Eagle Bancorp Montana, Inc. — Q2 2023 Form 10-Q
Business context and period. The Montana-based bank holding company operates Opportunity Bank of Montana, with 31 full-service branches. This unaudited report covers the quarter and six months ended June 30, 2023; balance-sheet comparisons are with December 31, 2022. Amounts below are in millions unless noted.
Key financial metrics
| Metric | Q2 2023 / June 30, 2023 | Comparable period / prior balance |
|---|---|---|
| Net income | $2.02; diluted EPS $0.26 | Q2 2022: $1.77; $0.24 |
| Six-month net income | $5.26; diluted EPS $0.67 | Six months 2022: $3.99; $0.57 |
| Net interest income | Q2: $15.26; six months: $31.69 | Q2 2022: $15.97; six months 2022: $27.81 |
| Net interest margin | Q2: 3.47%; six months: 3.66% | Q2 2022: 4.09%; six months 2022: 3.89% |
| Noninterest income | Q2: $6.20; six months: $10.88 | Q2 2022: $7.34; six months 2022: $15.64 |
| Total assets | $2,023.3 | December 31, 2022: $1,948.4 |
| Net loans / deposits | $1,405.9 / $1,578.4 | December 31, 2022: $1,339.7 / $1,635.3 |
| Total borrowings | $250.2 | December 31, 2022: $128.2 |
| Cash and cash equivalents | $23.0 | December 31, 2022: $21.8 |
| Shareholders’ equity | $162.7 | December 31, 2022: $158.4 |
- For the six months, operating cash flow was negative $9.0, investing cash flow negative $52.3, and financing cash flow positive $62.5; cash increased $1.2.
- At June 30, nonperforming loans were $9.93, or 0.70% of loans, versus $7.78 and 0.57% at year-end. Nonaccrual loans were 0.67% of loans, up from 0.24%.
- The allowance for credit losses on loans was $15.56. The bank reported regulatory capital above applicable minimums and was categorized as “well capitalized.” Its total risk-based capital ratio was 12.93%.
Material changes and management commentary
- Six-month net income rose 32%, as higher net interest income and lower expenses more than offset reduced noninterest income. Q2 net income increased 14% year over year, although Q2 net interest income fell 4%.
- Higher loan balances and asset yields increased interest income, but sharply higher deposit and borrowing costs weighed on margin. Q2 total interest expense rose to $7.01 from $1.09 a year earlier; the average rate on interest-bearing liabilities increased to 2.06% from 0.39%.
- Mortgage banking income declined with lower mortgage volumes: six-month mortgage loan sales were $147.2 versus $322.7 a year earlier. Management cited the interest-rate environment. Noninterest expense fell mainly because the prior-year period included FCB acquisition costs; none were reported in the first half of 2023.
- Loans grew 4.9% from year-end, while deposits declined 3.5%. Growth in certificates of deposit, including $15.1 of brokered CDs, partly offset declines in checking, savings and money-market deposits. Estimated uninsured deposits were $289.1, or 18% of total deposits.
- FHLB advances and other borrowings increased to $191.3 from $69.4, with management saying short-term borrowings helped fund loan growth. Remaining borrowing capacity was approximately $315.6, down from $419.2 at year-end. Management said available liquidity sources were sufficient for anticipated needs; it also identified deposit competition and funding growth efficiently as challenges.
- Available-for-sale securities had $32.5 of gross unrealized losses at June 30; management attributed the declines primarily to rates and market spreads, and said the company was not likely to be required to sell the securities before maturity. No credit-loss allowance was recorded on these securities. Accumulated other comprehensive loss was $23.7.
- The company adopted CECL on January 1, 2023. Adoption increased the loan allowance by $0.7 and the unfunded-commitment allowance by $1.5, and reduced opening retained earnings by $1.6 after tax. Comparisons of credit-loss measures with 2022 reflect different accounting methods. The filing also notes one modified commercial real-estate loan of $0.544, current under modified terms at quarter-end.
- Management’s stated priorities include growing loans and deposits, improving net interest margin and fee income, and controlling expenses. The filing provides no specific numerical earnings or growth guidance.
Risks, contingencies and other items
- Key disclosed risks include interest-rate and margin sensitivity, deposit outflows and funding costs, credit losses, Montana real-estate and economic conditions, commercial real-estate exposure, and competition. Commercial real estate represented about 41% of total loans at June 30.
- Management reported disclosure controls were effective and no material change in internal control over financial reporting during the quarter. No material pending legal proceedings or material changes to previously disclosed risk factors were reported.
- The board authorized repurchases of up to 400,000 shares through May 1, 2024; 17,901 shares were repurchased in Q2 at an average $12.89 per share.
Important facts for investors to verify
- Whether deposit trends, brokered-CD usage and increased FHLB borrowing remain manageable, and how funding costs affect margin.
- Developments in nonaccrual and nonperforming loans, especially farmland, agricultural and commercial real-estate exposures, and the adequacy of credit-loss allowances.
- Whether mortgage banking volumes and fee income stabilize, and whether loan growth can be funded without further margin pressure.
- How the securities portfolio’s unrealized losses and interest-rate exposure evolve, including any need to sell securities or recognize credit losses.
- The effects of CECL and the FCB acquisition on period-to-period comparisons; the filing says acquired-entity revenue and net income are not separately tracked.