Eagle Bancorp Montana, Inc. — Q1 2024 Form 10-Q
Business context and reporting period. This unaudited quarterly report covers the three months ended March 31, 2024, compared with Q1 2023 for operating results and December 31, 2023 for balance-sheet changes. Eagle Bancorp Montana operates Opportunity Bank of Montana, a Montana-focused community bank with 29 full-service branches, emphasizing consumer, commercial, agricultural and real-estate lending.
Financial performance and condition
Unless otherwise noted, dollar amounts are in millions.
| Metric | Q1 2024 / March 31, 2024 | Comparable period / December 31, 2023 |
|---|---|---|
| Net income | $1.90; diluted EPS $0.24 | Q1 2023: $3.24; diluted EPS $0.42 |
| Net interest income | $15.21; net interest margin 3.33% | Q1 2023: $16.43; margin 3.86% |
| Net interest income after credit-loss provision or recapture | $15.35, including a $0.14 recapture | Q1 2023: $16.15, after a $0.28 provision |
| Noninterest income / expense | $3.95 / $17.03 | Q1 2023: $4.67 / $16.53 |
| Total assets | $2,076.1 | December 31, 2023: $2,075.7 |
| Loans, net of allowance | $1,481.0 | December 31, 2023: $1,468.0 |
| Deposits | $1,635.6 | December 31, 2023: $1,635.2 |
| Borrowings | $236.6 | December 31, 2023: $234.7 |
| Shareholders’ equity | $168.9 | December 31, 2023: $169.3 |
| Cash and cash equivalents | $20.9 | December 31, 2023: $24.5 |
- Cash flow: Operating activities generated $7.12 million, compared with $1.16 million used in Q1 2023. Investing activities used $11.83 million and financing activities provided $1.09 million; cash and equivalents declined $3.63 million during the quarter.
- Credit quality: Nonperforming loans were $7.21 million, or 0.48% of loans, versus $8.42 million, or 0.57%, at year-end. Nonaccrual loans were 0.35% of loans. The allowance for credit losses was $16.41 million, approximately 1.10% of gross loans. The company recorded no loan modifications in Q1 2024.
- Concentration: Commercial real estate loans were $632.5 million, 42.2% of total loans; total real-estate loans were 75.0% of loans. Available-for-sale securities were $311.2 million, with $29.18 million of gross unrealized losses; management attributed these losses primarily to interest rates and market spreads, and reported no securities credit-loss allowance.
- Debt and liquidity: FHLB advances and other borrowings were $177.5 million, including $20 million borrowed through the Federal Reserve Bank Term Funding Program in March. Remaining borrowing capacity was approximately $418.2 million. Management said the bank exceeded its internally set liquidity minimums and believed available sources were sufficient for anticipated needs. Estimated uninsured deposits were $284 million, or 17% of deposits.
- Capital: The bank was deemed well capitalized. Regulatory ratios were 13.17% total risk-based capital, 12.12% Tier 1 risk-based capital, 12.12% common equity Tier 1 and 9.91% Tier 1 capital to adjusted average assets.
Material changes versus comparable periods
- Net income fell $1.34 million, or about 41%, year over year. Net interest income declined 7.4% as higher funding costs outweighed asset-yield and loan-growth benefits; the net interest margin contracted 53 basis points.
- Interest and dividend income rose 20.4% to $24.94 million, supported by higher average loan balances and yields. Interest expense more than doubled to $9.73 million, reflecting higher deposit rates and greater borrowing balances. Average deposit cost rose to 1.62% from 0.62%.
- Noninterest income fell 15.4%, mainly because mortgage banking income declined $0.87 million. Residential mortgage loan sales were $43.56 million versus $62.39 million a year earlier; mortgage gross margin decreased to 3.25% from 3.53%.
- Noninterest expense rose 3.0%, with higher data-processing costs and FDIC insurance premiums among the reported increases. The effective tax rate fell to 16.3% from 24.4%, partly due to tax-exempt income and low-income housing tax credits.
- Loans grew 0.9% from year-end, led by commercial real estate, home equity and residential lending. Deposits were nearly flat; brokered certificates declined $22.17 million, partly offset by growth in IRA and other certificates.
- Equity declined $0.33 million from year-end, as the $1.32 million increase in unrealized securities losses and $1.12 million of dividends more than offset quarterly net income.
Outlook, risks and other notable items
- No specific numerical earnings or financial guidance was provided. Management said it intends to focus on improving net interest margin, fee income and expense control, while growing loans and deposits. It identified deposit competition and efficient funding of balance-sheet growth as challenges.
- Management cited sensitivity to interest rates, competition for deposits, Montana economic and real-estate conditions, credit losses, liquidity and borrowing costs, and broader banking-industry developments as risks. The bank’s modeled net interest income under a 300-basis-point increase was down 11.2% in year one; this was within its stated policy limit.
- The board authorized a new repurchase plan for up to 400,000 shares, effective May 1, 2024 through May 1, 2025. No shares were repurchased in Q1 2024. The company paid a $0.14-per-share quarterly dividend.
- Management reported effective disclosure controls as of March 31, 2024, with no material changes in internal control over financial reporting during the quarter. The filing reported no material pending legal proceedings and no material changes to previously disclosed risk factors.
- Forward-looking statements are subject to uncertainty; management disclaimed an obligation to update them. Results for the quarter are not necessarily indicative of full-year results.
Important facts for investors to verify
- Whether deposit pricing and borrowing costs moderate enough to stabilize net interest margin and earnings.
- Trends in commercial real-estate exposure, nonperforming loans, delinquencies and the adequacy of the credit-loss allowance.
- Deposit stability, uninsured-deposit levels, use of wholesale funding and continued access to borrowing capacity.
- Mortgage origination and sale volumes, which affected noninterest income, and the sustainability of low-income housing tax benefits.
- The effect of unrealized securities losses on equity and liquidity, and the timing and extent of any purchases under the newly authorized repurchase plan.