Home Bancorp, Inc. — 2014 Third-Quarter Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2014. The filing is unaudited. Home Bancorp is a Louisiana bank holding company; results include Home Bank and, from February 14, 2014, Britton & Koontz.
Financial performance and position
| Metric | Q3 2014 / Sep. 30, 2014 | Comparable period / prior year-end |
|---|---|---|
| Net income | $2.88 million; diluted EPS $0.41 | Q3 2013: $2.48 million; diluted EPS $0.37 |
| Nine-month net income | $7.06 million; diluted EPS $1.02 | Nine months 2013: $5.59 million; diluted EPS $0.80 |
| Net interest income | Q3: $13.21 million; nine months: $38.13 million | Q3 2013: $10.40 million; nine months 2013: $30.18 million |
| Net interest margin, tax-equivalent | Q3: 4.63%; nine months: 4.66% | Q3 2013: 4.79%; nine months 2013: 4.67% |
| Total assets | $1.260 billion | $984.2 million at Dec. 31, 2013 |
| Total loans, before allowance | $907.4 million | $707.5 million at Dec. 31, 2013 |
| Total deposits | $983.4 million | $741.3 million at Dec. 31, 2013 |
| Cash and cash equivalents | $54.6 million | $32.6 million at Dec. 31, 2013 |
| Allowance for loan losses | $7.42 million; 0.82% of loans | $6.92 million; 0.98% at Dec. 31, 2013 |
| Shareholders’ equity | $151.1 million | $141.9 million at Dec. 31, 2013 |
For the nine months, interest income was $40.57 million and interest expense was $2.45 million. Noninterest income was $6.07 million; noninterest expense was $31.60 million. The nine-month provision for loan losses was $1.85 million, and income tax expense was $3.69 million.
Nine-month operating cash flow was $22.26 million; investing activities used $8.35 million and financing activities provided $8.06 million. Cash and cash equivalents increased $21.98 million from year-end.
Changes versus comparable periods
- Q3 net income rose 15.9% year over year; nine-month net income rose 26.4%. Nine-month diluted EPS increased 27.5%.
- Q3 net interest income increased 27.0% and nine-month net interest income increased 26.3%, primarily reflecting the acquired earning assets. The disclosed tax-equivalent margin declined year over year in Q3 and was nearly unchanged for the nine-month period.
- Q3 noninterest income rose 21.4%; nine-month noninterest income rose 3.3%. Higher service fees and bank-card fees were partly offset over nine months by lower gains on loan and securities sales.
- Noninterest expense rose 24.5% in Q3 and 29.3% over nine months. Nine-month 2014 expense included $2.29 million of merger-related costs; excluding these costs, expense was $29.31 million, up 20.0% year over year.
- Loans increased 28.3% and deposits 32.7% from year-end, with much of the growth attributable to the acquisition. The company also reported organic loan growth, particularly in construction and land, residential mortgages, and commercial real estate.
- Nonperforming assets fell to $22.56 million from $29.33 million at year-end; nonperforming loans were $15.22 million versus $24.76 million. Q3 net charge-offs rose to $1.2 million from $84,000, largely due to deterioration in one commercial and industrial relationship.
Acquisition, outlook, risks and other notable items
- Home Bancorp completed its acquisition of Britton & Koontz Capital Corporation on February 14, 2014 for $34.52 million in cash. The acquired business added five branches in west Mississippi; two Baton Rouge locations were consolidated into existing Home Bank branches. Acquisition accounting recorded $258,000 of goodwill, and fair-value estimates remained preliminary and subject to refinement.
- Management presented illustrative nine-month pro forma results assuming the acquisition occurred at the start of 2013: net income of $7.91 million in 2014 versus $6.87 million in 2013. These figures were not adjusted for potential cost savings and are not forecasts.
- No specific earnings or balance-sheet guidance was provided. Management said results for the nine-month period are not necessarily indicative of full-year results.
- Liquidity included $54.6 million of cash and $181.2 million of available-for-sale securities. The company reported $369.4 million of additional FHLB borrowing capacity; $144.0 million of certificates of deposit mature within 12 months, and management expected a significant portion to renew.
- The Bank reported capital ratios above “well capitalized” thresholds: Tier 1 risk-based capital 16.66%, total risk-based capital 17.53%, and Tier 1 leverage capital 11.34%.
- The interest-rate sensitivity table showed projected net interest income declines of 0.2%, 0.7%, and 1.3% under immediate, sustained rate increases of 100, 200, and 300 basis points, respectively. Actual effects may vary with asset and liability repricing, growth, and other factors.
- Management cited the allowance’s dependence on estimates and judgment and warned that additional provisions may be needed if economic or other conditions differ from assumptions. The filing also identifies credit, interest-rate, liquidity, and integration risks. Management said ordinary-course legal matters were not expected to have a material effect; no material change to previously disclosed risk factors was reported.
- Excluding merger costs, reported nine-month net income would be $8.57 million and diluted EPS $1.24, according to the company’s non-GAAP reconciliation. These are adjusted, non-GAAP measures and should be considered alongside reported results.
Key facts for investors to verify
- How much of the loan, deposit, and earnings growth is organic versus attributable to Britton & Koontz, and whether integration produces the anticipated benefits.
- Credit quality trends in acquired loans and the commercial and industrial relationship that drove elevated Q3 charge-offs; also monitor criticized, past-due, and nonaccrual loans.
- Whether the allowance remains adequate as the loan portfolio expands, including the effect of purchase-accounting discounts and acquired-loan estimates.
- Whether elevated operating costs persist after the $2.29 million of merger-related costs, and how reported performance compares with management’s adjusted non-GAAP presentation.
- Deposit retention and funding needs as certificates mature, availability of FHLB capacity, and sensitivity of net interest income to changing rates.