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, 2016

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   (I.R.S. Employer
Incorporation or Organization)   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 3, 2016, the registrant had 7,260,671 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      25   

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      38   

SIGNATURES

     39   


Table of Contents

HOME BANCORP, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION

 

     (Unaudited)
March 31,

2016
    (Audited)
December 31,
2015
 

Assets

    

Cash and cash equivalents

   $ 17,960,269      $ 24,797,599   

Interest-bearing deposits in banks

     4,653,585        5,143,585   

Investment securities available for sale, at fair value

     178,533,171        176,762,200   

Investment securities held to maturity (fair values of $14,144,886 and $14,120,842, respectively)

     13,845,761        13,926,861   

Mortgage loans held for sale

     11,504,158        5,651,250   

Loans, net of unearned income

     1,218,059,238        1,224,365,916   

Allowance for loan losses

     (10,397,231     (9,547,487
  

 

 

   

 

 

 

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

     1,207,662,007        1,214,818,429   
  

 

 

   

 

 

 

Office properties and equipment, net

     42,190,686        40,815,744   

Cash surrender value of bank-owned life insurance

     19,787,613        19,666,900   

Accrued interest receivable and other assets

     47,983,954        50,329,032   
  

 

 

   

 

 

 

Total Assets

   $ 1,544,121,204      $ 1,551,911,600   
  

 

 

   

 

 

 

Liabilities

    

Deposits:

    

Noninterest-bearing

   $ 292,410,344      $ 296,616,693   

Interest-bearing

     951,288,494        947,599,823   
  

 

 

   

 

 

 

Total deposits

     1,243,698,838        1,244,216,516   

Short-term Federal Home Loan Bank (FHLB) advances

     28,157,593        39,939,375   

Long-term Federal Home Loan Bank (FHLB) advances

     84,853,020        85,213,222   

Accrued interest payable and other liabilities

     18,247,985        17,496,133   
  

 

 

   

 

 

 

Total Liabilities

     1,374,957,436        1,386,865,246   
  

 

 

   

 

 

 

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; 7,256,671 and 7,239,821 shares issued and outstanding, respectively

     72,568        72,399   

Additional paid-in capital

     77,389,045        76,948,914   

Unallocated common stock held by:

    

Employee Stock Ownership Plan (ESOP)

     (4,463,400     (4,552,670

Recognition and Retention Plan (RRP)

     (156,678     (158,590

Retained earnings

     94,542,265        91,864,543   

Accumulated other comprehensive income

     1,779,968        871,758   
  

 

 

   

 

 

 

Total Shareholders’ Equity

     169,163,768        165,046,354   
  

 

 

   

 

 

 

Total Liabilities and Shareholders’ Equity

   $ 1,544,121,204      $ 1,551,911,600   
  

 

 

   

 

 

 

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,  
     2016      2015  

Interest Income

     

Loans, including fees

   $ 16,018,095       $ 12,360,963   

Investment securities:

     

Taxable interest

     798,352         735,637   

Tax-exempt interest

     172,732         174,484   

Other investments and deposits

     59,382         33,752   
  

 

 

    

 

 

 

Total interest income

     17,048,561         13,304,836   
  

 

 

    

 

 

 

Interest Expense

     

Deposits

     931,853         684,979   

Securities sold under repurchase agreement

     —           18,429   

Short-term FHLB advances

     43,598         6,071   

Long-term FHLB advances

     350,629         103,235   
  

 

 

    

 

 

 

Total interest expense

     1,326,080         812,714   
  

 

 

    

 

 

 

Net interest income

     15,722,481         12,492,122   

Provision for loan losses

     850,000         538,487   
  

 

 

    

 

 

 

Net interest income after provision for loan losses

     14,872,481         11,953,635   
  

 

 

    

 

 

 

Noninterest Income

     

Service fees and charges

     1,036,410         892,118   

Bank card fees

     601,201         565,584   

Gain on sale of loans, net

     300,673         373,173   

Income from bank-owned life insurance

     120,712         132,359   

Other income

     508,282         115,450   
  

 

 

    

 

 

 

Total noninterest income

     2,567,278         2,078,684   
  

 

 

    

 

 

 

Noninterest Expense

     

Compensation and benefits

     7,201,036         5,760,787   

Occupancy

     1,309,597         1,171,280   

Marketing and advertising

     257,664         110,328   

Data processing and communication

     1,543,715         943,332   

Professional services

     294,207         238,175   

Forms, printing and supplies

     177,292         144,810   

Franchise and shares tax

     219,773         147,272   

Regulatory fees

     322,691         280,467   

Foreclosed assets, net

     118,377         235,782   

Other expenses

     896,836         686,853   
  

 

 

    

 

 

 

Total noninterest expense

     12,341,188         9,719,086   
  

 

 

    

 

 

 

Income before income tax expense

     5,098,571         4,313,233   

Income tax expense

     1,748,893         1,465,469   
  

 

 

    

 

 

 

Net Income

   $ 3,349,678       $ 2,847,764   
  

 

 

    

 

 

 

Earnings per share:

     

Basic

   $ 0.49       $ 0.43   
  

 

 

    

 

 

 

Diluted

   $ 0.47       $ 0.41   
  

 

 

    

 

 

 

Cash dividends declared per common share

   $ 0.09       $ 0.07   
  

 

 

    

 

 

 

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

 

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HOME BANCORP, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited)

 

     For the Three Months Ended  
     March 31,  
     2016     2015  

Net Income

   $ 3,349,678      $ 2,847,764   
  

 

 

   

 

 

 

Other Comprehensive Income

    

Unrealized gains on investment securities

   $ 1,397,246      $ 616,469   

Tax effect

     (489,036     (215,764
  

 

 

   

 

 

 

Other comprehensive income, net of taxes

   $ 908,210      $ 400,705   
  

 

 

   

 

 

 

Comprehensive Income

   $ 4,257,888      $ 3,248,469   
  

 

 

   

 

 

 

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 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, 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   

Purchase of Company’s common shares 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   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

Balance, December 31, 2015(1)

  $ 72,399      $ 76,948,914      $ —        $ (4,552,670   $ (158,590   $ 91,864,543      $ 871,758       $ 165,046,354   

Net income

              3,349,678           3,349,678   

Other comprehensive income

                908,210         908,210   

Purchase of Company’s common shares at cost, 1,250 shares

    (13     (12,488           (19,949        (32,450

Cash dividends declared, $0.09 per share

              (652,007        (652,007

Exercise of stock options

    182        207,064                   207,246   

ESOP shares released for allocation

      180,813          89,270               270,083   

Restricted stock vesting

      (1,594         1,912             318   

Share-based compensation cost

      66,336                   66,336   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

Balance, March 31, 2016

  $ 72,568      $ 77,389,045      $ —        $ (4,463,400   $ (156,678   $ 94,542,265      $ 1,779,968       $ 169,163,768   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

 

(1)  Balances as of December 31, 2014 and December 31, 2015 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,

 
     2016     2015  

Cash flows from operating activities:

    

Net income

   $ 3,349,678      $ 2,847,764   

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

    

Provision for loan losses

     850,000        538,487   

Depreciation

     456,262        447,898   

Amortization of purchase accounting valuations and intangibles

     532,980        1,214,457   

Net amortization of mortgage servicing asset

     65,745        31,270   

Federal Home Loan Bank stock dividends

     (19,900     (3,900

Net amortization of premium on investments

     370,778        354,341   

Gain on loans sold, net

     (300,673     (373,173

Proceeds, including principal payments, from loans held for sale

     27,923,041        35,200,887   

Originations of loans held for sale

     (33,475,276     (35,933,388

Non-cash compensation

     295,441        226,961   

Deferred income tax (benefit) provision

     117,024        (43,135

Decrease (increase) in interest receivable and other assets

     946,840        (316,553

Increase in cash surrender value of bank-owned life insurance

     (120,713     (132,359

Increase (decrease) in accrued interest payable and other liabilities

     810,030        (494,581
  

 

 

   

 

 

 

Net cash provided by operating activities

     1,801,257        3,564,976   
  

 

 

   

 

 

 

Cash flows from investing activities:

    

Purchases of securities available for sale

     (7,968,779     (3,126,663

Purchases of securities held to maturity

     —          (2,273,910

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

     7,305,376        6,767,654   

Net change in loans

     6,303,936        (14,586,858

Reimbursement from FDIC for covered assets

     —          130,933   

Decrease in interest bearing deposits in other banks

     490,000        —     

Proceeds from sale of repossessed assets

     105,760        496,798   

Purchases of office properties and equipment

     (1,831,792     (67,570

Proceeds from sale of properties and equipment

     595        500   

Purchases of Federal Home Loan Bank stock

     —          (722,500

Proceeds from redemption of Federal Home Loan Bank stock

     —          1,272,900   
  

 

 

   

 

 

 

Net cash provided by (used in) investing activities

     4,405,096        (12,108,716
  

 

 

   

 

 

 

Cash flows from financing activities:

    

(Decrease) increase in deposits

     (483,612     33,015,266   

Borrowings on Federal Home Loan Bank advances

     1,176,750,000        1,038,050,000   

Repayments of Federal Home Loan Bank advances

     (1,188,832,860     (1,060,550,000

Purchase of Company’s common stock

     (32,450     (1,800,042

Proceeds from exercise of stock options

     207,246        1,426,850   

Payment of dividends on common stock

     (652,007     (500,383
  

 

 

   

 

 

 

Net cash (used in) provided by financing activities

     (13,043,683     9,641,691   
  

 

 

   

 

 

 

Net change in cash and cash equivalents

     (6,837,330     1,097,951   

Cash and cash equivalents at beginning of year

     24,797,599        29,077,907   
  

 

 

   

 

 

 

Cash and cash equivalents at end of period

   $ 17,960,269      $ 30,175,858   
  

 

 

   

 

 

 

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, 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, 2016 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, 2015.

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, 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 January 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2016-01, “Recognition and Measurement of Financial Assets and Financial Liabilities”. The ASU amendments include changes related to how certain equity investments are measured, recognize changes in the fair value of certain financial liabilities measured under the fair value option, and disclose and present financial assets and liabilities on the Company’s consolidated financial statements. Additionally, the ASU will also require entities to present financial assets and financial liabilities separately, grouped by measurement category and form of financial asset in the statement of financial position or in the accompanying notes to the financial statements. Entities will also no longer have to disclose the methods and significant assumptions for financial instruments measured at amortized cost, but will be required to measure such instruments under the “exit price” notion for disclosure purposes. The ASU is effective for annual and interim periods beginning after December 15, 2017. The adoption of this ASU is not expected to have a material effect on our Consolidated Financial Statements.

In February 2016, the FASB issued ASU 2016-02, “Conforming Amendments Related to Leases”. This ASU amends the codification regarding leases in order to increase transparency and comparability. The ASU requires companies to recognize lease assets and liabilities on the statement of condition and disclose key information about leasing arrangements. A lessee would recognize a liability to make lease payments and a right-of-use asset representing its right to use the leased asset for the lease term. The ASU is effective for annual and interim periods beginning after December 15, 2018. The adoption of this ASU is not expected to have a material effect on our Consolidated Financial Statements.

 

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In March 2016, the FASB issued ASU 2016-09, “Improvements to Employee Share-Based Payment Accounting”. The ASU amends the codification to simplify several aspects of the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, and classification in the statement of cash flows. This ASU is effective for annual and interim periods beginning after December 15, 2016, with early adoption permitted. The Company is currently evaluating the impact of the adoption of this guidance on the Consolidated Financial Statements.

3. Investment Securities

Summary information regarding the Company’s investment securities classified as available for sale and held to maturity as of March 31, 2016 and December 31, 2015 is as follows.

 

(dollars in thousands)

   Amortized
Cost
     Gross
Unrealized
Gains
     Gross Unrealized
Losses
     Fair Value  
March 31, 2016                  Less Than
1 Year
     Over
1 Year
        

Available for sale:

              

U.S. agency mortgage-backed

   $ 135,724       $ 2,161       $ 38       $ 150       $ 137,697   

Non-U.S. agency mortgage-backed

     5,857         29         8         57         5,821   

Municipal bonds

     22,131         592         2         —           22,721   

U.S. government agency

     12,085         214         5         —           12,294   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total available for sale

   $ 175,797       $ 2,996       $ 53       $ 207       $ 178,533   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Held to maturity:

              

Municipal bonds

   $ 13,846       $ 316       $ —         $ 17       $ 14,145   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

(dollars in thousands)

   Amortized
Cost
     Gross
Unrealized
Gains
     Gross Unrealized
Losses
     Fair Value  
December 31, 2015                  Less Than
1 Year
     Over
1 Year
        

Available for sale:

              

U.S. agency mortgage-backed

   $ 134,748       $ 1,464       $ 287       $ 447       $ 135,478   

Non-U.S. agency mortgage-backed

     6,055         51         —           41         6,065   

Municipal bonds

     22,453         490         10         —           22,933   

U.S. government agency

     12,166         145         25         —           12,286   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total available for sale

   $ 175,422       $ 2,150       $ 322       $ 488       $ 176,762   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Held to maturity:

              

Municipal bonds

   $ 13,927       $ 239       $ 45       $ —         $ 14,121   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

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The estimated fair value and amortized cost by maturity of the Company’s investment securities as of March 31, 2016 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

   $ 1,902       $ 5,914       $ 35,834       $ 94,047       $ 137,697   

Non-U.S. agency mortgage-backed

     —           —           —           5,821         5,821   

Municipal bonds

     2,600         8,235         10,123         1,763         22,721   

U.S. government agency

     —           8,114         —           4,180         12,294   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total available for sale

   $ 4,502       $ 22,263       $ 45,957       $ 105,811       $ 178,533   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Securities held to maturity:

              

Municipal bonds

   $ 236       $ 1,104       $ 9,350       $ 3,455       $ 14,145   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total investment securities

   $ 4,738       $ 23,367       $ 55,307       $ 109,266       $ 192,678   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

(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

   $ 1,902       $ 5,818       $ 35,405       $ 92,599       $ 135,724   

Non-U.S. agency mortgage-backed

     —           —           —           5,857         5,857   

Municipal bonds

     2,584         7,987         9,912         1,648         22,131   

U.S. government agency

     —           7,989         —           4,096         12,085   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total available for sale

   $ 4,486       $ 21,794       $ 45,317       $ 104,200       $ 175,797   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Securities held to maturity:

              

Municipal bonds

   $ 236       $ 1,080       $ 9,100       $ 3,430       $ 13,846   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total investment securities

   $ 4,722       $ 22,874       $ 54,417       $ 107,630       $ 189,643   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

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, 2016, 26 of the Company’s debt securities had unrealized losses totaling 0.8% of the individual securities’ amortized cost basis and 0.1% of the Company’s total amortized cost basis of the investment securities portfolio. At such date, 12 of the 26 securities had been in a continuous loss position for over 12 months. The 12 securities had an aggregate amortized cost basis of $15.3 million and unrealized loss of $224,000 at March 31, 2016. Management has the intent and ability to hold these debt securities until maturity, or until anticipated recovery; hence, no declines in these 12 securities were deemed to be other-than-temporary.

 

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Table of Contents

As of March 31, 2016 and December 31, 2015, the Company had $97,464,000 and $94,661,000, respectively, of securities pledged to secure public deposits.

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)

   2016      2015  

Numerator:

     

Net income available to common shareholders

   $ 3,350       $ 2,848   

Denominator:

     

Weighted average common shares outstanding

     6,784         6,634   

Effect of dilutive securities:

     

Restricted stock

     3         3   

Stock options

     265         325   
  

 

 

    

 

 

 

Weighted average common shares outstanding – assuming dilution

     7,052         6,962   
  

 

 

    

 

 

 

Basic earnings per common share

   $ 0.49       $ 0.43   
  

 

 

    

 

 

 

Diluted earnings per common share

   $ 0.47       $ 0.41   
  

 

 

    

 

 

 

Options on 69,096 and 9,500 shares of common stock were not included in the computation of diluted earnings per share for the three months ended March 31, 2016 and March 31, 2015, respectively, because the effect of these shares 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 is 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

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, and the acquisitions of GS Financial Corp. (“GSFC”), the former holding company of Guaranty Savings Bank of Metairie, Louisiana, on July 15, 2011, 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, and Louisiana Bancorp, Inc. (“Louisiana Bancorp”), the former holding company of Bank of New Orleans (“BNO”) of Metairie, Louisiana on September 15, 2015 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

 

9


Table of Contents

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 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 nonaccretable discount for the loan pool. Once the nonaccretable 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.

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

 

     As of March 31, 2016  
     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

   $ 1,391       $ 34       $ 92       $ 1,517   

Home equity loans and lines

     575         —           318         893   

Commercial real estate

     3,180         86         —           3,266   

Construction and land

     1,372         —           57         1,429   

Multi-family residential

     175         —           —           175   

Commercial and industrial

     2,031         418         113         2,562   

Consumer

     555         —           —           555   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total allowance for loan losses

   $ 9,279       $ 538       $ 580       $ 10,397   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

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Table of Contents
     As of March 31, 2016  
     Originated Loans                

(dollars in thousands)

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

Recorded investment in loans:

           

One- to four-family first mortgage

   $ 189,371       $ 81       $ 198,838       $ 388,290   

Home equity loans and lines

     44,527         —           51,529         96,056   

Commercial real estate

     294,389         165         113,612         408,166   

Construction and land

     112,289         —           4,958         117,247   

Multi-family residential

     15,141         —           22,286         37,427   

Commercial and industrial

     113,564         1,053         9,846         124,463   

Consumer

     44,486         —           1,924         46,410   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total loans

   $ 813,767       $ 1,299       $ 402,993       $ 1,218,059   
  

 

 

    

 

 

    

 

 

    

 

 

 
     As of December 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

   $ 1,338       $ 34       $ 92       $ 1,464   

Home equity loans and lines

     536         —           224         760   

Commercial real estate

     3,066         86         —           3,152   

Construction and land

     1,360         —           57         1,417   

Multi-family residential

     173         —           —           173   

Commercial and industrial

     1,977         33         —           2,010   

Consumer

     571         —           —           571   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total allowance for loan losses

   $ 9,021       $ 153       $ 373       $ 9,547   
  

 

 

    

 

 

    

 

 

    

 

 

 
     As of December 31, 2015  
     Originated Loans                

(dollars in thousands)

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

Recorded investment in loans:

           

One- to four-family first mortgage

   $ 185,802       $ 78       $ 205,386       $ 391,266   

Home equity loans and lines

     40,251         —           53,809         94,060   

Commercial real estate

     285,856         181         119,342         405,379   

Construction and land

     109,007         —           7,768         116,775   

Multi-family residential

     14,962         —           28,901         43,863   

Commercial and industrial

     115,360         707         9,041         125,108   

Consumer

     45,641         —           2,274         47,915   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total loans

   $ 796,879       $ 966       $ 426,521       $ 1,224,366   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

(1)  $17.4 million and $20.0 million in acquired loans were accounted for under ASC 310-30 at March 31, 2016 and December 31, 2015, 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, 2016 and March 31, 2015 follows.

 

                                                                                              
     For the Three Months Ended March 31, 2016  

(dollars in thousands)

   Beginning
Balance
     Charge-offs     Recoveries      Provision      Ending
Balance
 

Originated loans:

             

Allowance for loan losses:

             

One- to four-family first mortgage

   $ 1,372       $ (3   $ —         $ 56       $ 1,425   

Home equity loans and lines

     536         —          1         38         575   

Commercial real estate

     3,152         —          —           114         3,266   

Construction and land

     1,360         —          —           12         1,372   

Multi-family residential

     173         —          —           2         175   

Commercial and industrial

     2,010         (47     10         476         2,449   

Consumer

     571         (56     1         39         555   
  

 

 

    

 

 

   

 

 

    

 

 

    

 

 

 

Total allowance for loan losses

   $ 9,174       $ (106   $ 12       $ 737       $ 9,817   
  

 

 

    

 

 

   

 

 

    

 

 

    

 

 

 

Acquired loans:

             

Allowance for loan losses:

             

One- to four-family first mortgage

   $ 92       $ —        $ —         $ —         $ 92   

Home equity loans and lines

     224         —          —           94         318   

Commercial real estate

     —           —          —           —           —     

Construction and land

     57         —          —           —           57   

Multi-family residential

     —           —          —           —           —     

Commercial and industrial

     —           —          94         19         113   

Consumer

     —           —          —           —           —     
  

 

 

    

 

 

   

 

 

    

 

 

    

 

 

 

Total allowance for loan losses

   $ 373       $ —        $ 94       $ 113       $ 580   
  

 

 

    

 

 

   

 

 

    

 

 

    

 

 

 

Total loans:

             

Allowance for loan losses:

             

One- to four-family first mortgage

   $ 1,464       $ (3   $ —         $ 56       $ 1,517   

Home equity loans and lines

     760         —          1         132         893   

Commercial real estate

     3,152         —          —           114         3,266   

Construction and land

     1,417         —          —           12         1,429   

Multi-family residential

     173         —          —           2         175   

Commercial and industrial

     2,010         (47     104         495         2,562   

Consumer

     571         (56     1         39         555   
  

 

 

    

 

 

   

 

 

    

 

 

    

 

 

 

Total allowance for loan losses

   $ 9,547       $ (106   $ 106       $ 850       $ 10,397   
  

 

 

    

 

 

   

 

 

    

 

 

    

 

 

 

 

                                                                                              
     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   
  

 

 

    

 

 

   

 

 

    

 

 

    

 

 

 

 

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Table of Contents
                                                                                              

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   
  

 

 

    

 

 

   

 

 

    

 

 

    

 

 

 

The following tables present the Company’s loan portfolio by credit quality classification as of the dates indicated.

 

                                                                                              
     March 31, 2016  

(dollars in thousands)

   Pass      Special
Mention
     Substandard      Doubtful      Total  

Originated loans:

              

One- to four-family first mortgage

   $ 187,617       $ 427       $ 1,408       $ —         $ 189,452   

Home equity loans and lines

     43,689         367         471         —           44,527   

Commercial real estate

     291,532         974         2,048         —           294,554   

Construction and land

     111,583         30         676         —           112,289   

Multi-family residential

     15,141         —           —           —           15,141   

Commercial and industrial

     112,312         —           2,305         —           114,617   

Consumer

     44,020         64         402         —           44,486   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total originated loans

   $ 805,894       $ 1,862       $ 7,310       $ —         $ 815,066   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Acquired loans:

              

One- to four-family first mortgage

   $ 194,438       $ 759       $ 3,641       $ —         $ 198,838   

Home equity loans and lines

     51,111         102         316         —           51,529   

Commercial real estate

     107,719         4,048         1,845         —           113,612   

Construction and land

     3,828         —           1,130         —           4,958   

Multi-family residential

     21,347         10         929         —           22,286   

Commercial and industrial

     7,570         —           2,276         —           9,846   

Consumer

     1,863         30         31         —           1,924   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total acquired loans

   $ 387,876       $ 4,949       $ 10,168       $ —         $ 402,993   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total:

              

One- to four-family first mortgage

   $ 382,055       $ 1,186       $ 5,049       $ —         $ 388,290   

Home equity loans and lines

     94,800         469         787         —           96,056   

Commercial real estate

     399,251         5,022         3,893         —           408,166   

Construction and land

     115,411         30         1,806         —           117,247   

Multi-family residential

     36,488         10         929         —           37,427   

Commercial and industrial

     119,882         —           4,581         —           124,463   

Consumer

     45,883         94         433         —           46,410   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total loans

   $ 1,193,770       $ 6,811       $ 17,478       $ —         $ 1,218,059   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

13


Table of Contents
                                                                                              
     December 31, 2015  

(dollars in thousands)

   Pass      Special
Mention
     Substandard      Doubtful      Total  

Originated loans:

              

One- to four-family first mortgage

   $ 183,863       $ 439       $ 1,578       $ —         $ 185,880   

Home equity loans and lines

     39,736         394         121         —           40,251   

Commercial real estate

     282,963         988         2,086         —           286,037   

Construction and land

     107,901         —           1,106         —           109,007   

Multi-family residential

     14,962         —           —           —           14,962   

Commercial and industrial

     113,108         585         2,374         —           116,067   

Consumer

     45,133         38         470         —           45,641   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total originated loans

   $ 787,666       $ 2,444       $ 7,735       $ —         $ 797,845   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Acquired loans:

              

One- to four-family first mortgage

   $ 200,966       $ 791       $ 3,629       $ —         $ 205,386   

Home equity loans and lines

     53,352         20         437         —           53,809   

Commercial real estate

     112,802         4,085         2,455         —           119,342   

Construction and land

     4,573         1,819         1,376         —           7,768   

Multi-family residential

     27,931         12         958         —           28,901   

Commercial and industrial

     7,071         1,191         779         —           9,041   

Consumer

     2,160         51         63         —           2,274   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total acquired loans

   $ 408,855       $ 7,969       $ 9,697       $ —         $ 426,521   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total:

              

One- to four-family first mortgage

   $ 384,829       $ 1,230       $ 5,207       $ —         $ 391,266   

Home equity loans and lines

     93,088         414         558         —           94,060   

Commercial real estate

     395,765         5,073         4,541         —           405,379   

Construction and land

     112,474         1,819         2,482         —           116,775   

Multi-family residential

     42,893         12         958         —           43,863   

Commercial and industrial

     120,179         1,776         3,153         —           125,108   

Consumer

     47,293         89         533         —           47,915   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total loans

   $ 1,196,521       $ 10,413       $ 17,432       $ —         $ 1,224,366   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

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.

 

    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.

 

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Table of Contents

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

 

                                                                                                           
     March 31, 2016  

(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

   $ 1,000       $ 354       $ 521       $ 1,875       $ 187,577       $ 189,452   

Home equity loans and lines

     574         12         195         781         43,746         44,527   

Commercial real estate

     —           —           596         596         293,958         294,554   

Construction and land

     —           —           87         87         112,202         112,289   

Multi-family residential

     —           —           —           —           15,141         15,141   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total real estate loans

     1,574         366         1,399         3,339         652,624         655,963   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Other loans:

                 

Commercial and industrial

     687         —           754         1,441         113,176         114,617   

Consumer

     398         41         196         635         43,851         44,486   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total other loans

     1,085         41         950         2,076         157,027         159,103   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total originated loans

   $ 2,659       $ 407       $ 2,349       $ 5,415       $ 809,651       $ 815,066   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Acquired loans:

                 

Real estate loans:

                 

One- to four-family first mortgage

   $ 1,805       $ 693       $ 1,895       $ 4,393       $ 194,445       $ 198,838   

Home equity loans and lines

     378         54         96         528         51,001         51,529   

Commercial real estate

     19         —           1,449         1,468         112,144         113,612   

Construction and land

     5         —           41         46         4,912         4,958   

Multi-family residential

     —           —           —           —           22,286         22,286   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total real estate loans

     2,207         747         3,481         6,435         384,788         391,223   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Other loans:

                 

Commercial and industrial

     7         —           438         445         9,401         9,846   

Consumer

     10         15         9         34         1,890         1,924   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total other loans

     17         15         447         479         11,291         11,770   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total acquired loans

   $ 2,224       $ 762       $ 3,928       $ 6,914       $ 396,079       $ 402,993   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total loans:

                 

Real estate loans:

                 

One- to four-family first mortgage

   $ 2,805       $ 1,047       $ 2,416       $ 6,268       $ 382,022       $ 388,290   

Home equity loans and lines

     952         66         291         1,309         94,747         96,056   

Commercial real estate

     19         —           2,045         2,064         406,102         408,166   

Construction and land

     5         —           128         133         117,114         117,247   

Multi-family residential

     —           —           —           —           37,427         37,427   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total real estate loans

     3,781         1,113         4,880         9,774         1,037,412         1,047,186   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Other loans:

                 

Commercial and industrial

     694         —           1,192         1,886         122,577         124,463   

Consumer

     408         56         205         669         45,741         46,410   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total other loans

     1,102         56         1,397         2,555         168,318         170,873   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total loans

   $ 4,883       $ 1,169       $ 6,277       $ 12,329       $ 1,205,730       $ 1,218,059   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

15


Table of Contents
                                                                                                           
     December 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

   $ 2,174       $ 435       $ 890       $ 3,499       $ 182,381       $ 185,880   

Home equity loans and lines

     87         —           121         208         40,043         40,251   

Commercial real estate

     438         —           602         1,040         284,997         286,037   

Construction and land

     117         —           87         204         108,803         109,007   

Multi-family residential

     —           —           —           —           14,962         14,962   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total real estate loans

     2,816         435         1,700         4,951         631,186         636,137   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Other loans:

                 

Commercial and industrial

     411         15         707         1,133         114,934         116,067   

Consumer

     533         277         358         1,168         44,473         45,641   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total other loans

     944         292         1,065         2,301         159,407         161,708   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total originated loans

   $ 3,760       $ 727       $ 2,765       $ 7,252       $ 790,593       $ 797,845   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Acquired loans:

                 

Real estate loans:

                 

One- to four-family first mortgage

   $ 1,976       $ 885       $ 2,582       $ 5,443       $ 199,943       $ 205,386   

Home equity loans and lines

     327         40         317         684         53,125         53,809   

Commercial real estate

     140         6         1,441         1,587         117,755         119,342   

Construction and land

     592         7         48         647         7,121         7,768   

Multi-family residential

     —           14         12         26         28,875         28,901   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total real estate loans

     3,035         952         4,400         8,387         406,819         415,206   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Other loans:

                 

Commercial and industrial

     14         7         429         450         8,591         9,041   

Consumer

     64         4         48         116         2,158         2,274   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total other loans

     78         11         477         566         10,749         11,315   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total acquired loans

   $ 3,113       $ 963       $ 4,877       $ 8,953       $ 417,568       $ 426,521   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total loans:

                 

Real estate loans:

                 

One- to four-family first mortgage

   $ 4,150       $ 1,320       $ 3,472       $ 8,942       $ 382,324       $ 391,266   

Home equity loans and lines

     414         40         438         892         93,168         94,060   

Commercial real estate

     578         6         2,043         2,627         402,752         405,379   

Construction and land

     709         7         135         851         115,924         116,775   

Multi-family residential

     —           14         12         26         43,837         43,863   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total real estate loans

     5,851         1,387         6,100         13,338         1,038,005         1,051,343   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Other loans:

                 

Commercial and industrial

     425         22         1,136         1,583         123,525         125,108   

Consumer

     597         281         406         1,284         46,631         47,915   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total other loans

     1,022         303         1,542         2,867         170,156         173,023   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total loans

   $ 6,873       $ 1,690       $ 7,642       $ 16,205       $ 1,208,161       $ 1,224,366   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Excluding Acquired Loans with deteriorated credit quality, as of March 31, 2016 and December 31, 2015, the Company did not have any loans greater than 90 days past due and accruing.

 

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Table of Contents

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, 2016  

(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

   $ —         $ —         $ —         $ —         $ —     

Home equity loans and lines

     —           —           —           —           —     

Commercial real estate

     —           —           —           —           —     

Construction and land

     —           —           —           —           —     

Multi-family residential

     —           —           —           —           —     

Commercial and industrial

     —           —           —           —           —     

Consumer

     —           —           —           —           —     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ —         $ —         $ —         $ —         $ —     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

With an allowance recorded:

              

One- to four-family first mortgage

   $ 81       $ 81       $ 34       $ 81       $ 1   

Home equity loans and lines

     —           —           —           —           —     

Commercial real estate

     165         173         86         173         2   

Construction and land

     —           —           —           —           —     

Multi-family residential

     —           —           —           —           —     

Commercial and industrial

     1,053         1,079         418         822         15   

Consumer

     —           —           —           —           —     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 1,299       $ 1,333       $ 538       $ 1,076       $ 18   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total impaired Originated Loans:

              

One- to four-family first mortgage

   $ 81       $ 81       $ 34       $ 81       $ 1   

Home equity loans and lines

     —           —           —           —           —     

Commercial real estate

     165         173         86         173         2   

Construction and land

     —           —           —           —           —     

Multi-family residential

     —           —           —           —           —     

Commercial and industrial

     1,053         1,079         418         822         15   

Consumer

     —           —           —           —           —     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 1,299       $ 1,333       $ 538       $ 1,076       $ 18   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

     As of Period Ended December 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

   $ —         $ —         $ —         $ 72       $ —     

Home equity loans and lines

     —           —           —           —           —     

Commercial real estate

     —           —           —           —           —     

Construction and land

     —           —           —           —           —     

Multi-family residential

     —           —           —           —           —     

Commercial and industrial

     —           —           —           213         —     

Consumer

     —           —           —           —           —     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ —         $ —         $ —         $ 285       $ —     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

With an allowance recorded:

              

One- to four-family first mortgage

   $ 78       $ 78       $ 34       $ 6       $ 5   

Home equity loans and lines

     —           —           —           —           —     

Commercial real estate

     181         181         86         461         11   

Construction and land

     —           —           —           —           —     

Multi-family residential

     —           —           —           —           —     

Commercial and industrial

     707         707         33         729         39   

Consumer

     —           —           —           —           —     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 966       $ 966       $ 153       $ 1,196       $ 55   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

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Table of Contents

Total impaired Originated Loans:

              

One- to four-family first mortgage

   $ 78       $ 78       $ 34       $ 78       $ 5   

Home equity loans and lines

     —           —           —           —           —     

Commercial real estate

     181         181         86         461         11   

Construction and land

     —           —           —           —           —     

Multi-family residential

     —           —           —           —           —     

Commercial and industrial

     707         707         33         942         39   

Consumer

     —           —           —           —           —     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 966       $ 966       $ 153       $ 1,481       $ 55   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

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

 

     March 31, 2016      December 31, 2015  

(dollars in thousands)

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

Nonaccrual loans:

                 

One- to four-family first mortgage

   $ 734       $ 2,578       $ 3,312       $ 928       $ 2,649       $ 3,577   

Home equity loans and lines

     471         289         760         121         412         533   

Commercial real estate

     1,638         1,866         3,504         1,671         2,526         4,197   

Construction and land

     87         81         168         87         121         208   

Multi-family residential

     —           —           —           —           763         763   

Commercial and industrial

     2,304         859         3,163         2,374         610         2,984   

Consumer

     401         41         442         470         81         551   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 5,635       $ 5,714       $ 11,349       $ 5,651       $ 7,162       $ 12,813   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

(1) Nonaccrual acquired loans accounted for under ASC 310-30 totaled $4.2 million and $4.6 million as of March 31, 2016 and December 31, 2015, respectively.

As of March 31, 2016, the Company had no outstanding commitments to lend additional funds to any customer whose loan was classified as impaired.

Troubled Debt Restructurings

During the course of its lending operations, the Company may periodically grant 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,

 

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Table of Contents
  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.

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

 

     As of March 31, 2016  

(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

   $ 280       $ —         $ 212       $ 492   

Home equity loans and lines

     367         —           287         654   

Commercial real estate

     106         —           1,042         1,148   

Construction and land

     30         —           87         117   

Multi-family residential

     —           —           —           —     
  

 

 

    

 

 

    

 

 

    

 

 

 

Total real estate loans

     783         —           1,628         2,411   
  

 

 

    

 

 

    

 

 

    

 

 

 

Other loans:

           

Commercial and industrial

     —           —           1,911         1,911   

Consumer

     —           —           205         205   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total other loans

     —           —           2,116         2,116   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total originated loans

   $ 783       $ —         $ 3,744       $ 4,527   
  

 

 

    

 

 

    

 

 

    

 

 

 

Acquired loans:

           

Real estate loans:

           

One- to four-family first mortgage

   $ 411       $ 72       $ 393       $ 876   

Home equity loans and lines

     —           —           —           —     

Commercial real estate

     —           —           1,187         1,187   

Construction and land

     —           —           13         13   

Multi-family residential

     —           —           —           —     
  

 

 

    

 

 

    

 

 

    

 

 

 

Total real estate loans

     411         72         1,593         2,076   
  

 

 

    

 

 

    

 

 

    

 

 

 

Other loans:

           

Commercial and industrial

     —           —           —           —     

Consumer

     —           —           —           —     
  

 

 

    

 

 

    

 

 

    

 

 

 

Total other loans

     —           —           —           —     
  

 

 

    

 

 

    

 

 

    

 

 

 

Total acquired loans

   $ 411       $ 72       $ 1,593       $ 2,076   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

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Total loans:

           

Real estate loans:

           

One- to four-family first mortgage

   $ 691       $ 72       $ 605       $ 1,368   

Home equity loans and lines

     367         —           287         654   

Commercial real estate

     106         —           2,229         2,335   

Construction and land

     30         —           100         130   

Multi-family residential

     —           —           —           —     
  

 

 

    

 

 

    

 

 

    

 

 

 

Total real estate loans

     1,194         72         3,221         4,487   
  

 

 

    

 

 

    

 

 

    

 

 

 

Other loans:

           

Commercial and industrial

     —           —           1,911         1,911   

Consumer

     —           —           205         205   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total other loans

     —           —           2,116         2,116   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total loans

   $ 1,194       $ 72       $ 5,337       $ 6,603   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

     As of December 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

   $ 281       $ —         $ 38       $ 319   

Home equity loans and lines

     383         —           3         386   

Commercial real estate

     107         —           1,069         1,176   

Construction and land

     —           —           87         87   

Multi-family residential

     —           —           —           —     
  

 

 

    

 

 

    

 

 

    

 

 

 

Total real estate loans

     771         —           1,197         1,968   
  

 

 

    

 

 

    

 

 

    

 

 

 

Other loans:

           

Commercial and industrial

     —           —           2,374         2,374   

Consumer

     27         —           142         169   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total other loans

     27         —           2,516         2,543   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total originated loans

   $ 798       $ —         $ 3,713       $ 4,511   
  

 

 

    

 

 

    

 

 

    

 

 

 

Acquired loans:

           

Real estate loans:

           

One- to four-family first mortgage

   $ 419       $ 73       $ 15       $ 507   

Home equity loans and lines

     —           —           —           —     

Commercial real estate

     —           —           1,192         1,192   

Construction and land

     —           —           52         52   

Multi-family residential

     —           —           —           —     
  

 

 

    

 

 

    

 

 

    

 

 

 

Total real estate loans

     419         73         1,259         1,751   
  

 

 

    

 

 

    

 

 

    

 

 

 

Other loans:

           

Commercial and industrial

     —           —           —           —     

Consumer

     —           —           —           —     
  

 

 

    

 

 

    

 

 

    

 

 

 

Total other loans

     —           —           —           —     
  

 

 

    

 

 

    

 

 

    

 

 

 

Total acquired loans

   $ 419       $ 73       $ 1,259       $ 1,751   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total loans:

           

Real estate loans:

           

One- to four-family first mortgage

   $ 700       $ 73       $ 53       $ 826   

Home equity loans and lines

     383         —           3         386   

Commercial real estate

     107         —           2,261         2,368   

Construction and land

     —           —           139         139   

Multi-family residential

     —           —           —           —     
  

 

 

    

 

 

    

 

 

    

 

 

 

Total real estate loans

     1,190         73         2,456         3,719   
  

 

 

    

 

 

    

 

 

    

 

 

 

Other loans:

           

Commercial and industrial

     —           —           2,374         2,374   

Consumer

     27         —           142         169   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total other loans

     27         —           2,516         2,543   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total loans

   $ 1,217       $ 73       $ 4,972       $ 6,262   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

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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, loans totaling $1.8 million during the first quarter of 2016.

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.

Recurring Basis

Investment Securities Available for Sale

Fair values of investment securities available for sale are primarily measured using information from a first-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 first-party pricing service, fair value is estimated by the use of secondary pricing services or through the use of non-binding first-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

 

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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, 2016, management did not make adjustments to prices provided by the first-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, 2016 and December 31, 2015.

 

     Fair Value Measurements Using  

(dollars in thousands)

   March 31, 2016      Level 1      Level 2      Level 3  

Available for sale securities:

           

U.S. agency mortgage-backed

   $ 137,697       $ —         $ 137,697       $ —     

Non-U.S. agency mortgage-backed

     5,821         —           5,821         —     

Municipal bonds

     22,721         —           22,721         —     

U.S. government agency

     12,294         —           12,294         —     
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 178,533       $ —         $ 178,533       $ —     
  

 

 

    

 

 

    

 

 

    

 

 

 

 

     Fair Value Measurements Using  

(dollars in thousands)

   December 31, 2015      Level 1      Level 2      Level 3  

Available for sale securities:

           

U.S. agency mortgage-backed

   $ 135,478       $ —         $ 135,478       $ —     

Non-U.S. agency mortgage-backed

     6,065         —           6,065         —     

Municipal bonds

     22,933         —           22,933         —     

U.S. government agency

     12,286         —           12,286         —     
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 176,762       $ —         $ 176,762       $ —     
  

 

 

    

 

 

    

 

 

    

 

 

 

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

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 and the FDIC loss sharing receivable are measured on a nonrecurring basis using significant unobservable inputs (Level 3).

 

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Table of Contents

The Company has segregated all financial assets 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, 2016      Level 1      Level 2      Level 3  

Assets

           

Acquired loans with deteriorated credit quality

   $ 17,272       $ —         $ —         $ 17,272   

Impaired loans, excluding acquired loans

     760         —           —           760   

Repossessed assets

     2,379         —           —           2,379   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 20,411       $ —         $ —         $ 20,411   
  

 

 

    

 

 

    

 

 

    

 

 

 
            Fair Value Measurements Using  

(dollars in thousands)

   December 31, 2015      Level 1      Level 2      Level 3  

Assets

           

Acquired loans with deteriorated credit quality

   $ 19,859       $ —         $ —         $ 19,859   

Impaired loans, excluding acquired loans

     813         —           —           813   

Repossessed assets

     3,128         —           —           3,128   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 23,800       $ —         $ —         $ 23,800   
  

 

 

    

 

 

    

 

 

    

 

 

 

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.

 

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Table of Contents

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

 

            Fair Value Measurements at March 31, 2016  

(dollars in thousands)

   Carrying
Amount
     Total      Level 1      Level 2      Level 3  

Financial Assets

              

Cash and cash equivalents

   $ 17,960       $ 17,960       $ 17,960       $ —         $ —     

Interest-bearing deposits in banks

     4,654         4,654         4,654         —           —     

Investment securities available for sale

     178,533         178,533         —           178,533         —     

Investment securities held to maturity

     13,846         14,145         —           14,145         —     

Mortgage loans held for sale

     11,504         11,504         —           11,504         —     

Loans, net

     1,218,059         1,221,034         —           —           1,221,034   

Cash surrender value of BOLI

     19,788         19,788         19,788         —           —     

Financial Liabilities

              

Deposits

   $ 1,243,699       $ 1,244,461       $ —         $ 1,244,461       $ —     

Short-term FHLB advances

     28,158         28,158         28,158         —           —     

Long-term FHLB advances

     84,853         85,395         —           85,395         —     
            Fair Value Measurements at December 31, 2015  

(dollars in thousands)

   Carrying
Amount
     Total      Level 1      Level 2      Level 3  

Financial Assets

        

Cash and cash equivalents

   $ 24,798       $ 24,798       $ 24,798       $ —         $ —     

Interest-bearing deposits in banks

     5,144         5,144         5,144         —           —     

Investment securities available for sale

     176,762         176,762         —           176,762         —     

Investment securities held to maturity

     13,927         14,121         —           14,121         —     

Mortgage loans held for sale

     5,651         5,651         —           5,651         —     

Loans, net

     1,214,818         1,216,370         —           —           1,216,370   

Cash surrender value of BOLI

     19,667         19,667         19,667         —           —     

Financial Liabilities

        

Deposits

   $ 1,244,217       $ 1,243,698       $ —         $ 1,243,698       $ —     

Short-term FHLB advances

     39,939         39,939         39,939         —           —     

Long-term FHLB advances

     85,213         84,711         —           84,711         —     

 

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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, 2015 through March 31, 2016 and on its results of operations for the three months ended March 31, 2016 and March 31, 2015. 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, 2015. 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 2016, the Company earned $3.3 million, an increase of $502,000, or 17.6%, compared to the first quarter of 2015. Diluted earnings per share for the first quarter of 2016 were $0.47, an increase of $0.06, or 14.6%, compared to the first quarter of 2015. The three months ended March 31, 2016 included $398,000 of merger-related expenses net of taxes related to the acquisition of Louisiana Bancorp, Inc. (“Louisiana Bancorp”). Excluding merger-related expenses, net income for the first quarter of 2016 increased 31.6% compared to the first quarter of 2015 (see the “Non-GAAP Reconciliation” on page 26). Excluding merger-related expenses, diluted earnings per share for the first quarter of 2016 increased 29.3% compared to the first quarter of 2015.

Key components of the Company’s performance during the three months ended March 31, 2016 include:

 

  Assets totaled $1.5 billion as of March 31, 2016, down $7.8 million, or 0.5%, from December 31, 2015.

 

  Investment securities totaled $192.4 million as of March 31, 2016, an increase of $1.7 million, or 0.9%, from December 31, 2015.

 

  Loans as of March 31, 2016 were $1.2 billion, a decrease of $6.3 million, or 0.5%, from December 31, 2015. Growth in originated loans of 10.0% (on an annualized basis) was offset by declines in acquired loans.

 

  Deposits as of March 31, 2016 were $1.2 billion, a decrease of $518,000, or 0.04%, from December 31, 2015. Core deposits (i.e., checking, savings, and money market accounts) totaled $972.3 million as of March 31, 2016, an increase of $4.9 million, or 0.5%, from December 31, 2015.

 

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Table of Contents
  Interest income increased $3.7 million, or 28.1%, in the first quarter of 2016, compared to the first quarter of 2015. Interest income increased primarily due to higher loan volume as a result of the Louisiana Bancorp acquisition in the third quarter of 2015.

 

  Interest expense increased $513,000, or 63.2%, in the first quarter of 2016 compared to the first quarter of 2015. Interest expense increased primarily due to a higher volume of interest-bearing liabilities as a result of the Louisiana Bancorp acquisition.

 

  The provision for loan losses totaled $850,000 for the first quarter of 2016, an increase of $312,000, or 57.9%, compared to the first quarter of 2015. Of the $850,000 in provision for the first quarter of 2016, $461,000 was associated with one energy-related borrower. At March 31, 2016, the Company’s ratio of the allowance for loan losses to total loans was 0.85%, compared to 0.90% at March 31, 2015. Excluding acquired loans, the ratio of the allowance for loan losses to total loans was 1.20% at March 31, 2016, compared to 1.07% at March 31, 2015. The Company recorded virtually no net loan charge-offs during the first quarter of 2016, compared to net loan charge-offs of $26,000 during the first three months of 2015.

 

  Noninterest income for the first quarter of 2016 increased $489,000, or 23.5%, compared to the first quarter of 2015, due primarily to increases in other income and service fees and charges, which were partially offset by a decrease in gains on the sale of mortgage loans.

 

  Noninterest expense for the first quarter of 2016 increased $2.6 million, or 27.0%, compared to the first quarter of 2015. Noninterest expense includes merger-related expenses related to the acquisition of Louisiana Bancorp of $613,000 for the three months ended March 31, 2016. Excluding merger-related expenses, noninterest expense increased $2.0 million, or 20.7%, for the first quarter of 2016 compared to the first quarter of 2015. Excluding merger-related expenses, the increase in noninterest expense in the first quarter of 2016 compared to the first quarter of 2015 relates primarily to the growth of the Company due to the addition of Louisiana Bancorp branches and employees.

The discussion and analysis contains financial information prepared 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. Management believes that the non-GAAP information provides useful data in understanding the Company’s operations and in comparing the Company’s results of operation to peers. This non-GAAP information should be considered in addition to the Company’s financial information prepared in accordance with GAAP, and is not a substitute for, or superior to, GAAP results. 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, 2016      March 31, 2015  

Reported noninterest expense

   $ 12,341       $ 9,719   

Less: Merger-related expenses

     613         —     
  

 

 

    

 

 

 

Non-GAAP noninterest expense

   $ 11,728       $ 9,719   
  

 

 

    

 

 

 

Reported net income

   $ 3,350       $ 2,848   

Add: Merger-related expenses (after tax)

     398         —     
  

 

 

    

 

 

 

Non-GAAP net income

   $ 3,748       $ 2,848   
  

 

 

    

 

 

 

Diluted EPS

   $ 0.47       $ 0.41   

Add: Merger-related expenses

     0.06         —     
  

 

 

    

 

 

 

Non-GAAP diluted EPS

   $ 0.53       $ 0.41   
  

 

 

    

 

 

 

 

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Table of Contents

FINANCIAL CONDITION

Loans, Asset Quality and Allowance for Loan Losses

Loans – Loans outstanding as of March 31, 2016 were $1.2 billion, a decrease of $6.3 million, or 0.5%, from December 31, 2015. Growth in originated loans of 10% (on an annualized basis) was offset by declines in acquired loans. Loan decreases during the first quarter of 2016 related primarily to multi-family residential (down $6.4 million), residential mortgages (down $3.0 million) and consumer loans (down $1.5 million). Commercial real estate and home equity loans increased by $2.8 million and $2.0 million, respectively, during the quarter.

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)

   2016      2015      Amount      Percent  

Real estate loans:

           

One- to four-family first mortgage

   $ 388,290       $ 391,266       $ (2,976      (0.8 )% 

Home equity loans and lines

     96,056         94,060         1,996         2.1   

Commercial real estate

     408,166         405,379         2,787         0.7   

Construction and land

     117,247         116,775         472         0.4   

Multi-family residential

     37,427         43,863         (6,436      (14.7
  

 

 

    

 

 

    

 

 

    

 

 

 

Total real estate loans

     1,047,186         1,051,343         (4,157      (0.4
  

 

 

    

 

 

    

 

 

    

 

 

 

Other loans:

           

Commercial and industrial

     124,463         125,108         (645      (0.5

Consumer

     46,410         47,915         (1,505      (3.1
  

 

 

    

 

 

    

 

 

    

 

 

 

Total other loans

     170,873         173,023         (2,150      (1.2
  

 

 

    

 

 

    

 

 

    

 

 

 

Total loans

   $ 1,218,059       $ 1,224,366       $ (6,307      (0.5 )% 
  

 

 

    

 

 

    

 

 

    

 

 

 

The balance of loans to companies in the energy sector totaled $36.8 million, or 3.0% of outstanding loans, at March 31, 2016. We also had unfunded loan commitments to energy companies amounting to $8.9 million at such date. At March 31, 2016, 91% of the balance of our energy-related loans were performing in accordance with their original loan agreements. Of the remaining 9%, $2.1 million has been restructured and are paying in accordance with the restructured terms. The Company holds no shared national credits.

The following table illustrates the composition of the Company’s energy-related loans at March 31, 2016.

 

(dollars in thousands)

   Total      Percent  

Real estate loans:

     

Commercial real estate

   $ 16,027         44

Construction and land

     393         1   
  

 

 

    

 

 

 

Total real estate loans

     16,420         45   
  

 

 

    

 

 

 

Commercial and industrial:

     

Equipment

     6,288         17   

Marine vessels

     6,066         16   

Accounts receivable

     5,050         14   

Unsecured

     1,707         5   

Other

     1,238         3   
  

 

 

    

 

 

 

Total commercial and industrial loans

     20,349         55   
  

 

 

    

 

 

 

Total energy-related loans

   $ 36,769         100
  

 

 

    

 

 

 

 

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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 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 their 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. First 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 loans, multi-family residential loans, construction and land loans and commercial and industrial loans are individually evaluated for impairment. First 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, 2016 and December 31, 2015, loans individually evaluated for impairment, excluding acquired loans, amounted to $1.3 million and $966,000, respectively. As of March 31, 2016 and December 31, 2015, acquired impaired loans, loans considered to have deteriorated credit quality at the time of acquisition, amounted to $17.4 million and $20.0 million, respectively. As of March 31, 2016 and December 31, 2015, substandard loans, excluding acquired loans, amounted to $7.3 million and $7.7 million, respectively. The amount of the allowance for loan losses allocated to impaired or substandard loans originated by Home Bank totaled $538,000 as of March 31, 2016 and $153,000 as of December 31, 2015. The amount of allowance for loan losses allocated to acquired loans totaled $580,000 and $373,000, respectively, at such dates. There were no assets classified as doubtful or loss as of March 31, 2016 or December 31, 2015.

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.

 

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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.

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

 

     March 31, 2016     December 31, 2015  

(dollars in thousands)

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

Nonaccrual loans:

                

Real estate loans:

                

One- to four-family first mortgage

   $ 734       $ 2,578       $ 3,312      $ 928       $ 2,649       $ 3,577   

Home equity loans and lines

     471         289         760        121         412         533   

Commercial real estate

     1,638         1,866         3,504        1,671         2,526         4,197   

Construction and land

     87         81         168        87         121         208   

Multi-family residential

     —           —           —          —           763         763   

Other loans:

                

Commercial and industrial

     2,304         859         3,163        2,374         610         2,984   

Consumer

     401         41         442        470         81         551   
  

 

 

    

 

 

    

 

 

   

 

 

    

 

 

    

 

 

 

Total nonaccrual loans

     5,635         5,714         11,349        5,651         7,162         12,813   

Accruing loans 90 days or more past due

     —           —           —          —           —           —     
  

 

 

    

 

 

    

 

 

   

 

 

    

 

 

    

 

 

 

Total nonperforming loans

     5,635         5,714         11,349        5,651         7,162         12,813   

Foreclosed assets

     180         2,199         2,379        116         3,012         3,128   
  

 

 

    

 

 

    

 

 

   

 

 

    

 

 

    

 

 

 

Total nonperforming assets

     5,815         7,913         13,728        5,767         10,174         15,941   

Performing troubled debt restructurings

     783         483         1,266        798         492         1,290   
  

 

 

    

 

 

    

 

 

   

 

 

    

 

 

    

 

 

 

Total nonperforming assets and troubled debt restructurings

   $ 6,598       $ 8,396       $ 14,994      $ 6,565       $ 10,666       $ 17,231   
  

 

 

    

 

 

    

 

 

   

 

 

    

 

 

    

 

 

 

Nonperforming loans to total loans

           0.93           1.05

Nonperforming loans to total assets

           0.73           0.83

Nonperforming assets to total assets

           0.89           1.03

 

(1)  Includes $1.5 million and $2.6 million in acquired loans accounted for under ASC 310-30 at March 31, 2016 and December 31, 2015, 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 0.69%, 0.49% and 0.51%, respectively, at March 31, 2016.

The Company recorded virtually no net loan charge-offs during the first quarter of 2016, compared to net loan charge-offs of $26,000 during the first three months of 2015.

 

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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.

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 5 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, additional losses after the acquisition date are reflected as a provision to the allowance for loan losses. As of March 31, 2016 and December 31, 2015, $128,000 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 2016.

 

(dollars in thousands)

   Originated      Acquired      Total  

Balance, December 31, 2015

   $ 9,174       $ 373       $ 9,547   

Provision charged to operations

     737         113         850   

Loans charged off

     (106      —           (106

Recoveries on charged off loans

     12         94         106   
  

 

 

    

 

 

    

 

 

 

Balance, March 31, 2016

   $ 9,817       $ 580       $ 10,397   
  

 

 

    

 

 

    

 

 

 

 

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At March 31, 2016, the Company’s ratio of allowance for loan losses to total loans was 0.85%, compared to 0.78% and 0.90% at December 31, 2015 and March 31, 2015, respectively. Excluding acquired loans, the ratio of allowance for loan losses to total loans was 1.20% at March 31, 2016, compared to 1.15% and 1.07% at December 31, 2015 and March 31, 2015, respectively.

The allowance for loan losses to loans ratio directly attributable to energy loans totaled 3.08% at March 31, 2016. Over the past 15 months, the Company has increased its overall allowance for loan losses to loans ratio on originated loans from 1.04% at December 31, 2014 to 1.20% at March 31, 2016 due in part to our assessment of the potential direct and indirect impact of low energy prices.

Investment Securities

The Company’s investment securities portfolio totaled $192.4 million as of March 31, 2016, an increase of $1.7 million, or 0.9%, from December 31, 2015. As of March 31, 2016, the Company had a net unrealized gain on its available for sale investment securities portfolio of $2.7 million, compared to $1.3 million as of December 31, 2015. The investment securities portfolio had a modified duration of 3.0 and 3.3 years at March 31, 2016 and December 31, 2015, respectively.

The following table summarizes activity in the Company’s investment securities portfolio during the first three months of 2016.

 

(dollars in thousands)

   Available for Sale      Held to Maturity  

Balance, December 31, 2015

   $ 176,762       $ 13,927   

Purchases

     7,969         —     

Sales

     —           —     

Principal payments and calls

     (7,306      —     

Accretion of discounts and amortization of premiums, net

     (289      (81

Increase in market value

     1,397         —     
  

 

 

    

 

 

 

Balance, March 31, 2016

   $ 178,533       $ 13,846   
  

 

 

    

 

 

 

Funding Sources

Deposits – Deposits totaled $1.2 billion as of March 31, 2016 and December 31, 2015. Core deposits totaled $972.3 million as of March 31, 2016, an increase of $4.9 million, or 0.5%, compared to December 31, 2015.

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)

   2016      2015      Amount      Percent  

Demand deposit

   $ 292,411       $ 296,617       $ (4,206      (1.4 )% 

Savings

     111,265         109,393         1,872         1.7   

Money market

     275,290         293,637         (18,347      (6.2

NOW

     293,327         267,707         25,620         9.6   

Certificates of deposit

     271,406         276,863         (5,457      (2.0
  

 

 

    

 

 

    

 

 

    

 

 

 

Total deposits

   $ 1,243,699       $ 1,244,217       $ (518      0.1
  

 

 

    

 

 

    

 

 

    

 

 

 

Federal Home Loan Bank Advances – Short-term FHLB advances decreased $11.8 million, or 29.5% from $40.0 million as of December 31, 2015 to $28.2 million as of March 31, 2016. Long-term FHLB advances totaled $84.9 million as of March 31, 2016, a decrease of $360,000, or 0.4% compared December 31, 2015.

Shareholders’ Equity – Shareholders’ equity increased $4.1 million, or 2.5%, from $165.0 million as of December 31, 2015 to $169.2 million as of March 31, 2016.

 

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Table of Contents

As of March 31, 2016, the Company and the Bank had regulatory capital that were well in excess of regulatory requirements. The following table details the Company’s actual levels and current regulatory capital requirements as of March 31, 2016.

 

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

(dollars in thousands)

   Amount      Ratio     Amount      Ratio     Amount      Ratio  

Company

               

Tier 1 risk-based capital

   $ 153,864         13.32   $ 69,333         6.00     N/A         N/A   

Total risk-based capital

     164,261         14.22        92,444         8.00        N/A         N/A   

Tier 1 leverage capital

     153,864         10.05        46,222         4.00        N/A         N/A   

Bank

               

Common equity Tier 1 capital (to risk-weighted assets)

   $ 137,219         11.89   $ 51,951         4.50   $ 75,040         6.50

Tier 1 risk-based capital

     137,219         11.89        69,267         6.00        92,357         8.00   

Total risk-based capital

     147,616         12.79        92,357         8.00        115,446         10.00   

Tier 1 leverage capital

     137,219         8.97        46,178         4.00        57,723         5.00   

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, 2016, cash and cash equivalents totaled $18.0 million. At such date, investment securities available for sale totaled $178.5 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, 2016, certificates of deposit maturing within the next 12 months totaled $136.3 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, 2016, the average balance of outstanding FHLB advances was $126.0 million. As of March 31, 2016, the Company had $113.0 million in total outstanding FHLB advances and had $489.6 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. 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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Table of Contents

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, 2016.

 

Shift in Interest Rates (in bps)

   % Change in Projected
Net Interest Income
 

+300

     0.9

+200

     0.9   

+100

     0.6   

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, 2016 and December 31, 2015.

 

     Contract Amount  
     March 31,      December 31,  

(dollars in thousands)

   2016      2015  

Standby letters of credit

   $ 4,711       $ 3,764   

Available portion of lines of credit

     144,446         127,393   

Undisbursed portion of loans in process

     64,027         73,699   

Commitments to originate loans

     91,272         89,653   

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.

 

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Table of Contents

RESULTS OF OPERATIONS

During the first quarter of 2016, the Company earned $3.4 million, an increase of $502,000, or 17.6%, compared to the first quarter of 2015. The first quarter of 2016 included $613,000 of pre-tax merger-related expenses related to the acquisition of Louisiana Bancorp. Excluding merger-related expenses, net income for the first quarter of 2016 increased 31.6% compared to the first quarter of 2015. Diluted earnings per share for the first quarter of 2016 were $0.47, an increase of 14.6% compared to the first quarter of 2015. Excluding merger-related expenses, diluted earnings per share for the first quarter of 2016 increased 29.3% compared to the first quarter of 2015.

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 4.28% and 4.40% for the three months ended March 31, 2016 and March 31, 2015, respectively. The Company’s tax-equivalent net interest margin, which is net interest income as a percentage of average interest-earning assets, was 4.40% and 4.51% for the three months ended March 31, 2016 and March 31, 2015, respectively. The decrease in the net interest spread and net interest margin related primarily to a decrease in the average yield on loans.

Net interest income totaled $15.7 million for the three months ended March 31, 2016, an increase of $3.2 million, or 25.9%, compared to the three months ended March 31, 2015. Interest income increased $3.7 million, or 28.1%, in the first quarter of 2016, compared to the first quarter of 2015. Interest expense increased $513,000, or 63.2%, in the first quarter of 2016 compared to the first quarter of 2015. The increases were the result of increased average volume of loans and deposits from the Louisiana Bancorp acquisition in the third quarter of 2015.

 

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Table of Contents

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,  
     2016     2015  
                   Average                   Average  
     Average             Yield/     Average             Yield/  

(dollars in thousands)

   Balance      Interest      Rate (1)     Balance      Interest      Rate(1)  

Interest-earning assets:

                

Loans receivable(1)

   $ 1,225,577       $ 16,018         5.20   $ 919,109       $ 12,361         5.40

Investment securities

                

Taxable

     153,336         798         2.08        148,820         736         1.98   

Tax-exempt (TE)

     35,213         173         3.02        35,511         174         3.02   
  

 

 

    

 

 

      

 

 

    

 

 

    

Total investment securities

     188,549         971         2.26        184,331         910         2.18   
  

 

 

    

 

 

      

 

 

    

 

 

    

Other interest-earning assets

     15,949         59         1.50        15,044         34         0.91   
  

 

 

    

 

 

      

 

 

    

 

 

    

Total interest-earning assets (TE)

     1,430,075         17,048         4.77        1,118,484         13,305         4.81   
     

 

 

         

 

 

    

Noninterest-earning assets

     114,835              107,736         
  

 

 

         

 

 

       

Total assets

   $ 1,544,910            $ 1,226,220         
  

 

 

         

 

 

       

Interest-bearing liabilities:

                

Deposits:

                

Savings, checking and money market

   $ 678,682       $ 400         0.24   $ 523,535       $ 291         0.23

Certificates of deposit

     273,757         532         0.78        219,066         394         0.73   
  

 

 

    

 

 

      

 

 

    

 

 

    

Total interest-bearing deposits

     952,439         932         0.39        742,601         685         0.37   

Short-term FHLB advances

     41,005         43         0.42        16,576         6         0.15   

Long term FHLB advances

     84,986         351         1.65        18,865         103         2.19   

Securities sold under repurchase agreement

     —           —           —          20,295         19         0.37   
  

 

 

    

 

 

      

 

 

    

 

 

    

Total interest-bearing liabilities

     1,078,430         1,326         0.49        798,337         813         0.41   
     

 

 

         

 

 

    

Noninterest-bearing liabilities

     298,441              271,822         
  

 

 

         

 

 

       

Total liabilities

     1,376,871              1,070,159         

Shareholders’ equity

     168,039              156,061         
  

 

 

         

 

 

       

Total liabilities and shareholders’ equity

   $ 1,544,910            $ 1,226,220         
  

 

 

         

 

 

       

Net interest-earning assets

   $ 351,645            $ 320,147         
  

 

 

         

 

 

       

Net interest spread (TE)

      $ 15,722         4.28      $ 12,492         4.40
     

 

 

         

 

 

    

Net interest margin (TE)

           4.40           4.51

 

(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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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,  
     2016 Compared to 2015  
     Change Attributable To  
                   Total  
                   Increase  

(dollars in thousands)

   Rate      Volume      (Decrease)  

Interest income:

        

Loans receivable

   $ (290    $ 3,947       $ 3,657   

Investment securities (TE)

     40         21         61   

Other interest-earning assets

     23         3         25   
  

 

 

    

 

 

    

 

 

 

Total interest income

     (227      3,971         3,743   
  

 

 

    

 

 

    

 

 

 

Interest expense:

        

Savings, checking and money market accounts

     19         90         109   

Certificates of deposit

     34         105         138   

FHLB advances

     (50      335         285   

Securities sold under repurchase agreement

     —           (19      (19
  

 

 

    

 

 

    

 

 

 

Total interest expense

     3         511         513   
  

 

 

    

 

 

    

 

 

 

Increase (decrease) in net interest income

   $ (230    $ 3,460       $ 3,230   
  

 

 

    

 

 

    

 

 

 

Provision for Loan Losses – For the quarter ended March 31, 2016, the Company recorded a provision for loan losses of $850,000, which was 57.8% higher than the $538,000 recorded for the same period in 2015. Of the $850,000 in provision for the first quarter of 2016, $461,000 was associated with one energy-related borrower. Net loan charge-offs amounted to $300 during the quarter ended March 31, 2016.

As of March 31, 2016, the Company’s ratio of allowance for loan losses to total loans was 0.85%, compared to 0.78% and 0.90% at December 31, 2015 and March 31, 2015, respectively. Excluding acquired loans, the ratio of allowance for loan losses to total loans was 1.20% at March 31, 2016, compared to 1.15% and 1.07% at December 31, 2015 and March 31, 2015, respectively. The ratio of non-performing loans to total assets was 0.73% at March 31, 2016, compared to 0.83% at December 31, 2015.

Noninterest Income – Noninterest income was $2.6 million for the three months ended March 31, 2016, $489,000, or 23.5%, higher than the $2.1 million earned for the same period in 2015. The increase in noninterest income in the first quarter of 2016 compared to the first quarter of 2015 resulted primarily from increases in other non-interest income (up $393,000 primarily from recoveries on acquired loans previously charged-off) and service fees and charges (up $144,000 due primarily to the Louisiana Bancorp acquisition and increased customer transactions), which were partially offset by a decrease in gains on the sale of mortgage loans (down $72,000).

Noninterest Expense – Noninterest expense was $12.3 million for the three months ended March 31, 2016, $2.6 million, or 27.0%, higher than the $9.7 million recorded for the same period in 2015. Noninterest expense includes merger-related expenses due to the acquisition of Louisiana Bancorp of $613,000 for the three months ended March 31, 2016. Excluding merger-related expenses, the increase in noninterest expense in the first quarter of 2016 compared to the first quarter of 2015 relates primarily to the growth of the Company due to the addition of Louisiana Bancorp branches and employees.

 

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Table of Contents

Income Taxes – For the quarters ended March 31, 2016 and March 31, 2015, the Company incurred income tax expense of $1.7 million and $1.5 million, respectively. The Company’s effective tax rate was 34.3% and 34.0% during the first quarters of 2016 and 2015, 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, merger-related expenses, 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, 2015, 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, 2016 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 2016 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, 2015 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, 2016

     250       $ 25.65         250         16,321   

February 1 – February 29, 2016

     750         25.75         750         15,571   

March 1 – March 31, 2016

     250         26.90         250         15,321   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

     1,250       $ 25.96         1,250         15,321   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

(1)  On June 7, 2013, the Company announced the commencement of a 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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Table of Contents

Item 3. Defaults Upon Senior Securities.

None.

Item 4. Mine Safety Disclosures.

None.

Item 5. Other Information.

None.

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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Table of Contents

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 9, 2016    By:   

/s/John W. Bordelon

      John W. Bordelon
      President, Chief Executive Officer and Director
May 9, 2016    By:   

/s/Joseph B. Zanco

      Joseph B. Zanco
      Executive Vice President and Chief Financial Officer

 

39