Home Bancorp, Inc. — 2014 Form 10-K
Business and period: Community bank headquartered in Lafayette, Louisiana, serving southern Louisiana and western Mississippi through 27 offices. This filing covers the fiscal year ended December 31, 2014; the bank’s conversion to a national bank charter occurred subsequently, on March 2, 2015.
Financial performance and condition
- Profit: 2014 net income was $9.9 million, up 35.3% from $7.3 million in 2013. Diluted EPS rose to $1.42 from $1.06. Fourth-quarter net income was $2.8 million and diluted EPS was $0.40, versus $1.7 million and $0.25 in fourth-quarter 2013.
- Revenue and margins: Net interest income increased 26.9% to $51.0 million; noninterest income rose 6.6% to $8.2 million. Net interest margin declined to 4.54% from 4.65%, and the interest-rate spread narrowed to 4.45% from 4.52%. Return on average assets was 0.80%; return on average equity was 6.65%.
- Expenses and credit costs: Noninterest expense increased 25.8% to $41.8 million, including $2.3 million of merger-related costs. The efficiency ratio rose to 70.54% from 69.34%. Provision for loan losses declined to $2.4 million from $3.7 million; net charge-offs were $1.5 million, or 0.17% of loans, compared with $2.1 million, or 0.29%, in 2013.
- Balance sheet: Total assets were $1.22 billion, up 24.1%; loans were $909.0 million, up 28.5%; and deposits were $993.6 million, up 34.0%. Shareholders’ equity increased 8.6% to $154.1 million. Available-for-sale and held-to-maturity securities totaled $186.5 million.
- Asset quality: Nonperforming loans were $23.3 million, down from $24.8 million; total nonperforming assets were $28.5 million, down from $29.3 million. The allowance for loan losses was $7.76 million, equal to 0.85% of total loans; the filing reports 1.04% against originated loans.
- Cash flow and liquidity: Operating cash flow was $27.9 million, compared with $21.3 million in 2013. Cash and cash equivalents ended the year at $29.1 million. The bank had $47.5 million in FHLB advances outstanding and $423.2 million of additional FHLB borrowing capacity. Certificates of deposit totaling $151.5 million mature in 2015.
- Capital and distributions: The bank was categorized as well capitalized. Its total risk-based, Tier 1 risk-based and leverage capital ratios were 17.85%, 16.94% and 11.96%, respectively. The company declared a $0.07-per-share dividend in 2014 and repurchased 3,074 shares in the fourth quarter.
Material changes and notable items
- The February 2014 acquisition of Britton & Koontz added $298.9 million of assets, including $161.6 million of loans, and $216.6 million of deposits. The cash purchase price was $34.5 million. The acquisition expanded the company into Natchez and Vicksburg, Mississippi; two acquired Baton Rouge locations were consolidated.
- Acquisition-driven growth and organic lending increased average interest-earning assets and net interest income. Core deposits excluding those acquired grew 13.1%; certificates of deposit declined as higher-cost accounts matured.
- Acquired-loan accounting and improved expected cash flows on FDIC-covered loans affected reported earnings. The FDIC loss-sharing receivable fell to $4.6 million from $12.7 million, including a $7.5 million reduction from revised cash-flow estimates. Management expects related accretion income to continue declining.
- Operating cash flow was positive, but investing cash flow was a $1.8 million use and financing cash flow was a $29.7 million use. The company also paid down short-term FHLB advances, while the acquisition added $20.4 million of repurchase-agreement borrowings.
Outlook, risks and contingencies
The filing provides no specific earnings or growth guidance. Management states that historically low rates may pressure net interest income and profitability, and that oil-price declines since mid-2014 could weaken local economic conditions. The company has about 3% of its loan portfolio in energy-related borrowers. Other key risks include concentrations in commercial real estate, construction and land lending; local real-estate and economic downturns; acquisition integration and acquired-loan estimates; FDIC loss-sharing compliance and expirations; interest-rate changes; natural disasters; competition; regulatory changes; and operational or cybersecurity disruptions. The company says it expects sufficient liquidity to meet requirements. Its interest-rate model projected net interest income declines of 0.5% under an immediate sustained 300-basis-point increase and 0.1% under a 200-basis-point increase.
Commercial loss-sharing protection was scheduled to expire in March 2015, while residential protection was scheduled to continue through March 2020. Management said ordinary-course legal matters were not expected to materially affect the company. The independent auditor gave unqualified opinions on the financial statements and internal control over financial reporting; management also concluded internal controls were effective at year-end.
Important facts for investors to verify
- How much 2014 earnings growth came from the Britton & Koontz acquisition, acquired-loan accretion and other nonrecurring items, versus sustainable organic performance?
- Whether the loan-loss allowance remains adequate as commercial real estate, construction and commercial lending grow, and how acquired-loan credit quality develops.
- The effect of the March 2015 expiration of commercial FDIC loss sharing and the continuing decline in the related receivable and accretion income.
- Deposit retention and funding costs, including the renewal of 2015 certificate maturities and use of FHLB capacity and repurchase agreements.
- Whether margins and operating efficiency stabilize, and how lower oil prices affect borrowers and the company’s Louisiana markets.
- The effect of new capital rules and the bank’s charter conversion on capital, dividends and regulatory oversight.