Home Bancorp, Inc. — Q2 2016 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2016. Balance-sheet comparisons are to December 31, 2015 unless otherwise noted. Home Bancorp is a bank holding company; results reflect the Louisiana Bancorp acquisition completed in 2015. Financial statements are unaudited.
Financial performance
| Metric | Q2 2016 | Q2 2015 | Six months 2016 | Six months 2015 |
|---|---|---|---|---|
| Interest income | $16.9 million | $13.6 million | $33.9 million | $26.9 million |
| Net interest income | $15.6 million | $12.8 million | $31.3 million | $25.3 million |
| Provision for loan losses | $1.05 million | $294,000 | $1.90 million | $833,000 |
| Noninterest income | $3.45 million | $2.04 million | $6.01 million | $4.12 million |
| Noninterest expense | $11.86 million | $10.23 million | $24.20 million | $19.95 million |
| Net income | $4.02 million | $2.84 million | $7.37 million | $5.69 million |
| Diluted EPS | $0.57 | $0.41 | $1.04 | $0.82 |
- Reported net income increased 41.4% in Q2 and 29.5% for the first half year over year. Management’s adjusted, non-GAAP net income was $3.74 million for Q2 and $7.49 million for the first half, excluding the after-tax banking-center gain and adding back after-tax merger expenses.
- Tax-equivalent net interest margin was 4.35% in Q2 and 4.37% for the first half, down from 4.47% and 4.49%, respectively. Net interest spread also narrowed year over year. Management attributed margin pressure mainly to lower average loan yields.
- Six-month net cash used in operating activities was $629,000, compared with $8.70 million provided in the prior-year period. Investing activities provided $12.64 million; financing activities used $9.95 million. Cash and cash equivalents ended the period at $26.85 million, up $2.06 million from year-end.
Financial position, funding and capital
- Total assets were $1.545 billion, down $6.9 million (0.4%). Loans were $1.218 billion, down $6.0 million (0.5%); originated loan growth was offset by acquired-loan paydowns. Commercial real estate loans rose $8.9 million, while one- to four-family mortgages fell $13.8 million.
- Deposits totaled $1.225 billion, down $19.2 million (1.5%); core deposits were $957.6 million, down $9.7 million. Money-market balances declined $35.4 million, partly offset by a $34.1 million increase in NOW accounts.
- FHLB advances totaled $135.1 million: $52.6 million short-term and $82.5 million long-term. The company reported $471.5 million of additional FHLB borrowing availability. Certificates of deposit totaling $156.1 million mature within 12 months; management expects a significant portion to renew.
- Shareholders’ equity increased 5.2% to $173.6 million. The Bank’s actual capital ratios included 12.26% common equity Tier 1, 12.26% Tier 1 risk-based, 13.24% total risk-based and 9.34% Tier 1 leverage; the filing says capital exceeded regulatory requirements.
Changes, credit quality and unusual items
- Q2 included a $641,000 pretax gain on sale of a banking center ($416,000 after tax). Merger-related expenses tied to Louisiana Bancorp were $214,000 in Q2 and $827,000 in the first half. Excluding these items, management reported year-over-year growth in adjusted earnings, but adjusted measures are non-GAAP.
- Interest income rose primarily from higher loan volume following the acquisition; interest expense also increased with the larger deposit and borrowing base. Noninterest expense growth reflected acquired branches and employees, as well as higher compensation and technology costs.
- Credit costs increased: the Q2 provision was $1.05 million, with management attributing about half to organic loan growth and half to deterioration in three relationships with indirect energy exposure. Two such loans, totaling $11.1 million, were placed on nonaccrual during the quarter.
- Direct energy-sector loans totaled $35.7 million (2.9% of loans), with $9.1 million of related unfunded commitments. The filing states 91% were performing under original terms; $1.8 million of the remainder was restructured and performing under revised terms. Management noted additional indirect exposure through borrowers serving energy-sector customers.
- Allowance for loan losses was $11.45 million, or 0.94% of total loans (1.33% excluding acquired loans), compared with 0.78% and 1.15%, respectively, at year-end. Net charge-offs were virtually zero for the first half. Nonperforming loans were $17.1 million versus $8.3 million at year-end; nonperforming assets were $19.4 million versus $11.4 million.
- Management disclosed $5.6 million of loans restructured as troubled debt restructurings during Q2. No TDRs disclosed in the filing defaulted after restructuring through the financial-statement issuance date.
Outlook, risks and contingencies
- The filing provides no specific earnings, revenue or margin guidance. Management cautions that interim results are not necessarily indicative of full-year results.
- Key stated risks include loan-credit deterioration, especially direct and indirect energy exposure and low energy prices; allowance estimates depend on management assumptions and may require future increases. The filing also identifies sensitivity to interest-rate movements, deposit flows, loan prepayments and competition.
- The company reported $325.1 million of commitments and contingent credit extensions, including $136.4 million of available lines, $112.2 million of commitments to originate loans, $72.1 million of undisbursed loans in process and $4.5 million of standby letters of credit.
- Management said ordinary-course claims and litigation were not expected to have a material effect. No material changes to previously disclosed risk factors were reported. Disclosure controls were assessed as effective, with no material second-quarter change in internal control over financial reporting.
- Interest-rate modeling estimated net interest income changes of +0.1% under a 100-basis-point rise, -0.1% under a 200-basis-point rise and -0.5% under a 300-basis-point rise, assuming immediate and sustained shifts.
Most important facts for investors to verify
- Whether the rise in nonaccrual loans and criticized credits—particularly the indirect energy-related relationships—leads to further provisions, charge-offs or additional deterioration.
- Whether deposit balances and core funding stabilize, and how the $156.1 million of certificates maturing within 12 months renews or reprices.
- Whether net interest margin pressure persists as loan yields decline and funding costs rise; monitor the impact of FHLB borrowing.
- How much reported earnings growth depends on the one-time banking-center gain, acquisition effects and merger-related costs; compare GAAP results with management’s non-GAAP adjustments.
- Reconcile the filing’s different nonperforming-loan ratio disclosures: the table reports 1.40% of loans and 1.11% of assets at June 30, while MD&A separately cites 1.49% for nonperforming loans to total assets.