Home Bancorp, Inc. — Q1 2018 Form 10-Q
Reporting period: Three months ended March 31, 2018; balance-sheet comparisons are to December 31, 2017 unless otherwise noted. Unaudited consolidated results include Home Bank, N.A. The quarter reflects the effects of the acquisition of St. Martin Bancshares, Inc. (SMB).
Financial performance and position
| Metric | Q1 2018 / Mar. 31, 2018 | Comparison |
|---|---|---|
| Interest income | $24.7 million | Up 42.4% year over year |
| Net interest income | $22.5 million | Up 40.9% year over year |
| Noninterest income | $3.5 million | Up 23.2% year over year |
| Net income | $7.46 million | Up 49.1% year over year |
| Diluted EPS | $0.81 | $0.69 in Q1 2017 |
| Tax-equivalent net interest margin | 4.49% | 4.42% in Q1 2017 |
| Cash dividends declared per share | $0.15 | $0.13 in Q1 2017 |
| Total assets | $2.207 billion | Down 1.0% from year-end |
| Total loans, before allowance | $1.641 billion | Down 1.0% from year-end |
| Total deposits | $1.839 billion | Down 1.4% from year-end |
| Cash and cash equivalents | $124.1 million | Down from $150.4 million at year-end |
| FHLB advances | $70.9 million | Short- and long-term combined |
| Shareholders’ equity | $283.1 million | Up 1.9% from year-end |
- Net cash provided by operating activities was $19.8 million; investing activities used $16.8 million and financing activities used $29.2 million. Cash and cash equivalents declined $26.3 million during the quarter.
- Noninterest expense was $15.6 million, up 41.3% year over year. The company reported $879,000 of pretax merger-related expenses in Q1 2018.
- The effective tax rate was 20.9%, compared with 32.9% in Q1 2017, primarily reflecting the Tax Act’s reduction of the federal statutory rate from 35% to 21%.
- Regulatory capital exceeded stated minimum requirements. The Bank’s actual common equity Tier 1 ratio was 12.93%, and its Tier 1 leverage ratio was 9.57%.
Material changes and credit quality
- Management attributed most of the increase in interest income and net interest income to interest-earning assets acquired from SMB. Higher interest expense also reflected liabilities from the acquisition.
- Originated loans grew 2.3% during the quarter, but total loans declined as acquired loan balances ran off. Investment securities increased 11.3% to $276.1 million; the available-for-sale portfolio’s net unrealized loss widened to $3.5 million from $1.5 million at year-end.
- Deposits fell $27.0 million, including a $27.6 million decline in certificates of deposit. Core deposits increased by $569,000.
- The allowance for loan losses was $14.3 million, or 0.87% of total loans, versus 0.89% at year-end and 1.05% a year earlier. Excluding acquired loans, the allowance ratio was 1.40%.
- Q1 net charge-offs were $1.5 million, compared with net recoveries of $100,000 in Q1 2017. Management linked the charge-offs primarily to further deterioration in two previously identified problem relationships.
- Nonperforming loans rose to $27.3 million, or 1.24% of assets, from $25.0 million, or 1.12%, at year-end. Nonperforming assets were $27.9 million, or 1.26% of assets. Total past-due loans were $24.4 million at March 31, versus $28.8 million at year-end.
- Direct energy-sector loans were $57.7 million, 3.5% of total loans; 93.0% were performing under original terms. The company also noted indirect energy-sector exposure through borrowers serving energy businesses.
Outlook, risks and contingencies
- The filing provides no specific earnings or balance-sheet guidance. Management cautions that interim results are not necessarily indicative of full-year results.
- Liquidity included $124.1 million of cash and $263.2 million of available-for-sale securities. Certificates of deposit totaling $218.9 million mature within 12 months; management expects a significant portion to renew. The company reported $737.1 million of additional FHLB borrowing capacity.
- Interest-rate modeling showed projected net interest income increasing 0.9%, 1.5% and 1.8% under immediate, sustained rate increases of 100, 200 and 300 basis points, respectively. Actual results depend on repricing, spreads, balance-sheet mix and other factors.
- Management stated that no investment-security declines were considered other-than-temporary; it intended and was able to hold the securities in a continuous loss position until recovery or maturity. The filing reports unrealized losses on 149 securities.
- The company is assessing the expected-credit-loss standard, ASC 326/ASU 2016-13, and had not quantified its impact; management said adoption could materially affect the financial statements. The company estimated the coming lease standard would increase assets and liabilities by less than 1%.
- Management said ordinary-course claims and litigation were not expected to materially affect financial condition or results. No material changes to previously disclosed risk factors were reported. Disclosure controls were assessed as effective, with no material change in internal control over financial reporting during the quarter.
Key facts for investors to verify
- How much of earnings growth reflects SMB-related scale versus underlying organic growth, and how merger-related costs and the lower tax rate affect comparisons.
- Whether loan credit trends stabilize, particularly the two problem relationships, commercial real estate and C&I exposures; track nonaccruals, charge-offs, TDRs and allowance coverage.
- Whether deposit balances and funding costs remain manageable as $218.9 million of CDs mature within 12 months and interest rates change.
- How acquired-loan runoff, originated loan growth and the portfolio’s commercial real estate concentration affect future loan balances and margins.
- The eventual quantified impact of CECL adoption and any changes to management’s allowance estimates.