NOTE

ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Organization

Eagle Bancorp Montana, Inc. (“Eagle” or the “Company”), is a Delaware corporation that holds

100%

of the capital stock of Opportunity Bank of Montana (“OBMT” or the “Bank”). The Bank was founded in

1922

as a Montana-chartered building and loan association and has conducted operations and maintained its administrative office in Helena, Montana since that time. In

1975,

the Bank adopted a federal thrift charter and in

October 2014

converted to a Montana chartered commercial bank and became a member bank in the Federal Reserve System.

September 2017,

the Company entered into an Agreement and Plan of Merger with TwinCo, Inc. ("TwinCo"), a Montana corporation, and TwinCo’s wholly-owned subsidiary, Ruby Valley Bank, a Montana chartered commercial bank to acquire

100%

of TwinCo’s equity voting interests. On

January 31, 2018,

TwinCo merged with and into Eagle, with Eagle continuing as the surviving corporation. Ruby Valley Bank operated

two

branches in Madison County, Montana.

August 2018,

Eagle entered into an Agreement and Plan of Merger with Big Muddy Bancorp, Inc. (“BMB”), a Montana corporation and BMB’s wholly-owned subsidiary, The State Bank of Townsend (“SBOT”), a Montana chartered commercial bank to acquire

100%

of BMB’s equity voting interests. On

January 1, 2019,

BMB merged with and into Eagle, with Eagle continuing as the surviving corporation. SBOT operated

four

branches in Townsend, Dutton, Denton and Choteau, Montana.

August 2019,

Eagle and OBMT, entered into an Agreement and Plan of Merger with Western Holding Company of Wolf Point (“WHC”), a Montana corporation, and WHC’s wholly-owned subsidiary, Western Bank of Wolf Point (“WB”), a Montana chartered commercial bank. The Merger Agreement provided that, upon the terms and subject to the conditions set forth in the Merger Agreement, WHC would merge with and into Eagle, with Eagle continuing as the surviving corporation. The merger closed on

January 1, 2020.

WB operated

one

branch in Wolf Point, Montana

The Bank currently has

full service branches. The Bank’s principal business is accepting deposits and, together with funds generated from operations and borrowings, investing in various types of loans and securities. The Bank also operates certain branches under the names Dutton State Bank, Farmers State Bank of Denton and The State Bank of Townsend.

Basis of Financial Statement Presentation and Use of Estimates

The accompanying unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”) for interim financial information and in accordance with the instructions to Form

-Q and Article

of Regulation S-

as promulgated by the Securities and Exchange Commission (“SEC”). It is recommended that these unaudited interim consolidated financial statements be read in conjunction with the Company’s Annual Report on Form

-K with all of the audited information and footnotes required by U.S. GAAP for complete financial statements for the year ended

December 31, 2019,

as filed with the SEC on

March 11, 2020.

In the opinion of management, all normal adjustments and recurring accruals considered necessary for a fair presentation of the financial position and results of operations for the periods presented have been included.

The results of operations for the

three

-month period ended

March 31, 2020

are

not

necessarily indicative of the results to be expected for the year ending

December 31, 2020

or any other period. In preparing consolidated financial statements, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the consolidated statement of financial condition and reported amounts of revenues and expenses during the reporting period. Actual results could differ from estimates. Material estimates that are particularly susceptible to significant change in the near term relate to the determination of the allowance for loan losses, mortgage servicing rights, the fair value of financial instruments, the valuation of goodwill and deferred tax assets and liabilities.

Principles of Consolidation

The consolidated financial statements include Eagle, the Bank, Eagle Bancorp Statutory Trust I (the “Trust”) and Western Financial Services, Inc. (“WFS”). WFS was acquired through the WHC merger. All significant intercompany transactions and balances have been eliminated in consolidation.

Reclassifications

Certain prior period amounts were reclassified to conform to the presentation for

2020.

These reclassifications had

impact on net income or shareholders’ equity.

Subsequent Events

The Company has evaluated events and transactions subsequent to

March 31, 2020

for recognition and/or disclosure.

March 28, 2020

the State of Montana implemented a Shelter-in-Place order related to the COVID-

pandemic. This resulted in a substantial reduction is business activity and in some cases the temporary closing of certain businesses. The order was lifted effective

April 27, 2020,

including the beginning of a phased approach to re-open businesses. The Bank is closely monitoring borrowers and businesses serviced and is providing debt service relief for those that have been affected.

Ongoing impact of COVID-

on business operations:

■

Loan Accommodations – The bank is offering multiple accommodation options to its clients, including

-day deferrals, forbearances and interest only payments. As of

April 30, 2020,

there were

185

loans totaling

$69,131,000

deferring payments for

days, primarily from the real estate rental, accommodation and food services, and the art, entertainment and recreation industries. Approximately

113

borrowers representing

$45,375,000

in loans have been approved for up to

-months interest only payments. There have been approximately

116

forbearances in process for residential mortgage loans totaling

$23,921,000.

■

Payroll Protection Program – On

March 27, 2020,

Congress passed the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) providing economic relief for the country, including the Small Business Administration (“SBA”) Paycheck Protection Program (“PPP”) to fund short-term loans for small businesses. In

April 2020,

additional funding was approved for the PPP. Eagle began taking loan applications from its small business clients immediately after the program was implemented, and as of

April 30, 2020,

had received approvals for

$43,808,000

in SBA PPP loans, with

471

loans funded for

$31,287,000.

■

Liquidity Changes – Subsequent to the end of the quarter and in coordination with the roll out of the PPP, Eagle was approved for short-term funding through the FRB Discount Window. The discount window has

not

been utilized; however, a new funding facility through the FRB called Payroll Protection Program Loan Funding (“PPPLF”) was made available and the Bank has received approval to collateralize with pools of PPP loans for funding. As of

April 30, 2020,

the Bank had

$24,065,000

in PPPLF borrowings secured by

334

PPP loans at a rate of

0.35%.

As the PPP loans are repaid, it is currently anticipated Eagle will repay the FRB borrowings.