Home Bancorp, Inc. — Q2 2015 Form 10-Q
Business context and reporting period. Home Bancorp is a Louisiana-based bank holding company whose subsidiary is Home Bank, N.A. This unaudited filing covers the quarter and six months ended June 30, 2015; balance-sheet comparisons are with December 31, 2014.
Financial performance and condition
| Metric | Q2 2015 / June 30, 2015 | Comparison |
|---|---|---|
| Interest income | $13.6 million for the quarter; $26.9 million for six months | Quarter down 2.5%; six months up 1.5% year over year |
| Net interest income | $12.8 million for the quarter; $25.3 million for six months | Quarter down 1.8%; six months up 1.4% year over year |
| Net interest margin (tax-equivalent) | 4.47% for the quarter; 4.49% for six months | Down from 4.64% and 4.68%, respectively, in 2014 |
| Net income and diluted EPS | $2.84 million and $0.41 for the quarter; $5.69 million and $0.82 for six months | Net income up 3.2% and 35.9%, respectively; six-month EPS up 34.4% |
| Assets and loans | Total assets $1.235 billion; loans $915.6 million gross | Assets up 1.1% and loans up 0.7% from year-end |
| Deposits and borrowings | Deposits $1.031 billion; long-term FHLB advances $19.0 million; no short-term FHLB advances | Deposits up 3.8%; total FHLB advances down from $47.5 million at year-end to $19.0 million |
| Cash flows, six months | Operating +$8.7 million; investing -$15.1 million; financing +$7.6 million | Cash and cash equivalents ended at $30.2 million, up $1.1 million from year-end |
Noninterest income was $2.0 million in Q2, down 9.5% year over year, mainly due to lower loan-sale gains. Six-month noninterest income rose 5.4% to $4.1 million, led by bank-card and service-fee income. Noninterest expense was $10.2 million for Q2 and $19.9 million for six months. The filing reports $256,000 of 2015 merger expense; excluding merger costs, Q2 expense declined 0.7%, while six-month expense increased 1.8%.
At June 30, shareholders’ equity was $158.9 million. Regulatory capital ratios were well above stated well-capitalized thresholds: Tier 1 risk-based 16.38%, total risk-based 17.28%, and Tier 1 leverage 12.37%. Cash and cash equivalents were $30.2 million and available-for-sale securities were $178.1 million. The company reported $452.5 million of additional FHLB borrowing capacity; $150.5 million of certificates of deposit mature within 12 months.
Material changes and credit quality
- Loans increased $6.6 million overall: commercial and industrial loans rose $10.7 million and construction and land loans $5.0 million, partly offset by a $12.3 million decline in commercial real estate loans.
- Core deposits rose $47.1 million to $819.9 million, principally from money-market and NOW accounts; certificates of deposit fell $9.7 million.
- The allowance for loan losses rose to $8.47 million, or 0.92% of loans, from $7.76 million, or 0.85%, at year-end. Six-month provision was $833,000; net charge-offs were $126,000.
- Nonperforming assets declined to $18.3 million, or 1.48% of assets, from $28.5 million, or 2.33%, at year-end. Nonaccrual loans were $12.1 million. Excluding acquired loans and assets, the reported NPA-to-assets ratio was 0.44%.
- Available-for-sale securities totaled $178.1 million. Their net unrealized gain was $1.7 million, down from $2.0 million at year-end; Q2 other comprehensive loss, net of tax, was $587,000.
Outlook, risks and unusual items
- On June 18, 2015, Home Bancorp agreed to acquire Louisiana Bancorp, Inc. for $24.25 per share in cash. Closing was expected in Q4 2015, subject to shareholder and regulatory approvals and customary conditions. Management projected a combined company with approximately $1.5 billion in assets, $1.2 billion in loans and $1.2 billion in deposits.
- Management gave no specific earnings or financial guidance. It noted that reported results for the interim periods are not necessarily indicative of full-year results.
- Management’s interest-rate model estimated projected net interest income changes of -0.4% for an immediate, sustained +300 basis-point shift, -0.1% for +200 basis points and +0.1% for +100 basis points. Actual sensitivity may differ.
- Risks include credit losses and allowance-estimation uncertainty, deposit flows and loan prepayments, interest-rate changes, acquisition approvals and execution, and the forward-looking risks described in the 2014 Form 10-K. Management said there were no material changes to the previously disclosed risk factors.
- The company stated that ordinary-course claims and litigation were not expected to have a material effect. Disclosure controls were considered effective; no material change in internal control over financial reporting was reported.
- First-half 2015 earnings growth substantially reflects comparison with the prior-year period, which included $2.3 million of pretax Britton & Koontz merger costs. Excluding merger costs, six-month net income increased 3.5% and diluted EPS increased 2.4%; Q2 adjusted net income increased 3.4% and adjusted diluted EPS increased 2.3%.
Important facts for investors to verify
- Whether the Louisiana Bancorp transaction received required approvals, closed on the expected timetable, and achieved its anticipated economics.
- Whether the improvement in nonperforming assets is sustained, particularly in acquired loans and commercial real estate; monitor charge-offs, delinquencies and allowance coverage.
- Whether loan yields and net interest margin continue to decline, and how actual results compare with the company’s modeled rate sensitivity.
- Whether the growth in core deposits persists and how the $150.5 million of certificates maturing within 12 months is funded or renewed.
- Whether recurring expenses, excluding merger costs, support the underlying earnings trend and whether capital returns, including the declared $0.07 quarterly dividend and share repurchases, remain appropriate.