Home Bancorp, Inc. — Q2 2011 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2011. Unaudited consolidated results for Home Bancorp and its subsidiary, Home Bank. Balance-sheet comparisons are to December 31, 2010.
Financial performance and condition
| Metric | Q2 / June 30, 2011 | Comparison |
|---|---|---|
| Interest income | $8.12 million for Q2; $16.28 million for six months | Q2 down 10.2%; six months down 0.1% year over year |
| Net interest income | $6.97 million for Q2; $13.85 million for six months | Q2 down 7.1%; six months up 3.6% year over year |
| Net interest margin | 4.55% Q2; 4.61% six months | 4.90% and 4.76%, respectively, in 2010 |
| Net income / diluted EPS | $1.27 million / $0.17 Q2; $2.06 million / $0.28 six months | Q2 net income down 13.6%; six-month net income down 10.8% |
| Assets / shareholders’ equity | $717.4 million / $133.8 million | Assets up 2.4%; equity up 1.7% from year-end |
| Loans / deposits | $449.5 million / $527.4 million | Loans up 2.2%; deposits down 4.7% from year-end |
| FHLB advances | $52.5 million outstanding | $30.5 million short-term and $22.0 million long-term |
Noninterest income was $2.10 million in Q2, up 50.8% year over year, primarily reflecting a $525,000 litigation settlement. Noninterest expense was $6.81 million, up 4.9% in Q2 and 15.4% for the first half year over year; reported drivers include merger-related services, compensation and operating costs associated with the prior Statewide acquisition and Baton Rouge headquarters, and higher FDIC assessments. The six-month cash flow statement reported $9.83 million provided by operations, $37.35 million used in investing, and $12.14 million provided by financing; cash and cash equivalents ended at $21.59 million, down $15.38 million from year-end.
Liquidity included $21.6 million of cash and $141.0 million of available-for-sale securities. Certificates of deposit totaling $129.4 million mature within 12 months; management expects a significant portion to renew. The company reported $217.3 million of additional FHLB borrowing capacity. The Bank’s capital ratios substantially exceeded “well capitalized” thresholds: Tier 1 risk-based capital 26.51%, total risk-based capital 27.44%, and Tier 1 leverage capital 15.44%.
Material changes and credit quality
- Core deposits rose 4.0% to $344.8 million, while certificates of deposit fell 17.6% to $182.6 million; total deposits declined by $25.8 million.
- Noncovered loans increased 6.0% to $381.1 million, with growth concentrated in commercial and industrial and commercial real estate lending. Covered loans declined 14.9% to $68.4 million.
- The allowance for loan losses was $4.06 million, up from $3.92 million at year-end. Excluding covered loans, allowance coverage was 1.06% of loans and 360% of nonperforming loans, versus 1.09% and 371.2% at year-end.
- Nonperforming assets excluding FDIC-covered assets were $1.2 million, or 0.19% of assets, versus $1.1 million and 0.19% at year-end. Noncovered substandard loans increased to $4.6 million from $2.3 million. Net charge-offs were $230,000 for the first half, versus $97,000 in the 2010 comparable period.
- Available-for-sale securities increased to $141.0 million. The company sold $3.6 million of non-agency mortgage-backed securities in Q1, including below-investment-grade holdings, at a $166,000 pretax net loss; remaining non-agency holdings were described as investment grade.
Outlook, risks, contingencies, and unusual items
- On July 15, 2011, after quarter-end, Home Bancorp completed its acquisition of GS Financial Corp. for $26.4 million in cash. The combined company had approximately $975 million in assets, $640 million in loans, and $720 million in deposits at closing. Management expected to consolidate data processing and operating systems in September 2011.
- Management estimated approximately $1.5 million in pretax cost savings from the acquisition by 2012. The filing cautions that integration difficulties, unanticipated costs, credit losses, or failure to achieve savings could adversely affect earnings; there is no specific earnings guidance.
- The $525,000 settlement was a one-time receipt related to litigation over losses from the company’s former ATM cash-provisioning business. Under the settlement, the company gave up the right to pursue future claims for any unrecovered loss.
- The FDIC loss-sharing agreements cover acquired Statewide assets: the FDIC absorbs 80% of the first $41 million of covered losses and 95% above that amount. Management reported no provision was needed on covered loans at June 30.
- Interest-rate sensitivity modeling projected net interest income increases of 2.7%, 5.0%, and 7.0% under immediate, sustained rate increases of 100, 200, and 300 basis points, respectively. Actual outcomes depend on asset and liability repricing, growth, and rate movements.
- Management said ordinary-course claims and litigation were not expected to materially affect results. It also stated that allowance estimates involve judgment and that future provisions could be required. Disclosure controls were assessed as effective, with no material second-quarter change in internal control over financial reporting.
Most important facts for investors to verify
- Whether the GS Financial integration proceeds as planned, the $1.5 million savings target is achieved, and related costs remain within expectations.
- Deposit trends and retention of the $129.4 million of certificates maturing within 12 months, alongside reliance on FHLB funding.
- Credit trends in commercial real estate, construction, and commercial and industrial loans, and whether the allowance remains adequate as substandard balances and charge-offs change.
- Whether net interest margin stabilizes after its year-over-year decline and how lower asset yields affect future earnings.
- The sustainability of earnings excluding the litigation settlement, and the risk profile and valuation of remaining non-agency mortgage-backed securities.