Eagle Bancorp Montana, Inc. — Q1 2022 Form 10-Q
Reporting period: Three months ended March 31, 2022. Unaudited consolidated results include Opportunity Bank of Montana and subsidiaries. Unless otherwise noted, financial amounts below are in millions of dollars.
Financial results and key metrics
| Metric | Q1 2022 | Q1 2021 / prior date |
|---|---|---|
| Net interest income | $11.85 | $11.14 |
| Noninterest income | $8.29 | $13.39 |
| Net income | $2.22 | $5.27 |
| Diluted EPS | $0.34 | $0.78 |
| Net interest margin | 3.64% | 3.97% |
| Total assets, March 31 | $1,492.1 | $1,435.9, December 31 |
| Net loans, March 31 | $946.0 | $920.6, December 31 |
| Deposits, March 31 | $1,270.6 | $1,222.5, December 31 |
| Cash and cash equivalents, March 31 | $95.1 | $61.4, December 31 |
| Total shareholders’ equity, March 31 | $143.5 | $156.7, December 31 |
The filing does not present a separate total-revenue line. Net interest income plus noninterest income was $20.14 million, versus $24.53 million a year earlier. Net interest income increased 6.3%, but net income fell 57.9%, primarily because mortgage banking income declined. Noninterest expense was $16.95 million versus $17.21 million; income before taxes was $2.91 million versus $7.02 million.
- Cash flow: Operating activities provided $5.89 million; investing activities used $41.22 million; financing activities provided $68.99 million. Cash and cash equivalents increased $33.67 million during the quarter.
- Credit and loan portfolio: Gross loans were $960.3 million. The allowance for loan losses was $12.7 million, or approximately 1.32% of gross loans. Nonperforming loans were $6.26 million (0.65% of loans), down from $7.06 million (0.76%) at year-end. Allowance coverage of nonperforming loans was 202.9%.
- Debt and liquidity: Long-term debt, net, was $59.0 million, up from $29.9 million; FHLB advances and other borrowings were zero, versus $5.0 million at year-end. Deposits increased $48.0 million. Management said liquidity exceeded internal minimums and remained strong. The Bank was well capitalized; its Tier 1 leverage ratio was 10.95%, and total risk-based capital was 15.13%.
Material changes versus comparable periods
- Net income declined $3.05 million year over year. Mortgage banking, net, fell $5.51 million to $6.25 million; gains on mortgage loan sales declined to $6.23 million from $14.28 million. Residential mortgage loans sold decreased to $172.14 million from $260.49 million, and the gross sale margin contracted to 3.62% from 5.48%.
- Loan interest income rose modestly as average loan balances grew, but the average loan yield declined to 4.73% from 5.03%. Net interest margin narrowed to 3.64% from 3.97%.
- Quarter-end commercial real estate loans increased to $599.1 million from $570.0 million at year-end; total net loans rose 2.8% during the quarter.
- Available-for-sale securities had a $17.07 million pretax unrealized loss in Q1, mainly attributed by management to rising interest rates. Accumulated other comprehensive income moved from a $3.49 million gain at year-end to a $9.08 million loss; shareholders’ equity declined 8.4%.
- The company issued $40 million of subordinated notes in January, used part of the proceeds to redeem $10 million of senior notes, and repurchased 100,000 shares for $2.27 million at an average $22.71 per share.
Outlook, commentary, risks and unusual items
- No quantified earnings or revenue guidance is provided. Management’s stated priorities include growing loans and deposits, improving net interest margin and fee income, and controlling operating expenses. It noted deposit growth may become harder amid competition and changing customer preferences.
- Management’s interest-rate sensitivity model estimated that an immediate 200-basis-point increase would raise net interest income 4.1% in year one and 10.4% in year two; a 200-basis-point decrease was estimated to reduce it 3.4% and 6.6%, respectively. These are model estimates, not guidance.
- The First Community Bancorp acquisition closed April 30, 2022, after quarter-end. Based on December 31, 2021 information, it added approximately $388 million of assets, $320 million of deposits and $194 million of gross loans. Purchase accounting values were still being determined. The company also reported $317,000 of Q1 acquisition costs.
- On April 21, 2022, the board authorized a new repurchase plan for up to 400,000 shares, expiring April 21, 2023. Repurchases are subject to market and corporate considerations.
- Credit risks include borrower repayment capacity, the Montana real estate and agricultural markets, economic conditions, and allowance-estimation uncertainty. Two farmland TDR loans totaling $444,000 defaulted within 12 months of restructuring; foreclosure had been initiated. The filing also identifies interest-rate, deposit-funding, acquisition-integration, cybersecurity, regulatory and COVID-19-related risks.
- The company was evaluating adoption of the expected-credit-loss standard (CECL), effective for it in 2023, and said the impact could not yet be reasonably estimated. Management stated regulatory capital exceeded requirements and that capital ratios could be adversely affected by future credit losses.
Important facts for investors to verify
- Whether mortgage banking income and margins continue to normalize or weaken, and the resulting effect on earnings.
- Acquisition integration, final fair values and any subsequent effects on assets, credit quality, expenses and capital following the April 30 First Community closing.
- Unrealized securities losses and sensitivity of equity and earnings to further interest-rate changes.
- Trends in criticized, delinquent and restructured loans, particularly the farmland TDR defaults, and the adequacy of the allowance.
- Deposit retention, liquidity and funding costs as competition and interest rates change; also monitor debt service capacity and the new share-repurchase plan.