Eagle Bancorp Montana, Inc. 10-Q

ebmt20230930_10q.htm   Table of Contents   UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549   FORM 10-Q   ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934   For the quarterly period ended  September 30, 2023   ☐ 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 registrant 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) (Zip code)   ( 406 ) 442-3080 (Registrant's telephone number, including area code)   Not Applicable (Former name, former address and former fiscal year, if changed since last report)     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 ☒       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 7,988,132 shares outstanding As of October 31, 2023     Table of Contents       EAGLE BANCORP MONTANA, INC. AND SUBSIDIARIES TABLE OF CONTENTS   PART I. FINANCIAL INFORMATION PAGE       Item 1. Financial Statements (Unaudited)           Condensed Consolidated Statements of Financial Condition as of September 30, 2023 and December 31, 2022 1         Condensed Consolidated Statements of Income for the three and nine months ended September 30, 2023 and 2022 3         Condensed Consolidated Statements of Comprehensive Income ( Loss) for   the three and nine months ended September 30, 2023 and 2022 5         Condensed Consolidated Statements of Changes in Shareholders' Equity for the three and nine months ended September 30, 2023 and 2022 6         Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2023 and 2022 7         Notes to Condensed Consolidated Financial Statements (Unaudited) 9         Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 28       Item 3. Quantitative and Qualitative Disclosures About Market Risk 41       Item 4. Controls and Procedures 42       PART II. OTHER INFORMATION   Item 1. Legal Proceedings 43 Item 1A. Risk Factors 43 Item 2.  Unregistered Sales of Equity Securities and Use of Proceeds 43 Item 3. Defaults Upon Senior Securities 43 Item 4.  Mine Safety Disclosures 43 Item 5. Other Information 44 Item 6.  Exhibits 44       Signatures 45     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 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 emergence or continuation of widespread health emergencies or pandemics, including the magnitude and duration of the ongoing novel coronavirus, or COVID-19, and its impacts 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 traditional and non-traditional financial service providers;   ● 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 or reduces loan demand;   ● our ability to attract deposits and other sources of funding or liquidity;   ● the impact of adverse developments affecting the U.S. banking industry, including bank failures and liquidity concerns, which could cause continued or worsening economic and market volatility, and regulatory responses thereto;   ● the possibility that future credit losses may be higher than currently expected due to changes in economic assumptions, customer behavior, adverse developments with respect to U.S. or global economic conditions and other uncertainties, including the impact of supply chain disruptions, inflationary pressures and labor shortages on economic conditions and our business;   ● an inability to access capital markets or maintain deposits or borrowing costs;   ● uncertainty regarding the content, timing and impact of regulatory capital and liquidity requirements;   ● the risks related to the transition and physical impacts of climate change;   ● our ability to achieve environmental, social and governance goals and commitments or the impact of any changes in the Company’s sustainability strategy or commitments generally;   ● changes or volatility in the securities markets that lead to impairment in the value of our investment securities and goodwill;   ● our ability to implement our growth strategy, including identifying and consummating suitable acquisitions, raising additional capital to finance such transactions, entering new markets, possible failures in realizing the anticipated benefits from such acquisitions and an inability of our personnel, systems and infrastructure to keep pace with such growth;   ● the effect of acquisitions we may make, if any, including, without limitation, the failure to achieve expected revenue growth and/or expense savings from such acquisitions;   ● risks related to the integration of any businesses we have acquired or expect to acquire, including exposure to potential asset quality and credit quality risks and unknown or contingent liabilities, the time and costs associated with integrating systems, technology platforms, procedures and personnel;   ● potential impairment on the goodwill we have recorded or may record in connection with business acquisitions;   ● 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;   ● the level of future deposit insurance premium assessments;   ● our ability to implement new technologies and maintain secure and reliable technology systems;   ● 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, 2022, any subsequent Reports on Form 10-Q and Form 8-K, and other filings with the SEC. We do not undertake any obligation to publicly update or correct any forward-looking statements to reflect events or circumstances that subsequently occur, or of which we hereafter become aware.     Table of Contents     EAGLE BANCORP MONTANA, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION (Dollars in Thousands, Except for Per Share Data) (Unaudited)       September 30,     December 31,       2023     2022   ASSETS:                 Cash and due from banks   $ 19,743     $ 19,321   Interest-bearing deposits in banks     1,040       2,490   Total cash and cash equivalents     20,783       21,811                     Securities available-for-sale, at fair value (amortized cost of $ 350,754 at September 30, 2023 and $ 385,275 at December 31, 2022)     308,786       349,495   Federal Home Loan Bank ("FHLB") stock     10,438       5,089   Federal Reserve Bank ("FRB") stock     4,131       4,131   Mortgage loans held-for-sale, at fair value     17,880       8,250   Loans receivable, net of allowance for credit losses of $ 16,230 at September 30, 2023 and $ 14,000 at December 31, 2022 (1)     1,459,543       1,339,678   Accrued interest and dividends receivable     13,657       11,284   Mortgage servicing rights, net     15,738       15,412   Assets held-for-sale, at fair value     -       1,305   Premises and equipment, net     92,979       84,323   Cash surrender value of life insurance, net     47,647       47,724   Goodwill     34,740       34,740   Core deposit intangible, net     6,264       7,459   Other assets     30,478       17,683                     Total assets   $ 2,063,064     $ 1,948,384                     (1) Allowance for credit losses at September 30, 2023; allowance for loan losses for prior period.                   The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.     - 1 - Table of Contents   EAGLE BANCORP MONTANA, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION (Continued) (Dollars in Thousands, Except for Per Share Data) (Unaudited)       September 30,     December 31,       2023     2022   LIABILITIES:                 Deposit accounts:                 Noninterest-bearing   $ 435,655     $ 468,955   Interest-bearing     1,179,823       1,166,317   Total deposits     1,615,478       1,635,272                     Accrued expenses and other liabilities     31,597       26,458   FHLB advances and other borrowings     199,757       69,394   Other long-term debt:                 Principal amount     60,155       60,155   Unamortized debt issuance costs     ( 1,193 )     ( 1,311 ) Total other long-term debt, net     58,962       58,844                     Total liabilities     1,905,794       1,789,968                     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; 8,507,429 shares issued at September 30, 2023 and December 31, 2022; 7,988,132 and 8,006,033 shares outstanding at September 30, 2023 and December 31, 2022), respectively     85       85   Additional paid-in capital     109,422       109,164   Unallocated common stock held by Employee Stock Ownership Plan ("ESOP")     ( 4,727 )     ( 5,156 ) Treasury stock, at cost ( 519,297 and 501,396 shares at September 30, 2023 and December 31, 2022, respectively)     ( 11,574 )     ( 11,343 ) Retained earnings     94,979       92,023   Accumulated other comprehensive loss, net of tax     ( 30,915 )     ( 26,357 ) Total shareholders' equity     157,270       158,416                     Total liabilities and shareholders' equity   $ 2,063,064     $ 1,948,384     The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.   - 2 - Table of Contents     EAGLE BANCORP MONTANA, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF INCOME  (Dollars in Thousands, Except for Per Share Data) (Unaudited)       Three Months Ended     Nine Months Ended       September 30,     September 30,       2023     2022     2023     2022   INTEREST AND DIVIDEND INCOME:                                 Interest and fees on loans   $ 21,068     $ 16,665     $ 57,942     $ 42,933   Securities available-for-sale     2,794       2,555       8,586       5,863   FHLB and FRB dividends     212       63       480       160   Other interest income     20       59       66       206   Total interest and dividend income     24,094       19,342       67,074       49,162                                     INTEREST EXPENSE:                                 Deposits     5,152       717       11,767       1,451   FHLB advances and other borrowings     2,672       136       5,993       157   Other long-term debt     683       602       2,035       1,855   Total interest expense     8,507       1,455       19,795       3,463                                     NET INTEREST INCOME     15,587       17,887       47,279       45,699                                     Provision for credit losses (1)     588       517       1,186       1,654                                     NET INTEREST INCOME AFTER PROVISION FOR CREDIT LOSSES     14,999       17,370       46,093       44,045                                     NONINTEREST INCOME:                                 Service charges on deposit accounts     447       498       1,313       1,223   Mortgage banking, net     4,338       4,447       11,252       16,183   Interchange and ATM fees     643       594       1,861       1,668   Appreciation in cash surrender value of life insurance     382       291       1,165       748   Net loss on sale of available-for-sale securities     -       -       ( 222 )     ( 6 ) Net gain on sale/disposal of premises and equipment     -       -       83       -   Other noninterest income     225       416       1,458       1,104   Total noninterest income   $ 6,035     $ 6,246     $ 16,910     $ 20,920                                     (1) Provision for credit losses for the three and nine months ended September 30, 2023; provision for loan losses for the three and nine months ended September 30, 2022.                                     The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.   - 3 - Table of Contents   EAGLE BANCORP MONTANA, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF INCOME (Continued) (Dollars in Thousands, Except for Per Share Data) (Unaudited)       Three Months Ended     Nine Months Ended       September 30,     September 30,       2023     2022     2023     2022   NONINTEREST EXPENSE:                                 Salaries and employee benefits   $ 10,837     $ 11,699     $ 31,614     $ 33,511   Occupancy and equipment expense     1,956       1,946       6,100       5,441   Data processing     1,486       1,964       4,270       4,628   Advertising     340       464       930       1,052   Amortization     386       333       1,201       895   Loan costs     517       491       1,426       1,624   Federal Deposit Insurance Corporation ("FDIC") insurance premiums     301       93       862       330   Professional and examination fees     408       420       1,484       1,098   Acquisition costs     -       103       -       2,296   Other noninterest expense     1,644       1,980       5,311       4,651   Total noninterest expense     17,875       19,493       53,198       55,526                                     INCOME BEFORE PROVISION FOR INCOME TAXES     3,159       4,123       9,805       9,439                                     Provision for income taxes     524       1,031       1,913       2,360                                     NET INCOME   $ 2,635     $ 3,092     $ 7,892     $ 7,079                                     BASIC EARNINGS PER COMMON SHARE   $ 0.34     $ 0.40     $ 1.01     $ 0.98                                     DILUTED EARNINGS PER COMMON SHARE   $ 0.34     $ 0.40     $ 1.01     $ 0.98       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 (LOSS) (Dollars in Thousands) (Unaudited)       Three Months Ended     Nine Months Ended       September 30,     September 30,       2023     2022     2023     2022                                     NET INCOME   $ 2,635     $ 3,092     $ 7,892     $ 7,079                                     OTHER ITEMS OF COMPREHENSIVE LOSS BEFORE TAX:                                 Change in fair value of investment securities available-for-sale     ( 9,763 )     ( 16,009 )     ( 6,410 )     ( 46,657 ) Reclassification for net realized loss on investment securities available-for-sale     -       -       222       6   Total other comprehensive loss     ( 9,763 )     ( 16,009 )     ( 6,188 )     ( 46,651 )                                   Income tax benefit related to securities available-for-sale     2,571       4,216       1,630       12,284                                     COMPREHENSIVE (LOSS) INCOME   $ ( 4,557 )   $ ( 8,701 )   $ 3,334     $ ( 27,288 )   The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.   - 5 - Table of Contents     EAGLE BANCORP MONTANA, INC. AND SUBSIDIARIES  CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY For the Three and Nine Months Ended September 30, 2023 and 2022 (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     (LOSS) INCOME     TOTAL                                                                     Balance at June 30, 2023   $ -     $ 85     $ 109,345     $ ( 4,870 )   $ ( 11,574 )   $ 93,462     $ ( 23,723 )   $ 162,725   Net income     -       -       -       -       -       2,635       -       2,635   Other comprehensive loss     -       -       -       -       -       -       ( 7,192 )     ( 7,192 ) Dividends paid ($ 0.140 per share)     -       -       -       -       -       ( 1,118 )     -       ( 1,118 ) Stock compensation expense     -       -       143       -       -       -       -       143   ESOP shares allocated ( 5,997 shares)     -       -       ( 66 )     143       -       -       -       77   Balance at September 30, 2023   $ -     $ 85     $ 109,422     $ ( 4,727 )   $ ( 11,574 )   $ 94,979     $ ( 30,915 )   $ 157,270                                                                     Balance at June 30, 2022   $ -     $ 85     $ 109,410     $ ( 5,443 )   $ ( 9,691 )   $ 87,510     $ ( 19,081 )   $ 162,790   Net income     -       -       -       -       -       3,092       -       3,092   Other comprehensive loss     -       -       -       -       -       -       ( 11,793 )     ( 11,793 ) Dividends paid ($ 0.1375 per share)     -       -       -       -       -       ( 1,100 )     -       ( 1,100 ) Stock compensation expense     -       -       135       -       -       -       -       135   ESOP shares allocated ( 5,997 shares)     -       -       ( 57 )     143       -       -       -       86   Treasury stock purchased ( 99,517 shares at $ 19.45 average cost per share)     -       -       -       -       ( 1,936 )     -       -       ( 1,936 ) Balance at September 30, 2022   $ -     $ 85     $ 109,488     $ ( 5,300 )   $ ( 11,627 )   $ 89,502     $ ( 30,874 )   $ 151,274                                                                     Balance at December 31, 2022   $ -     $ 85     $ 109,164     $ ( 5,156 )   $ ( 11,343 )   $ 92,023     $ ( 26,357 )   $ 158,416   Net income     -       -       -       -       -       7,892       -       7,892   New credit standard (Topic 326) - impact in year of adoption     -       -       -       -       -       ( 1,616 )     -       ( 1,616 ) Other comprehensive loss     -       -       -       -       -       -       ( 4,558 )     ( 4,558 ) Dividends paid ($ 0.415 per share)     -       -       -       -       -       ( 3,320 )     -       ( 3,320 ) Stock compensation expense     -       -       432       -       -       -       -       432   ESOP shares allocated ( 17,991 shares)     -       -       ( 174 )     429       -       -       -       255   Treasury stock purchased ( 17,901 shares at $ 12.89 average cost per share)     -       -       -       -       ( 231 )     -       -       ( 231 ) Balance at September 30, 2023   $ -     $ 85     $ 109,422     $ ( 4,727 )   $ ( 11,574 )   $ 94,979     $ ( 30,915 )   $ 157,270                                                                     Balance at December 31, 2021   $ -     $ 71     $ 80,832     $ ( 5,729 )   $ ( 7,321 )   $ 85,383     $ 3,493     $ 156,729   Net income     -       -       -       -       -       7,079       -       7,079   Other comprehensive loss     -       -       -       -       -       -       ( 34,367 )     ( 34,367 ) Dividends paid ($ 0.3875 per share)     -       -       -       -       -       ( 2,960 )     -       ( 2,960 ) Stock issued in connection with First Community Bancorp, Inc. acquisition     -       14       28,337       -       -       -       -       28,351   Stock compensation expense     -       -       405       -       -       -       -       405   ESOP shares allocated ( 17,991 shares)     -       -       ( 86 )     429       -       -       -       343   Treasury stock purchased ( 204,517 shares at $ 21.05 average cost per share)     -       -       -       -       ( 4,306 )     -       -       ( 4,306 ) Balance at September 30, 2022   $ -     $ 85     $ 109,488     $ ( 5,300 )   $ ( 11,627 )   $ 89,502     $ ( 30,874 )   $ 151,274         The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.   - 6 - Table of Contents     EAGLE BANCORP MONTANA, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS  (Dollars in Thousands) (Unaudited)         Nine Months Ended       September 30,       2023     2022   CASH FLOWS FROM OPERATING ACTIVITIES:                 Net income   $ 7,892     $ 7,079   Adjustments to reconcile net income to net cash (used in) provided by operating activities:                 Provision for credit losses (1)     1,186       1,654   Recovery of mortgage servicing rights     -       ( 56 ) Depreciation     2,854       2,615   Net amortization of investment securities premiums and discounts     807       1,182   Amortization of mortgage servicing rights     1,330       1,710   Amortization of right-of-use assets     512       512   Amortization of core deposit intangibles     1,201       895   Compensation expense related to restricted stock awards     432       405   ESOP compensation expense for allocated shares     255       343   Net gain on sale of loans     ( 8,551 )     ( 15,645 ) Originations of loans held-for-sale     ( 265,496 )     ( 449,013 ) Proceeds from sales of loans held-for-sale     264,418       466,069   Net gain on sale of real estate owned and other repossessed assets     -       ( 203 ) Net gain on sale/disposal of premises and equipment     ( 83 )     ( 1 ) Net realized loss on sales of available-for-sale securities     222       6   Net appreciation in cash surrender value of life insurance     ( 1,165 )     ( 748 ) Net change in:                 Accrued interest and dividends receivable     ( 2,373 )     ( 2,273 ) Other assets     ( 7,143 )     241   Accrued expenses and other liabilities     851       891   Net cash (used in) provided by operating activities     ( 2,851 )     15,663                     CASH FLOWS FROM INVESTING ACTIVITIES:                 Activity in available-for-sale securities:                 Sales     34,020       43,794   Maturities, principal payments and calls     27,340       30,876   Purchases     ( 28,126 )     ( 77,073 ) FHLB stock purchased     ( 5,349 )     ( 612 ) FRB stock purchased     -       ( 392 ) Net cash received from acquisitions     -       13,397   Loan origination and principal collection, net     ( 123,687 )     ( 191,855 ) Proceeds from sale of real estate and other repossessed assets acquired in settlement of loans     -       535   Proceeds from bank owned life insurance     1,230       -   Proceeds from sale of premises and equipment     979       5   Purchases of premises and equipment, net     ( 11,602 )     ( 10,733 ) Net cash used in investing activities   $ ( 105,195 )   $ ( 192,058 )                   (1) Provision for credit losses for the quarter ended September 30, 2023; provision for loan losses for prior period.                   The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.   - 7 - Table of Contents   EAGLE BANCORP MONTANA, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued) (Dollars in Thousands) (Unaudited)     Nine Months Ended     September 30,     2023   2022   CASH FLOWS FROM FINANCING ACTIVITIES:             Net (decrease) increase in deposits $ ( 19,794 ) $ 130,594   Net decrease in repurchase agreements   -     ( 22,853 ) Net short-term advances from FHLB and other borrowings   130,363     15,600   Payments on long-term FHLB and other borrowings   -     ( 5,000 ) Proceeds from issuance of subordinated debentures   -     40,000   Repayment of senior debt   -     ( 10,000 ) Payments for debt issuance costs   -     ( 917 ) Purchase of treasury stock   ( 231 )   ( 4,306 ) Dividends paid   ( 3,320 )   ( 2,960 ) Net cash provided by financing activities   107,018     140,158                 NET DECREASE IN CASH AND CASH EQUIVALENTS   ( 1,028 )   ( 36,237 )               CASH AND CASH EQUIVALENTS, beginning of period   21,811     61,434                 CASH AND CASH EQUIVALENTS, end of period $ 20,783   $ 25,197                               SUPPLEMENTAL CASH FLOW INFORMATION:             Cash paid during the period for interest $ 17,109   $ 3,423   Cash paid during the period for income taxes, net of refund   2,414     2,720                 NONCASH INVESTING AND FINANCING ACTIVITIES:             Decrease in fair value of securities available-for-sale $ ( 6,188 ) $ ( 46,651 ) Mortgage servicing rights recognized   1,656     3,102   Right-of-use assets obtained in exchange for lease liabilities   11     154   Loans transferred to real estate and other assets acquired in foreclosure   -     328   Stock issued in connection with acquisition   -     28,351   Commitments to invest in Low-Income Housing Tax Credit projects   3,068     -   Cumulative effect adjustment to retained earnings due to adoption of Topic 326   ( 1,616 )   -     See Note 2. Mergers and Acquisitions for additional information related to assets acquired and liabilities assumed in acquisitions.   The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.     - 8 - Table of Contents EAGLE BANCORP MONTANA, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)     NOTE 1.  ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES   Organization   Eagle Bancorp Montana, Inc. (“Eagle” or the “Company”), is a Delaware corporation that holds 100 % of the capital stock of Opportunity Bank of Montana (“OBMT” or the “Bank”), formerly American Federal Savings Bank (“AFSB”). The Bank was founded in 1922 as a Montana chartered building and loan association and has conducted operations and maintained its administrative office in Helena, Montana since that time. In 1975, the Bank adopted a federal thrift charter and in October 2014 converted to a Montana chartered commercial bank and became a member bank in the Federal Reserve System.   In September 2021, the Company entered into an Agreement and Plan of Merger ("Merger Agreement") with First Community Bancorp, Inc. ("FCB"), a Montana corporation, and FCB's wholly-owned subsidiary, First Community Bank, a Montana chartered commercial bank. The Merger Agreement provided that, upon the terms and subject to the conditions set forth in the Merger Agreement, FCB would merge with and into Eagle, with Eagle continuing as the surviving corporation. The merger closed on April 30, 2022. First Community Bank operated nine branches in Ashland, Culbertson, Froid, Glasgow, Helena, Hinsdale, Three Forks and Wolf Point, Montana.    In March 2021, the Bank established a subsidiary, Opportunity Housing Fund, LLC ("OHF"), to invest in Low-Income Housing Tax Credit ("LIHTC") projects. The LIHTC program is designed to encourage capital investment in construction and rehabilitation of low-income housing. Tax credits are allowable over a 10 -year period. Investments in LIHTC projects are included in other assets on the consolidated statements of financial condition and tot aled $ 5,769,000 and $ 1,237,000 as of September  30, 2023 and December 31, 2022, respectively. The Company's remaining capital commitments to these LIHTC projects w ere $ 3,068,000  a s of September 30, 2023 and are included in accrued expenses and other liabilities on the consolidated statements of financial condition.    On January 1, 2020, the Company acquired Western Holding Company of Wolf Point, ("WHC"), a Montana corporation, and WHC's wholly-owned subsidiary, Western Bank of Wolf Point ("WB"), a Montana chartered commercial bank. The acquisition included one branch in Wolf Point, Montana. In addition, Western Financial Services, Inc. ("WFS") was acquired through the WHC merger. WFS facilitates deferred payment contracts for customers that produce agricultural products.     The Bank currently has 31  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  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, 2022 , as filed with the SEC on March 8, 2023. In the opinion of management, all normal adjustments and recurring accruals considered necessary for a fair presentation of the financial position and results of operations for the periods presented have been included.   The results of operations for the nine -month period ended  September 30, 2023 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 credit 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.   Reclassifications     Certain prior period amounts were reclassified to conform to the presentation for 2023 . These reclassifications had no impact on net income or shareholders’ equity.   Subsequent Events   The Company has evaluated events and transactions subsequent to September  30, 2023 for recognition and/or disclosure.   Goodwill   Goodwill is recorded upon completion of a business combination as the difference between the purchase price and the fair value of net identifiable assets acquired. Subsequent to initial recognition, the Company tests goodwill for impairment annually as of October 31, or more often if events or circumstances, such as adverse changes in the business climate indicate there may be impairment.   During the quarter ended September 30, 2023, Management determined that a triggering event had occurred because of a decrease in the Company's stock price and a revision in the earnings outlook in comparison to budget. These conditions are primarily due to economic uncertainty and market volatility from the rising interest rate environment. As a result, the Company performed an interim goodwill impairment assessment as of August 31, 2023, and concluded that goodwill was not impaired.   - 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   Recently Adopted Accounting Pronouncements    On January 1, 2023, the Company adopted Accounting Standards Update ("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 adoption of ASU No. 2017 - 04 did not have a material impact on the consolidated financial statements.   Application of New Accounting Guidance Adopted in 2023     On January 1, 2023, the Company adopted 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. This guidance is commonly referred to as Current Expected Credit Losses ("CECL"), and the CECL model is based on expected credit losses rather than the model used for periods prior to January 1, 2023, which was based on incurred losses. The allowance for credit losses is established for current expected credit losses on the Company's loan portfolio, including unfunded loan commitments, 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 estimate their credit losses. 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, Topic 326 amends the accounting for credit losses on available-for-sale debt securities, requiring credit losses on available-for-sale debt securities to be presented as an allowance rather than a write-down for those securities management does not intend to sell or is not likely to be required to sell.    On January 1, 2023, the Company also adopted ASU No. 2022 - 02, Financial Instruments – Credit Losses (Topic 326 ), Troubled Debt Restructurings and Vintage Disclosures. This guidance was an update to ASU No. 2016 - 13, and the Company adopted using the modified retrospective transition method. The amendments in this update eliminated the accounting guidance for troubled debt restructure ("TDR") loans and enhanced the disclosure requirements for certain loan modifications of receivables made to borrowers experiencing financial difficulty.    The Company adopted Topic 326 using the modified retrospective basis with the cumulative effect of initially applying the amendments recognized in retained earnings. Results for reporting periods beginning after January 1, 2023 are presented under ASC 326. Results from periods prior to January 1, 2023 are presented using previously applicable U.S. GAAP. The adoption resulted in an increase of $ 700,000  to our allowance for credit losses ("ACL"), an increase of $ 1,500,000  to our allowance for unfunded loan commitments, and a net-of-tax cumulative effect adjustment of $ 1,616,000  to decrease the beginning balance of retained earnings.     The adoption of this guidance did not have an impact on the Company's available-for-sale securities. However, any subsequent estimated credit losses are required to be recognized through an allowance for credit losses associated with the applicable securities.   The Company finalized the adoption of ASC 326 as of January 1, 2023 as detailed in the following table:       January 1, 2023 As Reported Under Topic 326     January 1, 2023 Pre-Topic 326 Adoption     Impact of Topic 326 Adoption   Assets                         Real estate loans:                         Residential 1-4 family   $ 1,493     $ 1,472     $ 21   Commercial real estate     9,571       9,037       534                             Other loans:                         Home equity     512       509       3   Consumer     343       342       1   Commercial     2,781       2,640       141   Allowance for credit losses on loans   $ 14,700     $ 14,000     $ 700                             Liabilities                         Allowance for credit losses on unfunded loan commitments   $ 1,500     $ -     $ 1,500                             Total                   $ 2,200       Allowance for Credit Losses on Loans  – The allowance for credit losses on loans is a valuation account that is deducted from the loans’ amortized cost basis to present the net amount expected to be collected on the loans. The Company has elected to exclude accrued interest receivable from the amortized cost basis of loans, and accrued interest is reported separately on the consolidated statements of financial condition. Loans are charged off against the allowance when management believes the uncollectability of a loan balance is confirmed and recoveries are credited to the allowance when received. The Company may also account for expected recoveries should information of an anticipated recovery become available. In the case of actual or expected recoveries, amounts may not exceed the aggregate of amounts previously charged off.   Management utilizes relevant available information, from internal and external sources, relating to past events, current conditions, historical loss experience, and reasonable and supportable forecasts. The lookback period in the analysis includes historical data from 2014 to present. Adjustments to historical loss information are made when management determines historical data is not likely reflective of the current portfolio such as limited data sets or lack of default or loss history. Adjustments to historical loss information are made when management determines historical data is not likely reflective of the current portfolio such as limited data sets or lack of default or loss history. Management may selectively apply external market data to subjectively adjust the Company’s own loss history including index or peer data.    - 10 - 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   Collective Assessment  – The allowance for credit losses on loans is measured on a collective cohort basis when similar risk characteristics exist. Generally, collectively assessed loans are grouped first by call report code, then by similar risk characteristics.   The Company has elected to use the Weighted Average Remaining Maturity (WARM) methodology for all cohorts. The WARM methodology looks at historical quarterly loss rates for each loan cohort over the established “look back” period to determine an average loss rate for each cohort. Each cohort is analyzed to determine the remaining life using amortization schedules, including prepayments.   Historical charge off and recovery activity is compared to loan balances in each cohort quarterly and is averaged to determine an estimated annual charge off rate. The average loss rate over this look-back period is applied annually over the remaining life of the cohort to determine an expected loss percentage.   The Company utilizes reasonable and supportable forecasted losses based on current economic conditions when estimating the allowance for credit losses on loans. Forecasts are based on regression and matrix models that compare national economic indicators to peer charge off rates and local economic indicators to the Company’s charge off rates. The expected loss rate for each cohort is adjusted by the difference between the Bank's historical loss rate and forecasted loss rates. The forecasting models are updated and compared to loss rates quarterly.   The Company recognizes that all significant factors that affect the collectability of the loan portfolio must be considered to determine the estimated credit losses as of the evaluation date. Furthermore, the methodology, in and of itself and even when selectively adjusted by comparison to market and peer data, does not provide a sufficient basis to determine the estimated credit losses. The Company adjusts the modeled expected losses by qualitative adjustments to incorporate significant risks to form a sufficient basis to estimate the credit losses.   Individual Analysis  –   Loans considered to have different risk characteristics that do not fall within any cohort will be analyzed individually on a quarterly basis for potential individual reserve requirements.   The Company has elected the collateral-dependent practical expedient for its collateral-dependent loans, where estimated credit losses are based upon the fair value of the collateral, less costs to sell if applicable. This practical expedient can be applied to a loan if the borrower is experiencing financial difficulty and repayment is expected to be provided substantially through the sale or operation of the collateral. If it is probable that the Company will foreclose on the collateral, the use of the fair value of the collateral to calculate an allowance for credit loss is required. Estimates of future collateral proceeds will be based upon available appraisals, reference to recent valuations of comparable properties, and any other sources of information believed appropriate by management under the specific circumstances. When appraisals are ordered to support the analysis of a collateral-dependent loan, the appraisal is reviewed internally.   Where the primary and/or expected source of repayment of a specific loan is believed to be the receipt of principal and interest payments from the borrower and/or the refinancing of the loan by another creditor, impairment will generally be measured based upon the present value of expected proceeds discounted at the contractual interest rate. Expected refinancing proceeds may be estimated from review of term sheets actually received by the borrower from other creditors and/or from the Company’s knowledge of terms generally available from other banks.   Determining the Contractual Life  – Expected credit losses are estimated over the contractual life of the loans, adjusted for expected prepayments when appropriate. The contractual life excludes expected extensions, renewals and modifications. Prepayment assumptions will be determined by analysis of historical behavior by loan cohort.   Restructured Loans  – The allowance for credit losses on loans that are considered modifications to borrowers experiencing financial difficulty are measured using the same method as all other loans held for investment. Modifications to borrowers experiencing financial difficulties are considered modifications if the creditor grants a concession to the debtor, for economic or legal reasons related to the debtor's financial difficulties, that it would not otherwise consider. Loan modifications that result in a change in the timing or amount of contractual cash flows include situations where there are interest rate reductions, term extensions, other than insignificant payment delays, and combinations of the listed modifications.  In addition, for public business entities, the amendments in the update require that entities disclose current-period gross charge-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 loans by credit-quality indicator and the loan category by year of origination.   Allowance for Credit Losses on Unfunded Commitments  – The Company estimates expected credit losses over the period in which the Company is exposed to credit risk via a contractual obligation to extend credit, unless that obligation is unconditionally cancellable by the Company. The allowance for credit losses on unfunded commitments is adjusted through a provision for credit losses expense. The estimate includes consideration of the likelihood that funding will occur and an estimate of expected credit losses on commitments expected to be funded over its estimated life. The estimate utilizes the same factors and assumptions as the allowance for credit losses on loans and is applied at the same collective cohort level.   Allowance for Credit Losses on Available-for-Sale Debt Securities  – For  available-for-sale securities in an unrealized loss position, the Company will first determine whether it intends to sell the security or will more likely than not be required to sell the security before recovery of its amortized cost basis. The security’s amortized cost basis will be written down to fair value through other expense if either of the criteria regarding intent or requirement to sell is met. If neither of the aforementioned criteria are met, the Company will determine whether the decline in fair value has resulted from credit losses. If a credit loss exists, the Company will report the portion of impairment related to credit losses in an allowance for credit losses with an offsetting entry to net income. The amount of ACL is limited to the amount fair value is less than the amortized cost basis. Any portion of estimated credit losses that have not been recorded through an ACL are recognized in other comprehensive income.   Recently Issued Accounting Pronouncements    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, 2024. The Company evaluated the guidance and identified substitution rates for impacted loans and debt. In January 2021, the FASB issued ASU No. 2021 - 01, Reference Rate Reform (Topic 848 ), which clarifies that certain optional expedients and exceptions in Topic 848 for contract modifications and hedge accounting apply to derivatives that are affected by the discounting transition. ASU No. 2021 - 01 was effective upon issuance and generally can be applied through December 31, 2024. ASU No. 2021 - 01 has not had and is not expected to have a significant impact on the Company's consolidated financial statements.   - 1 1 - Table of Contents EAGLE BANCORP MONTANA, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)     NOTE 2.  MERGERS AND ACQUISITIONS   Effective April 30, 2022, Eagle completed its previously announced merger with FCB. The acquisition closed after receipt of approvals from regulatory authorities, approval of FCB shareholders and the satisfaction of other closing conditions. The total consideration paid was $ 38,577,000 and included cash consideration of $ 10,226,000 and common stock issued of $ 28,351,000 .   This transaction was accounted for under the acquisition method of accounting.   All of the assets acquired and liabilities assumed were recognized at their acquisition-date fair value, while transaction costs and restructuring costs associated with the business combinations were expensed as incurred. Determining the fair value of assets and liabilities is a complicated process involving significant judgment regarding methods and assumptions used to calculate estimated fair values. The excess of the acquisition consideration over the fair value of assets acquired and liabilities assumed, if any, is allocated to goodwill. The goodwill recorded is not deductible for federal income tax purposes.   The following table summarizes the fair values of the assets acquired and liabilities assumed, consideration paid and the resulting goodwill.       FCB       April 30,       2022       (In Thousands)   Assets acquired:         Cash and cash equivalents   $ 23,623   Securities available-for-sale     126,123   Loans receivable     190,894   Premises and equipment     6,393   Cash surrender value of life insurance     8,638   Core deposit intangible     7,004   Other assets     7,687   Total assets acquired   $ 370,362             Liabilities assumed:         Deposits   $ 321,107   Accrued expenses and other liabilities     1,767   Other borrowings     22,853   Total liabilities assumed   $ 345,727             Net assets acquired   $ 24,635             Consideration paid:         Cash   $ 10,226   Common stock issued ( 1,396,596 shares)     28,351   Total consideration paid   $ 38,577             Goodwill resulting from acquisition   $ 13,942     FCB investments were written down an additional $ 4,559,000  to fair value on the date of acquisition based on market prices obtained from an independent third party.   - 12 - Table of Contents EAGLE BANCORP MONTANA, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)   NOTE 2. MERGERS AND ACQUISITIONS – continued   For acquisitions, the fair value analysis of the loan portfolios resulted in a valuation adjustment for each loan based on an amortization schedule of expected cash flow. Individual amortization schedules were used for each loan over a certain amount and those with specifically identified loss exposure. The remainder of the loans were grouped by type and risk rating into loan pools (based on loan type, fixed or variable interest rate, revolving or term payments and risk rating). Yield inputs for the amortization schedules included contractual interest rates, estimated prepayment speeds, liquidity adjustments and market yields. Credit inputs for the amortization schedules included probability of payment default, loss given default rates and individually identified loss exposure.                 The total accretable discount on FCB acquired loans was $ 5,416,000  as of April 30, 2022. During the three and nine months ended September 30, 2023 , accretion of the loan discount w a s   $ 142,000 and $ 714,000 , respectively . During the three and nine months ended September 30, 2022, accretion of the loan discount was $ 333,000 and $ 1,060,000 , respectively. T he remaining accretable loan discount w as  $ 3,405,000   a s of September 30, 2023 . Three impaired loans were acquired through the FCB acquisition with insignificant balances as of April 30, 2022.   Fair value adjustments recorded for FCB related to premises and equipment were insignificant overall. The Company used independent third -party appraisals in the determination of the fair value of acquired properties.   Core deposit intangible assets of $ 7,004,000  were recorded for FCB and are being amortized using an accelerated method over the estimated useful lives of the related deposits of 10 years from date of acquisition. For acquisitions, the core deposit intangible value is a function of the difference between the cost of the acquired core deposits and the alternative cost of funds. These cash flow streams were discounted to present value. The fair value of other deposit accounts acquired were valued by estimating future cash flows to be received or paid from individual or homogenous groups of assets and liabilities and then discounting those cash flows to a present value using rates of return that were available in financial markets for similar financial instruments on or near the acquisition date.   Direct costs related to the acquisition were expensed as incurred. The Company recorded  no acquisition costs related to FCB  dur ing the three and  nine months ended September 30, 2023 , The Company recorded acquisition costs related to FCB of $ 103,000 and $ 2,296,000 during the three and nine months ended September 30, 2022, respectively .  Acquisition costs included professional fees and data processing expenses incurred related to the acquisition.   Operations of acquired entities have been included in the condensed consolidated financial statements since date of acquisition. The Company does not consider them as separate reporting segments and does not track the amount of revenues and net income attributable since acquisition. As such, it is impracticable to determine such amounts for the period from acquisition date through September 30, 2023 .      NOTE 3.   INVESTMENT SECURITIES   The amortized cost and fair values of securities, together with unrealized gains and losses, were as follows:       September 30, 2023     December 31, 2022               Gross                     Gross               Amortized     Unrealized     Fair     Amortized     Unrealized     Fair       Cost     Gains     (Losses)     Value     Cost     Gains     (Losses)     Value       (In Thousands)   Available-for-Sale:                                                                 U.S. government and agency obligations   $ 6,848     $ 136     $ ( 266 )   $ 6,718     $ 2,575     $ 2     $ ( 187 )   $ 2,390   U.S. Treasury obligations     52,484       -       ( 7,706 )     44,778       58,715       -       ( 6,764 )     51,951   Municipal obligations     149,729       1       ( 20,868 )     128,862       190,811       77       ( 18,039 )     172,849   Corporate obligations     4,243       -       ( 398 )     3,845       7,240       1       ( 251 )     6,990   Mortgage-backed securities     29,129       -       ( 2,382 )     26,747       31,553       -       ( 1,900 )     29,653   Collateralized mortgage obligations     96,014       -       ( 10,464 )     85,550       90,812       -       ( 8,681 )     82,131   Asset-backed securities     12,307       35       ( 56 )     12,286       3,569       -       ( 38 )     3,531   Total   $ 350,754     $ 172     $ ( 42,140 )   $ 308,786     $ 385,275     $ 80     $ ( 35,860 )   $ 349,495     - 13 - Table of Contents EAGLE BANCORP MONTANA, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)   NOTE 3.   INVESTMENT SECURITIES – continued   Proceeds from sale of available-for sale securities and the associated realized gains and losses were as follows:       Three Months Ended     Nine Months Ended       September 30,     September 30,       2023     2022     2023     2022       (In Thousands)                   Proceeds from sale of available-for-sale securities   $ -     $ -     $ 34,020     $ 43,794                                     Gross realized gain on sale of available-for-sale securities     -       -       69       -   Gross realized loss on sale of available-for-sale securities     -       -       ( 291 )     ( 6 ) Net realized loss on sale of available-for-sale securities   $ -     $ -     $ ( 222 )   $ ( 6 )   The amortized cost and fair value of securities by contractual maturity are shown below. Expected maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.       September 30, 2023       Amortized     Fair       Cost     Value       (In Thousands)   Due in one year or less   $ 2,899     $ 2,870   Due from one to five years     42,969       38,322   Due from five to ten years     68,892       57,534   Due after ten years     110,851       97,763         225,611       196,489   Mortgage-backed securities     29,129       26,747   Collateralized mortgage obligations     96,014       85,550   Total   $ 350,754     $ 308,786     As of  September 30, 2023 and December 31, 2022 , securities with a fair value of $ 22,063,000   and $ 58,942,000 , respectively, were pledged to secure public deposits and for other purposes required or permitted by law.   The Company’s investment securities that have been in a continuous unrealized loss position for less than twelve months and those that have been in a continuous unrealized loss position for twelve or more months were as follows:       September 30, 2023       Less Than 12 Months     12 Months or Longer               Gross             Gross       Fair     Unrealized     Fair     Unrealized       Value     Losses     Value     Losses       (In Thousands)   U.S. government and agency obligations   $ -     $ -     $ 1,670     $ ( 266 ) U.S. Treasury obligations     -       -       44,777       ( 7,706 ) Municipal obligations     36,958       ( 2,115 )     90,980       ( 18,753 ) Corporate obligations     -       -       3,845       ( 398 ) Mortgage-backed securities and collateralized mortgage obligations     11,829       ( 166 )     100,468       ( 12,680 ) Asset-backed securities     9,580       ( 56 )     -       -   Total   $ 58,367     $ ( 2,337 )   $ 241,740     $ ( 39,803 )   - 14 - Table of Contents EAGLE BANCORP MONTANA, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)   NOTE 3.   INVESTMENT SECURITIES – continued       December 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 and agency obligations   $ 1,773     $ ( 187 )   $ -     $ -   U.S. Treasury obligations     10,969       ( 196 )     40,982       ( 6,568 ) Municipal obligations     128,036       ( 8,781 )     33,092       ( 9,258 ) Corporate obligations     4,994       ( 246 )     995       ( 5 ) Mortgage-backed securities and collateralized mortgage obligations     67,310       ( 3,647 )     44,444       ( 6,934 ) Asset-backed securities     3,531       ( 38 )     -       -   Total   $ 216,613     $ ( 13,095 )   $ 119,513     $ ( 22,765 )   As of  September 30, 2023 and December 31, 2022 , there were, respectively, 319  and 388  securities in unrealized loss positions. Based on analysis of available-for-sale debt securities with unrealized losses as of September 30, 2023 , the Company determined the decline in value was unrelated to credit losses and was primarily caused by changes in interest rates and market spreads subsequent to the initial purchase of the securities. The Company is not likely to be required to sell these securities prior to maturity. As a result, no ACL was recorded on available-for-sale securities at September 30, 2023  and no other-than-temporary impairment was recorded at December 31, 2022. As part of this determination, consideration was given to the extent to which fair value was less than amortized cost, adverse security ratings by a rating agency and other factors.    NOTE 4.   LOANS RECEIVABLE      Loans receivable consisted of the following:       September 30,     December 31,       2023     2022       (In Thousands)   Real estate loans:                 Residential 1-4 family   $ 195,073     $ 195,703   Commercial real estate     907,366       826,549                     Other loans:                 Home equity     83,221       74,271   Consumer     29,832       27,609   Commercial     260,281       231,291                     Total     1,475,773       1,355,423                     Deferred loan fees, net  (1)     -       ( 1,745 ) Allowance for credit losses  (2)     ( 16,230 )     ( 14,000 ) Total loans, net   $ 1,459,543     $ 1,339,678                     (1) Deferred loan fees, net are included in individual loan buckets above and totaled $1.44 million at September 30, 2023.                 (2) Allowance for credit losses for the quarter ended September 30, 2023; allowance for loan losses for prior period.                   Included in the above are loans guaranteed by U.S. government agencies tota ling $ 23,633,000 and $ 24,605,000 at September 30, 2023  and  December 31, 2022 , respectively.    - 15 - Table of Contents EAGLE BANCORP MONTANA, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)   NOTE 4.   LOANS RECEIVABLE – continued   The following table provides allowance for credit losses activity for the three months ended September 30, 2023 .       Residential     Commercial     Home                               1-4 Family     Real Estate     Equity     Consumer     Commercial     Total       (In Thousands)   Allowance for credit losses on loans:                                                 Beginning balance, June 30, 2023   $ 1,786     $ 10,011     $ 526     $ 318     $ 2,919     $ 15,560   Charge-offs     -       -       -       ( 20 )     ( 102 )     ( 122 ) Recoveries     -       6       4       -       4       14   Provision     61       546       8       3       160       778   Total ending allowance balance, September 30, 2023   $ 1,847     $ 10,563     $ 538     $ 301     $ 2,981     $ 16,230     The following table provides allowance for credit losses activity for the nine  months ended September  30, 2023.       Residential     Commercial     Home                               1-4 Family     Real Estate     Equity     Consumer     Commercial     Total       (In Thousands)   Allowance for credit losses on loans:                                                 Beginning balance, December 31, 2022, prior to adoption of ASC 326   $ 1,472     $ 9,037     $ 509     $ 342     $ 2,640     $ 14,000   Impact of adopting ASC 326     21       534       3       1       141       700   Charge-offs     -       -       -       ( 50 )     ( 128 )     ( 178 ) Recoveries     195       17       13       1       16       242   Provision     159       975       13       7       312       1,466   Total ending allowance balance, September 30, 2023   $ 1,847     $ 10,563     $ 538     $ 301     $ 2,981     $ 16,230     The following table provides allowance for loan losses activity for the three and nine  months ended September  30, 2022.       Residential     Commercial     Home                               1-4 Family     Real Estate     Equity     Consumer     Commercial     Total       (In Thousands)   Allowance for loan losses:                                                 Beginning balance, June 30, 2022   $ 1,643     $ 8,337     $ 507     $ 361     $ 2,477     $ 13,325   Charge-offs     -       -       -       ( 6 )     -       ( 6 ) Recoveries     -       6       -       3       5       14   Provision     17       400       1       1       98       517   Ending balance, September 30, 2022   $ 1,660     $ 8,743     $ 508     $ 359     $ 2,580     $ 13,850                                                     Allowance for loan losses:                                                 Beginning balance, December 31, 2021   $ 1,596     $ 7,470     $ 533     $ 365     $ 2,536     $ 12,500   Charge-offs     -       -       ( 32 )     ( 14 )     ( 299 )     ( 345 ) Recoveries     -       20       -       4       17       41   Provision     64       1,253       7       4       326       1,654   Ending balance, September 30, 2022   $ 1,660     $ 8,743     $ 508     $ 359     $ 2,580     $ 13,850                                                     Ending balance, September 30, 2022 allocated to loans individually evaluated for impairment   $ 199     $ -     $ -     $ -     $ 79     $ 278                                                     Ending balance, September 30, 2022 allocated to loans collectively evaluated for impairment   $ 1,461     $ 8,743     $ 508     $ 359     $ 2,501     $ 13,572                                                     Loans receivable:                                                 Ending balance, September 30, 2022   $ 195,265     $ 781,843     $ 67,409     $ 27,703     $ 241,608     $ 1,313,828                                                     Ending balance, September 30, 2022 of loans individually evaluated for impairment   $ 687     $ 1,173     $ 97     $ 34     $ 1,655     $ 3,646                                                     Ending balance, September 30, 2022 of loans collectively evaluated for impairment   $ 194,578     $ 780,670     $ 67,312     $ 27,669     $ 239,953     $ 1,310,182     - 16 - Table of Contents EAGLE BANCORP MONTANA, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)   NOTE 4.   LOANS RECEIVABLE – continued   Internal classification of the loan portfolio by amortized cost and based on year originated was as follows:       September 30, 2023       2023     2022     2021     2020     2019     Prior     Revolving Loans     Total Loans       (In Thousands)   RESIDENTIAL 1-4 FAMILY                                                                 Pass   $ 18,202     $ 37,298     $ 25,117     $ 15,881     $ 11,192     $ 32,034     $ 6,479     $ 146,203   Special Mention     -       -       -       -       -       229       -       229   Substandard     -       -       -       -       -       506       -       506   Total Residential 1-4 family     18,202       37,298       25,117       15,881       11,192       32,769       6,479       146,938   RESIDENTIAL 1-4 FAMILY CONSTRUCTION                                                                 Pass     9,377       30,975       6,710       -       -       -       316       47,378   Special Mention     -       -       757       -       -       -       -       757   Total Residential 1-4 family construction     9,377       30,975       7,467       -       -       -       316       48,135   COMMERCIAL REAL ESTATE                                                                 Pass     57,308       155,691       142,955       53,647       56,326       104,785       33,459       604,171   Special Mention     534       -       502       122       3,504       2,360       -       7,022   Substandard     431       -       -       -       -       339       -       770   Total Commercial real estate     58,273       155,691       143,457       53,769       59,830       107,484       33,459       611,963   COMMERCIAL CONSTRUCTION AND DEVELOPMENT                                                                 Pass     21,333       80,468       27,959       6,520       6,985       3,874       3,480       150,619   Special Mention     -       -       -       -       -       995       -       995   Total Commercial construction and development     21,333       80,468       27,959       6,520       6,985       4,869       3,480       151,614   FARMLAND                                                                 Pass     16,220       36,858       19,923       22,940       9,785       30,859       4,319       140,904   Special Mention     -       -       -       -       -             -       -   Substandard     -       407       -       1,091       487       900       -       2,885   Total Farmland     16,220       37,265       19,923       24,031       10,272       31,759       4,319       143,789   HOME EQUITY                                                                 Pass     1,156       4,733       383       602       639       2,817       72,687       83,017   Substandard     -       -       -       -       -       111       93       204   Total Home Equity     1,156       4,733       383       602       639       2,928       72,780       83,221   CONSUMER                                                                 Pass     10,664       9,003       3,966       2,319       591       1,196       2,004       29,743   Special Mention     -       -       -       -       -       -       -       -   Substandard     -       14       6       41       -       11       17       89   Total Consumer     10,664       9,017       3,972       2,360       591       1,207       2,021       29,832   COMMERCIAL                                                                 Pass     25,188       24,625       24,366       21,728       3,373       6,817       23,598       129,695   Special Mention     -       -       54       27       -       134       15       230   Substandard     -       -       17       -       -       -       10       27   Doubtful     -       -       -       -       -       -       -       -   Total Commercial     25,188       24,625       24,437       21,755       3,373       6,951       23,623       129,952   AGRICULTURAL                                                                 Pass     36,931       20,941       7,995       6,831       1,970       1,710       51,914       128,292   Special Mention     -       -       -       -       -       -       -       -   Substandard     -       285       186       55       427       559       525       2,037   Doubtful     -       -       -       -       -       -       -       -   Total Agricultural     36,931       21,226       8,181       6,886       2,397       2,269       52,439       130,329   TOTAL LOANS                                                                 Pass     196,379       400,592       259,374       130,468       90,861       184,143       198,256       1,460,073   Special Mention     534       -       1,313       149       3,504       3,718       15       9,233   Substandard     431       706       209       1,187       914       2,375       645       6,467   Doubtful     -       -       -       -       -       -       -       -   Total   $ 197,344     $ 401,298     $ 260,896     $ 131,804     $ 95,279     $ 190,236     $ 198,916     $ 1,475,773       - 17 - Table of Contents EAGLE BANCORP MONTANA, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)   NOTE 4.   LOANS RECEIVABLE – continued   Internal classification of the loan portfolio was as follows (prior to the adoption of ASU No. 2016 - 13 ):       December 31, 2022               Special                                       Pass     Mention     Substandard     Doubtful     Loss     Total       (In Thousands)   Real estate loans:                                                 Residential 1-4 family   $ 135,079     $ 515     $ 353     $ -     $ -     $ 135,947   Residential 1-4 family construction     59,756       -       -       -       -       59,756   Commercial real estate     520,505       16,833       1,732       -       -       539,070   Commercial construction and development     150,101       1,044       -       -       -       151,145   Farmland     131,646       2,232       2,456       -       -       136,334   Other loans:                                                 Home equity     74,147       -       124       -       -       74,271   Consumer     27,560       10       39       -       -       27,609   Commercial     125,035       1,476       736       8       -       127,255   Agricultural     101,441       311       2,182       102       -       104,036   Total   $ 1,325,270     $ 22,421     $ 7,622     $ 110     $ -     $ 1,355,423     The following tables include information regarding delinquencies within the loan portfolio.       September 30, 2023       Loans Past Due and Still Accruing                                                                                                       90 Days             Nonaccrual     Nonaccrual                       30-89 Days     and             Loans with     Loans with     Current     Total       Past Due     Greater     Total     no ACL     ACL     Loans     Loans       (In Thousands)   Real estate loans:                                                         Residential 1-4 family   $ 253     $ -     $ 253     $ 312     $ -     $ 146,373     $ 146,938   Residential 1-4 family construction     1,034       -       1,034       -       -       47,101       48,135   Commercial real estate     1,358       -       1,358       339       -       610,266       611,963   Commercial construction and development     92       -       92       -       -       151,522       151,614   Farmland     73       -       73       3,719       -       139,997       143,789   Other loans:                                                         Home equity     -       -       -       188       -       83,033       83,221   Consumer     63       -       63       68       7       29,694       29,832   Commercial     68       -       68       -       -       129,884       129,952   Agricultural     283       -       283       2,348       772       126,926       130,329   Total   $ 3,224     $ -     $ 3,224     $ 6,974     $ 779     $ 1,464,796     $ 1,475,773     - 18 - Table of Contents EAGLE BANCORP MONTANA, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)   NOTE 4. LOANS RECEIVABLE – continued       December 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   $ 1,798     $ 330     $ 2,128     $ 483     $ 133,336     $ 135,947   Residential 1-4 family construction     500       -       500       -       59,256       59,756   Commercial real estate     780       -       780       350       537,940       539,070   Commercial construction and development     -       -       -       -       151,145       151,145   Farmland     1,620       -       1,620       754       133,960       136,334   Other loans:                                                 Home equity     226       -       226       107       73,938       74,271   Consumer     93       -       93       25       27,491       27,609   Commercial     597       746       1,343       44       125,868       127,255   Agricultural     -       -       -       1,535       102,501       104,036   Total   $ 5,614     $ 1,076     $ 6,690     $ 3,298     $ 1,345,435     $ 1,355,423       The following tables presents the amortized cost basis of collateral-dependent loans by class of loans.       September 30, 2023       Real Estate     Business Assets     Other       (In Thousands)           Real estate loans:                         Residential 1-4 family   $ 278     $ -     $ -   Residential 1-4 family construction     757       -       -   Commercial real estate     39       300       -   Farmland     3,713       -       -   Other loans:                         Home equity     45       -       -   Consumer     -       -       26   Commercial     -       10       -   Agricultural     -       2,399       -   Total   $ 4,832     $ 2,709     $ 26     Prior to the implementation of ASU No. 2016 - 13, Financial Instruments – Credit Losses (Topic 326 ) on January 1, 2023, a loan was considered impaired when the Company determined it was probable that it would be unable to collect all amounts due to the contractual terms of the loan agreement, including scheduled interest payments. Various factors determined impairment such as the financial condition of the borrower, value of the underlying collateral, and general economic conditions.   The implementation of ASU No. 2016 - 13 significantly changed disclosures related to loans and, as a result, certain disclosures are no longer required. The following tables represent disclosures for the prior period that are no longer required as of January 1, 2023, but are included in this Form 10 -Q since the Company is required to disclose comparative information.    The following table provides additional information on impaired loans with and without related allowance reserves at December 31, 2022:        December 31, 2022               Unpaid               Recorded     Principal     Related       Investment     Balance     Allowance       (In Thousands)   Real estate loans:                         Residential 1-4 family   $ 483     $ 585     $ -   Residential 1-4 family construction     -       -       -   Commercial real estate     3,614       3,697       -   Commercial construction and development     -       -       -   Farmland     754       866       -   Other loans:                         Home equity     107       133       -   Consumer     25       30       -   Commercial     184       232       35   Agricultural     1,535       1,633       115   Total   $ 6,702     $ 7,176     $ 150     - 19 - Table of Contents EAGLE BANCORP MONTANA, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)   NOTE 4. LOANS RECEIVABLE – continued   The following table provides information on impaired loans for the three and nine months ended September  30, 2022:       Three Months Ended     Nine Months Ended       September 30,     September 30,       2022     2022       Average Recorded Investment       (In Thousands)   Real estate loans:                 Residential 1-4 family   $ 629     $ 652   Residential 1-4 family construction     -       169   Commercial real estate     403       1,213   Commercial construction and development     -       -   Farmland     770       1,200   Other loans:                 Home equity     108       106   Consumer     35       48   Commercial     76       292   Agricultural     1,587       1,673   Total   $ 3,608     $ 5,353     Interest income recognized on nonaccrual loans for the  three and nine  months ended September  30, 2023  and 2022 is considered insignificant. In terest payments received on a cash basis related to nonaccrual loans w ere $ 375,000 at September  30, 2023 and  $ 415,000 at   December 31, 2022 .   During the three months ended September 30, 2023, the Company modified one commercial real estate loan with an amortized cost basis of $ 431,000 for a borrower experiencing financial difficulty by consolidating four loans and refinancing into one short-term, interest only loan for 12 months. There was no forgiveness of principal and the loan is considered current with its modified terms as of September 30, 2023. During the nine months ended  September 30, 2023 , the Company modified two  commercial real estate loans. The first loan with an amortized cost basis of $ 534,000  was modified by consolidating two lines of credit and refinancing into one long term loan for ten years. The second loan with an amortized cost basis of $ 431,000 was modified by consolidating four loans and refinancing into one short-term, interest only loan for 12 months. There has been  no forgiveness of principal for either of the loans, and they are considered current with their modified terms as of September  30, 2023.     Prior to the adoption of ASU No. 2022 - 02, during the three months ended September 30, 2022, there were no new TDR loans. During the nine  months ended September  30, 2022, there were two new TDR agricultural loans. The recorded investment for the first loan at the time of restructure was $ 331,000 . No charge-offs were incurred and the loan is now on accrual status. The recorded investment at the time of restructure for the second loan was $ 145,000 . This loan was paid off during the nine months ended  September 30, 2023.     NOTE 5.   MORTGAGE SERVICING RIGHTS   The Company is servicing mortgage loans for the benefit of others which are not included in the condensed consolidated statements of financial condition and have unpaid principal balances of $ 2,053,358,000  and $ 2,022,066,000 at  September 30, 2023 and December 31, 2022 , 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 $ 1,262,000  and $ 1,225,000 for the three months ended September 30, 2023 and 2022 , respectively. Mortgage loan servicing fees were $ 3,797,000   and $ 3,581,000 for the nine  months ended September 30, 2023 and 2022 , 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 $ 16,531,000  and $ 11,912,000 at  September 30, 2023 and December 31, 2022 , respectively.   - 20 - Table of Contents EAGLE BANCORP MONTANA, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)   NOTE 5.   MORTGAGE SERVICING RIGHTS – continued   The following table is a summary of activity in mortgage servicing rights:       As of or For the       Three Months Ended       September 30,       2023     2022       (In Thousands)   Mortgage servicing rights:                 Beginning balance   $ 15,501     $ 14,809   Mortgage servicing rights capitalized     681       924   Amortization of mortgage servicing rights     ( 444 )     ( 592 ) Ending balance   $ 15,738     $ 15,141         As of or For the       Nine Months Ended       September 30,       2023     2022       (In Thousands)   Mortgage servicing rights:                 Beginning balance   $ 15,412     $ 13,749   Mortgage servicing rights capitalized     1,656       3,102   Amortization of mortgage servicing rights     ( 1,330 )     ( 1,710 ) Ending balance   $ 15,738     $ 15,141   Valuation allowance:                 Beginning balance     -       ( 56 ) Recovery of mortgage servicing rights     -       56   Ending balance     -       -   Mortgage servicing rights, net   $ 15,738     $ 15,141     Recovery of servicing rights is included in other noninterest expense on the condensed consolidated statements of income.    The fair values of these mortgage servicing rights were $ 20,576,000  and $ 19,288,000 at  September 30, 2023 and December 31, 2022 , respectively. The fair value of mortgage servicing rights was determined at loan level, depending on the interest rate and term of the specific loan, using the following valuation assumptions:       September 30,     December 31,       2023     2022   Key assumptions:             Discount rate   12%     12 %   Prepayment speed range   98 - 555 %     116 - 210 %   Weighted average prepayment speed   111 %     131 %       NOTE 6.   DEPOSITS   Deposits are summarized as follows:       September 30,     December 31,       2023     2022       (In Thousands)   Noninterest checking   $ 435,655     $ 468,955   Interest-bearing checking     225,573       252,922   Savings     233,181       273,790   Money market     326,718       387,947   Time certificates of deposit     394,351       251,658   Total   $ 1,615,478     $ 1,635,272         - 21 - Table of Contents EAGLE BANCORP MONTANA, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)   NOTE 7.   OTHER LONG-TERM DEBT   Other long-term debt consisted of the following:       September 30, 2023     December 31, 2022               Unamortized             Unamortized               Debt             Debt       Principal     Issuance     Principal     Issuance       Amount     Costs     Amount     Costs       (In Thousands)   Subordinated debentures fixed at 5.50 % to floating, due 2030   $ 15,000     $ ( 227 )   $ 15,000     $ ( 249 ) Subordinated debentures fixed at 3.50 % to floating, due 2032     40,000       ( 966 )     40,000       ( 1,062 ) Subordinated debentures variable at 3-Month SOFR plus 1.68 %, due 2035     5,155       -       5,155       -   Total other long-term debt   $ 60,155     $ ( 1,193 )   $ 60,155     $ ( 1,311 )   In January 2022, the Company completed the issuance of $ 40,000,000 in aggregate principal amount of subordinated notes due in 2032 in a private placement transaction to certain institutional accredited investors and qualified buyers. The notes bear interest at an annual fixed rate of 3.50 % payable semi-annually. Starting February 1, 2027, interest will accrue at a floating rate per annum equal to a benchmark rate, which is expected to be three -month term 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.    In June 2020, the Company completed the issuance of $ 15,000,000 in aggregate principal amount of subordinated notes due in 2030  in a private placement transaction to certain qualified institutional accredited investors. The notes bear interest at an annual fixed rate of 5.50 % payable semi-annually. Starting July 1, 2025,  interest will accrue at a floating rate per annum equal to a benchmark rate, which is expected to be three -month term 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% until June 30, 2023, making the rate  6.20 % as of  December 31, 2022 . In December of 2022, Governors of the Federal Reserve System adopted final rule 12 C.F.R. Part 253, Regulation Implementing the Adjustable Interest Rate (LIBOR) Act. Rule 253 identified SOFR-benchmark rates to replace LIBOR in certain financial contracts after June 30, 2023. As a result, the variable rate for interest payable converted to three -month CME Term SOFR plus 1.68 % beginning during the quarter ended September 30, 2023. The rate was 7.08 % as of September 30, 2023. 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.   - 22 - Table of Contents     NOTE 8. ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)   The following table includes information regarding the activity in accumulated other comprehensive income (loss).       Unrealized       (Losses) Gains       on Securities       Available-for-Sale       (In Thousands)   Balance, June 30, 2023   $ ( 23,723 ) Other comprehensive loss, before reclassifications and income taxes     ( 9,763 ) Amounts reclassified from accumulated other comprehensive loss, before income taxes     -   Income tax benefit     2,571   Total other comprehensive loss     ( 7,192 ) Balance, September 30, 2023   $ ( 30,915 )           Balance, June 30, 2022   $ ( 19,081 ) Other comprehensive loss, before reclassifications and income taxes     ( 16,009 ) Amounts reclassified from accumulated other comprehensive loss, before income taxes     -   Income tax benefit     4,216   Total other comprehensive loss     ( 11,793 ) Balance, September 30, 2022   $ ( 30,874 )           Balance, December 31, 2022   $ ( 26,357 ) Other comprehensive loss, before reclassifications and income taxes     ( 6,410 ) Amounts reclassified from accumulated other comprehensive loss, before income taxes     222   Income tax benefit     1,630   Total other comprehensive loss     ( 4,558 ) Balance, September 30, 2023   $ ( 30,915 )           Balance, December 31, 2021   $ 3,493   Other comprehensive loss, before reclassifications and income taxes     ( 46,657 ) Amounts reclassified from accumulated other comprehensive income, before income taxes     6   Income tax benefit     12,284   Total other comprehensive loss     ( 34,367 ) Balance, September 30, 2022   $ ( 30,874 )       - 23 - Table of Contents     NOTE 9.   EARNINGS PER COMMON SHARE     The computations of basic and diluted earnings per common share are as follows:       Three Months Ended     Nine Months Ended       September 30,     September 30,       2023     2022     2023     2022       (Dollars in Thousands, Except Per Share Data)   Basic weighted average shares outstanding     7,784,279       7,793,485       7,787,987       7,241,520   Dilutive effect of stock compensation     7,687       14,565       4,606       12,722   Diluted weighted average shares outstanding     7,791,966       7,808,050       7,792,593       7,254,242                                     Net income available to common shareholders   $ 2,635     $ 3,092     $ 7,892     $ 7,079                                     Basic earnings common per share   $ 0.34     $ 0.40     $ 1.01     $ 0.98                                     Diluted earnings per common share   $ 0.34     $ 0.40     $ 1.01     $ 0.98                                     Restricted stock units excluded from the diluted average outstanding share calculation because their effect would be anti-dilutive     19,237       -       18,443       -                                           NOTE 10. DERIVATIVES AND HEDGING ACTIVITIES     The Company enters into commitments to originate and sell mortgage loans. The Bank uses derivatives to hedge the risk of changes in fair values of interest rate lock commitments and mortgage loans held-for-sale. An optimal amount of mortgage loans are sold directly into bulk commitments with investors at the time an interest rate is locked, other loans are sold on an individual best efforts basis at the time an interest rate is locked, and the remaining balance of locked loans are hedged using To-Be-Announced (“TBA”) mortgage-backed securities or bulk mandatory forward loan sale commitments.   Derivatives are accounted for as free-standing or economic derivatives and are measured at fair value. Derivatives are recorded as either other assets or other liabilities on the condensed consolidated statements of condition.   Derivatives are summarized as follows:       September 30, 2023     December 31, 2022       Notional     Fair Value     Notional     Fair Value       Amount     Asset     Liability     Amount     Asset     Liability       (In Thousands)   Interest rate lock commitments   $ 31,340     $ -     $ 192     $ 18,603     $ -     $ 81   Forward TBA mortgage-backed securities     22,000       255       -       13,000       11       -     Changes in the fair value of the derivatives are recorded in mortgage banking, net, within noninterest income on the condensed consolidated statements of inc ome. Net gains  of $ 39,000  and $ 209,000 were recorded for the three months ended September 30, 2023  and 2022, respectively.  Net gains of $ 133,000   were recorded for the nine  months ended  September 30, 2023  compared to net losses of $ 282,000  for the nine  months ended September  30, 2022.     NOTE 11 . FAIR VALUE OF FINANCIAL INSTRUMENTS   Fair value is the exchange price that would be received for an asset or paid to transfer a liability (exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date.    Assets and liabilities that are measured at fair value are grouped in three levels within the fair value hierarchy based on the markets in which the assets and liabilities are traded and the reliability of the assumptions used to determine fair value.   The fair value hierarchy is as follows:   ■ Level 1 Inputs – Valuations are based on unadjusted quoted prices in active markets for identical assets or liabilities.   ■ Level 2 Inputs – Valuations are based on quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active and model-based valuations for which all significant assumptions are observable or can be corroborated by observable market data.   ■ Level 3 Inputs – Valuations are based on unobservable inputs that may include significant management judgment and estimation.   A description of the valuation methodologies used for assets and liabilities measured at fair value, as well as the general classification of such instruments pursuant to the valuation hierarchy at the reporting date, is set forth below.   - 24 - Table of Contents EAGLE BANCORP MONTANA, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)   NOTE 11. FAIR VALUE OF FINANCIAL INSTRUMENTS – continued   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.   Collateral-Dependent Loans  – Individually reviewed collateral-dependent loans are reported at the fair value of the underlying collateral less costs to sell. Collateral-dependent loans are considered Level 3 inputs. 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.   The following tables summarize financial assets and financial liabilities measured at fair value on a recurring basis, segregated by the level of the valuation inputs within the fair value hierarchy utilized to measure fair value.       September 30, 2023       Level 1     Level 2     Level 3     Total Fair       Inputs     Inputs     Inputs     Value       (In Thousands)   Financial assets:                                 Available-for-sale securities                                 U.S. government and agency obligations   $ -     $ 6,718     $ -     $ 6,718   U.S. Treasury obligations     44,778       -       -       44,778   Municipal obligations     -       128,862       -       128,862   Corporate obligations     -       3,845       -       3,845   Mortgage-backed securities     -       26,747       -       26,747   Collateralized mortgage obligations     -       85,550       -       85,550   Asset-backed securities     -       12,286       -       12,286   Loans held-for-sale     -       17,880       -       17,880   Forward TBA mortgage-backed securities     -       255       -       255   Financial liabilities:                                 Interest rate lock commitments     -       -       192       192         December 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 and agency obligations   $ -     $ 2,390     $ -     $ 2,390   U.S. Treasury obligations     51,951       -       -       51,951   Municipal obligations     -       172,849       -       172,849   Corporate obligations     -       6,990       -       6,990   Mortgage-backed securities     -       29,653       -       29,653   Collateralized mortgage obligations     -       82,131       -       82,131   Asset-backed securities     -       3,531       -       3,531   Loans held-for-sale     -       8,250       -       8,250   Forward TBA mortgage-backed securities     -       11       -       11   Financial liabilities:                                 Interest rate lock commitments     -       -       81       81     - 25 - Table of Contents EAGLE BANCORP MONTANA, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)   NOTE 11. FAIR VALUE OF FINANCIAL INSTRUMENTS – continued   Certain financial assets may be measured at fair value on a nonrecurring basis. These assets are subject to fair value adjustments that result from the application of lower of cost or fair value accounting or write-downs of individual assets, such as impaired loans that are collateral-dependent, real estate and other repossessed assets and mortgage servicing rights.   The following table summarizes financial assets measured at fair value on a nonrecurring basis for which a nonrecurring change in fair value has been recorded during the reporting periods presented:         September 30, 2023       Level 1     Level 2     Level 3     Total Fair       Inputs     Inputs     Inputs     Value       (In Thousands)   Collateral-dependent loans individually evaluated, net of ACL  (1)   $ -     $ -     $ 2,491     $ 2,491   Mortgage servicing rights     -       -       -       -         December 31, 2022       Level 1     Level 2     Level 3     Total Fair       Inputs     Inputs     Inputs     Value       (In Thousands)   Impaired loans  (1)   $ -     $ -     $ 281     $ 281   Mortgage servicing rights     -       -       1,346     $ 1,346     ( 1 )  The Company adopted ASC 326  as of January 1, 2023, under which the concept of impaired loans went away. The comparable period presents impaired loans under previously applicable GAAP.   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                   Collateral-dependent loans individually evaluated   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 %   Interest rate lock commitments   Internal pricing model   Pull-through expectations   85 - 95 %     The following tables provide a reconciliation of assets and liabilities measured at fair value using significant unobservable inputs (Level 3 ) on a recurring basis during the three  months and nine  months ended September 30,   2023.       Three Months Ended     Nine Months Ended       September 30,     September 30,       2023     2022     2023     2022       Interest Rate Lock Commitments     Interest Rate Lock Commitments       (In Thousands)     (In Thousands)   Beginning balance   $ ( 57 )   $ 334     $ ( 81 )   $ 1,218   Purchases and issuances     ( 133 )     ( 640 )     ( 283 )     95   Sales and settlements     ( 2 )     ( 466 )     172       ( 2,085 ) Ending balance   $ ( 192 )   $ ( 772 )   $ ( 192 )   $ ( 772 ) Unrealized losses related to items held at end of period   $ ( 135 )   $ ( 1,106 )   $ ( 111 )   $ ( 1,990 )   - 26 - Table of Contents EAGLE BANCORP MONTANA, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)   NOTE 11. FAIR VALUE OF FINANCIAL INSTRUMENTS – continued      The tables below summarize the estimated fair values of financial instruments of the Company, whether or not recognized at fair value on the condensed consolidated statements of condition. The tables are followed by methods and assumptions that were used by the Company in estimating the fair value of the classes of financial instruments.       September 30, 2023                               Total               Level 1     Level 2     Level 3     Estimated     Carrying       Inputs     Inputs     Inputs     Fair Value     Amount       (In Thousands)   Financial assets:                                         Cash and cash equivalents   $ 20,783     $ -     $ -     $ 20,783     $ 20,783   FHLB stock     -       10,438       -       10,438       10,438   FRB stock     -       4,131       -       4,131       4,131   Loans receivable, gross     -       -       1,409,511       1,409,511       1,475,773   Accrued interest and dividends receivable     13,657       -       -       13,657       13,657   Mortgage servicing rights     -       -       20,576       20,576       15,738   Financial liabilities:                                         Non-maturing interest-bearing deposits     -       785,472       -       785,472       785,472   Noninterest-bearing deposits     435,655       -       -       435,655       435,655   Time certificates of deposit     -       -       390,486       390,486       394,351   Accrued expenses and other liabilities     31,405       -       -       31,405       31,405   FHLB advances and other borrowings     -       -       199,697       199,697       199,757   Other long-term debt     -       -       55,752       55,752       60,155         December 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   $ 21,811     $ -     $ -     $ 21,811     $ 21,811   FHLB stock     -       5,089       -       5,089       5,089   FRB stock     -       4,131       -       4,131       4,131   Loans receivable, gross     -       -       1,322,814       1,322,814       1,353,678   Accrued interest and dividends receivable     11,284       -       -       11,284       11,284   Mortgage servicing rights     -       -       19,288       19,288       15,412   Financial liabilities:                                         Non-maturing interest-bearing deposits     -       914,659       -       914,659       914,659   Noninterest-bearing deposits     468,955       -       -       468,955       468,955   Time certificates of deposit     -       -       246,348       246,348       251,658   Accrued expenses and other liabilities     26,377       -       -       26,377       26,377   FHLB advances and other borrowings     -       -       69,373       69,373       69,394   Other long-term debt     -       -       56,721       56,721       60,155       - 27 - 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     This discussion and analysis provides information that management believes is necessary to understand Eagle's financial condition, changes in financial condition, results of operations, and cash flows for the three and nine months ended September 30, 2023, as compared to 2022. The following should be read in conjunction with the Company's Consolidated Financial Statements, and accompanying Notes thereto, for the year ended December 31, 2022, included in Eagle's Annual Report on Form 10-K filed with the United States Securities and Exchange Commission (SEC) on March 8, 2023, and in conjunction with the Condensed Consolidated Financial Statements, and accompanying Notes thereto, included in Part I - Item 1. Financial Statements. The results of operations for the three and nine months ended September 30, 2023, are not necessarily indicative of the future results that may be attained for the entire year or other interim periods.    Executive Summary   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. Our earnings depend primarily on our level of net interest income, which is the difference between interest earned on our interest-earning assets, consisting primarily of loans and investment securities, and the interest paid on interest-bearing liabilities, consisting primarily of deposits, borrowed funds, and trust-preferred securities. Net interest income is a function of our interest rate spread, which is the difference between the average yield earned on our interest-earning assets and the average rate paid on our interest-bearing liabilities, as well as a function of the average balance of interest-earning assets compared to interest-bearing liabilities. Also contributing to our earnings is noninterest income, which consists primarily of service charges and fees on loan and deposit products and services, net gains and losses on sale of assets, and mortgage loan service fees. Net interest income and noninterest income are offset by provisions for loan losses, general administrative and other expenses, including salaries and employee benefits and occupancy and equipment costs, as well as by state and federal income tax expense.     The Bank has a strong mortgage lending focus, with a large portion of its loan originations represented by single-family residential mortgages, which has enabled it to successfully market home equity loans, as well as a wide range of shorter-term consumer loans for various personal needs (automobiles, recreational vehicles, etc.). The Bank has also focused on adding commercial loans to its portfolio, both real estate and non-real estate. We have made significant progress in this initiative over the past decade. The purpose of diversification is to mitigate the Bank’s exposure 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, and has recently been, 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. It may become more difficult to maintain deposit growth due to significant competition, the current conditions in the banking industry 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 increased the federal funds target rate to 4.50% during the year ended December 31, 2022. The rate increased to 5.50% during the nine months ended September 30, 2023 .    Recent Events   Acquisitions   On September 30, 2021, the Company entered into an Agreement and Plan of Merger with First Community Bancorp, Inc. ("FCB"), a Montana corporation, and FCB's wholly-owned subsidiary, First Community Bank, a Montana chartered commercial bank. The Merger Agreement provided that, upon the terms and subject to the conditions set forth in the Merger Agreement, FCB would merge with and into Eagle, with Eagle continuing as the surviving corporation. The transaction closed on April 30, 2022.  In the transaction, Eagle acquired nine retail bank branches and two loan production offices in Montana. The total consideration paid was $38.58 million and included cash consideration of $10.23 million and common stock issued of $28.35 mi llion.   - 28 - Table of Contents EAGLE BANCORP MONTANA, INC. AND SUBSIDIARIES MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS       Financial Condition   Comparisons of financial condition in this section are between September 30, 2023 and December 31, 2022.   Total assets were $2.06  billion at September 30, 2023 , an increase of $114.68 million, or 5.9% from $1.95  billion at December 31, 2022 .  Loans receivable, net increased by $119.86 million from December 31, 2022 . Securities available-for-sale decreased $40.71 million or 11.6% from December 31, 2022. Total liabilities were $1.91 billion at September 30, 2023 , an increase of $115.82 million, or 6.5%, from $1.79  billion at December 31, 2022 . Total borrowings increased $130.48 million from December 31, 2022 and total deposits decreased $19.79 million from December 31, 2022.  Total shareholders’ equity decreased $1.15 million or 0.7% from December 31, 2022 .   Financial Condition Details   Investment Activities   The following table summarizes investment activities:       September 30,     December 31,       2023     2022       Fair Value     Percentage of Total     Fair Value     Percentage of Total       (Dollars in Thousands)   Securities available-for-sale:                                 U.S. government and agency obligations   $ 6,718       2.18 %   $ 2,390       0.68 % U.S. Treasury obligations     44,778       14.50       51,951       14.86   Municipal obligations     128,862       41.72       172,849       49.47   Corporate obligations     3,845       1.25       6,990       2.00   Mortgage-backed securities     26,747       8.66       29,653       8.48   Collateralized mortgage obligations     85,550       27.71       82,131       23.50   Asset-backed securities     12,286       3.98       3,531       1.01   Total securities available-for-sale   $ 308,786       100.00 %   $ 349,495       100.00 %   Securities available-for-sale were $308.79  million at September 30, 2023 , a decrease of $40.71 million from $349.50 million at December 31, 2022 . The decrease was due to sales of $34.02 million and maturity, principal payments and call activity of $27.34 million. These decreases were largely offset by $28.13 million in investment purchases.    - 29 - Table of Contents EAGLE BANCORP MONTANA, INC. AND SUBSIDIARIES MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS   Financial Condition – continued   Lending Activities    The following table includes the composition of the Bank’s loan portfolio by loan category:        September 30,     December 31,       2023     2022       Amount     Percent of Total     Amount     Percent of Total       (Dollars in thousands)   Real estate loans:                                 Residential 1-4 family  (1)   $ 146,938       9.96 %   $ 135,947       10.03 % Residential 1-4 family construction     48,135       3.26       59,756       4.41   Total residential 1-4 family     195,073       13.22       195,703       14.44                                     Commercial real estate     611,963       41.47       539,070       39.76   Commercial construction and development     151,614       10.27       151,145       11.15   Farmland     143,789       9.74       136,334       10.06   Total commercial real estate     907,366       61.48       826,549       60.97                                     Total real estate loans     1,102,439       74.70       1,022,252       75.41                                     Other loans:                                 Home equity     83,221       5.64       74,271       5.48   Consumer     29,832       2.02       27,609       2.04                                     Commercial     129,952       8.81       127,255       9.39   Agricultural     130,329       8.83       104,036       7.68   Total commercial loans     260,281       17.64       231,291       17.07                                     Total other loans     373,334       25.30       333,171       24.59                                     Total loans     1,475,773       100.00 %     1,355,423       100.00 %                                   Deferred loan fees  (2)     -               (1,745 )         Allowance for credit losses  (3)     (16,230 )             (14,000 )         Total loans, net   $ 1,459,543             $ 1,339,678               (1)  Excludes loans held-for-sale.   (2) Deferred loan fees, net included in individual loan categories above for the quarter ended September 30, 2023.   (3) Allowance for credit losses for the quarter ended September 30, 2023; allowance for loan losses for prior period.    Loans receivable, net increased $119.86  million , or 8.9% , to $1.46  billion at September 30, 2023 from $1.34  billion at December 31, 2022 . Total commercial real estate loans increased $80.82  million, total commercial loans increased $28.99  million, total home equity loans increased $8.95  million, consumer loans increased $2.22  million and total residential loans decreased $630,000 .   Total loan originations were $563.04 million for the nine months ended September 30, 2023 . Total residential 1-4 family originations were $299.41 million, which includes $ 265.50 million of loans held-for-sale originations. Total commercial originations were $117.05  million. Total commercial real estate originations were $113.91  million. Home equity loan originations totaled $19.29  million. Consumer loan originations totaled $13.38 million.  Loans held-for-sale increased by $9.63  million to $17.88  million at September 30, 2023 from $8.25  million at December 31, 2022 .   - 30 - Table of Contents EAGLE BANCORP MONTANA, INC. AND SUBSIDIARIES MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS   Financial Condition – continued   Lending Activities– continued   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 credit losses. Subsequent write-downs are recorded as a charge to operations. As of September 30, 2023 and December 31, 2022  there was no real estate owned and other repossessed property.    The following table sets forth information regarding nonperforming assets:       September 30,     December 31,       2023     2022       (Dollars in Thousands)   Nonaccrual loans                 Real estate loans:                 Residential 1-4 family   $ 312     $ 483   Commercial real estate     339       350   Farmland     3,719       143   Other loans:                 Home equity     188       96   Consumer     75       25   Commercial     -       44   Agricultural     3,120       1,059   Accruing loans delinquent 90 days or more                 Real estate loans:                 Residential 1-4 family     -       330   Other loans:                 Commercial     -       746   Restructured loans:     -       4,502   Total nonperforming loans     7,753       7,778   Real estate owned and other repossessed property, net     -       -   Total nonperforming assets   $ 7,753     $ 7,778                     Total nonperforming loans to total loans     0.53 %     0.57 % Total nonperforming loans to total assets     0.38 %     0.40 % Total nonaccrual loans to total loans     0.53 %     0.24 % Total nonperforming assets to total assets     0.38 %     0.40 %   Nonaccrual loans as of September 30, 2023 and  December 31, 2022 include $1,725,000  and $694,000, respectively of acquired loans that deteriorated subsequent to the acquisition date.    Effective January 1, 2023, the Company adopted ASU No. 2022-02, Financial Instruments - Credit Losses (Topic 326) Troubled Debt Restructurings ("TDRs") and Vintage Disclosures. The update eliminated the recognition and measurement of TDRs, therefore, TDRs are not included in nonperforming assets as of September 30, 2023.      - 31 - Table of Contents EAGLE BANCORP MONTANA, INC. AND SUBSIDIARIES MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS   Financial Condition – continued   Deposits and Other Sources of Funds   The following table includes deposit accounts by category:       September 30,     December 31,       2023     2022               Percent             Percent       Amount     of Total     Amount     of Total       (Dollars in Thousands)   Noninterest checking   $ 435,655       26.98 %   $ 468,955       28.68 % Interest-bearing checking     225,573       13.96       252,922       15.47   Savings     233,181       14.43       273,790       16.74   Money market     326,718       20.22       387,947       23.72   Total     1,221,127       75.59       1,383,614       84.61   Certificates of deposit accounts:                                 IRA certificates     23,693       1.47       24,907       1.52   Brokered certificates     40,000       2.48       -       0.00   Other certificates     330,658       20.46       226,751       13.87   Total certificates of deposit     394,351       24.41       251,658       15.39   Total deposits   $ 1,615,478       100.00 %   $ 1,635,272       100.00 %   Deposits decreased by $19.79 million, or 1.2%, to $1.62 billion  at September 30, 2023 from $1.64 billion at   December 31, 2022 .  M oney market decreased by $61.23  million, savings decreased by $40.61 million, noninterest checking decreased by  $33.30 million, and interest-bearing checking decreased by $27.35  million. As indicated in the table above, the decreases were largely offset by increases in certificates of deposits of $142.69 million, which included $40.00 million of fixed rate brokered certificates.    The estimated amount of uninsured deposits was $283.31 million or 17% of total deposits at September 30, 2023.   The following table summarizes borrowing activity:       September 30,     December 31,       2023     2022       Net     Percent     Net     Percent       Amount     of Total     Amount     of Total       (Dollars in Thousands)   FHLB advances and other borrowings   $ 199,757       77.21 %   $ 69,394       54.11 % Other long-term debt:                                 Subordinated debentures fixed at 5.50% to floating, due 2030     14,773       5.71       14,751       11.50   Subordinated debentures fixed at 3.50% to floating, due 2032     39,034       15.09       38,938       30.37   Subordinated debentures variable, due 2035     5,155       1.99       5,155       4.02   Total other long-term debt     58,962       22.79       58,844       45.89   Total borrowings   $ 258,719       100.00 %   $ 128,238       100.00 %   Total borrowings increased by $130.48 million, or 101.7% to $258.72 million at September 30, 2023  from $128.24 million at December 31, 2022 . This increase is largely due to an increase in FHLB advances and other borrowings related to funding loan growth.    Shareholders’ Equity   Total shareholders’ equity decreased by $1.15 million, or 0.7%, to $157.27 million at September 30, 2023 from $158.42 million at December 31, 2022 .  The decrease was impacted by an increase in unrealized losses on securities available-for-sale of $4.56 million, dividends paid of $3.32 million and a net of tax cumulative adjustment of $1.62 million related to the adoption of the Current Expected Credit Losses standard. These decreases were offset by net income of $7.89 million.   - 32 - Table of Contents EAGLE BANCORP MONTANA, INC. AND SUBSIDIARIES MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS   Analysis of Net Interest Income   The Bank’s earnings have historically depended primarily upon net interest income, which is the difference between interest income earned on loans and investments and interest paid on deposits and any borrowed funds. It is the single largest component of Eagle’s operating income. Net interest income is affected by (i) the difference between rates of interest earned on loans and investments and rates paid on interest-bearing deposits and borrowings (the “interest rate spread”) and (ii) the relative amounts of loans and investments and interest-bearing deposits and borrowings.   The following table includes average balances for financial condition items, as well as interest and dividends and average yields related to the average balances. All average balances are daily average balances. Nonaccrual loans were included in the computation of average balances, but have been reflected in the table as loans carrying a zero yield. The yields include the effect of deferred fees and discounts and premiums that are amortized or accreted to interest income or expense.          For the Three Months Ended September 30,       2023     2022       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   $ 319,308     $ 2,794       3.47 %   $ 378,680     $ 2,555       2.68 % FHLB and FRB stock     14,302       212       5.88       6,932       63       3.61   Loans receivable  (1)     1,476,584       21,068       5.66       1,301,358       16,665       5.08   Other earning assets     2,416       20       3.28       12,057       59       1.94   Total interest-earning assets     1,812,610       24,094       5.27       1,699,027       19,342       4.52   Noninterest-earning assets     239,833                       214,683                   Total assets   $ 2,052,443                     $ 1,913,710                                                                     Liabilities and equity:                                                 Interest-bearing liabilities:                                                 Deposit accounts:                                                 Checking   $ 227,938     $ 88       0.15 %   $ 261,426     $ 68       0.10 % Savings     231,465       38       0.07       318,322       25       0.03   Money market     324,895       1,576       1.92       369,216       307       0.33   Certificates of deposit     386,646       3,450       3.54       203,359       317       0.62   FHLB advances and other borrowings     192,880       2,672       5.50       10,832       136       4.98   Other long-term debt     58,950       683       4.60       59,038       602       4.05   Total interest-bearing liabilities     1,422,774       8,507       2.37       1,222,193       1,455       0.47   Noninterest checking     431,826                       503,905                   Other noninterest-bearing liabilities     38,910                       23,020                   Total liabilities     1,893,510                       1,749,118                                                                     Total equity     158,933                       164,592                                                                     Total liabilities and equity   $ 2,052,443                     $ 1,913,710                   Net interest income/interest rate spread  (2)           $ 15,587       2.90 %           $ 17,887       4.05 %                                                   Net interest margin  (3)                     3.41 %                     4.18 % Total interest-earning assets to interest-bearing liabilities                     127.40 %                     139.01 %   (1)  Includes loans held-for-sale. (2)  Interest rate spread represents the difference between the average yield on interest-earning assets and the average rate on interest-bearing liabilities. (3) Net interest margin represents income before the provision for loan losses divided by average interest-earning assets. (4)  For purposes of this table, tax exempt income is not calculated on a tax equivalent basis.   - 33 - Table of Contents EAGLE BANCORP MONTANA, INC. AND SUBSIDIARIES MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS       For the Nine Months Ended September 30,       2023     2022       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   $ 335,898     $ 8,586       3.42 %   $ 332,950     $ 5,863       2.35 % FHLB and FRB stock     12,610       480       5.09       5,827       160       3.67   Loans receivable  (1)     1,417,291       57,942       5.47       1,144,459       42,933       5.02   Other earning assets     2,562       66       3.44       44,456       206       0.62   Total interest-earning assets     1,768,361       67,074       5.07       1,527,692       49,162       4.30   Noninterest-earning assets     231,503                       186,200                   Total assets   $ 1,999,864                     $ 1,713,892                                                                     Liabilities and equity:                                                 Interest-bearing liabilities:                                                 Deposit accounts:                                                 Checking   $ 239,494     $ 538       0.30 %   $ 238,032     $ 106       0.06 % Savings     243,939       110       0.06       268,244       94       0.05   Money market     333,731       3,685       1.48       348,568       759       0.29   Certificates of deposit     336,659       7,434       2.95       171,642       492       0.38   FHLB advances and other borrowings     151,819       5,993       5.28       7,881       157       2.66   Other long-term debt     58,912       2,035       4.62       60,131       1,855       4.12   Total interest-bearing liabilities     1,364,554       19,795       1.94       1,094,498       3,463       0.42   Noninterest checking     442,377                       440,625                   Other noninterest-bearing liabilities     32,016                       22,698                   Total liabilities     1,838,947                       1,557,821                                                                     Total equity     160,917                       156,071                                                                     Total liabilities and equity   $ 1,999,864                     $ 1,713,892                   Net interest income/interest rate spread  (2)           $ 47,279       3.13 %           $ 45,699       3.88 %                                                   Net interest margin  (3)                     3.57 %                     4.00 % Total interest-earning assets to interest-bearing liabilities                     129.59 %                     139.58 %   (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.   - 34 - Table of Contents EAGLE BANCORP MONTANA, INC. AND SUBSIDIARIES MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS   Rate/Volume Analysis   The following tables present the dollar amount of changes in interest income and interest expense for major components of interest-earning assets and interest-bearing liabilities. For each category of interest-earning assets and interest-bearing liabilities, information is provided on changes attributable to: (1) changes in volume multiplied by the old rate; (2) changes in rate, which are changes in rate multiplied by the old volume; and (3) changes not solely attributable to rate or volume, which have been allocated proportionately to the change due to volume and the change due to rate.       For the Three Months Ended September 30,       2023     2022               Due to                     Due to               Volume     Rate     Net     Volume     Rate     Net       (In Thousands)   Interest-earning assets:                                                 Investment securities   $ (401 )   $ 640     $ 239     $ 677     $ 784     $ 1,461   FHLB and FRB stock     67       82       149       27       (26 )     1   Loans receivable  (1)     2,244       2,159       4,403       4,697       349       5,046   Other earning assets     (47 )     8       (39 )     (26 )     53       27   Total interest-earning assets     1,863       2,889       4,752       5,375       1,160       6,535                                                     Interest-bearing liabilities:                                                 Checking     (9 )     29       20       4       52       56   Savings     (7 )     20       13       17       (22 )     (5 ) Money Market     (37 )     1,306       1,269       66       95       161   Certificates of deposit     286       2,847       3,133       51       104       155   FHLB advances and other borrowings     2,286       250       2,536       12       87       99   Other long-term debt     (1 )     82       81       381       (168 )     213   Total interest-bearing liabilities     2,518       4,534       7,052       531       148       679                                                     Change in net interest income   $ (655 )   $ (1,645 )   $ (2,300 )   $ 4,844     $ 1,012     $ 5,856         For the Nine Months Ended September 30,       2023     2022               Due to                     Due to               Volume     Rate     Net     Volume     Rate     Net       (In Thousands)   Interest earning assets:                                                 Investment securities   $ 52     $ 2,671     $ 2,723     $ 1,977     $ 897     $ 2,874   FHLB and FRB stock     186       134       320       38       (72 )     (34 ) Loans receivable  (1)     10,235       4,774       15,009       8,884       389       9,273   Other earning assets     (194 )     54       (140 )     (38 )     154       116   Total interest earning assets     10,279       7,633       17,912       10,861       1,368       12,229                                                     Interest bearing liabilities:                                                 Checking     1       431       432       10       62       72   Savings     (9 )     25       16       33       (25 )     8   Money Market     (32 )     2,958       2,926       186       192       378   Certificates of deposit     473       6,469       6,942       39       (164 )     (125 ) FHLB advances and other borrowings     2,868       2,968       5,836       (42 )     47       5   Other long-term debt     (38 )     218       180       1,187       (500 )     687   Total interest bearing liabilities     3,263       13,069       16,332       1,413       (388 )     1,025                                                     Change in net interest income   $ 7,016     $ (5,436 )   $ 1,580     $ 9,448     $ 1,756     $ 11,204     (1)  Includes loans held-for-sale.   - 35 - Table of Contents EAGLE BANCORP MONTANA, INC. AND SUBSIDIARIES MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS     Results of Operations for the Three Months Ended  September 30, 2023 and 2022   Net Income. Eagle’s net income for the three months ended September 30, 2023 was $2.64 million compared to $3.09 million for the three months ended September 30, 2022. The decrease of $457,000 was primarily due to a decrease in net interest income after provision for credit losses of $2.37 million, largely offset by a a decrease in noninterest expense of $1.61 million. Basic and diluted earnings per common share were both $0.34 for the current period. Basic and diluted earnings per common share were both $0.40 for the prior year comparable period.   Net Interest Income. Net interest income decreased to $15.59 million for the three months ended September 30, 2023, from $17.89 million for the same quarter in the prior year. The decrease of $2.30 million, or 12.9%, was the result of an increase in interest expense of $7.05 million partially offset by an increase in interest and dividend income of $4.75 million.   Interest and Dividend Income. Interest and dividend income was $24.09 million for the three months ended September 30, 2023 compared to $19.34 million for the three months ended September 30, 2022. Interest and fees on loans increased to $21.07 million for the three months ended September 30, 2023 from $16.67 million for the three months ended September 30, 2022. This increase of $4.40 million, or 26.4%, was due to an increase in the average balance of loans, as well as an increase in the average yield on loans. Average balances for loans receivable, including loans held-for-sale, for the three months ended September 30, 2023 were $1.48 billion, compared to $1.30 billion for the prior year period. This represents an increase of $175.22 million, or 13.5% and was impacted by organic growth. The average interest rate earned on loans receivable increased by 58 basis points, from 5.08% for the three months ended September 30, 2022 to 5.66% for the current period. Interest accretion on purchased loans was $175,000 for the three months ended September 30, 2023 which resulted in a 4 basis point increase in net interest margin compared to $392,000 for the three months ended September 30, 2022 which resulted in a 9 basis point increase in net interest margin. Interest on investment securities available-for-sale increased by $239,000, or 9.4% period over period. Average interest rates earned on investments increased to 3.47% for the three months ended September 30, 2023 from 2.68% for the three months ended September 30, 2022. However, average balances for investments decreased to $319.31 million for the three months ended September 30, 2023 from $378.68 million for the three months ended September 30, 2022.   Interest Expense. Total interest expense was $8.51 million for the three months ended September 30, 2023 compared to $1.46 million for the three months ended September 30, 2022. The increase of $7.05 million was due to an increase of $4.43 million in interest expense on deposits, as well as a net increase of $2.61 million in interest expense on total borrowings. The overall average rate on total deposits was up from 0.17% for the three months ended September 30, 2022 compar ed to 1.28% for the three months ended September 30, 2023. However, the average balance for total deposits was $1.60 billion for the three months ended September 30, 2023 compared to $1.66 billion for the three months ended September 30, 2022. The increase in interest expense on total borrowings was driven by the average balance of FHLB advances and other borrowings which increased from $10.83 million for the three months ended September 30, 2022 to $192.88 million for the three months ended September 30, 2023. Short-term borrowings have increased to fund loan growth. In addition, the average rate paid on FHLB advances and other borrowings increased from 4.98% for the three months ended September 30, 2022, to 5.50% for the three months ended September 30, 2023.     Provision for Credit Losses. Provision for credit losses was $588,000 for the three months ended September 30, 2023, compared to $517,000 in loan loss provisions, prior to the adoption of the Current Expected Credit Losses standard, for the three months ended September 30, 2022. The provision for credit losses for three months ended September 30, 2023 includes a provision for credit losses on loans of $778,000 and a decrease in the provision for unfunded commitments of $190,000.   Noninterest Income. Total noninterest income was $6.04 million for the three months ended September 30, 2023 compared to $6.25 million for the three months ended September 30, 2022. The slight decrease of $211,000, or 3.4% was due to a decrease in other noninterest income of $191,000 primarily due to a net gain on sale of real estate owned and other repossessed assets during the three months ended September 30, 2022.  Mortgage banking, net, also decreased $109,000. Mortgage banking, net, includes net gain on sale of mortgage loans which decreased to $3.59 million for the three months ended September 30, 2023 compared to $4.20 million for the three months ended September 30, 2022. During the three months ended September 30, 2023, $109.02 million residential mortgage loans were sold compared to $121.26 million in the same period in the prior year. Mortgage volumes have been impacted by the current interest rate environment. Gross margin levels decreased 17 basis points from 3.46% for the three months ended September 30, 2022 to 3.29% for the three months ended September 30, 2023.   Noninterest Expense. Noninterest expense was $17.88 million for the three months ended September 30, 2023 compared to $19.49 million for the three months ended September 30, 2022, a decrease of $1.61 million or 8.3% . The decrease was primarily related to a decrease in salaries and employee benefits of $862,000 which was driven by lower commissions paid on residential mortgage originations. Data processing also decreased $478,000 due to implementing technology changes.   Provision for Income Taxes. Provision for income taxes was $524,000 for the three months ended September 30, 2023, compared to $1.03 million for the three months ended September 30, 2022 due to the increase in proportion of tax-exempt income compared to the pretax earnings. The effective tax rate was 16.6% for the current period, decreasing from 25.0% for the prior period.   - 36 - Table of Contents EAGLE BANCORP MONTANA, INC. AND SUBSIDIARIES MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS   Results of Operations for the Nine Months Ended  September 30, 2023 and 2022     Net Income. Eagle’s net income for the nine months ended September 30, 2023 was $7.89 million compared to $7.08 million for the nine months ended September 30, 2022. The increase of $813,000 was primarily due to an increase in net interest income after provision for credit losses of $2.04 million and a decrease in noninterest expense of $2.33 million, largely offset by a decrease in noninterest income of $4.01 million and a decrease in provision for income taxes of $447,000. Basic and diluted earnings per common share were both $1.01 for the current period. Basic and diluted earnings per common share were both $0.98 for the prior year comparable period.   Net Interest Income. Net interest income increased to $47.28 million for the nine months ended September 30, 2023, from $45.70 million for the same period in the prior year. The increase of $1.58 million, or 3.5%, was the result of an increase in interest and dividend income of $17.91 million largely offset by an increase in interest expense of $16.34 million.   Interest and Dividend Income. Interest and dividend income was $67.07 million for the nine months ended September 30, 2023 compared to $49.16 million for the nine months ended September 30, 2022. Interest and fees on loans increased to $57.94 million for the nine months ended September 30, 2023 from $42.93 million for the nine months ended September 30, 2022. This increase of $15.01 million, or 35.0%, was due to an increase in the average balance of loans, as well as an increase in the average yield on loans. Average balances for loans receivable, including loans held-for-sale, for the nine months ended September 30, 2023 were $1.42 billion, compared to $1.14 billion for the prior year period. This represents an increase of $272.83 million, or 23.8%, and was impacted by organic growth. The average interest rate earned on loans receivable also increased by 45 basis points, from 5.02% for the nine months ended September 30, 2022 to 5.47% for the current period. Interest accretion on purchased loans was $838,000 for the nine months ended September 30, 2023 which resulted in an 6 basis point increase in net interest margin compared to $1.29 million for the nine months ended September 30, 2022 which resulted in a 11 basis point increase in net interest margin. Interest on investment securities available-for-sale increased by $2.73 million period over period. The largest driver of the increase is due to average interest rates earned on investments increasing to 3.42% for the nine months ended September 30, 2023 from 2.35% for the nine months ended September 30, 2022. Average balances for investments also increased slightly to $335.90 million for the nine months ended September 30, 2023 from $332.95 million for the nine months ended September 30, 2022.   Interest Expense. Total interest expense was $19.80 million for the nine months ended September 30, 2023 compared to $3.46 million for the nine months ended September 30, 2022. The increase of $16.34 million was due to an increase of $10.32 million in interest expense on deposits, as well as a net increase of $6.01 million in interest expense on total borrowings. The overall average rate on total deposits was up from 0.13% for the nine months ended September 30, 2022 compared to 0.99% for the nine months ended September 30, 2023. In addition, the average balance for total deposits was $1.60 billion for the nine months ended September 30, 2023 compared to $1.47 billion for the nine months ended September 30, 2022 . The increase in the interest expense on total borrowings was due to the average rate paid on FHLB advances and other borrowings, which increased from 2.66% for the nine months ended September 30, 2022 to 5.28% for the nine months ended September 30, 2023. The average balance for FHLB advances and other borrowings also increased from $7.88 million for the nine months ended September 30, 2022 to $151.82 million for the nine months ended September 30, 2023. Short-term borrowings have increased to fund loan growth.   Provision for Credit Losses. Provision for credit losses was $1.19 million for the nine months ended September 30, 2023, compared to $1.65 million in loan loss provisions, prior to the adoption of the Current Expected Credit Losses standard, for the nine months ended September 30, 2022. The provision for credit losses for the nine months ended September 30, 2023 includes a provision for credit losses on loans of $1,466,000 and a decrease in the provision for unfunded commitments of $280,000.   Noninterest Income. Total noninterest income was $16.91 million for the nine months ended September 30, 2023 compared to $20.92 million for the nine months ended September 30, 2022. The decrease of $4.01 million, or 19.2% was primarily due to a decrease in mortgage banking, net, of $4.93 million. Mortgage banking, net, includes net gain on sale of mortgage loans which decreased to $8.55 million for the nine months ended September 30, 2023 compared to $15.65 million for the nine months ended September 30, 2022. During the nine months ended September 30, 2023, $256.17 million residential mortgage loans were sold compared to $443.92 million in the same period in the prior year. Mortgage volumes have been impacted by the current interest rate environment. Gross margin levels decreased 18 basis points from 3.52% for the nine months ended September 30, 2022 to 3.34% for the nine months ended September 30, 2023.   Noninterest Expense. Noninterest expense was $53.20 million for the nine months ended September 30, 2023 compared to $55.53 million for the nine months ended September 30, 2022, a decrease of $2.33 million or 4.2%. The largest driver of the decrease was acquisition costs of $2.30 million incurred during the nine months ended September 30, 2022 related to the completed merger with FCB. In addition, salaries and employee benefits decreased $1.90 million and was impacted by lower commissions paid on residential mortgage originations.    Provision for Income Taxes. Provision for income taxes was $1.91 million for the nine months ended September 30, 2023, compared to $2.36 million for the nine months ended September 30, 2022. The year-to-date effective tax rate was 19.5% for the current period compared to 25.0% for same period in 2022. The anticipated effective tax rate for 2023 is lower due to the increase in proportion of tax-exempt income compared to the pretax earnings.   - 37 - Table of Contents EAGLE BANCORP MONTANA, INC. AND SUBSIDIARIES MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS     Liquidity and Capital Resources     Liquidity   The Bank is required 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 September 30, 2023 and December 31, 2022 .   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, for investment purposes, to meet operating expenses and capital expenditures, for dividend payments and for stock repurchases 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 the Bank's commitments to make loans and management’s assessment of the Bank's ability to generate funds.   The Bank's available borrowing capacity was approximately $333.43 million as of September 30, 2023 and $419.20 million as of December 31, 2022.       September 30,     December 31,       2023     2022       Borrowings     Remaining Borrowing     Borrowings     Remaining Borrowing       Outstanding     Capacity     Outstanding     Capacity       (Dollars in Thousands)   Federal Home Loan Bank advances   $ 199,757     $ 216,430     $ 69,394     $ 296,200   Federal Reserve Bank discount window     -       32,000       -       38,000   Correspondent bank lines of credit     -       85,000       -       85,000   Total   $ 199,757     $ 333,430     $ 69,394     $ 419,200     During the first quarter of 2023, the FRB offered a new Bank Term Funding Program ("BTFP") for eligible depository institutions. The BTFP offers loans of up to one year in length to institutions pledging collateral eligible for purchase by FRB such as U.S. treasuries, agency securities, and mortgage-backed securities. These assets will be valu ed at par. The Company is not currently utilizing the program; however, this is an additional available funding source.   In addition to bank level liquidity management, Eagle must manage liquidity at the parent company level for various operating needs, including the servicing of debt, the payment of dividends on our common stock, share repurchases, payment of general corporate expense, and potential capital infusions into subsidiaries. The primary source of liquidity for Eagle consists of dividends from the Bank, which is governed by certain rules and regulations of the Montana Division of Banking and Financial Institutions and the Federal Reserve, and access to capital markets. Eagle also had a $10.00 million line of credit with a correspondent bank. The line of credit was increased to $15.00 million as of October 30, 2023. There w as no outstanding balance for this line of credit at September 30, 2023 or December 31, 2022. Eagle's ability to receive dividends from the Bank in future periods will depend on several factors, including, without limitation, the Bank's future profits, asset quality, liquidity, and overall condition. In addition, both the Montana Division of Banking and Financial Institutions and Federal Reserve may require approval to pay dividends, based on certain regulatory statutes and limitations.   Eagle presently believes that the sources of liquidity discussed above, including existing liquid funds on hand, are sufficient to meet its anticipated funding needs in the short and long term. However, if economic conditions were to significantly deteriorate, regulatory capital requirements for Eagle or the Bank were to increase as the result of regulatory directives or otherwise, or Eagle were to believe it is prudent to enhance current liquidity levels, then Eagle may seek additional liquidity from external sources.   Capital Resources   As of September 30, 2023 , the Bank’s internally determined measurement of sensitivity to interest rate movements as measured by a 200 basis point rise in interest rates scenario, decreased the economic value of equity (“EVE”) by 2.50% compared to a decrease of 12.60% at December 31, 2022 . The Bank is within the guidelines set forth by the Board of Directors for interest rate risk sensitivity in rising interest rate scenarios.   - 38 - Table of Contents EAGLE BANCORP MONTANA, INC. AND SUBSIDIARIES MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS   The Company's and the Bank's regulatory capital was in excess of all applicable regulatory requirements and the Bank is deemed "well capitalized" pursuant to State of Montana and FRB rules as of September 30, 2023 . The Company's and the Bank's actual capital amounts and ratios as of September 30, 2023  are presented in the table below and all of the ratios, with the exception of the Tier 1 capital adjusted total average assets ratio, include the capital conservation buffer of 2.50%.                                        Minimum                                       To Be Well                       Minimum Required     Capitalized Under                       for Capital Adequacy     Prompt Corrective       Actual     Purposes     Action Provisions       Amount     Ratio     Amount     Ratio     Amount     Ratio       (Dollars in Thousands)   September 30, 2023:                                                 Total risk-based capital to risk weighted assets                                                 Consolidated   $ 227,012       13.43 %   $ 177,341       10.50 %     N/A       N/A   Bank     215,583       12.76       177,341       10.50       168,896       10.00 %                                                   Tier 1 capital to risk weighted assets                                                 Consolidated     154,562       9.14       143,562       8.50       N/A       N/A   Bank     198,133       11.73       143,562       8.50       135,117       8.00                                                     Common equity Tier 1 capital to risk weighted assets                                                 Consolidated     149,562       8.85       118,227       7.00       N/A       N/A   Bank     198,133       11.73       118,227       7.00       109,782       6.50                                                     Tier 1 capital to adjusted total average assets                                                 Consolidated     154,562       7.80       79,212       4.00       N/A       N/A   Bank     198,133       9.68       81,842       4.00       102,303       5.00                                         Minimum                                       To Be Well                       Minimum Required     Capitalized Under                       for Capital Adequacy     Prompt Corrective       Actual     Purposes     Action Provisions       Amount     Ratio     Amount     Ratio     Amount     Ratio       (Dollars in Thousands)   December 31, 2022:                                                 Total risk-based capital to risk weighted assets                                                 Consolidated   $ 219,595       14.10 %   $ 163,560       10.50 %     N/A       N/A   Bank     202,905       13.04       163,444       10.50       155,661       10.00 %                                                   Tier 1 capital to risk weighted assets                                                 Consolidated     150,595       9.67       132,406       8.50       N/A       N/A   Bank     188,905       12.14       132,312       8.50       124,529       8.00                                                     Common equity Tier 1 capital to risk weighted assets                                                 Consolidated     145,594       9.35       109,040       7.00       N/A       N/A   Bank     188,905       12.14       108,962       7.00       101,179       6.50                                                     Tier 1 capital to adjusted total average assets                                                 Consolidated     150,595       7.78       77,422       4.00       N/A       N/A   Bank     188,905       9.82       76,947       4.00       96,184       5.00     - 39 - 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's primary source of revenue. Net interest income is affected by changes in interest rates, the relationship between rates on interest-bearing assets and liabilities, the impact of interest rate 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.    The Bank has established acceptable levels of interest rate risk as follows for an instantaneous and permanent shock in rates: projected net interest income over the next twelve months (i.e. year-1) and the subsequent twelve months (i.e. year-2) will not be reduced by more than 15.0% given an immediate increase or decrease in interest rates of up to 200 basis points or by more than 10.0% given an immediate increase or decrease in interest rates of up to 100 basis points.    The following table includes the Bank’s net interest income sensitivity analysis.                       Changes in Market     Rate Sensitivity       Interest Rates     As of September 30, 2023     Policy (Basis Points)     Year 1     Year 2     Limits                     +200     -7.3%     5.0%     -15.0% +100     -3.3%     7.8%     -10.0% -100     3.1%     10.9%     -10.0% -200     5.6%     11.2%     -15.0%   Critical Acc ounting Policies and Estimates   The accounting and financial reporting policies of Eagle are in accordance with generally accepted accounting principles ("GAAP") and conform to the accounting and reporting guidelines prescribed by bank regulatory authorities. Eagle has identified certain of its accounting policies as “critical accounting policies,” consisting of those related to the allowance for credit losses and business combinations. In determining which accounting policies are critical in nature, Eagle has identified the policies that require significant judgment or involve complex estimates. It is management's practice to discuss critical accounting policies with the Board of Directors' Audit Committee on a periodic basis, including the development, selection, implementation, and disclosure of the critical accounting policies. The application of these policies has a significant impact on Eagle’s unaudited interim consolidated financial statements. Eagle’s financial results could differ significantly if different judgments or estimates are used in the application of these policies. All accounting policies described in "Part II - Item 8. Financial Statements and Supplementary Data - Note 1 – Organization and Summary of Significant Accounting Policies" in Eagle’s 2022 Form 10-K should be reviewed for a greater understanding of how we record and report our financial performance. There have been no significant changes to the accounting policies, estimates, and assumptions, or the judgments affecting the application of these estimates and assumptions from those disclosed in Eagle’s 2022 Form 10-K, other than the following:   The Company adopted Accounting Standards Update ("ASU") No. 2016-13 Financial Instruments - Credit Losses, referred to as the Current Expected Credit Losses ("CECL") model on January 1, 2023 and ASU No. 2022-02 Financial Instruments - Credit Losses, Troubled Debt Restructurings and Vintage Disclosures, an update to ASU No. 2016-13.   The excess of consideration paid over fair value of net assets acquired is recorded as goodwill. Goodwill is not amortized but is tested at least annually for impairment or more frequently if events occur or circumstances change that indicate impairment may exist. A goodwill impairment test is performed by comparing the fair value of the reporting unit with its carrying value. An impairment charge is recorded for the amount by which the carrying amount exceeds the reporting unit’s fair value. Estimating the fair value of the reporting unit requires the use of inputs and assumptions including projected earnings of the Company in future years for which there is inherent uncertainty.   During the quarter ended September 30, 2023, Management determined that a triggering event had occurred because of a decrease in the Company's stock price and a revision in the earnings outlook in comparison to budget. These conditions are primarily due to economic uncertainty and market volatility from the rising interest rate environment. As a result, the Company performed an interim goodwill impairment assessment as of August 31, 2023, and concluded that goodwill was not impaired. However, changing economic conditions that may adversely affect the Company's performance, the fair value of its assets and liabilities, or its stock price could result in future impairment. Any resulting impairment loss could have a material adverse impact on the Company’s financial condition and results of operations. Management will continue to monitor events that could influence this conclusion in the future.   - 40 - Table of Contents EAGLE BANCORP MONTANA, INC. AND SUBSIDIARIES MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS   Item 3. Quantitative and Qualitative Disclosures About Market Risk   This item has been omitted based on Eagle’s status as a smaller reporting company.   - 41 - Table of Contents EAGLE BANCORP MONTANA, INC. AND SUBSIDIARIES MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS   Item 4. Controls and Procedures     As of the end of the period covered by this report, we conducted an evaluation under the supervision and with the participation of our management including our Chief Executive Officer (“CEO”) and our Chief Financial Officer (“CFO”) of the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, to ensure that information required to be disclosed by us in the reports filed or submitted by us under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission’s rules and forms, including to ensure that information required to be disclosed by us in the reports filed or submitted by us under the Exchange Act is accumulated and communicated to management to allow timely decisions regarding required disclosure. Based on that evaluation, our CEO and CFO concluded that as of September 30, 2023, 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.     - 42 - Table of Contents EAGLE BANCORP MONTANA, INC. AND SUBSIDIARIES MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS   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, 2022, as supplemented in Part II, Item 1A of our Quarterly Report on Form 10-Q for the period ended March 31, 2023.   Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.   On April 20, 2023, Eagle's Board of Directors authorized the repurchase of up to 400,000 shares of its common stock beginning May 1, 2023. 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 on market conditions and other corporate considerations. During the second quarter of 2023, 17,901 shares were purchased under this plan at an average price of $12.89. No shares were purchased during the third quarter of 2023 under this plan. The plan expires on May 1, 2024.    On April 21, 2022, Eagle's Board authorized the repurchase of up to 400,000 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 on market conditions and other corporate considerations. During the second quarter of 2022, 5,000 shares were purchased under this plan at an average price of $19.75. During the third quarter of 2022, 99,517 shares were purchased under this plan at an average price of $19.45. During the fourth quarter of 2022, 6,608 shares were purchased under this plan at an average price of $18.80. No shares were purchased during the first quarter of 2023 under this plan. The plan expired 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 repurchased its shares and the timing of such repurchases depended on market conditions and other corporate considerations.  No shares were purchased during the third or fourth quarter of 2021. However, during the first quarter of 2022, the Company repurchased the total authorized amount of 100,000 shares at an average price of $22.71 per share. The plan expired on July 22, 2022.    Item 3. Defaults Upon Senior Securities.   Not applicable.   Item 4. Mine Safety Disclosures Not applicable.   - 43 - Table of Contents EAGLE BANCORP MONTANA, INC. AND SUBSIDIARIES MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS   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).     31.1 Certification by Laura F. Clark, Chief Executive Officer, pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934, as adopted pursuant to Section 302 (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 Laura F. Clark, Chief Executive Officer, and Miranda J. Spaulding, Chief Financial Officer, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.     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.    - 44 - Table of Contents EAGLE BANCORP MONTANA, INC. AND SUBSIDIARIES MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS   SIGNATURES   Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.             EAGLE BANCORP MONTANA, INC.                Date: November 9, 2023 By:   /s/ Laura F. Clark   Laura F. Clark   President/CEO                          Date: November 9, 2023 By:   /s/ Miranda J. Spaulding   Miranda J. Spaulding   SVP/CFO     - 45 -