Eagle Bancorp Montana(EBMT) - 2025 Q2 - Quarterly Report

PART I. FINANCIAL INFORMATION Item 1. Financial Statements (Unaudited) This section presents Eagle Bancorp Montana, Inc.'s unaudited condensed consolidated financial statements and detailed notes Condensed Consolidated Statements of Financial Condition Condensed Consolidated Statements of Financial Condition (Dollars in Thousands) | Metric | June 30, 2025 | December 31, 2024 | Change ($) | Change (%) | | :-------------------------------- | :------------ | :---------------- | :--------- | :--------- | | Total assets | $2,137,633 | $2,103,090 | $34,543 | 1.6% | | Loans receivable, net | $1,551,932 | $1,503,796 | $48,136 | 3.2% | | Securities available-for-sale | $285,023 | $292,590 | $(7,567) | -2.6% | | Total liabilities | $1,956,995 | $1,928,325 | $28,670 | 1.5% | | Total deposits | $1,737,925 | $1,681,228 | $56,697 | 3.4% | | FHLB advances and other borrowings | $119,407 | $140,930 | $(21,523) | -15.3% | | Total shareholders' equity | $180,638 | $174,765 | $5,873 | 3.4% | Condensed Consolidated Statements of Income Condensed Consolidated Statements of Income (Dollars in Thousands, Except Per Share Data) | Metric | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Change ($) | Change (%) | | :----------------------------------- | :------------------------------- | :------------------------------- | :--------- | :--------- | | Net Interest Income | $18,145 | $15,632 | $2,513 | 16.1% | | Provision for credit losses | $1,038 | $412 | $626 | 151.9% | | Noninterest income | $4,807 | $4,269 | $538 | 12.6% | | Noninterest expense | $17,926 | $17,307 | $619 | 3.6% | | Net Income | $3,237 | $1,738 | $1,499 | 86.2% | | Basic Earnings Per Common Share | $0.42 | $0.22 | $0.20 | 90.9% | | Diluted Earnings Per Common Share | $0.41 | $0.22 | $0.19 | 86.4% | | Metric | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | Change ($) | Change (%) | | :----------------------------------- | :------------------------------- | :------------------------------- | :--------- | :--------- | | Net Interest Income | $35,047 | $30,846 | $4,201 | 13.6% | | Provision for credit losses | $1,080 | $277 | $803 | 289.9% | | Noninterest income | $8,823 | $8,221 | $602 | 7.3% | | Noninterest expense | $34,932 | $34,340 | $592 | 1.7% | | Net Income | $6,476 | $3,636 | $2,840 | 78.1% | | Basic Earnings Per Common Share | $0.83 | $0.46 | $0.37 | 80.4% | | Diluted Earnings Per Common Share | $0.83 | $0.46 | $0.37 | 80.4% | Condensed Consolidated Statements of Comprehensive Income Condensed Consolidated Statements of Comprehensive Income (Dollars in Thousands) | Metric | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Change ($) | Change (%) | | :----------------------------------- | :------------------------------- | :------------------------------- | :--------- | :--------- | | Net Income | $3,237 | $1,738 | $1,499 | 86.2% | | Other comprehensive income (loss) before tax | $1,475 | $524 | $951 | 181.5% | | Comprehensive Income | $4,324 | $2,124 | $2,200 | 103.6% | | Metric | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | Change ($) | Change (%) | | :----------------------------------- | :------------------------------- | :------------------------------- | :--------- | :--------- | | Net Income | $6,476 | $3,636 | $2,840 | 78.1% | | Other comprehensive income (loss) before tax | $3,115 | $(1,265) | $4,380 | -346.2% | | Comprehensive Income | $8,764 | $2,704 | $6,060 | 224.1% | Condensed Consolidated Statements of Changes in Shareholders' Equity - Total shareholders' equity increased to $180.64 million at June 30, 2025, from $174.77 million at January 1, 2025, driven by net income of $6.48 million and other comprehensive income of $2.29 million, partially offset by dividends paid of $2.27 million and treasury stock purchases of $1.16 million[28][29] Condensed Consolidated Statements of Cash Flows Condensed Consolidated Statements of Cash Flows (Dollars in Thousands) | Metric | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | Change ($) | Change (%) | | :----------------------------------- | :------------------------------- | :------------------------------- | :--------- | :--------- | | Net cash provided by operating activities | $3,631 | $10,386 | $(6,755) | -65.0% | | Net cash used in investing activities | $(40,003) | $(31,908) | $(8,095) | 25.4% | | Net cash provided by financing activities | $31,741 | $20,739 | $11,002 | 53.1% | | Net decrease in cash and cash equivalents | $(4,631) | $(783) | $(3,848) | 491.4% | | Cash and cash equivalents, end of period | $26,928 | $23,762 | $3,166 | 13.3% | Notes to Condensed Consolidated Financial Statements NOTE 1. Organization and Summary of Significant Accounting Policies Eagle Bancorp Montana, Inc. and its subsidiaries operate as a community bank, focusing on deposits, loans, and securities, with ongoing evaluation of new tax legislation and accounting standards - Eagle Bancorp Montana, Inc. is a Delaware corporation and parent company of Opportunity Bank of Montana, operating 30 full-service branches across Montana, focusing on deposits and investments in loans and securities[36][41][42] - The Company's consolidated financial statements include Eagle, Opportunity Bank of Montana, Opportunity Housing Fund, LLC (OHF), Eagle Bancorp Statutory Trust I, and Opportunity Financial Services, Inc. (OFS), with OHF investing in LIHTC projects and OFS facilitating deferred payment contracts[39][40][45] - Management concluded goodwill was not impaired after quantitative tests as of August 31, 2024, and October 31, 2024, with the Company operating as a single community banking segment[50][51] - The "One Big Beautiful Bill Act," signed July 4, 2025, permanently extended key business tax breaks, with the Company evaluating its impact on income tax expense[48] - The Company adopted ASU No. 2023-07 (Segment Reporting) and ASU No. 2023-09 (Income Tax Disclosures) without significant impact, and is evaluating ASU No. 2024-03/2025-01 (Expense Disaggregation Disclosures) for future effectiveness[54][55][57] NOTE 2. Investment Securities The company's available-for-sale securities decreased due to maturities and payments, with unrealized losses attributed to interest rate changes Securities Available-for-Sale (Dollars in Thousands) | Metric | June 30, 2025 | December 31, 2024 | Change ($) | Change (%) | | :----------------------------------- | :------------ | :---------------- | :--------- | :--------- | | Total amortized cost | $309,257 | $319,939 | $(10,682) | -3.3% | | Total gross unrealized losses | $(24,536) | $(27,550) | $3,014 | -10.9% | | Total fair value | $285,023 | $292,590 | $(7,567) | -2.6% | - The decrease in securities available-for-sale was primarily due to maturities, principal payments, and call activity, partially offset by security purchases and an increase in fair value[126] - As of June 30, 2025, 269 securities had unrealized loss positions totaling $24.54 million, which management attributed to interest rate and market spread changes, not credit losses, with no intent to sell prior to maturity, thus no ACL was recorded[63] NOTE 3. Loans Receivable Loans receivable increased, driven by commercial and commercial real estate loans, while nonperforming assets also rose Loans Receivable (Dollars in Thousands) | Loan Category | June 30, 2025 | December 31, 2024 | Change ($) | Change (%) | | :-------------------------------- | :------------ | :---------------- | :--------- | :--------- | | Residential 1-4 family | $194,289 | $199,422 | $(5,133) | -2.6% | | Commercial real estate | $938,451 | $916,783 | $21,668 | 2.4% | | Home equity | $102,778 | $97,543 | $5,235 | 5.4% | | Consumer | $26,658 | $28,513 | $(1,855) | -6.5% | | Commercial | $307,486 | $278,385 | $29,101 | 10.5% | | Total loans | $1,569,662 | $1,520,646 | $49,016 | 3.2% | | Allowance for credit losses | $(17,730) | $(16,850) | $(880) | 5.2% | | Total loans, net | $1,551,932 | $1,503,796 | $48,136 | 3.2% | Allowance for Credit Losses (ACL) Activity (Dollars in Thousands) | Metric | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Change ($) | Change (%) | | :----------------------------------- | :------------------------------- | :------------------------------- | :--------- | :--------- | | Beginning balance | $16,720 | $16,410 | $310 | 1.9% | | Charge-offs | $(51) | $(12) | $(39) | 325.0% | | Recoveries | $3 | $10 | $(7) | -70.0% | | Provision | $1,058 | $422 | $636 | 150.7% | | Ending balance | $17,730 | $16,830 | $900 | 5.4% | | Metric | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | Change ($) | Change (%) | | :----------------------------------- | :------------------------------- | :------------------------------- | :--------- | :--------- | | Beginning balance | $16,850 | $16,440 | $410 | 2.5% | | Charge-offs | $(57) | $(13) | $(44) | 338.5% | | Recoveries | $7 | $76 | $(69) | -90.8% | | Provision | $930 | $327 | $603 | 184.4% | | Ending balance | $17,730 | $16,830 | $900 | 5.4% | Nonperforming Assets (Dollars in Thousands) | Metric | June 30, 2025 | December 31, 2024 | Change ($) | Change (%) | | :----------------------------------- | :------------ | :---------------- | :--------- | :--------- | | Total nonperforming loans | $5,083 | $3,850 | $1,233 | 32.0% | | Real estate owned and other repossessed property, net | $86 | $45 | $41 | 91.1% | | Total nonperforming assets | $5,169 | $3,895 | $1,274 | 32.7% | | Total nonperforming loans to total loans | 0.32% | 0.25% | 0.07% | 28.0% | | Total nonperforming assets to total assets | 0.24% | 0.19% | 0.05% | 26.3% | - The Company modified loans totaling $959 thousand for the three months and $1.47 million for the six months ended June 30, 2025, for borrowers experiencing financial difficulty, primarily through term extensions and payment deferrals[81] NOTE 4. Mortgage Servicing Rights Mortgage servicing rights and related fees saw slight decreases, with key valuation assumptions noted Mortgage Servicing Rights (Dollars in Thousands) | Metric | June 30, 2025 | December 31, 2024 | Change ($) | Change (%) | | :----------------------------------- | :------------ | :---------------- | :--------- | :--------- | | Unpaid principal balances serviced for others | $1,986,957 | $2,016,242 | $(29,285) | -1.5% | | Mortgage servicing rights, net | $15,120 | $15,376 | $(256) | -1.7% | | Fair value of mortgage servicing rights | $20,318 | $20,370 | $(52) | -0.3% | | Mortgage loan servicing fees (3 months) | $1,255 | $1,275 | $(20) | -1.6% | | Mortgage loan servicing fees (6 months) | $2,511 | $2,579 | $(68) | -2.6% | - Key valuation assumptions for mortgage servicing rights at June 30, 2025, included a discount rate of 12% and a weighted average prepayment speed of 116%[86] NOTE 5. Deposits Total deposits increased, primarily driven by a significant rise in money market deposits Deposit Accounts (Dollars in Thousands) | Deposit Category | June 30, 2025 | December 31, 2024 | Change ($) | Change (%) | | :----------------------------------- | :------------ | :---------------- | :--------- | :--------- | | Noninterest checking | $417,324 | $419,211 | $(1,887) | -0.5% | | Interest-bearing checking | $205,021 | $221,476 | $(16,455) | -7.4% | | Savings | $205,596 | $210,572 | $(4,976) | -2.4% | | Money market | $450,685 | $367,094 | $83,591 | 22.8% | | Time certificates of deposit | $459,299 | $462,875 | $(3,576) | -0.8% | | Total deposits | $1,737,925 | $1,681,228 | $56,697 | 3.4% | - Money market deposits significantly increased by $83.59 million, driving overall deposit growth, with uninsured deposits estimated at $329.0 million or 19% of total deposits at June 30, 2025[135][136] NOTE 6. Other Long-Term Debt The company's long-term debt remained stable, with details on subordinated debentures and their interest rate transitions Other Long-Term Debt (Dollars in Thousands) | Debt Type | June 30, 2025 (Principal Amount) | December 31, 2024 (Principal Amount) | Change ($) | Change (%) | | :----------------------------------- | :------------------------------- | :------------------------------- | :--------- | :--------- | | Subordinated debentures fixed at 5.50% to floating, due 2030 | $15,000 | $15,000 | $0 | 0.0% | | Subordinated debentures fixed at 3.50% to floating, due 2032 | $40,000 | $40,000 | $0 | 0.0% | | Subordinated debentures variable at 3-Month SOFR plus 1.68%, due 2035 | $5,155 | $5,155 | $0 | 0.0% | | Total other long-term debt (net) | $59,224 | $59,149 | $75 | 0.1% | - The subordinated debentures due 2030 transitioned from a fixed rate of 5.50% to a floating rate (3-month SOFR plus 509.0 basis points) on July 1, 2025, with the floating rate at 9.39% as of that date[89] - Debentures due 2032 will transition to a floating rate (3-month SOFR plus 218.0 basis points) on February 1, 2027[90] - Debentures due 2035 converted to 3-month CME Term SOFR plus 1.68% during Q1 2024, with a rate of 5.97% as of June 30, 2025[91] NOTE 7. Accumulated Other Comprehensive Income (Loss) Accumulated other comprehensive loss improved due to other comprehensive income before reclassifications and income taxes Accumulated Other Comprehensive Income (Loss) (Dollars in Thousands) | Metric | June 30, 2025 | January 1, 2025 | Change ($) | Change (%) | | :----------------------------------- | :------------ | :-------------- | :--------- | :--------- | | Balance, Unrealized (Losses) Gains on Securities Available-for-Sale | $(17,858) | $(20,146) | $2,288 | -11.4% | - The accumulated other comprehensive loss improved by $2.29 million for the six months ended June 30, 2025, primarily due to other comprehensive income before reclassifications and income taxes of $3.12 million[94] NOTE 8. Earnings Per Common Share Basic and diluted earnings per common share significantly increased for both the three and six months ended June 30, 2025 Earnings Per Common Share | Metric | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Change ($) | Change (%) | | :----------------------------------- | :------------------------------- | :------------------------------- | :--------- | :--------- | | Basic Earnings Per Common Share | $0.42 | $0.22 | $0.20 | 90.9% | | Diluted Earnings Per Common Share | $0.41 | $0.22 | $0.19 | 86.4% | | Metric | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | Change ($) | Change (%) | | :----------------------------------- | :------------------------------- | :------------------------------- | :--------- | :--------- | | Basic Earnings Per Common Share | $0.83 | $0.46 | $0.37 | 80.4% | | Diluted Earnings Per Common Share | $0.83 | $0.46 | $0.37 | 80.4% | NOTE 9. Derivatives and Hedging Activities The company uses derivatives to hedge fair value changes in interest rate lock commitments and mortgage loans held-for-sale - The Company uses derivatives, including interest rate lock commitments and forward To-Be-Announced (TBA) mortgage-backed securities, to hedge the risk of changes in fair values of interest rate lock commitments and mortgage loans held-for-sale[96] Derivative Net Losses (Dollars in Thousands) | Period | Net Losses | | :------------------------------- | :--------- | | Three Months Ended June 30, 2025 | $(70) | | Three Months Ended June 30, 2024 | $(45) | | Six Months Ended June 30, 2025 | $(162) | | Six Months Ended June 30, 2024 | $(67) | NOTE 10. Fair Value of Financial Instruments Financial instruments are categorized into a three-level fair value hierarchy based on input observability - The Company categorizes financial assets and liabilities measured at fair value into a three-level hierarchy: Level 1 (unadjusted quoted prices in active markets), Level 2 (quoted prices for similar instruments or model-based valuations with observable inputs), and Level 3 (unobservable inputs requiring significant management judgment)[101][102] - Available-for-sale securities are primarily valued using Level 1 and Level 2 inputs, while loans held-for-sale and forward TBA mortgage-backed securities use Level 2 inputs[103][104] - Interest rate lock commitments, collateral-dependent loans, real estate owned, and mortgage servicing rights are valued using Level 3 inputs[105][106][107][108] Financial Assets and Liabilities Measured at Fair Value (Dollars in Thousands) - June 30, 2025 | Instrument | Level 1 Inputs | Level 2 Inputs | Level 3 Inputs | Total Fair Value | | :----------------------------------- | :------------- | :------------- | :------------- | :--------------- | | Available-for-sale securities | $44,422 | $240,651 | $- | $285,073 | | Loans held-for-sale | $- | $13,651 | $- | $13,651 | | Interest rate lock commitments | $- | $- | $17 | $17 | | Forward TBA mortgage-backed securities | $- | $140 | $- | $140 | | Collateral-dependent loans individually evaluated, net of ACL | $- | $- | $43 | $43 | Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's analysis of Eagle Bancorp Montana, Inc.'s financial performance and condition, covering key trends, liquidity, capital, and risk management Introduction - Eagle Bancorp Montana, Inc. is a bank holding company headquartered in Helena, Montana, with its wholly-owned subsidiary, Opportunity Bank of Montana, focusing on consumer, commercial, and agricultural lending[118][120] Executive Summary - The Company's earnings are primarily driven by net interest income and noninterest income from service charges, fees, and mortgage loan service fees[120] - Management focuses on diversifying the loan portfolio to include more commercial and agricultural loans, aiming to mitigate market exposure, improve interest rate sensitivity, and increase fee income[121] - Key strategic goals include increasing net interest margin, growing other fee income, and controlling operating expenses, with efficient funding growth being a primary challenge amidst significant competition[122] - The Federal Open Market Committee maintained the federal funds target rate at 4.50% during the six months ended June 30, 2025[123] Financial Condition Key Financial Condition Metrics (Dollars in Thousands) | Metric | June 30, 2025 | December 31, 2024 | Change ($) | Change (%) | | :----------------------------------- | :------------ | :---------------- | :--------- | :--------- | | Total assets | $2,137,633 | $2,103,090 | $34,543 | 1.6% | | Loans receivable, net | $1,551,932 | $1,503,796 | $48,136 | 3.2% | | Securities available-for-sale | $285,023 | $292,590 | $(7,567) | -2.6% | | Total liabilities | $1,956,995 | $1,928,325 | $28,670 | 1.5% | | Total deposits | $1,737,925 | $1,681,228 | $56,697 | 3.4% | | Total borrowings | $178,631 | $200,079 | $(21,448) | -10.7% | | Total shareholders' equity | $180,638 | $174,765 | $5,873 | 3.4% | Investment Activities - Securities available-for-sale decreased by $7.57 million (2.6%) to $285.02 million at June 30, 2025, primarily due to $13.34 million in maturities, principal payments, and call activity, partially offset by $3.02 million in security purchases and a $3.12 million increase in fair value[126] Lending Activities - Loans receivable, net, increased by $48.13 million (3.2%) to $1.55 billion at June 30, 2025, driven by increases in total commercial loans ($29.10 million), commercial real estate loans ($21.67 million), and home equity loans ($5.24 million), partially offset by decreases in residential and consumer loans[128] - Total loan originations for the six months ended June 30, 2025, were $280.72 million, including $121.76 million in residential 1-4 family originations (with $98.55 million held-for-sale) and $76.48 million in commercial originations[129] Nonperforming Assets (Dollars in Thousands) | Metric | June 30, 2025 | December 31, 2024 | Change ($) | Change (%) | | :----------------------------------- | :------------ | :---------------- | :--------- | :--------- | | Total nonperforming loans | $5,083 | $3,850 | $1,233 | 32.0% | | Total nonperforming assets | $5,169 | $3,895 | $1,274 | 32.7% | | Nonperforming loans to total loans | 0.32% | 0.25% | 0.07% | 28.0% | | Nonperforming assets to total assets | 0.24% | 0.19% | 0.05% | 26.3% | - Commercial real estate loans constituted 43.0% of the total loan portfolio at June 30, 2025, totaling $675.29 million, with limited exposure in the office space sector and strong asset quality (average loan-to-value ratio range of 32% to 48%)[133][134] Deposits and Other Sources of Funds - Total deposits increased by $56.70 million (3.4%) to $1.74 billion at June 30, 2025, primarily driven by an $83.59 million increase in money market deposits, partially offset by decreases in interest-bearing checking, savings, and certificates of deposit[135] - Total borrowings decreased by $21.45 million (10.7%) to $178.63 million at June 30, 2025, mainly due to a reduction in FHLB advances and other borrowings[136] - Uninsured deposits were approximately $329.0 million (19% of total deposits) at June 30, 2025, with the Bank also utilizing $1.43 million in brokered certificates and $5.53 million in brokered money market deposits[136][171] Shareholders' Equity - Total shareholders' equity increased by $5.87 million (3.4%) to $180.64 million at June 30, 2025, primarily due to net income of $6.48 million and a $2.29 million decrease in unrealized losses on available-for-sale securities, partially offset by $2.27 million in dividends paid and $1.16 million in treasury stock repurchases[137] Analysis of Net Interest Income - Net interest income, the primary component of Eagle's operating income, is influenced by the interest rate spread (difference between asset yields and liability rates) and the relative amounts of interest-earning assets and interest-bearing liabilities[138] Net Interest Margin (NIM) | Period | NIM | | :------------------------------- | :---- | | Three Months Ended June 30, 2025 | 3.91% | | Three Months Ended June 30, 2024 | 3.41% | | Six Months Ended June 30, 2025 | 3.82% | | Six Months Ended June 30, 2024 | 3.37% | - The increase in NIM reflects higher yields on interest-earning assets and lower rates on interest-bearing liabilities[144] Change in Net Interest Income (Dollars in Thousands) | Period | Change Due to Volume | Change Due to Rate | Net Change | | :------------------------------- | :------------------- | :----------------- | :--------- | | Three Months Ended June 30, 2025 | $869 | $1,644 | $2,513 | | Six Months Ended June 30, 2025 | $1,118 | $3,083 | $4,201 | Results of Operations Three Months Ended June 30, 2025 vs 2024 Key Financial Results (Dollars in Thousands, Except Per Share Data) | Metric | Q2 2025 | Q2 2024 | Change ($) | Change (%) | | :----------------------------------- | :------ | :------ | :--------- | :--------- | | Net Income | $3,237 | $1,738 | $1,499 | 86.2% | | Net Interest Income | $18,145 | $15,632 | $2,513 | 16.1% | | Interest and Dividend Income | $27,150 | $25,822 | $1,328 | 5.1% | | Interest Expense | $9,005 | $10,190 | $(1,185) | -11.6% | | Provision for Credit Losses | $1,038 | $412 | $626 | 151.9% | | Noninterest Income | $4,807 | $4,269 | $538 | 12.6% | | Noninterest Expense | $17,926 | $17,307 | $619 | 3.6% | | Basic EPS | $0.42 | $0.22 | $0.20 | 90.9% | | Diluted EPS | $0.41 | $0.22 | $0.19 | 86.4% | - The increase in net interest income was driven by a 5.1% increase in interest and dividend income, primarily from a 27 basis point increase in the average yield on loans and a 2.7% increase in the average balance of loans, coupled with an 11.6% decrease in interest expense due to lower FHLB advances and rates[149][150][151] - Noninterest income rose by 12.6%, mainly due to a $509 thousand increase in mortgage banking, net, reflecting higher net gains on sale of mortgage loans and improved gross margin levels (3.81% vs 3.01%)[153][154] Six Months Ended June 30, 2025 vs 2024 Key Financial Results (Dollars in Thousands, Except Per Share Data) | Metric | YTD 2025 | YTD 2024 | Change ($) | Change (%) | | :----------------------------------- | :------- | :------- | :--------- | :--------- | | Net Income | $6,476 | $3,636 | $2,840 | 78.1% | | Net Interest Income | $35,047 | $30,846 | $4,201 | 13.6% | | Interest and Dividend Income | $53,219 | $50,764 | $2,455 | 4.8% | | Interest Expense | $18,172 | $19,918 | $(1,746) | -8.8% | | Provision for Credit Losses | $1,080 | $277 | $803 | 289.9% | | Noninterest Income | $8,823 | $8,221 | $602 | 7.3% | | Noninterest Expense | $34,932 | $34,340 | $592 | 1.7% | | Basic EPS | $0.83 | $0.46 | $0.37 | 80.4% | | Diluted EPS | $0.83 | $0.46 | $0.37 | 80.4% | - Net interest income increased by 13.6%, driven by a 4.8% rise in interest and dividend income (due to a 30 basis point increase in average loan yield and 2.3% growth in average loan balances) and an 8.8% decrease in interest expense (from lower FHLB advances and rates)[158][159][160] - The provision for credit losses surged by 289.9% to $1.08 million, primarily due to loan growth and an increased provision for unfunded commitments[161] - Noninterest income increased by 7.3%, mainly from mortgage banking, net ($457 thousand increase) and appreciation in cash surrender value of life insurance ($135 thousand increase)[162][163] - Noninterest expense increased by 1.7% due to software subscriptions and occupancy/equipment costs, partially offset by lower data processing expenses[164] - The effective tax rate for the six months ended June 30, 2025, was 17.6%, down from 18.3% in the prior year, influenced by an increased proportion of tax-exempt income and tax credits from low-income housing tax credit projects[165] Liquidity and Capital Resources Liquidity - The Bank maintains liquidity levels above internal policy minimums for 'basic surplus' and 'basic surplus with FHLB', with primary funding sources including deposits, loan repayments, investment maturities, and FHLB advances[167][168] Available Borrowing Capacity (Dollars in Thousands) | Source | June 30, 2025 | December 31, 2024 | Change ($) | Change (%) | | :----------------------------------- | :------------ | :---------------- | :--------- | :--------- | | Federal Home Loan Bank advances | $338,172 | $276,664 | $61,508 | 22.2% | | Federal Reserve Bank discount window | $24,854 | $27,349 | $(2,495) | -9.1% | | Correspondent bank lines of credit | $100,000 | $100,000 | $0 | 0.0% | | Total available borrowing capacity | $463,026 | $404,013 | $59,013 | 14.6% | - Eagle's parent company liquidity is primarily derived from Bank dividends, access to capital markets, and a $15 million correspondent bank line of credit (with no outstanding balance)[172] Capital Resources - The Bank is classified as 'well capitalized' under State of Montana and Federal Reserve Board rules, exceeding all applicable regulatory capital requirements as of June 30, 2025[175] Regulatory Capital Ratios (June 30, 2025) | Capital Ratio | Actual Ratio | Minimum Required for Capital Adequacy | Minimum To Be Well Capitalized | | :----------------------------------- | :----------- | :------------------------------------ | :----------------------------- | | Total risk-based capital to risk weighted assets | 13.51% | 10.50% | 10.00% | | Tier 1 capital to risk weighted assets | 12.41% | 8.50% | 8.00% | | Common equity Tier 1 capital to risk weighted assets | 12.41% | 7.00% | 6.50% | | Tier 1 capital to adjusted total average assets | 10.34% | 4.00% | 5.00% | - The Bank's interest rate sensitivity analysis indicates that a 200-basis point rise in interest rates would increase the economic value of equity (EVE) by 1.2%, while a 200-basis point decrease would reduce EVE by 6.9%, remaining within Board-established guidelines for interest rate risk sensitivity[174] Impact of Inflation and Changing Prices - The Company's financial performance is more significantly impacted by changes in interest rates than by general inflation levels, as interest rates do not necessarily move in tandem with the prices of goods and services[177] Interest Rate Risk - Interest rate risk, the potential for loss from adverse changes in interest rates, is a significant factor affecting the Company's net interest income, managed through the asset/liability committee under Board-approved policies to identify and manage the sensitivity of net interest income[178][179][180] Net Interest Income Sensitivity Analysis (June 30, 2025) | Changes in Market Interest Rates (Basis Points) | Year 1 Impact | Year 2 Impact | Policy Limits (Year 1) | Policy Limits (Year 2) | | :---------------------------------------------- | :------------ | :------------ | :--------------------- | :--------------------- | | +300 | -9.1% | 2.8% | -15.0% | -20.0% | | +200 | -6.0% | 3.8% | -15.0% | -15.0% | | +100 | -2.8% | 5.1% | -10.0% | -10.0% | | -100 | 1.8% | 4.8% | -10.0% | -10.0% | | -200 | 3.4% | 3.2% | -15.0% | -15.0% | | -300 | 5.9% | 2.2% | -15.0% | -20.0% | - The Bank's policy limits for interest rate risk stipulate that projected net interest income should not be reduced by more than 15.0% in Year 1 and 20.0% in Year 2 for an immediate +/- 300 basis point change in interest rates[181] Critical Accounting Policies and Estimates - Critical accounting policies include those related to the allowance for credit losses and business combinations (goodwill), which involve significant judgment and complex estimates, discussed periodically with the Board of Directors' Audit Committee[183] - Goodwill is tested for impairment annually or more frequently if circumstances indicate, with quantitative impairment tests performed in Q3 and Q4 2024 concluding no impairment, though changing economic conditions could lead to future impairment[184][185] Item 3. Quantitative and Qualitative Disclosures About Market Risk This item is omitted due to Eagle Bancorp Montana, Inc.'s status as a smaller reporting company - This item is omitted based on Eagle's status as a smaller reporting company[187] Item 4. Controls and Procedures Management concluded that disclosure controls were ineffective due to a material weakness in cash flow statement preparation, with remediation efforts ongoing - As of June 30, 2025, the Company's disclosure controls and procedures were not effective due to an ongoing material weakness in internal control over financial reporting[188] - The material weakness is related to the design of controls over the preparation of the statement of cash flows, specifically concerning the classification of borrowings as short-term or long-term for appropriate presentation within the financing section[189] - Management is implementing measures to remediate this material weakness by restructuring the design of control activities, but the remediation is still in process and will not be considered complete until controls operate effectively for a sufficient period[190] PART II. OTHER INFORMATION Item 1. Legal Proceedings Neither Eagle Bancorp Montana, Inc. nor its subsidiary Bank is involved in any material legal proceedings outside the ordinary course of business - 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[193] Item 1A. Risk Factors There have been no material changes to the risk factors previously disclosed in the Company's Annual Report on Form 10-K for the year ended December 31, 2024 - 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, 2024[194] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds The Board authorized a new share repurchase plan for up to 400,000 shares, effective May 1, 2025, following repurchases under the previous plan - On April 24, 2025, Eagle's Board of Directors authorized a new share repurchase plan for up to 400,000 shares of common stock, effective May 1, 2025, and expiring May 1, 2026[195] Common Stock Repurchases (April 1, 2025 through June 30, 2025) | Period | Total Number of Shares Purchased | Average Price Paid Per Share | | :----------------------------------- | :------------------------------- | :--------------------------- | | April 1, 2025 through April 30, 2025 | 25,000 | $16.34 | | May 1, 2025 through May 31, 2025 | - | - | | June 1, 2025 through June 30, 2025 | - | - | | Total | 25,000 | $16.34 | - Under the 2024 Repurchase Plan, 25,000 shares were purchased in Q4 2024 and 50,000 shares in Q1 2025, totaling 75,000 shares before the plan expired on May 1, 2025[196] Item 3. Defaults Upon Senior Securities This item is not applicable to the Company for the reporting period - Not applicable[198] Item 4. Mine Safety Disclosures This item is not applicable to the Company for the reporting period - Not applicable[199] Item 5. Other Information During the three months ended June 30, 2025, no directors or officers adopted or terminated any Rule 10b5-1 or non-Rule 10b5-1 trading arrangements - During the three months ended June 30, 2025, none of the Company's directors or officers adopted or terminated a "Rule 10b5-1 trading arrangement" or "non-Rule 10b5-1 trading arrangement"[200] Item 6. Exhibits This section lists all exhibits filed as part of the Form 10-Q, including organizational documents, stock incentive plans, and certifications - Exhibits include the Amended and Restated Certificate of Incorporation, Bylaws, 2025 Stock Incentive Plan, certifications by the CEO and CFO (pursuant to Rule 13a-14(a) and 18 U.S.C. Section 1350), and Inline XBRL Instance Document and Taxonomy Extension documents[203] Signatures The report is duly signed on behalf of Eagle Bancorp Montana, Inc. by Laura F. Clark, President/CEO, and Miranda J. Spaulding, SVP/CFO, on August 7, 2025 - The report was signed on August 7, 2025, by Laura F. Clark, President/CEO, and Miranda J. Spaulding, SVP/CFO, on behalf of Eagle Bancorp Montana, Inc[207]