# Eagle Bancorp Montana, Inc. (EBMT) FY 2022 MD&A Verbatim Item 7 Management's Discussion and Analysis from Eagle Bancorp Montana, Inc.'s 10-K for fiscal year 2022. SEC filing source: https://www.sec.gov/Archives/edgar/data/1478454/000143774923005778/ebmt20221231_10k.htm Accession: 0001437749-23-005778 Filing date: 2023-03-08 Report date: 2022-12-31 Extracted structurally from real Item 7 body heading to real Item 7A/8 boundary. Confidence: high Company profile: /company/EBMT/ All MD&A years: /company/EBMT/mda/ Previous year: /company/EBMT/mda/fy2021/ (FY 2021) Next year: /company/EBMT/mda/fy2023/ (FY 2023) ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. The following discussion and analysis of the financial condition and results of operations of Eagle is intended to help investors understand our company and our operations. The financial review is provided as a supplement to, and should be read in conjunction with the Consolidated Financial Statements and the related Notes included elsewhere in this report. Introduction  The following Management's Discussion and Analysis of Financial Condition and Results of Operations ("MD&A") describes Eagle and its subsidiaries' results of operations for the year ended December 31, 2022 as compared to the year ended December 31, 2021, and also analyzes our financial condition as of December 31, 2022 as compared to December 31, 2021. Like most banking institutions, our principal business consists of attracting deposits from the general public and the business community and making loans secured by various types of collateral, including real estate and other consumer assets. We are significantly affected by prevailing economic conditions, particularly interest rates, as well as government policies concerning, among other things, monetary and fiscal affairs, housing and financial institutions and regulations regarding lending and other operations, privacy and consumer disclosure. Attracting and maintaining deposits is influenced by a number of factors, including interest rates paid on competing investments offered by other financial and nonfinancial institutions, account maturities, fee structures and levels of personal income and savings. Lending activities are affected by the demand for funds and thus are influenced by interest rates, the number and quality of lenders and regional economic conditions. Sources of funds for lending activities include deposits, borrowings, repayments on loans, cash flows from maturities of investment securities and income provided from operations. Our earnings depend primarily on our level of net interest income, which is the difference between interest earned on our interest-earning assets, consisting primarily of loans and investment securities, and the interest paid on interest-bearing liabilities, consisting primarily of deposits, borrowed funds, and trust-preferred securities. Net interest income is a function of our interest rate spread, which is the difference between the average yield earned on our interest-earning assets and the average rate paid on our interest-bearing liabilities, as well as a function of the average balance of interest-earning assets compared to interest-bearing liabilities. Also contributing to our earnings is noninterest income, which consists primarily of service charges and fees on loan and deposit products and services, net gains and losses on sale of assets, and mortgage loan service fees. Net interest income and noninterest income are offset by provisions for loan losses, general administrative and other expenses, including salaries and employee benefits and occupancy and equipment costs, as well as by state and federal income tax expense. The Bank has a strong mortgage lending focus, with a large portion of its loan originations represented by single-family residential mortgages, which has enabled it to successfully market home equity loans, as well as a wide range of shorter term consumer loans for various personal needs (automobiles, recreational vehicles, etc.). The Bank has also focused on adding commercial loans to our portfolio, both real estate and non-real estate. We have made significant progress in this initiative. As of December 31, 2022, commercial real estate and commercial business loans represented 60.97% and 17.07% of the total loan portfolio, respectively. The purpose of this diversification is to mitigate our dependence on the residential mortgage market, as well as to improve our ability to manage our interest rate spread. Recent acquisitions have added to our agricultural loans, which generally have shorter maturities and nominally higher interest rates. This has provided additional interest income and improved interest rate sensitivity. The Bank’s management recognizes that fee income will also enable it to be less dependent on specialized lending and it maintains a significant loan serviced portfolio, which provides a steady source of fee income. As of December 31, 2022, we had mortgage servicing rights, net of $15.41 million compared to $13.69 million as of December 31, 2021. Gain on sale of loans also provides significant noninterest income in periods of high mortgage loan origination volumes. Such income will be adversely affected in periods of lower mortgage activity. 22 Table of Contents Fee income is also supplemented with fees generated from deposit accounts. The Bank has a high percentage of non-maturity deposits, such as checking accounts and savings accounts, which allows management flexibility in managing its spread. Non-maturity deposits and certificates of deposit do not automatically reprice as interest rates rise. Management continues to focus on improving the Bank's earnings. Management believes the Bank needs to continue to concentrate on increasing net interest margin, other areas of fee income and control operating expenses to achieve earnings growth going forward. Management’s strategy of growing the loan portfolio and deposit base is expected to help achieve these goals as follows: loans typically earn higher rates of return than investments; a larger deposit base should yield higher fee income; increasing the asset base will reduce the relative impact of fixed operating costs. The biggest challenge to the strategy is funding the growth of the statement of financial condition in an efficient manner. Though deposit growth has been steady, it may become more difficult to maintain due to significant competition and possible reduced customer demand for deposits as customers may shift into other asset classes. Other than short term residential construction loans, we do not offer “interest only” mortgage loans on residential 1-4 family properties (where the borrower pays interest but no principal for an initial period, after which the loan converts to a fully amortizing loan). We also do not offer loans that provide for negative amortization of principal, such as “Option ARM” loans, where the borrower can pay less than the interest owed on their loan, resulting in an increased principal balance during the life of the loan. We do not offer “subprime loans” (loans that generally target borrowers with weakened credit histories typically characterized by payment delinquencies, previous charge-offs, judgments, bankruptcies, or borrowers with questionable repayment capacity as evidenced by low credit scores or high debt-burden ratios) or Alt-A loans (traditionally defined as loans having less than full documentation). The level and movement of interest rates impacts the Bank’s earnings as well. The Federal Open Market Committee held the federal funds target rate at 0.25% during the year ended December 31, 2021. The rate increased to 4.50% during the year ended December 31, 2022.  Acquisitions The Bank has used growth through mergers or acquisition, in addition to its strategy of organic growth. In April 2022, Eagle acquired First Community Bancorp, Inc. ("FCB"), a Montana corporation, and FCB's wholly-owned subsidiary, First Community Bank, a Montana chartered commercial bank. In the transaction, Eagle acquired nine retail bank branches and two loan production offices in Montana.  In January 2020, Eagle acquired Western Holding Company of Wolf Point (“WHC”), a Montana corporation, and WHC’s wholly-owned subsidiary, Western Bank of Wolf Point (“WB”), a Montana chartered commercial bank. In the transaction, Eagle acquired one retail bank branch in Wolf Point, Montana. 23 Table of Contents Critical Accounting Policies and Estimates  Certain accounting policies are important to the understanding of our financial condition, since they require management to make difficult, complex or subjective judgments, some of which may relate to matters that are inherently uncertain. Estimates associated with these policies are susceptible to material changes as a result of changes in facts and circumstances, including, but without limitation, changes in interest rates, performance of the economy, financial condition of borrowers and laws and regulations. The following are the accounting policies we believe are critical. Allowance for Loan Losses   The allowance for loan losses is the estimated amount considered necessary to absorb losses inherent in the loan portfolio at the balance sheet date. The allowance is established through the provision for loan losses, which is charged against income. The provision for loan losses reflects the amount required to maintain the allowance for loan losses at an appropriate level based upon management’s evaluation of the adequacy of loss reserves. The methodology for determining the allowance for loan losses is considered a critical accounting policy by management due to the high degree of judgment involved, the subjectivity of the assumptions utilized and the potential for changes in the economic environment that could result in changes to the amount of the recorded allowance for loan losses. We recognize that losses will be experienced on loans and that the risk of loss will vary with, among other things, the type of loan, the creditworthiness of the borrower, general economic conditions and the quality of the collateral for the loan. The analysis of the allowance for loan losses has two components: specific and general allocations. Specific allocations are made for loans that are determined to be impaired, and have been individually evaluated. Impairment is measured by determining the present value of expected future cash flows or, for collateral-dependent loans, the fair value of the collateral adjusted for market conditions and selling expenses. The general allocation is determined by segregating the remaining loans by type of loan, risk weighting (if applicable), and payment history. Using a three-year lookback period, historical loss experience, delinquency trends and general economic conditions are analyzed. Separately evaluated but also taken into consideration are call report, geographic, and industry concentrations. This analysis establishes factors that are applied to the loan groups to determine the amount of the general allocations. In addition, as an integral part of their examination process, banking regulators will periodically review our allowance for loan losses and may require us to make additional provisions for estimated losses based upon judgments different from those of management. Although management believes that it uses the best information available to establish the allowance for loan losses, future adjustments to the allowance for loan losses may be necessary and results of operations could be adversely affected if circumstances differ substantially from the assumptions used in making the determinations. Because future events affecting borrowers and collateral cannot be predicted with certainty, there can be no assurance that the existing allowance for loan losses is adequate or that increases will not be necessary should the quality of loans deteriorate as a result of the factors discussed previously. Any material increase in the allowance for loan losses may adversely affect our financial condition and results of operations. The allowance is based on information known at the time of the review. Changes in factors underlying the assessment could have a material impact on the amount of the allowance that is necessary and the amount of provision to be charged against earnings. Such changes could impact future results. For the year ended December 31, 2022, we followed the incurred loss methodology for determining our allowance for loan losses. We will adopt the current expected credit losses ("CECL") standard for determining the amount of our allowance for credit losses beginning January 1, 2023.  Business Combinations The Company accounts for business combinations under the acquisition method of accounting. The Company records assets acquired, including identifiable intangible assets and liabilities assumed at their fair values as of the acquisition date. Transaction costs related to the acquisition are expensed in the period incurred. Results of operations of the acquired entity are included in the consolidated statements of income from the date of acquisition. Any measurement-period adjustments are recorded in the period the adjustment is identified. The excess of consideration paid over fair value of net assets acquired is recorded as goodwill. Determining the fair value of assets acquired, including identifiable intangible assets and liabilities assumed often requires significant use of estimates and assumptions. This may involve estimates based on third-party valuations, such as appraisals, or internal valuations based on discounted cash flow analyses or other valuation techniques such as estimates of attrition, inflation, asset growth rates, discount rates, multiples of earnings or other relevant factors. Goodwill is not amortized but is tested at least annually for impairment. Other intangible assets are assigned useful lives and amortized. The determination of useful lives is subjective. See Note 2 and 7 to the Consolidated Financial Statements in “Item 8. Financial Statements and Supplementary Data” for further information. The Company's accounting policies and discussion of recent accounting pronouncements is included in Note 1 to the Consolidated Financial Statements in "Item 8. Financial Statements and Supplementary Data". 24 Table of Contents Financial Condition December 31, 2022 compared to December 31, 2021 Total assets were $1.95 billion at December 31, 2022, an increase of $512.45 million, or 35.7% from $1.44 billion at December 31, 2021. The increase was largely due to the FCB acquisition in April 2022, primarily reflected in loans receivable. Loans receivable, net increased by $419.04 million or 45.5%, to $1.34 billion at December 31, 2022 from $920.64 million at December 31, 2021. In addition, securities available-for-sale increased by $78.24 million from $271.26 million at December 31, 2021. Total liabilities were $1.79 billion at December 31, 2022, an increase of $510.77 million, or 39.9%, from $1.28 billion at December 31, 2021. The increase in liabilities was mainly due to an increase in deposits. Total deposits increased by $412.72 million from December 31, 2021, $321.11 million of which were brought on from the FCB acquisition. FHLB advances and other borrowings also increased $64.39 million from December 31, 2021. Total shareholders’ equity increased by $1.69 million from December 31, 2021. Financial Condition Details Investment Activities We maintain a portfolio of investment securities, classified as either available-for-sale or held-to-maturity to enhance total return on investments. Our investment securities generally include U.S. government and agency obligations, U.S. treasury obligations, Small Business Administration pools, municipal securities, corporate obligations, mortgage-backed securities (“MBSs”), collateralized mortgage obligations (“CMOs”) and asset-backed securities (“ABSs”), all with varying characteristics as to rate, maturity and call provisions. There were no held-to-maturity investment securities included in the investment portfolio at December 31, 2022 or 2021. All investment securities included in the investment portfolio are available-for-sale. Eagle also has interest-bearing deposits in other banks and federal funds sold, as well as stock in FHLB and FRB. FHLB stock was $5.09 million and $1.70 million at December 31, 2022 and 2021, respectively. FRB stock was $4.13 million and $2.97 million at December 31, 2022 and 2021, respectively. 25 Table of Contents The following table summarizes investment activities: [[GREPCENT_TABLE]] [["","","December 31,"],["","","2022","","","2021","","","2020"],["","","Fair Value","","","Percentage of Total","","","Fair Value","","","Percentage of Total","","","Fair Value","","","Percentage of Total"],["","","(Dollars in Thousands)"],["Securities available-for-sale:"],["U.S. government and agency obligations","","$","2,390","","","","0.68","%","","$","1,633","","","","0.60","%","","$","2,245","","","","1.38","%"],["U.S. treasury obligations","","","51,951","","","","14.86","%","","","53,183","","","","19.61","","","","5,657","","","","3.47"],["Municipal obligations","","","172,849","","","","49.47","%","","","123,667","","","","45.58","","","","99,088","","","","60.81"],["Corporate obligations","","","6,990","","","","2.00","%","","","9,336","","","","3.44","","","","10,663","","","","6.54"],["Mortgage-backed securities","","","29,653","","","","8.48","%","","","14,636","","","","5.40","","","","7,669","","","","4.71"],["Collateralized mortgage obligations","","","82,131","","","","23.50","%","","","63,067","","","","23.25","","","","31,189","","","","19.14"],["Asset-backed securities","","","3,531","","","","1.01","%","","","5,740","","","","2.12","","","","6,435","","","","3.95"],["Total securities available-for-sale","","$","349,495","","","","100.00","%","","$","271,262","","","","100.00","%","","$","162,946","","","","100.00","%"]] [[/GREPCENT_TABLE]] Securities available-for-sale were $349.50 million at December 31, 2022, an increaseof $78.24 million, or 28.8%, from $271.26 million at December 31, 2021. The FCB acquisition included acquired securities of $126.12 million. However, immediately following the acquisition, a restructure of FCB's portfolio was incurred to better align the acquired portfolio with Eagle's investment strategy. Excluding securities acquired, securities decreased by $47.89 million. The decrease was primarily due to unrealized losses at December 31, 2022 resulting from increased interest rates. In addition, the decrease was impacted by sales, maturity, principal payments and call activity, which were largely offset by purchases.  The following table sets forth information regarding fair values, weighted average yields and maturities of investments. The yields have been computed on a tax equivalent basis. Maturities are based on the final contractual payment dates and do not reflect the impact of prepayments or early redemptions that may occur. [[GREPCENT_TABLE]] [["","","December 31, 2022"],["","","One Year or Less","","","One to Five Years","","","Five to Ten Years","","","After Ten Years","","","Total Investment Securities"],["","","Fair Value","","","Weighted Average Yield","","","Fair Value","","","Weighted Average Yield","","","Fair Value","","","Weighted Average Yield","","","Fair Value","","","Weighted Average Yield","","","Fair Value","","","Approximate Market Value","","","Weighted Average Yield"],["","","(Dollars in Thousands)"],["Securities available-for-sale:"],["U.S. government and agency obligations","","$","-","","","","0.00","%","","$","-","","","","0.00","%","","$","2,390","","","","3.94","%","","$","-","","","","0.00","%","","$","2,390","","","$","2,390","","","","2.94","%"],["U.S. treasury obligations","","","6,270","","","","1.20","","","","4,699","","","","2.78","","","","40,982","","","","1.46","","","","-","","","","0.00","","","","51,951","","","","51,951","","","","1.55"],["Municipal obligations","","","4,932","","","","2.97","","","","12,890","","","","2.99","","","","34,905","","","","2.86","","","","120,122","","","","3.58","","","","172,849","","","","172,849","","","","3.37"],["Corporate obligations","","","2,995","","","","5.59","","","","956","","","","3.00","","","","3,039","","","","4.99","","","","-","","","","0.00","","","","6,990","","","","6,990","","","","3.97"],["Mortgage-backed securities","","","1,250","","","","2.39","","","","4,318","","","","3.52","","","","4,046","","","","3.40","","","","20,039","","","","3.79","","","","29,653","","","","29,653","","","","3.14"],["Collateralized mortgage obligations","","","-","","","","0.00","","","","8,859","","","","3.51","","","","1,168","","","","3.55","","","","72,104","","","","3.33","","","","82,131","","","","82,131","","","","3.36"],["Asset-backed securities","","","-","","","","0.00","","","","-","","","","0.00","","","","-","","","","0.00","","","","3,531","","","","5.47","","","","3,531","","","","3,531","","","","5.47"],["Total securities available-for-sale","","$","15,447","","","","2.71","%","","$","31,722","","","","3.18","%","","$","86,530","","","","2.34","%","","$","215,796","","","","3.55","%","","$","349,495","","","$","349,495","","","","3.11","%"]] [[/GREPCENT_TABLE]] 26 Table of Contents Lending Activities  The following table includes the composition of the Bank’s loan portfolio by loan category: [[GREPCENT_TABLE]] [["","","December 31,"],["","","2022","","","2021","","","2020","","","2019","","","2018"],["","","Amount","","","Percent of Total","","","Amount","","","Percent of Total","","","Amount","","","Percent of Total","","","Amount","","","Percent of Total","","","Amount","","","Percent of Total"],["","","(Dollars in thousands)"],["Real estate loans:"],["Residential 1-4 family (1)","","$","135,947","","","","10.03","%","","$","101,180","","","","10.82","%","","$","110,802","","","","13.14","%","","$","119,296","","","","15.28","%","","$","116,939","","","","18.92","%"],["Residential 1-4 family construction","","","59,756","","","","4.41","","","","45,635","","","","4.88","","","","46,290","","","","5.49","","","","38,602","","","","4.95","","","","27,168","","","","4.40"],["Total residential 1-4 family","","","195,703","","","","14.44","","","","146,815","","","","15.70","","","","157,092","","","","18.63","","","","157,898","","","","20.23","","","","144,107","","","","23.32"],["Commercial real estate","","","539,070","","","","39.76","","","","410,568","","","","43.92","","","","316,668","","","","37.56","","","","331,062","","","","42.41","","","","256,784","","","","41.54"],["Commercial construction and development","","","151,145","","","","11.15","","","","92,403","","","","9.88","","","","65,281","","","","7.74","","","","52,670","","","","6.75","","","","41,739","","","","6.75"],["Farmland","","","136,334","","","","10.06","","","","67,005","","","","7.17","","","","65,918","","","","7.82","","","","50,293","","","","6.44","","","","29,915","","","","4.84"],["Total commercial real estate","","","826,549","","","","60.97","","","","569,976","","","","60.97","","","","447,867","","","","53.12","","","","434,025","","","","55.60","","","","328,438","","","","53.13"],["Total real estate loans","","","1,022,252","","","","75.41","","","","716,791","","","","76.67","","","","604,959","","","","71.75","","","","591,923","","","","75.83","","","","472,545","","","","76.45"],["Other loans:"],["Home equity","","","74,271","","","","5.48","","","","51,748","","","","5.54","","","","56,563","","","","6.71","","","","56,414","","","","7.23","","","","52,159","","","","8.44"],["Consumer","","","27,609","","","","2.04","","","","18,455","","","","1.97","","","","20,168","","","","2.39","","","","18,882","","","","2.42","","","","16,565","","","","2.68"],["Commercial","","","127,255","","","","9.39","","","","101,535","","","","10.86","","","","109,209","","","","12.95","","","","72,797","","","","9.33","","","","59,053","","","","9.56"],["Agricultural","","","104,036","","","","7.68","","","","46,335","","","","4.96","","","","52,242","","","","6.20","","","","40,522","","","","5.19","","","","17,709","","","","2.87"],["Total commercial loans","","","231,291","","","","17.07","","","","147,870","","","","15.82","","","","161,451","","","","19.15","","","","113,319","","","","14.52","","","","76,762","","","","12.43"],["Total other loans","","","333,171","","","","24.59","","","","218,073","","","","23.33","","","","238,182","","","","28.25","","","","188,615","","","","24.17","","","","145,486","","","","23.55"],["Total loans","","","1,355,423","","","","100.00","%","","","934,864","","","","100.00","%","","","843,141","","","","100.00","%","","","780,538","","","","100.00","%","","","618,031","","","","100.00","%"],["Deferred loan fees","","","(1,745",")","","","","","","","(1,725",")","","","","","","","(2,038",")","","","","","","","(1,303",")","","","","","","","(1,098",")"],["Allowance for loan losses","","","(14,000",")","","","","","","","(12,500",")","","","","","","","(11,600",")","","","","","","","(8,600",")","","","","","","","(6,600",")"],["Total loans, net","","$","1,339,678","","","","","","","$","920,639","","","","","","","$","829,503","","","","","","","$","770,635","","","","","","","$","610,333"]] [[/GREPCENT_TABLE]] (1) Excludes loans held-for-sale 27 Table of Contents Loans receivable, net increased $419.04 million, or 45.5%, to $1.34 billion at December 31, 2022 from $920.64 million at December 31, 2021. The increase was impacted by the FCB acquisition, which included $190.89 million of acquired loans. Excluding acquired loans, loans receivable, net increased by $228.15 million. Including acquired loans, total commercial real estate loans increased $256.57 million, total commercial loans increased $83.42 million, total residential loans increased $48.88 million, home equity loans increased $22.52 million and consumer loans increased $9.15 million. Total loan originations were $1.13 billion for the year ended December 31, 2022. Total residential 1-4 family originations were $635.03 million, which includes $532.56 million of originations of loans held-for-sale. Total commercial real estate originations were $315.35 million. Total commercial originations were $124.92 million. Home equity loan originations totaled $39.79 million. Consumer loan originations totaled $14.97 million. Loans held-for-sale decreased by $17.57 million, to $8.25 million at December 31, 2022 from $25.82 million at December 31, 2021. Loan Maturities. The following table sets forth the estimated maturity of the loan portfolio of the Bank at December 31, 2022. Balances exclude deferred loan fees and allowance for loan losses. Scheduled principal repayments of loans do not necessarily reflect the actual life of such assets. The average life of a loan is typically substantially less than its contractual terms because of prepayments. In addition, due on sale clauses on loans generally give the Bank the right to declare loans immediately due and payable in the event, among other things, the borrower sells the real property, subject to the mortgage, and the loan is not paid off. All mortgage loans are shown to be maturing based on the date of the last payment required by the loan agreement, except as noted. Loans having no stated maturity, those without a scheduled payment, demand loans and matured loans, are shown as due within six months.  [[GREPCENT_TABLE]] [["","","One Year or Less","","","After One Year to Five Years","","","After Five Years to Fifteen Years","","","After Fifteen Years","","","Total"],["Total residential 1-4 family (1)","","$","53,066","","","$","5,388","","","$","24,663","","","$","112,586","","","$","195,703"],["Total commercial real estate","","","70,429","","","","38,793","","","","172,134","","","","545,193","","","","826,549"],["Home equity","","","4,328","","","","22,435","","","","46,158","","","","1,350","","","","74,271"],["Consumer","","","1,745","","","","18,339","","","","7,206","","","","319","","","","27,609"],["Total Commercial","","","74,760","","","","79,614","","","","73,815","","","","3,102","","","","231,291"],["Total loans (1)","","$","204,328","","","$","164,569","","","$","323,976","","","$","662,550","","","$","1,355,423"]] [[/GREPCENT_TABLE]] (1) Excludes loans held-for-sale The following table includes loans by fixed or adjustable rates at December 31, 2022:   [[GREPCENT_TABLE]] [["","","Fixed","","","Adjustable","","","Total"],["","","(Dollars in Thousands)"],["Due after December 31, 2022"],["Total residential 1-4 family (1)","","$","44,719","","","$","97,918","","","$","142,637"],["Total commercial real estate","","","117,848","","","","638,272","","","","756,120"],["Home equity","","","4,058","","","","65,885","","","","69,943"],["Consumer","","","24,275","","","","1,589","","","","25,864"],["Total commercial","","","100,778","","","","55,753","","","","156,531"],["Total due after December 31, 2022","","","291,677","","","","859,417","","","","1,151,095"],["Due in less than one year","","","150,280","","","","54,048","","","","204,328"],["Total loans (1)","","$","441,958","","","$","913,465","","","$","1,355,423"],["Percent of total","","","32.61","%","","","67.39","%","","","100.00","%"]] [[/GREPCENT_TABLE]] (1) Excludes loans held-for-sale 28 Table of Contents Delinquent Loans. The following table provides information regarding the Bank’s delinquent loans: [[GREPCENT_TABLE]] [["","","December 31, 2022"],["","","30-89 Days","","","90 Days and Greater"],["","","Number","","","Amount","","","Percentage of Total","","","Number","","","Amount","","","Percentage of Total"],["","","(Dollars in Thousands)","","","(Dollars in Thousands)"],["Loan type:"],["Real estate loans:"],["Residential 1-4 family","","","7","","","$","1,798","","","","32.02","%","","","1","","","$","330","","","","30.67","%"],["Residential 1-4 family construction","","","2","","","","500","","","","8.91","","","","-","","","","-","","","","0.00"],["Commercial real estate","","","2","","","","780","","","","13.89","","","","-","","","","-","","","","0.00"],["Farmland","","","6","","","","1,620","","","","28.86","","","","-","","","","-","","","","0.00"],["Other loans:"],["Home equity","","","4","","","","226","","","","4.03","","","","-","","","","-","","","","0.00"],["Consumer","","","58","","","","93","","","","1.66","","","","-","","","","-","","","","0.00"],["Commercial","","","8","","","","597","","","","10.63","","","","2","","","","746","","","","69.33"],["Total","","","87","","","$","5,614","","","","100.00","%","","","3","","","$","1,076","","","","100.00","%"]] [[/GREPCENT_TABLE]] 29 Table of Contents Nonperforming Assets. The following table sets forth information regarding nonperforming assets: [[GREPCENT_TABLE]] [["","","December 31,"],["","","2022","","","2021","","","2020","","","2019","","","2018"],["","","(Dollars in Thousands)"],["Non-accrual loans"],["Real estate loans:"],["Residential 1-4 family","","$","483","","","$","616","","","$","684","","","$","618","","","$","253"],["Residential 1-4 family construction","","","-","","","","337","","","","337","","","","337","","","","634"],["Commercial real estate","","","350","","","","497","","","","631","","","","583","","","","432"],["Commercial construction and development","","","-","","","","-","","","","36","","","","50","","","","13"],["Farmland","","","143","","","","989","","","","2,245","","","","323","","","","-"],["Other loans:"],["Home equity","","","96","","","","100","","","","94","","","","78","","","","469"],["Consumer","","","25","","","","62","","","","151","","","","156","","","","127"],["Commercial","","","44","","","","516","","","","537","","","","750","","","","308"],["Agricultural","","","1,059","","","","1,718","","","","1,542","","","","499","","","","32"],["Accruing loans delinquent 90 days or more"],["Real estate loans:"],["Residential 1-4 family","","","330","","","","-","","","","34","","","","4","","","","130"],["Residential 1-4 family construction","","","-","","","","-","","","","170","","","","-","","","","-"],["Commercial real estate","","","-","","","","-","","","","-","","","","-","","","","1,347"],["Other loans:"],["Commercial","","","746","","","","-","","","","6","","","","-","","","","-"],["Agricultural","","","-","","","","-","","","","182","","","","1,805","","","","-"],["Restructured loans"],["Real estate loans:"],["Commercial real estate","","","3,264","","","","1,527","","","","1,633","","","","-","","","","-"],["Commercial construction and development","","","-","","","","-","","","","14","","","","-","","","","-"],["Farmland","","","611","","","","641","","","","-","","","","153","","","","-"],["Other loans:"],["Home equity","","","11","","","","15","","","","17","","","","20","","","","22"],["Commercial","","","140","","","","-","","","","-","","","","74","","","","-"],["Agricultural","","","476","","","","41","","","","160","","","","-","","","","-"],["Total nonperforming loans","","","7,778","","","","7,059","","","","8,473","","","","5,450","","","","3,767"],["Real estate owned and other repossessed property, net","","","-","","","","4","","","","25","","","","26","","","","107"],["Total nonperforming assets","","$","7,778","","","$","7,063","","","$","8,498","","","$","5,476","","","$","3,874"],["Total nonperforming loans to total loans","","","0.57","%","","","0.76","%","","","1.00","%","","","0.70","%","","","0.61","%"],["Total nonperforming loans to total assets","","","0.40","%","","","0.49","%","","","0.67","%","","","0.52","%","","","0.44","%"],["Total nonaccrual loans to total loans","","","0.24","%","","","0.59","%","","","0.74","%","","","0.47","%","","","0.37","%"],["Total nonperforming assets to total assets","","","0.40","%","","","0.49","%","","","0.68","%","","","0.52","%","","","0.45","%"]] [[/GREPCENT_TABLE]] Nonaccrual loans as of December 31, 2022 and 2021 include $694,000 and $492,000, respectively of acquired loans that deteriorated subsequent to the acquisition date. During the year ended December 31, 2022 and 2021, an insignificant amount of interest was recorded on loans previously accounted for on a nonaccrual basis. During the year ended December 31, 2022, the Bank sold three real estate owned and other repossessed assets resulting in a net gain of $185,000. There was one write-up on real estate owned and other repossessed assets for a gain of $18,000 during the year ended December 31, 2022. During the year ended December 31, 2021, the Bank sold three real estate owned and other repossessed assets resulting in a net gain of $12,000. There was one write-up on real estate owned and other repossessed assets for a gain of $10,000 during the year ended December 31, 2021. Management, in compliance with regulatory guidelines, conducts an internal loan review program, whereby loans are placed or classified in categories depending upon the level of risk of nonpayment or loss. These categories are special mention, substandard, doubtful or loss. When a loan is classified as substandard or doubtful, management is required to evaluate the loan for impairment and establish an allowance for loan loss if deemed necessary. When management classifies a loan as a loss asset, an allowance equaling up to 100.0% of the loan balance is required to be established or the loan is required to be charged-off. The allowance for loan losses is composed of an allowance for both inherent risk associated with lending activities and specific problem assets. 30 Table of Contents Management’s evaluation of classification of assets and adequacy of the allowance for loan losses is reviewed by the Board on a regular basis and by regulatory agencies as part of their examination process. We also utilize a third-party review as part of our loan classification process. In addition, on an annual basis or more often if needed, the Company formally reviews the ratings of all commercial real estate, real estate construction, and commercial business loans that have a principal balance of $750,000 or more. The following table reflects our classified assets:  [[GREPCENT_TABLE]] [["","","December 31, 2022"],["","","Special"],["","","Mention","","","Substandard","","","Doubtful","","","Loss","","","Total"],["","","(In Thousands)"],["Real estate loans:"],["Residential 1-4 family","","$","515","","","$","353","","","$","-","","","$","-","","","$","868"],["Residential 1-4 family construction","","","-","","","","-","","","","-","","","","-","","","","-"],["Commercial real estate","","","16,833","","","","1,732","","","","-","","","","-","","","","18,565"],["Commercial construction and development","","","1,044","","","","-","","","","-","","","","-","","","","1,044"],["Farmland","","","2,232","","","","2,456","","","","-","","","","-","","","","4,688"],["Other loans:"],["Home equity","","","-","","","","124","","","","-","","","","-","","","","124"],["Consumer","","","10","","","","39","","","","-","","","","-","","","","49"],["Commercial","","","1,476","","","","736","","","","8","","","","-","","","","2,220"],["Agricultural","","","311","","","","2,182","","","","102","","","","-","","","","2,595"],["Total loans","","","22,421","","","","7,622","","","","110","","","","-","","","","30,153"],["Real estate owned/repossessed property, net","","","","","","","","","","","","","","","","","","","-"],["","","","","","","","","","","","","","","","","","","$","30,153"]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["","","December 31, 2021"],["","","Special"],["","","Mention","","","Substandard","","","Doubtful","","","Loss","","","Total"],["","","(In Thousands)"],["Real estate loans:"],["Residential 1-4 family","","$","-","","","$","301","","","$","199","","","$","-","","","$","500"],["Residential 1-4 family construction","","","-","","","","337","","","","-","","","","-","","","","337"],["Commercial real estate","","","1,527","","","","2,145","","","","-","","","","-","","","","3,672"],["Commercial construction and development","","","-","","","","-","","","","-","","","","-","","","","-"],["Farmland","","","177","","","","1,744","","","","47","","","","-","","","","1,968"],["Other loans:"],["Home equity","","","-","","","","134","","","","-","","","","-","","","","134"],["Consumer","","","-","","","","63","","","","-","","","","-","","","","63"],["Commercial","","","130","","","","524","","","","-","","","","-","","","","654"],["Agricultural","","","332","","","","1,444","","","","9","","","","-","","","","1,785"],["Total loans","","","2,166","","","","6,692","","","","255","","","","-","","","","9,113"],["Real estate owned/repossessed property, net","","","","","","","","","","","","","","","","","","","4"],["","","","","","","","","","","","","","","","","","","$","9,117"]] [[/GREPCENT_TABLE]] The increase in special mention for commercial real estate of $15.30 million from December 31, 2021 to December 31, 2022 was largely related to one customer relationship. The outstanding balance of $10.08 million at December 31, 2022 was paid off during the three months ended March 31, 2023. 31 Table of Contents Allowance for Loan Losses. The Bank segregates its loan portfolio for loan losses into the following broad categories: residential 1-4 family, commercial real estate, home equity, consumer and commercial. The Bank provides for a general allowance for losses inherent in the portfolio in the categories referenced above. General loss percentages which are calculated based on historical analyses and other factors such as volume and severity of delinquencies, local and national economy, underwriting standards and other factors. This portion of the allowance is calculated for inherent losses which probably exist as of the evaluation date even though they might not have been identified by the more objective processes used. This is due to the risk of error and/or inherent imprecision in the process. This portion of the allowance is subjective in nature and requires judgments based on qualitative factors which do not lend themselves to exact mathematical calculations such as: trends in delinquencies and nonaccruals; trends in volume; terms and portfolio mix; new credit products; changes in lending policies and procedures; and changes in the outlook for the local and national economy. At least quarterly, the management of the Bank evaluates the need to establish an allowance for losses on specific loans when a finding is made that a loss is estimable and probable. Such evaluation includes a review of all loans for which full collectability may not be reasonably assured and considers, among other matters: the estimated market value of the underlying collateral of problem loans; prior loss experience; economic conditions; and overall portfolio quality. Provisions for, or adjustments to, estimated losses are included in earnings in the period they are established. At December 31, 2022, we had $14.00 million in allowances for loan losses. While we believe we have established our existing allowance for loan losses in accordance with generally accepted accounting principles, there can be no assurance that bank regulators, in reviewing our loan portfolio, will not request that we significantly increase our allowance for loan losses, or that general economic conditions, a deteriorating real estate market, or other factors will not cause us to significantly increase our allowance for loan losses, therefore negatively affecting our financial condition and earnings. In originating loans, we recognize that credit losses will be experienced and that the risk of loss will vary with, among other things, the type of loan being made, the creditworthiness of the borrower over the term of the loan and, in the case of a secured loan, the quality of the security for the loan. It is our policy to review our loan portfolio, in accordance with regulatory classification procedures, on at least a quarterly basis. 32 Table of Contents The following table includes information for allowance for loan losses:  [[GREPCENT_TABLE]] [["","","Years Ended"],["","","December 31,"],["","","2022","","","2021","","","2020"],["","","(Dollars in Thousands)"],["Beginning balance","","$","12,500","","","$","11,600","","","$","8,600"],["Provision for loan losses","","","2,001","","","","861","","","","3,130"],["Charge-offs"],["Residential 1-4 Family","","","(199",")","","","-","","","","-"],["Commercial real estate","","","-","","","","(35",")","","","(18",")"],["Home equity","","","(32",")","","","-","","","","-"],["Consumer","","","(31",")","","","(16",")","","","(36",")"],["Commercial","","","(299",")","","","(6",")","","","(173",")"],["Recoveries"],["Residential 1-4 Family","","","4","","","","-","","","","-"],["Commercial real estate","","","30","","","","21","","","","12"],["Home equity","","","-","","","","-","","","","-"],["Consumer","","","4","","","","8","","","","16"],["Commercial","","","22","","","","67","","","","69"],["Net loan (recoveries) charge-offs","s","","(501",")","","","39","","","","(130",")"],["Ending balance","","$","14,000","","","$","12,500","","","$","11,600"],["Allowance for loan losses to total loans excluding loans held-for-sale","","","1.03","%","","","1.34","%","","","1.38","%"],["Allowance for loan losses to total nonperforming loans","","","179.99","%","","","177.08","%","","","136.91","%"],["Allowance for loan losses to nonaccrual loans","","","424.50","%","","","227.65","%","","","184.89","%"],["Net (recoveries) charge-offs to average loans outstanding during the period","","","-0.04","%","","","0.00","%","","","-0.01","%"]] [[/GREPCENT_TABLE]] Net charge-offs to average loans outstanding for each loan category are considered insignificant for the periods presented in the table above. The following table presents allocation of the allowance for loan losses by loan category and the percentage of loans in each category to total loans: [[GREPCENT_TABLE]] [["","","December 31,"],["","","2022","","","2021","","","2020"],["","","Amount","","","Percentage of Allowance to Total Allowance","","","Loan Category to Total Loans","","","Amount","","","Percentage of Allowance to Total Allowance","","","Loan Category to Total Loans","","","Amount","","","Percentage of Allowance to Total Allowance","","","Loan Category to Total Loans"],["","","(Dollars in Thousands)"],["Real estate loans:"],["Residential 1-4 family","","$","1,472","","","","10.51","%","","","14.44","%","","$","1,596","","","","12.77","%","","","15.70","%","","$","1,506","","","","12.98","%","","","18.63","%"],["Commercial real estate","","","9,037","","","","64.55","","","","60.97","","","","7,470","","","","59.76","","","","60.97","","","","6,951","","","","59.92","","","","53.12"],["Total real estate loans","","","10,509","","","","75.06","","","","75.41","","","","9,066","","","","72.53","","","","76.67","","","","8,457","","","","72.90","","","","71.75"],["Other loans:"],["Home equity","","","509","","","","3.64","","","","5.48","","","","533","","","","4.26","","","","5.54","","","","515","","","","4.44","","","","6.71"],["Consumer","","","342","","","","2.44","","","","2.04","","","","365","","","","2.92","","","","1.97","","","","364","","","","3.14","","","","2.39"],["Commercial","","","2,640","","","","18.86","","","","17.07","","","","2,536","","","","20.29","","","","15.82","","","","2,264","","","","19.52","","","","19.15"],["Total other loans","","","3,491","","","","24.94","","","","24.59","","","","3,434","","","","27.47","","","","23.33","","","","3,143","","","","27.10","","","","28.25"],["Total","","$","14,000","","","","100.00","%","","","100.00","%","","$","12,500","","","","100.00","%","","","100.00","%","","$","11,600","","","","100.00","%","","","100.00","%"]] [[/GREPCENT_TABLE]] 33 Table of Contents Deposits and Other Sources of Funds  Deposits. Deposits are the Company’s primary source of funds. Core deposits are deposits that are more stable and somewhat less sensitive to rate changes. They also represent a lower cost source of funds than rate sensitive, more volatile accounts such as certificates of deposit. We believe that our core deposits are checking, savings, money market and IRA accounts. Based on our historical experience, we include IRA accounts funded by certificates of deposit as core deposits because they exhibit the principal features of core deposits in that they are stable and generally are not rate sensitive. Core deposits were $1.41 billion or 86.1% of the Bank’s total deposits at December 31, 2022 ($1.38 billion or 84.4% excluding IRA certificates of deposit). The presence of a high percentage of core deposits and, in particular, transaction accounts reflects in part of our strategy to restructure our liabilities to more closely resemble the lower cost of liabilities of a commercial bank. However, a significant portion of our deposits remains in certificate of deposit form. These certificates of deposit, if they mature and are renewed at higher rates, would result in an increase in our cost of funds.  The following table includes deposit accounts and associated weighted average interest rates for each category of deposits: [[GREPCENT_TABLE]] [["","","December 31,"],["","","2022","","","2021","","","2020"],["","","","","","","","","","","Weighted","","","","","","","","","","","Weighted","","","","","","","","","","","Weighted"],["","","","","","","Percent","","","Average","","","","","","","Percent","","","Average","","","","","","","Percent","","","Average"],["","","Amount","","","of Total","","","Rate","","","Amount","","","of Total","","","Rate","","","Amount","","","of Total","","","Rate"],["","","(Dollars in Thousands)"],["Noninterest checking","","$","468,955","","","","28.68","%","","","0.00","%","","$","368,846","","","","30.16","%","","","0.00","%","","$","318,389","","","","30.82","%","","","0.00","%"],["Interest-bearing checking","","","252,922","","","","15.47","","","","0.11","","","","203,410","","","","16.64","","","","0.02","","","","160,614","","","","15.55","","","","0.02"],["Savings","","","273,790","","","","16.74","","","","0.06","","","","223,069","","","","18.25","","","","0.06","","","","179,868","","","","17.41","","","","0.06"],["Money market","","","387,947","","","","23.72","","","","1.12","","","","277,469","","","","22.7","","","","0.25","","","","202,407","","","","19.59","","","","0.24"],["Total","","","1,383,614","","","","84.61","","","","0.34","","","","1,072,794","","","","87.75","","","","0.08","","","","861,278","","","","83.37","","","","0.07"],["Certificates of deposit accounts:"],["IRA certificates","","","24,907","","","","1.52","","","","0.48","","","","25,333","","","","2.07","","","","0.44","","","","24,693","","","","2.39","","","","0.50"],["Brokered certificates","","","-","","","","-","","","","0.00","","","","-","","","","0.00","","","","0.00","","","","495","","","","0.05","","","","1.35"],["Other certificates","","","226,751","","","","13.87","","","","1.51","","","","124,422","","","","10.18","","","","0.38","","","","146,617","","","","14.19","","","","0.71"],["Total certificates of deposit","","","251,658","","","","15.39","","","","1.41","","","","149,755","","","","12.25","","","","0.39","","","","171,805","","","","16.63","","","","0.68"],["Total deposits","","$","1,635,272","","","","100.00","%","","","0.50","%","","$","1,222,549","","","","100.00","%","","","0.12","%","","$","1,033,083","","","","100.00","%","","","0.18","%"]] [[/GREPCENT_TABLE]] Deposits increased by $412.72 million, or 33.8%, to $1.64 billion at December 31, 2022 from$1.22 billion at December 31, 2021. A large portion of the deposit increase was due to the FCB acquisition, which brought on $321.11 million in deposits. Excluding acquired deposits, total deposits increased by $91.61 million. Including acquired deposits, money market increased by $110.48 million, certificates of deposits increasedby $101.90 million, noninterest checking increased by $100.11 million, savings increased by $50.72 million, and interest-bearing checkingincreased by $49.51 million. At December 31, 2022 and 2021, the Company held $642.02 million and $444.89 million, respectively, in deposit accounts that met or exceeded the Federal Deposit Insurance Corporation ("FDIC") requirements of $250,000 and greater.  The following table shows the amount of certificates of deposit with balances of $250,000 and greater by time remaining until maturity as of December 31, 2022: [[GREPCENT_TABLE]] [["","","Balance"],["","","$250,000"],["","","and Greater"],["","","(In Thousands)"],["3 months or less","","$","33,410"],["Over 3 to 6 months","","","4,550"],["Over 6 to 12 months","","","11,557"],["Over 12 months","","","15,686"],["Total","","$","65,203"]] [[/GREPCENT_TABLE]] Our depositors are primarily residents of the state of Montana. 34 Table of Contents Borrowings. Deposits are the primary source of funds for our lending and investment activities and for general business purposes. However, as the need arises, or in order to take advantage of funding opportunities, we also borrow funds in the form of advances from FHLB of Des Moines to supplement our supply of lendable funds and to meet deposit withdrawal requirements.  The Bank has Federal funds lines of credit with PCBB, PNC, TIB and UBB. Eagle has a line of credit with Bell Bank. Advances from FHLB and other borrowings increased by $64.39 million to $69.39 million at December 31, 2022 from $5.00 million at December 31, 2021. The increase was related to funding loan growth. The weighted average rate for borrowings was 4.52% as of December 31, 2022, compared to 1.81% at December 31, 2021.  Other Long-Term Debt. The following table summarizes other long-term debt activity: [[GREPCENT_TABLE]] [["","","December 31,","","","December 31,"],["","","2022","","","2021"],["","","Net","","","Percent","","","Net","","","Percent"],["","","Amount","","","of Total","","","Amount","","","of Total"],["","","(Dollars in Thousands)"],["Senior notes fixed at 5.75%, due 2022","","$","-","","","","0.00","%","","$","9,996","","","","33.47","%"],["Subordinated debentures fixed at 5.50% to floating, due 2030","","","14,751","","","","25.07","","","","14,718","","","","49.27"],["Subordinated debentures fixed at 3.50% to floating, due 2032","","","38,938","","","","66.17","","","","-","","","","0.00"],["Subordinated debentures variable at 3-Month Libor plus 1.42%, due 2035","","","5,155","","","","8.76","","","","5,155","","","","17.26"],["Total other long-term debt, net","","$","58,844","","","","100.00","%","","$","29,869","","","","100.00","%"]] [[/GREPCENT_TABLE]] Total other long-term debt was $58.84 million at December 31, 2022 compared to $29.87 million at December 31, 2021. This increase of $28.97 million primarily resulted from the issuance of $40.00 million of subordinated notes, slightly offset by the redemption of $10.00 million of senior notes.  35 Table of Contents Shareholders’ Equity Total shareholders’ equity increased slightly by $1.69 million or 1.1%, to $158.42 million at December 31, 2022 from $156.73 million at December 31, 2021. This increase was primarily the result of stock issued in connection with the FCB acquisition of $28.35 million in addition to net income of $10.70 million. The increase was largely offset by an increase in other comprehensive loss of $29.85 million, net of tax, related to net unrealized losses in securities available-for-sale, reflecting increases in market interest rates, as well as treasury stock purchases of $4.43 million and dividends paid of $4.06 million. Analysis of Net Interest Income The Bank’s earnings have historically depended primarily upon net interest income, which is the difference between interest income earned on loans and investments and interest paid on deposits and any borrowed funds. It is the single largest component of Eagle’s operating income. Net interest income is affected by (i) the difference between rates of interest earned on loans and investments and rates paid on interest-bearing deposits and borrowings (the “interest rate spread”) and (ii) the relative amounts of loans and investments and interest-bearing deposits and borrowings. The following table includes average balances for statement of financial position items, as well as, interest and dividends and average yields related to the average balances. All average balances are daily average balances. Nonaccrual loans were included in the computation of average balances, but have been reflected in the table as loans carrying a zero yield. The yields include the effect of deferred fees and discounts and premiums that are amortized or accreted to interest income or expense. [[GREPCENT_TABLE]] [["","","Year Ended December 31, 2022","","","Year Ended December 31, 2021","","","Year Ended December 31, 2020"],["","","Average","","","Interest","","","","","","","Average","","","Interest","","","","","","","Average","","","Interest"],["","","Daily","","","and","","","Yield/","","","Daily","","","and","","","Yield/","","","Daily","","","and","","","Yield/"],["","","Balance","","","Dividends","","","Cost(4)","","","Balance","","","Dividends","","","Cost(4)","","","Balance","","","Dividends","","","Cost(4)"],["","","(Dollars in Thousands)"],["Assets:"],["Interest earning assets:"],["Investment securities","","$","336,779","","","$","8,579","","","","2.55","%","","$","215,978","","","$","4,238","","","","1.96","%","","$","166,577","","","$","3,742","","","","2.24","%"],["FHLB and FRB stock","","","6,369","","","","302","","","","4.74","","","","4,831","","","","255","","","","5.28","","","","6,534","","","","370","","","","5.65"],["Loans receivable(1)","","","1,194,788","","","","60,353","","","","5.05","","","","914,804","","","","45,134","","","","4.93","","","","874,669","","","","45,381","","","","5.17"],["Other earning assets","","","34,170","","","","228","","","","0.67","","","","74,102","","","","120","","","","0.16","","","","44,771","","","","161","","","","0.36"],["Total interest earning assets","","","1,572,106","","","","69,462","","","","4.42","","","","1,209,715","","","","49,747","","","","4.11","","","","1,092,551","","","","49,654","","","","4.54"],["Noninterest earning assets","","","196,813","","","","","","","","","","","","147,534","","","","","","","","","","","","127,339"],["Total assets","","$","1,768,919","","","","","","","","","","","$","1,357,249","","","","","","","","","","","$","1,219,890"],["Liabilities and equity:"],["Interest-bearing liabilities:"],["Deposit accounts:"],["Checking","","$","244,208","","","$","173","","","","0.07","%","","$","190,645","","","$","47","","","","0.02","%","","$","151,745","","","$","58","","","","0.04","%"],["Savings","","","269,033","","","","128","","","","0.05","","","","198,648","","","","117","","","","0.06","","","","154,224","","","","145","","","","0.09"],["Money market","","","358,122","","","","1,711","","","","0.48","","","","244,113","","","","545","","","","0.22","","","","169,531","","","","473","","","","0.28"],["Certificates of deposit","","","188,954","","","","1,112","","","","0.59","","","","158,959","","","","765","","","","0.48","","","","213,696","","","","2,938","","","","1.37"],["FHLB advances and other borrowings","","","14,627","","","","514","","","","3.51","","","","9,411","","","","175","","","","1.86","","","","76,119","","","","1,183","","","","1.55"],["Other long-term debt","","","59,807","","","","2,512","","","","4.20","","","","29,834","","","","1,558","","","","5.22","","","","28,593","","","","1,687","","","","5.88"],["Total interest-bearing liabilities","","","1,134,751","","","","6,150","","","","0.54","","","","831,610","","","","3,207","","","","0.39","","","","793,908","","","","6,484","","","","0.81"],["Noninterest checking","","","453,841","","","","","","","","","","","","346,243","","","","","","","","","","","","265,304"],["Other noninterest-bearing liabilities","","","24,672","","","","","","","","","","","","22,382","","","","","","","","","","","","19,518"],["Total liabilities","","","1,613,264","","","","","","","","","","","","1,200,235","","","","","","","","","","","","1,078,730"],["Total equity","","","155,655","","","","","","","","","","","","157,014","","","","","","","","","","","","141,160"],["Total liabilities and equity","","$","1,768,919","","","","","","","","","","","$","1,357,249","","","","","","","","","","","$","1,219,890"],["Net interest income/interest rate spread(2)","","","","","","$","63,312","","","","3.88","%","","","","","","$","46,540","","","","3.72","%","","","","","","$","43,170","","","","3.73","%"],["Net interest margin(3)","","","","","","","","","","","4.03","%","","","","","","","","","","","3.85","%","","","","","","","","","","","3.94","%"],["Total interest earning assets to interest-bearing liabilities","","","","","","","","","","","138.54","%","","","","","","","","","","","145.47","%","","","","","","","","","","","137.62","%"]] [[/GREPCENT_TABLE]] (1)     Includes loans held-for-sale. (2)     Interest rate spread represents the difference between the average yield on interest-earning assets and the average rate on interest-bearing liabilities. (3)     Net interest margin represents income before the provision for 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. 36 Table of Contents Rate/Volume Analysis The following table presents the dollar amount of changes in interest income and interest expense for major components of interest-earning assets and interest-bearing liabilities. For each category of interest-earning assets and interest-bearing liabilities, information is provided on changes attributable to: (1) changes in volume multiplied by the old rate; (2) changes in rate, which are changes in rate multiplied by the old volume; and (3) changes not solely attributable to rate or volume, which have been allocated proportionately to the change due to volume and the change due to rate. [[GREPCENT_TABLE]] [["","","Year Ended December 31, 2022","","","Year Ended December 31, 2021"],["","","","","","","Due to","","","","","","","","","","","Due to"],["","","Volume","","","Rate","","","Net","","","Volume","","","Rate","","","Net"],["","","(In Thousands)"],["Interest earning assets:"],["Investment securities","","$","2,370","","","$","1,971","","","$","4,341","","","$","1,110","","","$","(614",")","","$","496"],["FHLB and FRB stock","","","81","","","","(34",")","","","47","","","","(96",")","","","(19",")","","","(115",")"],["Loans receivable(1)","","","13,814","","","","1,405","","","","15,219","","","","2,082","","","","(2,329",")","","","(247",")"],["Other earning assets","","","(65",")","","","173","","","","108","","","","105","","","","(146",")","","","(41",")"],["Total interest earning assets","","","16,200","","","","3,515","","","","19,715","","","","3,201","","","","(3,108",")","","","93"],["Interest-bearing liabilities:"],["Checking","","","13","","","","113","","","","126","","","","15","","","","(26)","","","","(11)"],["Savings","","","41","","","","(30)","","","","11","","","","42","","","","(70)","","","","(28)"],["Money market","","","255","","","","911","","","","1,166","","","","208","","","","(136)","","","","72"],["Certificates of deposit","","","144","","","","203","","","","347","","","","(753",")","","","(1,420",")","","","(2,173",")"],["FHLB advances and other borrowings","","","97","","","","242","","","","339","","","","(1,037",")","","","29","","","","(1,008",")"],["Other long-term debt","","","1,565","","","","(611",")","","","954","","","","73","","","","(202",")","","","(129",")"],["Total interest-bearing liabilities","","","2,115","","","","828","","","","2,943","","","","(1,452",")","","","(1,825",")","","","(3,277",")"],["Change in net interest income","","$","14,085","","","$","2,687","","","$","16,772","","","$","4,653","","","$","(1,283",")","","$","3,370"]] [[/GREPCENT_TABLE]] (1)     Includes loans held-for-sale. Results of Operations  Comparison of Operating Results for the Years Ended December 31, 2022 and 2021 Net Income Eagle’s net income for the year ended December 31, 2022 was $10.70 million compared to $14.42 million for the year ended December 31, 2021. The decrease of $3.72 million was primarily due to a decrease in noninterest income of $19.96 million. This decrease was largely offset by an increase in net interest income after loan loss provision of $15.63 million. Basic and diluted earnings per common share were both $1.45 for the year ended December 31, 2022. Basic and diluted earnings per common share were both $2.17 for the prior period. Net Interest Income Net interest income increased to $63.31 million for the year ended December 31, 2022, from $46.54 million for the year ended December 31, 2021. This increase of $16.77 million, or 36.0%, was primarily the result of an increase in interest and dividend income of $19.71 million. This increase was offset by an increase in interest expense of $2.94 million. Interest and Dividend Income  Interest and dividend income was $69.46 million for the year ended December 31, 2022, compared to $49.75 million for the year ended December 31, 2021, an increase of $19.71 million, or 39.6%. Interest and fees on loans increased to $60.35 million for the year ended December 31, 2022 from $45.13 million for the same period ended December 31, 2021. This increase of $15.22 million, or 33.7%, was largely due to an increase in the average balance of loans. Average balances for loans receivable, including loans held-for-sale, for the year ended December 31, 2022 were $1.19 billion, compared to $914.80 million for the year ended December 31, 2021. This increase of $279.99 million, or 30.6% was impacted by the FCB acquisition, as well as organic growth. In addition, the average interest rate earned on loans receivable increased by 12 basis points, from 4.93% for the year ended December 31, 2021, to 5.05% for the year ended December 31, 2022. Interest accretion on purchased loans was $1.56 million for the year ended December 31, 2022, which resulted in a 10 basis point increase in net interest margin compared to $579,000 for the year ended December 31, 2021, which resulted in a 5 basis point increase in net interest margin. Interest on investment securities available-for-sale increased by $4.34 million or 102.4% period over period. Average balances for investments increased to $336.78 million for the year ended December 31, 2022, from $215.98 million for the year ended December 31, 2021. The increase in average investment balances was largely driven by the FCB acquisition. Average interest rates earned on investments also increased to 2.55% for the year ended December 31, 2022 from 1.96% for the year ended December 31, 2021. 37 Table of Contents Interest Expense  Total interest expense was $6.15 million for the year ended December 31, 2022, increasing from $3.21 million for the year ended December 31, 2021. The increase of $2.94 million, or 91.6%, was due to an increase of $1.65 million in interest expense on deposits and a net increase of $1.28 million in interest expense on total borrowings. The average balance for total deposits was $1.51 million for the year ended December 31, 2022, compared to $1.14 million for the year ended December 31, 2021. The increase in average deposit balances was due to the FCB acquisition but was also driven by organic growth. In addition, the overall average rate on total deposits was 0.21% for the year ended December 31, 2022, compared to 0.13% for the year ended December 31, 2021. The average balance for total borrowings increased from $39.25 million for the year ended December 31, 2021 to $74.43 million for the year ended December 31, 2022. The increase was impacted by the issuance of $40.00 million of subordinated notes in January 2022. A portion of the net proceeds were used to redeem $10.00 million of senior notes due in February 2022. However, the average rate paid on total borrowings decreased from 4.42% for the year ended December 31, 2021, to 4.07% for the year ended December 31, 2022. The decrease in the average rate paid was due to the change in the mix of the outstanding borrowings. Loan Loss Provision Loan loss provisions are charged to earnings to maintain the total allowance for loan losses at a level considered adequate by the Bank to provide for probable loan losses based on prior loss experience, volume and type of lending we conduct and past due loans in portfolio. The Bank’s policies require the review of assets on a quarterly basis. The Bank classifies loans if warranted. While management believes it uses the best information available to make a determination with respect to the allowance for loan losses, it recognizes that future adjustments may be necessary. Using this methodology, the Bank recorded $2.00 million in loan loss provisions for the year ended December 31, 2022, compared to $861,000 in loan loss provisions for the year ended December 31, 2021. The increase in the loan loss provision was largely due to loan growth. Management believes the level of total allowances is adequate to cover estimated losses inherent in the portfolio. However, if the economic outlook worsens relative to the assumptions we utilized, our allowance for loan losses will increase accordingly in future periods. Total nonperforming loans, including restructured loans, net, was $7.78 million at December 31, 2022 compared to $7.06 million at December 31, 2021. There was no other real estate owned and other repossessed assets at December 31, 2022 compared to $4,000 at December 31, 2021. Noninterest Income Total noninterest income was $26.22 million for the year ended December 31, 2022, compared to $46.18 million for the year ended December 31, 2021. The decrease of $19.96 million, or 43.2% was primarily due to a decrease in a mortgage banking, net of $21.55 million for the year ended December 31, 2022. Mortgage banking, net includes net gain on sale of mortgage loans which decreased $27.48 million to $18.61 million for the year ended December 31, 2022, compared to $46.09 million for the year ended December 31, 2021. This change reflects a mortgage market that has returned to more normal levels after record levels were reached in 2020 and 2021. During the year ended December 31, 2022, $551.02 million residential mortgage loans were sold compared to $1.06 billion in the prior year. In addition, gross margin on sale of mortgage loans for the year ended December 31, 2022 was 3.38% compared to 4.34% for the year ended December 31, 2021. There has been margin compression due to increased competition. Mortgage banking, net also includes the impact of fair value changes of loans held-for sale and derivatives. The net change in fair value of loans held-for-sale and derivatives was a loss of $1.84 million for the year ended December 31, 2022 compared to a loss of $5.44 million for the year ended December 31, 2021. Noninterest Expense Noninterest expense was $73.68 million for the year ended December 31, 2022, compared to $72.58 million for the year ended December 31, 2021, a slight increase of $1.10 million, or 1.5%. Acquisition costs were $2.30 million during the year ended December 31, 2022, compared to $761,000 during the prior year. Occupancy and equipment also increased by $1.15 million due to office expansion and the corresponding depreciation and amortization expense, as well as utilization and maintenance costs. These increases were largely offset by a decrease in salaries and employee benefits of $4.25 million due to lower commissions paid on residential mortgage originations. Provision for Income Taxes Provision for income taxes was $3.15 million for the year ended December 31, 2022, compared to $4.86 million for the year ended December 31, 2021 due to decreased income before provision for income taxes. The effective tax rate was 22.7% for the year ended December 31, 2022 compared to 25.2% for the prior year. 38 Table of Contents Liquidity and Capital Resources Liquidity The Bank is required by regulation to maintain sufficient levels of liquidity for safety and soundness purposes. Appropriate levels of liquidity will depend upon the types of activities in which the company engages. For internal reporting purposes, the Bank uses policy minimums of 1.0%, and 8.0% for “basic surplus” and “basic surplus with FHLB” as internally defined. In general, the “basic surplus” is a calculation of the ratio of unencumbered short-term assets reduced by estimated percentages of CD maturities and other deposits that may leave the Bank in the next 90 days divided by total assets. “Basic surplus with FHLB” adds to “basic surplus” the additional borrowing capacity the Bank has with the FHLB of Des Moines. The Bank exceeded those minimum ratios as of December 31, 2022 and 2021. The Company’s primary sources of funds are deposits, repayment of loans and mortgage-backed securities, maturities of investments, funds provided from operations, advances from the FHLB of Des Moines and other borrowings. Scheduled repayments of loans and mortgage-backed securities and maturities of investment securities are generally predictable. However, other sources of funds, such as deposit flows and loan prepayments, can be greatly influenced by the general level of interest rates, economic conditions and competition. The Company uses liquidity resources principally to fund existing and future loan commitments. It also uses them to fund maturing certificates of deposit and demand deposit withdrawals. In addition, the Bank uses liquidity resources for investment purposes, to meet operating expenses and capital expenditures, for dividend payments and stock repurchases and to maintain adequate liquidity levels. Liquidity may be adversely affected by unexpected deposit outflows, higher interest rates paid by competitors, and similar matters. Management monitors projected liquidity needs and determines the level desirable based in part on Eagle’s commitments to make loans and management’s assessment of Eagle’s ability to generate funds. Comparison of Cash Flow for Years Ended December 31, 2022 and 2021 Net cash provided by the Company’s operating activities, which is primarily comprised of cash transactions affecting net income, was $41.91 million for the year ended December 31, 2022 compared to $56.45 million for the prior year. Net cash provided by operating activities was lower for the year ended December 31, 2022 primarily due to changes in loans held-for-sale activity. Net cash used in the Company’s investing activities, which is primarily comprised of cash transactions related to activity in the loan portfolio and investment securities, was $235.04 million for the year ended December 31, 2022 compared to $232.92 million for the year ended December 31, 2021. Net cash used in investing activities for the year ended December 31, 2022 was due in part to loan originations being higher than loan pay-off and principal payments during the year. Loan origination and principal collection, net was $234.26 million for the year ended December 31, 2022. In addition, available-for-sale securities purchases were $77.07 million during the year ended December 31, 2022, more than offset by available-for sale securities sales and maturities, principal payments and calls of $82.95 million. Investing activities was also impacted by net cash received from acquisitions of $13.40 million. Available-for-sale securities purchases were $132.18 million during the year ended December 31, 2021. Net cash used in investing activities for the year ended December 31, 2021, was also impacted by loan originations being higher than loan pay-off and principal payments during the year. Loan origination and principal collection, net was $98.67 million for the year ended December 31, 2021. Net cash provided by the Company’s financing activities was $153.51 million for the year ended December 31, 2022 compared to $168.10 million for the year ended December 31, 2021. Net cash provided by financing activities for the year ended December 31, 2022 was largely impacted by a net increase in deposits of $91.62 million. In addition, net short-term advances from FHLB and other borrowings increased by $69.39 million and subordinated debentures of $40.00 million were issued. These increases were partially offset by a net decrease in repurchase agreements of $22.85 million and the repayment of $10.00 million of subordinated debentures. Net cash provided by financing activities for the year ended December 31, 2021 was impacted by a net increase in deposits of $189.47 million. This was slightly offset by net payment on FHLB and other borrowings of $12.07 million. 39 Table of Contents Capital Resources  At December 31, 2022, the Bank’s internally determined measurement of sensitivity to interest rate movements as measured by a 200 basis point rise in interest rates scenario, decreased the economic value of equity (“EVE”) by 12.6% compared to an increase of 8.90% at December 31, 2021. The Bank is within the guidelines set forth by the Board of Directors for interest rate sensitivity. The Bank’s Tier 1 leverage ratio, as measured under State of Montana and FRB rules, decreased from 10.96% as of December 31, 2021 to 9.82% as of December 31, 2022. The Bank’s strong capital position helps to mitigate its interest rate risk exposure. As of December 31, 2022, the Company’s regulatory capital was in excess of all applicable regulatory requirements and is deemed “well capitalized” pursuant to State of Montana and FRB rules. At December 31, 2022, the Bank’s total capital, Tier 1 capital, common equity Tier 1 capital and Tier 1 leverage ratios amounted to 13.04%, 12.14%, 12.14% and 9.82%, respectively, compared to regulatory requirements of 10.50%, 8.50%, 7.00% and 4.00%, respectively.  Impact of Inflation and Changing Prices Our consolidated financial statements and the accompanying notes, which are found in Item 8, have been prepared in accordance with generally accepted accounting principles, which require the measurement of financial position and operating results in terms of historical dollars without considering the change in the relative purchasing power of money over time and due to inflation. The impact of inflation is reflected in the increased cost of our operations. Interest rates have a greater impact on our performance than do the general levels of inflation. Interest rates do not necessarily move in the same direction or to the same extent as the prices of goods and services. Interest Rate Risk Interest rate risk is the potential for loss of future earnings resulting from adverse changes in the level of interest rates. Interest rate risk results from several factors and could have a significant impact on the Company’s net interest income, which is the Company's primary source of net income. Net interest income is affected by changes in interest rates, the relationship between rates on interest-earning assets and interest-bearing liabilities, the impact of interest fluctuations on asset prepayments and the mix of interest-bearing assets and liabilities. Although interest rate risk is inherent in the banking industry, banks are expected to have sound risk management practices in place to measure, monitor and control interest rate exposures. The objective of interest rate risk management is to contain the risks associated with interest rate fluctuations. The process involves identification and management of the sensitivity of net interest income to changing interest rates. The ongoing monitoring and management of this risk is an important component of the Company’s asset/liability committee, which is governed by policies established by the Company’s Board that are reviewed and approved annually. The Board delegates responsibility for carrying out the asset/liability management policies to the Bank’s asset/liability committee. In this capacity, the asset/liability committee develops guidelines and strategies impacting the Company’s asset/liability management related activities based upon estimated market risk sensitivity, policy limits and overall market interest rate levels and trends. The Company’s goal of its asset and liability management practices is to maintain or increase the level of net interest income within an acceptable level of interest rate risk. Our asset and liability policy and strategies are expected to continue as described so long as competitive and regulatory conditions in the financial institution industry and market interest rates continue as they have in recent years. The Bank has established acceptable levels of interest rate risk as follows for an instantaneous and permanent shock in rates: Projected net interest income over the next twelve months (i.e. year-1) and the subsequent twelve months (i.e. year-2) will not be reduced by more than 15.0% given an immediate increase or decrease in interest rates of up to 200 basis points or by more than 10.0% given an immediate increase or decrease in interest rates of up to 100 basis points. 40 Table of Contents The following table includes the Banks’s net interest income sensitivity analysis. [[GREPCENT_TABLE]] [["Changes in Market","","Rate Sensitivity"],["Interest Rates","","As of December 31, 2022","","Policy"],["(Basis Points)","","Year 1","","Year 2","","Limits"],["+200","","-2.3%","","8.2%","","-15.0%"],["+100","","-0.9%","","7.8%","","-10.0%"],["-100","","-0.2%","","3.9%","","-10.0%"],["-200","","-0.7%","","0.6%","","-15.0%"]] [[/GREPCENT_TABLE]] The following table discloses how the Bank’s economic value of equity (“EVE”) would react to interest rate changes. [[GREPCENT_TABLE]] [["Changes in Market","","EVE as a % Change from 0 Shock"],["Interest Rates","","As of December 31, 2022","","Board Policy"],["(Basis Points)","","Projected EVE","","Limit"],["","","","","Maximum % change:"],["+400","","4.4%","","-40.0%"],["+300","","4.1%","","-35.0%"],["+200","","3.2%","","-30.0%"],["+100","","2.4%","","-20.0%"],["0","","0.0%","","0.0%"],["-100","","-5.4%","","-20.0%"]] [[/GREPCENT_TABLE]] Off-Balance Sheet Arrangements  As a financial services provider, we routinely are a party to various financial instruments with off-balance-sheet risks, such as commitments to extend credit and unused lines of credit. While these contractual obligations represent our future cash requirements, a significant portion of commitments to extend credit may expire without being drawn upon. Such commitments are subject to the same credit policies and approval process accorded to loans we make. Commitments are summarized as follows: [[GREPCENT_TABLE]] [["","","December 31,"],["","","2022","","","2021"],["","","(In Thousands)"],["Commitments to extend credit","","$","367,494","","","$","252,485"],["Letters of credit","","","10,563","","","","4,129"]] [[/GREPCENT_TABLE]]