Eagle Bancorp Montana, Inc. 10-Q

ebmt20220331_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  March 31, 2022   ☐ 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 6,694,811 shares outstanding As of April 29, 2022     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 March 31, 2022 and December 31, 2021 1         Condensed Consolidated Statements of Income for the three months ended March 31, 2022 and 2021 3         Condensed Consolidated Statements of Comprehensive Income for the three months ended March 31, 2022 and 2021 5         Condensed Consolidated Statements of Changes in Shareholders' Equity for the three months ended March 31, 2022 and 2021 6         Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2022 and 2021 7         Notes to the Unaudited Condensed Consolidated Financial Statements 9       Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 26       Item 3. Quantitative and Qualitative Disclosures About Market Risk 36       Item 4. Controls and Procedures 37       PART II. OTHER INFORMATION   Item 1. Legal Proceedings 38 Item 1A. Risk Factors 38 Item 2.  Unregistered Sales of Equity Securities and Use of Proceeds 38 Item 3. Defaults Upon Senior Securities 38 Item 4.  Mine Safety Disclosures 38 Item 5. Other Information 39 Item 6.  Exhibits 39       Signatures 40     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 recent 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 recent 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, 2021, 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)       March 31,     December 31,       2022     2021   ASSETS:                 Cash and due from banks   $ 17,516     $ 10,938   Interest-bearing deposits in banks     62,697       43,669   Federal funds sold     14,889       6,827   Total cash and cash equivalents     95,102       61,434                     Securities available-for-sale     264,635       271,262   Federal Home Loan Bank ("FHLB") stock     1,723       1,702   Federal Reserve Bank ("FRB") stock     2,974       2,974   Mortgage loans held-for-sale, at fair value     22,295       25,819   Loans receivable, net of allowance for loan losses of $12,700 at March 31, 2022 and $12,500 at December 31, 2021     945,981       920,639   Accrued interest and dividends receivable     5,750       5,751   Mortgage servicing rights, net     14,288       13,693   Premises and equipment, net     69,536       67,266   Cash surrender value of life insurance, net     36,681       36,474   Goodwill     20,798       20,798   Core deposit intangible, net     1,660       1,780   Deferred tax asset, net     3,776       -   Other assets     6,854       6,334                     Total assets   $ 1,492,053     $ 1,435,926     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)       March 31,     December 31,       2022     2021   LIABILITIES:                 Deposit accounts:                 Noninterest-bearing   $ 371,818     $ 368,846   Interest-bearing     898,758       853,703   Total deposits     1,270,576       1,222,549                     Accrued expenses and other liabilities     18,968       21,131   Deferred tax liability, net     -       648   FHLB advances and other borrowings     -       5,000   Other long-term debt:                 Principal amount     60,155       30,155   Unamortized debt issuance costs     ( 1,169 )     ( 286 ) Total other long-term debt, net     58,986       29,869                     Total liabilities     1,348,530       1,279,197                     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; 6,694,811 shares outstanding at March 31, 2022 and December 31, 2021, respectively)     71       71   Additional paid-in capital     80,960       80,832   Unallocated common stock held by Employee Stock Ownership Plan ("ESOP")     ( 5,586 )     ( 5,729 ) Treasury stock, at cost ( 416,022 and 316,022 shares at March 31, 2022 and December 31, 2021, respectively)     ( 9,592 )     ( 7,321 ) Retained earnings     86,750       85,383   Accumulated other comprehensive (loss) income, net of tax     ( 9,080 )     3,493   Total shareholders' equity     143,523       156,729                     Total liabilities and shareholders' equity   $ 1,492,053     $ 1,435,926     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       March 31,       2022     2021   INTEREST AND DIVIDEND INCOME:                 Interest and fees on loans   $ 11,373     $ 11,029   Securities available-for-sale     1,297       877   FHLB and FRB dividends     59       69   Other interest income     39       26   Total interest and dividend income     12,768       12,001                     INTEREST EXPENSE:                 Deposits     312       402   FHLB advances and other borrowings     6       70   Other long-term debt     605       390   Total interest expense     923       862                     NET INTEREST INCOME     11,845       11,139                     Loan loss provision     279       299                     NET INTEREST INCOME AFTER LOAN LOSS PROVISION     11,566       10,840                     NONINTEREST INCOME:                 Service charges on deposit accounts     331       273   Mortgage banking, net     6,245       11,763   Interchange and ATM fees     453       425   Appreciation in cash surrender value of life insurance     207       158   Other noninterest income     1,057       774   Total noninterest income   $ 8,293     $ 13,393     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       March 31,       2022     2021   NONINTEREST EXPENSE:                 Salaries and employee benefits   $ 10,381     $ 12,086   Occupancy and equipment expense     1,678       1,430   Data processing     1,251       1,297   Advertising     285       273   Amortization of core deposit intangible     122       144   Loan costs     546       722   Federal Deposit Insurance Corporation ("FDIC") insurance premiums     93       81   Professional and examination fees     322       282   Acquisition costs     317       -   Other noninterest expense     1,953       898   Total noninterest expense     16,948       17,213                     INCOME BEFORE PROVISION FOR INCOME TAXES     2,911       7,020                     Provision for income taxes     695       1,755                     NET INCOME   $ 2,216     $ 5,265                     BASIC EARNINGS PER SHARE   $ 0.34     $ 0.78                     DILUTED EARNINGS PER SHARE   $ 0.34     $ 0.78       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       March 31,       2022     2021                     NET INCOME   $ 2,216     $ 5,265                     OTHER ITEMS OF COMPREHENSIVE (LOSS) INCOME BEFORE TAX:                 Change in fair value of investment securities available-for-sale     ( 17,067 )     ( 2,572 ) Reclassification for net realized gain (loss) on investment securities available-for-sale     -       -   Total other comprehensive loss     ( 17,067 )     ( 2,572 )                   Income tax benefit related to securities available-for-sale     4,494       677                     COMPREHENSIVE (LOSS) INCOME   $ ( 10,357 )   $ 3,370     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 Months Ended March 31, 2022 and 2021 (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 January 1, 2022   $ -     $ 71     $ 80,832     $ ( 5,729 )   $ ( 7,321 )   $ 85,383     $ 3,493     $ 156,729   Net income     -       -       -       -       -       2,216       -       2,216   Other comprehensive loss     -       -       -       -       -       -       ( 12,573 )     ( 12,573 ) Dividends paid ( $0.125 per share)     -       -       -       -       -       ( 849 )     -       ( 849 ) Stock compensation expense     -       -       135       -       -       -       -       135   ESOP shares allocated ( 5,997 shares)     -       -       ( 7 )     143       -       -       -       136   Treasury stock purchased ( 100,000 shares at $22.71 average cost per share)     -       -       -       -       ( 2,271 )     -       -       ( 2,271 ) Balance at March 31, 2022   $ -     $ 71     $ 80,960     $ ( 5,586 )   $ ( 9,592 )   $ 86,750     $ ( 9,080 )   $ 143,523                                                                     Balance at January 1, 2021   $ -     $ 71     $ 77,602     $ ( 145 )   $ ( 4,423 )   $ 73,982     $ 5,851     $ 152,938   Net income     -       -       -       -       -       5,265       -       5,265   Other comprehensive loss     -       -       -       -       -       -       ( 1,895 )     ( 1,895 ) Dividends paid ( $.0975 per share)     -       -       -       -       -       ( 661 )     -       ( 661 ) Stock compensation expense     -       -       90       -       -       -       -       90   ESOP shares allocated ( 4,154 shares)     -       -       52       42       -       -       -       94   Balance at March 31, 2021   $ -     $ 71     $ 77,744     $ ( 103 )   $ ( 4,423 )   $ 78,586     $ 3,956     $ 155,831     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)       Three Months Ended       March 31,       2022     2021   CASH FLOWS FROM OPERATING ACTIVITIES:                 Net income   $ 2,216     $ 5,265   Adjustments to reconcile net income to net cash provided by operating activities:                 Loan loss provision     279       299   Recovery of mortgage servicing rights     ( 56 )     ( 677 ) Depreciation     842       649   Net amortization of investment securities premiums and discounts     380       238   Amortization of mortgage servicing rights     609       994   Amortization of right-of-use assets     172       128   Amortization of core deposit intangible     122       144   Compensation expense related to restricted stock awards     135       90   ESOP compensation expense for allocated shares     136       94   Deferred income tax provision     71       66   Net gain on sale of loans     ( 6,233 )     ( 14,277 ) Originations of loans held-for-sale     ( 170,074 )     ( 267,168 ) Proceeds from sales of loans held-for-sale     179,831       275,451   Net (gain) loss on sale of real estate owned and other repossessed assets     ( 14 )     9   Net gain on sale/disposal of premises and equipment     ( 1 )     -   Net appreciation in cash surrender value of life insurance     ( 207 )     ( 158 ) Net change in:                 Accrued interest and dividends receivable     ( 1 )     314   Other assets     ( 145 )     3,084   Accrued expenses and other liabilities     ( 2,168 )     ( 614 ) Net cash provided by operating activities     5,894       3,931                     CASH FLOWS FROM INVESTING ACTIVITIES:                 Activity in available-for-sale securities:                 Maturities, principal payments and calls     9,338       2,355   Purchases     ( 20,158 )     ( 25,663 ) FHLB stock (purchased) redeemed     ( 21 )     83   Loan origination and principal collection, net     ( 27,096 )     10,233   Proceeds from sale of real estate and other repossessed assets acquired in settlement of loans     5       16   Purchases of premises and equipment, net     ( 3,284 )     ( 3,986 ) Net cash used in investing activities   $ ( 41,216 )   $ ( 16,962 )   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)       Three Months Ended       March 31,       2022     2021   CASH FLOWS FROM FINANCING ACTIVITIES:                 Net increase in deposits   $ 48,027     $ 60,321   Payments on long-term FHLB and other borrowings     ( 5,000 )     ( 5,208 ) Proceeds from issuance of subordinated debentures     40,000       -   Repayment of senior debt     ( 10,000 )     -   Payments for debt issuance costs     ( 917 )     -   Purchase of treasury stock     ( 2,271 )     -   Dividends paid     ( 849 )     ( 661 ) Net cash provided by financing activities     68,990       54,452                     NET INCREASE IN CASH AND CASH EQUIVALENTS     33,668       41,421                     CASH AND CASH EQUIVALENTS, beginning of period     61,434       69,802                     CASH AND CASH EQUIVALENTS, end of period   $ 95,102     $ 111,223                                       SUPPLEMENTAL CASH FLOW INFORMATION:                 Cash paid during the period for interest   $ 1,092     $ 1,415   Cash paid during the period for income taxes     -       -                     NONCASH INVESTING AND FINANCING ACTIVITIES:                 Decrease in fair value of securities available-for-sale   $ ( 17,067 )   $ ( 2,572 ) Mortgage servicing rights recognized     1,148       1,532   Right-of-use assets obtained in exchange for lease liabilities     4       -   Loans transferred to real estate and other assets acquired in foreclosure     328       -     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 March 2021, the Bank established a subsidiary, Opportunity Housing Fund, LLC ("OHF"), to invest in Low-Income Housing Tax Credit ("LIHTC") projects. The LIHTC program is designed to encourage capital investment in construction and rehabilitation of low-income housing. Tax credits are allowable over a 10 -year period. During the year ended December 31, 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 $ 1,237,000 and $ 935,000 as of March 31, 2022 and December 31, 2021, respectively.   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 customers that produce agricultural products.   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 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.   The Bank currently has 23 full 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 operated certain branches under the names Dutton State Bank, Farmers State Bank of Denton and The State Bank of Townsend. Effective January 3, 2022, these branches were rebranded and are now only operating as Opportunity Bank of Montana.    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, 2021 , as filed with the SEC on March 9, 2022. 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 three -month period ended  March 31, 2022 are not necessarily indicative of the results to be expected for the year ending  December 31, 2022  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 2022 . These reclassifications had no impact on net income or shareholders’ equity.   Subsequent Events     The Company has evaluated events and transactions subsequent to  March 31, 2022 for recognition and/or disclosure.    On April 21, 2022, Eagle's Board of Directors (the "Board") authorized the repurchase of up to 400,000 shares of its common stock. Under the plan, shares may be purchased by the Company on the open market or in privately negotiated transactions. The extent to which the company repurchases its shares and the timing of such repurchase will depend upon market conditions and other corporate considerations. The plan expires on April 21, 2023.   In September 2021, the Company entered into an Agreement and Plan of Merger with First Community Bancorp, Inc., a Montana corp oration ("FCB") and FCB's wholly-owned subsidiary, First Community Bank, a Montana chartered commercial bank. The Merger Agreement provided that, upon the terms and subject to the conditions set forth in the Merger Agreement, FCB would merge with and into Eagle, with Eagle continuing as the surviving corporation. The acquisition closed on April 30, 2022.  The fair value of assets acquired and liabilities assumed as of April 30, 2022 are still being determined.   NOTE 2.   INVESTMENT SECURITIES   The amortized cost and fair values of securities, together with unrealized gains and losses, were as follows:       March 31, 2022     December 31, 2021               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   $ 1,428     $ 2     $ ( 5 )   $ 1,425     $ 1,618     $ 15     $ -     $ 1,633   U.S. Treasury obligations     72,848       29       ( 3,390 )     69,487       52,707       580       ( 104 )     53,183   Municipal obligations     116,530       558       ( 5,808 )     111,280       119,381       4,616       ( 330 )     123,667   Corporate obligations     6,250       65       ( 41 )     6,274       9,251       103       ( 18 )     9,336   Mortgage-backed securities     13,770       2       ( 647 )     13,125       14,662       92       ( 118 )     14,636   Collateralized mortgage obligations     61,959       9       ( 3,169 )     58,799       63,286       416       ( 635 )     63,067   Asset-backed securities     4,177       68       -       4,245       5,617       123       -       5,740   Total   $ 276,962     $ 733     $ ( 13,060 )   $ 264,635     $ 266,522     $ 5,945     $ ( 1,205 )   $ 271,262     For the three months ended March 31, 2022 and 2021, there were no sales of available-for-sale securities. As a result, there were no associated gross gains or losses.    - 10 - Table of Contents EAGLE BANCORP MONTANA, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)   NOTE 2.   INVESTMENT SECURITIES – continued   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.       March 31, 2022       Amortized     Fair       Cost     Value       (In Thousands)                     Due in one year or less   $ 21,343     $ 21,284   Due from one to five years     11,113       11,098   Due from five to ten years     80,534       76,056   Due after ten years     88,243       84,273         201,233       192,711   Mortgage-backed securities     13,770       13,125   Collateralized mortgage obligations     61,959       58,799   Total   $ 276,962     $ 264,635     As of  March 31, 2022 and December 31, 2021 , securities with a fair value of $ 22,175,000   and $ 22,245,000 , 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:       March 31, 2022       Less Than 12 Months     12 Months or Longer               Gross             Gross       Fair     Unrealized     Fair     Unrealized       Value     Losses     Value     Losses       (In Thousands)   U.S. government obligations   $ 303     $ ( 5 )   $ -     $ -   U.S. Treasury obligations     64,255       ( 3,390 )     -       -   Municipal obligations     87,226       ( 5,808 )     -       -   Corporate obligations     3,959       ( 41 )     -       -   Mortgage-backed securities and collateralized mortgage obligations     66,967       ( 3,792 )     1,202       ( 24 ) Total   $ 222,710     $ ( 13,036 )   $ 1,202     $ ( 24 )   - 11 - Table of Contents EAGLE BANCORP MONTANA, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)   NOTE 2.   INVESTMENT SECURITIES – continued       December 31, 2021       Less Than 12 Months     12 Months or Longer               Gross             Gross       Fair     Unrealized     Fair     Unrealized       Value     Losses     Value     Losses       (In Thousands)   U.S. government obligations   $ -     $ -     $ -     $ -   U.S. Treasury obligations     19,301       ( 104 )     -       -   Municipal obligations     17,973       ( 330 )     -       -   Corporate obligations     2,982       ( 18 )     -       -   Mortgage-backed securities and collateralized mortgage obligations     50,002       ( 741 )     1,296       ( 12 ) Total   $ 90,258     $ ( 1,193 )   $ 1,296     $ ( 12 )   Unrealized losses associated with investments are believed to be caused by changes in market interest rates or the widening of market spreads subsequent to the initial purchase of the securities and not due to concerns regarding the underlying credit of the issuers or the underlying collateral. The Company does not intend to sell the securities, and it is not likely to be required to sell these securities prior to maturity. Based on the Company's evaluation of these securities, no other-than-temporary impairment was recorded for the  three months ended March 31, 2022 or the year ended December 31, 2021 . As of  March 31, 2022 and December 31, 2021 , there were, respectively, 156  and 43 securities in unrealized loss positions that were considered to be temporarily impaired and therefore an impairment charge has not been recorded.     NOTE 3.   LOANS RECEIVABLE   Loans receivable consisted of the following:       March 31,     December 31,       2022     2021       (In Thousands)   Real estate loans:                 Residential 1-4 family   $ 140,210     $ 146,815   Commercial real estate     599,093       569,976                     Other loans:                 Home equity     53,828       51,748   Consumer     18,834       18,455   Commercial     148,307       147,870                     Total     960,272       934,864                     Deferred loan fees, net     ( 1,591 )     ( 1,725 ) Allowance for loan losses     ( 12,700 )     ( 12,500 ) Total loans, net   $ 945,981     $ 920,639     Within the commercial real estate loan category above, $ 10,012,000  and $ 10,232,000 was guaranteed by the United States Department of Agriculture Rural Development at  March 31, 2022 and  December 31, 2021 , respectively. Also within the loan categories above, $ 6,270,000  and $ 7,333,000 was guaranteed by the United States Department of Agriculture Farm Service Agency at  March 31, 2022 and  December 31, 2021 , respectively. In addition, within the commercial loan category above, $ 1,570,000  and $ 4,172,000 was guaranteed by the Small Business Administration ("SBA") under their Payroll Protection Program ("PPP") at  March 31, 2022 and December 31, 2021 , respectively. Deferred loan fees, net includes $ 108,000 and $ 286,000 of remaining deferred fees related to the PPP at March 31, 2022  and  December 31, 2021 , respectively.    - 12 - Table of Contents EAGLE BANCORP MONTANA, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)   NOTE 3.   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, January 1, 2022   $ 1,596     $ 7,470     $ 533     $ 365     $ 2,536     $ 12,500   Charge-offs     -       -       -       ( 8 )     ( 84 )     ( 92 ) Recoveries     -       6       -       -       7       13   Provision     20       183       3       -       73       279   Ending balance, March 31, 2022   $ 1,616     $ 7,659     $ 536     $ 357     $ 2,532     $ 12,700                                                     Ending balance, March 31, 2022 allocated to loans individually evaluated for impairment   $ 199     $ -     $ -     $ -     $ 300     $ 499                                                     Ending balance, March 31, 2022 allocated to loans collectively evaluated for impairment   $ 1,417     $ 7,659     $ 536     $ 357     $ 2,232     $ 12,201                                                     Loans receivable:                                                 Ending balance, March 31, 2022   $ 140,210     $ 599,093     $ 53,828     $ 18,834     $ 148,307     $ 960,272                                                     Ending balance, March 31, 2022 of loans individually evaluated for impairment   $ 587     $ 3,473     $ 111     $ 44     $ 1,775     $ 5,990                                                     Ending balance, March 31, 2022 of loans collectively evaluated for impairment   $ 139,623     $ 595,620     $ 53,717     $ 18,790     $ 146,532     $ 954,282         Residential     Commercial     Home                               1-4 Family     Real Estate     Equity     Consumer     Commercial     Total       (In Thousands)   Allowance for loan losses:                                                 Beginning balance, January 1, 2021   $ 1,506     $ 6,951     $ 515     $ 364     $ 2,264     $ 11,600   Charge-offs     -       ( 10 )     -       ( 2 )     ( 6 )     ( 18 ) Recoveries     -       2       -       4       13       19   Provision     36       188       6       3       66       299   Ending balance, March 31, 2021   $ 1,542     $ 7,131     $ 521     $ 369     $ 2,337     $ 11,900                                                     Ending balance, March 31, 2021 allocated to loans individually evaluated for impairment   $ 296     $ -     $ -     $ -     $ 40     $ 336                                                     Ending balance, March 31, 2021 allocated to loans collectively evaluated for impairment   $ 1,246     $ 7,131     $ 521     $ 369     $ 2,297     $ 11,564                                                     Loans receivable:                                                 Ending balance, March 31, 2021   $ 136,506     $ 464,082     $ 53,270     $ 19,424     $ 158,598     $ 831,880                                                     Ending balance, March 31, 2021 of loans individually evaluated for impairment   $ 1,532     $ 4,282     $ 109     $ 145     $ 1,952     $ 8,020                                                     Ending balance, March 31, 2021 of loans collectively evaluated for impairment   $ 134,974     $ 459,800     $ 53,161     $ 19,279     $ 156,646     $ 823,860     - 13 - Table of Contents EAGLE BANCORP MONTANA, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)   NOTE 3.   LOANS RECEIVABLE – continued   Internal classification of the loan portfolio was as follows:       March 31, 2022               Special                                       Pass     Mention     Substandard     Doubtful     Loss     Total       (In Thousands)   Real estate loans:                                                 Residential 1-4 family   $ 98,768     $ -     $ 275     $ 199     $ -     $ 99,242   Residential 1-4 family construction     40,968       -       -       -       -       40,968   Commercial real estate     429,481       1,498       1,997       -       -       432,976   Commercial construction and development     105,754       -       -       -       -       105,754   Farmland     59,114       177       1,030       42       -       60,363   Other loans:                                                 Home equity     53,699       -       129       -       -       53,828   Consumer     18,789       -       45       -       -       18,834   Commercial     98,235       128       108       -       -       98,471   Agricultural     48,080       327       1,429       -       -       49,836   Total   $ 952,888     $ 2,130     $ 5,013     $ 241     $ -     $ 960,272         December 31, 2021               Special                                       Pass     Mention     Substandard     Doubtful     Loss     Total       (In Thousands)   Real estate loans:                                                 Residential 1-4 family   $ 100,680     $ -     $ 301       199     $ -     $ 101,180   Residential 1-4 family construction     45,298       -       337       -       -       45,635   Commercial real estate     406,896       1,527       2,145       -       -       410,568   Commercial construction and development     92,403       -       -       -       -       92,403   Farmland     65,037       177       1,744       47       -       67,005   Other loans:                                                 Home equity     51,614       -       134       -       -       51,748   Consumer     18,392       -       63       -       -       18,455   Commercial     100,881       130       524       -       -       101,535   Agricultural     44,550       332       1,444       9       -       46,335   Total   $ 925,751     $ 2,166     $ 6,692     $ 255     $ -     $ 934,864     - 14 - Table of Contents EAGLE BANCORP MONTANA, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)   NOTE 3.   LOANS RECEIVABLE – continued   The following tables include information regarding delinquencies within the loan portfolio.       March 31, 2022       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   $ -     $ -     $ -     $ 587     $ 98,655     $ 99,242   Residential 1-4 family construction     -       -       -       -       40,968       40,968   Commercial real estate     1,005       -       1,005       368       431,603       432,976   Commercial construction and development     -       -       -       -       105,754       105,754   Farmland     71       270       341       1,607       58,415       60,363   Other loans:                                                 Home equity     -       -       -       111       53,717       53,828   Consumer     57       -       57       44       18,733       18,834   Commercial     807       -       807       53       97,611       98,471   Agricultural     604       -       604       1,722       47,510       49,836   Total   $ 2,544     $ 270     $ 2,814     $ 4,492     $ 952,966     $ 960,272         December 31, 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   $ 21     $ -     $ 21     $ 616     $ 100,543     $ 101,180   Residential 1-4 family construction     -       -       -       337       45,298       45,635   Commercial real estate     788       -       788       497       409,283       410,568   Commercial construction and development     -       -       -       -       92,403       92,403   Farmland     61       -       61       1,630       65,314       67,005   Other loans:                                                 Home equity     -       -       -       115       51,633       51,748   Consumer     55       -       55       62       18,338       18,455   Commercial     6       -       6       516       101,013       101,535   Agricultural     -       -       -       1,718       44,617       46,335   Total   $ 931     $ -     $ 931     $ 5,491     $ 928,442     $ 934,864     - 15 - Table of Contents EAGLE BANCORP MONTANA, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)   NOTE 3. LOANS RECEIVABLE – continued   The following tables include information regarding impaired loans.       March 31, 2022               Unpaid               Recorded     Principal     Related       Investment     Balance     Allowance       (In Thousands)   Real estate loans:                         Residential 1-4 family   $ 587     $ 675     $ 199   Residential 1-4 family construction     -       -       -   Commercial real estate     1,866       1,925       -   Commercial construction and development     -       -       -   Farmland     1,607       1,720       -   Other loans:                         Home equity     111       138       -   Consumer     44       54       -   Commercial     53       63       -   Agricultural     1,722       1,759       300   Total   $ 5,990     $ 6,334     $ 499         December 31, 2021               Unpaid               Recorded     Principal     Related       Investment     Balance     Allowance       (In Thousands)   Real estate loans:                         Residential 1-4 family   $ 616     $ 703     $ 199   Residential 1-4 family construction     337       387       -   Commercial real estate     2,024       2,078       -   Commercial construction and development     -       -       -   Farmland     1,630       1,721       -   Other loans:                         Home equity     115       139       -   Consumer     62       73       -   Commercial     516       639       101   Agricultural     1,759       1,862       300   Total   $ 7,059     $ 7,602     $ 600     - 16 - Table of Contents EAGLE BANCORP MONTANA, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)   NOTE 3. LOANS RECEIVABLE – continued       Three Months Ended       March 31,       2022     2021       Average Recorded Investment       (In Thousands)   Real estate loans:                 Residential 1-4 family   $ 601     $ 1,199   Residential 1-4 family construction     169       337   Commercial real estate     1,945       2,340   Commercial construction and development     -       25   Farmland     1,619       2,056   Other loans:                 Home equity     113       110   Consumer     53       148   Commercial     285       542   Agricultural     1,740       1,554   Total   $ 6,525     $ 8,311     Interest income recognized on impaired loans for the  three months ended March 31, 2022 and 2021 is considered insignificant. Interest payments received on a cash basis related to impaired loans were $ 344,000  and $ 405,000  at  March 31, 2022 and December 31, 2021 , respectively.   As of  March 31, 2022 and December 31, 2021 , there were troubled debt restructured (“TDR”) loans of $ 2,611,000 and $ 2,224,000 , respectively.   During the three months ended March 31, 2022 , there were two  new TDR loans. The recorded investments for both agricultural loans at the time of restructure were $ 331,000  and $ 145,000 . No charge-offs were incurred and the loans are on nonaccrual status.    During the three months ended March 31, 2021 , there was one new TDR loan. The recorded investment for the commercial real estate loan at time of restructure was $ 115,000 . The loan was paid off during the three months ended September 30, 2021.    There were two  farmland loans modified as TDRs that defaulted during the three  months ended  March 31, 2022 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. The recorded investments for the farmland loans were $ 374,000 and $ 70,000 at March 31, 2022  and the Company has initiated foreclosure on these loans.   As of March 31, 2022 , 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 both March 31, 2022 and December 31, 2021, one modified nonresidential loan with an insignificant balance remained.      - 17 - Table of Contents EAGLE BANCORP MONTANA, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)     NOTE 4.   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 $ 1,903,450,000  and $ 1,835,561,000 at  March 31, 2022 and December 31, 2021 , respectively. Servicing loans for others generally consists of collecting mortgage payments, maintaining escrow accounts, disbursing payments to investors and foreclosure processing. Mortgage loan servicing fees were $ 1,156,000  and $ 937,000 for the three months ended March 31, 2022 and 2021 , respectively. These fees, net of amortization, are included in mortgage banking, net which is a component of noninterest income on the condensed consolidated statements of income.   Custodial balances maintained in connection with the foregoing loan servicing are included in noninterest checking deposits and were $ 17,459,000  and $ 11,613,000 at  March 31, 2022 and December 31, 2021 , respectively.   The following table is a summary of activity in mortgage servicing rights:       As of or For the       Three Months Ended       March 31,       2022     2021       (In Thousands)   Mortgage servicing rights:                 Beginning balance   $ 13,749     $ 10,897   Mortgage servicing rights capitalized     1,148       1,532   Amortization of mortgage servicing rights     ( 609 )     ( 994 ) Ending balance   $ 14,288     $ 11,435   Valuation allowance:                 Beginning balance     ( 56 )     ( 792 ) Recovery of mortgage servicing rights     56       677   Ending balance     -       ( 115 ) Mortgage servicing rights, net   $ 14,288     $ 11,320     Impairment expense on mortgage servicing rights was recording during the year ended December 31, 2020 as a result of increased prepayment speed assumptions. Recoveries of  $ 56,000  and $ 677,000 were recorded during the three months ended March 31, 2022  and  2021, 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 $ 16,565,000  and $ 14,686,000 at  March 31, 2022 and December 31, 2021 , respectively. The fair value of servicing rights was determined at loan level, depending on the interest rate and term of the specific loan, using the following valuation assumptions:       March 31,     December 31,       2022     2021   Key assumptions:                 Discount rate     12 %     12 % Prepayment speed range     148 - 249 %     184 - 265 % Weighted average prepayment speed     163 %     204 %   - 18 - Table of Contents EAGLE BANCORP MONTANA, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)     NOTE 5 .   DEPOSITS   Deposits are summarized as follows:       March 31,     December 31,       2022     2021       (In Thousands)                     Noninterest checking   $ 371,818     $ 368,846   Interest-bearing checking     210,247       203,410   Savings     232,166       223,069   Money market     312,485       277,469   Time certificates of deposit     143,860       149,755   Total   $ 1,270,576     $ 1,222,549       NOTE 6.   OTHER LONG-TERM DEBT   Other long-term debt consisted of the following:       March 31, 2022     December 31, 2021               Unamortized             Unamortized               Debt             Debt       Principal     Issuance     Principal     Issuance       Amount     Costs     Amount     Costs       (In Thousands)                                     Senior notes fixed at 5.75% , due 2022   $ -     $ -     $ 10,000     $ ( 4 ) Subordinated debentures fixed at 5.50% to floating, due 2030     15,000       ( 274 )     15,000       ( 282 ) Subordinated debentures fixed at 3.50% to floating, due 2032     40,000       ( 895 )     -       -   Subordinated debentures variable at 3-Month Libor plus 1.42% , due 2035     5,155       -       5,155       -   Total other long-term debt   $ 60,155     $ ( 1,169 )   $ 30,155     $ ( 286 )   In January 2022, the Company completed the issuance of $ 40,000,000 in aggregate principal amount of subordinated notes due in 2032 in a private placement transaction to certain institutional accredited investors and qualified buyers. The notes will bear interest at an annual fixed rate of 3.50 % payable semi-annually. Starting August 1, 2027, interest will accrue at a floating rate per annum equal to a benchmark rate, which is expected to be three -month term Secured Overnight Financing Rate ("SOFR") plus a spread of 218.0 basis points, payable quarterly. The notes are subject to redemption at the option of the Company on or after February 1, 2027. The subordinated debentures qualify as Tier 2 capital for regulatory capital purposes. A portion of the net proceeds were used to redeem the $ 10,000,000  senior notes due in February  2022.   In June 2020, the Company completed the issuance of $ 15,000,000 in aggregate principal amount of subordinated notes due in 2030  in a private placement transaction to certain qualified institutional accredited investors. The notes 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 SOFR plus a spread of 509.0 basis points, payable quarterly. The notes are subject to redemption at the option of the Company on or after July 1, 2025. The subordinated debentures qualify as Tier 2 capital for regulatory capital  purposes.    In February 2017, the Company completed the issuance, through a private placement, of $ 10,000,000 aggregate principal amount of 5.75% fixed senior unsecured notes due in 2022. The interest was paid semi-annually through maturity date. The notes were not subject to redemption at the option of the Company. The notes were redeemed on February 15, 2022.   In September 2005, the Company completed the private placement of $ 5,155,000 in subordinated debentures to the Trust. The Trust funded the purchase of the subordinated debentures through the sale of trust preferred securities to First Tennessee Bank, N.A. with a liquidation value of $ 5,155,000 . Using interest payments made by the Company on the debentures, the Trust began paying quarterly dividends to preferred security holders 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 2.38 % and 1.63 % as of March 31, 2022 and December 31, 2021 , respectively. Dividends on the preferred securities are cumulative and the Trust may defer the payments for up to five years. The preferred securities mature in December 2035 unless the Company elects and obtains regulatory approval to accelerate the maturity date. The subordinated debentures qualify as Tier 1 capital for regulatory purposes.    - 19 - Table of Contents EAGLE BANCORP MONTANA, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)     NOTE 7. 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, January 1, 2022   $ 3,493   Other comprehensive loss, before reclassifications and income taxes     ( 17,067 ) Amounts reclassified from accumulated other comprehensive income, before income taxes     -   Income tax benefit     4,494   Total other comprehensive loss     ( 12,573 ) Balance, March 31, 2022   $ ( 9,080 )           Balance, January 1, 2021   $ 5,851   Other comprehensive loss, before reclassifications and income taxes     ( 2,572 ) Amounts reclassified from accumulated other comprehensive income, before income taxes     -   Income tax benefit     677   Total other comprehensive loss     ( 1,895 ) Balance, March 31, 2021   $ 3,956       NOTE 8.   EARNINGS PER SHARE   The computations of basic and diluted earnings per share are as follows:       Three Months Ended       March 31,       2022     2021       (Dollars in Thousands, Except Per Share Data)                     Basic weighted average shares outstanding     6,506,133       6,775,447   Dilutive effect of stock compensation     12,714       13,232   Diluted weighted average shares outstanding     6,518,847       6,788,679                     Net income available to common shareholders   $ 2,216     $ 5,265                     Basic earnings per share   $ 0.34     $ 0.78                     Diluted earnings per share   $ 0.34     $ 0.78     There were no anti-dilutive shares a t March 31, 2022 and December 31, 2021 .   - 20 - Table of Contents EAGLE BANCORP MONTANA, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)     NOTE 9. 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:       March 31, 2022     December 31, 2021       Notional     Fair Value     Notional     Fair Value       Amount     Asset     Liability     Amount     Asset     Liability       (In Thousands)   Interest rate lock commitments   $ 83,746     $ 91     $ -     $ 84,674     $ 1,218     $ -   Forward TBA mortgage-backed securities     75,000       1,093       -       51,000       -       94     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 losses  of $ 60,000  and $ 1,283,000 were recorded for the three months ended March 31, 2022  and 2021, respectively.     NOTE 10 . 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.   - 21 - Table of Contents EAGLE BANCORP MONTANA, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)   NOTE 10. 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.       March 31, 2022       Level 1     Level 2     Level 3     Total Fair       Inputs     Inputs     Inputs     Value       (In Thousands)   Financial assets:                                 Available-for-sale securities                                 U.S. government obligations   $ -     $ 1,425     $ -     $ 1,425   U.S. treasury obligations     69,487       -       -       69,487   Municipal obligations     -       111,280       -       111,280   Corporate obligations     -       6,274       -       6,274   Mortgage-backed securities     -       13,125       -       13,125   Collateralized mortgage obligations     -       58,799       -       58,799   Asset-backed securities     -       4,245       -       4,245   Loans held-for-sale     -       22,295       -       22,295   Interest rate lock commitments     -       -       91       91   Forward TBA mortgage-backed securities     -       1,093       -       1,093         December 31, 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   $ -     $ 1,633     $ -     $ 1,633   U.S. treasury obligations     53,183       -       -       53,183   Municipal obligations     -       123,667       -       123,667   Corporate obligations     -       9,336       -       9,336   Mortgage-backed securities     -       14,636       -       14,636   Collateralized mortgage obligations     -       63,067       -       63,067   Asset-backed securities     -       5,740       -       5,740   Loans held-for-sale     -       25,819       -       25,819   Interest rate lock commitments     -       -       1,218       1,218   Financial liabilities:                                 Forward TBA mortgage-backed securities     -       94       -       94     - 22 - Table of Contents EAGLE BANCORP MONTANA, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)   NOTE 10. 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:         March 31, 2022       Level 1     Level 2     Level 3     Total Fair       Inputs     Inputs     Inputs     Value       (In Thousands)   Impaired loans   $ -     $ -     $ -     $ -   Real estate and other repossessed assets     -       -       346       346   Mortgage servicing rights     -       -       1,653       1,653         December 31, 2021       Level 1     Level 2     Level 3     Total Fair       Inputs     Inputs     Inputs     Value       (In Thousands)   Impaired loans   $ -     $ -     $ 376     $ 376   Real estate and other repossessed assets     -       -       4     $ 4   Mortgage servicing rights     -       -       14,686     $ 14,686     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   145 - 265 %   Interest rate lock commitments   Internal pricing model   Pull-through expectations   90 - 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 three months ended March 31, 2022 .       Three Months Ended       March 31,       2022     2021       Interest Rate Lock Commitments       (In Thousands)   Balance, January 1, 2022   $ 1,218     $ 6,017   Purchases and issuances     287       738   Sales and settlements     ( 1,414 )     ( 4,868 ) Balance, March 31, 2022   $ 91     $ 1,887   Net change in unrealized gains relating to items held at end of period   $ ( 1,127 )   $ ( 4,130 )   - 23 - Table of Contents EAGLE BANCORP MONTANA, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)   NOTE 10. 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.       March 31, 2022                               Total               Level 1     Level 2     Level 3     Estimated     Carrying       Inputs     Inputs     Inputs     Fair Value     Amount       (In Thousands)   Financial assets:                                         Cash and cash equivalents   $ 95,102     $ -     $ -     $ 95,102     $ 95,102   FHLB stock     1,723       -       -       1,723       1,723   FRB stock     2,974       -       -       2,974       2,974   Loans receivable, gross     -       -       963,187       963,187       958,681   Accrued interest and dividends receivable     5,750       -       -       5,750       5,750   Mortgage servicing rights     -       -       16,565       16,565       14,288   Financial liabilities:                                         Non-maturing interest-bearing deposits     -       754,898       -       754,898       754,898   Noninterest-bearing deposits     371,818       -       -       371,818       371,818   Time certificates of deposit     -       -       142,306       142,306       143,860   Accrued expenses and other liabilities     18,968       -       -       18,968       18,968   FHLB advances and other borrowings     -       -       -       -       -   Other long-term debt     -       -       58,399       58,399       60,155         December 31, 2021                               Total               Level 1     Level 2     Level 3     Estimated     Carrying       Inputs     Inputs     Inputs     Fair Value     Amount       (In Thousands)   Financial assets:                                         Cash and cash equivalents   $ 61,434     $ -     $ -     $ 61,434     $ 61,434   FHLB stock     1,702       -       -       1,702       1,702   FRB stock     2,974       -       -       2,974       2,974   Loans receivable, gross     -       -       939,204       939,204       933,139   Accrued interest and dividends receivable     5,751       -       -       5,751       5,751   Mortgage servicing rights     -       -       14,686       14,686       13,693   Financial liabilities:                                         Non-maturing interest-bearing deposits     -       703,948       -       703,948       703,948   Noninterest-bearing deposits     368,846       -       -       368,846       368,846   Time certificates of deposit     -       -       149,605       149,605       149,755   Accrued expenses and other liabilities     21,037       -       -       21,037       21,037   FHLB advances and other borrowings     -       -       5,003       5,003       5,000   Other long-term debt     -       -       29,299       29,299       30,155     - 24 - Table of Contents EAGLE BANCORP MONTANA, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)     NOTE 11 . RECENT ACCOUNTING PRONOUNCEMENTS   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).   In February 2022, the FASB issued ASU No. 2022 - 02, an update to ASU No. 2016 - 13. The amendments in the update eliminate TDR recognition and measurement guidance. Instead, entities must evaluate whether the modification represents a new loan or a continuation of an existing loan. Existing disclosure requirements are enhanced and the new requirements are introduced related to certain modifications of receivables made to borrowers experiencing financial difficulty. In addition, for public business entities, the amendments in the update require that entities disclose current-period gross write-offs by year of origination for financing receivables. This information must be included in the vintage disclosures, which require an entity to disclose the amortized cost basis of financing receivables by credit-quality indicator and class of financing receivable by year of origination.   The Company believes the amendments in these updates will have an impact on the Company’s 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 have developed a current expected credit loss model and plan on utilizing this model concurrently with our existing allowance for loan loss model during 2022. 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. In January 2021, the FASB issued ASU No. 2021 - 01, Reference Rate Reform (Topic 848 ), which clarifies that certain optional expedients and exceptions in Topic 848 for contract modifications and hedge accounting apply to derivatives that are affected by the discounting transition. ASU No. 2021 - 01 was effective upon issuance and generally can be applied through December 31, 2022. ASU No. 2021 - 01 has not had and is not expected to have a significant impact on the Company's consolidated financial statements.   - 25 - 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   Introduction     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 and it remained at 0.25% through the year ended December 31, 2021. The rate increased to 0.50% dur ing the three months ended March 31, 2022.    Recent Events   On January 21, 2022, the Company entered into a subordinated note purchase agreement with certain institutional accredited investors and qualified institutional buyers to which the Company sold and issued $40.00 million in aggregate principal amount of its 3.50% fixed-to-floating rate subordinated notes due in 2032. A portion of the net proceeds were used to redeem $10.00 million of 5.75% fixed senior notes due February 15, 2022. The Company intends to use the remaining net proceeds for other general corporate purposes and $10.2 million for the acquisition of First Community Bancorp, Inc. ("FCB").   Acquisitions   On September 30, 2021, the Company entered into an Agreement and Plan of Merger with First Community Bancorp, Inc., a Montana corporation and FCB's wholly-owned subsidiary, First Community Bank, a Montana chartered commercial bank. The Merger Agreement provided that, upon the terms and subject to the conditions set forth in the Merger Agreement, FCB would merge with and into Eagle, with Eagle continuing as the surviving corporation. The transaction closed on April 30, 2022. Upon completion of the transaction, Eagle acquired approximately $388 million of assets, $320 million of deposits and $194 million in gross loans, based on December 31, 2021 information. The fair value of assets acquired and liabilities assumed as of April 30, 2022 are still being determined.   COVID-19   The Bank remains focused on supporting our customers, communities and employees while prudently managing risk.    Eagle began taking loan applications from its small business clients immediately after the Small Business Administration ("SBA") Paycheck Protection Program ("PPP") was implemented, and as of the close of the initial round of the program, had helped 764 borrowers receive $45.71 million in SBA PPP loans. The Bank processed applications for PPP loan forgiveness for customers, with 759 loans representing $45.31 million paid in full as of December 31, 2021. As of March 31, 2022, $357,000 of initial round SBA PPP loans remain unforgiven.  As of the close of the second round of the program, Eagle supported 646 borrowers in receiving $19.51 million in new PPP funding. The Bank processed applications for PPP loan forgiveness for customers, with 514 loans representing $15.45 million paid in full as of December 31, 2021. Of the 132 PPP loans representing $4.06 million remaining as of December 31, 2021, 80 loans or $2.56 million were forgiven during the three months ended March 31,2022. The remaining 52 PPP loans represent $1.50 million.   As of March 31, 2022, 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.   - 26 - 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 March 31, 2022 and December 31, 2021.   Total assets were $1.49 billion at March 31, 2022, an increase o f $56.12 m illion, or 3.9% f rom $1.44 billion at December 31, 2021.  Cash and cash equivalents increased $33.67 million from  December 31, 2021. In addition, loans receivable, net increased  $25.34   million from December 31, 2021.  To tal liabilities were $1.35 billion at March 31, 2022, an increase of $69.33 million, or 5.4%, f rom $1.28 billion at December 31, 2021. The increase was largely due to an increase in deposits, as well as a net increase in total borrowings.  Total deposi ts increased  $48.03 million from December 31, 2021. Total borrowings increased $24.12 million from December 31, 2021. Total shareholders’ equity decreased $13.21 million or 8.4% fro m December 31, 2021.   Financial Condition Details   Investment Activities   The following table summarizes investment activities:       March 31,     December 31,       2022     2021       Fair Value     Percentage of Total     Fair Value     Percentage of Total       (Dollars in Thousands)   Securities available-for-sale:                                 U.S. Government obligations   $ 1,425       0.54 %   $ 1,633       0.60 % U.S. Treasury obligations     69,487       26.26       53,183       19.61   Municipal obligations     111,280       42.05       123,667       45.58   Corporate obligations     6,274       2.37       9,336       3.44   Mortgage-backed securities     13,125       4.96       14,636       5.40   Collateralized mortgage obligations     58,799       22.22       63,067       23.25   Asset-backed securities     4,245       1.60       5,740       2.12   Total securities available-for-sale   $ 264,635       100.00 %   $ 271,262       100.00 %   Securities available-for-sale were $264.64 million at March 31, 2022, a decrease   of $6.62 million, or 2.4%, from $271.26 million at December 31, 2021 . The decrease was due in part to unrealized losses at March 31, 2022 caused by recent increases in interest rates. The decrease was also impacted by maturity, principal payments and call activity. These decreases were largely offset by $20.16 million in investment purchases.    - 27 - 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:       March 31,     December 31,       2022     2021       Amount     Percent of Total     Amount     Percent of Total       (Dollars in thousands)   Real estate loans:                                 Residential 1-4 family (1)   $ 99,242       10.33 %   $ 101,180       10.82 % Residential 1-4 family construction     40,968       4.27       45,635       4.88   Total residential 1-4 family     140,210       14.60       146,815       15.70                                     Commercial real estate     432,976       45.09       410,568       43.92   Commercial construction and development     105,754       11.01       92,403       9.88   Farmland     60,363       6.29       67,005       7.17   Total commercial real estate     599,093       62.39       569,976       60.97                                     Total real estate loans     739,303       76.99       716,791       76.67                                     Other loans:                                 Home equity     53,828       5.61       51,748       5.54   Consumer     18,834       1.96       18,455       1.97                                     Commercial     98,471       10.25       101,535       10.86   Agricultural     49,836       5.19       46,335       4.96   Total commercial loans     148,307       15.44       147,870       15.82                                     Total other loans     220,969       23.01       218,073       23.33                                     Total loans     960,272       100.00 %     934,864       100.00 %                                   Deferred loan fees     (1,591 )             (1,725 )         Allowance for loan losses     (12,700 )             (12,500 )         Total loans, net   $ 945,981             $ 920,639               (1)  Excludes loans held-for-sale.   Loans receivable, net increased  $25.34 million, or 2.8%, to $945.98 million at March 31, 2022 from $920.64 million at December 31, 2021. The increase was largely driven by an increase in total commercial real estate loans of  $29.11  million. Home equity loans of $2.08 million, total commercial loans increased $437,000 and consumer loans increased $379,000. However, these increases were partially offset by a decrease in total residential loans of  $6.61  million.   Total loan originations were $288.10 million for the three months ended March 31, 2022. Total residential 1-4 family originations were $184.71 million, which includes $170.07 million of loans held-for-sale originations. Total commercial real estate originations were $76.67 million. Total commercial originations were $19.33 million.   Home equity loan originations totaled $4.96 million. Consumer loan originations totaled $2.43 million. Loans held-for-sa le decreased by $3.52 million to $22.30 million at March 31, 2022 from $25.82 million at December 31, 2021.   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 March 31, 2022  there was $346,000 of real estate owned and other repossessed property. A s of December 31, 2021, there was $4,000 of real estate owned and other repossessed property.   - 28 - 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:       March 31,     December 31,       2022     2021       (Dollars in Thousands)   Nonaccrual loans                 Real estate loans:                 Residential 1-4 family   $ 587     $ 616   Residential 1-4 family construction     -       337   Commercial real estate     368       497   Farmland     983       989   Other loans:                 Home equity     98       100   Consumer     44       62   Commercial     53       516   Agricultural     1,246       1,718   Accruing loans delinquent 90 days or more                 Real estate loans:                 Farmland     270       -   Restructured loans:                 Real estate loans:                 Commercial real estate     1,498       1,527   Farmland     624       641   Other loans:                 Home equity     13       15   Agricultural     476       41   Total nonperforming loans     6,260       7,059   Real estate owned and other repossessed property, net     346       4   Total nonperforming assets   $ 6,606     $ 7,063                     Total nonperforming loans to total loans     0.65 %     0.76 % Total nonperforming loans to total assets     0.42 %     0.49 % Total nonaccrual loans to total loans     0.47 %     0.59 % Total allowance for loan loss to nonperforming loans     202.88 %     177.08 % Total nonperforming assets to total assets     0.44 %     0.49 %   Nonaccrual loans as of March 31, 2022 and December 31, 2021 include $468,000 and $492,000, respectively of acquired loans that deteriorated subsequent to the acquisition date.    - 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   Deposits and Other Sources of Funds   The following table includes deposit accounts by category:       March 31,     December 31,       2022     2021               Percent             Percent       Amount     of Total     Amount     of Total       (Dollars in Thousands)   Noninterest checking   $ 371,818       29.26 %   $ 368,846       30.16 % Interest-bearing checking     210,247       16.55       203,410       16.64   Savings     232,166       18.27       223,069       18.25   Money market     312,485       24.60       277,469       22.70   Total     1,126,716       88.68       1,072,794       87.75   Certificates of deposit accounts:                                 IRA certificates     25,099       1.98       25,333       2.07   Other certificates     118,761       9.34       124,422       10.18   Total certificates of deposit     143,860       11.32       149,755       12.25   Total deposits   $ 1,270,576       100.00 %   $ 1,222,549       100.00 %   Depos its increased by $48.03 million, or 3.9%, to $1.27 billion at March 31, 2022 from $1.22 billion at December 31, 2021. Money marke t increased by $35.02 million, saving s increased by $9.10 m illion, interest-bearing checki ng increased by $6.84 million, and noninterest checki ng increased b y $2.97 million. However, certificates of depos it decreased by $5.90 million.    The following table summarizes borrowing activity:       March 31,     December 31,       2022     2021       Net     Percent     Net     Percent       Amount     of Total     Amount     of Total       (Dollars in Thousands)   FHLB advances and other borrowings   $ -       0.00 %   $ 5,000       14.34 % Other long-term debt:                                 Senior notes fixed at 5.75%, due 2022     -       -       9,996       28.67   Subordinated debentures fixed at 3.50% to floating, due 2032     39,105       66.29       -       -   Subordinated debentures fixed at 5.50% to floating, due 2030     14,726       24.97       14,718       42.21   Subordinated debentures variable, due 2035     5,155       8.74       5,155       14.78   Total other long-term debt     58,986       100.00       29,869       85.66   Total borrowings   $ 58,986       100.00 %   $ 34,869       100.00 %   Total borrowing s increased by $24.12 million, or 69.2% to $58.99 m illion at March 31, 2022 from $34.87 million at December 31, 2021 . This increase is largely due to issuance of $40.00 million of subordinated notes, slightly offset by the redemption of $10.00 million of senior notes and the maturity of $5.00 million of FHLB advances.     Shareholders’ Equity   Total shareholders’ equit y decreased by $13.21 million, or 8.4%, t o $143.52 million at March 31, 2022 from $156.73 million at December 31, 2021 . The decrease was largely due to other comprehensive loss of $12.57 million, treasury stock purchases of $2.27 million and dividends paid of $849,000. The other comprehensive loss was due to unrealized losses on securities available-for-sale caused by the recent increase in interest rates. These decreases were partially offset by net income of $2.22 million.   - 30 - 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.        For the Three Months Ended March 31,       2022     2021       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:                                                 Investment securities   $ 273,004     $ 1,297       1.93 %   $ 163,423     $ 877       2.18 % FHLB and FRB stock     4,540       59       5.27       4,947       69       5.66   Loans receivable (1)     974,177       11,373       4.73       890,042       11,029       5.03   Other earning assets     68,278       39       0.23       79,620       26       0.13   Total interest-earning assets     1,319,999       12,768       3.92       1,138,032       12,001       4.28   Noninterest-earning assets     155,050                       138,933                   Total assets   $ 1,475,049                     $ 1,276,965                                                                     Liabilities and equity:                                                 Interest-bearing liabilities:                                                 Deposit accounts:                                                 Checking   $ 207,239     $ 13       0.03 %   $ 171,721     $ 10       0.02 % Savings     221,531       31       0.06       182,566       27       0.06   Money market     294,136       192       0.27       215,138       110       0.21   Certificates of deposit     146,211       76       0.21       168,321       255       0.61   Advances from FHLB and other borrowings including long-term debt     63,628       611       3.89       44,375       460       4.20   Total interest-bearing liabilities     932,745       923       0.40       782,121       862       0.45   Noninterest checking     368,223                       317,036                   Other noninterest-bearing liabilities     20,879                       21,837                   Total liabilities     1,321,847                       1,120,994                                                                     Total equity     153,202                       155,971                                                                     Total liabilities and equity   $ 1,475,049                     $ 1,276,965                   Net interest income/interest rate spread (2)           $ 11,845       3.52 %           $ 11,139       3.83 %                                                   Net interest margin (3)                     3.64 %                     3.97 % Total interest-earning assets to interest-bearing liabilities                     141.52 %                     145.51 %   (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.   - 31 - 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.         For the Three Months Ended March 31,       2022     2021               Due to                     Due to               Volume     Rate     Net     Volume     Rate     Net       (In Thousands)   Interest-earning assets:                                                 Investment securities   $ 588     $ (168 )   $ 420     $ (47 )   $ (103 )   $ (150 ) FHLB and FRB stock     (6 )     (4 )     (10 )     (31 )     6       (25 ) Loans receivable (1)     1,043       (699 )     344       675       (1,078 )     (403 ) Other earning assets     (4 )     17       13       233       (285 )     (52 ) Total interest-earning assets     1,621       (854 )     767       830       (1,460 )     (630 )                                                   Interest-bearing liabilities:                                                 Checking     2       1       3       5       (13 )     (8 ) Savings     6       (2 )     4       14       (33 )     (19 ) Money Market     40       42       82       74       (140 )     (66 ) Certificates of deposit     (33 )     (146 )     (179 )     (372 )     (472 )     (844 ) Advances from FHLB and other borrowings including long-term debt     200       (49 )     151       (494 )     139       (355 ) Total interest-bearing liabilities     215       (154 )     61       (773 )     (519 )     (1,292 )                                                   Change in net interest income   $ 1,406     $ (700 )   $ 706     $ 1,603     $ (941 )   $ 662     (1)  Includes loans held-for-sale.   - 32 - 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  March 31, 2022 and 2021   Net Income. Eagle’s net income for the three months ended March 31, 2022 was $2.22 million compared to $5.27 million for the three months ended March 31, 2021. The decrease of $3.05 million was largely due to a decrease in noninterest income of $5.10 million. This decrease was partially offset by an increase in net interest income after loan loss provision of $726,000 and a decrease in provision for income taxes of $1.06 million. Basic and diluted earnings per share were both $0.34 for the current period. Basic and diluted earnings per share were both $0.78 for the prior year comparable period.   Net Interest Income. Net interest inco me increased t o $11.85 million for the three months ended March 31, 2022, from $11.14 million for the same quarter in the prior year . The  increase of $706,000, or 6.3%, was primarily the result of an increase in interest and dividend income of $767,000, partially offset by an increase in interest expense of $61,000.   Interest and Dividend Income. Interest and dividend income was $12.77 million for the three months ended March 31, 2022 compared to $12.00 million for the three months ended March 31, 2021. Interest on investment securities available-for-sale increased by $420,000, or 47.9% period over period. Average balances for investments increased to $273.00 million for the three months ended March 31, 2022, from $163.42 million for the three months ended March 31, 2021. The increase in average investment balances was largely driven by purchase activity due to excess liquidity levels. However, average interest rates earned on investments decreased to 1.93% for the three months ended March 31, 2022 from 2.18% for the three months ended March 31, 2021. Interest and fees on loa ns in creased to $11.37 million for the three months ended March 31, 2022 from $11.03 million for the three months ended March 31, 2021. This increase of $344,000, or 3.1%, was due to an increase in the average balance of loans, partially offset by a decrease in the average yield on loans. Average balances for loans receivable, including loans held-for-sale, for the three months ended March 31, 2022 were $974.18 million, compared to $890.04 million for the prior year period. This represents an increase of $84.14 million, or 9.5%. The average interest rate earned on loans receivable decreased by 30 basis points, from 5.03% for the three months ended March 31, 2021 to 4.73% for the current period. Interest accretion on purchased loans was $108,000 for the three months ended March 31, 2022 which resulted in a 3 basis point increase in net interest margin compared to $189,000 for the three months ended March 31, 2021 which resulted in a 7 basis point increase in net interest margin. PPP fee income on loans was $177,000 for the three months ended March 31, 2022, which resulted in a 5 basis point increase in net interest margin compared to $500,000 for the three months ended March 31, 2021  which resulted in an 18 basis point increase in net interest margin.    Interest Expense. Total interest expense was $923,000 for the three months ended March 31, 2022 compared to $862,000 for the three months ended March 31, 2021. The increase of $61,000, or 7.1%, was due to a net increase of $151,000 in interest expense on total borrowings, partially offset by a decrease of $90,000 in interest expense on deposits. The average balance for total borrowings increased from $44.38 million for the three months ended  March 31, 2021  to $63.63 million for the three months ended  March 31, 2022. The increase was impacted by the issuance of $40.00 million of subordinated notes in January 2022. A portion of the net proceeds were used to redeem $10.00 million of senior notes due in February 2022. However, the average rate paid on total borrowings decreased from 4.20% for the three months ended March 31, 2021, to 3.89% for the three months ended March 31, 2022. The decrease in the average rate paid is due to the change in the mix of the outstanding borrowings. The overall average rate on total deposits was 0.10% for the three months ended March 31, 2022 compared to 0.15% for the three months ended March 31, 2021. However, the average balance for total deposits was $1.24 billion for the three months ended March 31, 2022 compared to $1.05 billion for the three months ended March 31, 2021.    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. The Bank recorded $279,000  in loan loss provisions for the three months ended March 31, 2022 and $299,000 for the three months ended March 31, 2021. 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 $8.29 million for the three months ended March 31, 2022 compared to $13.39 million for the three months ended March 31, 2021 . The decrease of $5.10 million was primarily driven by a decrease in mortgage banking, net of $5.51 million. Mortgage banking, net includes net gain on sale of mortgage loans which decreased $8.05 million to $6.23 million for the three months ended March 31, 2022 compared to $14.28 million for the three months ended March 31, 2021. This change reflects a mortgage market that is returning to more normal levels after record levels were reached in 2021. During the three months ended March 31, 2022, $172.14 million residential mortgage loans were sold compared to $260.49 million in the same period in the prior year. In addition, gross margin on sale of mortgage loans for the three months ended March 31, 2022 was 3.62% compared to 5.48% for the three months ended March 31, 2021. There has been some margin compression due to increased competition. Mortgage banking, net also includes the impact of fair value changes of loans held-for sale and derivatives which can fluctuate due to changes in the market. The net change in fair value of loans held-for sale and derivatives was a loss of $535,000 for the three months ended March 31, 2022 compared to a loss of $2.46 million for the prior period.    Noninterest Expense. Noninterest expense was $16.95 million for the three months ended March 31, 2022 compared to $17.21 million for the three months ended March 31, 2021, a decrease of $265,000 or 1.5%. The decrease was impacted by lower commissions paid on residential mortgage originations. However, acquisition costs were also incurred during the three months ended March 31, 2022 related to the recently completed merger with FCB.    Provision for Income Taxes . Provision for income taxes was $695,000 for the three months ended March 31, 2022, compared to $1.76 million for the three months ended March 31, 2021 due to decreased income before provision for income taxes. The effective tax rate for the three months ended March 31, 2022 was 23.9% compared to 25.0% for the three months ended March 31, 2021.   - 33 - 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 by regulation to maintain sufficient levels of liquidity for safety and soundness purposes. Appropriate levels of liquidity will depend upon the types of activities in which the company engages. For internal reporting purposes, the Bank uses policy minimums of 1.0%, and 8.0% for “basic surplus” and “basic surplus with FHLB” as internally defined. In general, the “basic surplus” is a calculation of the ratio of unencumbered short-term assets reduced by estimated percentages of CD maturities and other deposits that may leave the Bank in the next 90 days divided by total assets. “Basic surplus with FHLB” adds to “basic surplus” the additional borrowing capacity the Bank has with the FHLB of Des Moines. The Bank exceeded those minimum ratios as of March 31, 2022 and December 31, 2021.   The Bank’s primary sources of funds are deposits, repayment of loans and mortgage-backed securities, maturities of investments, funds provided from operations, advances from the FHLB of Des Moines and other borrowings. Scheduled repayments of loans and mortgage-backed securities and maturities of investment securities are generally predictable. However, other sources of funds, such as deposit flows and loan prepayments, can be greatly influenced by the general level of interest rates, economic conditions and competition. The Company uses liquidity resources principally to fund existing and future loan commitments. It also uses them to fund maturing certificates of deposit and demand deposit withdrawals. In addition, the Company uses liquidity resources for investment purposes, to meet operating expenses and capital expenditures, for dividend payments and stock repurchases and to maintain adequate liquidity levels.   Liquidity may be adversely affected by unexpected deposit outflows, higher interest rates paid by competitors, and similar matters. Management monitors projected liquidity needs and determines the level desirable based in part on Eagle’s commitments to make loans and management’s assessment of Eagle’s ability to generate funds.   Through the three months ended March 31, 2022 , liquidity levels remained strong. The Company completed a $40.00 million subordinated debt offering in January 2022. A portion of the net proceeds were used to repay at maturity the $10.00 million of senior notes due in February 2022.   Capital Resources   As of March 31, 2022, the Bank’s internally determined measurement of sensitivity to interest rate movements as measured by a 200 basis point rise in interest rates scenario, increased the economic value of equity (“EVE”) by 13.30% c ompared to an increase of 8.90% at December 31, 2021. The Bank is within the guidelines set forth by the Board of Directors for interest rate 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 March 31, 2022. The Bank's Tier 1 leverage ratio de creased slightly from 10.96% as of  December 31, 2021 to 10.95% as of March 31, 2022 , compared to a regulatory requirement of 4.00%. The Bank’s total capital, Tier 1 capital and common equity Tier 1 capital leverage ratios were 15.13%, 13.99% and 13.99% ,  respectively, 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.         March 31, 2022       (Unaudited)       Dollar     % of       Amount     Assets       (Dollars in Thousands)   Total risk-based capital to risk weighted assets:                 Actual capital level   $ 169,151       15.13 % Minimum required for capital adequacy purposes     117,394       10.50   Excess capital   $ 51,757       4.63 %                   Tier 1 capital to risk weighted assets:                 Actual capital level   $ 156,451       13.99 % Minimum required for capital adequacy purposes     95,033       8.50   Excess capital   $ 61,418       5.49 %                   Common equity tier 1 capital to risk weighted assets:                 Actual capital level   $ 156,451       13.99 % Minimum required for capital adequacy purposes     78,263       7.00   Excess capital   $ 78,188       6.99 %                   Tier 1 capital to adjusted total average assets:                 Actual capital level   $ 156,451       10.95 % Minimum required for capital adequacy purposes     57,173       4.00   Excess capital   $ 99,278       6.95 %   - 34 - 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 increase or 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 March 31, 2022   Policy (Basis Points)   Year 1   Year 2   Limits               +200   4.1%   10.4%   -15.0% +100   2.3%   6.0%   -10.0% -100   -3.4%   -6.6%   -10.0%     - 35 - 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.   - 36 - 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 March 31, 2022, 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.     - 37 - 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, 2021 and any subsequently filed Quarterly Reports on Form 10-Q.   Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.   On April 21, 2022, Eagle's Board authorized the repurchase of up to 400,000 shares of its common stock. Under the plan, shares may be purchased by the Company on the open market or in privately negotiated transactions. The extent to which the company repurchases its shares and the timing of such repurchase will depend upon market conditions and other corporate considerations. The plan expires on April 21, 2023.   On July 22, 2021, 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 repurchases its shares and the timing of such repurchase will depend upon market conditions and other corporate considerations.  No shares were purchased during the third or fourth quarter of 2021. However, during February 2022, the Company repurchased the total authorized amount of 100,000 shares at an average price of $22.71 per share. The plan expires on July 22, 2022.  The following table summarizes the Company's purchase of its common stock for the three months ended March 31, 2022.                       Total Number     Maximum                       of Shares     Number of                       Purchased     Shares that       Total             as Part of     May Yet Be       Number of     Average     Publicly     Purchased       Shares     Price Paid     Announced Plans     Under the Plans       Purchased     Per Share     or Programs     or Programs                                     January 1, 2022 through January 31, 2022     -     $ -       -       -                                     February 1, 2022 through February 28, 2022     100,000       22.71       100,000       -                                     March 1, 2022 through March 31, 2022     -       -       -       -                                     Total     100,000     $ 22.71       100,000             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.   Item 3. Defaults Upon Senior Securities.   Not applicable.   Item 4. Mine Safety Disclosures Not applicable.   - 38 - 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 Amendment No. 4 to the Eagle Bancorp Montana, Inc. 2011 Stock Incentive Plan for Directors, Officers and Employees (incorporated by reference to Exhibit 10.1 of our Current Report on Form 8-K filed on April 27, 2022).     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 Miranda J. Spaulding, Chief Financial Officer, pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934, as adopted pursuant to Section 302 (a) of the Sarbanes-Oxley Act of 2002.     32.1 Certification by Peter J. Johnson, Chief Executive Officer, and Miranda J. Spaulding, Chief Financial Officer, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.     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.    - 39 - 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: May 5, 2022 By:   /s/ Peter J. Johnson   Peter J. Johnson   CEO                          Date: May 5, 2022 By:   /s/ Miranda J. Spaulding   Miranda J. Spaulding   SVP/CFO     - 40 -