Home Bancorp, Inc. — Q3 2017 Form 10-Q
Reporting period: Three and nine months ended September 30, 2017; balance-sheet comparisons are to December 31, 2016. Financial statements are unaudited. Home Bancorp is a Louisiana bank holding company operating through Home Bank, N.A.
Financial performance and condition
| Metric | Q3 / Sep. 30, 2017 | Comparable period / prior year-end |
|---|---|---|
| Interest income | Q3: $17.67 million | Q3 2016: $16.85 million |
| Net interest income | Q3: $15.96 million; nine months: $47.82 million | Q3 2016: $15.54 million; nine months 2016: $46.81 million |
| Net income | Q3: $4.09 million; nine months: $13.58 million | Q3 2016: $4.36 million; nine months 2016: $11.73 million |
| Diluted earnings per share | Q3: $0.56; nine months: $1.88 | Q3 2016: $0.61; nine months 2016: $1.65 |
| Net interest margin, tax-equivalent | Q3: 4.29%; nine months: 4.35% | Q3 2016: 4.32%; nine months 2016: 4.35% |
| Net interest spread, tax-equivalent | Q3: 4.13%; nine months: 4.20% | Q3 2016: 4.20%; nine months 2016: 4.23% |
| Assets | $1.587 billion | $1.557 billion at Dec. 31, 2016 |
| Loans, net of allowance | $1.214 billion | $1.215 billion at Dec. 31, 2016 |
| Deposits | $1.320 billion | $1.248 billion at Dec. 31, 2016 |
| FHLB advances | $64.8 million long-term; no short-term advances | $78.5 million long-term and $40.0 million short-term at Dec. 31, 2016 |
| Shareholders’ equity | $192.6 million | $179.8 million at Dec. 31, 2016 |
| Allowance for loan losses | $13.42 million, or 1.09% of loans | $12.51 million, or 1.02%, at Dec. 31, 2016 |
Noninterest income was $2.29 million in Q3 and $7.28 million for the nine months; noninterest expense was $11.34 million and $33.42 million, respectively. The effective tax rate was 34.5% in Q3 and 34.0% for the nine months.
For the first nine months, operating cash flow was $21.8 million, investing cash flow was negative $15.0 million, and financing cash flow was $15.5 million. Cash and cash equivalents increased $22.3 million to $51.6 million. Available-for-sale securities were $202.2 million; total investment securities were approximately $215.3 million.
Regulatory capital was reported above required thresholds: the Bank’s total risk-based capital ratio was 15.10%, versus a 10.00% “well capitalized” threshold; its Tier 1 leverage ratio was 10.66%, versus 5.00%.
Material changes versus comparable periods
- Q3 net income fell 6.2% and diluted EPS fell 8.2% year over year. Management said Q3 net income excluding $225,000 of after-tax merger costs was $4.315 million, down 1.0% year over year.
- Nine-month net income rose 15.8% and diluted EPS rose 13.9%. On management’s non-GAAP basis, excluding merger costs and banking-center gains or losses, net income rose 16.7% and diluted EPS rose 15.0%.
- Q3 net interest income increased 2.7%; nine-month net interest income increased 2.2%. Management attributed the gains mainly to higher acquired-loan accretion and investment-security yields, partly offset by higher deposit costs.
- The provision for loan losses declined 17.4% in Q3 and 58.6% for the nine months year over year. Nine-month net charge-offs were $204,000, compared with $54,000 in 2016.
- Deposits grew 5.7% from year-end, including growth in NOW accounts and certificates of deposit; noninterest-bearing demand deposits declined 8.1%. Certificates of deposit increased 8.4%, partly due to special promotions.
- Loans were essentially flat overall: originated loans grew 2.5% in the first nine months, while acquired-loan repayments offset that growth. Commercial real estate loans rose 8.9%; construction and land loans fell 11.8%.
- Nonperforming loans rose to $17.7 million from $13.8 million at year-end; nonperforming loans to total loans increased to 1.44% from 1.12%. Nonperforming assets were 1.14% of assets, versus 1.07%.
- Noninterest income declined 14.6% for the nine months, affected by banking-center transaction comparisons: 2017 included a net $69,000 loss, while 2016 included a $641,000 gain. Excluding these items, nine-month noninterest income declined 6.8%.
Outlook, risks, contingencies and unusual items
- Pending acquisition: On August 23, 2017, Home Bancorp agreed to acquire St. Martin Bancshares. St. Martin shareholders are to receive 9.2839 Home Bancorp shares per share plus a pre-closing $94 cash distribution per share. Based on Home Bancorp’s October 20 closing price, the stated aggregate transaction value was $100.4 million. Completion was expected in Q4 2017 or Q1 2018, subject to shareholder approval and customary conditions; the company reported receiving required regulatory approvals or non-objections. Merger-related expenses were $247,000 pretax in Q3. Management projected the combined company would have approximately $2.2 billion in assets, $1.7 billion in loans and $1.8 billion in deposits.
- Credit and concentration risk: Direct energy-sector loans were $32.5 million, or 2.6% of total loans, with $5.0 million of unfunded commitments. Management reported 95% of direct energy loans performing under original terms and the remaining 5% restructured and paying under revised terms; it also noted indirect exposure through borrowers serving energy-sector customers.
- Liquidity: Certificates of deposit totaling $178.8 million mature within 12 months. The company expected a significant portion to renew based on historical experience and reported $571.2 million of additional FHLB borrowing capacity. Available-for-sale securities and cash were $202.2 million and $51.6 million, respectively.
- Interest-rate sensitivity: The company’s model estimated projected net interest income changes of +0.4% under both +100 and +200 basis-point shocks, and +0.1% under +300 basis points. Management cautioned actual outcomes depend on repricing, balance growth and mix, spreads, and execution of asset-liability strategies.
- Credit-loss estimates: Management said the allowance reflects losses believed probable and reasonably estimable, but future additions may be needed if conditions differ. The expected-credit-loss accounting standard (ASU 2016-13) was still under assessment, with implementation targeted for 2020; management said the impact was too early to assess.
- Other matters: The company stated that ordinary-course claims and litigation were not expected to materially affect financial condition or results. It reported no material changes to previously disclosed risk factors and no material control changes in the quarter. No specific earnings or financial guidance was provided.
Most important facts for investors to verify
- Whether the St. Martin transaction closed on the expected timetable and at what final consideration, and how integration costs and acquired assets affect results.
- Whether the increase in nonperforming loans, particularly commercial and industrial nonaccrual loans, continues; review subsequent credit trends, charge-offs and allowance adequacy.
- How deposit pricing, certificate maturities and growth in interest-bearing deposits affect funding costs and net interest margin.
- Whether energy-sector direct and indirect exposures, including restructured credits, remain current and adequately reserved.
- How recurring earnings compare with management’s non-GAAP presentation, which excludes merger and banking-center items; reconcile those measures to GAAP results.
- Whether liquidity, capital ratios and interest-rate sensitivity remain consistent with the reported position as the merger and accounting-standard implementations proceed.