Home Bancorp, Inc. — Q3 2011 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2011. Unaudited consolidated results include Home Bancorp and subsidiary Home Bank. Year-to-date and balance-sheet comparisons were materially affected by the July 15 acquisition of GS Financial Corp. (GSFC).
Financial performance and condition
| Metric | Q3 2011 / Sept. 30, 2011 | Comparison |
|---|---|---|
| Net income | $923,000; diluted EPS $0.13 | Q3 2010: $911,000; $0.12 diluted EPS |
| Nine-month net income | $3.0 million; diluted EPS $0.41 | 2010: $3.2 million; $0.42 diluted EPS |
| Net interest income | Q3: $9.4 million; nine months: $23.2 million | Up 29.2% and 12.6%, respectively |
| Net interest margin | Q3: 4.58%; nine months: 4.63% | 2010: 4.75% and 4.80% |
| Provision for loan losses | Q3: $526,000; nine months: $892,000 | 2010: $168,000 and $717,000 |
| Noninterest income / expense | Q3: $1.6 million / $9.2 million | Noninterest expense rose 45.0% year over year |
| Assets / loans / deposits | $972.2 million / $653.6 million / $719.5 million | Assets up 38.8%, loans 48.6%, and deposits 30.1% from year-end 2010 |
| Cash and cash equivalents | $32.9 million | $37.0 million at year-end 2010 |
| FHLB advances | $113.5 million total | $13.0 million long-term at year-end 2010; no short-term advances then |
| Shareholders’ equity | $133.1 million | $131.5 million at year-end 2010 |
For the nine months, operating cash flow was $9.1 million, investing cash flow was negative $48.3 million, and financing cash flow was positive $35.1 million. Cash declined $4.1 million. The bank reported capital well above regulatory thresholds: Tier 1 risk-based capital was 20.43%, total risk-based capital 21.17%, and Tier 1 leverage capital 12.17%.
Material changes and drivers
- GSFC added $256.9 million of assets, including $182.5 million of loans, and $193.5 million of deposits at acquisition. The cash purchase price was $26.4 million; preliminary purchase accounting recorded $151,000 of goodwill.
- Loan growth also reflected organic expansion. Deposits grew despite a $26.9 million decrease in deposits shown in nine-month financing cash flows; acquired balances and other cash-flow activity affect comparability.
- Interest income increased with acquired earning assets, while lower funding costs helped reduce interest expense. Lower asset yields in the low-rate environment weighed on net interest margin.
- Year-to-date noninterest income included a $525,000 litigation settlement and benefited from no repeat of 2010 securities impairment charges. The 2011 nine-month period also included a $166,000 net securities-sale loss.
- Acquisition and integration costs were $1.4 million in Q3 and $1.8 million for the nine months. Higher staffing and branch-related expenses also contributed to expense growth.
- Core deposits grew organically for the ninth consecutive quarter. The filing’s narrative leaves the September 30 core-deposit total blank; the listed deposit categories imply approximately $433.3 million excluding certificates of deposit.
Credit quality, liquidity, outlook, and risks
- Nonperforming assets were $28.0 million, or 2.88% of assets, versus $22.8 million, or 3.25%, at year-end 2010. The filing attributes the increase mainly to $9.9 million of acquired GSFC nonperforming assets. Excluding FDIC-covered assets, nonperforming assets were 1.32% of assets, up from 0.19%.
- Nonaccrual loans excluding acquired deteriorated-credit loans increased to $3.6 million from $1.1 million. No loans more than 90 days past due were accruing interest. The allowance was $4.53 million, 0.69% of total loans; excluding acquired loans, coverage was 1.09% of organic loans.
- FDIC loss-sharing agreements cover specified Statewide-acquired assets: the FDIC absorbs 80% of the first $41 million of covered losses and 95% thereafter. Management recorded a $50,000 provision after reducing expected cash flows on covered commercial and industrial loans.
- Liquidity included $32.9 million of cash and $165.5 million of available-for-sale securities. Certificates of deposit of $195.3 million mature within 12 months; management expects a significant portion to be renewed. The company reported $164.2 million of additional FHLB borrowing capacity.
- Interest-rate simulations projected net interest income increases of 2.8%, 5.1%, and 7.0% for immediate sustained rate increases of 100, 200, and 300 basis points, respectively; actual outcomes depend on balance-sheet and repricing assumptions.
- No formal earnings guidance was provided. Management estimated approximately $1.5 million of pretax GSFC cost savings by 2012, but warned that savings may be delayed or not fully achieved and that integration costs, credit losses, and other unexpected expenses could impair results.
- Management said ordinary-course claims and litigation were not expected to materially affect results. The filing identifies acquisition integration, realization of projected savings, and unanticipated transaction or operating costs as risks. Management reported disclosure controls effective and no material quarterly change in internal controls.
Investor facts to verify
- Track acquired-loan performance, nonperforming assets, charge-offs, and adequacy of the allowance, distinguishing FDIC-covered and noncovered assets.
- Assess whether GSFC integration delivers the projected $1.5 million savings by 2012 and how remaining merger costs affect expenses.
- Monitor margin trends, deposit retention and pricing, the $195.3 million of near-term CD maturities, and reliance on FHLB advances.
- Review the final purchase-accounting valuations, including acquired loan cash-flow assumptions and the associated FDIC loss-sharing receivable.
- Reconcile the filing’s blank core-deposit total and confirm the components and reported totals in the source filing.