Home Bancorp, Inc. — Q1 2014 Form 10-Q
Reporting period: Three months ended March 31, 2014; balance-sheet comparisons are to December 31, 2013 unless otherwise noted. Financial statements are unaudited. Home Bancorp is a Louisiana bank holding company whose subsidiary is Home Bank.
Business context and material developments
On February 14, 2014, Home Bancorp completed its acquisition of Britton & Koontz Capital Corporation for $34.5 million in cash. The acquired business added five branches in west Mississippi; two Baton Rouge locations were consolidated into existing Home Bank locations. Preliminary acquisition accounting recorded $298.7 million of assets, including $163.0 million of loans, and $264.3 million of liabilities, including deposits. Goodwill recorded was $62,000. Acquisition-related valuations remain subject to refinement.
Financial performance
| Metric | Q1 2014 | Q1 2013 / comparison |
|---|---|---|
| Interest income | $12.57 million | $10.88 million; up 15.6% |
| Net interest income | $11.81 million | $9.85 million; up 19.9% |
| Tax-equivalent net interest margin | 4.72% | 4.63% |
| Provision for loan losses | $145,000 | $520,000 |
| Noninterest income | $1.66 million | $1.82 million; down 8.8% |
| Noninterest expense | $11.26 million | $8.33 million; up 35.1% |
| Net income | $1.43 million | $1.86 million; down 23.0% |
| Diluted earnings per share | $0.21 | $0.26 |
| Net cash from operating activities | $526,000 | $4.31 million |
Management reported $2.0 million of pretax acquisition-related expenses. Excluding those expenses, Q1 2014 net income was $2.8 million, up 49.9% year over year, and diluted EPS was $0.41, up 57.7%. These are management-presented adjustments, not GAAP results. The margin improvement reflected acquired earning assets and recovery of approximately $287,000 in nonaccrual interest and fees. Lower gains on mortgage-loan sales reduced noninterest income by $387,000, partly offset by higher service fees and card fees.
Financial condition, liquidity and capital
- Scale and growth: Total assets were $1.239 billion, up 25.9% from year-end, largely due to the acquisition. Total loans were $880.1 million, up 24.4%; management cited organic growth in commercial real estate and construction and land lending.
- Funding: Deposits totaled $987.4 million, up 33.2%, including $216.6 million acquired. Shareholders’ equity was $144.4 million. Short- and long-term FHLB advances totaled $81.3 million; repurchase-agreement borrowings were $20.9 million.
- Liquidity: Cash and cash equivalents were $57.2 million, and available-for-sale securities were $182.3 million. Certificates of deposit totaling $153.8 million mature within 12 months. The company reported $283.8 million of additional FHLB borrowing capacity.
- Cash flows: Investing activities provided $25.8 million, reflecting securities sales and other investing flows, including a $23.0 million net cash outflow for the acquisition. Financing activities used $1.7 million. Cash increased $24.6 million during the quarter.
- Capital: The Bank reported Tier 1 risk-based capital of 16.28%, total risk-based capital of 17.13%, and Tier 1 leverage capital of 11.01%, each above the stated “well capitalized” thresholds.
Credit quality, risks and outlook
- Nonperforming loans were $22.0 million, or 2.50% of loans, versus $24.8 million, or 3.50%, at year-end. Nonperforming assets were $28.2 million, or 2.27% of assets, versus $29.3 million, or 2.98%. Excluding acquired loans and assets, management reported NPLs-to-loans of 0.74% and NPAs-to-assets of 0.48%.
- The allowance for loan losses was $7.10 million, equal to 0.81% of loans; excluding acquired loans, the allowance ratio was 1.10%. The quarter had net recoveries of $41,000. Management cautioned that future provisions may be needed if conditions differ from its assumptions.
- Acquired loans include a substantial credit-risk component: acquired noncovered loans had $30.4 million classified substandard, and the acquired portfolio includes loans evaluated under purchase-accounting cash-flow estimates. Covered loans are subject to FDIC loss-sharing terms.
- Management stated that there were no material changes to previously disclosed risk factors. Ordinary-course claims and litigation were not expected to have a material effect. The filing gives no specific financial guidance; it cautions that Q1 results are not necessarily indicative of full-year results.
- The company reported effective disclosure controls and no material change in internal control over financial reporting during the quarter.
Most important facts for investors to verify
- Whether merger integration, branch consolidation and systems conversion deliver the expected benefits, and how quickly elevated acquisition-related and ongoing expenses normalize.
- Whether the reported merger-adjusted earnings are sustainable, given the $287,000 nonaccrual-interest recovery and changes in mortgage-loan sale gains.
- Credit performance of the acquired loan portfolio, including delinquency, nonaccrual, substandard-loan and collateral trends, and adequacy of purchase marks and the allowance.
- Deposit retention and funding costs, the $153.8 million of near-term CD maturities, and use of FHLB advances and repurchase agreements.
- Final acquisition fair-value adjustments and the realization of expected cash flows from acquired impaired loans.