Form 10-Q
Table of Contents

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM 10-Q

 

 

(Mark One)

x Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period ended: March 31, 2015

or

 

¨ Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the transition period from                      to                     

Commission File Number: 001-34190

 

 

HOME BANCORP, INC.

(Exact name of Registrant as specified in its charter)

 

 

 

Louisiana   71-1051785

(State or Other Jurisdiction of

Incorporation or Organization)

 

(I.R.S. Employer

Identification Number)

503 Kaliste Saloom Road, Lafayette, Louisiana   70508
(Address of Principal Executive Offices)   (Zip Code)

Registrant’s telephone number, including area code: (337) 237-1960

Not Applicable

(Former Name, Former Address and Former Fiscal Year, if changed since last report)

 

 

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months and (2) has been subject to such filing requirements for the past 90 days.    YES  x    NO  ¨

Indicate by check mark whether the Registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    YES  x    NO  ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

 

Large accelerated filer   ¨    Accelerated filer   x
Non-accelerated filer   ¨  (Do not check if a smaller reporting company)    Smaller reporting company   ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).    YES  ¨    NO  x

At May 5, 2015, the registrant had 7,152,603 shares of common stock, $0.01 par value, outstanding.

 

 

 


Table of Contents

HOME BANCORP, INC. and SUBSIDIARY

TABLE OF CONTENTS

 

         Page  
PART I   

Item 1.

 

Financial Statements (unaudited)

  
 

Consolidated Statements of Financial Condition

     1   
 

Consolidated Statements of Income

     2   
 

Consolidated Statements of Comprehensive Income

     3   
 

Consolidated Statements of Changes in Shareholders’ Equity

     4   
 

Consolidated Statements of Cash Flows

     5   
 

Notes to Unaudited Consolidated Financial Statements

     6   

Item 2.

 

Managements’ Discussion and Analysis of Financial Condition and Results of Operations

     26   

Item 3.

 

Quantitative and Qualitative Disclosures About Market Risk

     37   

Item 4.

 

Controls and Procedures

     37   
PART II   

Item 1.

 

Legal Proceedings

     37   

Item 1A.

 

Risk Factors

     37   

Item 2.

 

Unregistered Sales of Equity Securities and Use of Proceeds

     37   

Item 3.

 

Defaults Upon Senior Securities

     38   

Item 4.

 

Mine Safety Disclosures

     38   

Item 5.

 

Other Information

     38   

Item 6.

 

Exhibits

     39   

SIGNATURES

       40   


Table of Contents

HOME BANCORP, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION

 

     (Unaudited)
March 31,

2015
    (Audited)
December 31,
2014
 

Assets

    

Cash and cash equivalents

   $ 30,175,858      $ 29,077,907   

Interest-bearing deposits in banks

     5,526,000        5,526,000   

Investment securities available for sale, at fair value

     171,488,522        174,800,516   

Investment securities held to maturity (fair values of $14,140,643 and $11,889,335, respectively)

     13,912,512        11,705,470   

Mortgage loans held for sale

     5,622,509        4,516,835   

Loans, net of unearned income

     922,088,691        908,967,871   

Allowance for loan losses

     (8,271,676     (7,759,500
  

 

 

   

 

 

 

Total loans, net of unearned income and allowance for loan losses

  913,817,015      901,208,371   
  

 

 

   

 

 

 

Office properties and equipment, net

  37,584,386      37,964,714   

Cash surrender value of bank-owned life insurance

  19,295,469      19,163,110   

Accrued interest receivable and other assets

  36,433,586      37,451,687   
  

 

 

   

 

 

 

Total Assets

$ 1,233,855,857    $ 1,221,414,610   
  

 

 

   

 

 

 

Liabilities

Deposits:

Noninterest-bearing

$ 276,319,489    $ 267,660,145   

Interest-bearing

  750,253,148      725,912,448   
  

 

 

   

 

 

 

Total deposits

  1,026,572,637      993,572,593   

Short-term Federal Home Loan Bank (FHLB) advances

  6,000,000      31,000,000   

Long-term Federal Home Loan Bank (FHLB) advances

  19,000,000      16,500,000   

Securities sold under repurchase agreements

  20,204,822      20,370,892   

Accrued interest payable and other liabilities

  5,295,919      5,827,369   
  

 

 

   

 

 

 

Total Liabilities

  1,077,073,378      1,067,270,854   
  

 

 

   

 

 

 

Shareholders’ Equity

Preferred stock, $0.01 par value - 10,000,000 shares authorized; none issued

  —        —     

Common stock, $0.01 par value - 40,000,000 shares authorized; 9,132,145 and 9,008,745 shares issued; 7,163,649 and 7,123,442 shares outstanding, respectively

  91,322      90,088   

Additional paid-in capital

  94,932,283      93,332,108   

Treasury stock at cost - 1,968,496 and 1,885,303 shares, respectively

  (30,372,933   (28,572,891

Unallocated common stock held by:

Employee Stock Ownership Plan (ESOP)

  (4,820,480   (4,909,750

Recognition and Retention Plan (RRP)

  (202,590   (202,590

Retained earnings

  95,449,296      93,101,915   

Accumulated other comprehensive income

  1,705,581      1,304,876   
  

 

 

   

 

 

 

Total Shareholders’ Equity

  156,782,479      154,143,756   
  

 

 

   

 

 

 

Total Liabilities and Shareholders’ Equity

$ 1,233,855,857    $ 1,221,414,610   
  

 

 

   

 

 

 

The accompanying Notes are an integral part of these Consolidated Financial Statements.

 

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Table of Contents

HOME BANCORP, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF INCOME (Unaudited)

 

     For the Three Months Ended  
     March 31,  
     2015      2014  

Interest Income

     

Loans, including fees

   $ 12,360,963       $ 11,484,445   

Investment securities

     910,121         1,050,846   

Other investments and deposits

     33,752         31,158   
  

 

 

    

 

 

 

Total interest income

  13,304,836      12,566,449   
  

 

 

    

 

 

 

Interest Expense

Deposits

  684,979      622,565   

Securities sold under repurchase agreement

  18,429      16,675   

Short-term FHLB advances

  6,071      35,661   

Long-term FHLB advances

  103,235      80,550   
  

 

 

    

 

 

 

Total interest expense

  812,714      755,451   
  

 

 

    

 

 

 

Net interest income

  12,492,122      11,810,998   

Provision for loan losses

  538,487      145,016   
  

 

 

    

 

 

 

Net interest income after provision for loan losses

  11,953,635      11,665,982   
  

 

 

    

 

 

 

Noninterest Income

Service fees and charges

  892,118      796,093   

Bank card fees

  565,584      455,984   

Gain on sale of loans, net

  373,173      161,862   

Income from bank-owned life insurance

  132,359      110,641   

Gain on sale of securities, net

  —        1,826   

Other income

  115,450      129,573   
  

 

 

    

 

 

 

Total noninterest income

  2,078,684      1,655,979   
  

 

 

    

 

 

 

Noninterest Expense

Compensation and benefits

  5,760,787      6,794,808   

Occupancy

  1,171,280      1,014,330   

Marketing and advertising

  110,328      207,241   

Data processing and communication

  943,332      1,371,823   

Professional services

  238,175      487,110   

Forms, printing and supplies

  144,810      161,920   

Franchise and shares tax

  147,272      184,385   

Regulatory fees

  280,467      228,377   

Foreclosed assets, net

  235,782      361,885   

Other expenses

  686,853      445,166   
  

 

 

    

 

 

 

Total noninterest expense

  9,719,086      11,257,045   
  

 

 

    

 

 

 

Income before income tax expense

  4,313,233      2,064,916   

Income tax expense

  1,465,469      631,460   
  

 

 

    

 

 

 

Net Income

$ 2,847,764    $ 1,433,456   
  

 

 

    

 

 

 

Earnings per share:

Basic

$ 0.43    $ 0.22   
  

 

 

    

 

 

 

Diluted

$ 0.41    $ 0.21   
  

 

 

    

 

 

 

Cash dividends declared per common share

$ 0.07    $ —     
  

 

 

    

 

 

 

The accompanying Notes are an integral part of these Consolidated Financial Statements.

 

2


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HOME BANCORP, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited)

 

     For the Three Months Ended  
     March 31,  
     2015     2014  

Net Income

   $ 2,847,764      $ 1,433,456   
  

 

 

   

 

 

 

Other Comprehensive Income

Unrealized gains on investment securities

$ 616,469    $ 746,538   

Reclassification adjustment for gains included in net income

  —        (1,826

Tax effect (1)

  (215,764   (260,649
  

 

 

   

 

 

 

Other comprehensive (loss) income, net of taxes

$ 400,705    $ 484,063   
  

 

 

   

 

 

 

Comprehensive Income

$ 3,248,469    $ 1,917,519   
  

 

 

   

 

 

 

 

(1) The tax effect on the change in unrealized gains on investment securities was $215,764 and $261,288 for the quarters ending March 31, 2015 and 2014, respectively. The reclassification adjustment for gains included in the net income had a tax effect of $639 for the quarter ending March 31, 2014.

The accompanying Notes are an integral part of these Consolidated Financial Statements.

 

3


Table of Contents

HOME BANCORP, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY (Unaudited)

 

    Common
Stock
    Additional
Paid-in
Capital
    Treasury
Stock
    Unallocated
Common Stock
Held by ESOP
    Unallocated
Common Stock
Held by RRP
    Retained
Earnings
    Accumulated
Other
Comprehensive
Income
    Total  

Balance, December 31, 2013(1)

  $ 89,585      $ 92,192,410      $ (28,011,398   $ (5,266,830   $ (1,018,497   $ 83,729,144      $ 195,115      $ 141,909,529   

Net income

              1,433,456          1,433,456   

Other comprehensive income

                484,063        484,063   

Treasury stock acquired at cost, 200 shares

        (4,148             (4,148

Exercise of stock options

    3        3,432                  3,435   

ESOP shares released for allocation

      94,146          89,270              183,416   

Share-based compensation cost

      365,496                  365,496   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance, March 31, 2014

$ 89,588    $ 92,655,484    $ (28,015,546 $ (5,177,560 $ (1,018,497 $ 85,162,600    $ 679,178    $ 144,375,247   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance, December 31, 2014(1)

$ 90,088    $ 93,332,108    $ (28,572,891 $ (4,909,750 $ (202,590 $ 93,101,915    $ 1,304,876    $ 154,143,756   

Net income

  2,847,764      2,847,764   

Other comprehensive income

  400,705      400,705   

Treasury stock acquired at cost, 83,193 shares

  (1,800,042   (1,800,042

Cash dividends declared, $0.07 per share

  (500,383   (500,383

Exercise of stock options

  1,234      1,425,616      1,426,850   

ESOP shares released for allocation

  141,619      89,270      230,889   

Share-based compensation cost

  32,940      32,940   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance, March 31, 2015

$ 91,322    $ 94,932,283    $ (30,372,933 $ (4,820,480 $ (202,590 $ 95,449,296    $ 1,705,581    $ 156,782,479   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

(1)  Balances as of December 31, 2013 and December 31, 2014 are audited.

The accompanying Notes are an integral part of these Consolidated Financial Statements.

 

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Table of Contents

HOME BANCORP, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)

 

     For the Three Months Ended  
     March 31,  
     2015     2014  

Cash flows from operating activities, net of effects of acquisition in 2014:

    

Net income

   $ 2,847,764      $ 1,433,456   

Adjustments to reconcile net income to net cash provided by operating activities:

    

Provision for loan losses

     538,487        145,016   

Depreciation

     447,898        404,657   

Amortization of purchase accounting valuations and intangibles

     1,214,457        1,768,439   

Net amortization of mortgage servicing asset

     31,270        59,574   

Federal Home Loan Bank stock dividends

     (3,900     (3,000

Net amortization of premium on investments

     354,341        270,253   

Gain on sale of investment securities, net

     —          (1,826

Gain on loans sold, net

     (373,173     (161,862

Proceeds, including principal payments, from loans held for sale

     35,200,887        15,008,478   

Originations of loans held for sale

     (35,933,388     (16,714,484

Non-cash compensation

     226,961        548,912   

Deferred income tax (benefit) provision

     (43,135     399,068   

Decrease (increase) in interest receivable and other assets

     (316,553     2,407,200   

Increase in cash surrender value of bank-owned life insurance

     (132,359     (110,641

Decrease in accrued interest payable and other liabilities

     (494,581     (4,927,511
  

 

 

   

 

 

 

Net cash provided by operating activities

  3,564,976      525,729   
  

 

 

   

 

 

 

Cash flows from investing activities, net of effects of acquisition in 2014:

Purchases of securities available for sale

  (3,126,663   (7,805,876

Purchases of securities held to maturity

  (2,273,910   (1,559,433

Proceeds from maturities, prepayments and calls on securities available for sale

  6,767,654      6,696,912   

Proceeds from maturities, prepayments and calls on securities held to maturity

  —        202,594   

Proceeds from sales of securities available for sale

  —        66,904,999   

Net increase in loans

  (14,586,858   (14,107,938

Reimbursement from FDIC for covered assets

  130,933      226,038   

Proceeds from sale of repossessed assets

  496,798      1,208,064   

Purchases of office properties and equipment

  (67,570   (852,569

Proceeds from sale of properties and equipment

  500      —     

Net cash disbursed in business combination

  —        (22,995,365

Purchases of Federal Home Loan Bank stock

  (722,500   (2,129,600

Proceeds from redemption of Federal Home Loan Bank stock

  1,272,900      —     
  

 

 

   

 

 

 

Net cash (used in) provided by investing activities

  (12,108,716   25,787,826   
  

 

 

   

 

 

 

Cash flows from financing activities, net of effects of acquisition in 2014:

Increase in deposits

  33,015,266      29,507,951   

Decrease in Federal Home Loan Bank advances

  (22,500,000   (24,924,000

Decrease in securities sold under repurchase agreements

  —        (6,314,675

Purchase of treasury stock

  (1,800,042   (4,148

Proceeds from exercise of stock options

  1,426,850      3,435   

Payment of dividends on common stock

  (500,383   —     
  

 

 

   

 

 

 

Net cash provided (used in) by financing activities

  9,641,691      (1,731,437
  

 

 

   

 

 

 

Net change in cash and cash equivalents

  1,097,951      24,582,118   

Cash and cash equivalents at beginning of year

  29,077,907      32,638,900   
  

 

 

   

 

 

 

Cash and cash equivalents at end of period

$ 30,175,858    $ 57,221,018   
  

 

 

   

 

 

 

The accompanying Notes are an integral part of these Consolidated Financial Statements.

 

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Table of Contents

HOME BANCORP, INC. AND SUBSIDIARY

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

1. Basis of Presentation

The accompanying unaudited consolidated financial statements of Home Bancorp, Inc. (the “Company”) were prepared in accordance with instructions for Form 10-Q and Regulation S-X and do not include information or footnotes necessary for a complete presentation of financial condition, results of operations, other comprehensive income, changes in shareholders’ equity and cash flows in conformity with accounting principles generally accepted in the United States of America. However, in the opinion of management, all adjustments (consisting of normal recurring adjustments) necessary for a fair presentation of the financial statements have been included. The results of operations for the three-month period ended March 31, 2015 are not necessarily indicative of the results which may be expected for the entire fiscal year. These statements should be read in conjunction with the Consolidated Financial Statements and notes thereto included in the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission (“SEC”) for the year ended December 31, 2014.

In preparing the financial statements, the Company is required to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. The financial statements reflect all adjustments that are, in the opinion of management, necessary for a fair statement of the Company’s financial condition, results of operations, other comprehensive income, changes in shareholders’ equity and cash flows for the interim periods presented. These adjustments are of a normal recurring nature and include appropriate estimated provisions.

Certain amounts reported in prior periods have been reclassified to conform to the current period presentation. Such reclassifications had no effect on previously reported shareholders’ equity or net income.

2. Recent Accounting Pronouncements

In August 2014, the FASB issued ASU 2014-15, “Presentation of Financial Statements – Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern.” ASU 2014-15 requires companies to evaluate whether there are conditions and events that raise substantial doubt about the entity’s ability to continue as a going concern within one year after the financial statements are issued. Management will be required to make the evaluation and disclose for both annual and interim reporting periods. The ASU is effective for interim and annual periods after December 15, 2016. The adoption of this ASU is not expected to have a material effect on our Consolidated Financial Statements.

In February 2015, the FASB issued ASU 2015-02, “Amendments to the Consolidation Analysis,” which eliminates the deferral of certain investments in variable interest entities. ASU 2015-02 will allow companies with interests in certain investment funds to follow preceding consolidation guidance and make changes to the variable interest model and the voting model. The ASU is effective for annual and interim periods beginning after December 15, 2015. The adoption of this ASU is not expected to have a material effect on our Consolidated Financial Statements.

 

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Table of Contents

3. Investment Securities

Summary information regarding the Company’s investment securities classified as available for sale and held to maturity as of March 31, 2015 and December 31, 2014 is as follows.

 

                                                                                              

(dollars in thousands)

   Amortized
Cost
     Gross
Unrealized
Gains
     Gross Unrealized
Losses
     Fair Value  
                   Less Than
1 Year
     Over 1
Year
        

March 31, 2015

              

Available for sale:

              

U.S. agency mortgage-backed

   $ 117,216       $ 2,168       $ —         $ 316       $ 119,068   

Non-U.S. agency mortgage-backed

     7,360         55         27         25         7,363   

Municipal bonds

     23,752         620         17         11         24,344   

U.S. government agency

     20,537         226         —           49         20,714   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total available for sale

$ 168,865    $ 3,069    $ 44    $ 401    $ 171,489   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Held to maturity:

Municipal bonds

$ 13,913    $ 256    $ 27    $ 1    $ 14,141   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

                                                                                              

(dollars in thousands)

   Amortized
Cost
     Gross
Unrealized
Gains
     Gross Unrealized
Losses
     Fair Value  
                   Less Than
1 Year
     Over 1
Year
        

December 31, 2014

              

Available for sale:

              

U.S. agency mortgage-backed

   $ 120,009       $ 1,984       $ 10       $ 485       $ 121,498   

Non-U.S. agency mortgage-backed

     7,757         61         28         26         7,764   

Municipal bonds

     24,388         561         2         51         24,896   

U.S. government agency

     20,639         190         —           186         20,643   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total available for sale

$ 172,793    $ 2,796    $ 40    $ 748    $ 174,801   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Held to maturity:

Municipal bonds

$ 11,705    $ 202    $ 3    $ 15    $ 11,889   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

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Table of Contents

The estimated fair value and amortized cost by maturity of the Company’s investment securities as of March 31, 2015 are shown in the following tables. Securities are classified according to their contractual maturities without consideration of principal amortization, potential prepayments or call options. The expected maturity of a security may differ from its contractual maturity because of prepayments or the exercise of call options. Accordingly, actual maturities may differ from contractual maturities.

 

(dollars in thousands)

   One Year
or Less
     One Year
to Five
Years
     Five to
Ten Years
     Over Ten
Years
     Total  

Fair Value

              

Securities available for sale:

              

U.S. agency mortgage-backed

   $ —         $ 116       $ 26,979       $ 91,973       $ 119,068   

Non-U.S. agency mortgage-backed

     —           —           —           7,363         7,363   

Municipal bonds

     857         8,502         11,186         3,799         24,344   

U.S. government agency

     —           16,176         —           4,538         20,714   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total available for sale

$ 857    $ 24,794    $ 38,165    $ 107,673    $ 171,489   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Securities held to maturity:

Municipal bonds

$ 411    $ 242    $ 9,216    $ 4,272    $ 14,141   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total investment securities

$ 1,268    $ 25,036    $ 47,381    $ 111,945    $ 185,630   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

(dollars in thousands)

   One Year
or Less
     One Year
to Five
Years
     Five to
Ten Years
     Over Ten
Years
     Total  

Amortized Cost

              

Securities available for sale:

              

U.S. agency mortgage-backed

   $ —         $ 110       $ 26,687       $ 90,419       $ 117,216   

Non-U.S. agency mortgage-backed

     —           —           —           7,360         7,360   

Municipal bonds

     828         8,261         10,999         3,664         23,752   

U.S. government agency

     —           16,111         —           4,426         20,537   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total available for sale

$ 828    $ 24,482    $ 37,686    $ 105,869    $ 168,865   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Securities held to maturity:

Municipal bonds

$ 401    $ 235    $ 9,011    $ 4,266    $ 13,913   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total investment securities

$ 1,229    $ 24,717    $ 46,697    $ 110,135    $ 182,778   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Management evaluates securities for other-than-temporary impairment at least quarterly, and more frequently when economic and market conditions warrant such evaluations. Consideration is given to (1) the extent and length of time the fair value has been below cost; (2) the reasons for the decline in value; and (3) the Company’s intent to sell a security or whether it is more likely than not the Company will be required to sell the security before the recovery of its amortized cost, which may extend to maturity.

The Company performs a process to identify securities that could potentially have a credit impairment that is other-than-temporary. This process involves evaluating each security for impairment by monitoring credit performance, collateral type, collateral geography, bond credit support, loan-to-value ratios, credit scores, loss severity levels, pricing levels, downgrades by rating agencies, cash flow projections and other factors as indicators of potential credit issues. When the Company determines that a security is deemed to be other-than-temporarily impaired, an impairment loss is recognized.

As of March 31, 2015, 29 of the Company’s debt securities had unrealized losses totaling 1.4% of the individual securities’ amortized cost basis and 0.3% of the Company’s total amortized cost basis of the investment securities portfolio. At such date, 17 of the 29 securities had been in a continuous loss position for over 12 months. The 17 securities had an aggregate amortized cost basis of $27.2 million and unrealized loss of $402,000 at March 31, 2015. Management has the intent and ability to hold these debt securities until maturity, or until anticipated recovery; hence, no declines in these 17 securities were deemed to be other-than-temporary.

As of March 31, 2015 and December 31, 2014, the Company had $92,123,000 and $76,491,000, respectively, of securities pledged to secure public deposits. As of March 31, 2015 and December 31, 2014, the Company had $21,844,000 and $21,211,000 of securities pledged to securities sold under repurchase agreements.

 

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Table of Contents

4. Earnings Per Share

Earnings per common share were computed based on the following:

 

    

Three Months Ended

March 31,

 

(in thousands, except per share data)

   2015      2014  

Numerator:

     

Net income available to common shareholders

   $ 2,847       $ 1,433   

Denominator:

     

Weighted average common shares outstanding

     6,634         6,491   

Effect of dilutive securities:

     

Restricted stock

     3         61   

Stock options

     325         339   
  

 

 

    

 

 

 

Weighted average common shares outstanding – assuming dilution

  6,962      6,891   
  

 

 

    

 

 

 

Basic earnings per common share

$ 0.43    $ 0.22   
  

 

 

    

 

 

 

Diluted earnings per common share

$ 0.41    $ 0.21   
  

 

 

    

 

 

 

Options on 9,500 and 47,500 shares of common stock were not included in the computation of diluted earnings per share for the three months ended March 31, 2015 and March 31, 2014, respectively, because the effect of these options was anti-dilutive.

5. Credit Quality and Allowance for Loan Losses

The following briefly describes the distinction between originated and acquired loans and certain significant accounting policies relevant to each category.

Originated Loans

Loans originated for investment are reported at the principal balance outstanding net of unearned income. Interest on loans and accretion of unearned income are computed in a manner that approximates a level yield on recorded principal. Interest on loans is recorded as income as earned. The accrual of interest on an originated loan is discontinued when it is probable the borrower will not be able to meet payment obligations as they become due. The Company maintains an allowance for loan losses on originated loans that represents management’s estimate of probable losses incurred in this portfolio category.

Acquired Loans

Acquired Loans that were acquired as a result of our acquisitions of certain assets and liabilities of Statewide Bank (“Statewide”) of Covington, Louisiana, on March 12, 2010, GS Financial Corp. (“GSFC”), the former holding company of Guaranty Savings Bank of Metairie, Louisiana, on July 15, 2011 and Britton & Koontz Capital Corporation (“Britton & Koontz”), the former holding company of Britton & Koontz Bank, N.A. (“Britton & Koontz Bank”) of Natchez, Mississippi on February 14, 2014 are referred to as “Acquired Loans.”

Acquired Loans were recorded at estimated fair value at the acquisition date with no carryover of the related allowance for loan losses. The acquired loans were segregated between those considered to be performing (“acquired performing”) and those with evidence of credit deterioration (“acquired impaired”), and then further segregated into loan pools designed to facilitate the estimation of expected cash flows. The fair value estimate for each pool of acquired performing and acquired impaired loans was based on the estimate of expected cash flows, both principal and interest, from that pool, discounted at prevailing market interest rates.

The difference between the fair value of an acquired performing loan pool and the contractual amounts due at the acquisition date (the “fair value discount”) is accreted into income over the estimated life of the pool. Management estimates an allowance for loan losses for acquired performing loans using a methodology similar to that used for originated loans. The allowance determined for each loan pool is compared to the remaining fair value discount for that pool. If the allowance amount calculated under the Company’s methodology is greater than the Company’s

 

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remaining discount, the additional amount called for is added to the reported allowance through a provision for loan losses. If the allowance amount calculated under the Company’s methodology is less than the Company’s recorded discount, no additional allowance or provision is recognized. Actual losses first reduce any remaining fair value discount for the loan pool. Once the discount is fully depleted, losses are applied against the allowance established for that pool. Acquired performing loans are placed on nonaccrual status and considered and reported as nonperforming or past due using the same criteria applied to the originated portfolio.

The excess of cash flows expected to be collected from an acquired impaired loan pool over the pool’s estimated fair value at acquisition is referred to as the accretable yield and is recognized in interest income using an effective yield method over the remaining life of the pool. Each pool of acquired impaired loans is accounted for as a single asset with a single composite interest rate and an aggregate expectation of cash flows.

Management recasts the estimate of cash flows expected to be collected on each acquired impaired loan pool periodically. If the present value of expected cash flows for a pool is less than its carrying value, an impairment is recognized by an increase in the allowance for loan losses and a charge to the provision for loan losses. If the present value of expected cash flows for a pool is greater than its carrying value, any previously established allowance for loan losses is reversed and any remaining difference increases the accretable yield which will be taken into interest income over the remaining life of the loan pool. Acquired impaired loans are generally not subject to individual evaluation for impairment and are not reported with impaired loans, even if they would otherwise qualify for such treatment.

Certain loans purchased in the Statewide acquisition are covered by loss sharing agreements between the FDIC and the Company. Historically, the Company has referred to loans subject to loss share agreements with the FDIC as “covered loans.” However, as of March 31, 2015, the commercial loss share agreements had expired and any future losses on these formerly covered loans are no longer eligible for reimbursement from the FDIC. As of March 31, 2015, only residential mortgage loans acquired from Statewide remained subject to loss sharing agreements with the FDIC. As of March 31, 2015, the Company’s remaining covered loans amounted to approximately $4.9 million, or less than 1.0% of the Company’s total loan portfolio, at such date. Given the limited amount of covered loans remaining, as of March 31, 2015, the Company is no longer reporting such loans as “covered loans,” and the remaining covered loans are included in “acquired loans.”

The allowance for loan losses and recorded investment in loans as of the dates indicated are as follows.

 

                                                                           
     As of March 31, 2015  
     Originated Loans                

(dollars in thousands)

   Collectively
Evaluated for
Impairment
     Individually
Evaluated for
Impairment
     Acquired
Loans
     Total  

Allowance for loan losses:

           

One- to four-family first mortgage

   $ 1,232       $ —         $ 174       $ 1,406   

Home equity loans and lines

     463         —           111         574   

Commercial real estate

     2,961         107         —           3,068   

Construction and land

     1,020         —           133         1,153   

Multi-family residential

     227         —           —           227   

Commercial and industrial

     1,274         33         —           1,307   

Consumer

     537         —           —           537   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total allowance for loan losses

$     7,714    $    140    $        418    $     8,272   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

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Table of Contents
                                                                           
     As of March 31, 2015  
     Originated Loans                

(dollars in thousands)

   Collectively
Evaluated for
Impairment
     Individually
Evaluated for
Impairment
     Acquired
Loans(1)
     Total  

Loans:

           

One- to four-family first mortgage

   $ 168,912       $ 78       $ 65,271       $ 234,261   

Home equity loans and lines

     35,723         —           19,616         55,339   

Commercial real estate

     287,099         777         67,443         355,319   

Construction and land

     79,911         —           9,000         88,911   

Multi-family residential

     19,623         —           10,553         30,176   

Commercial and industrial

     97,317         1,123         13,722         112,162   

Consumer

     43,393         —           2,528         45,921   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total loans

$ 731,978    $ 1,978    $ 188,133    $ 922,089   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

                                                                           
     As of December 31, 2014  
     Originated Loans                

(dollars in thousands)

   Collectively
Evaluated for
Impairment
     Individually
Evaluated for
Impairment
     Acquired
Loans
     Total  

Allowance for loan losses:

           

One- to four-family first mortgage

   $ 1,136       $ —         $ 174       $ 1,310   

Home equity loans and lines

     442         —           111         553   

Commercial real estate

     2,815         107         —           2,922   

Construction and land

     968         —           133         1,101   

Multi-family residential

     192         —           —           192   

Commercial and industrial

     1,128         33         —           1,161   

Consumer

     521         —           —           521   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total allowance for loan losses

$     7,202    $    140    $        418    $     7,760   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

                                                                           
     As of December 31, 2014  
     Originated Loans                

(dollars in thousands)

   Collectively
Evaluated for
Impairment
     Individually
Evaluated for
Impairment
     Acquired
Loans(1)
     Total  

Loans:

           

One- to four-family first mortgage

   $ 164,450       $ 78       $ 68,721       $ 233,249   

Home equity loans and lines

     34,485         —           21,515         56,000   

Commercial real estate

     279,493         777         72,593         352,863   

Construction and land

     77,057         —           12,097         89,154   

Multi-family residential

     16,507         —           10,868         27,375   

Commercial and industrial

     88,411         1,128         14,907         104,446   

Consumer

     43,049         —           2,832         45,881   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total loans

$ 703,452    $ 1,983    $ 203,533    $ 908,968   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

(1)  $26.3 million and $31.9 million in acquired loans were accounted for under ASC 310-30 at March 31, 2015 and December 31, 2014, respectively.

 

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Table of Contents

A summary of activity in the allowance for loan losses during the three months ended March 31, 2015 and March 31, 2014 follows.

 

                                                                                              
     For the Three Months Ended March 31, 2015  

(dollars in thousands)

   Beginning
Balance
     Charge-offs     Recoveries      Provision      Ending
Balance
 

Originated loans:

             

Allowance for loan losses:

             

One- to four-family first mortgage

   $ 1,136       $ —        $ —         $ 96       $ 1,232   

Home equity loans and lines

     442         —          3         18         463   

Commercial real estate

     2,922         —          —           146         3,068   

Construction and land

     968         —          —           52         1,020   

Multi-family residential

     192         —          —           35         227   

Commercial and industrial

     1,161         (44     30         160         1,307   

Consumer

     521         (15     —           31         537   
  

 

 

    

 

 

   

 

 

    

 

 

    

 

 

 

Total allowance for loan losses

$ 7,342    $ (59 $ 33    $ 538    $ 7,854   
  

 

 

    

 

 

   

 

 

    

 

 

    

 

 

 

Acquired loans:

Allowance for loan losses:

One- to four-family first mortgage

$ 174    $ —      $ —      $ —      $ 174   

Home equity loans and lines

  111      —        —        —        111   

Commercial real estate

  —        —        —        —        —     

Construction and land

  133      —        —        —        133   

Multi-family residential

  —        —        —        —        —     

Commercial and industrial

  —        —        —        —        —     

Consumer

  —        —        —        —        —     
  

 

 

    

 

 

   

 

 

    

 

 

    

 

 

 

Total allowance for loan losses

$ 418    $ —      $ —      $ —      $ 418   
  

 

 

    

 

 

   

 

 

    

 

 

    

 

 

 

Total loans:

Allowance for loan losses:

One- to four-family first mortgage

$ 1,310    $ —      $ —      $ 96    $ 1,406   

Home equity loans and lines

  553      —        3      18      574   

Commercial real estate

  2,922      —        —        146      3,068   

Construction and land

  1,101      —        —        52      1,153   

Multi-family residential

  192      —        —        35      227   

Commercial and industrial

  1,161      (44   30      160      1,307   

Consumer

  521      (15   —        31      537   
  

 

 

    

 

 

   

 

 

    

 

 

    

 

 

 

Total allowance for loan losses

$ 7,760    $ (59 $ 33    $ 538    $ 8,272   
  

 

 

    

 

 

   

 

 

    

 

 

    

 

 

 

 

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Table of Contents
                                                                                              
     For the Three Months Ended March 31, 2014  

(dollars in thousands)

   Beginning
Balance
     Charge-offs     Recoveries      Provision     Ending
Balance
 

Originated loans:

            

Allowance for loan losses:

            

One- to four-family first mortgage

   $ 904       $ —        $ —         $ 32      $ 936   

Home equity loans and lines

     366         —          2         5        373   

Commercial real estate

     2,528         —          —           115        2,643   

Construction and land

     977         (20     —           164        1,121   

Multi-family residential

     90         —          —           (6     84   

Commercial and industrial

     1,332         —          68         (177     1,223   

Consumer

     473         (11     2         12        476   
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

Total allowance for loan losses

$ 6,670    $ (31 $ 72    $ 145    $ 6,856   
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

Acquired loans:

Allowance for loan losses:

One- to four-family first mortgage

$ 184    $ —      $ —      $ —      $ 184   

Home equity loans and lines

  58      —        —        —        58   

Commercial real estate

  —        —        —        —        —     

Construction and land

  —        —        —        —        —     

Multi-family residential

  —        —        —        —        —     

Commercial and industrial

  6      —        —        —        6   

Consumer

  —        —        —        —        —     
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

Total allowance for loan losses

$ 248    $ —      $ —      $ —      $ 248   
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

Total loans:

Allowance for loan losses:

One- to four-family first mortgage

$ 1,088    $ —      $ —      $ 32    $ 1,120   

Home equity loans and lines

  424      —        2      5      431   

Commercial real estate

  2,528      —        —        115      2,643   

Construction and land

  977      (20   —        164      1,121   

Multi-family residential

  90      —        —        (6   84   

Commercial and industrial

  1,338      —        68      (177   1,229   

Consumer

  473      (11   2      12      476   
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

Total allowance for loan losses

$ 6,918    $ (31 $ 72    $ 145    $ 7,104   
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

Credit quality indicators on the Company’s loan portfolio as of the dates indicated are as follows.

 

                                                                                                        
     March 31, 2015  

(dollars in thousands)

   Pass      Special
Mention
     Substandard      Doubtful      Total  

Originated loans:

              

One- to four-family first mortgage

   $ 167,100       $ 692       $ 1,198       $ —         $ 168,990   

Home equity loans and lines

     35,262         429         32         —           35,723   

Commercial real estate

     283,905         2,721         1,250         —           287,876   

Construction and land

     78,782         97         1,032         —           79,911   

Multi-family residential

     18,761         862         —           —           19,623   

Commercial and industrial

     97,262         35         1,143         —           98,440   

Consumer

     43,060         64         269         —           43,393   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total loans

$ 724,132    $ 4,900    $ 4,924    $ —      $ 733,956   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Acquired loans:

One- to four-family first mortgage

$ 60,119    $ 932    $ 4,220    $ —      $ 65,271   

Home equity loans and lines

  18,846      257      513      —        19,616   

Commercial real estate

  56,765      1,871      8,807      —        67,443   

Construction and land

  4,021      2,654      2,325      —        9,000   

Multi-family residential

  8,307      914      1,332      —        10,553   

Commercial and industrial

  12,618      —        1,104      —        13,722   

Consumer

  2,451      44      33      —        2,528   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total loans

$ 163,127    $ 6,672    $ 18,334    $ —      $ 188,133   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total:

One- to four-family first mortgage

$ 227,219    $ 1,624    $ 5,418    $ —      $ 234,261   

Home equity loans and lines

  54,108      686      545      —        55,339   

Commercial real estate

  340,670      4,592      10,057      —        355,319   

Construction and land

  82,803      2,751      3,357      —        88,911   

Multi-family residential

  27,068      1,776      1,332      —        30,176   

Commercial and industrial

  109,880      35      2,247      —        112,162   

Consumer

  45,511      108      302      —        45,921   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total loans

$ 887,259    $ 11,572    $ 23,258    $ —      $ 922,089   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

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Table of Contents
                                                                                                        
     December 31, 2014  

(dollars in thousands)

   Pass      Special
Mention
     Substandard      Doubtful      Total  

Originated loans:

              

One- to four-family first mortgage

   $ 161,922       $ 251       $ 2,355       $ —         $ 164,528   

Home equity loans and lines

     33,731         255         499         —           34,485   

Commercial real estate

     274,878         3,655         1,737         —           280,270   

Construction and land

     75,888         103         1,066         —           77,057   

Multi-family residential

     15,642         865         —           —           16,507   

Commercial and industrial

     88,309         39         1,191         —           89,539   

Consumer

     42,718         2         329         —           43,049   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total loans

$ 693,088    $ 5,170    $ 7,177    $ —      $ 705,435   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Acquired loans:

One- to four-family first mortgage

$ 62,761    $ 1,007    $ 4,953    $ —      $ 68,721   

Home equity loans and lines

  20,842      57      616      —        21,515   

Commercial real estate

  61,172      2,071      9,350      —        72,593   

Construction and land

  6,407      1      5,689      —        12,097   

Multi-family residential

  8,175      923      1,770      —        10,868   

Commercial and industrial

  13,699      —        1,208      —        14,907   

Consumer

  2,741      40      51      —        2,832   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total loans

$ 175,797    $ 4,099    $ 23,637    $ —      $ 203,533   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total:

One- to four-family first mortgage

$ 224,683    $ 1,258    $ 7,308    $ —      $ 233,249   

Home equity loans and lines

  54,573      312      1,115      —        56,000   

Commercial real estate

  336,050      5,726      11,087      —        352,863   

Construction and land

  82,295      104      6,755      —        89,154   

Multi-family residential

  23,817      1,788      1,770      —        27,375   

Commercial and industrial

  102,008      39      2,399      —        104,446   

Consumer

  45,459      42      380      —        45,881   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total loans

$ 868,885    $   9,269    $ 30,814    $ —      $ 908,968   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

The above classifications follow regulatory guidelines and can generally be described as follows:

 

  Pass loans are of satisfactory quality.

 

  Special mention loans have an existing weakness that could cause future impairment, including the deterioration of financial ratios, past due status, questionable management capabilities and possible reduction in the collateral values.

 

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  Substandard loans have an existing specific and well-defined weakness that may include poor liquidity and deterioration of financial performance. Such loans may be past due and related deposit accounts experiencing overdrafts. Immediate corrective action is necessary.

 

  Doubtful loans have specific weaknesses that are severe enough to make collection or liquidation in full highly questionable and improbable.

In addition, residential loans are classified using an inter-agency regulatory methodology that incorporates the extent of delinquencies and loan-to-value ratios. These classifications were the most current available as of the dates indicated and were generally updated within the quarter.

Age analysis of past due loans as of the dates indicated are as follows.

 

     March 31, 2015  

(dollars in thousands)

   30-59
Days

Past Due
     60-89
Days

Past Due
     Greater
Than 90
Days

Past Due
     Total
Past Due
     Current
Loans
     Total
Loans
 

Originated loans:

                 

Real estate loans:

                 

One- to four-family first mortgage

   $ 927       $ 172       $ 532       $ 1,631       $ 167,359       $ 168,990   

Home equity loans and lines

     298         —           31         329         35,394         35,723   

Commercial real estate

     608         —           777         1,385         286,491         287,876   

Construction and land

     278         —           —           278         79,633         79,911   

Multi-family residential

     —           —           —           —           19,623         19,623   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total real estate loans

  2,111      172      1,340      3,623      588,500      592,123   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Other loans:

Commercial and industrial

  1,119      21      418      1,558      96,882      98,440   

Consumer

  723      140      269      1,132      42,261      43,393   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total other loans

  1,842      161      687      2,690      139,143      141,833   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total loans

$ 3,953    $ 333    $ 2,027    $ 6,313    $ 727,643    $ 733,956   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Acquired loans:

Real estate loans:

One- to four-family first mortgage

$ 2,952    $ 521    $ 2,355    $ 5,828    $ 59,443    $ 65,271   

Home equity loans and lines

  183      12      266      461      19,155      19,616   

Commercial real estate

  108      —        3,858      3,966      63,477      67,443   

Construction and land

  933      —        662      1,595      7,405      9,000   

Multi-family residential

  834      —        313      1,147      9,406      10,553   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total real estate loans

  5,010      533      7,454      12,997      158,886      171,883   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Other loans:

Commercial and industrial

  122      150      479      751      12,971      13,722   

Consumer

  51      1      21      73      2,455      2,528   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total other loans

  173      151      500      824      15,426      16,250   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total loans

$ 5,183    $ 684    $ 7,954    $ 13,821    $ 174,312    $ 188,133   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total loans:

Real estate loans:

One- to four-family first mortgage

$ 3,879    $ 693    $ 2,887    $ 7,459    $ 226,802    $ 234,261   

Home equity loans and lines

  481      12      297      790      54,549      55,339   

Commercial real estate

  716      —        4,635      5,351      349,968      355,319   

Construction and land

  1,211      —        662      1,873      87,038      88,911   

Multi-family residential

  834      —        313      1,147      29,029      30,176   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total real estate loans

  7,121      705      8,794      16,620      747,386      764,006   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Other loans:

Commercial and industrial

  1,241      171      897      2,309      109,853      112,162   

Consumer

  774      141      290      1,205      44,716      45,921   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total other loans

  2,015      312      1,187      3,514      154,569      158,083   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total loans

$   9,136    $ 1,017    $ 9,981    $ 20,134    $ 901,955    $ 922,089   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

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Table of Contents
     December 31, 2014  

(dollars in thousands)

   30-59
Days

Past Due
     60-89
Days

Past Due
     Greater
Than 90
Days

Past Due
     Total
Past Due
     Current
Loans
     Total
Loans
 

Originated loans:

                 

Real estate loans:

                 

One- to four-family first mortgage

   $ 2,056       $ 90       $ 1,058       $ 3,204       $ 161,324       $ 164,528   

Home equity loans and lines

     434         —           65         499         33,986         34,485   

Commercial real estate

     1,284         —           829         2,113         278,157         280,270   

Construction and land

     309         —           —           309         76,748         77,057   

Multi-family residential

     —           —           —           —           16,507         16,507   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total real estate loans

  4,083      90      1,952      6,125      566,722      572,847   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Other loans:

Commercial and industrial

  271      49      451      771      88,768      89,539   

Consumer

  924      133      329      1,386      41,663      43,049   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total other loans

  1,195      182      780      2,157      130,431      132,588   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total loans

$ 5,278    $ 272    $ 2,732    $ 8,282    $ 697,153    $ 705,435   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Acquired loans:

Real estate loans:

One- to four-family first mortgage

$ 2,323    $ 1,341    $ 2,836    $ 6,500    $ 62,221    $ 68,721   

Home equity loans and lines

  249      97      220      566      20,949      21,515   

Commercial real estate

  4,551      1      1,840      6,392      66,201      72,593   

Construction and land

  499      755      702      1,956      10,141      12,097   

Multi-family residential

  1,052      25      319      1,396      9,472      10,868   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total real estate loans

  8,674      2,219      5,917      16,810      168,984      185,794   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Other loans:

Commercial and industrial

  177      392      336      905      14,002      14,907   

Consumer

  47      33      41      121      2,711      2,832   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total other loans

  224      425      377      1,026      16,713      17,739   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total loans

$ 8,898    $ 2,644    $ 6,294    $ 17,836    $ 185,697    $ 203,533   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total loans:

Real estate loans:

One- to four-family first mortgage

$ 4,379    $ 1,431    $ 3,894    $ 9,704    $ 223,545    $ 233,249   

Home equity loans and lines

  683      97      285      1,065      54,935      56,000   

Commercial real estate

  5,835      1      2,669      8,505      344,358      352,863   

Construction and land

  808      755      702      2,265      86,889      89,154   

Multi-family residential

  1,052      25      319      1,396      25,979      27,375   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total real estate loans

  12,757      2,309      7,869      22,935      735,706      758,641   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Other loans:

Commercial and industrial

  448      441      787      1,676      102,770      104,446   

Consumer

  971      166      370      1,507      44,374      45,881   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total other loans

  1,419      607      1,157      3,183      147,144      150,327   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total loans

$ 14,176    $ 2,916    $ 9,026    $ 26,118    $ 882,850    $ 908,968   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

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Table of Contents

Excluding Acquired Loans with deteriorated credit quality, as of March 31, 2015 and December 31, 2014, the Company did not have any loans greater than 90 days past due and accruing.

The following is a summary of information pertaining to Originated Loans which were deemed to be impaired loans as of the dates indicated.

 

     As of Period Ended March 31, 2015  

(dollars in thousands)

   Recorded
Investment
     Unpaid
Principal
Balance
     Related
Allowance
     Average
Recorded
Investment
     Interest
Income
Recognized
 

With no related allowance recorded:

              

One- to four-family first mortgage

   $ 78       $ 78       $ —         $ 78       $ 1   

Home equity loans and lines

     —           —           —           —           —     

Commercial real estate

     —           —           —           —           —     

Construction and land

     —           —           —           —           —     

Multi-family residential

     —           —           —           —           —     

Commercial and industrial

     398         398         —           398         6   

Consumer

     —           —           —           —           —     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

$ 476    $ 476    $ —      $ 476    $ 7   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

With an allowance recorded:

One- to four-family first mortgage

$ —      $ —      $ —      $ —      $ —     

Home equity loans and lines

  —        —        —        —        —     

Commercial real estate

  777      777      107      777      11   

Construction and land

  —        —        —        —        —     

Multi-family residential

  —        —        —        —        —     

Commercial and industrial

  725      725      33      729      10   

Consumer

  —        —        —        —        —     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

$ 1,502    $ 1,502    $ 140    $ 1,506    $ 21   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total impaired Originated Loans:

One- to four-family first mortgage

$ 78    $ 78    $ —      $ 78    $ 1   

Home equity loans and lines

  —        —        —        —        —     

Commercial real estate

  777      777      107      777      11   

Construction and land

  —        —        —        —        —     

Multi-family residential

  —        —        —        —        —     

Commercial and industrial

  1,123      1,123      33      1,127      16   

Consumer

  —        —        —        —        —     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

$ 1,978    $ 1,978    $ 140    $ 1,982    $ 28   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

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Table of Contents
     As of Period Ended December 31, 2014  

(dollars in thousands)

   Recorded
Investment
     Unpaid
Principal
Balance
     Related
Allowance
     Average
Recorded
Investment
     Interest
Income
Recognized
 

With no related allowance recorded:

              

One- to four-family first mortgage

   $ 78       $ 78       $ —         $ 214       $ —     

Home equity loans and lines

     —           —           —           —           —     

Commercial real estate

     —           —           —           64         —     

Construction and land

     —           —           —           15         —     

Multi-family residential

     —           —           —           —           —     

Commercial and industrial

     398         398         —           494         4   

Consumer

     —           —           —           —           —     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

$ 476    $ 476    $ —      $ 787    $ 4   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

With an allowance recorded:

One- to four-family first mortgage

$ —      $ —      $ —      $ —      $ —     

Home equity loans and lines

  —        —        —        —        —     

Commercial real estate

  777      777      107      239      10   

Construction and land

  —        —        —        —        —     

Multi-family residential

  —        —        —        —        —     

Commercial and industrial

  730      730      33      923      40   

Consumer

  —        —        —        —        —     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

$ 1,507    $ 1,507    $ 140    $ 1,162    $ 50   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total impaired Originated Loans:

One- to four-family first mortgage

$ 78    $ 78    $ —      $ 214    $ —     

Home equity loans and lines

  —        —        —        —        —     

Commercial real estate

  777      777      107      303      10   

Construction and land

  —        —        —        15      —     

Multi-family residential

  —        —        —        —        —     

Commercial and industrial

  1,128      1,128      33      1,417      44   

Consumer

  —        —        —        —        —     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

$ 1,983    $ 1,983    $ 140    $ 1,949    $ 54   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

A summary of information pertaining to nonaccrual loans as of dates indicated is as follows.

 

     March 31, 2015      December 31, 2014  

(dollars in thousands)

   Originated      Acquired(1)      Total      Originated      Acquired(1)      Total  

Nonaccrual loans:

                 

One- to four-family first mortgage

   $ 531       $ 4,518       $ 5,049       $ 1,429       $ 5,072       $ 6,501   

Home equity loans and lines

     31         523         554         65         482         547   

Commercial real estate

     777         5,940         6,717         829         5,498         6,327   

Construction and land

     —           1,462         1,462         —           5,356         5,356   

Multi-family residential

     —           1,332         1,332         —           1,770         1,770   

Commercial and industrial

     1,143         864         2,007         1,191         1,168         2,359   

Consumer

     270         64         334         329         92         421   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

$ 2,752    $ 14,703    $ 17,455    $ 3,843    $ 19,438    $ 23,281   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

(1) Nonaccrual acquired loans accounted for under ASC 310-30 totaled $11.0 million and $15.1 million as of March 31, 2015 and December 31, 2014, respectively.

As of March 31, 2015, the Company was not committed to lend additional funds to any customer whose loan was classified as impaired.

 

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Table of Contents

Troubled Debt Restructurings

During the course of its lending operations, the Company periodically grants concessions to its customers in an attempt to protect as much of its investment as possible and to minimize risk of loss. These concessions may include restructuring the terms of a customer loan to alleviate the burden of the customer’s near-term cash requirements. The Company adopted the provisions of ASU No. 2011-02, Receivables (Topic 310): A Creditor’s Determination of Whether a Restructuring is a Troubled Debt Restructuring, which provides clarification on the determination of whether loan restructurings are considered troubled debt restructurings (“TDRs”). In accordance with the ASU, in order to be considered a TDR, the Company must conclude that the restructuring of a loan to a borrower who is experiencing financial difficulties constitutes a “concession”. The Company defines a concession as a modification of existing terms granted to a borrower for economic or legal reasons related to the borrower’s financial difficulties that the Company would otherwise not consider. The concession is either granted through an agreement with the customer or is imposed by a court or by a law. Concessions include modifying original loan terms to reduce or defer cash payments required as part of the loan agreement, including but not limited to:

 

  a reduction of the stated interest rate for the remaining original life of the debt,

 

  an extension of the maturity date or dates at an interest rate lower than the current market rate for new debt with similar risk characteristics,

 

  a reduction of the face amount or maturity amount of the debt, or

 

  a reduction of accrued interest receivable on the debt.

In its determination of whether the customer is experiencing financial difficulties, the Company considers numerous indicators, including, but not limited to:

 

  whether the customer is currently in default on its existing loan, or is in an economic position where it is probable the customer will be in default on its loan in the foreseeable future without a modification,

 

  whether the customer has declared or is in the process of declaring bankruptcy,

 

  whether there is substantial doubt about the customer’s ability to continue as a going concern,

 

  whether, based on its projections of the customer’s current capabilities, the Company believes the customer’s future cash flows will be insufficient to service the debt, including interest, in accordance with the contractual terms of the existing agreement for the foreseeable future, and

 

  whether, without modification, the customer cannot obtain sufficient funds from other sources at an effective interest rate equal to the current market rate for similar debt for a non-troubled debtor.

If the Company concludes that both a concession has been granted and the concession was granted to a customer experiencing financial difficulties, the Company identifies the loan as a TDR. For purposes of the determination of an allowance for loan losses on TDRs, such loans are reviewed for specific impairment in accordance with the Company’s allowance for loan loss methodology. If it is determined that losses are probable on such TDRs, either because of delinquency or other credit quality indicators, the Company specifically allocates a portion of the allowance for loan losses to these loans.

 

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Table of Contents

Information about the Company’s TDRs is presented in the following tables.

 

     As of March 31, 2015  

(dollars in thousands)

   Current      Past Due
Greater Than
30 Days
     Nonaccrual
TDRs
     Total
TDRs
 

Originated loans:

           

Real estate loans:

           

One- to four-family first mortgage

   $ 289       $ —         $ —         $ 289   

Home equity loans and lines

     —           —           —           —     

Commercial real estate

     110         —           —           110   

Construction and land

     97         —           —           97   

Multi-family residential

     —           —           —           —     
  

 

 

    

 

 

    

 

 

    

 

 

 

Total real estate loans

  496      —        —        496   
  

 

 

    

 

 

    

 

 

    

 

 

 

Other loans:

Commercial and industrial

  —        —        725      725   

Consumer

  —        —        —        —     
  

 

 

    

 

 

    

 

 

    

 

 

 

Total other loans

  —        —        725      725   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total loans

$ 496    $ —      $ 725    $ 1,221   
  

 

 

    

 

 

    

 

 

    

 

 

 

Acquired loans:

Real estate loans:

One- to four-family first mortgage

$ —      $ 508    $ 45    $ 553   

Home equity loans and lines

  —        —        —        —     

Commercial real estate

  —        —        1,278      1,278   

Construction and land

  —        —        89      89   

Multi-family residential

  —        —        —        —     
  

 

 

    

 

 

    

 

 

    

 

 

 

Total real estate loans

  —        508      1,412      1,920   
  

 

 

    

 

 

    

 

 

    

 

 

 

Other loans:

Commercial and industrial

  —        —        —        —     

Consumer

  1      —        2      3   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total other loans

  1      —        2      3   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total loans

$ 1    $ 508    $ 1,414    $ 1,923   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total loans:

Real estate loans:

One- to four-family first mortgage

$ 289    $ 508    $ 45    $ 842   

Home equity loans and lines

  —        —        —        —     

Commercial real estate

  110      —        1,278      1,388   

Construction and land

  97      —        89      186   

Multi-family residential

  —        —        —        —     
  

 

 

    

 

 

    

 

 

    

 

 

 

Total real estate loans

  496      508      1,412      2,416   
  

 

 

    

 

 

    

 

 

    

 

 

 

Other loans:

Commercial and industrial

  —        —        725      725   

Consumer

  1      —        2      3   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total other loans

  1      —        727      728   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total loans

$ 497    $ 508    $ 2,139    $ 3,144   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

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Table of Contents
     As of December 31, 2014  

(dollars in thousands)

   Current      Past Due
Greater Than
30 Days
     Nonaccrual
TDRs
     Total
TDRs
 

Originated loans:

           

Real estate loans:

           

One- to four-family first mortgage

   $ —         $ —         $ 291       $ 291   

Home equity loans and lines

     —           —           —           —     

Commercial real estate

     111         —           —           111   

Construction and land

     103         —           —           103   

Multi-family residential

     —           —           —           —     
  

 

 

    

 

 

    

 

 

    

 

 

 

Total real estate loans

  214      —        291      505   
  

 

 

    

 

 

    

 

 

    

 

 

 

Other loans:

Commercial and industrial

  —        —        730      730   

Consumer

  —        —        —        —     
  

 

 

    

 

 

    

 

 

    

 

 

 

Total other loans

  —        —        730      730   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total loans

$ 214    $ —      $ 1,021    $ 1,235   
  

 

 

    

 

 

    

 

 

    

 

 

 

Acquired loans:

Real estate loans:

One- to four-family first mortgage

$ 432    $ 77    $ 49    $ 558   

Home equity loans and lines

  —        —        —        —     

Commercial real estate

  —        —        967      967   

Construction and land

  —        —        117      117   

Multi-family residential

  —        —        —        —     
  

 

 

    

 

 

    

 

 

    

 

 

 

Total real estate loans

  432      77      1,133      1,642   
  

 

 

    

 

 

    

 

 

    

 

 

 

Other loans:

Commercial and industrial

  —        —        —        —     

Consumer

  2      —        2      4   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total other loans

  2      —        2      4   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total loans

$ 434    $ 77    $ 1,135    $ 1,646   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total loans:

Real estate loans:

One- to four-family first mortgage

$ 432    $ 77    $ 340    $ 849   

Home equity loans and lines

  —        —        —        —     

Commercial real estate

  111      —        967      1,078   

Construction and land

  103      —        117      220   

Multi-family residential

  —        —        —        —     
  

 

 

    

 

 

    

 

 

    

 

 

 

Total real estate loans

  646      77      1,424      2,147   
  

 

 

    

 

 

    

 

 

    

 

 

 

Other loans:

Commercial and industrial

  —        —        730      730   

Consumer

  2      —        2      4   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total other loans

  2      —        732      734   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total loans

$ 648    $ 77    $ 2,156    $ 2,881   
  

 

 

    

 

 

    

 

 

    

 

 

 

None of the above referenced TDRs defaulted subsequent to the restructuring through the date the financial statements were issued. The Company restructured, as a TDR, one loan totaling $341,000 during the first quarter of 2015.

6. Fair Value Measurements and Disclosures

The Company utilizes fair value measurements to record fair value adjustments to certain assets and liabilities and to determine fair value disclosures. The Company groups assets and liabilities measured or disclosed at fair value in three levels as required by ASC 820, Fair Value Measurements and Disclosures. Under this guidance, fair value should be based on the assumptions market participants would use when pricing the asset or liability and establishes a fair value hierarchy that prioritizes the inputs used to develop those assumptions and measure fair value. The hierarchy requires companies to maximize the use of observable inputs and minimize the use of unobservable inputs. The three levels used to measure fair value are as follows:

 

  Level 1 – Quoted prices in active markets for identical assets or liabilities.

 

  Level 2 – Observable inputs other than quoted prices included in Level 1, such as quoted prices for similar assets and liabilities in active markets; quoted prices for identical or similar assets and liabilities in markets that are not active; or other inputs that are observable or can be corroborated by observable market data.

 

  Level 3 – Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. This includes certain pricing models, discounted cash flow methodologies and similar techniques that use significant unobservable inputs.

An asset’s or liability’s categorization within the fair value hierarchy is based upon the lowest level that is significant to the fair value measurement. Management reviews and updates the fair value hierarchy classifications of the Company’s assets and liabilities quarterly.

 

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Recurring Basis

Investment Securities Available for Sale

Fair values of investment securities available for sale are primarily measured using information from a third-party pricing service. This pricing service provides pricing information by utilizing pricing models supported with market data information. Standard inputs include benchmark yields, reported trades, broker/dealer quotes, issuer spreads, benchmark securities bids, offers and other reference data from market research publications. If quoted prices are available in an active market, investment securities are classified as Level 1 measurements. If quoted prices are not available in an active market, fair values are estimated primarily by the use of pricing models. Level 2 investment securities are primarily comprised of mortgage-backed securities issued by government agencies and U.S. government-sponsored enterprises. In certain cases, where there is limited or less transparent information provided by the Company’s third-party pricing service, fair value is estimated by the use of secondary pricing services or through the use of non-binding third-party broker quotes. Investment securities are classified within Level 3 when little or no market activity supports the fair value.

Management primarily identifies investment securities which may have traded in illiquid or inactive markets by identifying instances of a significant decrease in the volume and frequency of trades, relative to historical levels, as well as instances of a significant widening of the bid-ask spread in the brokered markets. Investment securities that are deemed to have been trading in illiquid or inactive markets may require the use of significant unobservable inputs. For example, management may use quoted prices for similar investment securities in the absence of a liquid and active market for the investment securities being valued. As of March 31, 2015, management did not make adjustments to prices provided by the third-party pricing service as a result of illiquid or inactive markets.

The following tables present the balances of assets and liabilities measured for fair value on a recurring basis as of March 31, 2015 and December 31, 2014.

 

            Fair Value Measurements Using  

(dollars in thousands)

   March 31, 2015      Level 1      Level 2      Level 3  

Available for sale securities:

           

U.S. agency mortgage-backed

   $ 119,068       $ —         $ 119,068       $ —     

Non-U.S. agency mortgage-backed

     7,363         —           7,363         —     

Municipal bonds

     24,344         —           24,344         —     

U.S. government agency

     20,714         —           20,714         —     
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

$ 171,489    $ —      $ 171,489    $ —     
  

 

 

    

 

 

    

 

 

    

 

 

 
            Fair Value Measurements Using  

(dollars in thousands)

   December 31, 2014      Level 1      Level 2      Level 3  

Available for sale securities:

           

U.S. agency mortgage-backed

   $ 121,498       $ —         $ 121,498       $ —     

Non-U.S. agency mortgage-backed

     7,764         —           7,764         —     

Municipal bonds

     24,896         —           24,896         —     

U.S. government agency

     20,643         —           20,643         —     
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

$ 174,801    $ —      $ 174,801    $ —     
  

 

 

    

 

 

    

 

 

    

 

 

 

The Company did not record any liabilities at fair value for which measurement of the fair value was made on a recurring basis.

 

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Nonrecurring Basis

In accordance with the provisions of ASC 310, Receivables, the Company records loans considered impaired at fair value. A loan is considered impaired if it is probable the Company will be unable to collect all amounts due according to the contractual terms of the loan agreement. Fair value is measured at the fair value of the collateral for collateral-dependent loans. For non-collateral-dependent loans, fair value is measured by present valuing expected future cash flows. Impaired loans are classified as Level 3 assets when measured using appraisals from external parties of the collateral less any prior liens and when there is no observable market price. Repossessed assets are initially recorded at fair value less estimated costs to sell. The fair value of repossessed assets is based on property appraisals and an analysis of similar properties available. As such, the Company classifies repossessed assets as Level 3 assets.

Acquired loans, acquired FHLB advances, and acquired interest-bearing deposit liabilities are measured on a nonrecurring basis using significant unobservable inputs (Level 3).

The Company has segregated all financial assets and liabilities that are measured at fair value on a nonrecurring basis into the most appropriate level within the fair value hierarchy based on the inputs used to determine the fair value at the measurement date in the table below.

 

            Fair Value Measurements Using  

(dollars in thousands)

   March 31, 2015      Level 1      Level 2      Level 3  

Assets

     

Acquired loans with deteriorated credit quality

   $ 26,347       $ —         $ —         $ 26,347   

Acquired loans without deteriorated credit quality

     161,367         —           —           161,367   

Impaired loans, excluding acquired loans

     1,838         —           —           1,838   

Repossessed assets

     4,877         —           —           4,877   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

$ 194,429    $ —      $ —      $ 194,429   
  

 

 

    

 

 

    

 

 

    

 

 

 

Liabilities

Deposits acquired through business combinations

$ 64,752    $ —      $ —      $ 64,752   

Securities sold under repurchase agreement

  20,205      —        —        20,205   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

$ 84,957    $ —      $ —      $ 84,957   
  

 

 

    

 

 

    

 

 

    

 

 

 
       Fair Value Measurements Using  

(dollars in thousands)

   December 31, 2014      Level 1      Level 2      Level 3  

Assets

        

Acquired loans with deteriorated credit quality

   $ 31,908       $ —         $ —         $ 31,908   

Acquired loans without deteriorated credit quality

     171,206         —           —           171,206   

Impaired loans, excluding acquired loans

     1,843         —           —           1,843   

Repossessed assets

     5,214         —           —           5,214   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

$ 210,171    $ —      $ —      $ 210,171   
  

 

 

    

 

 

    

 

 

    

 

 

 

Liabilities

Deposits acquired through business combinations

$ 69,178    $ —      $ —      $ 69,178   

Securities sold under repurchase agreement

  20,371      —        —        20,371   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

$ 89,549    $ —      $ —      $ 89,549   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

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ASC 820, Fair Value Measurements and Disclosures, requires the disclosure of each class of financial instruments for which it is practicable to estimate. The fair value of a financial instrument is the current amount that would be exchanged between willing parties, other than in a forced liquidation. Fair value is best determined based upon quoted market prices. However, in many instances, there are no quoted market prices for the Company’s various financial instruments. In cases where quoted market prices are not available, fair values are based on estimates using present value or other valuation techniques. Those techniques are significantly affected by the assumptions used, including the discount rate and estimates of future cash flows. Accordingly, the fair value estimates may not be realized in an immediate settlement of the instrument. ASC 820 excludes certain financial instruments and all non-financial instruments from its disclosure requirements. Accordingly, the aggregate fair value amounts presented may not necessarily represent the underlying fair value of the Company.

Fair value estimates are made at a specific point in time, based on relevant market information and information about the financial statements. These estimates are subjective in nature and involve uncertainties and matters of significant judgment and therefore cannot be determined with precision. Changes in assumptions could significantly affect the estimates.

Fair value estimates included herein are based on existing on- and off-balance-sheet financial instruments without attempting to estimate the value of anticipated future business and the fair value of assets and liabilities that are not required to be recorded or disclosed at fair value like premises and equipment. In addition, the tax ramifications related to the realization of the unrealized gains and losses can have a significant effect on fair value estimates and have not been considered in the estimates.

The following methods and assumptions were used to estimate the fair value of each class of financial instruments for which it is practicable to estimate that value:

The carrying value of cash and cash equivalents and interest-bearing deposits in banks approximate their fair value.

The fair value for investment securities is determined from quoted market prices when available. If a quoted market price is not available, fair value is estimated using third party pricing services or quoted market prices of securities with similar characteristics.

The carrying value of mortgage loans held for sale approximates their fair value.

The fair value of loans is estimated by discounting the future cash flows using the current rates at which similar loans would be made to borrowers with similar credit ratings and for the same remaining maturity.

The cash surrender value of bank-owned life insurance (“BOLI”) approximates its fair value.

The fair value of the FDIC loss sharing receivable is determined by discounting projected cash flows from loss sharing agreements based on expected reimbursements for losses at the applicable loss sharing percentages based on the terms of the loss sharing agreements.

The fair value of customer deposits, excluding certificates of deposit, is the amount payable on demand. The fair value of fixed-maturity certificates of deposit is estimated by discounting the future cash flows using the rates currently offered for deposits of similar remaining maturities.

The fair value of short-term FHLB advances is the amount payable at maturity. The fair value of long-term FHLB advances is estimated by discounting the future cash flows using the rates currently offered for advances of similar maturities.

The carrying value of the securities sold under repurchase agreement is its fair value.

 

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Table of Contents

The following table presents estimated fair values of the Company’s financial instruments as of the dates indicated.

 

            Fair Value Measurements at March 31, 2015  

(dollars in thousands)

   Carrying
Amount
     Total      Level 1      Level 2      Level 3  

Financial Assets

              

Cash and cash equivalents

   $ 30,176       $ 30,176       $ 30,176       $ —         $ —     

Interest-bearing deposits in banks

     5,526         5,526         5,526         —           —     

Investment securities available for sale

     171,489         171,489         —           171,489         —     

Investment securities held to maturity

     13,913         14,141         —           14,141         —     

Mortgage loans held for sale

     5,623         5,623         —           5,623         —     

Loans, net

     913,817         920,550         —           —           920,550   

Cash surrender value of BOLI

     19,295         19,295         19,295         —           —     

FDIC loss sharing receivable

     3,552         3,552         —           —           3,552   

Financial Liabilities

              

Deposits

   $ 1,026,573       $ 1,027,316       $ —         $ 962,564       $ 64,752   

Short-term FHLB advances

     6,000         6,000         6,000         —           —     

Long-term FHLB advances

     19,000         19,499         —           19,499         —     

Securities sold under repurchase agreement

     20,205         20,205         —           —           20,205   
            Fair Value Measurements at December 31, 2014  

(dollars in thousands)

   Carrying
Amount
     Total      Level 1      Level 2      Level 3  

Financial Assets

              

Cash and cash equivalents

   $ 29,078       $ 29,078       $ 29,078       $ —         $ —     

Interest-bearing deposits in banks

     5,526         5,526         5,526         —           —     

Investment securities available for sale

     174,801         174,801         —           174,801         —     

Investment securities held to maturity

     11,705         11,889         —           11,889         —     

Mortgage loans held for sale

     4,517         4,517         —           4,517         —     

Loans, net

     901,208         908,346         —           —           908,346   

Cash surrender value of BOLI

     19,163         19,163         19,163         —           —     

FDIC loss sharing receivable

     4,589         4,589         —           —           4,589   

Financial Liabilities

              

Deposits

   $ 993,573       $ 993,994       $ —         $ 924,816       $ 69,178   

Short-term FHLB advances

     31,000         31,000         31,000         —           —     

Long-term FHLB advances

     16,500         16,987         —           16,987         —     

Securities sold under repurchase agreement

     20,371         20,371         —           —           20,371   

 

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Table of Contents

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

The purpose of this discussion and analysis is to focus on significant changes in the financial condition of Home Bancorp, Inc. (the “Company”) and its wholly owned subsidiary, Home Bank, N. A. (the “Bank”), from December 31, 2014 through March 31, 2015 and on its results of operations for the three months ended March 31, 2015 and March 31, 2014. This discussion and analysis is intended to highlight and supplement information presented elsewhere in this quarterly report on Form 10-Q, particularly the consolidated financial statements and related notes appearing in Item 1.

Forward-Looking Statements

To the extent that statements in this Form 10-Q relate to future plans, objectives, financial results or performance of the Company or Bank, these statements are deemed to be forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements, which are based on management’s current information, estimates and assumptions and the current economic environment, are generally identified by the use of words such as “plan”, “believe”, “expect”, “intend”, “anticipate”, “estimate”, “project” or similar expressions, or by future or conditional terms such as “will”, “would”, “should”, “could”, “may”, “likely”, “probably”, or “possibly”. The Company’s or the Bank’s actual strategies and results in future periods may differ materially from those currently expected due to various risks and uncertainties. Factors that may cause actual results to differ materially from these forward-looking statements include, but are not limited to, the risk factors described under the heading “Risk Factors” in the Company’s Annual Report on Form 10-K filed with the Securities Exchange Commission (“SEC”) for the year ended December 31, 2014. The Company undertakes no obligation to update these forward-looking statements to reflect events or circumstances that occur after the date on which such statements were made.

EXECUTIVE OVERVIEW

During the first quarter of 2015, the Company earned $2.8 million, an increase of $1.4 million, or 98.7%, compared to the first quarter of 2014. Diluted earnings per share for the first quarter of 2015 were $0.41, an increase of $0.20 per share, or 95.2%, compared to the first quarter of 2014. The first quarter of 2014 included $2.0 million of pre-tax expenses related to the acquisition of Britton & Koontz Capital Corporation (“Britton & Koontz”) in February 2014. Excluding merger-related expenses, net income for the first quarter of 2015 increased 2% compared to the first quarter of 2014. Excluding merger-related expenses, diluted earnings per share for the first quarter of 2015 were virtually identical to the first quarter of 2014.

Key components of the Company’s performance during the three months ended March 31, 2015 are summarized below.

 

  Assets totaled $1.2 billion as of March 31, 2015, up $12.4 million, or 1.0%, from December 31, 2014. The increase was primarily the result of a $13.1 million increase in loans.

 

  Loans as of March 31, 2015 were $922.1 million, an increase of $13.1 million, or 1.4%, from December 31, 2014. The increase was primarily the result of increases in commercial and industrial (up $7.7 million), multifamily residential ($2.8 million) and commercial real estate loans ($2.5 million) during the first quarter of 2015.

 

  Deposits as of March 31, 2015 were $1.0 billion, an increase of $33.0 million, or 3.3%, from December 31, 2014. Core deposits (i.e., checking, savings, and money market accounts) totaled $810.6 million as of March 31, 2015, an increase of $37.8 million, or 4.9%, from December 31, 2014. The increase in core deposits was primarily driven by a $24.3 million increase in NOW accounts.

 

  The Company purchased 83,193 shares of its common stock during the first quarter of 2015 at an average price per share of $21.64. As of March 31, 2015, an additional 85,250 shares remain eligible for purchase under the share repurchase plan announced in June 2013.

 

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Table of Contents
  Interest income increased $738,000, or 5.9%, in the first quarter of 2015 compared to the first quarter of 2014. The increase was primarily due to increased average loan volume.

 

  Interest expense increased $57,000, or 7.6%, for the first quarter of 2015 compared to the first quarter of 2014. The increase in the first quarter 2015 compared to the first quarter 2014 was primarily due to a slight increase in the cost of funds as the result of a change in the mix of interest bearing liabilities.

 

  The provision for loan losses totaled $538,000 for the first quarter of 2015, an increase of $393,000, or 271.3%, compared to the first quarter of 2014. At March 31, 2015, the Company’s ratio of allowance for loan losses to total loans was 0.90%, compared to 0.81% at March 31, 2014. Excluding acquired loans, the ratio of the allowance for loan losses to total loans was 1.07% at March 31, 2015, compared to 1.10% at March 31, 2014. Net loan charge-offs for the first three months of 2015 were $26,000 compared to net loan recoveries of $41,000 during the first three months of 2014.

 

  Noninterest income for the first quarter of 2015 increased $423,000, or 25.5%, compared to the first quarter of 2014, due primarily to increases in gain on sale of loans (up $211,000), bank card fees (up $110,000) and service fees and charges (up $96,000).

 

  Noninterest expense for the first quarter of 2015 decreased $1.5 million, or 13.7%, compared to the first quarter of 2014. Noninterest expense for the first three months of 2014 includes $2.0 million of merger-related expenses associated with the acquisition of Britton & Koontz in February 2014. Excluding merger-related expenses, noninterest expense for the first quarter of 2015 totaled $9.7 million, an increase of $417,000, or 4.5%, compared to the first quarter of 2014. The increase in noninterest expense resulted primarily due to the addition of Britton & Koontz branches and employees.

The discussion and analysis contains financial information other than in accordance with generally accepted accounting principles (“GAAP”). The Company uses these non-GAAP financial measures in their analysis of the Company’s performance. Reconciliation of GAAP to non-GAAP disclosures is included in the table below.

Non-GAAP Reconciliation

 

     For the Three Months Ended  

(dollars in thousands)

   March 31, 2015      March 31, 2014  

Reported noninterest expense

   $ 9,719       $ 11,257   

Less: Merger-related expenses

     —           (1,955
  

 

 

    

 

 

 

Non-GAAP noninterest expense

$ 9,719    $ 9,302   
  

 

 

    

 

 

 

Reported net income

$ 2,848    $ 1,433   

Add: Merger-related expenses (after tax)

  —        1,357   
  

 

 

    

 

 

 

Non-GAAP net income

$ 2,848    $ 2,790   
  

 

 

    

 

 

 

Diluted EPS

$ 0.41    $ 0.21   

Add: Merger-related expenses

  —        0.20   
  

 

 

    

 

 

 

Non-GAAP EPS

$ 0.41    $ 0.41   
  

 

 

    

 

 

 

FINANCIAL CONDITION

Loans, Asset Quality and Allowance for Loan Losses

Loans – Loans outstanding as of March 31, 2015 were $922.1 million, an increase of $13.1 million, or 1.4%, from December 31, 2014. The increase was primarily the result of increases in commercial and industrial (up $7.7 million), multifamily residential ($2.8 million) and commercial real estate loans ($2.5 million).

 

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Table of Contents

The following table summarizes the composition of the Company’s loan portfolio as of the dates indicated.

 

     March 31,      December 31,      Increase/(Decrease)  

(dollars in thousands)

   2015      2014      Amount      Percent  

Real estate loans:

           

One- to four-family first mortgage

   $ 234,261       $ 233,249       $ 1,012         0.4

Home equity loans and lines

     55,339         56,000         (661      (1.2

Commercial real estate

     355,319         352,863         2,456         0.7   

Construction and land

     88,911         89,154         (243      (0.3

Multi-family residential

     30,176         27,375         2,801         10.2   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total real estate loans

  764,006      758,641      5,365      0.7   
  

 

 

    

 

 

    

 

 

    

 

 

 

Other loans:

Commercial and industrial

  112,162      104,446      7,716      7.4   

Consumer

  45,921      45,881      40      0.1   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total other loans

  158,083      150,327      7,756      5.2   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total loans

$ 922,089    $ 908,968    $ 13,121      1.4
  

 

 

    

 

 

    

 

 

    

 

 

 

Asset Quality – One of management’s key objectives has been, and continues to be, maintaining a high level of asset quality. In addition to maintaining credit standards for new loan originations, we proactively monitor loans and collection and workout processes of delinquent or problem loans. When a borrower fails to make a scheduled payment, we attempt to cure the deficiency by making personal contact with the borrower. Initial contacts are generally made within 10 days after the date the payment is due. In most cases, deficiencies are promptly resolved. If the delinquency continues, late charges are assessed and additional efforts are made to collect the deficiency. All loans which are designated as “special mention,” classified or which are delinquent 90 days or more are reported to the Board of Directors of the Bank monthly. For loans where the collection of principal or interest payments is doubtful, the accrual of interest income ceases. It is our policy, with certain limited exceptions, to discontinue accruing interest and reverse any interest accrued on any loan which is 90 days or more past due. On occasion, this action may be taken earlier if the financial condition of the borrower raises significant concern with regard to his/her ability to service the debt in accordance with the terms of the loan agreement. Interest income is not accrued on these loans until the borrower’s financial condition and payment record demonstrate an ability to service the debt.

Repossessed assets which are acquired as a result of foreclosure are classified as repossessed assets until sold. Third party property valuations are obtained at the time the asset is repossessed and periodically until the property is liquidated. Repossessed assets are recorded at the lesser of the balance of the loan or fair value less estimated selling costs, at the date acquired or upon receiving new property valuations. Costs associated with acquiring and improving a foreclosed property are usually capitalized to the extent that the carrying value does not exceed fair value less estimated selling costs. Holding costs are charged to expense. Gains and losses on the sale of repossessed assets are charged to operations, as incurred.

An impaired loan generally is one for which it is probable, based on current information, that the lender will not collect all the amounts due under the contractual terms of the loan. Large groups of smaller balance, homogeneous loans are collectively evaluated for impairment. Loans collectively evaluated for impairment include smaller balance commercial loans, residential real estate loans and consumer loans. These loans are evaluated as a group because they have similar characteristics and performance experience. Larger (i.e., loans with balances of $100,000 or greater) commercial real estate, multi-family residential, construction and land loans and commercial and industrial loans are individually evaluated for impairment. Third party property valuations are obtained at the time of origination for real estate secured loans. When a determination is made that a loan has deteriorated to the point of becoming a problem loan, updated valuations may be ordered to help determine if there is impairment, which may lead to a recommendation for partial charge off or appropriate allowance allocation. Property valuations are ordered through, and are reviewed by, an appraisal officer. The Company typically orders an “as is” valuation for collateral property if the loan is in a criticized loan classification. The Board of Directors is provided with monthly reports on impaired loans. As of March 31, 2015 and December 31, 2014, loans individually evaluated for impairment, excluding acquired loans, amounted to $2.0 million. As of

 

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March 31, 2015 and December 31, 2014, substandard loans, excluding acquired loans, amounted to $4.9 million and $7.2 million, respectively. The amount of the allowance for loan losses allocated to impaired or substandard loans originated by Home Bank totaled $140,000 as of March 31, 2015 and December 31, 2014. There were no assets classified as doubtful or loss as of March 31, 2015 and December 31, 2014.

Federal regulations and our policies require that we utilize an internal asset classification system as a means of reporting problem and potential problem assets. We have incorporated an internal asset classification system, substantially consistent with Federal banking regulations, as a part of our credit monitoring system. Federal banking regulations set forth a classification scheme for problem and potential problem assets as “substandard,” “doubtful” or “loss” assets. An asset is considered “substandard” if it is inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any. “Substandard” assets include those characterized by the “distinct possibility” that the insured institution will sustain “some loss” if the deficiencies are not corrected. Assets classified as “doubtful” have all of the weaknesses inherent in those classified “substandard” with the added characteristic that the weaknesses present make “collection or liquidation in full,” on the basis of currently existing facts, conditions and values, “highly questionable and improbable.” Assets classified as “loss” are those considered “uncollectible” and of such little value that their continuance as assets without the establishment of a specific loss reserve is not warranted.

A bank’s determination as to the classification of its assets and the amount of its valuation allowances is subject to review by Federal bank regulators which can order the establishment of additional general or specific loss allowances. The Federal banking agencies have adopted an interagency policy statement on the allowance for loan and lease losses. The policy statement provides guidance for financial institutions on both the responsibilities of management for the assessment and establishment of allowances and guidance for banking agency examiners to use in determining the adequacy of general valuation guidelines. Generally, the policy statement recommends that institutions have effective systems and controls to identify, monitor and address asset quality problems; that management analyzes all significant factors that affect the collectability of the portfolio in a reasonable manner; and that management establishes acceptable allowance evaluation processes that meet the objectives set forth in the policy statement. Our management believes that, based on information currently available, our allowance for loan losses is maintained at a level which covers all known and inherent losses that are both probable and reasonably estimable as of each reporting date. However, actual losses are dependent upon future events and, as such, further additions to the level of allowance for loan losses may become necessary.

Real estate, or other collateral, which is acquired as a result of foreclosure is classified as a foreclosed asset until sold. Foreclosed assets are recorded at the lesser of the balance of the loan or fair value less estimated selling costs, at the date acquired or upon receiving new property valuations. Holding costs are charged to expense. Gains and losses on the sale of real estate owned are charged to operations, as incurred.

 

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The following table sets forth the composition of the Company’s nonperforming assets (“NPAs”) and troubled debt restructurings as of the dates indicated.

 

     March 31, 2015     December 31, 2014  

(dollars in thousands)

   Originated      Acquired(1)      Total     Originated      Acquired(1)      Total  

Nonaccrual loans:

                

Real estate loans:

                

One- to four-family first mortgage

   $ 531       $ 4,518       $ 5,049      $ 1,429       $ 5,072       $ 6,501   

Home equity loans and lines

     31         523         554        65         482         547   

Commercial real estate

     777         5,940         6,717        829         5,498         6,327   

Construction and land

     —           1,462         1,462        —           5,356         5,356   

Multi-family residential

     —           1,332         1,332        —           1,770         1,770   

Other loans:

                

Commercial and industrial

     1,143         864         2,007        1,191         1,168         2,359   

Consumer

     270         64         334        329         92         421   
  

 

 

    

 

 

    

 

 

   

 

 

    

 

 

    

 

 

 

Total nonaccrual loans

  2,752      14,703      17,455      3,843      19,438      23,281   

Accruing loans 90 days or more past due

  —        —        —        —        —        —     
  

 

 

    

 

 

    

 

 

   

 

 

    

 

 

    

 

 

 

Total nonperforming loans

  2,752      14,703      17,455      3,843      19,438      23,281   

Foreclosed assets

  1,886      2,991      4,877      1,835      3,380      5,215   
  

 

 

    

 

 

    

 

 

   

 

 

    

 

 

    

 

 

 

Total nonperforming assets

  4,638      17,694      22,332      5,678      22,818      28,496   

Performing troubled debt restructurings

  496      508      1,004      214      510      724   
  

 

 

    

 

 

    

 

 

   

 

 

    

 

 

    

 

 

 

Total nonperforming assets and troubled debt restructurings

$ 5,134    $ 18,202    $ 23,336    $ 5,892    $ 23,328    $ 29,220   
  

 

 

    

 

 

    

 

 

   

 

 

    

 

 

    

 

 

 

Nonperforming loans to total loans

  1.89   2.56

Nonperforming loans to total assets

  1.41   1.91

Nonperforming assets to total assets

  1.81   2.33

 

(1)  Includes $11.0 million and $15.1 million in acquired loans accounted for under ASC 310-30 at March 31, 2015 and December 31, 2014, respectively. Excluding acquired loans and assets, ratios for nonperforming loans to total loans, nonperforming loans to total assets and nonperforming assets to total assets were 0.37%, 0.26% and 0.44%, respectively, at March 31, 2015.

Net loan charge-offs for the first quarter of 2015 were $26,000, compared to net loan recoveries of $41,000 for the first quarter of 2014.

Allowance for Loan Losses – The allowance for loan losses is established through provisions for loan losses. The Company maintains the allowance at a level believed, to the best of management’s knowledge, to cover all known and inherent losses in the portfolio that are both probable and reasonable to estimate at each reporting date. Management reviews the allowance for loan losses at least quarterly in order to identify those inherent losses and to assess the overall collection probability for the loan portfolio. The evaluation process includes, among other things, an analysis of delinquency trends, nonperforming loan trends, the level of charge-offs and recoveries, prior loss experience, total loans outstanding, the volume of loan originations, the type, size and geographic concentration of loans, the value of collateral securing loans, the borrower’s ability to repay and repayment performance, the number of loans requiring heightened management oversight, economic conditions and industry experience. Based on this evaluation, management assigns risk ratings to segments of the loan portfolio. Such risk ratings are periodically reviewed by management and revised as deemed appropriate. These efforts are supplemented by reviews and validations performed by independent loan reviewers. The results of the reviews are reported to the Audit Committee of the Board of Directors. The establishment of the allowance for loan losses is significantly affected by management judgment. There is likelihood that different amounts would be reported under different conditions or assumptions. Federal regulatory agencies, as an integral part of their examination process, periodically review our allowance for loan losses. Such agencies may require management to make additional provisions for estimated loan losses based upon judgments different from those of management.

 

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With respect to acquired loans, the Company follows the reserve standard set forth in ASC 310, Receivables. At acquisition, the Company reviews each loan to determine whether there is evidence of deterioration in credit quality since origination and if it is probable that the Company will be unable to collect all amounts due according to the loan’s contractual terms. The Company considers expected prepayments and estimates the amount and timing of undiscounted expected principal, interest and other cash flows for each loan pool meeting the criteria above, and determines the excess of the loan pool’s scheduled contractual principal and interest payments in excess of cash flows expected at acquisition as an amount that should not be accreted (nonaccretable difference). The remaining amount, representing the excess of the pool’s cash flows expected to be collected over the fair value, is accreted into interest income over the remaining life of the pool (accretable yield). The Company records a discount on these loans at acquisition to record them at their estimated fair values. As a result, acquired loans subject to ASC 310 are excluded from the calculation of the allowance for loan losses as of the acquisition date. See Note 6 to the Unaudited Consolidated Financial Statements for additional information concerning our allowance for Acquired loans.

Acquired loans were recorded at their acquisition date fair value, which was based on expected cash flows and included an estimation of expected future loan losses. Under current accounting principles, if the Company determines that losses arose after the acquisition date, the additional losses will be reflected as a provision to the allowance for loan losses. As of both March 31, 2015 and December 31, 2014, $124,000 of our allowance for loan losses was allocated to acquired loans with deteriorated credit quality.

We will continue to monitor and modify our allowance for loan losses as conditions warrant. No assurance can be given that our level of allowance for loan losses will cover all of the inherent losses on our loans or that future adjustments to the allowance for loan losses will not be necessary if economic and other conditions differ substantially from the conditions used by management to determine the current level of the allowance for loan losses.

The following table presents the activity in the allowance for loan losses during the first three months of 2015.

 

(dollars in thousands)

   Originated      Acquired      Total  

Balance, December 31, 2014

   $ 7,342       $ 418       $ 7,760   

Provision charged to operations

     538         —           538   

Loans charged off

     (59      —           (59

Recoveries on charged off loans

     33         —           33   
  

 

 

    

 

 

    

 

 

 

Balance, March 31, 2015

$ 7,854    $ 418    $ 8,272   
  

 

 

    

 

 

    

 

 

 

At March 31, 2015, the Company’s ratio of allowance for loan losses to total loans was 0.90%, compared to 0.85% and 0.81% at December 31, 2014 and March 31, 2014, respectively. Excluding acquired loans, the ratio of allowance for loan losses to total loans was 1.07% at March 31, 2015, compared to 1.04% and 1.10% at December 31, 2014 and March 31, 2014, respectively.

Investment Securities

The Company’s investment securities portfolio totaled $185.4 million as of March 31, 2015, a decrease of $1.1 million, or 0.6%, from December 31, 2014. As of March 31, 2015, the Company had a net unrealized gain on its available for sale investment securities portfolio of $2.6 million, compared to $2.0 million as of December 31, 2014. The investment securities portfolio had a modified duration of 3.4 and 3.8 years at March 31, 2015 and December 31, 2014, respectively.

 

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The following table summarizes activity in the Company’s investment securities portfolio during the first three months of 2015.

 

(dollars in thousands)

   Available for Sale      Held to Maturity  

Balance, December 31, 2014

   $ 174,801       $ 11,705   

Purchases

     3,127         2,274   

Sales

     —           —     

Principal payments and calls

     (6,768      —     

Accretion of discounts and amortization of premiums, net

     (287      (66

Increase in market value

     616         —     
  

 

 

    

 

 

 

Balance, March 31, 2015

$ 171,489    $ 13,913   
  

 

 

    

 

 

 

Funding Sources

Deposits – Deposits totaled $1.0 billion as of March 31, 2015, an increase of $33.0 million, or 3.3%, compared to December 31, 2014. Core deposits totaled $810.6 million as of March 31, 2015, an increase of $37.8 million, or 4.9%, compared to December 31, 2014. The increase was related primarily to NOW accounts (up $24.3 million) and demand deposit accounts (up $8.7 million).

The following table sets forth the composition of the Company’s deposits at the dates indicated.

 

     March 31,      December 31,      Increase (Decrease)  

(dollars in thousands)

   2015      2014      Amount      Percent  

Demand deposit

   $ 276,319       $ 267,660       $ 8,659         3.2

Savings

     83,568         81,145         2,423         3.0   

Money market

     221,949         219,456         2,493         1.1   

NOW

     228,806         204,536         24,270         11.9   

Certificates of deposit

     215,931         220,775         (4,844      (2.2
  

 

 

    

 

 

    

 

 

    

 

 

 

Total deposits

$ 1,026,573    $ 993,572    $ 33,001      3.3
  

 

 

    

 

 

    

 

 

    

 

 

 

Federal Home Loan Bank Advances – Short-term FHLB advances totaled $6.0 million as of March 31, 2015, compared to $31.0 million as of December 31, 2014. Long-term FHLB advances totaled $19.0 million as of March 31, 2015 compared to $16.5 million as of December 31, 2014.

Securities Sold Under Repurchase Agreements – Securities sold under repurchase agreements totaled $20.2 million as of March 31, 2015 with a July 2015 maturity date and an effective interest rate of 0.36%. The underlying securities are U.S. Government obligations and obligations of other U.S. Government agencies. At March 31, 2015, these securities had coupon rates ranging from 1.25% to 3.75% and maturity dates ranging from 2016 to 2028

Shareholders’ Equity – Shareholders’ equity increased $2.6 million, or 1.7%, from $154.1 million as of December 31, 2014 to $156.8 million as of March 31, 2015. The increase was primarily the result of retained earnings (up $2.3 million).

 

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As of March 31, 2015, the Company had regulatory capital that was well in excess of regulatory requirements. The following table details the Company’s actual levels and current regulatory capital requirements as of March 31, 2015.

 

     Actual     Required for Capital
Adequacy Purposes
    To Be Well Capitalized
Under Prompt
Corrective Action
Provisions
 

(dollars in thousands)

   Amount      Ratio     Amount      Ratio     Amount      Ratio  

Tier 1 risk-based capital

   $ 151,323         17.37   $ 34,846         4.00   $ 52,268         6.00

Common equity tier 1 capital

     151,323         17.37        39,201         4.50        56,624         6.50   

Total risk-based capital

     159,595         18.32        69,691         8.00        87,114         10.00   

Tier 1 leverage capital

     151,323         12.38        48,899         4.00        61,123         5.00   

Tangible capital

     151,323         12.38        18,337         1.50        N/A         N/A   

LIQUIDITY AND ASSET/LIABILITY MANAGEMENT

Liquidity Management

Liquidity management encompasses our ability to ensure that funds are available to meet the cash flow requirements of depositors and borrowers, while also ensuring adequate cash flow exists to meet the Company’s needs, including operating, strategic and capital. The Company develops its liquidity management strategies as part of its overall asset/liability management process. Our primary sources of funds are from deposits, amortization of loans, loan prepayments and the maturity of loans, investment securities and other investments, and other funds provided from operations. While scheduled payments from the amortization of loans and investment securities and maturing investment securities are relatively predictable sources of funds, deposit flows and loan prepayments can be greatly influenced by general interest rates, economic conditions and competition. The Company also maintains excess funds in short-term, interest-bearing assets that provide additional liquidity. As of March 31, 2015, cash and cash equivalents totaled $30.2 million. At such date, investment securities available for sale totaled $171.5 million.

The Company uses its liquidity to fund existing and future loan commitments, to fund maturing certificates of deposit and demand deposit withdrawals, to invest in other interest-earning assets, and to meet operating expenses. As of March 31, 2015, certificates of deposit maturing within the next 12 months totaled $155.2 million. Based upon historical experience, the Company anticipates that a significant portion of the maturing certificates of deposit will be redeposited with us. For the three months ended March 31, 2015, the average balance of our outstanding FHLB advances was $35.4 million. As of March 31, 2015, the Company had $25.0 million in total outstanding FHLB advances and had $419.7 million in additional FHLB advances available.

In addition to cash flow from loan and securities payments and prepayments as well as from sales of securities available for sale, the Company has significant borrowing capacity available to fund liquidity needs. In recent years, the Company has utilized borrowings as a cost efficient addition to deposits as a source of funds. Our borrowings consist of advances from the FHLB of Dallas, of which the Company is a member. Under terms of the collateral agreement with the FHLB, the Company pledges residential mortgage loans and investment securities as well as the Company’s stock in the FHLB as collateral for such advances.

Asset/Liability Management

The objective of asset/liability management is to implement strategies for the funding and deployment of the Company’s financial resources that are expected to maximize soundness and profitability over time at acceptable levels of risk. Interest rate sensitivity is the potential impact of changing rate environments on both net interest income and cash flows. The Company measures its interest rate sensitivity over the near term primarily by running net interest income simulations.

 

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Our interest rate sensitivity also is monitored by management through the use of a model which generates estimates of the change in its net interest income over a range of interest rate scenarios. Based on the Company’s interest rate risk model, the table below sets forth the results of immediate and sustained changes in interest rates as of March 31, 2015.

 

Shift in Interest Rates
(in bps)

     % Change in Projected
Net Interest Income
 
  +300         0.4
  +200         0.5   
  +100         0.4   

The actual impact of changes in interest rates will depend on many factors. These factors include the Company’s ability to achieve expected growth in earning assets and maintain a desired mix of earning assets and interest-bearing liabilities, the actual timing of asset and liability repricings, the magnitude of interest rate changes and corresponding movement in interest rate spreads, and the level of success of asset/liability management strategies.

Off-Balance Sheet Activities

To meet the financing needs of its customers, the Bank issues financial instruments which represent conditional obligations that are not recognized, wholly or in part, in the statements of financial condition. These financial instruments include commitments to extend credit and standby letters of credit. Such instruments expose the Company to varying degrees of credit and interest rate risk in much the same way as funded loans. The same credit policies are used in these commitments as for on-balance sheet instruments. The Company’s exposure to credit losses from these financial instruments is represented by their contractual amounts.

The following table summarizes our outstanding commitments to originate loans and to advance additional amounts pursuant to outstanding letters of credit, lines of credit and undisbursed construction loans as of March 31, 2015 and December 31, 2014.

 

     Contract Amount  
     March 31,      December 31,  

(dollars in thousands)

   2015      2014  

Standby letters of credit

   $ 5,125       $ 5,405   

Available portion of lines of credit

     110,814         107,242   

Undisbursed portion of loans in process

     46,030         54,200   

Commitments to originate loans

     87,908         96,506   

Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since many of the commitments are expected to be drawn upon, the total commitment amounts generally represent future cash requirements.

Unfunded commitments under commercial lines of credit, revolving credit lines and overdraft protection agreements are commitments for possible future extensions of credit to existing customers. These lines of credit usually do not contain a specified maturity date and may not be drawn upon to the total extent to which the Company is committed.

The Company is subject to certain claims and litigation arising in the ordinary course of business. In the opinion of management, after consultation with legal counsel, the ultimate disposition of these matters is not expected to have a material effect on the financial condition or results of operations of the Company.

RESULTS OF OPERATIONS

During the first quarter of 2015, the Company earned $2.8 million, an increase of $1.4 million, or 98.7%, compared to the first quarter of 2014. Diluted earnings per share for the first quarter of 2015 were $0.41, an increase of $0.20 per share, or 95.2%, compared to the first quarter of 2014. Excluding merger-related expenses from the first quarter of 2014, net income for the first quarter of 2015 increased 2% compared to the first quarter of 2014. Excluding merger-related expenses, diluted earnings per share for the first quarter of 2015 were virtually identical to the first quarter of 2014.

 

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Net Interest Income – Net interest income is the difference between the interest income earned on interest-earning assets, such as loans and investment securities, and the interest expense paid on interest-bearing liabilities, such as deposits and borrowings. The Company’s net interest income is largely determined by our net interest spread, which is the difference between the average yield earned on interest-earning assets and the average rate paid on interest-bearing liabilities, and the relative amounts of interest-earning assets and interest-bearing liabilities. The Company’s tax-equivalent net interest spread was 4.40% and 4.62% for the three months ended March 31, 2015 and March 31, 2014, respectively. The Company’s tax-equivalent net interest margin, which is net interest income as a percentage of average interest-earning assets, was 4.51% and 4.72% for the three months ended March 31, 2015 and March 31, 2014, respectively. The decrease in the net interest spread and net interest margin related primarily to lower yields on loans and investment securities.

Net interest income totaled $12.5 million for the three months ended March 31, 2015, an increase of $681,000, or 5.8%, compared to the three months ended March 31, 2014. Interest income increased $738,000, or 5.9%, in the first quarter of 2015 compared to the first quarter of 2014. The increase in interest income was primarily due to increased average loan volume. Interest expense increased $57,000, or 7.6%, for the first quarter of 2015 compared to the first quarter of 2014. The increase in the first quarter of 2015 compared to the first quarter of 2014 was primarily due to increases in average volume and in the cost of funds of interest bearing liabilities.

The following table sets forth, for the periods indicated, information regarding (i) the total dollar amount of interest income of the Company from interest-earning assets and the resultant average yields; (ii) the total dollar amount of interest expense on interest-bearing liabilities and the resultant average rate; (iii) net interest income; (iv) net interest spread; and (v) net interest margin. Information is based on average monthly balances during the indicated periods. Taxable equivalent (“TE”) yields are calculated using a marginal tax rate of 35%.

 

     Three Months Ended March 31,  
     2015     2014  

(dollars in thousands)

   Average
Balance
     Interest      Average
Yield/
Rate (1)
    Average
Balance
     Interest      Average
Yield/
Rate(1)
 

Interest-earning assets:

                

Loans receivable(1)

   $ 919,109       $ 12,361         5.40   $ 793,509       $ 11,484         5.81

Investment securities (TE)

     184,331         910         2.18        190,016         1,051         2.47   

Other interest-earning assets

     15,044         34         0.91        31,166         31         0.41   
  

 

 

    

 

 

      

 

 

    

 

 

    

Total interest-earning assets (TE)

  1,118,484      13,305      4.81      1,014,691      12,566      5.02   
     

 

 

         

 

 

    

Noninterest-earning assets

  107,736      103,670   
  

 

 

         

 

 

       

Total assets

$ 1,226,220    $ 1,118,361   
  

 

 

         

 

 

       

Interest-bearing liabilities:

Deposits:

Savings, checking and money market

$ 523,535    $ 291      0.23 $ 423,213    $ 237      0.23

Certificates of deposit

  219,066      394      0.73      219,226      385      0.71   
  

 

 

    

 

 

      

 

 

    

 

 

    

Total interest-bearing deposits

  742,601      685      0.37      642,439      622      0.39   

Securities sold under repurchase agreement

  20,295      19      0.37      14,031      17      0.48   

FHLB advances

  35,441      109      1.23      109,625      116      0.42   
  

 

 

    

 

 

      

 

 

    

 

 

    

Total interest-bearing liabilities

  798,337      813      0.41      766,095      755      0.40   
     

 

 

         

 

 

    

Noninterest-bearing liabilities

  271,822      210,939   
  

 

 

         

 

 

       

Total liabilities

  1,070,159      977,034   

Shareholders’ equity

  156,061      141,327   
  

 

 

         

 

 

       

Total liabilities and shareholders’ equity

$ 1,226,220    $ 1,118,361   
  

 

 

         

 

 

       

Net interest-earning assets

$ 320,147    $ 248,596   
  

 

 

         

 

 

       

Net interest spread (TE)

$ 12,492      4.40 $ 11,811      4.62
     

 

 

         

 

 

    

Net interest margin (TE)

  4.51   4.72

 

(1)  Nonperforming loans are included in the respective average loan balances, net of deferred fees, discounts and loans in process. Acquired loans were recorded at fair value upon acquisition and accrete interest income over the remaining lives of the respective loans.

 

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Table of Contents

(The following table displays the dollar amount of changes in interest income and interest expense for major components of interest-earning assets and interest-bearing liabilities. The table distinguishes between (i) changes attributable to volume (changes in average volume between periods times prior year rate), (ii) changes attributable to rate (changes in average rate between periods times prior year volume) and (iii) total increase (decrease).

 

     For the Three Months Ended  
     March 31,  
     2015 Compared to 2014  
     Change Attributable To  

(dollars in thousands)

   Rate      Volume      Total
Increase
(Decrease)
 

Interest income:

        

Loans receivable

   $ (670    $ 1,547       $ 877   

Investment securities (TE)

     (115      (26      (141

Other interest-earning assets

     29         (26      3   
  

 

 

    

 

 

    

 

 

 

Total interest income

  (756   1,495      739   
  

 

 

    

 

 

    

 

 

 

Interest expense:

Savings, checking and money market accounts

  —        54      54   

Certificates of deposit

  11      (2   9   

Securities sold under repurchase agreement

  (4   6      2   

FHLB advances

  (36   29      (7
  

 

 

    

 

 

    

 

 

 

Total interest expense

  (29   87      58   
  

 

 

    

 

 

    

 

 

 

Increase (decrease) in net interest income

$ (727 $ 1,408    $ 681   
  

 

 

    

 

 

    

 

 

 

Provision for Loan Losses – For the quarter ended March 31, 2015, the Company recorded a provision for loan losses of $538,000, $393,000, or 271.3% higher than the $145,000 recorded for the same period in 2014. As of March 31, 2015, the Company’s ratio of allowance for loan losses to total loans was 0.90%, compared to 0.85% and 0.81% at December 31, 2014 and March 31, 2014, respectively. Excluding acquired loans, the ratio of the allowance for loan losses to total loans was 1.07% at March 31, 2015, compared to 1.04% at December 31, 2014 and 1.10% at March 31, 2014, respectively.

Noninterest Income – The Company’s noninterest income was $2.1 million for the three months ended March 31, 2015, $423,000, or 25.5%, higher than the $1.7 million earned for the same period in 2014. The increase in noninterest income in the first quarter of 2015 compared to the first quarter of 2014 resulted primarily from increases in gain on sale of loans (up $211,000), bank card fees (up $110,000) and service fees and charges (up $96,000).

Noninterest Expense – The Company’s noninterest expense for the first quarter of 2015 decreased $1.5 million, or 13.7%, compared to the first quarter of 2014. Noninterest expense for the first three months of 2014 included $2.2 million of merger-related expenses associated with the acquisition of Britton & Koontz. Excluding merger-related expenses, noninterest expense for the first quarter of 2015 totaled $9.7 million, an increase of $417,000, or 4.5%, compared to the first quarter of 2014. The increase in noninterest expense resulted primarily due to the addition of Britton & Koontz branches and employees.

 

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Income Taxes – For the quarters ended March 31, 2015 and March 31, 2014, the Company incurred income tax expense of $1.5 million and $631,000, respectively. The Company’s effective tax rate was 34.0% and 30.6% during the first quarters of 2015 and 2014, respectively. Differences between the effective tax rate and the statutory tax rate primarily relate to variances in items that are non-taxable or non-deductible (e.g., state tax, tax-exempt income, etc.).

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

Quantitative and qualitative disclosures about market risk are presented in the Company’s Annual Report on Form 10-K filed with the SEC for the year ended December 31, 2014, under the heading “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Asset/ Liability Management and Market Risk”. Additional information at March 31, 2015 is included herein under Item 2, “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Liquidity and Asset/Liability Management”.

Item 4. Controls and Procedures.

Our management evaluated, with the participation of our Chief Executive Officer and Chief Financial Officer, the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934) as of the end of the period covered by this report. Based on such evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures are designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and regulations and are operating in an effective manner.

No change in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15(d)-15(f) under the Securities Exchange Act of 1934) occurred during the first quarter of 2015 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

PART II. OTHER INFORMATION

Item 1. Legal Proceedings.

Not applicable.

Item 1A. Risk Factors.

There have been no material changes from the risk factors previously disclosed in the Company’s Annual Report on Form 10-K for December 31, 2014 filed with the Securities and Exchange Commission.

Item 2. Unregistered Sales of Equity Securities and the Use of Proceeds.

The Company’s purchases of its common stock made during the quarter consisted of stock repurchases under the Company’s approved plan and are set forth in the following table.

 

Period

   Total
Number of
Shares
Purchased
     Average Price
Paid per Share
     Total Number of
Shares Purchased
as Part of Publicly
Announced Plans
or Programs
     Maximum Number of
Shares that May Yet
be Purchased Under
the Plan or
Programs(1)
 

January 1 - January 31, 2015

     15,700       $ 22.67         15,700         125,801   

February 1 – February 28, 2015

     30,780         21.53         30,780         95,021   

March 1 – March 31, 2015

     36,713         21.28         9,771         85,250   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

  83,193    $ 21.64      56,251      85,250   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

(1)  On June 7, 2013, the Company announced the commencement of a new stock repurchase program. Under the plan, the Company can repurchase up to 370,000 shares, or approximately 5% of its common stock outstanding, through open market or privately negotiated transactions.

 

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Item 3. Defaults Upon Senior Securities.

None.

Item 4. Mine Safety Disclosures.

None.

Item 5. Other Information.

None.

 

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Item 6. Exhibits and Financial Statement Schedules.

 

No.

  

Description

  31.1    Rule 13(a)-14(a) Certification of the Chief Executive Officer
  31.2    Rule 13(a)-14(a) Certification of the Chief Financial Officer
  32.0    Section 1350 Certification
101.INS    XBRL Instance Document
101.SCH    XBRL Taxonomy Extension Schema Document
101.CAL    XBRL Taxonomy Extension Calculation Linkbase Document
101.LAB    XBRL Taxonomy Extension Label Linkbase Document
101.PRE    XBRL Taxonomy Extension Presentation Linkbase Document
101.DEF    XBRL Taxonomy Extension Definitions Linkbase Document

 

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

HOME BANCORP, INC.
May 11, 2015 By:

/s/ John W. Bordelon

John W. Bordelon
President, Chief Executive Officer and Director
May 11, 2015 By:

/s/ Joseph B. Zanco

Joseph B. Zanco
Executive Vice President and Chief Financial Officer

 

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