Eagle Bancorp Montana Earns $1.4 Million in 4Q18 and $5.0 Million in 2018; Declares Regular Quarterly Cash Dividend to $0.0925 per Share

HELENA, Mont., Jan. 29, 2019 (GLOBE NEWSWIRE) — Eagle Bancorp Montana, Inc. (NASDAQ: EBMT), (the “Company,” “Eagle”), the holding company of Opportunity Bank of Montana, today reported net income was $1.4 million, or $0.26 per diluted share, in the fourth quarter of 2018 compared to $1.6 million, or $0.30 per diluted share, in the third quarter of 2018.  In the fourth quarter of 2017, following a writedown of its deferred tax asset, as a result of the Tax Cuts and Job Act, which resulted in an additional tax expense of $715,000, or $0.15 per diluted share, net income was $553,000, or $0.11 per diluted share.  There was $582,000 in acquisition-related expenses in the fourth quarter of 2018, compared to $222,000 in the preceding quarter and $400,000 in the fourth quarter a year ago.

For the full year 2018, net income increased to $5.0 million, or $0.91 per diluted share, compared to $4.1 million, or $0.99 per diluted share, in 2017.  There were $1.2 million in acquisition-related costs in 2018, compared to $676,000 in 2017.

Additionally, Eagle’s board of directors declared a regular quarterly cash dividend of $0.0925 per share.  The dividend will be payable March 1, 2019 to shareholders of record February 8, 2019.  The current annualized yield is 2.15% based on recent market prices.

“Our 2018 results were highlighted by strong net interest income, robust balance sheet expansion and the successful integration of our Ruby Valley Bank acquisition, which is providing a great opportunity for revenue growth,” said Peter J. Johnson, President and CEO.  “Additionally, we completed our acquisition of Big Muddy Bancorp earlier this month.  This transaction further solidifies us as the fourth-largest, Montana-based bank and provides us a unique opportunity to expand our market presence and lending activities. While costs associated with the acquisition integration will be higher than normal over the next few quarters, we expect expenses to return to more normalized levels in the second half of 2019 and expect the merger to be immediately accretive to earnings per share.”

On January 1, 2019, Eagle completed its previously announced acquisition of Big Muddy Bancorp, Inc. and its wholly owned subsidiary, The State Bank of Townsend, located in Townsend, Montana, in a transaction valued at $16.4 million.  Eagle acquired four State Bank of Townsend retail bank branches and approximately $108 million in assets, $92 million in deposits and $92 million in gross loans based on Big Muddy Bancorp’s September 30, 2018, financial statements. 

The Ruby Valley Bank acquisition, which was completed during the first quarter of 2018, added approximately $94 million in assets, $82 million in deposits and $55 million in gross loans.

Fourth Quarter 2018 Highlights (at or for the three-month period ended December 31, 2018, except where noted)

• Net income was $1.4 million, or $0.26 per diluted share.
• Purchase discount on loans from the Ruby Valley Bank portfolio was $1.8 million at January 31, 2018, (the “acquisition date”) of which $1.2 million remains as of December 31, 2018.
• The accretion of the loan purchase discount into loan interest income from the Ruby Valley Bank transaction was $64,000 in the fourth quarter, compared to $100,000 in the preceding quarter.
• Net interest margin was 3.95% in the fourth quarter, which was unchanged compared to the preceding quarter and a 20-basis point improvement compared to 3.75% in the fourth quarter a year ago.
• Revenues (net interest income before the provision for loan losses, plus non-interest income) increased 16.3% to $11.4 million, compared to $9.8 million in the fourth quarter a year ago.
• Total loans increased 20.2% to $616.9 million at December 31, 2018, compared to $513.2 million a year.
• Commercial real estate loans increased 31.8% to $256.8 million at December 31, 2018, compared to $194.8 million a year earlier. 
• Total deposits increased 20.4% to $626.6 million at December 31, 2018, compared to $520.6 million a year ago.
• Capital ratios remain well capitalized with a tangible common shareholders’ equity ratio of 9.66% at December 31, 2018.
• Declared quarterly cash dividend of $0.0925 per share.
• Excluding tax effected acquisition costs, non-GAAP earnings per diluted share were $0.36 for the fourth quarter and $1.09 for 2018.

Balance Sheet Results

“While a majority of the year-over-year loan growth is due to the successful integration of our Ruby Valley Bank acquisition, organic loan production remains strong, increasing $20.3 million, or 3.4% during the fourth quarter,” said Johnson.  Total loans increased 20.2% to $616.9 million at December 31, 2018, compared to $513.2 million a year earlier and increased 3.4% compared to $596.6 million three months earlier.

Eagle originated $79.4 million in new residential mortgages during the quarter, excluding construction loans, and sold $74.7 million in residential mortgages, with an average gross margin on sale of mortgage loans of approximately 3.1%.  This production compares to residential mortgage originations of $86.6 million in the preceding quarter with sales of $83.5 million.

Commercial real estate loans increased 31.8% to $256.8 million at December 31, 2018, compared to $194.8 million a year earlier.  Residential mortgage loans increased 6.4% to $116.9 million, compared to $109.9 million a year earlier.  Commercial loans decreased 6.7% to 59.1 million, home equity loans decreased 1.0% to $52.2 million, construction and development loans increased 8.8% to $41.7 million, and residential construction loans increased 7.4% to $27.2 million compared to a year ago.  Agricultural and farmland loans increased 235.6% to $47.6 million at December 31, 2018, compared to $14.2 million a year earlier.

Total deposits were $626.6 million at December 31, 2018, a modest increase compared to $621.3 million at September 30, 2018, and a 20.4% increase compared to $520.6 million a year ago.  Checking and money market accounts represent 56.8%, savings accounts represent 17.3%, and CDs comprise 25.9% of the total deposit portfolio at December 31, 2018.

Eagle’s total assets increased 19.1% to $853.9 million at December 31, 2018, compared to $716.8 million a year ago, in large part due to the Ruby Valley Bank acquisition.  At September 30, 2018, total assets were $840.0 million.  Shareholders’ equity increased 3.1% to $94.8 million at December 31, 2018, compared to $92.0 million three months earlier and increased 13.4% compared to $83.6 million one year earlier.  Tangible book value was $14.82 per share at December 31, 2018, compared to $14.33 per share at September 30, 2018, and $15.22 per share a year earlier. 

Operating Results

“Our net interest margin remained unchanged compared to the preceding quarter, as rising loan yields were partially offset by higher rates on borrowed funds,” said Johnson.  “Additionally, the interest accretion on purchased loans totaled $64,000 and resulted in a three basis point increase in the NIM during the fourth quarter, compared to $100,000 and a five basis point increase in the NIM during the preceding quarter.”  Eagle’s net interest margin was 3.95% in the fourth quarter, the same as in the preceding quarter, and a 20-basis point improvement compared to 3.75% in the fourth quarter a year ago.  For the year, Eagle’s net interest margin was 3.96%, with eight basis points attributed to interest accretion on purchased loans, compared to 3.71% in 2017.  The investment securities portfolio increased to $142.2 million at December 31, 2018, compared to $132.0 million a year ago, which was offset with higher loan volume resulting in increased average yields on earning assets to 4.64% from 4.35% a year ago.

Eagle’s fourth quarter revenues increased modestly to $11.4 million, compared to $11.2 million in the preceding quarter and increased 16.3% when compared to $9.8 million in the fourth quarter a year ago.  For the year, revenues increased 13.0% to $43.1 million, compared to $38.1 million in 2017.  Net interest income before the provision for loan loss increased modestly to $7.6 million in the fourth quarter compared to $7.5 million in the preceding quarter and increased 21.8% compared to $6.2 million in the fourth quarter a year ago.  For the full year 2018, net interest income increased 25.1% to $29.7 million, compared to $23.8 million in 2017.

Noninterest income was $3.8 million in the fourth quarter, the same as in the preceding quarter, and increased 6.6% compared to $3.6 million in the fourth quarter a year ago.  For the year, noninterest income was $13.3 million, compared to $14.3 million in 2017.  The net gain on sale of mortgage loans totaled $2.3 million in both the fourth quarter and the preceding quarter.  The net gain on sale of mortgage loans was $2.1 million in the fourth quarter a year ago.

Eagle’s fourth quarter noninterest expenses were $9.6 million compared to $9.1 million in the preceding quarter and $8.0 million in the fourth quarter a year ago.  Acquisition costs totaled $582,000 for the current quarter, compared to $222,000 for the preceding quarter and $400,000 in the fourth quarter one year ago.  For the year, noninterest expenses totaled $36.2 million, compared to $30.6 million in 2017. Acquisition costs totaled $1.2 million in 2018, compared to $676,000 in 2017.

For the full year 2018, income tax expense totaled $914,000, for an effective tax rate of 15.5%, compared to $2.1 million in 2017 which reflected a one-time increase in tax expense related to the 2017 Tax Cuts and Job Act.  For the fourth quarter of 2018, Eagle recorded $134,000 in income tax expense.

Credit Quality

“Our asset quality has remained very stable, with a gradual increase in our reserves,” noted Johnson.  The allowance for loan losses represented 175.2% of nonaccrual loans at December 31, 2018, compared to 370.9% three months earlier and 588.5% a year earlier.  The fourth quarter provision for loan losses was $260,000, compared to $194,000 in the preceding quarter and $294,000 in the fourth quarter a year ago. 

Total OREO and other repossessed assets improved to $107,000 at December 31, 2018, compared to $457,000 at September 30, 2018 and $525,000 at December 31, 2017.  Nonperforming assets (NPAs), consisting of nonaccrual loans, OREO and other repossessed assets, loans delinquent 90 days or more, and restructured loans, were $3.9 million at December 31, 2018, or 0.45% of total assets, compared to $2.2 million, or 0.26% of total assets three months earlier and $1.5 million, or 0.21% of total assets a year earlier. 

Nonperforming loans (NPLs) were $3.8 million at December 31, 2018, compared to $1.7 million at September 30, 2018, and $977,000 a year earlier. 

Eagle had net loan charge-offs of $11,000 in the fourth quarter of 2018.  This compares to net recoveries of $6,000 in the third quarter of 2018 and net charge-offs of $44,000 in the fourth quarter a year ago.  The allowance for loan losses was $6.6 million, or 1.07% of total loans at December 31, 2018, compared to $6.4 million, or 1.06% of total loans at September 30, 2018 and $5.8 million, or 1.12% of total loans a year ago.

Capital Management

Eagle Bancorp Montana continues to be well capitalized with the ratio of tangible common shareholders’ equity to tangible assets of 9.66% at December 31, 2018.  (Shareholders’ equity, less goodwill and core deposit intangible to tangible assets).

About the Company

Eagle Bancorp Montana, Inc. is a bank holding company headquartered in Helena, Montana and is the holding company of Opportunity Bank of Montana, a community bank established in 1922 that serves consumers and small businesses in Montana through 21 banking offices. Additional information is available on the bank’s website at www.opportunitybank.com.  The shares of Eagle Bancorp Montana, Inc. are traded on the NASDAQ Global Market under the symbol “EBMT.”

Forward Looking Statements

This release may contain certain “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, and may be identified by the use of such words as “believe,” “will” “expect,” “anticipate,” “should,” “planned,” “estimated,” and “potential.” These forward-looking statements include, but are not limited to statements of our goals, intentions and expectations; statements regarding our business plans, prospects, mergers with Ruby Valley Bank and The State Bank of Townsend, growth and operating strategies; statements regarding the asset quality of our loan and investment portfolios; and estimates of our risks and future costs and benefits. These forward-looking statements are based on current beliefs and expectations of our management and are inherently subject to significant business, economic and competitive uncertainties and contingencies, many of which are beyond our control. In addition, these forward-looking statements are subject to assumptions with respect to future business strategies and decisions that are subject to change. These factors include, but are not limited to, changes in laws or government regulations or policies affecting financial institutions, including changes in regulatory fees and capital requirements; general economic conditions and political events, either nationally or in our market areas, that are worse than expected; competition among depository and other financial institutions; loan demand or residential and commercial real estate values in Montana; our ability to continue to  increase and manage our commercial real estate, commercial business and agricultural loans; the costs and effects of legal, compliance and regulatory actions, changes and developments, including the initiation and resolution of legal proceedings (including any securities, bank operations, consumer or employee litigation and any litigation which we inherited from our January 2019 merger with The State Bank of Townsend); inflation and changes in the interest rate environment that reduce our margins or reduce the fair value of financial instruments; adverse changes in the securities markets; other economic, governmental, competitive, regulatory and technological factors that may affect our operations; cyber incidents, or theft or loss of Company or customer data or money; the effect of our acquisitions of Ruby Valley Bank and The State Bank of Townsend, including the failure to achieve expected revenue growth and/or expense savings, the failure to effectively integrate their operations and the diversion of management time on issues related to the integration. Because of these and other uncertainties, our actual future results may be materially different from the results indicated by these forward-looking statements. All information set forth in this press release is current as of the date of this release and the company undertakes no duty or obligation to update this information.

Use of Non-GAAP Financial Measures

In addition to results presented in accordance with generally accepted accounting principles utilized in the United States, or GAAP, the Financial Ratios and Other Data contains our core efficiency ratio and tangible book value per share, which are non-GAAP financial measures.  The numerator for the core efficiency ratio is calculated by subtracting acquisition costs and intangible asset amortization from noninterest expense. Tangible assets and tangible common shareholders’ equity are calculated by excluding intangible assets from assets and shareholders’ equity, respectively. For these financial measures, our intangible assets consist of goodwill and core deposit intangible. Tangible book value per share is calculated by dividing tangible common shareholders’ equity by the number of common shares outstanding.  We believe that this measure is consistent with the capital treatment by our bank regulatory agencies, which exclude intangible assets from the calculation of risk-based capital ratios, and present this measure to facilitate the comparison of the quality and composition of our capital over time and in comparison to our competitors.

Non-GAAP financial measures have inherent limitations, are not required to be uniformly applied, and are not audited.  Further, the non-GAAP financial measure of tangible book value per share should not be considered in isolation or as a substitute for book value per share or total shareholders’ equity determined in accordance with GAAP, and may not be comparable to a similarly titled measure reported by other companies.  Reconciliation of the GAAP and non-GAAP financial measures are presented below.