       -       -       -       418   Treasury stock purchased through tender offer ( 250,000 shares at $25.12 average cost per share)     -       -       -       -       ( 6,279 )     -       -       ( 6,279 ) Sale of shares to ESOP ( 251,256 shares at $23.88 average price per share)     -       -       2,929       ( 6,000 )     3,071       -       -       -   Balance at September 30, 2021   $ -     $ 71     $ 80,957     $ ( 5,883 )   $ ( 7,631 )   $ 84,505     $ 4,504     $ 156,523                                                                     Balance at January 1, 2020   $ -     $ 67     $ 68,826     $ ( 311 )   $ ( 3,643 )   $ 55,391     $ 1,329     $ 121,659   Net income     -       -       -       -       -       16,042       -       16,042   Other comprehensive income     -       -       -       -       -       -       3,688       3,688   Dividends paid ( $0.2875 per share)     -       -       -       -       -       ( 1,955 )     -       ( 1,955 ) Stock issued in connection with Western Holding Company of Wolf Point acquisition     -       4       8,463       -       -       -       -       8,467   Stock compensation expense     -       -       226       -       -       -       -       226   ESOP shares allocated ( 12,462 shares)     -       -       97       126       -       -       -       223   Treasury stock purchased ( 62,776 shares at $15.73 average cost per share)     -       -       -       -       ( 987 )     -       -       ( 987 ) Balance at September 30, 2020   $ -     $ 71     $ 77,612     $ ( 185 )   $ ( 4,630 )   $ 69,478     $ 5,017     $ 147,363     The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.   - 6 - Table of Contents     EAGLE BANCORP MONTANA, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Dollars in Thousands) (Unaudited)       Nine Months Ended       September 30,       2021     2020   CASH FLOWS FROM OPERATING ACTIVITIES:                 Net income   $ 12,692     $ 16,042   Adjustments to reconcile net income to net cash provided by operating activities:                 Loan loss provision     576       2,751   (Recovery) impairment of servicing rights     ( 702 )     878   Depreciation     2,137       1,813   Net amortization of investment securities premiums and discounts     874       749   Amortization of mortgage servicing rights     2,881       2,476   Amortization of right-of-use assets     457       347   Amortization of core deposit intangible     431       495   Compensation expense related to restricted stock awards     270       226   ESOP compensation expense for allocated shares     418       223   Deferred income tax provision     1,281       22   Net gain on sale of loans     ( 36,261 )     ( 24,432 ) Originations of loans held-for-sale     ( 814,854 )     ( 636,767 ) Proceeds from sales of loans held-for-sale     863,671       645,327   Net gain on sale of available-for-sale securities     ( 11 )     ( 1,068 ) Net loss on sale of real estate owned and other repossessed assets     -       9   Net gain on sale/disposal of premises and equipment     ( 70 )     ( 4 ) Net appreciation in cash surrender value of life insurance     ( 512 )     ( 480 ) Net change in:                 Accrued interest and dividends receivable     ( 453 )     ( 1,030 ) Other assets     1,707       ( 7,807 ) Accrued expenses and other liabilities     ( 1,710 )     3,936   Net cash provided by operating activities     32,822       3,706                     CASH FLOWS FROM INVESTING ACTIVITIES:                 Activity in available-for-sale securities:                 Sales     3,910       18,149   Maturities, principal payments and calls     8,906       32,553   Purchases     ( 95,762 )     ( 40,145 ) FHLB stock redeemed     358       2,081   FRB stock purchased     -       ( 373 ) Net cash received from acquisitions     -       5,044   Loan origination and principal collection, net     ( 48,901 )     ( 30,040 ) Purchases of bank owned life insurance     ( 8,000 )     ( 845 ) Proceeds from sale of real estate and other repossessed assets acquired in settlement of loans     16       28   Proceeds from sale of premises and equipment     1,379       13   Purchases of premises and equipment, net     ( 10,538 )     ( 15,693 ) Net cash used in investing activities     ( 148,632 )     ( 29,228 )   The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.   - 7 - Table of Contents   EAGLE BANCORP MONTANA, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued) (Dollars in Thousands) (Unaudited)       Nine Months Ended       September 30,       2021     2020   CASH FLOWS FROM FINANCING ACTIVITIES:                 Net increase in deposits   $ 161,466     $ 102,765   Net short-term advances from FRB Payroll Protection Program Loan Funding facility     -       23,786   Net short-term payments to FHLB and other borrowings     -       ( 27,000 ) Long-term advances from FHLB and other borrowings     -       10,000   Payments on long-term FHLB and other borrowings     ( 12,070 )     ( 37,859 ) Proceeds from issuance of subordinated debentures     -       15,000   Repayment of subordinated debentures     -       ( 10,000 ) Payments for debt issuance costs     -       ( 335 ) Purchase of treasury stock     ( 6,279 )     ( 987 ) Dividends paid     ( 2,169 )     ( 1,955 ) Net cash provided by financing activities     140,948       73,415                     NET INCREASE IN CASH AND CASH EQUIVALENTS     25,138       47,893                     CASH AND CASH EQUIVALENTS, beginning of period     69,802       24,918                     CASH AND CASH EQUIVALENTS, end of period   $ 94,940     $ 72,811                                       SUPPLEMENTAL CASH FLOW INFORMATION:                 Cash paid during the period for interest   $ 3,052     $ 5,652   Cash paid during the period for income taxes     3,940       5,200                     NONCASH INVESTING AND FINANCING ACTIVITIES:                 (Decrease) increase in fair value of securities available-for-sale   $ ( 1,829 )   $ 5,006   Mortgage servicing rights recognized     5,015       4,133   Right-of-use assets obtained in exchange for lease liabilities     1,140       104   Loans transferred to real estate and other assets acquired in foreclosure     108       37   Stock issued in connection with acquisitions     -       8,467   Sale of shares from Eagle to ESOP in exchange for loan     6,000       -     See Note 2. Mergers and Acquisitions for additional information related to assets acquired and liabilities assumed in acquisitions.   The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.   - 8 - Table of Contents EAGLE BANCORP MONTANA, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)     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.   In September 2017, the Company entered into an Agreement and Plan of Merger with TwinCo, Inc. ("TwinCo"), a Montana corporation, and TwinCo’s wholly-owned subsidiary, Ruby Valley Bank, a Montana chartered commercial bank to acquire 100 % of TwinCo’s equity voting interests. On January 31, 2018, TwinCo merged with and into Eagle, with Eagle continuing as the surviving corporation. Ruby Valley Bank operated two branches in Madison County, Montana.   In August 2018, the Company entered into an Agreement and Plan of Merger with Big Muddy Bancorp, Inc. (“BMB”), a Montana corporation and BMB’s wholly-owned subsidiary, The State Bank of Townsend (“SBOT”), a Montana chartered commercial bank to acquire 100 % of BMB’s equity voting interests. On January 1, 2019, BMB merged with and into Eagle, with Eagle continuing as the surviving corporation. SBOT operated four branches in Townsend, Dutton, Denton and Choteau, Montana.   In  August 2019,  the Company entered into an Agreement and Plan of Merger ("Merger Agreement") with Western Holding Company of Wolf Point (“WHC”), a Montana corporation, and WHC’s wholly-owned subsidiary, Western Bank of Wolf Point, a Montana chartered commercial bank (“WB”). The Merger Agreement provided that, upon the terms and subject to the conditions set forth in the Merger Agreement, WHC would merge with and into Eagle, with Eagle continuing as the surviving corporation. The merger closed on  January 1, 2020.  WB operated  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 Bank customers that produce agricultural products.   The Bank currently h as 23  ful l service branches. 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. The Bank also operates certain branches under the names Dutton State Bank, Farmers State Bank of Denton and The State Bank of Townsend.   Recent Events   During 2021, the Bank established a subsidiary, Opportunity Housing Fund, LLC (“OHF”), to invest in Low-Income Housing Tax Credit (“LIHTC”) projects. OHF is owned 100 % by OBMT. 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. During the three months ended September 30, 2021, OHF made initial investments in two LIHTC projects. The Company has elected to apply the proportional amortization method of accounting for investments in LIHTC projects. The proportional amortization method allows the investor to amortize the cost of the investment in proportion to the tax credits and the amortization is recognized as a component of income tax expense. Investments in LIHTC projects are included in other assets on the statement of financial condition and totaled $ 935,000 as of September 30, 2021.   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.   The Company sold 251,256 shares of common stock to the Employee Stock Ownership Plan ("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 shares held by the ESOP will be used for allocations to employees of the Company over a ten -year period.    Basis of Financial Statement Presentation and Use of Estimates   The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”) for interim financial information and in accordance with the instructions to Form 10 -Q and Article 10 of Regulation S- X as promulgated by the Securities and Exchange Commission (“SEC”). It is recommended that these unaudited interim condensed consolidated financial statements be read in conjunction with the Company’s Annual Report on Form 10 -K with all of the audited information and footnotes required by U.S. GAAP for complete financial statements for the year ended December 31, 2020 , as filed with the SEC on March 10, 2021. In the opinion of management, all normal adjustments and recurring accruals considered necessary for a fair presentation of the financial position and results of operations for the periods presented have been included.   The results of operations for the nine -month period ended  September 30, 2021 are not necessarily indicative of the results to be expected for the year ending  December 31, 2021  or any other period. In preparing condensed 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 condensed 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 valuation of goodwill and deferred tax assets and liabilities.   Principles of Consolidation   The condensed consolidated financial statements include Eagle, th e Bank, OHF, Eagle Bancorp Statutory Trust I (the “Trust”) and WFS.  All significant intercompany transactions and balances have been eliminated in consolidation.      - 9 - Table of Contents EAGLE BANCORP MONTANA, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)   NOTE 1.   ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued   Reclassifications     Certain prior period amounts were reclassified to conform to the presentation for 2021 . These reclassifications had no impact on net income or shareholders’ equity.   Subsequent Events     The Company has evaluated events and transactions subsequent to  September 30, 2021 for recognition and/or disclosure.    On October 1, 2021, Eagle announced that it had reached an agreement to acquire First Community Bancorp, Inc., a Montana corporation (“FCB”) and its wholly-owned subsidiary, First Community Bank, a Montana chartered commercial bank. The agreement provides that, upon the terms and subject to the conditions set forth in the agreement, FCB will merge with and into Eagle, with Eagle continuing as the surviving corporation. The transaction is subject to the approvals of bank regulatory agencies, the shareholders of Eagle and FCB and other customary closing conditions. The acquisition is expected to close during the fourth quarter of 2021.   NOTE 2.  MERGERS AND ACQUISITIONS   Effective January 1, 2020, Eagle completed its previously announced merger with WHC. At the effective time of the Merger, WHC merged with and into Eagle, with Eagle continuing as the surviving corporation. The acquisition closed after receipt of approvals from regulatory authorities, approval of WHC shareholders and the satisfaction of other closing conditions. The total consideration paid was $ 14,967,000 and included cash consideration of $ 6,500,000 and common stock issued of $ 8,467,000 .   This transaction was accounted for under the acquisition method of accounting.   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 combinations were expensed as incurred. Determining the fair value of assets and liabilities is a complicated process involving significant judgement 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.       WHC       January 1,       2020       (In Thousands)   Assets acquired:         Cash and cash equivalents   $ 11,544   Securities available-for-sale     43,710   Loans receivable     43,424   Premises and equipment     740   Cash surrender value of life insurance     2,131   Core deposit intangible     208   Other assets     1,874   Total assets acquired   $ 103,631             Liabilities assumed:         Deposits   $ 86,572   Accrued expenses and other liabilities     4,554   Other borrowings     2,500   Total liabilities assumed   $ 93,626             Net assets acquired   $ 10,005             Consideration paid:         Cash   $ 6,500   Common stock issued ( 395,850 shares)     8,467   Total consideration paid   $ 14,967             Goodwill resulting from acquisition   $ 4,962     Goodwill recorded for the WHC acquisition during the three months ended March 31, 2020  was $ 4,962,000 .   WHC investments were written up $ 425,000 to fair value on the date of acquisition based on market prices obtained from an independent third party.   - 10 - Table of Contents EAGLE BANCORP MONTANA, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)   NOTE 2.  MERGERS AND ACQUISITIONS – continued   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 loan 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.                 The total accretable discount on WHC acquired loans was $ 1,166,000 as of January 1, 2020. During the year ended December 31, 2020 , accretion of the loan discount was $ 560,000 . During the three and nine  months ended September 30, 2021 , accretion of the loan discount was $ 42,000  and $ 149,000 , respectively.  The remaining accretable loan discount was $ 457,000  as of September 30, 2021 . One impaired loan was acquired through the WHC acquisition with an insignificant balance as of January 1, 2020.   Fair value adjustments of $ 590,000  were recorded for WHC related to premises and equipment. The Company used independent third party appraisals in the determination of the fair value of acquired assets.   Core deposit intangible assets of $ 208,000 were recorded for WHC and are being amortized using an accelerated method over the estimated useful lives of the related deposits of 10 years from 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 acquisition were expensed as incurred. There were no acquisition costs recorded related to the WHC acquisition during the three and nine  months ended September 30, 2021 . The Company recorded acquisition costs related to WHC of $ 157,000 during the year ended  December 31, 2020 . Acquisition costs included professional fees and data processing expenses incurred related to the acquisitions.   Operations of acquired entities have been included in the condensed 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 date through September 30, 2021 . The accompanying condensed consolidated statements of income include the results of operations of WHC since the January 1, 2020 acquisition date.   - 11 - Table of Contents EAGLE BANCORP MONTANA, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)     NOTE 3.   INVESTMENT SECURITIES   The amortized cost and fair values of securities, together with unrealized gains and losses, were as follows:       September 30, 2021     December 31, 2020               Gross                     Gross               Amortized     Unrealized     Fair     Amortized     Unrealized     Fair       Cost     Gains     (Losses)     Value     Cost     Gains     (Losses)     Value       (In Thousands)   Available-for-Sale:                                                                 U.S. government obligations   $ 1,748     $ 20     $ -     $ 1,768     $ 2,214     $ 31     $ -     $ 2,245   U.S. treasury obligations     33,148       615       ( 12 )     33,751       5,153       504       -       5,657   Municipal obligations     113,975       5,000       ( 114 )     118,861       92,914       6,175       ( 1 )     99,088   Corporate obligations     10,558       158       -       10,716       10,579       91       ( 7 )     10,663   Mortgage-backed securities     15,585       165       ( 50 )     15,700       7,513       161       ( 5 )     7,669   Collateralized mortgage obligations     53,117       602       ( 397 )     53,322       30,339       852       ( 2 )     31,189   Asset-backed securities     5,790       125       -       5,915       6,293       142       -       6,435   Total   $ 233,921     $ 6,685     $ ( 573 )   $ 240,033     $ 155,005     $ 7,956     $ ( 15 )   $ 162,946     Proceeds from sale of available-for-sale securities and the associated gross realized gains and losses were as follows:       Three Months Ended     Nine Months Ended       September 30,     September 30,       2021     2020     2021     2020       (In Thousands)                                     Proceeds from sale of available-for-sale securities   $ 3,910     $ -     $ 3,910     $ 18,149                                     Gross realized gain on sale of available-for-sale securities     11     $ -       11       1,068   Gross realized loss on sale of available-for-sale securities     -       -       -       -   Net realized gain on sale of available-for-sale securities   $ 11     $ -     $ 11     $ 1,068     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.       September 30, 2021       Amortized     Fair       Cost     Value       (In Thousands)                     Due in one year or less   $ 3,308     $ 3,329   Due from one to five years     13,623       14,102   Due from five to ten years     47,815       48,703   Due after ten years     100,473       104,877         165,219       171,011   Mortgage-backed securities     15,585       15,700   Collateralized mortgage obligations     53,117       53,322   Total   $ 233,921     $ 240,033     As of  September 30, 2021 and December 31, 2020 , securities with a fair value of $ 22,259,000   and $ 19,716,000 , respectively, were pledged to secure public deposits and for other purposes required or permitted by law.   The Company’s investment securities that have been in a continuous unrealized loss position for less than twelve months and those that have been in a continuous unrealized loss position for twelve or more months were as follows:       September 30, 2021       Less Than 12 Months     12 Months or Longer               Gross             Gross       Fair     Unrealized     Fair     Unrealized       Value     Losses     Value     Losses       (In Thousands)   U.S. treasury obligations   $ 10,533     $ ( 12 )   $ -     $ -   Municipal obligations     8,962       ( 114 )     -       -   Corporate obligations     -       -       -       -   Mortgage-backed securities and collateralized mortgage obligations     33,706       ( 439 )     1,413       ( 8 ) Total   $ 53,201     $ ( 565 )   $ 1,413     $ ( 8 )   - 12 - Table of Contents EAGLE BANCORP MONTANA, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)   NOTE 3.   INVESTMENT SECURITIES – continued       December 31, 2020       Less Than 12 Months     12 Months or Longer               Gross             Gross       Fair     Unrealized     Fair     Unrealized       Value     Losses     Value     Losses       (In Thousands)   U.S. treasury obligations   $ -     $ -     $ -     $ -   Municipal obligations     282       ( 1 )     -       -   Corporate obligations     4,243       ( 7 )     -       -   Mortgage-backed securities and collateralized mortgage obligations     3,180       ( 2 )     1,501       ( 5 ) Total   $ 7,705     $ ( 10 )   $ 1,501     $ ( 5 )   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  nine months ended September 30, 2021 or the year ended December 31, 2020 . As of  September 30, 2021 and December 31, 2020 , there were, respectively, 25  and  8  securities in unrealized loss positions that were considered to be temporarily impaired and therefore an impairment charge has not been recorded.    NOTE 4.   LOANS RECEIVABLE   Loans receivable consisted of the following:       September 30,     December 31,       2021     2020       (In Thousands)   Real estate loans:                 Residential 1-4 family   $ 142,921     $ 157,092   Commercial real estate     522,953       447,867                     Other loans:                 Home equity     52,990       56,563   Consumer     18,940       20,168   Commercial     149,199       161,451                     Total     887,003       843,141                     Deferred loan fees, net     ( 2,098 )     ( 2,038 ) Allowance for loan losses     ( 12,200 )     ( 11,600 ) Total loans, net   $ 872,705     $ 829,503     Within the commercial real estate loan category above, $ 10,459,000  and $ 11,084,000 was guaranteed by the United States Department of Agriculture Rural Development at  September 30, 2021 and  December 31, 2020 , respectively. Also within the loan categories above, $ 5,644,000  and $ 6,533,000 was guaranteed by the United States Department of Agriculture Farm Service Agency at  September 30, 2021 and  December 31, 2020 , respectively. In addition, within the commercial loan category above, $ 8,464,000  and $ 29,581,000 was guaranteed by the Small Business Administration ("SBA") under their Payroll Protection Program ("PPP") at  September 30, 2021 and December 31, 2020 , respectively. Deferred loan fees, net includes $ 605,000 and $ 613,000 of remaining deferred fees related to the PPP at September 30, 2021  and  December 31, 2020 , respectively.    - 13 - Table of Contents EAGLE BANCORP MONTANA, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)   NOTE 4.   LOANS RECEIVABLE – 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:                                                 Beginning Balance, July 1, 2021   $ 1,544     $ 7,127     $ 522     $ 363     $ 2,344     $ 11,900   Charge-offs     -       -       -       ( 4 )     -       ( 4 ) Recoveries     -       6       -       1       42       49   Provision     26       155       8       3       63       255   Ending balance, September 30, 2021   $ 1,570     $ 7,288     $ 530     $ 363     $ 2,449     $ 12,200                                                     Allowance for loan losses:                                                 Beginning balance, January 1, 2021   $ 1,506     $ 6,951     $ 515     $ 364     $ 2,264     $ 11,600   Charge-offs     -       ( 35 )     -       ( 14 )     ( 6 )     ( 55 ) Recoveries     -       15       -       7       57       79   Provision     64       357       15       6       134       576   Ending balance, September 30, 2021   $ 1,570     $ 7,288     $ 530     $ 363     $ 2,449     $ 12,200                                                     Ending balance, September 30, 2021 allocated to loans individually evaluated for impairment   $ 199     $ -     $ -     $ -     $ 109     $ 308                                                     Ending balance, September 30, 2021 allocated to loans collectively evaluated for impairment   $ 1,371     $ 7,288     $ 530     $ 363     $ 2,340     $ 11,892                                                     Loans receivable:                                                 Ending balance, September 30, 2021   $ 142,921     $ 522,953     $ 52,990     $ 18,940     $ 149,199     $ 887,003                                                     Ending balance, September 30, 2021 of loans individually evaluated for impairment   $ 1,122     $ 4,341     $ 121     $ 78     $ 2,111     $ 7,773                                                     Ending balance, September 30, 2021 of loans collectively evaluated for impairment   $ 141,799     $ 518,612     $ 52,869     $ 18,862     $ 147,088     $ 879,230         Residential     Commercial     Home                               1-4 Family     Real Estate     Equity     Consumer     Commercial     Total       (In Thousands)   Allowance for loan losses:                                                 Beginning balance, July 1, 2020   $ 1,369     $ 6,096     $ 491     $ 371     $ 2,173     $ 10,500   Charge-offs     -       -       -       ( 14 )     ( 67 )     ( 81 ) Recoveries     -       2       -       2       23       27   Provision     92       623       13       9       117       854   Ending balance, September 30, 2020   $ 1,461     $ 6,721     $ 504     $ 368     $ 2,246     $ 11,300                                                     Allowance for loan losses:                                                 Beginning balance, January 1, 2020   $ 1,301     $ 4,826     $ 477     $ 284     $ 1,712     $ 8,600   Charge-offs     -       ( 18 )     -       ( 25 )     ( 85 )     ( 128 ) Recoveries     -       10       -       13       54       77   Provision     160       1,903       27       96       565       2,751   Ending balance, September 30, 2020   $ 1,461     $ 6,721     $ 504     $ 368     $ 2,246     $ 11,300                                                     Ending balance, September 30, 2020 allocated to loans individually evaluated for impairment   $ 296     $ -     $ -     $ -     $ -     $ 296                                                     Ending balance, September 30, 2020 allocated to loans collectively evaluated for impairment   $ 1,165     $ 6,721     $ 504     $ 368     $ 2,246     $ 11,004                                                     Loans receivable:                                                 Ending balance, September 30, 2020   $ 152,835     $ 432,473     $ 61,460     $ 20,694     $ 183,611     $ 851,073                                                     Ending balance, September 30, 2020 of loans individually evaluated for impairment   $ 1,128     $ 3,998     $ 115     $ 163     $ 2,118     $ 7,522                                                     Ending balance, September 30, 2020 of loans collectively evaluated for impairment   $ 151,707     $ 428,475     $ 61,345     $ 20,531     $ 181,493     $ 843,551     - 14 - Table of Contents EAGLE BANCORP MONTANA, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)   NOTE 4.   LOANS RECEIVABLE – continued   Internal classification of the loan portfolio was as follows:       September 30, 2021               Special                                       Pass     Mention     Substandard     Doubtful     Loss     Total       (In Thousands)   Real estate loans:                                                 Residential 1-4 family   $ 98,560     $ 219     $ 469     $ 199     $ -     $ 99,447   Residential 1-4 family construction     43,137       -       337       -       -       43,474   Commercial real estate     374,699       3,200       2,172       -       -       380,071   Commercial construction and development     78,058       -       -       -       -       78,058   Farmland     62,410       276       2,091       47       -       64,824   Other loans:                                                 Home equity     52,559       264       167       -       -       52,990   Consumer     18,861       -       79       -       -       18,940   Commercial     94,057       954       543       -       -       95,554   Agricultural     51,691       387       1,512       55       -       53,645   Total   $ 874,032     $ 5,300     $ 7,370     $ 301     $ -     $ 887,003         December 31, 2020               Special                                       Pass     Mention     Substandard     Doubtful     Loss     Total       (In Thousands)   Real estate loans:                                                 Residential 1-4 family   $ 109,746     $ -     $ 857       199     $ -     $ 110,802   Residential 1-4 family construction     45,953       -       337       -       -       46,290   Commercial real estate     311,756       2,568       2,344       -       -       316,668   Commercial construction and development     65,231       14       36       -       -       65,281   Farmland     63,565       136       2,164       53       -       65,918   Other loans:                                                 Home equity     56,177       274       112       -       -       56,563   Consumer     20,017       -       151       -       -       20,168   Commercial     107,810       829       570       -       -       109,209   Agricultural     50,371       355       1,395       121       -       52,242   Total   $ 830,626     $ 4,176     $ 7,966     $ 373     $ -     $ 843,141     - 15 - Table of Contents EAGLE BANCORP MONTANA, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)   NOTE 4.   LOANS RECEIVABLE – continued   The following tables include information regarding delinquencies within the loan portfolio.       September 30, 2021       Loans Past Due and Still Accruing                                       90 Days                                       30-89 Days     and             Nonaccrual     Current     Total       Past Due     Greater     Total     Loans     Loans     Loans       (In Thousands)   Real estate loans:                                                 Residential 1-4 family   $ 2     $ -     $ 2     $ 785     $ 98,660     $ 99,447   Residential 1-4 family construction     -       -       -       337       43,137       43,474   Commercial real estate     241       -       241       507       379,323       380,071   Commercial construction and development     -       -       -       -       78,058       78,058   Farmland     38       -       38       2,273       62,513       64,824   Other loans:                                                 Home equity     -       -       -       121       52,869       52,990   Consumer     67       -       67       78       18,795       18,940   Commercial     31       34       65       534       94,955       95,554   Agricultural     -       -       -       1,498       52,147       53,645   Total   $ 379     $ 34     $ 413     $ 6,133     $ 880,457     $ 887,003         December 31, 2020       Loans Past Due and Still Accruing                                       90 Days                                       30-89 Days     and             Nonaccrual     Current     Total       Past Due     Greater     Total     Loans     Loans     Loans       (In Thousands)   Real estate loans:                                                 Residential 1-4 family   $ 693     $ 34     $ 727     $ 684     $ 109,391     $ 110,802   Residential 1-4 family construction     853       170       1,023       337       44,930       46,290   Commercial real estate     274       -       274       631       315,763       316,668   Commercial construction and development     -       -       -       36       65,245       65,281   Farmland     179       -       179       2,245       63,494       65,918   Other loans:                                                 Home equity     53       -       53       111       56,399       56,563   Consumer     72       -       72       151       19,945       20,168   Commercial     553       6       559       537       108,113       109,209   Agricultural     71       182       253       1,542       50,447       52,242   Total   $ 2,748     $ 392     $ 3,140     $ 6,274     $ 833,727     $ 843,141     - 16 - Table of Contents EAGLE BANCORP MONTANA, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)   NOTE 4.   LOANS RECEIVABLE – continued   The following tables include information regarding impaired loans.       September 30, 2021               Unpaid               Recorded     Principal     Related       Investment     Balance     Allowance       (In Thousands)   Real estate loans:                         Residential 1-4 family   $ 785     $ 867     $ 199   Residential 1-4 family construction     337       387       -   Commercial real estate     2,068       2,116       -   Commercial construction and development     -       -       -   Farmland     2,273       2,333       -   Other loans:                         Home equity     121       150       -   Consumer     78       87       -   Commercial     534       658       -   Agricultural     1,577       2,162       109   Total   $ 7,773     $ 8,760     $ 308         December 31, 2020               Unpaid               Recorded     Principal     Related       Investment     Balance     Allowance       (In Thousands)   Real estate loans:                         Residential 1-4 family   $ 1,204     $ 1,267     $ 296   Residential 1-4 family construction     337       387       -   Commercial real estate     2,264       2,328       -   Commercial construction and development     50       50       -   Farmland     2,245       2,262       -   Other loans:                         Home equity     111       136       -   Consumer     151       171       -   Commercial     537       664       -   Agricultural     1,702       2,268       54   Total   $ 8,601     $ 9,533     $ 350     - 17 - Table of Contents EAGLE BANCORP MONTANA, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)   NOTE 4.   LOANS RECEIVABLE – continued       Three Months Ended     Nine Months Ended       September 30,     September 30,       2021     2020     2021     2020       Average Recorded Investment     Average Recorded Investment       (In Thousands)     (In Thousands)   Real estate loans:                                 Residential 1-4 family   $ 715     $ 860     $ 994     $ 704   Residential 1-4 family construction     337       337       337       337   Commercial real estate     2,239       2,561       2,166       1,565   Commercial construction and development     -       54       25       32   Farmland     2,125       1,345       2,259       956   Other loans:                                 Home equity     126       153       116       107   Consumer     78       181       114       160   Commercial     536       731       536       746   Agricultural     1,366       1,470       1,640       975   Total   $ 7,522     $ 7,692     $ 8,187     $ 5,582     Interest income recognized on impaired loans for the  three and nine months ended September 30, 2021 and 2020 is considered insignificant. Interest payments received on a cash basis related to impaired loans were $ 407,000  and $ 327,000  for  September 30, 2021 and December 31, 2020 , respectively.   As of  September 30, 2021 and December 31, 2020 , there were troubled debt restructured (“TDR”) loans of $ 2,116,000 and $ 1,824,000 , respectively.   During the three months ended September 30, 2021 , there were two  new TDR loans. The recorded investments for both farmland loans at the time of restructure were $ 391,000 and $ 70,000 . No charge-offs were incurred and the loans are on nonaccrual status. During the nine  months ended  September 30, 2021  there were  three  new TDR loans. The recorded investments for the two farmland loans at time of restructure as stated above were $ 391,000 and $ 70,000 . The recorded investment for the commercial real estate loan at time of restructure during the first quarter of 2021 was $ 115,000 . The commercial real estate loan was paid off during the three months ended September 30, 2021.   During the three months ended September 30, 2020 , there were no  new TDR loans. During the nine  months ended  September 30, 2020 , there were three new TDR loans. The recorded investments at the time of restructure were $ 94,000  for a commercial construction and development loan, $ 1,633,000 for a commercial real estate loan, and $ 160,000 for an agricultural loan. The commercial construction and development loan was paid off during the nine months ended September 30, 2021 . No charge-offs were incurred for the remaining loans and they are on accrual status. The recorded investments for the remaining loans at   September 30, 2021  were $ 1,561,000  and $ 79,000 , respectively.   There were no loans modified as TDRs that defaulted during the three and nine  months ended  September 30, 2021 where the default occurred within 12 months of restructuring. A default for purposes of this disclosure is a TDR loan in which the borrower is 90 days past due or results in the foreclosure and repossession of the applicable collateral.   As of September 30, 2021 , the Company had no commitments to lend additional funds to loan customers whose terms had been modified in TDRs.   The Company has offered borrowers accommodations due to the impact from COVID- 19, including 90 -day deferrals, interest only payments and forbearances, which are not considered TDRs as they met the criteria established in the Coronavirus Aid, Relief, and Economic Security Act ("CARES Act"). In addition, the Montana Board of Investments ("MBOI") offered  12 -months of interest payment assistance to qualified borrowers. As of September 30, 2021 , remaining loan modifications for  five  nonresidential borrowers represented $ 98,000 in loans. As  of  December 31, 2020 , loan modifications for 40 borrowers represented $ 28,994,000 .   - 18 - Table of Contents EAGLE BANCORP MONTANA, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)     NOTE 5 .   MORTGAGE SERVICING RIGHTS   The Company is servicing mortgage loans for the benefit of others which are not included in the condensed consolidated statements of financial condition and have unpaid principal balances of $ 1,748,096,000  and $ 1,473,971,000 at  September 30, 2021 and December 31, 2020 , 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 $ 1,060,000  and $ 815,000  for the three months ended September 30, 2021 and 2020 , respectively. Mortgage loan servicing fees were $ 2,984,000  and $ 2,320,000 for the nine months ended September 30, 2021 and 2020 .These fees, net of amortization, are included in mortgage banking, net which is a component of noninterest income on the condensed consolidated statements of income.   Custodial balances maintained in connection with the foregoing loan servicing are included in noninterest checking deposits and were $ 20,947,000  and $ 15,853,000  at  September 30, 2021 and December 31, 2020 , respectively.   The following table is a summary of activity in mortgage servicing rights:       As of or For the       Three Months Ended       September 30,       2021     2020       (In Thousands)   Mortgage servicing rights:                 Beginning balance   $ 12,232     $ 9,550   Mortgage servicing rights capitalized     1,662       1,700   Amortization of mortgage servicing rights     ( 863 )     ( 854 ) Ending balance   $ 13,031     $ 10,396   Valuation allowance:                 Beginning balance   $ ( 104 )   $ ( 1,216 ) Recovery of mortgage servicing rights     14       338   Ending balance   $ ( 90 )   $ ( 878 ) Mortgage servicing rights, net   $ 12,941     $ 9,518         As of or For the       Nine Months Ended       September 30,       2021     2020       (In Thousands)   Mortgage servicing rights:                 Beginning balance   $ 10,897     $ 8,739   Mortgage servicing rights capitalized     5,015       4,133   Amortization of mortgage servicing rights     ( 2,881 )     ( 2,476 ) Ending balance     13,031       10,396   Valuation allowance:                 Beginning balance     ( 792 )     -   Recovery (impairment) of mortgage servicing rights     702       ( 878 ) Ending balance     ( 90 )     ( 878 ) Mortgage servicing rights, net   $ 12,941     $ 9,518     Impairment expense on mortgage servicing rights of $ 878,000  was recorded during the  nine  months ended September 30, 2020, as a result of faster than expected prepayment speed assumptions. However, a recovery of $ 702,000 was recorded during the nine months ended September 30, 2021. In addition, recoveries of $ 14,000  and $ 338,000 were recorded for the three months ended September 30, 2021 and 2020 , respectively. Recovery (impairment) of servicing rights is included in other noninterest expense on the condensed consolidated statements of income.    The fair values of these rights were $ 13,666,000  and $ 10,105,000 at  September 30, 2021 and December 31, 2020 , 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:       September 30,     December 31,       2021     2020   Key assumptions:                 Discount rate     12 %     12 % Prepayment speed range     192 - 272 %     221 - 328 % Weighted average prepayment speed     214 %     281 %   - 19 - Table of Contents EAGLE BANCORP MONTANA, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)     NOTE 6 .   DEPOSITS   Deposits are summarized as follows:       September 30,     December 31,       2021     2020       (In Thousands)                     Noninterest checking   $ 367,127     $ 318,389   Interest-bearing checking     198,130       160,614   Savings     213,895       179,868   Money market     261,866       202,407   Time certificates of deposit     153,531       171,805   Total   $ 1,194,549     $ 1,033,083     Time certificates of deposit ("CDs") include $ 0   and $ 495,000  related to fixed rate brokered CDs at  September 30, 2021  and  December 31, 2020 .    NOTE 7 .   OTHER LONG-TERM DEBT   Other long-term debt consisted of the following:       September 30, 2021     December 31, 2020               Unamortized             Unamortized               Debt             Debt       Principal     Issuance     Principal     Issuance       Amount     Costs     Amount     Costs       (In Thousands)                                     Senior notes fixed at 5.75% , due 2022   $ 10,000     $ ( 15 )   $ 10,000     $ ( 48 ) Subordinated debentures fixed at 5.50% to floating, due 2030     15,000       ( 290 )     15,000       ( 316 ) Subordinated debentures variable at 3-Month Libor plus 1.42% , due 2035     5,155       -       5,155       -   Total other long-term debt   $ 30,155     $ ( 305 )   $ 30,155     $ ( 364 )   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 will 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 will be paid semi-annually through maturity date. The notes are not subject to redemption at the option of the Company.   In June 2015, the Company completed the issuance of $ 10,000,000 in aggregate principal amount of subordinated notes due in 2025 in a private placement transaction to an institutional accredited investor. The notes had an annual fixed interest rate of 6.75% and interest was paid quarterly through redemption. The notes were subject to redemption at the option of the Company on or after June 19, 2020.  The notes were redeemed on July 10, 2020.   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 in December 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 three -month LIBOR plus 1.42%, making the rate 1.55 % and 1.66 % as of September 30, 2021 and December 31, 2020 , 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 purposes.    - 20 - Table of Contents EAGLE BANCORP MONTANA, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)     NOTE 8. 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)   Balance at July 1, 2021   $ 4,938   Other comprehensive loss, before reclassifications and income taxes     ( 578 ) Amounts reclassified from accumulated other comprehensive income, before income taxes     ( 11 ) Income tax benefit     155   Total other comprehensive loss     ( 434 ) Balance at September 30, 2021   $ 4,504             Balance at July 1, 2020   $ 4,086   Other comprehensive income, before reclassifications and income taxes     1,263   Amounts reclassified from accumulated other comprehensive income, before income taxes     -   Income tax provision     ( 332 ) Total other comprehensive income     931   Balance at September 30, 2020   $ 5,017             Balance at January 1, 2021   $ 5,851   Other comprehensive loss, before reclassifications and income taxes     ( 1,818 ) Amounts reclassified from accumulated other comprehensive income, before income taxes     ( 11 ) Income tax benefit     482   Total other comprehensive loss     ( 1,347 ) Balance at September 30, 2021   $ 4,504             Balance at January 1, 2020   $ 1,329   Other comprehensive income, before reclassifications and income taxes     6,074   Amounts reclassified from accumulated other comprehensive income, before income taxes     ( 1,068 ) Income tax provision     ( 1,318 ) Total other comprehensive income     3,688   Balance at September 30, 2020   $ 5,017       NOTE 9.   EARNINGS PER SHARE   The computations of basic and diluted earnings per share are as follows:       Three Months Ended     Nine Months Ended       September 30,     September 30,       2021     2020     2021     2020         (Dollars in Thousands, Except Per Share Data)                                     Basic weighted average shares outstanding     6,525,509       6,776,417       6,691,256       6,804,495   Dilutive effect of stock compensation     18,535       37,322       18,120       29,434   Diluted weighted average shares outstanding     6,544,044       6,813,739       6,709,376       6,833,929                                     Net income available to common shareholders   $ 4,746     $ 6,380     $ 12,692     $ 16,042                                     Basic earnings per share   $ 0.73     $ 0.94     $ 1.90     $ 2.36                                     Diluted earnings per share   $ 0.73     $ 0.94     $ 1.89     $ 2.35     There were no anti-dilutive shares a t September 30, 2021 and December 31, 2020 .   - 21 - Table of Contents EAGLE BANCORP MONTANA, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)     NOTE 10. 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 To-Be-Announced (“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 condensed consolidated statements of condition.   Derivatives are summarized as follows:       September 30, 2021     December 31, 2020       Notional     Fair Value     Notional     Fair Value       Amount     Asset     Liability     Amount     Asset     Liability       (In Thousands)   Interest rate lock commitments   $ 125,318     $ 2,328     $ -     $ 227,977     $ 6,017     $ -   Forward TBA mortgage-backed securities     101,000       680       -       180,000       -       1,056     Changes in the fair value of the derivatives are recorded in mortgage banking, net within noninterest income on the condensed consolidated statements of income . Net gains  of $ 373,000  were recorded for the three months ended September 30, 2021  compared to net gains of $ 2,961,000 for the three months ended September 30, 2020 . Net losses of $ 1,953,000  were recorded for the nine  months ended  September 30, 2021 compared to net gains of $ 6,363,000 for the nine  months ended September 30, 2020 .     NOTE 11 . 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.   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 Level 2 inputs.   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 and adjusted for factors such as pull-through rate assumptions based on historical information, where appropriate. Interest rate lock commitments are considered Level 3 inputs and forward TBA mortgage-backed securities and mandatory forward commitments are considered Level 2 inputs.   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 net present value of expected cash flows based on a third party model that incorporates industry assumptions and is adjusted for factors such as prepayment speeds and are considered Level 3 inputs.   - 22 - Table of Contents EAGLE BANCORP MONTANA, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)   NOTE 11. FAIR VALUE OF FINANCIAL INSTRUMENTS – continued   The following tables summarize financial assets and financial 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.       September 30, 2021       Level 1     Level 2     Level 3     Total Fair       Inputs     Inputs     Inputs     Value       (In Thousands)   Financial assets:                                 Available-for-sale securities:                                 U.S. government obligations   $ -     $ 1,768     $ -     $ 1,768   U.S. treasury obligations     33,751       -       -       33,751   Municipal obligations     -       118,861       -       118,861   Corporate obligations     -       10,716       -       10,716   Mortgage-backed securities     -       15,700       -       15,700   Collateralized mortgage obligations     -       53,322       -       53,322   Asset-backed securities     -       5,915       -       5,915   Loans held-for-sale     -       42,059       -       42,059   Interest rate lock commitments     -       -       2,328       2,328   Forward TBA mortgage-backed securities     -       680       -       680         December 31, 2020       Level 1     Level 2     Level 3     Total Fair       Inputs     Inputs     Inputs     Value       (In Thousands)   Financial assets:                                 Available-for-sale securities:                                 U.S. government obligations   $ -     $ 2,245     $ -     $ 2,245   U.S. treasury obligations     5,657       -       -       5,657   Municipal obligations     -       99,088       -       99,088   Corporate obligations     -       10,663       -       10,663   Mortgage-backed securities     -       7,669       -       7,669   Collateralized mortgage obligations     -       31,189       -       31,189   Asset-backed securities     -       6,435       -       6,435   Loans held-for-sale     -       54,615       -       54,615   Interest rate lock commitments     -       -       6,017       6,017   Financial liabilities:                                 Forward TBA mortgage-backed securities     -       1,056       -       1,056     - 23 - Table of Contents EAGLE BANCORP MONTANA, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)   NOTE 11. 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 table summarizes 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:       September 30, 2021       Level 1     Level 2     Level 3     Total Fair       Inputs     Inputs     Inputs     Value       (In Thousands)   Impaired loans   $ -     $ -     $ 71     $ 71   Real estate and other repossessed assets     -       -       117       117   Mortgage servicing rights     -       -       13,666       13,666         December 31, 2020       Level 1     Level 2     Level 3     Total Fair       Inputs     Inputs     Inputs     Value       (In Thousands)   Impaired loans   $ -     $ -     $ 728     $ 728   Real estate and other repossessed assets     -       -       -       -   Mortgage servicing rights     -       -       10,105       10,105     The following table represents the Banks’s Level 3 financial assets and liabilities, the valuation techniques used to measure the fair value of those financial assets and liabilities, and the significant unobservable inputs and the ranges of values for those inputs.       Principal   Significant   Range of       Valuation   Unobservable   Significant Input   Instrument   Technique   Inputs   Values                   Impaired loans   Fair value of underlying collateral   Discount applied to the obtained appraisal   10 - 30 %   Real estate and other repossessed assets   Fair value of collateral   Discount applied to the obtained appraisal   10 - 30 %   Mortgage servicing rights   Discounted cash flows   Discount rate   10 - 15 %           Prepayment speeds   180 - 330 %   Interest rate lock commitments   Internal pricing model   Pull-through expectations   85 - 95 %     The following tables provide a reconciliation of assets and liabilities measured at fair value using significant unobservable inputs (Level 3 ) on a recurring basis during the nine months ended September 30, 2021 .       Three Months Ended     Nine Months Ended       September 30,     September 30,       2021     2020     2021     2020       Interest Rate Lock Commitments     Interest Rate Lock Commitments       (In Thousands)     (In Thousands)   Beginning balance   $ 2,949     $ 5,501     $ 6,017     $ 554   Purchases and issuances     ( 5,710 )     8,360       ( 17,596 )     21,061   Sales and settlements     5,089       ( 6,713 )     13,907       ( 14,467 ) Ending balance   $ 2,328     $ 7,148     $ 2,328     $ 7,148   Net change in unrealized gains relating to items held at end of period   $ ( 621 )   $ 1,647     $ ( 3,689 )   $ 6,594     - 24 - Table of Contents EAGLE BANCORP MONTANA, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)   NOTE 11. FAIR VALUE OF FINANCIAL INSTRUMENTS – continued      The tables below summarize the estimated fair values of financial instruments of the Company, whether or not recognized at fair value on the condensed 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.       September 30, 2021                               Total               Level 1     Level 2     Level 3     Estimated     Carrying       Inputs     Inputs     Inputs     Fair Value     Amount       (In Thousands)   Financial assets:                                         Cash and cash equivalents   $ 94,940     $ -     $ -     $ 94,940     $ 94,940   FHLB stock     1,702       -       -       1,702       1,702   FRB stock     2,974       -       -       2,974       2,974   Loans receivable, gross     -       -       892,161       892,161       884,905   Accrued interest and dividends receivable     6,218       -       -       6,218       6,218   Mortgage servicing rights     -       -       13,666       13,666       12,941   Financial liabilities:                                         Non-maturing interest-bearing deposits     -       673,891       -       673,891       673,891   Noninterest-bearing deposits     367,127       -       -       367,127       367,127   Time certificates of deposit     -       -       153,823       153,823       153,531   Accrued expenses and other liabilities     19,745       -       -       19,745       19,745   FHLB advances and other borrowings     -       -       5,023       5,023       5,000   Other long-term debt     -       -       29,371       29,371       30,155         December 31, 2020                               Total               Level 1     Level 2     Level 3     Estimated     Carrying       Inputs     Inputs     Inputs     Fair Value     Amount       (In Thousands)   Financial assets:                                         Cash and cash equivalents   $ 69,802     $ -     $ -     $ 69,802     $ 69,802   FHLB stock     2,060       -       -       2,060       2,060   FRB stock     2,974       -       -       2,974       2,974   Loans receivable, gross     -       -       847,579       847,579       841,103   Accrued interest and dividends receivable     5,765       -       -       5,765       5,765   Mortgage servicing rights     -       -       10,105       10,105       10,105   Financial liabilities:                                         Non-maturing interest-bearing deposits     -       542,889       -       542,889       542,889   Noninterest-bearing deposits     318,389       -       -       318,389       318,389   Time certificates of deposit     -       -       172,561       172,561       171,805   Accrued expenses and other liabilities     23,239       -       -       23,239       23,239   FHLB advances and other borrowings     -       -       17,217       17,217       17,070   Other long-term debt     -       -       29,414       29,414       30,155     - 25 - Table of Contents EAGLE BANCORP MONTANA, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)     NOTE 12 . RECENT ACCOUNTING PRONOUNCEMENTS   Recently Adopted Accounting Pronouncements   In August 2018, the FASB issued ASU No. 2018 - 13,  Fair Value Measurement (Topic 820 ) to remove disclosure requirements that no longer are considered cost beneficial, modify/clarify specific requirements of certain disclosures and add disclosure requirements identified as relevant. The amendment became effective for the Company on January 1, 2020 and did not have a significant impact on the condensed consolidated financial statements.   Recently Issued Accounting Pronouncements     In September 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.   In October 2019, the FASB amended the effective date of the standard. The amendments in this update are effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. An entity will apply the amendments in this update through a cumulative-effect adjustment to retained earnings as of the beginning of the first reporting period in which the guidance is effective (that is, a modified-retrospective approach).   The Company believes the amendments in this update will have an impact on the Company’s condensed consolidated financial statements and is continuing to evaluate the significance of that impact, even though the adoption date has been deferred. In that regard, we have established a working group composed of individuals from the finance and credit administration areas of the Company. We are currently developing an implementation plan, including assessment of processes, segmentation of the loan portfolio and identifying and adding data fields necessary for analysis. The adoption of this standard is likely to result in an increase in the allowance for loan and lease losses as a result of changing from an “incurred loss” model to an “expected loss” model. While we currently cannot reasonably estimate the impact of adopting this standard, we expect the 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.   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 is effective for the Company on January 1, 2023 and adoption of the standard is being evaluated to assess the impact on the Company’s condensed 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 SOFR. The guidance was effective upon issuance and generally can be applied through December 31, 2022. The Company is currently evaluating this guidance to determine the date of adoption and the potential impact.   - 26 - Table of Contents EAGLE BANCORP MONTANA, INC. AND SUBSIDIARIES MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS       Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations   Overview     The Company’s primary business activity is the ownership of its wholly owned subsidiary, Opportunity Bank of Montana (the “Bank”). The Bank is a Montana chartered commercial bank that focuses on both consumer and commercial lending. It engages in typical banking activities: acquiring deposits from local markets and originating loans and investing in securities. The Bank’s primary component of earnings is its net interest margin (also called spread or margin), the difference between interest income and interest expense. The net interest margin is managed by management (through the pricing of its products and by the types of products offered and kept in portfolio), and is affected by changes in market interest rates. The Bank also generates noninterest income in the form of fee income and gain on sale of loans.   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 its portfolio, both real estate and non-real estate. We have made significant progress in this initiative. The purpose of this diversification is to mitigate the Bank’s 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 now maintains a significant loan serviced portfolio which provides a steady source of fee income. 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 deposits do not automatically reprice as interest rates rise. 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.   Management continues to focus on improving the Bank’s earnings. Management believes the Bank needs to continue to concentrate on increasing net interest margin, other areas of fee income and control of operating expenses to achieve earnings growth going forward. Management’s strategy of growing the loan portfolio and deposit base is expected to help achieve these goals as follows: loans typically earn higher rates of return than investments; a larger deposit base should yield higher fee income; increasing the asset base will reduce the relative impact of fixed operating costs. The biggest challenge to the strategy is funding the growth of the statement of financial condition in an efficient manner. 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.   The level and movement of interest rates impacts the Bank’s earnings as well. The Federal Open Market Committee changed the federal funds target rate from 1.75% to 0.25% during the year ended December 31, 2020. The rate remained at 0.25% dur ing the nine months ended September 30, 2021. The rate reductions add continued pressure on loan yields.   Recent Events   Low-Income Housing Tax Credit Projects   During 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. During the three months ended September 30, 2021, OHF made initial investments in two LIHTC projects. Investments in LIHTC projects are included in other assets on the statement of financial condition and totaled $935,000 as of September 30, 2021.   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 $6.28 million, including fees and expenses related to the Tender Offer. Therefore, the total price including fees and expenses was $25.12 per share.   The Company sold 251,256 shares of common stock to the Employee Stock Ownership Plan ("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 $6.00 million. The loan has a ten-year term and bears interest at 3.00%. The shares held by the ESOP will be used for allocations to employees of the Company over a ten-year period.    COVID-19    The Company’s performance for the third quarter of 2021 extended the momentum from the previous quarters of 2021, generating solid earnings supported by net interest income growth and higher loan production. However, the Company  continues to see the impact of the COVID-19 pandemic and its consequences on our Montana communities. The Bank remains focused on supporting our customers, communities and employees while prudently managing risk. The Bank is also still closely monitoring borrowers and businesses serviced and is pro viding debt service relief for those that have been impacted.   - 27 - Table of Contents EAGLE BANCORP MONTANA, INC. AND SUBSIDIARIES MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS   Recent Events – continued   COVID-19 – continued   On March 27, 2020, Congress passed the Coronavirus Aid , Relief, and Economic Security Act (“CARES Act”) providing economic relief for the country, including the $349 billion Small Business Administration (“SBA”) Paycheck Protection Program (“PPP”) to fund short-term loans for small businesses. In April 2020, additional funding was approved for the PPP. Eagle began taking loan applications from its small business clients immediately after the program was implemented, and as of the close of the program, had helped 764 borrowers receive $45.71 million in SBA PPP loans.  The Bank has processed applications for PPP loan forgiveness for customers, with  748 loans representing $45.21 million now paid in full. The remaining 16 PPP loans represent $496,000.   On December 27, 2020, the Consolidated Appropriations Act (“CAA”) was signed into law, providing new COVID-19 stimulus relief, and it included $284 billion allocated for another round of PPP lending, extending the program to March 31, 2021. On March 31, 2021, the program was extended to May 31, 2021. The program offered new PPP loans for companies that did not receive a PPP loan in 2020, and also “second draw” loans targeted at hard-hit businesses that have already spent their initial PPP proceeds. As of the close of the program, Eagle supported 646 borrowers in receiving $19.51 million in new PPP funding. The Bank has processed applications for PPP loan forgiveness for customers, with  389 loans representing $11.26 million now paid in full. The remaining 257 PPP loans represent $8.25 million.   While all industries have and may continue to experience adverse impacts as a result of the COVID-19 pandemic, we had exposures in the following impacted industries, as a percentage of gross loans excluding loans held-for-sale and PPP loans as of September 30, 2021: hotels and lodging (5.4%), health and social assistance (3.8%), bars and restaurants (2.8%), casinos (0.9%) and nursing homes (0.5%). The Bank continues to reach out to specific borrowers to assess the risks and understand their needs.    The Bank has offered multiple accommodation options to its clients, including 90-day deferrals, forbearances and interest only payments. In addition, the Montana Board of Investments ("MBOI") offered 12-months of interest payment assistance to qualified borrowers. As of September 30, 2021, remaining  loan modifications for five  nonresidential borrowers represented $98,000 in loans, or 0.01% o f gross loans excluding loans held-for-sale, compared to 40 borrowers representing $29.00 million, or 3.5% of gross loans excluding loans held-for-sale, as of December 31, 2020. The Bank qualified approximately 32 borrowers for the MBOI program representing $27.25 million in loans, of which all have aged out of the program as of September 30, 2021. Only one loan in the hotel and lodging industry was approved in the MBOI loan program and was considered a troubled debt restructured (“TDR”) loan as of December 31, 2020, prior to aging out of the program. No other loans that had been modified related to COVID-19 were reported as TDR’s due to the CARES Act exemption. As of September 30, 2021, there remain approximately 11 forbearances approved for residential mortgage loans, of which all are sold and serviced. Utilization of credit lines were 76.4% at September 30, 2021 compared to 82.7% at December 31, 2020, which has declined slightly compared with historical usage rates.   Our fee income could still be reduced due to COVID-19. In keeping with guidance from regulators, we are actively working with COVID-19 affected customers to waive fees from a variety of sources, such as, but not limited to, insufficient funds and overdraft fees, early withdrawal fees, ATM fees, account maintenance fees, etc. These reductions in fees are thought, at this time, to be temporary in conjunction with the length of the expected COVID-19 related economic crisis. At this time, we are unable to project the materiality of such an impact, but recognize the breadth of the economic impact is likely to impact our fee income in future periods.   As of September 30, 2021, our capital ratios were in excess of all regulatory requirements. While we believe that we have sufficient capital to withstand an extended economic recession brought about by COVID-19, our reported and regulatory capital ratios could be adversely impacted by further credit losses. We rely on cash on hand as well as dividends from our subsidiary Bank to service our debt. If our capital deteriorates such that our subsidiary Bank is unable to pay dividends to us for an extended period of time, we may not be able to service our debt.   While certain valuation assumptions and judgments will change to account for pandemic-related circumstances such as widening credit spreads, we do not anticipate significant changes in methodology used to determine the fair value of assets measured in accordance with GAAP.   As of December 31, 2020, our goodwill was not impaired. COVID-19 could cause a decline in our stock price or the occurrence of what management would deem to be a triggering event that could, under certain circumstances, cause us to perform a goodwill impairment test and result in an impairment charge being recorded for that period. In the event that we conclude that all or a portion of our goodwill is impaired, a noncash charge for the amount of such impairment would be recorded to earnings. Such a charge would have no impact on tangible capital or regulatory capital. As of September 30, 2021  we had goodwill of $20.80  million.   The State of Montana ended their phased approach to reopening and lifted the state-wide mask mandate on February 12, 2021. On March 22, 2021, all of our lobbies opened while still requiring everyone to practice necessary safeguards. As of May 7, 2021, masks were no longer required for the Bank's branches, customers or vendors. The Company remains committed to assisting our customers and communities as the vaccine rollout continues and COVID-19 restrictions lift in Montana. Management is encouraging its employees to receive the COVID-19 vaccine.   Acquisitions   The Bank has used growth through mergers or acquisition in addition to its strategy of organic growth. 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.   On October 1, 2021, Eagle announced that it had reached an agreement to acquire First Community Bancorp, Inc., a Montana corporation (“FCB”) and its wholly-owned subsidiary, First Community Bank, a Montana chartered commercial bank. The agreement provides that, upon the terms and subject to the conditions set forth in the agreement, FCB will merge with and into Eagle, with Eagle continuing as the surviving corporation. Upon completion of the transaction, Eagle will have an additional $374 million of assets, $307 million of deposits and $220 million in gross loans, based on June 30, 2021 information. Headquartered in Glasgow, Montana, FCB currently operates nine branches and two mortgage loan production offices. The transaction is subject to the approvals of bank regulatory agencies, the shareholders of Eagle and FCB and other customary closing conditions. The acquisition is expected to close during the fourth quarter of 2021.   - 28 - Table of Contents EAGLE BANCORP MONTANA, INC. AND SUBSIDIARIES MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS   Financial Condition   Comparisons of financial condition in this section are between September 30, 2021 and December 31, 2020.   Total assets were $1.41 billion at September 30, 2021, an increase o f $149.29 m illion, or 11.9% f rom $1.26 billion at December 31, 2020.  S ecurities available-for-sal e increased by $77.08 million from December 31, 2020. Loans receivable, net increased by $43.21   million from December 31, 2020.  In addition, interest-bearing deposits in banks increased $23.88 million from December 31, 2020. To tal liabilities were $1.25 billion at September 30, 2021, an increase of $145.70 million, or 13.2%, from $1.10 billion at December 31, 2020. The increase was largely due to an increase in deposits, partially offset by a reduction in FHLB advances and other borrowings. Total deposi ts increased by $161.47 million from December 31, 2020. However , FHLB advances and other borrowings decreased $12.07  million from December 31, 2020. Total shareholders’ equity increased  b y $3.58 million or 2.3% fr om December 31, 2020.   Financial Condition Details   Investment Activities   The following table summarizes investment activities:       September 30,     December 31,       2021     2020       Fair Value     Percentage of Total     Fair Value     Percentage of Total       (Dollars in Thousands)   Securities available-for-sale:                                 U.S. government obligations   $ 1,768       0.74 %   $ 2,245       1.38 % U.S. treasury obligations     33,751       14.06       5,657       3.47   Municipal obligations     118,861       49.53       99,088       60.81   Corporate obligations     10,716       4.46       10,663       6.54   Mortgage-backed securities     15,700       6.54       7,669       4.71   Collateralized mortgage obligations     53,322       22.21       31,189       19.14   Asset-backed securities     5,915       2.46       6,435       3.95   Total securities available-for-sale   $ 240,033       100.00 %   $ 162,946       100.00 %   Securities available-for-sale were $240.03 million at September 30, 2021, a n increase of $77.08 million, or 47.3%, from $162.95 million at December 31, 2020. The increase was largely driven by purchase activity due to excess liquidity levels.   - 29 - Table of Contents EAGLE BANCORP MONTANA, INC. AND SUBSIDIARIES MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS   Financial Condition – continued   Lending Activities   The following table includes the composition of the Bank’s loan portfolio by loan category:       September 30,     December 31,       2021     2020       Amount     Percent of Total     Amount     Percent of Total       (Dollars in thousands)   Real estate loans:                                 Residential 1-4 family (1)   $ 99,447       11.21 %   $ 110,802       13.14 % Residential 1-4 family construction     43,474       4.90       46,290       5.49   Total residential 1-4 family     142,921       16.11       157,092       18.63                                     Commercial real estate     380,071       42.85       316,668       37.56   Commercial construction and development     78,058       8.80       65,281       7.74   Farmland     64,824       7.31       65,918       7.82   Total commercial real estate     522,953       58.96       447,867       53.12                                     Total real estate loans     665,874       75.07       604,959       71.75                                     Other loans:                                 Home equity     52,990       5.97       56,563       6.71   Consumer     18,940       2.14       20,168       2.39                                     Commercial     95,554       10.77       109,209       12.95   Agricultural     53,645       6.05       52,242       6.20   Total commercial loans     149,199       16.82       161,451       19.15                                     Total other loans     221,129       24.93       238,182       28.25                                     Total loans     887,003       100.00 %     843,141       100.00 %                                   Deferred loan fees     (2,098 )             (2,038 )         Allowance for loan losses     (12,200 )             (11,600 )         Total loans, net   $ 872,705             $ 829,503               (1)  Excludes loans held-for-sale.   Loans receivable, ne t increased  $43.21 million, or 5.2%, to $872.71 million at September 30, 2021 from $829.50 million at December 31, 2020. The increase was impacted by an increase in total commercial real estate loa ns of  $75.08 million. However, this was partially offset by decreases in total residential loans of  $14.17  million, t otal commercial loans of $12.25 million, home equity loans of $3.57 million an d consumer loans of $1.23 million.   Total loan originations were $1.15 billion for the nine months ended September 30, 2021. Total residential 1-4 family originations were $877.07 million, which includes $814.86 million of loans held-for-sale originations. Total commercial real estate originations were $175.99 million. Total commercial originations were $77.12 million whic h includes $19.51 million of SBA PPP loans.  Home equity loan originations totaled $16.57 million. Consumer loan originations totaled $6.63 million. Loans held-for-sal e decreased by $12.56 million to $42.06 million at September 30, 2021 from $54.62 million at December 31, 2020.   Generally, our collection procedures provide that when a loan is 15 or more days delinquent, the borrower is sent a past due notice. If the loan becomes 30 days delinquent, the borrower is sent a written delinquency notice requiring payment. If the delinquency continues, subsequent efforts are made to contact the delinquent borrower, including face to face meetings and counseling to resolve the delinquency. All collection actions are undertaken with the objective of compliance with the Fair Debt Collection Act.   For mortgage loans and home equity loans, if the borrower is unable to cure the delinquency or reach a payment agreement, we will institute foreclosure actions. If a foreclosure action is taken and the loan is not reinstated, paid in full or refinanced, the property is sold at judicial sale at which we may be the buyer if there are no adequate offers to satisfy the debt. Any property acquired as the result of foreclosure, or by deed in lieu of foreclosure, is classified as real estate owned until such time as it is sold or otherwise disposed of. When real estate owned is acquired, it is recorded at its fair market value less estimated selling costs. The initial recording of any loss is charged to the allowance for loan losses. Subsequent write-downs are recorded as a charge to operations. As of September 30, 2021  there was $117,000 of real estate owned and other repossessed property. A s of December 31, 2020, there was $25,000 of real estate owned and other repossessed property.   The State of Montana placed a freeze on foreclosures on March 28, 2020. Subsequently it released the freeze effective May 24, 2020 with the exception of continued protection for those individuals deemed vulnerable to the coronavirus. The Federal foreclosure moratorium that began March 18, 2020 was extended to June 30, 202 1. However, the Bank has had minimal impact due to foreclosures affected by these freezes.    - 30 - Table of Contents EAGLE BANCORP MONTANA, INC. AND SUBSIDIARIES MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS   Financial Condition – continued   Lending Activities– continued   The following table sets forth information regarding nonperforming assets:       September 30,     December 31,       2021     2020       (Dollars in Thousands)   Nonaccrual loans                 Real estate loans:                 Residential 1-4 family   $ 785     $ 684   Residential 1-4 family construction     337       337   Commercial real estate     507       631   Commercial construction and development     -       36   Farmland     1,812       2,245   Other loans:                 Home equity     106       94   Consumer     78       151   Commercial     534       537   Agricultural     1,498       1,542   Accruing loans delinquent 90 days or more                 Real estate loans:                 Residential 1-4 family     -       34   Residential 1-4 family construction     -       170   Other loans:                 Commercial     34       6   Agricultural     -       182   Restructured loans:                 Real estate loans:                 Commercial real estate     1,561       1,633   Commercial construction and development     -       14   Farmland     461       -   Other loans:                 Home equity     15       17   Agricultural     79       160   Total nonperforming loans     7,807       8,473   Real estate owned and other repossessed property, net     117       25   Total nonperforming assets   $ 7,924     $ 8,498                     Total nonperforming loans to total loans     0.88 %     1.00 % Total nonperforming loans to total assets     0.55 %     0.67 % Total allowance for loan loss to nonperforming loans     156.27 %     136.91 % Total nonperforming assets to total assets     0.56 %     0.68 %   Nonaccrual loans as of September 30, 2021 and December 31, 2020 include $782,000 a nd $1.28 million, respectively of acquired loans that deteriorated subsequent to the acquisition date.    As of September 30, 2021, loan modifications for five borrowers represented $98,000 in loans compared to 40 borrowers representing $29.00 million as of December 31, 2020. As of September 30, 2021 there are approximately 11 forbearances remaining for residential mortgage loans, of which 11 are sold and serviced.     - 31 - Table of Contents EAGLE BANCORP MONTANA, INC. AND SUBSIDIARIES MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS   Financial Condition – continued   Deposits and Other Sources of Funds   The following table includes deposit accounts by category:       September 30,     December 31,       2021     2020               Percent             Percent       Amount     of Total     Amount     of Total       (Dollars in Thousands)   Noninterest checking   $ 367,127       30.73 %   $ 318,389       30.82 % Interest-bearing checking     198,130       16.59       160,614       15.55   Savings     213,895       17.91       179,868       17.41   Money market     261,866       21.92       202,407       19.59   Total     1,041,018       87.15       861,278       83.37   Certificates of deposit accounts:                                 IRA certificates     25,601       2.14       24,693       2.39   Brokered certificates     -       0.00       495       0.05   Other certificates     127,930       10.71       146,617       14.19   Total certificates of deposit     153,531       12.85       171,805       16.63   Total deposits   $ 1,194,549       100.00 %   $ 1,033,083       100.00 %   Depos its increased by $161.47 m illion, or 15.6% , to $1.19 billion at September 30, 2021 from $1.03 billion at December 31, 2020. Money marke t increased by $59.46 million, noninterest checki ng increased by $48.74 million, interest-bearing checki ng increased by $37.52 million, and saving s increased by $34.03 m illion. However, certificates of deposi t decreased b y $18.27 million.  The decrease in time certificates of deposit was driven by a decrease in other certificates of  $18.69  million. Due to the continued low interest rate environment, some depositors have been compelled to move funds from other certificates to non-maturity deposits upon maturity.   The following table summarizes borrowing activity:       September 30,     December 31,       2021     2020       Net     Percent     Net     Percent       Amount     of Total     Amount     of Total       (Dollars in Thousands)   FHLB advances and other borrowings   $ 5,000       14.35 %   $ 17,070       36.43 % Other long-term debt:                                 Senior notes fixed at 5.75%, due 2022     9,985       28.65       9,952       21.23   Subordinated debentures fixed at 5.50% to floating, due 2030     14,710       42.21       14,684       31.34   Subordinated debentures variable, due 2035     5,155       14.79       5,155       11.00   Total other long-term debt     29,850       85.65       29,791       63.57   Total borrowings   $ 34,850       100.00 %   $ 46,861       100.00 %   Total borrowings decreased by $12.01 million, or 25.6% to $34.85 m illion at September 30, 2021 from $46.86 million at Dece mber 31, 2020. This decrease is largely due to a decrease in FHLB advances and other borrowings of  $12.07  million due to maturities.      Shareholders’ Equity   Total shareholders’ equit y increased slightly by $3.58  million, or 2.3%, to $156.52 million at September 30, 2021 from $152.94 million at December 31, 2020 . The increase was impacted by net income of $12.69 million. This increase was partially offset due to treasury stock purchased through the tender offer for $6.28 million, dividends paid of $2.17 million and other comprehensive loss of $1.35 million.    - 32 - Table of Contents EAGLE BANCORP MONTANA, INC. AND SUBSIDIARIES MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS   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 financial condition items, as well as, interest and dividends and average yields related to the average balances. All average balances are daily average balances. Nonaccrual loans were included in the computation of average balances, but have been reflected in the table as loans carrying a zero yield. The yields include the effect of deferred fees and discounts and premiums that are amortized or accreted to interest income or expense.        Three Months Ended September 30,       2021     2020       Average     Interest             Average     Interest               Daily     and     Yield/     Daily     and     Yield/       Balance     Dividends     Cost(4)     Balance     Dividends     Cost(4)       (Dollars in Thousands)   Assets:                                                 Interest-earning assets:                                                 Securities available-for-sale   $ 233,882     $ 1,094       1.86 %   $ 163,102     $ 874       2.13 % FHLB and FRB stock     4,812       62       5.11       6,299       95       5.98   Loans receivable (1)     926,748       11,619       4.97       902,543       11,340       4.98   Other earning assets     68,058       32       0.19       43,662       30       0.27   Total interest-earning assets     1,233,500       12,807       4.12       1,115,606       12,339       4.39   Noninterest-earning assets     148,686                       129,312                   Total assets   $ 1,382,186                     $ 1,244,918                                                                     Liabilities and equity:                                                 Interest-bearing liabilities:                                                 Deposit accounts:                                                 Checking   $ 197,245     $ 12       0.02 %   $ 157,542     $ 13       0.03 % Savings     204,223       30       0.06       160,118       33       0.08   Money market     254,019       146       0.23       176,276       102       0.23   Certificates of deposit     155,006       162       0.41       200,527       631       1.25   Advances from FHLB and other borrowings including long-term debt     38,022       426       4.45       108,427       782       2.86   Total interest-bearing liabilities     848,515       776       0.36       802,890       1,561       0.77   Noninterest checking     353,486                       276,580                   Other noninterest-bearing liabilities     23,107                       21,840                   Total liabilities     1,225,108                       1,101,310                                                                     Total equity     157,078                       143,608                                                                     Total liabilities and equity   $ 1,382,186                     $ 1,244,918                   Net interest income/interest rate spread (2)           $ 12,031       3.76 %           $ 10,778       3.62 %                                                   Net interest margin (3)                     3.87 %                     3.83 % Total interest-earning assets to interest-bearing liabilities                     145.37 %                     138.95 %   (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.   - 33 - Table of Contents EAGLE BANCORP MONTANA, INC. AND SUBSIDIARIES MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS   Analysis of Net Interest Income – continued       For the Nine Months Ended September 30,       2021     2020       Average     Interest             Average     Interest               Daily     and     Yield/     Daily     and     Yield/       Balance     Dividends     Cost(4)     Balance     Dividends     Cost(4)       (Dollars in Thousands)   Assets:                                                 Interest-earning assets:                                                 Securities available-for-sale   $ 200,392     $ 2,989       1.99 %   $ 168,170     $ 2,853       2.26 % FHLB and FRB stock     4,880       194       5.32       6,934       284       5.46   Loans receivable (1)     905,478       33,660       4.97       870,114       33,832       5.18   Other earning assets     77,264       90       0.16       34,309       134       0.52   Total interest-earning assets     1,188,014       36,933       4.16       1,079,527       37,103       4.58 % Noninterest-earning assets     143,974                       124,192                   Total assets   $ 1,331,988                     $ 1,203,719                                                                     Liabilities and equity:                                                 Interest-bearing liabilities:                                                 Deposit accounts:                                                 Checking   $ 185,496     $ 34       0.02 %   $ 147,054     $ 47       0.04 % Savings     193,943       86       0.06       149,129       118       0.11   Money market     234,188       381       0.22       160,477       362       0.30   Certificates of deposit     161,521       617       0.51       224,251       2,536       1.51   Advances from FHLB and other borrowings including long-term debt     40,703       1,320       4.34       115,861       2,362       2.72   Total interest-bearing liabilities     815,851       2,438       0.40       796,772       5,425       0.91 % Noninterest checking     337,961                       250,132                   Other noninterest-bearing liabilities     21,560                       18,935                   Total liabilities     1,175,372                       1,065,839                                                                     Total equity     156,616                       137,880                                                                     Total liabilities and equity   $ 1,331,988                     $ 1,203,719                   Net interest income/interest rate spread (2)           $ 34,495       3.76 %           $ 31,678       3.67 %                                                   Net interest margin (3)                     3.88 %                     3.91 % Total interest-earning assets to interest-bearing liabilities                     145.62 %                     135.49 %   - 34 - Table of Contents EAGLE BANCORP MONTANA, INC. AND SUBSIDIARIES MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS   Rate/Volume Analysis   The following tables present 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.       Three Months Ended September 30,       2021     2020               Due to                     Due to               Volume     Rate     Net     Volume     Rate     Net       (In Thousands)   Interest-earning assets:                                                 Securities available-for-sale   $ 379     $ (159 )   $ 220     $ 191     $ (233 )   $ (42 ) FHLB and FRB stock     (22 )     (11 )     (33 )     (24 )     12       (12 ) Loans receivable (1)     304       (25 )     279       1,690       (1,081 )     609   Other earning assets     17       (15 )     2       179       (168 )     11   Total interest-earning assets     678       (210 )     468       2,036       (1,470 )     566                                                     Interest-bearing liabilities:                                                 Checking, savings and money market accounts     57       (17 )     40       61       (57 )     4   Certificates of deposit     (143 )     (326 )     (469 )     (52 )     (195 )     (247 ) Advances from FHLB and other borrowings including long-term debt     (508 )     152       (356 )     (215 )     (55 )     (270 ) Total interest-bearing liabilities     (594 )     (191 )     (785 )     (206 )     (307 )     (513 )                                                   Change in net interest income   $ 1,272     $ (19 )   $ 1,253     $ 2,242     $ (1,163 )   $ 1,079         Nine Months Ended September 30,       2021     2020               Due to                     Due to               Volume     Rate     Net     Volume     Rate     Net       (In Thousands)   Interest earning assets:                                                 Securities available-for-sale   $ 547     $ (411 )   $ 136     $ 624     $ (573 )   $ 51   FHLB and FRB stock     (84 )     (6 )     (90 )     (25 )     12       (13 ) Loans receivable (1)     1,374       (1,546 )     (172 )     4,854       (2,400 )     2,454   Other earning assets     168       (212 )     (44 )     419       (340 )     79   Total interest earning assets     2,005       (2,175 )     (170 )     5,872       (3,301 )     2,571                                                     Interest bearing liabilities:                                                 Savings, money market and checking accounts     214       (240 )     (26 )     121       7       128   Certificates of deposit     (710 )     (1,209 )     (1,919 )     214       (12 )     202   Advances from FHLB and other borrowings including long-term debt     (1,532 )     490       (1,042 )     (351 )     (318 )     (669 ) Total interest bearing liabilities     (2,028 )     (959 )     (2,987 )     (16 )     (323 )     (339 )                                                   Change in net interest income   $ 4,033     $ (1,216 )   $ 2,817     $ 5,888     $ (2,978 )   $ 2,910     (1)  Includes loans held-for-sale.   - 35 - Table of Contents EAGLE BANCORP MONTANA, INC. AND SUBSIDIARIES MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS   Results of Operations for the Three Months Ended September 30, 2021 and 2020   Net Income. Eagle’s net income for the three months ended September 30, 2021 was $4.75 million compared to $6.38 million for the three months ended September 30, 2020. The decrease of $1.63 million was largely due to an increase in noninterest expense of $2.45 million and a decrease in noninterest income of $1.62 million. These changes were partially offset by an increase in net interest income after loan loss provision of $1.86 million and a decrease in provision for income taxes of $587,000. Basic and diluted earnings per share were both $0.73 for the current period. Basic and diluted earnings per share were both $0.94 for the prior year comparable period.   Net Interest Income. Net interest inco me increased t o $12.03 million for the three months ended September 30, 2021, from $10.78 million for the same quarter in the prior year . The  increase of $1.25 million, or 11.6%, was the result of a decrease in interest expense of $785,000 and an increase in interest and dividend income of $468,000.   Interest and Dividend Income. Interest and dividend income was $12.81 million for the three months ended September 30, 2021 compared to $12.34 million for the three months ended September 30, 2020. Interest and fees on loa ns in creased slightly to $11.62 million for the three months ended September 30, 2021 from $11.34 million for the three months ended September 30, 2020. This increase of $279,000, or 2.5%, was largely due to an increase in the average balance of loans for the quarter ended September 30, 2021. Average balances for loans receivable, including loans held-for-sale, for the three months ended September 30, 2021 were $926.75 million, compared to $902.54 million for the prior year period. This represents an increase of $24.21 million, or 2.7%. The average interest rate earned on loans receivable decreased slightly by 1 basis point, from 4.98% for the three months ended September 30, 2020 to 4.97% for the current period. Interest accretion on purchased loans was $94,000 for the three months ended September 30, 2021 which resulted in a 3 basis point increase in net interest margin compared to $468,000 for the three months ended September 30, 2020 which resulted in a 17 basis point increase in net interest margin. Interest on investment securities available-for-sale increased by $220,000, or 25.2% period over period. Average balances for investments increased to $233.88 million for the three months ended September 30, 2021, from $163.10 million for the three months ended September 30, 2020. Investments have increased in the current period due to excess liquidity. However, average interest rates earned on investments decreased to 1.86% for the three months ended September 30, 2021 from 2.13% for the three months ended September 30, 2020.   Interest Expense. Total interest expense was $776,000 for the three months ended September 30, 2021 compared to $1.56 million for the three months ended September 30, 2020. The decrease of $785,000, or 50.3%, was due to a decrease in interest expense on deposits of $429,000, as well as a net decrease in interest expense on total borrowings of $356,000. The overall average rate on total deposits was 0.12% for the three months ended September 30, 2021 compared to 0.32% for the three months ended September 30, 2020. However, the average balance for total deposits was $1.16 billion for three months ended September 30, 2021 compared to $971.04 million for the three months ended September 30, 2020. Deposit balances have been impacted by PPP funding and economic stimulus. Due to the continued low interest rate environment though, some depositors have moved funds from certificates of deposit to other non-maturity deposit accounts that earn lower yields. The average balance for total borrowings decreased from $108.43 million for the three months ended September 30, 2020 to $38.02 million for the three months ended September 30, 2021 due to increased liquidity levels. However, the average rate paid on total borrowings increased from 2.86% for the three months ended September 30, 2020, to 4.45% for the three months ended September 30, 2021. The increase in the average rate paid is 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 p olicies 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 $255,000  in loan loss provisions for the three months ended September 30, 2021. Management made the decision that due to the strength of the local economy, in conjunction with loan activity, no additional loan loss provision was necessary in the three months ended September 30, 2021 when considering the COVID-19 pandemic. Loan loss provisions were $854,000 for the three months ended September 30, 2020, which included $404,000 related to the potential impact of Covid-19. Management believes the level of total allowances is adequate to cover estimated losses inherent in the portfolio. However, if the economic forecast worsens relative to the assumptions we utilized, our allowance for credit losses will increase accordingly in future periods.   Noninterest Income. Total noninterest income was $13.35 million for the three months ended September 30, 2021, compared to $14.97 million for the three months ended September 30, 2020 . The decrease of $1.62 million was primarily driven by a decrease in mortgage banking, net of $1.64 million. Mortgage banking, net includes net gain on sale of mortgage loans which increased $402,000 compared to the same period in the prior year. During the three months ended September 30, 2021, $270.84 million residential mortgage loans were sold compared to $266.76 million in the same period in the prior year. Mortgage banking, net also includes the impact of changes in fair value of loans held-for-sale and derivatives. The net change in fair value of loans held-for-sale and derivatives was a loss of $35,000 for the three months ended September 30, 2021 compared to a gain of $2.24 million for the same period in the prior year.    Noninterest Expense. Noninterest expense was $18.80 million for the three months ended September 30, 2021 compared to $16.35 million for the three months ended September 30, 2020. The increase of $2.45 million, or 15.0%, was impacted by an increase in salaries and employee benefits expense of $937,000 due to increased staff levels.     Provision for Income Taxes . Provision for income taxes was $1.58 million for the three months ended September 30, 2021, compared to $2.17 million for the three months ended September 30, 2020 due to decreased income before provision for income taxes. The effective tax rate for the three months ended September 30, 2021 was 25.0% compared to 25.4% for the three months ended September 30, 2020.   - 36 - Table of Contents EAGLE BANCORP MONTANA, INC. AND SUBSIDIARIES MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS   Results of Operations for the Nine Months Ended September 30, 2021 and 2020   Net Income. Eagle’s net income for the  nine months ended September 30, 2021 was  $12.69 million compared to  $16.04 million for the nine months ended September 30, 2020 . The decrease of $3.35 million was impacted by an increase in noninterest expense of $10.72 million. This increase was partially offset by an increase in net interest income after loan loss provision of $4.99 million, an increase in noninterest income of $1.08 million and decrease in provision for income taxes of $1.30 million. Basic and diluted earnings per share were $1.90 and $1.89 for the current period, respectively. Basic earnings per share was $2.36 and diluted earnings per share was $2.35 for the prior period.   Net Interest Income. Net interest income increased to $34.50 million for the nine months ended September 30, 2021, from $31.68 million for the same period in the prior year. The increase of $2.82 million, or 8.9%, was primarily the result of a decrease in interest expense of $2.99 million.   Interest and Dividend Income. Interest and dividend income was $36.93 million for the nine months ended September 30, 2021, compared to $37.10 million for the nine months ended September 30, 2020, a decrease of $170,000. Interest and fees on loans decreased to $33.66 million for the nine months ended September 30, 2021 from $33.83 million for the nine months ended September 30, 2020. This slight decrease of $172,000, or 0.5%, was due to a decrease in the average yield of loans, largely offset by an increase in the average balance of loans. The average interest rate earned on loans receivable decreased by 21 basis points, from 5.18% to 4.97%. Interest accretion on purchased loans was $408,000 for the nine months ended September 30, 2021 which resulted in a 4 basis point increase in net interest margin compared to $1.38 million for the nine months ended September 30, 2020 which resulted in a 17 basis point increase in net interest margin. Average balances for loans receivable, including loans held-for-sale, for the nine months ended September 30, 2021 were $905.48 million, compared to $870.11 million for the prior year period. This represents an increase of $35.37 million, or 4.1% and was impacted by organic growth and PPP funding. Interest on investment securities available-for-sale increased by $136,000, or 4.8% period over period. Average balances for investments increased to $200.39 million for the nine months ended September 30, 2021, from $168.17 million for the nine months ended September 30, 2020. Investments have increased in the current period due to excess liquidity. However, average interest rates earned on investments decreased to 1.99% for the nine months ended September 30, 2021 from 2.26% for the nine months ended September 30, 2020.   Interest Expense. Total interest expense was $2.44 million for the nine months ended September 30, 2021 compared to $5.43 million for the nine months ended September 30, 2020. The decrease of $2.99 million, or 55.1%, was due to a decrease of $1.94 million in interest expense on deposits and a net decrease of $1.05 million in interest expense on total borrowings. The overall average rate on total deposits was 0.13% for the nine months ended September 30, 2021 compared to 0.44% for the nine months ended September 30, 2020. However, the average balance for total deposits was $1.11 billion for nine months ended September 30, 2021 compared to $931.04 million for the nine months ended September 30, 2020. This increase was impacted by PPP funding and economic stimulus. Due to the continued low interest rate environment though, some depositors have moved funds from certificates of deposit to other non-maturity deposit accounts that earn lower yields. The average balance for total borrowings decreased from $115.86 million for the nine months ended September 30, 2020 to $40.70 million for the nine months ended September 30, 2021. However, the average rate paid on total borrowings increased from 2.72% for the nine months ended September 30, 2020, to 4.34% for the nine months ended September 30, 2021. The increase in the average rate paid is 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 $576,000 in loan loss provisions for the nine months ended September 30, 2021. Management made the decision that due to the strength of the local economy, in conjunction with loan credit quality, no additional loan loss provision was necessary in the nine months ended September 30, 2021 when considering the COVID-19 pandemic. Loan loss provisions were $2.75 million for the nine months ended September 30, 2020, which included $1.40 million related to the potential impact of COVID-19. 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 $7.81 million at September 30, 2021 compared to $8.47 million at December 31, 2020. The Bank had $117,000 in other real estate owned and other repossessed assets at September 30, 2021 compared to $25,000 at December 31, 2020.   Noninterest Income. Total noninterest income was $38.05 million for the nine months ended September 30, 2021, compared to $36.97 million for the nine months ended September 30, 2020. The increase of $1.08 million, or 2.9%, is largely due to an increase in mortgage banking, net of $1.76 million for the nine months ended September 30, 2021. Mortgage banking, net includes net gain on sale of mortgage loans which increased $11.83 million compared to the same period in the prior year. During the nine months ended September 30, 2021, $823.41 million residential mortgage loans were sold compared to $621.11 million in the same period in the prior year. In addition, gross margin on sale of mortgage loans for the nine months ended September 30, 2021 was 4.40% compared to 3.93% for the nine months ended September 30, 2020. Mortgage banking, net also includes the impact of changes fair value of loans held-for-sale and derivatives. The net change in fair value of loans held-for-sale and derivatives was a loss of $3.00 million for the nine months ended September 30, 2021 compared to a gain of $7.32 million for the same period in the prior year. The prior period also included a gain on sale of available-for-sale securities of $1.07 million compared to $11,000 in the current period.    Noninterest Expense. Noninterest expense was $55.05 million for the nine months ended September 30, 2021 compared to $44.33 million for the nine months ended September 30, 2020. Th e increase of  $10.72 million, or 24.2%, was largely driven by increased salaries and employee benefits expense of $8.82 million. The increase in salaries expense is due in part to higher commission-based compensation related to mortgage loan growth, as well as overall increased staff levels. In addition, occupancy and equipment expense increased $1.07 million due to office expansion and the corresponding depreciation and amortization expense, as well as utilization and maintenance costs.    Provision for Income Taxes. Provision for income taxes was $4.23 million for the nine months ended September 30, 2021, compared to $5.53 million for the nine months ended September 30, 2020 due t o decreased income before provision for income taxes. The effective tax rate for the nine months ended September 30, 2021 was 25.0% compared to 25.6% for the nine months ended September 30, 2020.   - 37 - Table of Contents EAGLE BANCORP MONTANA, INC. AND SUBSIDIARIES MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS     Liquidity and Capital Resources     Liquidity   The Bank is required to maintain minimum levels of liquid assets as defined by the Montana Division of Banking and FRB regulations. The liquidity requirement is retained for safety and soundness purposes, and that 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 September 30, 2021 and December 31, 2020.   The Bank’s primary sources of funds are deposits, repayment of loans and mortgage-backed securities, maturities of investments, funds provided from operations, advances from the FHLB of Des Moines and other borrowings. Scheduled repayments of loans and mortgage-backed securities and maturities of investment securities are generally predictable. However, other sources of funds, such as deposit flows and loan prepayments, can be greatly influenced by the general level of interest rates, economic conditions and competition. The Bank 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, and 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.   Through the nine months ended September 30, 2021 , liquidity levels remained strong, as a result of PPP loan payoffs and deposit growth. A portion of the excess funds was deployed into investment securities.    Capital Resources   As of September 30, 2021, the Bank’s internally determined measurement of sensitivity to interest rate movements as measured by a 200 basis point rise in interest rates scenario, increased the economic value of equity (“EVE”) by 25.6 % c ompared to an increase of 15.0% at December 31, 2020. The Bank is within the guidelines set forth by the Board of Directors for interest rate risk sensitivity in rising interest rate scenarios.   The Bank’s regulatory capital was in excess of all applicable regulatory requirements and the Bank is deemed "well capitalized" pursuant to State of Montana and FRB rules as of September 30, 2021. The Bank's Tier I leverage ratio decreased slightly from 11.72% as of December 31, 2020 to  11.25% as of September 30, 2021, compared to a regulatory requirement of 4.00%. The Bank’s total capital, Tier 1 capital and common equity Tier 1 capital leverage ratios w ere 15.83%, 14.65% and 14.65% ,  res pectively, compared to regulatory requirements of 10.50%, 8.50% and 7.00%, respectively. All of these ratios with the exception of the Tier 1 leverage ratio include the capital conservation buffer of 2.50%. The Bank’s capital position helps to mitigate its interest rate risk exposure.       September 30, 2021       (Unaudited)       Dollar     % of       Amount     Assets       (Dollars in Thousands)   Total risk-based capital to risk weighted assets:                 Actual capital level   $ 163,492       15.83 % Minimum required for capital adequacy purposes     108,438       10.50   Excess capital   $ 55,054       5.33 %                   Tier I capital to risk weighted assets:                 Actual capital level   $ 151,292       14.65 % Minimum required for capital adequacy purposes     87,783       8.50   Excess capital   $ 63,509       6.15 %                   Common equity tier I capital to risk weighted assets:                 Actual capital level   $ 151,292       14.65 % Minimum required for capital adequacy purposes     72,292       7.00   Excess capital   $ 79,000       7.65 %                   Tier I capital to adjusted total average assets:                 Actual capital level   $ 151,292       11.25 % Minimum required for capital adequacy purposes     53,775       4.00   Excess capital   $ 97,517       7.25 %   - 38 - Table of Contents EAGLE BANCORP MONTANA, INC. AND SUBSIDIARIES MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS     Impact of Inflation and Changing Prices   Our condensed consolidated financial statements and the accompanying notes, which are found in Part I, Item 1, 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 primary source of net income. Net interest income is affected by changes in interest rates, the relationship between rates on interest-bearing assets and 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 in interest rates of up to 200 basis points or by more than 10.0% given an immediate decrease in interest rates of up to 100 basis points.   The following table includes the Bank’s net interest income sensitivity analysis.                 Changes in Market   Rate Sensitivity     Interest Rates   As of September 30, 2021   Policy (Basis Points)   Year 1   Year 2   Limits               +200   6.7%   11.0%   -15.0% -100   -3.0%   -7.8%   -10.0%     - 39 - Table of Contents EAGLE BANCORP MONTANA, INC. AND SUBSIDIARIES Quantitative and Qualitative Disclosures About Market Risk   Item 3. Quantitative and Qualitative Disclosures About Market Risk   This item has been omitted based on Eagle’s status as a smaller reporting company.   - 40 - Table of Contents EAGLE BANCORP MONTANA, INC. AND SUBSIDIARIES CONTROLS AND PROCEDURES   Item 4. Controls and Procedures     As of the end of the period covered by this report, 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, 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 September 30, 2021, our disclosure controls and procedures were effective. During the last quarter, there were no changes in the Company’s internal control over financial reporting that have materially affected, or were reasonably likely to materially affect, the Company’s internal control over financial reporting.     - 41 - Table of Contents EAGLE BANCORP MONTANA, INC. AND SUBSIDIARIES   Part II - OTHER INFORMATION   Item 1. Legal Proceedings.   Neither the Company nor the Bank is involved in any pending legal proceeding other than non-material legal proceedings occurring in the ordinary course of business.   Item 1A. Risk Factors   There have not been any material changes in the risk factors previously disclosed in Part 1, Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2020 and any subsequently filed Quarterly Reports on Form 10-Q.   Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.   Unregistered Sale of Securities   The Company sold 251,256 shares of common stock to the Employee Stock Ownership Plan at a price of $23.88 per share on June 23, 2021 pursuant to the exemption from registration provided by Section 4(a)(2) of the Securities Exchange Act of 1934, as amended. The shares were purchased from Eagle by the ESOP in exchange for a loan totaling $6.00 million. The loan has a ten-year term and bears interest at 3.00%.   Tender Offer   On May 20, 2021, the Company's Board of Directors (the "Board") authorized a modified "Dutch auction" tender offer (the "Tender Offer") to purchase up to $6.00 million of its shares of common stock, at a price not greater than $26.25 per share nor less than $24.00 per share. The Tender Offer expired on June 22, 2021. The Company accepted for purchase 250,000 shares of its common stock at a price of $24.00 per share on June 23, 2021. The aggregate purchase price for the shares purchased in the Tender Offer was approximately $6.28 million, including fees and expenses related to the Tender Offer. Therefore, the total price including fees and expenses was $25.12 per share.   Stock Repurchase Program   On July 22, 2021, Eagle's Board authorized the repurchase of up to 100,000 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. However, no shares were purchased during the third quarter of 2021. The plan expires on July 22, 2022.   On July 23, 2020, Eagle's 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 repurchases 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.   On July 18, 2019, 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 repurchases depended upon market conditions and other corporate considerations. No shares were purchased under this plan during the year ended December 31, 2019 or the first quarter of 2020. However, during the second quarter of 2020, 1,281 shares were purchased at an average price of $16.95 per share. In addition, during the third quarter of 2020, 20,158 shares were purchased at an average price of $15.60 per share. The plan expired on July 18, 2020.   Item 3. Defaults Upon Senior Securities.   Not applicable.   Item 4. Mine Safety Disclosures Not applicable.   - 42 - Table of Contents EAGLE BANCORP MONTANA, INC. AND SUBSIDIARIES   Part II - OTHER INFORMATION - continued       Item 5. Other Information.   None.   Item 6. Exhibits.     Exhibit Number Description     2.1 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).     3.1 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).     3.2 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).     3.3 Bylaws of Eagle Bancorp Montana, Inc., amended as of August 20, 2015 (incorporated by reference to 3.1 of our Current Report on Form 8-K filed on August 25, 2015).     10.1 Salary Continuation Agreement between Opportunity Bank of Montana and Alana Binde (filed herewith).     10.2 Second Amendment to Salary Continuation Agreement between Opportunity Bank of Montana and Dale Field, dated August 20, 2021 (filed herewith).     10.3 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).     31.1 Certification by Peter J. Johnson, Chief Executive Officer, 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.     31.2 Certification by Laura F. Clark, Chief Financial Officer, 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.     32.1 Certification by Peter J. Johnson, Chief Executive Officer, and Laura F. Clark, Chief Financial Officer, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.     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) (1)     101.SCH Inline XBRL Taxonomy Extension Schema Document (1)     101.CAL Inline XBRL Taxonomy Extension Calculation Linkbase Document (1)     101.DEF Inline XBRL Taxonomy Extension Definition Linkbase Document (1)     101.LAB Inline XBRL Taxonomy Extension Label Linkbase Document (1)     101.PRE Inline XBRL Taxonomy Extension Presentation Linkbase Document (1)     104 Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)     (1) These interactive data files shall not be deemed filed for purposes of Section 11 or 12 of the Securities Act of 1933, as amended, or Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to liability under those sections.    - 43 - Table of Contents                   SIGNATURES   Pursuant to the requirements 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.                Date: November 4 , 2021 By:   /s/ Peter J. Johnson   Peter J. Johnson   President/CEO                          Date: November 4 , 2021 By:   /s/ Laura F. Clark   Laura F. Clark   Executive Vice President/CFO/COO       - 44 -