Description
Eagle Bancorp of Montana (EBMT)
(Market Cap of $45.9M, including ESOP shares, at $11.25 per share as of February 18, 2011)
Eagle Bancorp Montana (EBMT) is a profitable bank, with minimal non-performing assets, in an attractive geographic area, that is selling at a 15% discount to tangible book value.
EBMT is a holding company for American Federal Savings Bank, which operates six branches out of Montana. EBMT offers traditional retail banking products including money market accounts, CD accounts, and checking/savings accounts. Its loan portfolio consists primarily of real estate (RE) loans, of which about 60% is 1-4 family residential RE loans and 22% commercial RE, 8% construction/land development, and the remainder a mix of commercial/industrial loans and personal loans. EBMT completed its second step conversion on April 5, 2010 to a fully publicly owned stock company where it raised $24.6 million at $10 per share. EBMT has total equity capital of $52.8 million and $332.9 million in total assets. Management has been looking to utilize the capital raised by making acquisitions and facilitating organic growth.
Attractive characteristics:
Favorable geographic area of operation - Relative to the rest of the nation, EBMT operates in a financially healthy region. Lewis and Clark County, where EBMT has the majority of its deposits, has an unemployment rate of 5.3%..
Healthy balance sheet and minimum asset issues - As of December 31, 2010, non-performing assets were only 1.16%. Management attributes this to conservative underwriting standards and the fact that Montana did not undergo boom/bust cycles.
Steady historical profitability - Despite having very low non-performing assets, the Bank has a steady history of profitability. For the five calendar years prior to the second step conversion, American Federal Savings Bank had an average ROE of 8.7%.
| |
NPA % |
ROE % |
| 2009 |
0.76% |
12.8% |
| 2008 |
0.09% |
8.3% |
| 2007 |
0.07% |
6.8% |
| 2006 |
0.21% |
7.6% |
| 2005 |
0.16% |
7.8% |
Potential for growth - Given its low leverage ratio today, there is significant more room for growth. EBMT's Assets/Equity ratio is currently only 6.3X.
Discount to Book - EBMT is currently trading at approximately a 15% discount to tangible book value. Given its discount and its potential for organic growth, EBMT would make an attractive acquisition candidate. Banks with this profile should be trading at a premium to tangible BV. Given its history of conservatism and profitability, the risk associated with this investment is relatively low at a price below tangible book value.
Catalyst
Making strategic acquisitions and organic growth (effective uses of cash)
As EBMT begins to deploy its excess capital it will be able to generate better EPS.
Potential buyout by a larger entity at a premium to BV offers an additional upside