Home Bancorp, Inc. — Q2 2017 Form 10-Q
Business context and reporting period
Home Bancorp is a Louisiana bank holding company whose wholly owned subsidiary is Home Bank, N.A. This unaudited filing covers the quarter and six months ended June 30, 2017; balance-sheet comparisons are with December 31, 2016. Interim results are not necessarily indicative of full-year performance.
Financial performance and condition
| Metric | Q2 2017 | Q2 2016 | Six months 2017 | Six months 2016 |
|---|---|---|---|---|
| Net interest income | $15.90 million | $15.55 million | $31.87 million | $31.28 million |
| Provision for loan losses | $150,000 | $1.05 million | $457,000 | $1.90 million |
| Noninterest income | $2.16 million | $3.45 million | $4.99 million | $6.01 million |
| Noninterest expense | $11.05 million | $11.86 million | $22.08 million | $24.20 million |
| Net income | $4.49 million | $4.02 million | $9.49 million | $7.37 million |
| Diluted EPS | $0.62 | $0.57 | $1.31 | $1.04 |
- Q2 net income increased 11.7% year over year; first-half net income increased 28.9%. Excluding banking-center gains/losses and merger costs, management reported non-GAAP net income growth of 27.6% for Q2 and 27.3% for the first half.
- Tax-equivalent net interest margin was 4.35% in Q2 2017, unchanged from Q2 2016; first-half margin was 4.38% versus 4.37%. Net interest spread was 4.20% in Q2 versus 4.22%, and 4.24% for the first half versus 4.25%.
- Total assets were $1.574 billion, up 1.1% from year-end. Loans were $1.219 billion, down 0.7%; deposits were $1.309 billion, up 4.9%; shareholders’ equity was $188.9 million, up 5.1%.
- Cash and cash equivalents were $51.7 million, versus $29.3 million at year-end. First-half operating cash flow was $13.4 million, compared with cash used of $746,000 in the prior-year period. Net cash increased $22.4 million.
- FHLB advances totaled $67.5 million, down from $118.5 million at year-end; there were no short-term advances at June 30. The company reported $563.8 million of additional FHLB borrowing capacity. Certificates of deposit maturing within 12 months totaled $177.9 million.
- The allowance for loan losses was $13.0 million, or 1.07% of loans (1.40% excluding acquired loans). Nonperforming loans were $15.9 million, or 1.01% of assets; the ratio was 0.88% at year-end. Nonperforming assets were $16.5 million, or 1.05% of assets.
- At June 30, the Bank’s capital ratios included 13.86% common equity Tier 1, 13.86% Tier 1 risk-based capital, 14.98% total risk-based capital, and 10.45% Tier 1 leverage. The filing states capital was well above regulatory requirements.
Changes, management commentary and risks
- Net interest income rose as acquired-loan accretion and investment-security yields increased; higher deposit costs, including promotional certificate rates, partly offset the gains. Deposit interest expense rose year over year.
- The Q2 2017 results include a $449,000 pretax write-down on a closed Vicksburg banking center ($292,000 after tax). Q2 2016 included a $641,000 pretax banking-center sale gain and $214,000 pretax merger expenses. First-half 2017 included a $380,000 banking-center sale gain and the Q2 write-down; first-half 2016 included the $641,000 gain and $827,000 merger expenses.
- Loan balances declined overall as growth in originated loans was offset by paydowns in acquired loans. Commercial real estate loans increased 6.3% from year-end, while construction and land loans fell 15.5%.
- Direct energy-sector loans were $33.4 million, 2.7% of loans; $5.0 million of related unfunded commitments remained. The company also cited indirect exposure to borrowers whose customers include energy-sector entities. Management reported 94.7% of direct energy loans performing to original terms; the remaining 5.3% were restructured and paying under modified terms.
- Unfunded commitments included $104.1 million to originate loans, $138.6 million available on lines of credit, $47.9 million of undisbursed loans in process, and $4.0 million of standby letters of credit. These commitments expose the Bank to credit and funding risk.
- Management reported no material change in risk factors from its 2016 Form 10-K and no legal proceedings expected to materially affect results. Disclosure controls were deemed effective. No formal earnings or financial guidance is provided in the supplied filing text.
- Management was assessing new accounting standards, including the expected-credit-loss standard; it said it was too early to estimate that standard’s impact. It estimated the lease standard would increase assets and liabilities by less than 1%.
Important facts for investors to verify
- Whether the rise in nonperforming loans and criticized/substandard exposures, particularly in commercial and industrial lending, leads to higher provisions or charge-offs.
- The performance and remaining discount/accretion profile of acquired loans, and the effect of their runoff on future interest income.
- Deposit retention and pricing as $177.9 million of certificates mature within 12 months, and whether funding costs pressure margins.
- Direct and indirect energy-sector exposure, including the status of restructured loans and unfunded commitments.
- The sustainability of earnings growth after separating recurring performance from banking-center transactions, merger-related items, and lower loan-loss provisions.