Eagle Bancorp Montana, Inc. — 2023 Form 10-K
Reporting period: Fiscal year ended December 31, 2023; comparisons are with fiscal 2022. Eagle Bancorp Montana is a bank holding company whose wholly owned Opportunity Bank of Montana operates a community bank focused on Montana customers.
Financial performance and condition
| Metric | 2023 | 2022 |
|---|---|---|
| Net interest income | $62.5 million | $63.3 million |
| Net interest margin | 3.51% | 4.03% |
| Noninterest income | $22.7 million | $26.2 million |
| Noninterest expense | $72.1 million | $73.7 million |
| Net income | $10.1 million | $10.7 million |
| Diluted earnings per share | $1.29 | $1.45 |
| Net cash from operating activities | $9.3 million | $41.9 million |
- Total assets grew 6.5% to $2.08 billion. Net loans rose 9.6% to $1.47 billion, while deposits were essentially unchanged at $1.64 billion.
- Commercial real estate loans were $909.4 million, or 61.3% of gross loans; commercial and agricultural loans added substantial business and farm exposure. Gross loans were $1.48 billion.
- Interest expense increased to $29.1 million from $6.2 million, driven by higher deposit costs and increased borrowings. The average cost of deposits rose to 1.11% from 0.21%; the average borrowing rate rose to 5.16% from 4.07%.
- Borrowings increased to $175.7 million from $69.4 million. Other long-term debt, primarily subordinated debentures, was $59.0 million. Total shareholders’ equity was $169.3 million.
- Cash and cash equivalents were $24.5 million, and available-for-sale securities were $318.3 million. Remaining borrowing capacity was approximately $398.5 million. Management said available liquidity was sufficient for anticipated needs.
- Bank regulatory capital ratios were 13.01% total risk-based capital, 11.96% Tier 1 and common equity Tier 1, and 9.75% Tier 1 leverage. The Bank was classified as well capitalized.
- Nonperforming loans were $8.4 million, or 0.57% of loans, versus $7.8 million and 0.57% a year earlier. Nonaccrual farmland and agricultural loans increased; the allowance for credit losses was $16.4 million, or 1.11% of loans.
Material changes versus 2022
- Net income fell 6.0%, mainly as lower mortgage banking income more than offset lower operating expenses and income taxes. Mortgage loans sold declined to $344.3 million from $551.0 million; net gain on mortgage loan sales fell to $11.4 million from $18.6 million.
- Net interest income slipped 1.3% as higher asset yields and loan growth were outweighed by sharply higher funding costs. The net interest margin contracted by 52 basis points.
- Loan growth was funded principally by increased FHLB advances and other borrowings. Deposit totals were flat, but certificates of deposit increased $192.7 million as customers shifted from lower-yielding accounts. Brokered certificates totaled $72.2 million; estimated uninsured deposits were approximately $275 million, or 17% of deposits.
- Available-for-sale securities declined 8.9% to $318.3 million. Gross unrealized losses were $27.7 million, down from $35.9 million; accumulated other comprehensive loss improved to $19.9 million from $26.4 million.
- Operating cash flow declined to $9.3 million, principally reflecting changes in loans held for sale. Investing activities used $108.2 million, mainly as loan originations exceeded repayments; financing activities provided $101.6 million, largely from additional borrowings.
Outlook, commentary, risks and unusual items
- No specific earnings, revenue or margin guidance is provided. Management identifies margin improvement, fee-income growth, expense control, loan and deposit growth, and attracting and retaining core deposits as priorities. It cautions that funding growth efficiently may be challenging amid competition and deposit migration.
- The company’s principal exposures include Montana’s regional economy, real estate values and loan concentrations, interest-rate movements, deposit competition and liquidity, and credit risk in commercial real estate, construction, and agricultural lending. Management also identifies competition, cybersecurity and third-party technology dependence, and severe weather risks.
- During 2023 the company recorded $1.46 million of provision for credit losses, including a $1.67 million loan provision partly offset by a decrease in the unfunded-commitment provision. Net charge-offs were $74,000. CECL adoption on January 1, 2023 reduced retained earnings by $1.62 million net of tax.
- A decline in the share price and revised earnings outlook triggered an interim goodwill impairment test. No impairment was recorded; goodwill remained $34.7 million. The annual test also found no impairment.
- Income tax expense was $1.60 million, with a 13.7% effective tax rate versus 22.7% in 2022, reflecting tax-exempt income and tax credits and benefits related to low-income housing tax-credit projects.
- Management reported routine litigation not expected to have a material adverse effect. The auditor issued an unqualified opinion on the financial statements. The auditor identified the allowance’s qualitative adjustments and goodwill impairment testing as critical audit matters.
Important facts for investors to verify
- Whether deposit pricing, certificate maturities and use of brokered deposits or borrowings put further pressure on net interest margin and liquidity.
- Trends in nonaccrual farmland and agricultural loans, commercial real estate credit quality, and whether the allowance remains adequate as the portfolio grows.
- The size and duration of unrealized securities losses, available liquidity under stressed conditions, and the effect of interest-rate changes on earnings and asset values.
- Whether mortgage sale volumes and related fee income recover, and whether management can offset funding-cost pressure through growth, pricing or expense control.
- Future goodwill impairment assumptions and the continuing effect of CECL estimates, tax-credit investments and regulatory capital or dividend restrictions.