Form 10-Q
Table of Contents

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM 10-Q

 

 

(Mark One)

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

For the quarterly period ended: September 30, 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

Incorporation or Organization)

 

(I.R.S. Employer

Identification Number)

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

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

Not Applicable

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

 

 

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months and (2) has been subject to such filing requirements for the past 90 days.    YES  ☒    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  ☒    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  
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  ☒

At November 3, 2016, the registrant had 7,322,320 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

     40   

Item 4.

  

Controls and Procedures

     40   
PART II   

Item 1.

  

Legal Proceedings

     40   

Item 1A.

  

Risk Factors

     41   

Item 2.

  

Unregistered Sales of Equity Securities and Use of Proceeds

     41   

Item 3.

  

Defaults Upon Senior Securities

     41   

Item 4.

  

Mine Safety Disclosures

     41   

Item 5.

  

Other Information

     41   

Item 6.

  

Exhibits

     41   

SIGNATURES

     42   


Table of Contents

HOME BANCORP, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION

 

     (Unaudited)     (Audited)  
     September 30,     December 31,  
     2016     2015  

Assets

    

Cash and cash equivalents

   $ 23,953,080      $ 24,797,599   

Interest-bearing deposits in banks

     2,129,000        5,143,585   

Investment securities available for sale, at fair value

     170,992,673        176,762,200   

Investment securities held to maturity (fair values of $13,736,492 and $14,120,842, respectively)

     13,448,484        13,926,861   

Mortgage loans held for sale

     10,643,389        5,651,250   

Loans, net of unearned income

     1,233,369,734        1,224,365,916   

Allowance for loan losses

     (12,193,181     (9,547,487
  

 

 

   

 

 

 

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

     1,221,176,553        1,214,818,429   
  

 

 

   

 

 

 

Office properties and equipment, net

     39,359,536        40,815,744   

Cash surrender value of bank-owned life insurance

     20,028,198        19,666,900   

Accrued interest receivable and other assets

     47,810,976        50,329,032   
  

 

 

   

 

 

 

Total Assets

   $ 1,549,541,889      $ 1,551,911,600   
  

 

 

   

 

 

 

Liabilities

    

Deposits:

    

Noninterest-bearing

   $ 289,835,449      $ 296,616,693   

Interest-bearing

     930,994,779        947,599,823   
  

 

 

   

 

 

 

Total deposits

     1,220,830,228        1,244,216,516   

Short-term Federal Home Loan Bank (FHLB) advances

     59,200,000        39,939,375   

Long-term Federal Home Loan Bank (FHLB) advances

     79,629,490        85,213,222   

Accrued interest payable and other liabilities

     12,520,553        17,496,133   
  

 

 

   

 

 

 

Total Liabilities

     1,372,180,271        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; 7,321,837 and 7,239,821 shares issued and outstanding, respectively

     73,219        72,399   

Additional paid-in capital

     78,853,758        76,948,914   

Unallocated common stock held by:

    

Employee Stock Ownership Plan (ESOP)

     (4,284,860     (4,552,670

Recognition and Retention Plan (RRP)

     (141,741     (158,590

Retained earnings

     101,257,222        91,864,543   

Accumulated other comprehensive income

     1,604,020        871,758   
  

 

 

   

 

 

 

Total Shareholders’ Equity

     177,361,618        165,046,354   
  

 

 

   

 

 

 

Total Liabilities and Shareholders’ Equity

   $ 1,549,541,889      $ 1,551,911,600   
  

 

 

   

 

 

 

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

 

1


Table of Contents

HOME BANCORP, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF INCOME (Unaudited)

 

     For the Three Months Ended     For the Nine Months Ended  
     September 30,     September 30,  
     2016     2015     2016     2015  

Interest Income

        

Loans, including fees

   $ 15,889,132      $ 13,435,467      $ 47,760,159      $ 38,417,015   

Investment securities:

        

Taxable interest

     722,238        757,385        2,295,632        2,214,227   

Tax-exempt interest

     166,968        181,705        510,493        537,098   

Other investments and deposits

     68,860        50,613        195,449        149,684   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total interest income

     16,847,198        14,425,170        50,761,733        41,318,024   
  

 

 

   

 

 

   

 

 

   

 

 

 

Interest Expense

        

Deposits

     912,756        730,045        2,763,761        2,115,681   

Securities sold under repurchase agreement

     —          2,062        —          39,126   

Short-term FHLB advances

     53,829        9,761        143,412        15,894   

Long-term FHLB advances

     341,693        152,461        1,040,522        359,521   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total interest expense

     1,308,278        894,329        3,947,695        2,530,222   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net interest income

     15,538,920        13,530,841        46,814,038        38,787,802   

Provision for loan losses

     800,000        568,665        2,700,000        1,401,290   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net interest income after provision for loan losses

     14,738,920        12,962,176        44,114,038        37,386,512   
  

 

 

   

 

 

   

 

 

   

 

 

 

Noninterest Income

        

Service fees and charges

     1,045,591        1,027,938        3,083,858        2,874,602   

Bank card fees

     658,799        619,799        1,936,305        1,823,071   

Gain on sale of loans, net

     418,276        478,380        1,205,815        1,119,392   

Income from bank-owned life insurance

     120,618        123,943        361,297        380,410   

Gain (loss) on sale of properties and equipment, net

     —          (358,653     640,580        (492,268

Gain on sale of investment securities, net

     —          3,053        —          3,053   

Other income

     271,391        302,671        1,301,616        606,378   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total noninterest income

     2,514,675        2,197,131        8,529,471        6,314,638   
  

 

 

   

 

 

   

 

 

   

 

 

 

Noninterest Expense

        

Compensation and benefits

     6,723,365        6,267,791        20,845,310        18,091,203   

Occupancy

     1,307,336        1,218,193        3,939,275        3,556,403   

Marketing and advertising

     193,483        129,197        649,498        352,179   

Data processing and communication

     1,133,136        974,099        3,824,169        2,832,571   

Professional services

     244,278        648,278        797,829        1,361,688   

Forms, printing and supplies

     137,336        130,395        487,794        408,233   

Franchise and shares tax

     219,773        155,872        659,318        450,415   

Regulatory fees

     319,482        273,754        971,197        851,163   

Foreclosed assets, net

     (472,275     (17,817     (46,472     477,753   

Other expenses

     836,706        742,347        2,711,401        2,087,916   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total noninterest expense

     10,642,620        10,522,109        34,839,319        30,469,524   
  

 

 

   

 

 

   

 

 

   

 

 

 

Income before income tax expense

     6,610,975        4,637,198        17,804,190        13,231,626   

Income tax expense

     2,250,866        1,737,789        6,077,908        4,644,617   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net Income

   $ 4,360,109      $ 2,899,409      $ 11,726,282      $ 8,587,009   
  

 

 

   

 

 

   

 

 

   

 

 

 

Earnings per share:

        

Basic

   $ 0.63      $ 0.43      $ 1.72      $ 1.28   
  

 

 

   

 

 

   

 

 

   

 

 

 

Diluted

   $ 0.61      $ 0.41      $ 1.65      $ 1.23   
  

 

 

   

 

 

   

 

 

   

 

 

 

Cash dividends declared per common share

   $ 0.12      $ 0.08      $ 0.32      $ 0.23   
  

 

 

   

 

 

   

 

 

   

 

 

 

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

 

2


Table of Contents

HOME BANCORP, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited)

 

     For the Three Months Ended     For the Nine Months Ended  
     September 30,     September 30,  
     2016     2015     2016     2015  

Net Income

   $ 4,360,109      $ 2,899,409      $ 11,726,282      $ 8,587,009   
  

 

 

   

 

 

   

 

 

   

 

 

 

Other Comprehensive Income

        

Unrealized gain (loss) on investment securities

   $ (626,747   $ 1,209,078      $ 1,126,558      $ 923,145   

Reclassification adjustment for gains included in net income

       (3,053       (3,053

Tax effect

     219,361        (422,109     (394,296     (322,032
  

 

 

   

 

 

   

 

 

   

 

 

 

Other comprehensive income, net of taxes

   $  (407,386   $ 783,916      $  732,262      $ 598,060   
  

 

 

   

 

 

   

 

 

   

 

 

 

Comprehensive Income

   $ 3,952,723      $ 3,683,325      $ 12,458,544      $ 9,185,069   
  

 

 

   

 

 

   

 

 

   

 

 

 

 

(1) The tax effect for the three and nine months ended September 30, 2016 on the change in unrealized gains (losses) on investment securities was $(219,361) and $394,296, respectively, compared to $423,178 and $323,101, respectively, for the three and nine months ended September 30, 2015. The tax effect for the three and nine months ended September 30, 2015 on the reclassification adjustment for gains included in net income had a tax effect of $1,069 and $1,069, respectively.

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

 

3


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HOME BANCORP, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY (Unaudited)

 

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

              8,587,009          8,587,009   

Other comprehensive income

                598,060        598,060   

Purchase of Company’s common shares at cost, 11,298 shares

        (3,188,770             (3,188,770

Reclassification of treasury stock per Louisiana law

    (20,302     (20,282,138     31,761,661            (11,459,221       —     

Cash dividends declared, $0.23 per share

              (1,583,379       (1,583,379

Exercise of stock options

    2,466        2,843,499                  2,845,965   

Restricted stock vesting

      (16,042         22,490            6,448   

ESOP shares released for allocation

      459,391          267,810              727,201   

Share-based compensation cost

      149,816                  149,816   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance, September 30, 2015

  $ 72,252      $ 76,486,634      $ —        $ (4,641,940   $ (180,100   $ 88,646,324      $ 1,902,936      $ 162,286,106   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

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

              11,726,282          11,726,282   

Other comprehensive income

                732,262        732,262   

Purchase of Company’s common shares at cost, 12,091 shares

    (126     (125,944           (223,814       (349,884

Cash dividends declared, $0.32 per share

              (2,109,789       (2,109,789

Exercise of stock options

    902        1,175,117                  1,176,019   

ESOP shares released for allocation

      591,341          267,810              859,151   

Restricted stock vesting

    44        (3,083         16,849            13,810   

Share-based compensation cost

      267,413                  267,413   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance, September 30, 2016

  $ 73,219      $ 78,853,758      $ —        $ (4,284,860   $ (141,741   $ 101,257,222      $ 1,604,020      $ 177,361,618   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

(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.

 

4


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HOME BANCORP, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)

 

     For the Nine Months Ended  
     September 30,  
     2016     2015  

Cash flows from operating activities, net of effect of acquisition:

    

Net income

   $ 11,726,282      $ 8,587,009   

Adjustments to reconcile net income to net cash provided

    

by operating activities:

    

Provision for loan losses

     2,700,000        1,401,290   

Depreciation

     1,334,181        1,331,635   

Amortization of purchase accounting valuations and intangibles

     2,409,426        3,273,960   

Net amortization of mortgage servicing asset

     190,558        101,231   

Federal Home Loan Bank stock dividends

     (63,200     (7,300

Net amortization of premium on investments

     1,185,643        1,146,875   

Gain on sale of investment securities, net

     —          (3,053

Gain on loans sold, net

     (1,205,815     (1,119,392

Proceeds, including principal payments, from loans held for sale

     119,140,089        106,889,999   

Originations of loans held for sale

     (122,926,413     (108,424,058

Non-cash compensation

     994,511        726,982   

Deferred income tax provision (benefit)

     809,823        (175,272

(Increase) decrease in interest receivable and other assets

     (1,211,900     7,592,246   

Increase in cash surrender value of bank-owned life insurance

     (361,298     (380,410

(Decrease) increase in accrued interest payable and other liabilities

     (4,893,141     8,197,772   
  

 

 

   

 

 

 

Net cash provided by operating activities

     9,828,746        29,139,514   
  

 

 

   

 

 

 

Cash flows from investing activities, net of effect of acquisition:

    

Purchases of securities available for sale

     (21,751,932     (18,713,313

Purchases of securities held to maturity

     —          (2,927,988

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

     27,705,751        22,432,941   

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

     235,000        —     

Proceeds from sales of securities available for sale

     —          16,694,015   

Net change in loans

     (10,845,158     (24,444,345

Reimbursement from FDIC for covered assets

     51,128        403,866   

Decrease in interest bearing deposits in other banks

     3,014,585        245,000   

Proceeds from sale of repossessed assets

     883,798        2,135,948   

Purchases of office properties and equipment

     (3,399,917     (578,097

Proceeds from sale of properties and equipment

     4,335,095        1,309,339   

Net cash disbursed in business combination

     —          (56,404,340

Purchases of Federal Home Loan Bank stock

     —          (4,751,000

Proceeds from redemption of Federal Home Loan Bank stock

     —          2,444,900   
  

 

 

   

 

 

 

Net cash provided by (used in) investing activities

     228,350        (62,153,074
  

 

 

   

 

 

 

Cash flows from financing activities, net of effect of acquisition:

    

(Decrease) increase in deposits

     (23,308,435     19,400,716   

Borrowings on Federal Home Loan Bank advances

     2,496,429,496        2,060,550,000   

Repayments of Federal Home Loan Bank advances

     (2,482,629,802     (2,030,550,000

Decrease in securities sold under repurchase agreements

     —          (20,000,000

Purchase of Company’s common stock

     (349,884     (3,188,770

Proceeds from exercise of stock options

     1,066,800        2,845,965   

Payment of dividends on common stock

     (2,109,790     (1,583,379
  

 

 

   

 

 

 

Net cash (used in) provided by financing activities

     (10,901,615     27,474,532   
  

 

 

   

 

 

 

Net change in cash and cash equivalents

     (844,519     (5,539,028

Cash and cash equivalents at beginning of year

     24,797,599        29,077,907   
  

 

 

   

 

 

 

Cash and cash equivalents at end of period

   $ 23,953,080      $ 23,538,879   
  

 

 

   

 

 

 

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

 

5


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 and nine-month periods ended September 30, 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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Table of Contents

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 our Consolidated Financial Statements.

In June 2016, the FASB issued ASU 2016-13, “Measurement of Credit Losses on Financial Instruments”. The ASU requires a financial asset (or a group of financial assets) measured at amortized cost basis to be presented at the net amount expected to be collected. The allowance for credit losses is a valuation account that is deducted from the amortized cost basis of the financial assets to present the net carrying value at the amount expected to be collected on the financial assets. The income statement reflects the measurement of credit losses for newly recognized financial assets, as well as the expected increases or decreases of expected credit losses that have taken place during the period. The measurement of expected credit losses is based on relevant information about past events, including historical experience, current conditions, and reasonable and supportable forecasts that affect the collectibility of the reported amount of financial assets. An entity must use judgment in determining the relevant information and estimation methods that are appropriate in its circumstances. The allowance for credit losses for purchased financial assets with a more-than-insignificant amount of credit deterioration since origination that are measured at amortized cost basis is determined in a similar manner to other financial assets measured at amortized cost basis; however, the initial allowance for credit losses is added to the purchase price rather than being reported as a credit loss expense. Only subsequent changes in the allowance for credit losses are recorded as a credit loss expense for these assets. Off-balance-sheet arrangements such as commitments to extend credit, guarantees, and standby letters of credit that and are not unconditionally cancellable are also within the scope of this amendment. Credit losses relating to available-for-sale debt securities should be recorded through an allowance for credit losses. This ASU is effective for fiscal years beginning after December 31, 2019. An entity will apply the amendments in this update on a modified retrospective basis, through a cumulative-effect adjustment to retained earnings as of the beginning of the first reporting period in which the guidance is effective. The Company is currently planning for the implementation of this accounting standard. It is too early to assess the impact that this guidance will have on our 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 September 30, 2016 and December 31, 2015 is as follows.

 

(dollars in thousands)

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

September 30, 2016

              

Available for sale:

              

U.S. agency mortgage-backed

   $ 132,206       $ 1,925       $ 81       $ 113       $ 133,937   

Non-U.S. agency mortgage-backed

     5,370         41         1         47         5,363   

Municipal bonds

     21,292         555         1         —           21,846   

U.S. government agency

     9,657         190         —           —           9,847   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total available for sale

   $ 168,525       $ 2,711       $ 83       $ 160       $ 170,993   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Held to maturity:

              

Municipal bonds

   $ 13,448       $ 288       $ —         $ —         $ 13,736   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

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Table of Contents

(dollars in thousands)

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

December 31, 2015

              

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   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

The estimated fair value and amortized cost by contractual maturity of the Company’s investment securities as of September 30, 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

   $ 65       $ 4,778       $ 35,022       $ 94,072       $ 133,937   

Non-U.S. agency mortgage-backed

     —           —           —           5,363         5,363   

Municipal bonds

     1,890         10,203         8,931         822         21,846   

U.S. government agency

     —           6,105         —           3,742         9,847   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total available for sale

   $ 1,955       $ 21,086       $ 43,953       $ 103,999       $ 170,993   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Securities held to maturity:

              

Municipal bonds

   $ —         $ 2,774       $ 8,182       $ 2,780       $ 13,736   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total investment securities

   $ 1,955       $ 23,860       $ 52,135       $ 106,779       $ 184,729   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

(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

   $ 63       $ 4,722       $ 34,551       $ 92,870       $ 132,206   

Non-U.S. agency mortgage-backed

     —           —           —           5,370         5,370   

Municipal bonds

     1,885         9,960         8,686         761         21,292   

U.S. government agency

     —           5,991         —           3,666         9,657   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total available for sale

   $ 1,948       $ 20,673       $ 43,237       $ 102,667       $ 168,525   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Securities held to maturity:

              

Municipal bonds

   $ —         $ 2,745       $ 7,946       $ 2,757       $ 13,448   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total investment securities

   $ 1,948       $ 23,418       $ 51,183       $ 105,424       $ 181,973   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

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Table of Contents

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 September 30, 2016, 26 of the Company’s debt securities had unrealized losses totaling 0.7% 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, 10 of the 26 securities had been in a continuous loss position for over 12 months. The 10 securities had an aggregate amortized cost basis of $24.3 million and unrealized loss of $83,000 at September 30, 2016. Management has the intent and ability to hold these debt securities until maturity, or until anticipated recovery; hence, no declines in these 10 securities were deemed to be other-than-temporary at September 30, 2016.

As of September 30, 2016 and December 31, 2015, the Company had $89,360,000 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

September 30,

     Nine Months Ended
September 30,
 

(in thousands, except per share data)

   2016      2015      2016      2015  

Numerator:

           

Net income available to common shareholders

   $ 4,360       $ 2,899       $ 11,726       $ 8,587   

Denominator:

           

Weighted average common shares outstanding

     6,872         6,743         6,824         6,690   

Effect of dilutive securities:

           

Restricted stock

     4         5         4         4   

Stock options

     248         275         260         292   
  

 

 

    

 

 

    

 

 

    

 

 

 

Weighted average common shares outstanding – assuming dilution

     7,124         7,023         7,088         6,986   
  

 

 

    

 

 

    

 

 

    

 

 

 

Basic earnings per common share

   $ 0.63       $ 0.43       $ 1.72       $ 1.28   
  

 

 

    

 

 

    

 

 

    

 

 

 

Diluted earnings per common share

   $ 0.61       $ 0.41       $ 1.65       $ 1.23   
  

 

 

    

 

 

    

 

 

    

 

 

 

Options on 91,372 and 52,258 shares of common stock were not included in the computation of diluted earnings per share for the three months ended September 30, 2016 and September 30, 2015, respectively, because the effect of these shares was anti-dilutive. Options on 64,549 and 39,177 shares of common stock were not included in the computation of diluted earnings per share for the nine months ended September 30, 2016 and September 30, 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.

 

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Table of Contents

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 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. 

 

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Table of Contents

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

 

     As of September 30, 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

   $ 1,375       $ 29       $ 100       $ 1,504   

Home equity loans and lines

     662         —           74         736   

Commercial real estate

     3,972         64         —           4,036   

Construction and land

     1,671         —           74         1,745   

Multi-family residential

     342         —           —           342   

Commercial and industrial

     2,628         547         123         3,298   

Consumer

     532         —           —           532   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total allowance for loan losses

   $ 11,182       $ 640       $ 371       $ 12,193   
  

 

 

    

 

 

    

 

 

    

 

 

 
     As of September 30, 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

   $ 176,137       $ 75       $ 176,881       $ 353,093   

Home equity loans and lines

     48,364         —           44,944         93,308   

Commercial real estate

     311,551         619         110,265         422,435   

Construction and land

     132,976         —           2,286         135,262   

Multi-family residential

     25,776         —           21,000         46,776   

Commercial and industrial

     127,060         3,554         8,247         138,861   

Consumer

     42,041         —           1,594         43,635   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total loans

   $ 863,905       $ 4,248       $ 365,217       $ 1,233,370   
  

 

 

    

 

 

    

 

 

    

 

 

 
     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   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

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Table of Contents
     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

   $ 165,774       $ 78       $ 205,386       $ 371,238   

Home equity loans and lines

     40,251         —           53,809         94,060   

Commercial real estate

     285,856         181         119,342         405,379   

Construction and land

     129,035         —           7,768         136,803   

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) $15.9 million and $20.0 million in acquired loans were deemed to be acquired impaired loans and were accounted for under ASC 310-30 at September 30, 2016 and December 31, 2015, respectively.

A summary of activity in the allowance for loan losses during the nine months ended September 30, 2016 and September 30, 2015 follows.

 

     For the Nine Months Ended September 30, 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       $ —        $ —         $ 32      $ 1,404   

Home equity loans and lines

     536         (9     2         133        662   

Commercial real estate

     3,152         —          1         883        4,036   

Construction and land

     1,360         —          51         260        1,671   

Multi-family residential

     173         —          —           169        342   

Commercial and industrial

     2,010         (128     43         1,250        3,175   

Consumer

     571         (112     4         69        532   
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

Total allowance for loan losses

   $ 9,174       $ (249   $ 101       $ 2,796      $ 11,822   
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

Acquired loans:

            

Allowance for loan losses:

            

One- to four-family first mortgage

   $ 92       $ —        $ —         $ 8      $ 100   

Home equity loans and lines

     224         —          —           (150     74   

Commercial real estate

     —           —          —           —          —     

Construction and land

     57         —          —           17        74   

Multi-family residential

     —           —          —           —          —     

Commercial and industrial

     —           —          94         29        123   

Consumer

     —           —          —           —          —     
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

Total allowance for loan losses

   $ 373       $ —        $ 94       $ (96   $ 371   
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

Total loans:

            

Allowance for loan losses:

            

One- to four-family first mortgage

   $ 1,464       $ —        $ —         $ 40      $ 1,504   

Home equity loans and lines

     760         (9     2         (17     736   

Commercial real estate

     3,152         —          1         883        4,036   

Construction and land

     1,417         —          51         277        1,745   

Multi-family residential

     173         —          —           169        342   

Commercial and industrial

     2,010         (128     137         1,279        3,298   

Consumer

     571         (112     4         69        532   
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

Total allowance for loan losses

   $ 9,547       $ (249   $ 195       $ 2,700      $ 12,193   
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

 

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Table of Contents
     For the Nine Months Ended September 30, 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       $ —        $ 30       $ 203      $ 1,369   

Home equity loans and lines

     442         (14     5         105        538   

Commercial real estate

     2,922         —          1         226        3,149   

Construction and land

     968         —          —           218        1,186   

Multi-family residential

     192         —          —           —          192   

Commercial and industrial

     1,161         (133     111         394        1,533   

Consumer

     521         (79     1         134        577   
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

Total allowance for loan losses

   $ 7,342       $ (226   $ 148       $ 1,280      $ 8,544   
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

Acquired loans:

            

Allowance for loan losses:

            

One- to four-family first mortgage

   $ 174       $ (42   $ —         $ (39   $ 93   

Home equity loans and lines

     111         —          —           125        236   

Commercial real estate

     —           —          —           —          —     

Construction and land

     133         (109     —           35        59   

Multi-family residential

     —           —          —           —          —     

Commercial and industrial

     —           —          —           —          —     

Consumer

     —           —          —           —          —     
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

Total allowance for loan losses

   $ 418       $ (151   $ —         $ 121      $ 388   
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

Total loans:

            

Allowance for loan losses:

            

One- to four-family first mortgage

   $ 1,310       $ (42   $ 30       $ 164      $ 1,462   

Home equity loans and lines

     553         (14     5         230        774   

Commercial real estate

     2,922         —          1         226        3,149   

Construction and land

     1,101         (109     —           253        1,245   

Multi-family residential

     192         —          —           —          192   

Commercial and industrial

     1,161         (133     111         394        1,533   

Consumer

     521         (79     1         134        577   
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

Total allowance for loan losses

   $ 7,760       $ (377   $ 148       $ 1,401      $ 8,932   
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

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

 

     September 30, 2016  

(dollars in thousands)

   Pass      Special
Mention
     Substandard      Doubtful      Total  

Originated loans:

              

One- to four-family first mortgage

   $ 174,806       $ 291       $ 1,115       $ —         $ 176,212   

Home equity loans and lines

     47,016         407         941         —           48,364   

Commercial real estate

     299,625         951         11,594         —           312,170   

Construction and land

     132,318         —           658         —           132,976   

Multi-family residential

     25,776         —           —           —           25,776   

Commercial and industrial

     114,783         5,346         10,485         —           130,614   

Consumer

     41,503         105         433         —           42,041   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total originated loans

   $ 835,827       $ 7,100       $ 25,226       $ —         $ 868,153   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

13


Table of Contents
     September 30, 2016  

(dollars in thousands)

   Pass      Special
Mention
     Substandard      Doubtful      Total  

Acquired loans:

              

One- to four-family first mortgage

   $ 173,657       $ 265       $ 2,959       $ —         $ 176,881   

Home equity loans and lines

     44,762         49         133         —           44,944   

Commercial real estate

     104,399         4,191         1,675         —           110,265   

Construction and land

     1,620         103         563         —           2,286   

Multi-family residential

     20,082         5         913         —           21,000   

Commercial and industrial

     4,844         —           3,403         —           8,247   

Consumer

     1,541         31         22         —           1,594   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total acquired loans

   $ 350,905       $ 4,644       $ 9,668       $ —         $ 365,217   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total:

              

One- to four-family first mortgage

   $ 348,463       $ 556       $ 4,074       $ —         $ 353,093   

Home equity loans and lines

     91,778         456         1,074         —           93,308   

Commercial real estate

     404,024         5,142         13,269         —           422,435   

Construction and land

     133,938         103         1,221         —           135,262   

Multi-family residential

     45,858         5         913         —           46,776   

Commercial and industrial

     119,627         5,346         13,888         —           138,861   

Consumer

     43,044         136         455         —           43,635   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total loans

   $ 1,186,732       $ 11,744       $ 34,894       $ —         $ 1,233,370   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
     December 31, 2015  

(dollars in thousands)

   Pass      Special
Mention
     Substandard      Doubtful      Total  

Originated loans:

              

One- to four-family first mortgage

   $ 163,835       $ 439       $ 1,578       $ —         $ 165,852   

Home equity loans and lines

     39,736         394         121         —           40,251   

Commercial real estate

     282,963         988         2,086         —           286,037   

Construction and land

     127,929         —           1,106         —           129,035   

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

   $ 364,801       $ 1,230       $ 5,207       $ —         $ 371,238   

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

     132,502         1,819         2,482         —           136,803   

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   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

14


Table of Contents

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.

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

 

     September 30, 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

   $ 1,813       $ 30       $ 226       $ 2,069       $ 174,143       $ 176,212   

Home equity loans and lines

     247         —           1         248         48,116         48,364   

Commercial real estate

     —           —           282         282         311,888         312,170   

Construction and land

     796         108         87         991         131,985         132,976   

Multi-family residential

     —           —           —           —           25,776         25,776   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total real estate loans

     2,856         138         596         3,590         691,908         695,498   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Other loans:

                 

Commercial and industrial

     131         33         1,367         1,531         129,083         130,614   

Consumer

     668         137         253         1,058         40,983         42,041   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total other loans

     799         170         1,620         2,589         170,066         172,655   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total originated loans

   $ 3,655       $ 308       $ 2,216       $ 6,179       $ 861,974       $ 868,153   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Acquired loans:

                 

Real estate loans:

                 

One- to four-family first mortgage

   $ 3,573       $ 661       $ 1,753       $ 5,987       $ 170,894       $ 176,881   

Home equity loans and lines

     95         55         103         253         44,691         44,944   

Commercial real estate

     7         —           1,403         1,410         108,855         110,265   

Construction and land

     18         29         —           47         2,239         2,286   

Multi-family residential

     —           —           —           —           21,000         21,000   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total real estate loans

     3,693         745         3,259         7,697         347,679         355,376   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Other loans:

                 

Commercial and industrial

     105         —           —           105         8,142         8,247   

Consumer

     3         7         11         21         1,573         1,594   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total other loans

     108         7         11         126         9,715         9,841   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total acquired loans

   $ 3,801       $ 752       $ 3,270       $ 7,823       $ 357,394       $ 365,217   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

15


Table of Contents
     September 30, 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
 

Total loans:

                 

Real estate loans:

                 

One- to four-family first mortgage

   $ 5,386       $ 691       $ 1,979       $ 8,056       $ 345,037       $ 353,093   

Home equity loans and lines

     342         55         104         501         92,807         93,308   

Commercial real estate

     7         —           1,685         1,692         420,743         422,435   

Construction and land

     814         137         87         1,038         134,224         135,262   

Multi-family residential

     —           —           —           —           46,776         46,776   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total real estate loans

     6,549         883         3,855         11,287         1,039,587         1,050,874   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Other loans:

                 

Commercial and industrial

     236         33         1,367         1,636         137,225         138,861   

Consumer

     671         144         264         1,079         42,556         43,635   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total other loans

     907         177         1,631         2,715         179,781         182,496   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total loans

   $ 7,456       $ 1,060       $ 5,486       $ 14,002       $ 1,219,368       $ 1,233,370   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

     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       $ 162,353       $ 165,852   

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         128,831         129,035   

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   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

16


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
 

Total loans:

                 

Real estate loans:

                 

One- to four-family first mortgage

   $ 4,150       $ 1,320       $ 3,472       $ 8,942       $ 362,296       $ 371,238   

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         135,952         136,803   

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 September 30, 2016 and December 31, 2015, the Company did not have any loans greater than 90 days past due and accruing.

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

 

     As of Period Ended September 30, 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

   $ 75       $ 81       $ 28       $ 79       $ 4   

Home equity loans and lines

     —           —           —           —           —     

Commercial real estate

     619         650         64         375         17   

Construction and land

     —           —           —           —           —     

Multi-family residential

     —           —           —           —           —     

Commercial and industrial

     3,554         3,593         547         1,290         149   

Consumer

     —           —           —           —           —     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 4,248       $ 4,324       $ 639       $ 1,744       $ 170   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total impaired Originated Loans:

              

One- to four-family first mortgage

   $ 75       $ 81       $ 28       $ 79       $ 4   

Home equity loans and lines

     —           —           —           —           —     

Commercial real estate

     619         650         64         375         17   

Construction and land

     —           —           —           —           —     

Multi-family residential

     —           —           —           —           —     

Commercial and industrial

     3,554         3,593         547         1,290         149   

Consumer

     —           —           —           —           —     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 4,248       $ 4,324       $ 639       $ 1,744       $ 170   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

17


Table of Contents
     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   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

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.

 

     September 30, 2016      December 31, 2015  

(dollars in thousands)

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

Nonaccrual loans:

                 

One- to four-family first mortgage

   $ 553       $ 622       $ 1,175       $ 928       $ 530       $ 1,458   

Home equity loans and lines

     941         95         1,036         121         139         260   

Commercial real estate

     4,737         419         5,156         1,671         1,013         2,684   

Construction and land

     87         —           87         86         69         155   

Multi-family residential

     —           —           —           —           763         763   

Commercial and industrial

     10,404         321         10,725         2,374         84         2,458   

Consumer

     433         —           433         471         6         477   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 17,155       $ 1,457       $ 18,612       $ 5,651       $ 2,604       $ 8,255   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

(1) Table excludes acquired loans which were being accounted for under ASC 310-30 because they continue to earn interest from accretable yield regardless of their status as past due or otherwise not in compliance with their contractual terms. Acquired loans with deteriorated credit quality, which were being accounted for under ASC 310-30 and which were 90 days or more past due, totaled $2.6 million and $4.0 million as of September 30, 2016 and December 31, 2015, respectively.

As of September 30, 2016, the Company had no outstanding commitments to lend additional funds to any customer whose loan was classified as impaired.

 

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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’s loan to alleviate the burden of the customer’s near-term cash requirements. In order to be considered a troubled debt restructuring (“TDR”), the Company must conclude that the restructuring of a loan to a borrower who is experiencing financial difficulties constitutes a “concession”. The Company defines a concession as a modification of existing terms granted to a borrower for economic or legal reasons related to the borrower’s financial difficulties that the Company would otherwise not consider. The concession is either granted through an agreement with the customer or is imposed by a court or by a law. Concessions include modifying original loan terms to reduce or defer cash payments required as part of the loan agreement, including but not limited to:

 

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

 

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

 

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

 

    a reduction of accrued interest receivable on the debt.

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

 

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

 

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

 

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

 

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

 

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

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

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

 

     As of September 30, 2016  

(dollars in thousands)

   Current      Past Due
Greater Than
30 Days and
Accruing
     Nonaccrual
TDRs
     Total
TDRs
 

Originated loans:

        

Real estate loans:

        

One- to four-family first mortgage

   $ 277       $ —         $ 309       $ 586   

Home equity loans and lines

     335         —           931         1,266   

Commercial real estate

     104         —           1,914         2,018   

Construction and land

     211         —           87         298   

Multi-family residential

     —           —           —           —     
  

 

 

    

 

 

    

 

 

    

 

 

 

Total real estate loans

     927         —           3,241         4,168   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

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Table of Contents
     As of September 30, 2016  

(dollars in thousands)

   Current      Past Due
Greater Than
30 Days and
Accruing
     Nonaccrual
TDRs
     Total
TDRs
 

Other loans:

           

Commercial and industrial

     —           —           2,895         2,895   

Consumer

     —           —           181         181   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total other loans

     —           —           3,076         3,076   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total originated loans

   $ 927       $ —         $ 6,317       $ 7,244   
  

 

 

    

 

 

    

 

 

    

 

 

 

Acquired loans:

           

Real estate loans:

           

One- to four-family first mortgage

   $ 378       $ 12       $ 62       $ 452   

Home equity loans and lines

     —           —           —           —     

Commercial real estate

     289         860         —           1,149   

Construction and land

     —           —           —           —     

Multi-family residential

     —           —           —           —     
  

 

 

    

 

 

    

 

 

    

 

 

 

Total real estate loans

     667         872         62         1,601   
  

 

 

    

 

 

    

 

 

    

 

 

 

Other loans:

           

Commercial and industrial

     1,884         —           321         2,205   

Consumer

     —           —           —           —     
  

 

 

    

 

 

    

 

 

    

 

 

 

Total other loans

     1,884         —           321         2,205   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total acquired loans

   $ 2,551       $ 872       $ 383       $ 3,806   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total loans:

           

Real estate loans:

           

One- to four-family first mortgage

   $ 655       $ 12       $ 371       $ 1,038   

Home equity loans and lines

     335         —           931         1,266   

Commercial real estate

     393         860         1,914         3,167   

Construction and land

     211         —           87         298   

Multi-family residential

     —           —           —           —     
  

 

 

    

 

 

    

 

 

    

 

 

 

Total real estate loans

     1,594         872         3,303         5,769   
  

 

 

    

 

 

    

 

 

    

 

 

 

Other loans:

           

Commercial and industrial

     1,884         —           3,216         5,100   

Consumer

     —           —           181         181   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total other loans

     1,884         —           3,397         5,281   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total loans

   $ 3,478       $ 872       $ 6,700       $ 11,050   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

     As of December 31, 2015  

(dollars in thousands)

   Current      Past Due
Greater Than
30 Days and
Accruing
     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   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

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Table of Contents
     As of December 31, 2015  

(dollars in thousands)

   Current      Past Due
Greater Than
30 Days and
Accruing
     Nonaccrual
TDRs
     Total
TDRs
 

Acquired loans:

           

Real estate loans:

           

One- to four-family first mortgage

   $ 419       $ 88       $ —         $ 507   

Home equity loans and lines

     —           —           —           —     

Commercial real estate

     316         876         —           1,192   

Construction and land

     —           52         —           52   

Multi-family residential

     —           —           —           —     
  

 

 

    

 

 

    

 

 

    

 

 

 

Total real estate loans

     735         1,016         —           1,751   
  

 

 

    

 

 

    

 

 

    

 

 

 

Other loans:

           

Commercial and industrial

     —           —           —           —     

Consumer

     —           —           —           —     
  

 

 

    

 

 

    

 

 

    

 

 

 

Total other loans

     —           —           —           —     
  

 

 

    

 

 

    

 

 

    

 

 

 

Total acquired loans

   $ 735       $ 1,016       $ —         $ 1,751   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total loans:

           

Real estate loans:

           

One- to four-family first mortgage

   $ 700       $ 88       $ 38       $ 826   

Home equity loans and lines

     383         —           3         386   

Commercial real estate

     423         876         1,069         2,368   

Construction and land

     —           52         87         139   

Multi-family residential

     —           —           —           —     
  

 

 

    

 

 

    

 

 

    

 

 

 

Total real estate loans

     1,506         1,016         1,197         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

   $ 1,533       $ 1,016       $ 3,713       $ 6,262   
  

 

 

    

 

 

    

 

 

    

 

 

 

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 $5.6 million during the third 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.

 

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Table of Contents

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 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 September 30, 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 measured for fair value on a recurring basis as of September 30, 2016 and December 31, 2015.

 

            Fair Value Measurements Using  

(dollars in thousands)

   September 30, 2016      Level 1      Level 2      Level 3  

Available for sale securities:

           

U.S. agency mortgage-backed

   $ 133,937       $ —         $ 133,937       $ —     

Non-U.S. agency mortgage-backed

     5,363         —           5,363         —     

Municipal bonds

     21,846         —           21,846         —     

U.S. government agency

     9,847         —           9,847         —     
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 170,993       $ —         $ 170,993       $ —     
  

 

 

    

 

 

    

 

 

    

 

 

 
            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.

 

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Table of Contents

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.

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)

   September 30, 2016      Level 1      Level 2      Level 3  

Repossessed assets

   $ 2,551       $ —         $ —         $ 2,551   

Impaired loans

     3,608         —           —           3,608   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 6,159       $ —         $ —         $ 6,159   
  

 

 

    

 

 

    

 

 

    

 

 

 
            Fair Value Measurements Using  

(dollars in thousands)

   December 31, 2015      Level 1      Level 2      Level 3  

Repossessed assets

   $ 3,128       $ —         $ —         $ 3,128   

Impaired loans

     813         —           —           813   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 3,941       $ —         $ —         $ 3,941   
  

 

 

    

 

 

    

 

 

    

 

 

 

The following table shows significant observable inputs used in the fair value measurement of Level 3 assets.

 

(dollars in thousands)

   Fair
Value
    

Valuation Technique

  

Unobservable

Inputs

   Range of
Discounts
     Weighted
Average
Discount
 

As of September 30, 2016

              

Repossessed assets

   $ 2,551       Third party appraisals, sales contracts, broker price opinions    Collateral discounts and estimated costs to sell      6% - 99%         52%   

Impaired loans

   $ 3,608       Third party appraisals and discounted cash flows    Collateral discounts and discount rates      0% - 100%         15%   

As of December 31, 2015

              

Repossessed assets

   $ 3,128       Third party appraisals, sales contracts, broker price opinions    Collateral discounts and estimated costs to sell      6% - 96%         19%   

Impaired loans

   $ 813       Third party appraisals and discounted cash flows    Collateral discounts and discount rates      0% - 100%         15%   

 

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Table of Contents

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

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

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

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

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

The fair value for investment securities is determined from quoted market prices when available. If a quoted market price is not available, fair value is estimated using 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.

 

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Table of Contents

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

 

            Fair Value Measurements at September 30, 2016  

(dollars in thousands)

   Carrying
Amount
     Total      Level 1      Level 2      Level 3  

Financial Assets

              

Cash and cash equivalents

   $ 23,953       $ 23,953       $ 23,953       $ —         $ —     

Interest-bearing deposits in banks

     2,129         2,129         2,129         —           —     

Investment securities available for sale

     170,993         170,993         —           170,993         —     

Investment securities held to maturity

     13,448         13,736         —           13,736         —     

Mortgage loans held for sale

     10,643         10,643         —           10,643         —     

Loans, net

     1,221,177         1,227,591         —           —           1,227,591   

Cash surrender value of BOLI

     20,028         20,028         20,028         —           —     

Financial Liabilities

              

Deposits

   $ 1,220,830       $ 1,221,708       $ —         $ 1,221,708       $ —     

Short-term FHLB advances

     59,200         59,200         59,200         —           —     

Long-term FHLB advances

     79,629         80,319         —           80,319         —     

 

            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         —     

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 September 30, 2016 and on its results of operations for the three and nine months ended September 30, 2016 and September 30, 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.

 

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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 third quarter of 2016, the Company earned $4.4 million, an increase of $1.5 million, or 50.4%, compared to the third quarter of 2015. Diluted earnings per share for the third quarter of 2016 were $0.61, an increase of $0.20, or 48.8%, compared to the third quarter of 2015. The third quarter of 2015 included merger-related expenses related to the Louisiana Bancorp, Inc. (“Louisiana Bancorp”) acquisition totaling $593,000 ($527,000, net of taxes). Excluding merger-related expenses, net income for the third quarter of 2016 increased 27.3% compared to the third quarter of 2015 (see the “Non-GAAP Reconciliation” on page 28). Excluding merger-related expenses, diluted earnings per share for the third quarter of 2016 increased 24.5% compared to the third quarter of 2015.

During the nine months ended September 30, 2016, the Company earned $11.7 million, an increase of $3.1 million, or 36.6%, compared to the nine months ended September 30, 2015. Diluted earnings per share for the nine months ended September 30, 2016 were $1.65, an increase of $0.42, or 34.1%, compared to the nine months ended September 30, 2015. The nine months ended September 30, 2016 and 2015 included merger-related expenses related to the Louisiana Bancorp acquisition totaling $856,000 and $848,000, respectively ($560,000 and $759,000, respectively, net of taxes). The nine months ended September 30, 2016 included a $641,000 gain on the sale of a banking center in the New Orleans market following the Louisiana Bancorp systems conversion. The nine months ended September 30, 2015 included a $492,000 loss on the sale of a banking center. Excluding merger-related expenses and the banking center gain and loss, net income for the nine months ended September 30, 2016 increased 22.8% compared to the nine months ended September 30, 2015. Excluding merger-related expenses and the banking center gain, diluted earnings per share for the nine months ended September 30, 2016 increased 20.1% compared to the nine months ended September 30, 2015.

Key components of the Company’s performance during the three and nine months ended September 30, 2016 include:

 

    Assets totaled $1.5 billion as of September 30, 2016, down $2.4 million, or 0.2%, from December 31, 2015.

 

    Investment securities totaled $184.4 million as of September 30, 2016, a decrease of $6.2 million, or 3.3%, from December 31, 2015.

 

    Loans as of September 30, 2016 were $1.2 billion, an increase of $9.0 million, or 0.7%, from December 31, 2015. Growth in originated loans of 8.1% was partially offset by paydowns in acquired loans.

 

    Deposits as of September 30, 2016 were $1.2 billion, a decrease of $23.4 million, or 1.9%, from December 31, 2015. Core deposits (i.e., checking, savings, and money market accounts) totaled $957.0 million as of September 30, 2016, a decrease of $10.4 million, or 1.1%, from December 31, 2015.

 

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    Interest income increased $2.4 million, or 16.8%, in the third quarter of 2016, compared to the third quarter of 2015. For the nine months ended September 30, 2016, interest income increased $9.4 million, or 22.9%, compared to the nine months ended September 30, 2015. Interest income increased primarily due to higher loan volume as a result of the Louisiana Bancorp acquisition late in the third quarter of 2015.

 

    Interest expense increased $414,000, or 46.3%, in the third quarter of 2016 compared to the third quarter of 2015. For the nine months ended September 30, 2016, interest expense increased $1.4 million, or 56.0%, compared to the nine months ended September 30, 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 $800,000 for the third quarter of 2016, an increase of $231,000, or 40.7%, compared to the third quarter of 2015. For the nine months ended September 30, 2016, the provision for loan losses totaled $2.7 million, an increase of $1.3 million, or 92.7%, from the nine months ended September 30, 2015. At September 30, 2016, the Company’s ratio of the allowance for loan losses to total loans was 0.99%, compared to 0.74% at September 30, 2015. Excluding acquired loans, the ratio of the allowance for loan losses to total loans was 1.36% at September 30, 2016, compared to 1.12% at September 30, 2015. The Company recorded $54,000 in net loan charge-offs during the first nine months of 2016, compared to net loan charge-offs of $229,000 during the first nine months of 2015.

 

    Noninterest income for the third quarter of 2016 increased $318,000, or 14.5%, compared to the third quarter of 2015. For the nine months ended September 30, 2016, noninterest income increased $2.2 million, or 35.1%, compared to the nine months ended September 30, 2015. The increases resulted primarily from the change in net gains and losses on sale of properties and equipment in addition to increased service fees and charges and bank card fees.

 

    Noninterest expense for the third quarter of 2016 increased $121,000, or 1.2%, compared to the third quarter of 2015. Noninterest expense for the nine months ended September 30, 2016 increased $4.4 million, or 14.3%, compared to the nine months ended September 30, 2015. Noninterest expense included merger-related expenses related to the acquisition of Louisiana Bancorp totaling $593,000 for the third quarter of 2015, and $856,000 and $848,000 for the nine months ended September, 30, 2016 and September 30, 2015, respectively. Excluding merger-related expenses, noninterest expense increased $714,000, or 7.2%, for the third quarter of 2016 compared to the third quarter of 2015. Excluding merger-related expenses, noninterest expense increased $4.4 million, or 14.7%, for the nine months ended September 30, 2016 compared to the nine months ended September 30, 2015. The increases in noninterest expense relate primarily to the growth of the Company due to the addition of Louisiana Bancorp branches and employees in the third quarter of 2015. The increases were partially offset by lower expenses on foreclosed assets (down $780,000 resulting from a $560,000 net gain on the sale of foreclosed assets and lower foreclosed asset expenses in the third quarter).

 

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This 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 its 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      For the Nine Months Ended  

(dollars in thousands)

   September 30,
2016
     September 30,
2015
     September 30,
2016
    September 30,
2015
 

Reported noninterest expense

   $ 10,643       $ 10,522       $ 34,839      $ 30,470   

Less: Merger-related expenses

     —           593         856        848   
  

 

 

    

 

 

    

 

 

   

 

 

 

Non-GAAP noninterest expense

   $ 10,643       $ 9,929       $ 33,983      $ 29,622   
  

 

 

    

 

 

    

 

 

   

 

 

 

Reported noninterest income

   $ 2,515       $ 2,197       $ 8,529      $ 6,315   

Less: (Gain) loss on sale of banking centers

     —           —           (641     492   
  

 

 

    

 

 

    

 

 

   

 

 

 

Non-GAAP noninterest income

   $ 2,515       $ 2,197       $ 7,888      $ 6,807   
  

 

 

    

 

 

    

 

 

   

 

 

 

Reported net income

   $ 4,360       $ 2,899       $ 11,726      $ 8,587   

Less: (Gain) loss on sale of banking centers, net of tax

     —           —           (416     320   

Add: Merger-related expenses, net of tax

     —           527         560        759   
  

 

 

    

 

 

    

 

 

   

 

 

 

Non-GAAP net income

   $ 4,360       $ 3,426       $ 11,870      $ 9,666   
  

 

 

    

 

 

    

 

 

   

 

 

 

Diluted EPS

   $ 0.61       $ 0.41       $ 1.65      $ 1.23   

Less: (Gain) loss on sale of banking center

     —           —           (0.06     0.05   

Add: Merger-related expenses

     —           0.08         0.08        0.11   
  

 

 

    

 

 

    

 

 

   

 

 

 

Non-GAAP diluted EPS

   $ 0.61       $ 0.49       $ 1.67      $ 1.39   
  

 

 

    

 

 

    

 

 

   

 

 

 

FINANCIAL CONDITION

Loans, Asset Quality and Allowance for Loan Losses

Loans – Loans outstanding as of September 30, 2016 were $1.2 billion, an increase of $9.0 million, or 0.7%, from December 31, 2015. Growth in originated loans of 8.1% was partially offset by paydowns in acquired loans.

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

 

     September 30,      December 31,      Increase/(Decrease)  

(dollars in thousands)

   2016      2015      Amount      Percent  

Real estate loans:

           

One- to four-family first mortgage

   $ 353,093       $ 371,238       $ (18,145      (4.9 )% 

Home equity loans and lines

     93,308         94,060         (752      (0.8

Commercial real estate

     422,435         405,379         17,056         4.2   

Construction and land

     135,262         136,803         (1,541      (1.1

Multi-family residential

     46,776         43,863         2,913         6.6   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total real estate loans

     1,050,874         1,051,343         (469      —     
  

 

 

    

 

 

    

 

 

    

 

 

 

Other loans:

           

Commercial and industrial

     138,861         125,108         13,753         11.0   

Consumer

     43,635         47,915         (4,280      (8.9
  

 

 

    

 

 

    

 

 

    

 

 

 

Total other loans

     182,496         173,023         9,473         5.5   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total loans

   $ 1,233,370       $ 1,224,366       $ 9,004         0.7
  

 

 

    

 

 

    

 

 

    

 

 

 

 

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The aggregate outstanding balance of loans to borrowers in the energy sector totaled $34.8 million, or 2.8% of outstanding loans, at September 30, 2016. We also had unfunded loan commitments to borrowers in the energy sector amounting to $8.4 million at such date. At September 30, 2016, 92% of the balance of our energy-related loans were performing in accordance with their original loan agreements. Of the remaining 8%, or $2.1 million, had been restructured and were paying in accordance with the restructured terms at such date. The Company holds no shared national credits.

The following table illustrates the composition of the Company’s direct energy-related loans at September 30, 2016.

 

(dollars in thousands)

   Total      Percent  

Real estate loans:

     

Commercial real estate

   $ 14,505         41.7

Construction and land

     406         1.2   
  

 

 

    

 

 

 

Total real estate loans

     14,911         42.9   
  

 

 

    

 

 

 

Commercial and industrial:

     

Equipment

     6,623         19.0   

Marine vessels

     6,332         18.2   

Accounts receivable

     4,562         13.1   

Unsecured

     967         2.8   

Other

     1,375         4.0   
  

 

 

    

 

 

 

Total commercial and industrial loans

     19,859         57.1   
  

 

 

    

 

 

 

Total energy-related loans

   $ 34,770         100.0
  

 

 

    

 

 

 

In addition to our energy exposure on direct energy related loans, given the effect of the energy sector on the overall economy in several of our markets, we also have indirect exposure in making loans to borrowers who are not themselves in the energy sector but whose customers include energy sector entities.

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

 

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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 September 30, 2016 and December 31, 2015, loans individually evaluated for impairment, excluding acquired loans, amounted to $4.2 million and $966,000, respectively. As of September 30, 2016 and December 31, 2015, acquired impaired loans, loans considered to have deteriorated credit quality at the time of acquisition, amounted to $15.9 million and $20.0 million, respectively. As of September 30, 2016 and December 31, 2015, substandard loans, excluding acquired loans, amounted to $25.2 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 $640,000 as of September 30, 2016 and $153,000 as of December 31, 2015. The amount of allowance for loan losses allocated to acquired loans totaled $371,000 and $373,000, respectively, at such dates. There were no assets classified as doubtful or loss as of September 30, 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.

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

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

 

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

 

     September 30, 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

   $ 553       $ 622       $ 1,175      $ 928       $ 530       $ 1,458   

Home equity loans and lines

     941         95         1,036        121         139         260   

Commercial real estate

     4,737         419         5,156        1,671         1,013         2,684   

Construction and land

     87         —           87        86         69         155   

Multi-family residential

     —           —           —          —           763         763   

Other loans:

                

Commercial and industrial

     10,404         321         10,725        2,374         84         2,458   

Consumer

     433         —           433        471         6         477   
  

 

 

    

 

 

    

 

 

   

 

 

    

 

 

    

 

 

 

Total nonaccrual loans

     17,155         1,457         18,612        5,651         2,604         8,255   

Accruing loans 90 days or more past due

     —           —           —          —           —           —     
  

 

 

    

 

 

    

 

 

   

 

 

    

 

 

    

 

 

 

Total nonperforming loans

     17,155         1,457         18,612        5,651         2,604         8,255   

Foreclosed assets

     412         2,139         2,551        116         3,012         3,128   
  

 

 

    

 

 

    

 

 

   

 

 

    

 

 

    

 

 

 

Total nonperforming assets

     17,567         3,596         21,163        5,767         5,616         11,383   

Performing troubled debt restructurings

     927         522         1,449        798         492         1,290   
  

 

 

    

 

 

    

 

 

   

 

 

    

 

 

    

 

 

 

Total nonperforming assets and troubled debt restructurings

   $ 18,494       $ 4,118       $ 22,612      $ 6,565       $ 6,108       $ 12,673   
  

 

 

    

 

 

    

 

 

   

 

 

    

 

 

    

 

 

 

Nonperforming loans to total loans

           1.51           0.67

Nonperforming loans to total assets

           1.20           0.53

Nonperforming assets to total assets

           1.37           0.73

 

(1) Table excludes acquired loans which were being accounted for under ASC 310-30 because they continue to earn interest from accretable yield regardless of their status as past due or otherwise not in compliance with their contractual terms. Acquired loans with deteriorated credit quality, which were being accounted for under ASC 310-30 and which were 90 days or more past due, totaled $2.6 million and $4.0 million as of September 30, 2016 and December 31, 2015, respectively.

The Company recorded $54,000 net loan charge-offs during the quarter and nine months ended September 30, 2016. Net loan charge-offs for the quarter and nine months ended September 30, 2015 were $103,000 and $229,000, respectively.    

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

 

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With respect to acquired loans, the Company follows the reserve standard set forth in ASC 310, Receivables. At acquisition, the Company reviews each loan to determine whether there is evidence of deterioration in credit quality since origination and if it is probable that the Company will be unable to collect all amounts due according to the loan’s contractual terms. The Company considers expected prepayments and estimates the amount and timing of undiscounted expected principal, interest and other cash flows for each loan pool meeting the criteria above, and determines the excess of the loan pool’s scheduled contractual principal and interest payments in excess of cash flows expected at acquisition as an amount that should not be accreted (nonaccretable difference). The remaining amount, representing the excess of the pool’s cash flows expected to be collected over the fair value, is accreted into interest income over the remaining life of the pool (accretable yield). The Company records a discount on these loans at acquisition to record them at their estimated fair values. As a result, acquired loans subject to ASC 310 are excluded from the calculation of the allowance for loan losses as of the acquisition date. See Note 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. 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. As of September 30, 2016 and December 31, 2015, $100,000 and $128,000, respectively, 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 nine months of 2016.

 

(dollars in thousands)

   Originated      Acquired      Total  

Balance, December 31, 2015

   $ 9,174       $ 373       $ 9,547   

Provision charged to operations

     2,796         (96      2,700   

Loans charged off

     (249      —           (249

Recoveries on charged off loans

     101         94         195   
  

 

 

    

 

 

    

 

 

 

Balance, September 30, 2016

   $ 11,822       $ 371       $ 12,193   
  

 

 

    

 

 

    

 

 

 

At September 30, 2016, the Company’s ratio of allowance for loan losses to total loans was 0.99%, compared to 0.78% and 0.74% at December 31, 2015 and September 30, 2015, respectively. Excluding acquired loans, the ratio of allowance for loan losses to total loans was 1.36% at September 30, 2016, compared to 1.15% and 1.12% at December 31, 2015 and September 30, 2015, respectively, due primarily to the potential direct and indirect impact of continuing low energy prices.    

The allowance for loan losses to loans ratio directly attributable to energy loans totaled 3.29% at September 30, 2016. Over the past nine months, the Company has increased its overall allowance for loan losses to loans ratio on originated loans from 1.15% at December 31, 2015 to 1.36% at September 30, 2016 due primarily to the potential direct and indirect adverse effect that low energy prices may have on the ability of our borrowers to repay their loans.

Investment Securities

The Company’s investment securities portfolio totaled $184.4 million as of September 30, 2016, a decrease of $6.2 million, or 3.3%, from December 31, 2015. As of September 30, 2016, the Company had a net unrealized gain on its available for sale investment securities portfolio of $2.5 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 September 30, 2016 and December 31, 2015, respectively.

 

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

 

(dollars in thousands)

   Available
for Sale
     Held to
Maturity
 

Balance, December 31, 2015

   $ 176,762       $ 13,927   

Purchases

     21,752         —     

Sales

     —           —     

Principal payments and calls

     (27,706      (236

Accretion of discounts and amortization of premiums, net

     (942      (243

Increase in market value

     1,127         —     
  

 

 

    

 

 

 

Balance, September 30, 2016

   $ 170,993       $ 13,448   
  

 

 

    

 

 

 

Funding Sources

Deposits – Deposits totaled $1.2 billion as of September 30, 2016 and December 31, 2015. Core deposits totaled $957.0 million as of September 30, 2016, a decrease of $10.4 million, or 1.1%, compared to December 31, 2015.

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

 

     September 30,      December 31,      Increase (Decrease)  

(dollars in thousands)

   2016      2015      Amount      Percent  

Demand deposit

   $ 289,835       $ 296,617       $ (6,782      (2.3 )% 

Savings

     110,150         109,393         757         0.7   

Money market

     257,125         293,637         (36,512      (12.4

NOW

     299,880         267,707         32,173         12.0   

Certificates of deposit

     263,840         276,863         (13,023      (4.7
  

 

 

    

 

 

    

 

 

    

 

 

 

Total deposits

   $ 1,220,830       $ 1,244,217       $ (23,387      (1.9 )% 
  

 

 

    

 

 

    

 

 

    

 

 

 

Federal Home Loan Bank Advances – Short-term FHLB advances increased $19.3 million, or 48.2%, from $40.0 million as of December 31, 2015 to $59.2 million as of September 30, 2016. Long-term FHLB advances totaled $79.6 million as of September 30, 2016, a decrease of $5.6 million, or 6.6%, compared December 31, 2015.

Shareholders’ Equity – Shareholders’ equity increased $12.3 million, or 7.5%, from $165.0 million as of December 31, 2015 to $177.4 million as of September 30, 2016.

As of September 30, 2016, the Company and the Bank had regulatory capital that were well in excess of regulatory requirements. The following table presents actual and required capital ratios for the Company and the Bank under the Basel III Capital Rules. The minimum required capital amounts presented include the minimum required capital levels as of September 30, 2016 based on the phase-in provisions of the Basel III Capital Rules and the minimum required capital levels as of January 1, 2019 when the Basel III Capital Rules have been fully phased-in. Capital levels required to be considered well capitalized are based upon prompt corrective action regulations, as amended to reflect the changes under the Basel III Capital Rules.

 

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     Actual     Minimum Capital
Required – Basel III
Phase-In Schedule
    Minimum Capital
Required – Basel III
Fully Phased-In
    To Be Well
Capitalized Under
Prompt Corrective
Action Provisions
 

(dollars in thousands)

   Amount      Ratio     Amount      Ratio     Amount      Ratio     Amount      Ratio  

Company:

                    

Tier 1 risk-based capital

   $ 164,243         13.89   $ 78,341         6.625   $ 100,513         8.50     N/A         N/A   

Total risk-based capital

     176,436         14.92        101,991         8.625        124,163         10.50        N/A         N/A   

Tier 1 leverage capital

     164,243         10.79        60,866         4.00        60,866         4.00        N/A         N/A   
     Actual     Minimum Capital
Required – Basel III
Phase-In Schedule
    Minimum Capital
Required – Basel III
Fully Phased-In
    To Be Well
Capitalized Under
Prompt Corrective
Action Provisions
 

(dollars in thousands)

   Amount      Ratio     Amount      Ratio     Amount      Ratio     Amount      Ratio  

Bank:

                    

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

   $ 148,085         12.52   $ 60,603         5.125   $ 82,774         7.00   $ 76,862         6.50

Tier 1 risk-based capital

     148,085         12.52        78,340         6.625        100,512         8.50        94,599         8.00   

Total risk-based capital

     160,278         13.55        101,990         8.625        124,162         10.50        118,249         10.00   

Tier 1 leverage capital

     148,085         9.73        60,849         4.00        60,849         4.00        76,061         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 September 30, 2016, cash and cash equivalents totaled $24.0 million. At such date, investment securities available for sale totaled $171.0 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 September 30, 2016, certificates of deposit maturing within the next 12 months totaled $161.5 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 September 30, 2016, the average balance of outstanding FHLB advances was $128.0 million. As of September 30, 2016, the Company had $138.8 million in total outstanding FHLB advances and had $464.8 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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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 September 30, 2016.

 

Shift in Interest Rates

(in bps)

   % Change in Projected
Net Interest Income
 

+300

     -0.5

+200

     0.0   

+100

     0.1   

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 September 30, 2016 and December 31, 2015.

 

     Contract Amount  

(dollars in thousands)

   September 30,
2016
     December 31,
2015
 

Standby letters of credit

   $ 4,166       $ 3,764   

Available portion of lines of credit

     138,945         127,393   

Undisbursed portion of loans in process

     69,614         73,699   

Commitments to originate loans

     116,779         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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RESULTS OF OPERATIONS

During the third quarter of 2016, the Company earned $4.4 million, an increase of $1.5 million, or 50.4%, compared to the third quarter of 2015. Diluted earnings per share for the third quarter of 2016 were $0.61, an increase of $0.20, or 48.8%, compared to the third quarter of 2015. The third quarter of 2015 included merger-related expenses related to the Louisiana Bancorp acquisition totaling $593,000 ($527,000, net of taxes). Excluding merger-related expenses, net income for the third quarter of 2016 increased 27.3% compared to the third quarter of 2015 (see the “Non-GAAP Reconciliation” on page 27). Excluding merger-related expenses, diluted earnings per share for the third quarter of 2016 increased 24.5% compared to the third quarter of 2015.

During the nine months ended September 30, 2016, the Company earned $11.7 million, an increase of $3.1 million, or 36.6%, compared to the nine months ended September 30, 2015. Diluted earnings per share for the nine months ended September 30, 2016 were $1.65, an increase of $0.42, or 34.1%, compared to the nine months ended September 30, 2015. The nine months ended September 30, 2016 and 2015 include merger-related expenses, related to the Louisiana Bancorp acquisition totaling $856,000 and $848,000, respectively ($560,000 and $759,000, respectively, net of taxes). The nine months ended September 30, 2016 included a $641,000 gain on the sale of a banking center in the New Orleans market following the Louisiana Bancorp system conversion. The nine months ended September 30, 2015 included a $492,000 loss on the sale of a banking center. Excluding merger-related expenses and the banking center gain and loss, net income for the nine months ended September 30, 2016 increased 22.8% compared to the nine months ended September 30, 2015. Excluding merger-related expenses and the banking center gain, diluted earnings per share for the nine months ended September 30, 2016 increased 20.1% compared to the nine months ended September 30, 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 4.19% and 4.43% for the three months ended September 30, 2016 and September 30, 2015, respectively, and 4.23% and 4.39% for the nine months ended September 30, 2016 and September 30, 2015, respectively. The Company’s tax-equivalent net interest margin, which is net interest income as a percentage of average interest-earning assets, was 4.32% and 4.55% for the three months ended September 30, 2016 and September 30, 2015, respectively, and 4.35% and 4.51% for the nine months ended September 30, 2016 and September 30, 2015, respectively. The decrease in the net interest spread and net interest margin in the 2016 periods related primarily to a decrease in the average yield on loans.

Net interest income totaled $15.5 million for the three months ended September 30, 2016, an increase of $2.0 million, or 14.8%, compared to the three months ended September 30, 2015. For the nine months ended September 30, 2016, net interest income totaled $46.8 million, an increase of $8.0 million, or 20.7%, compared to the nine months ended September 30, 2015.

Interest income increased $2.4 million, or 16.8%, in the third quarter of 2016 compared to the third quarter of 2015. For the nine months ended September 30, 2016, interest income increased $9.4 million, or 22.9%, compared to the nine months ended September 30, 2015. Increases in the average balance of loans receivable from the Louisiana Bancorp acquisition were partially offset by decreases of 35 basis points and 29 basis points, respectively, in the average yield on loans during the quarter and nine months ended September 30, 2016 from the prior comparable period.

Interest expense increased $414,000, or 46.3%, in the third quarter of 2016 compared to the third quarter of 2015. For the nine months ended September 30, 2016, interest expense increased $1.4 million, or 56.0%, compared to the nine months ended September 30, 2015. During the quarter and nine months ended September 30, 2016, the average volume of deposits increased due to the Louisiana Bancorp acquisition.

The following tables set 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

 

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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 September 30,  
     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)

   $ 1,226,547       $ 15,889         5.11   $ 969,272       $ 13,435         5.46

Investment securities

                

Taxable

     150,412         722         1.92        155,275         757         1.95   

Tax-exempt (TE)

     33,837         167         3.04        36,748         182         3.04   
  

 

 

    

 

 

      

 

 

    

 

 

    

Total investment securities

     184,249         889         2.13        192,023         939         2.16   

Other interest-earning assets

     15,410         69         1.78        18,651         51         1.08   
  

 

 

    

 

 

      

 

 

    

 

 

    

Total interest-earning assets (TE)

     1,426,206         16,847         4.69        1,179,946         14,425         4.85   
     

 

 

         

 

 

    

Noninterest-earning assets

     106,958              105,356         
  

 

 

         

 

 

       

Total assets

   $ 1,533,164            $ 1,285,302         
  

 

 

         

 

 

       

Interest-bearing liabilities:

                

Deposits:

                

Savings, checking and money market

   $ 666,585       $ 387         0.23   $ 575,185       $ 322         0.22

Certificates of deposit

     264,534         526         0.79        224,205         408         0.72   
  

 

 

    

 

 

      

 

 

    

 

 

    

Total interest-bearing deposits

     931,119         913         0.39        799,390         730         0.36   

Short-term FHLB advances

     48,415         54         0.44        19,466         10         0.20   

Long term FHLB advances

     79,618         341         1.72        32,631         152         1.87   

Securities sold under repurchase agreement

     —           —           —          4,094         2         0.20   
  

 

 

    

 

 

      

 

 

    

 

 

    

Total interest-bearing liabilities

     1,059,152         1,308         0.49        855,581         894         0.42   
  

 

 

    

 

 

         

 

 

    

Noninterest-bearing liabilities

     298,032              268,688         
  

 

 

         

 

 

       

Total liabilities

     1,357,184              1,124,269         

Shareholders’ equity

     175,980              161,033         
  

 

 

         

 

 

       

Total liabilities and shareholders’ equity

   $ 1,533,164            $ 1,285,302         
  

 

 

         

 

 

       

Net interest-earning assets

   $ 367,054            $ 324,365         
  

 

 

         

 

 

       

Net interest spread (TE)

      $ 15,539         4.19      $ 13,531         4.43
     

 

 

         

 

 

    

Net interest margin (TE)

           4.32           4.55

 

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

 

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Table of Contents
     Nine Months Ended September 30,  
     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)

   $ 1,225,762       $ 47,760         5.15   $ 934,752       $ 38,417         5.44

Investment securities

                

Taxable

     152,493         2,296         2.01        151,763         2,214         1.95   

Tax-exempt (TE)

     34,468         510         3.04        36,249         537         3.04   
  

 

 

    

 

 

      

 

 

    

 

 

    

Total investment securities

     186,961         2,806         2.20        188,012         2,751         2.16   
  

 

 

    

 

 

            

Other interest-earning assets

     16,843         196         1.55        24,861         150         0.81   
  

 

 

    

 

 

      

 

 

    

 

 

    

Total interest-earning assets (TE)

     1,429,566         50,762         4.72        1,147,625         41,318         4.80   
     

 

 

         

 

 

    

Noninterest-earning assets

     111,405              105,960         
  

 

 

         

 

 

       

Total assets

   $ 1,540,971            $ 1,253,585         
  

 

 

         

 

 

       

Interest-bearing liabilities:

                

Deposits:

                

Savings, checking and money market

   $ 671,762       $ 1,177         0.23   $ 556,545       $ 930         0.22

Certificates of deposit

     269,479         1,587         0.79        218,767         1,186         0.72   
  

 

 

    

 

 

      

 

 

    

 

 

    

Total interest-bearing deposits

     941,241         2,764         0.39        775,312         2,116         0.36   

Short-term FHLB advances

     45,049         143         0.42        12,056         16         0.17   

Long term FHLB advances

     82,767         1,041         1.68        23,498         359         2.04   

Securities sold under repurchase agreement

     —           —           —          14,839         39         0.35   
  

 

 

    

 

 

      

 

 

    

 

 

    

Total interest-bearing liabilities

     1,069,057         3,948         0.49        825,705         2,530         0.41   
     

 

 

         

 

 

    

Noninterest-bearing liabilities

     299,989              269,295         
  

 

 

         

 

 

       

Total liabilities

     1,369,046              1,095,000         

Shareholders’ equity

     171,925              158,585         
  

 

 

         

 

 

       

Total liabilities and shareholders’ equity

   $ 1,540,971            $ 1,253,585         
  

 

 

         

 

 

       

Net interest-earning assets

   $ 360,509            $ 321,920         
  

 

 

         

 

 

       

Net interest spread (TE)

      $ 46,814         4.23      $ 38,788         4.39
     

 

 

         

 

 

    

Net interest margin (TE)

           4.35           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     For the Nine Months Ended  
     September 30,     September 30,  
     2016 Compared to 2015     2016 Compared to 2015  
     Change Attributable To     Change Attributable To  
                 Total                 Total  
                 Increase                 Increase  

(dollars in thousands)

   Rate     Volume     (Decrease)     Rate     Volume     (Decrease)  

Interest income:

            

Loans receivable

   $ (833   $ 3,287      $ 2,454      $ (1,852   $ 11,195      $ 9,343   

Investment securities (TE)

     (8     (42     (50     73        (18     55   

Other interest-earning assets

     30        (12     18        116        (70     46   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total interest income

     (811     3,233        2,422        (1,663     11,107        9,444   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Interest expense:

            

Savings, checking and money market accounts

     11        54        65        48        199        247   

Certificates of deposit

     42        76        118        113        288        401   

Securities sold under repurchase agreement

     —          (2     (2     —          (39     (39

FHLB advances

     (1     234        233        (92     901        809   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total interest expense

     52        362        414        69        1,349        1,418   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Increase (decrease) in net interest income

   $ (863   $ 2,871      $ 2,008      $ (1,732   $ 9,758      $ 8,026   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Provision for Loan Losses – For the quarter ended September 30, 2016, the Company recorded a provision for loan losses of $800,000, which was 40.7% higher than the $569,000 recorded for the same period in 2015. Net loan charge-offs amounted to $54,000 and $103,000 during the third quarters of 2016 and 2015, respectively. For the nine months ended September 30, 2016, the provision for loan losses totaled $2.7 million, which was 92.7% higher than the $1.3 million recorded for the same period in 2015. The higher levels of provision expense in 2016 are primarily the result originated loan growth and the increase in the Company’s total nonperforming loans as well as our assessment of the potential direct and indirect impact of continuing low energy prices on the abilities of certain borrowers to repay their loans in accordance with their terms. Net loan charge-offs amounted to $54,000 and $229,000, respectively, during the nine months ended September 30, 2016 and September 30, 2015, respectively.

As of September 30, 2016, the Company’s ratio of allowance for loan losses to total loans was 0.99%, compared to 0.78% and 0.74% at December 31, 2015 and September 30, 2015, respectively. Excluding acquired loans, the ratio of allowance for loan losses to total loans was 1.36% at September 30, 2016, compared to 1.15% and 1.12% at December 31, 2015 and September 30, 2015, respectively. The ratio of non-performing loans to total assets was 1.20% at September 30, 2016, compared to 0.53% at December 31, 2015.

Noninterest Income – The Company’s noninterest income was $2.5 million for the quarter ended September 30, 2016, $318,000, or 14.5%, more than the $2.2 million earned for the same period in 2015. Noninterest income was $8.5 million for the nine months ended September 30, 2016, $2.2 million, or 35.1%, higher than the $6.3 million earned for the same period of 2015. The increase in noninterest income in the third quarter of 2016 compared to the third quarter of 2015 resulted primarily from the absence of a $359,000 net loss from the sale of assets recorded in the comparable prior year period. The nine months ended September 30, 2016 included a gain on the sale of a banking center totaling $641,000, pre-tax. Excluding the net gains (losses) on sale of assets, noninterest income increased 7.2% and 15.9% in the quarterly and nine-month comparisons primarily from increased service fees and charges and bank card fees.

 

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Noninterest Expense – The Company’s noninterest expense was $10.6 million for the three months ended September 30, 2016, $121,000, or 1.1%, higher than the $10.5 million recorded for the same period in 2015. Noninterest expense was $34.8 million for the nine months ended September 30, 2016, $4.4 million, or 14.3% higher than the $30.5 million for the same period of 2015. Noninterest expense includes merger-related expenses related to the acquisition of Louisiana Bancorp totaling $593,000 for the third quarter of 2015, and $856,000 and $848,000 for the nine months ended September, 30, 2016 and September 30, 2015, respectively. Excluding merger-related expenses, noninterest expense increased $714,000, or 7.2%, for the third quarter of 2016 compared to the third quarter of 2015. Excluding merger-related expenses, noninterest expense increased $4.4 million, or 14.7%, for the nine months ended September 30, 2016 compared to the nine months ended September 30, 2015. The increases in noninterest expense relate primarily to the growth of the Company due to the addition of Louisiana Bancorp branches and employees in the third quarter of 2015. The increases were partially offset by lower expenses on foreclosed assets (down $780,000 resulting from a $560,000 net gain on the sale of foreclosed assets and lower foreclosed asset expenses in the third quarter of 2016).

Income Taxes – For the quarters ended September 30, 2016 and September 30, 2015, the Company incurred income tax expense of $2.3 million and $1.7 million, respectively. The Company’s effective tax rate was 34.0% and 37.5% during the third quarters of 2016 and 2015, respectively. For the nine months ended September 30, 2016 and September 30, 2015, the Company incurred income tax expense of $6.1 million and $4.6 million, respectively. The Company’s effective tax rate amounted to 34.1% and 35.1% during the nine months ended September 30, 2016 and September 30, 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 September 30, 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 third 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.

 

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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 plans 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)
 

July 1 – July 31, 2016

     37       $ 27.54         37         371,034   

August 1 – August 31, 2016

     1,200         28.83         1,200         369,834   

September 1 – September 30, 2016

     354         28.78         354         369,480   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

     1,591       $ 28.79         1,591         369,480   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

(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. On April 26, 2016, the Company announced a new stock repurchase program. Under the plan, the Company can repurchase up to 365,000 shares, or approximately 5% of its common stock outstanding, through open market or privately negotiated transactions.    

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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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.
November 8, 2016     By:  

/s/ John W. Bordelon

      John W. Bordelon
      President, Chief Executive Officer and Director
November 8, 2016     By:  

/s/ Joseph B. Zanco

      Joseph B. Zanco
      Executive Vice President and Chief Financial Officer

 

 

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