Form 10-K
Table of Contents

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM 10-K

 

 

(Mark One)

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

For the fiscal year ended: December 31, 2015

or

 

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

For the transition period from                      to                     

Commission File Number: 001-34190

 

 

HOME BANCORP, INC.

(Exact name of Registrant as specified in its charter)

 

 

 

Louisiana   71-1051785

(State or Other Jurisdiction of

Incorporation or Organization)

 

(I.R.S. Employer

Identification Number)

 

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

 

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

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class

 

Name of each exchange on which registered

Common Stock, $0.01 par value per share   The Nasdaq Stock Market, LLC

Securities registered pursuant to Section 12(g) of the Act: none

 

 

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.    YES  ¨    NO  x

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.    YES  ¨    NO  x

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

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

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the Registrant’s knowledge in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  ¨

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

 

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

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

The aggregate market value of the 5,661,776 shares of the Registrant’s common stock held by non-affiliates, based upon the closing price of $25.24 for the common stock on June 30, 2015, as reported by the Nasdaq Stock Market, was approximately $142.9 million. Shares of common stock held by the registrant’s executive officers, directors and certain benefit plans have been excluded since such persons may be deemed to be affiliates. This determination of affiliate status is not necessarily a conclusive determination for other purposes.

Number of shares of common stock outstanding as of March 4, 2016: 7,256,521

DOCUMENTS INCORPORATED BY REFERENCE

Set forth below are the documents incorporated by reference and the part of the Form 10-K into which the document is incorporated:

Portions of the definitive Proxy Statement for the 2016 Annual Meeting of Shareholders are incorporated by reference into Part III, Items 10-14 of this Form 10-K.

 

 

 


Table of Contents

HOME BANCORP, INC.

2015 ANNUAL REPORT ON FORM 10-K

TABLE OF CONTENTS

 

          Page  
PART I   
Item 1.   

Business

     1   
Item 1A.   

Risk Factors

     10   
Item 1B.   

Unresolved Staff Comments

     14   
Item 2.   

Properties

     14   
Item 3.   

Legal Proceedings

     14   
Item 4.   

Mine Safety Disclosures

     15   
PART II   
Item 5.   

Market for the Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

     15   
Item 6.   

Selected Financial Data

     17   
Item 7.   

Management’s Discussion and Analysis of Financial Condition and Results of Operations

     19   
Item 7A.   

Quantitative and Qualitative Disclosures about Market Risk

     39   
Item 8.   

Financial Statements and Supplementary Data

     40   
Item 9.   

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

     86   
Item 9A.   

Controls and Procedures

     86   
Item 9B.   

Other Information

     87   
PART III   
Item 10.   

Directors, Executive Officers and Corporate Governance

     88   
Item 11.   

Executive Compensation

     88   
Item 12.   

Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

     88   
Item 13.   

Certain Relationships and Related Transactions, and Director Independence

     89   
Item 14.   

Principal Accounting Fees and Services

     89   
PART IV   
Item 15.   

Exhibits and Financial Statement Schedules

     89   

SIGNATURES

     91   


Table of Contents

Forward-Looking Statements

This Annual Report on Form 10-K contains certain forward looking statements (as defined in the Securities Exchange Act of 1934 and the regulations hereunder). Forward looking statements are not historical facts but instead represent only the beliefs, expectations or opinions of Home Bancorp, Inc. and its management regarding future events, many of which, by their nature, are inherently uncertain. Forward looking statements may be identified by the use of such words as: “believe”, “expect”, “anticipate”, “intend”, “plan”, “estimate”, or words of similar meaning or future or conditional terms such as “will”, “would”, “should”, “could”, “may”, “likely”, “probably”, or “possibly.” Forward looking statements include, but are not limited to, financial projections and estimates and their underlying assumptions; statements regarding plans, objectives and expectations with respect to future operations, products and services; and statements regarding future performance. Such statements are subject to certain risks, uncertainties and assumptions, many of which are difficult to predict and generally are beyond the control of Home Bancorp, Inc. and its management, that could cause actual results to differ materially from those expressed in, or implied or projected by, forward looking statements. The following factors, among others, could cause actual results to differ materially from the anticipated results or other expectations expressed in the forward looking statements: (1) economic and competitive conditions which could affect the volume of loan originations, deposit flows and real estate values; (2) the levels of noninterest income and expense and the amount of loan losses; (3) competitive pressure among depository institutions increasing significantly; (4) the low interest rate environment causing reduced interest margins; (5) general economic conditions, either nationally or in the markets in which Home Bancorp, Inc. is or will be doing business, being less favorable than expected;(6) political and social unrest, including acts of war or terrorism; (7) we may not fully realize all the benefits we anticipated in connection with our acquisitions of other institutions or our assumptions made in connection therewith may prove to be inaccurate; or (8) legislation or changes in regulatory requirements adversely affecting the business of Home Bancorp, Inc. Home Bancorp, Inc. 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.

As used in this report, unless the context otherwise requires, the terms “we,” “our,” “us,” or the “Company” refer to Home Bancorp, Inc., a Louisiana corporation, and the term “Bank” refers to Home Bank, National Association, a national bank and wholly owned subsidiary of the Company (for periods prior to March 2, 2015, the term “Bank” refers to the predecessor federal savings bank, Home Bank). In addition, unless the context otherwise requires, references to the operations of the Company include the operations of the Bank.

PART I

 

Item 1. Business.

General. Home Bancorp, Inc. (the “Company”) is a Louisiana corporation and the holding company for Home Bank, N.A. (the “Bank”). The Bank, which is headquartered in Lafayette, Louisiana, and is a wholly owned subsidiary of the Company, currently conducts business through 30 banking offices in the Greater Lafayette, Baton Rouge, Greater New Orleans and Northshore (of Lake Pontchartrain) regions of south Louisiana and the Natchez and Vicksburg regions of west Mississippi.

As of March 2, 2015, the Bank converted from a federal savings bank to a national bank with the title “Home Bank, National Association.” As a result of the Bank’s conversion to a national bank, the Company is now subject to regulation as a bank holding company by the Board of Governors of the Federal Reserve System (the “FRB” or the “Federal Reserve”). Prior to the Bank’s charter conversion, the Company was regulated by the FRB as a savings and loan holding company.

The Bank is primarily engaged in attracting deposits from the general public and using those funds to invest in loans and securities. Our principal sources of funds are customer deposits, repayments of loans, repayments of investments and funds borrowed from outside sources such as the Federal Home Loan Bank (“FHLB”) of Dallas. These funds are primarily used for the origination of loans, including one-to-four-family first mortgage loans, home equity loans and lines, commercial real estate loans, construction and land loans, multi-family residential loans, commercial and industrial loans and consumer loans. The Bank derives its income principally from interest earned on loans and investment securities and, to a lesser extent, from fees received in connection with the origination of loans, service charges on deposit accounts and for other services. The Bank’s primary expenses are general operating expenses, especially compensation and benefits.

 

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We are an active originator of residential home mortgage loans in our market areas. Historically, the Bank was a traditional thrift institution with an emphasis on fixed-rate long-term single-family residential first mortgage loans. Over the course of the last decade plus, we have shifted our emphasis in the loan products we offer and increased our efforts to originate commercial real estate loans and commercial and industrial loans. Commercial real estate loans and commercial and industrial loans are deemed attractive due to their generally higher yields and shorter anticipated lives compared to single-family residential mortgage loans. In addition, the Bank views commercial real estate and commercial and industrial loans as attractive lending products because the Bank’s commercial borrowers typically maintain deposit accounts at the Bank, increasing the Bank’s core deposits.

The Company’s headquarters office is located at 503 Kaliste Saloom Road, Lafayette, Louisiana, and our telephone number is (337) 237-1960. We maintain a website at www.home24bank.com, and we provide our customers with online banking services. Information on our website should not be considered a part of this Annual Report on Form 10-K.

Market Area and Competition

The Bank has four primary market areas across south Louisiana: Greater Lafayette, Baton Rouge, Greater New Orleans and the Northshore (of Lake Pontchartrain) and two primary market areas in west Mississippi: Natchez and Vicksburg. In 2007, the Company expanded its operations into Baton Rouge, Louisiana, and currently operates three banking offices in Baton Rouge. In 2010, the Company expanded into the Northshore (of Lake Pontchartrain) through a Federal Deposit Insurance Corporation (“FDIC”) assisted transaction of the former Statewide Bank (“Statewide”). The Bank currently operates six banking offices in the Northshore region. In 2011, the Company expanded into the Greater New Orleans area through its acquisition of GS Financial Corporation (“GSFC”) and its subsidiary, Guaranty Savings Bank (“Guaranty”). In September 2015, the Company increased its presence in Greater New Orleans through the acquisition of Louisiana Bancshares (“LABC”) and its subsidiary, Bank of New Orleans. The Bank currently operates seven banking offices in the Greater New Orleans area. In February 2014, the Company expanded into Natchez and Vicksburg, Mississippi through its acquisition of Britton & Koontz Capital Corporation (“Britton & Koontz”) and its subsidiary, Britton & Koontz Bank, N.A. (“Britton & Koontz Bank”). The Bank currently operates three banking offices in Natchez and two banking offices in Vicksburg. For additional information on our acquisition activity, see Part II, Item 7 in this Annual Report on Form 10-K, “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Acquisition Activity.”

We face significant competition in originating loans and attracting deposits. This competition stems primarily from commercial banks, savings banks and savings associations, credit unions and mortgage-banking companies. Many of the financial service providers operating in our market areas are significantly larger and have greater financial resources than us. We face additional competition for deposits from short-term money market funds and other corporate and government securities funds, mutual funds and from other non-depository financial institutions such as brokerage firms and insurance companies.

Supervision and Regulation

Set forth below is a brief description of certain laws relating to the regulation of Home Bancorp, Inc. and Home Bank. This description does not purport to be complete and is qualified in its entirety by reference to applicable laws and regulations.

General. Home Bank, N.A. is subject to federal regulation and oversight by the Office of the Comptroller of the Currency (“OCC”). The Bank is also subject to regulation and examination by the FDIC, which insures the deposits of the Bank to the maximum extent permitted by law, and requirements established by the Federal Reserve.

Federal law provides the federal banking regulators with substantial enforcement powers. The OCC’s enforcement authority includes, among other things, the ability to assess civil money penalties, to issue cease and desist or removal orders and to initiate injunctive actions. In general, these enforcement actions may be initiated

 

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for violations of laws and regulations and unsafe or unsound practices. Other actions or inactions may provide the basis for enforcement action, including misleading or untimely reports filed with the OCC. The FRB has comparable enforcement authority over the Company. Any change in such regulations could have a material adverse impact on the Company and the Bank.

2010 Regulatory Reform

On July 21, 2010, the President signed into law the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”). This act imposes additional restrictions and an expanded framework of regulatory oversight for financial institutions, including depository institutions. Many of the regulations implementing these changes have not been promulgated, so we cannot determine the full impact on our business and operations at this time.

The following aspects of the Dodd-Frank Act are related to the operations of the Bank:

 

    A new independent Consumer Financial Protection Bureau (“CFPB”) was established within the FRB, empowered to exercise broad regulatory, supervisory and enforcement authority with respect to both new and existing consumer financial protection laws. However, smaller financial institutions, like the Bank, continue to be subject to the supervision and enforcement of their primary federal banking regulator with respect to federal consumer financial protection laws.

 

    Tier 1 capital treatment for “hybrid” capital items like trust preferred securities was eliminated subject to various grandfathering and transition rules.

 

    The prohibition on payment of interest on demand deposits was repealed.

 

    Deposit insurance was permanently increased to $250,000.

 

    The deposit insurance assessment base calculation now equals the depository institution’s total assets minus the sum of its average tangible equity during the assessment period.

 

    The minimum reserve ratio of the Deposit Insurance Fund increased to 1.35% of estimated annual insured deposits or assessment base; however, the FDIC is directed to “offset the effect” of the increased reserve ratio for insured depository institutions with total consolidated assets of less than $10 billion.

The following aspects of the Dodd-Frank Act are related to the operations of the Company:

 

    The Federal Deposit Insurance Act was amended to direct federal regulators to require depository institution holding companies to serve as a source of strength for their depository institution subsidiaries.

 

    Public companies are now required to provide their shareholders with a non-binding vote: (i) at least once every three years on the compensation paid to executive officers, and (ii) at least once every six years on whether they should have a “say on pay” vote every one, two or three years.

 

    A separate, non-binding shareholder vote is now required regarding golden parachutes for named executive officers when a shareholder vote takes place on mergers, acquisitions, dispositions or other transactions that would trigger the parachute payments.

 

    Securities exchanges are required to prohibit brokers from using their own discretion to vote shares not beneficially owned by them for certain “significant” matters, which include votes on the election of directors, executive compensation matters, and any other matter determined to be significant.

 

    Stock exchanges, which include the Nasdaq, are prohibited from listing the securities of any issuer that does not have a policy providing for (i) disclosure of its policy on incentive compensation payable on the basis of financial information reportable under the securities laws, and (ii) the recovery from current or former executive officers, following an accounting restatement triggered by material noncompliance with securities law reporting requirements, of any incentive compensation paid erroneously during the three-year period preceding the date on which the restatement was required that exceeds the amount that would have been paid on the basis of the restated financial information.

 

    Disclosure in annual proxy materials is required concerning the relationship between the executive compensation paid and the financial performance of the issuer.

 

    Item 402 of Regulation S-K will be amended to require companies to disclose the ratio of the Chief Executive Officer’s annual total compensation to the median annual total compensation of all other employees.

 

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Volcker Rule Regulations. Regulations were recently adopted by the federal banking agencies to implement the provisions of the Dodd Frank Act commonly referred to as the Volcker Rule. The regulations contain prohibitions and restrictions on the ability of financial institution holding companies and their affiliates to engage in proprietary trading and to hold certain interests in, or to have certain relationships with, various types of investment funds, including hedge funds and private equity funds. The regulations were phased in over a period ending on July 21, 2015. The Company’s investment portfolio is in compliance with the various provisions of the Volcker Rule regulations as of December 31, 2015.

Regulation of Home Bancorp, Inc.

The Company was a savings and loan holding company until March 2, 2015, and it is now a bank holding company, subject to regulation, supervision and examination by the Federal Reserve. The Federal Reserve has enforcement authority with respect to the Company similar to that of the OCC over the Bank. Applicable federal law and regulations limit the activities of the Company and require the approval of the Federal Reserve for any acquisition of a subsidiary, including another financial institution or holding company thereof, or a merger or acquisition of the Company. The Company must serve as a source of strength for the Bank, maintaining the ability to provide financial assistance if the Bank suffers financial distress. These and other Federal Reserve policies may restrict the Company’s ability to pay dividends. In addition, dividends from the Company may depend, in part, upon its receipt of dividends from the Bank. As noted below, beginning in 2016, if the Company does not have the required capital conservation buffer or otherwise meet its new capital requirements, its ability to pay dividends to its stockholders will be limited.

A bank holding company is required to give the Federal Reserve prior written notice of any purchase or redemption of its outstanding equity securities if the gross consideration for the purchase or redemption, when combined with the net consideration paid for all such purchases or redemption during the preceding 12 months, is equal to 10% or more of the company’s consolidated net worth. The Federal Reserve may disapprove such a purchase or redemption if it determines that the proposal would constitute an unsafe or unsound practice or would violate any law, regulation, Federal Reserve order, or any condition imposed by, or written agreement with the Federal Reserve. This notification requirement does not apply to any company that meets the well-capitalized standard for bank holding companies, is well-managed, and is not subject to any unresolved supervisory issues.

Permissible Activities. The business activities of the Company are generally limited to those activities permissible for bank holding companies under Section 4(c)(8) of the Bank Holding Company Act and certain additional activities authorized by the Federal Reserve regulations. The Bank Holding Company Act generally prohibits a bank holding company from acquiring direct or indirect ownership or control of more than 5% of the voting shares of any company which is not a bank or bank holding company. A bank holding company must obtain Federal Reserve Board approval before acquiring directly or indirectly, ownership or control of any voting shares of another bank or bank holding company if, after such acquisition, it would own or control more than 5% of such shares (unless it already owns or controls the majority of such shares).

Capital Requirements. Prior to January 1, 2015, there were no Federal Reserve regulations establishing minimum regulatory capital requirements for savings and loan holding companies. On January 1, 2015, new capital requirements generally applicable to both bank holding companies and savings and loan holding companies became effective. The new regulatory capital requirements applicable to the Company are the same as the new capital requirements for the Bank. For a description of these capital requirements, see “Regulation of Home Bank - New Capital Rules.”

Federal Securities Laws. We have registered our common stock with the Securities and Exchange Commission (“SEC”) under Section 12(b) of the Securities Exchange Act of 1934. Accordingly, the Company is subject to the proxy and tender offer rules, insider trading reporting requirements and restrictions and certain other requirements under the Securities Exchange Act of 1934.

The Sarbanes-Oxley Act. As a public company, the Company is subject to the Sarbanes-Oxley Act of 2002 which addresses, among other issues, corporate governance, auditing and accounting, executive compensation, and enhanced and timely disclosure of corporate information. As directed by the Sarbanes-Oxley Act, our

 

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principal executive officer and principal financial officer are required to certify that our quarterly and annual reports do not contain any untrue statement of a material fact. The rules adopted by the SEC under the Sarbanes-Oxley Act have several requirements, including having these officers certify that: they are responsible for establishing, maintaining and regularly evaluating the effectiveness of our internal control over financial reporting; they have made certain disclosures to our independent auditors and the Audit Committee of the Board of Directors about our internal control over financial reporting; and they have included information in our quarterly and annual reports about their evaluation and whether there have been changes in our internal control over financial reporting or in other factors that could materially affect internal control over financial reporting.

Regulation of Home Bank, N.A.

General. The Bank is subject to regulation and oversight by the OCC extending to all aspects of its operations. As part of this authority, Home Bank, N.A. is required to file periodic reports with the OCC and is subject to periodic examinations by the OCC and the FDIC. The investment and lending authorities of national banks are prescribed by federal laws and regulations, and such institutions are prohibited from engaging in any activities not permitted by such laws and regulations. Such regulation and supervision is primarily intended for the protection of depositors and the Deposit Insurance Fund.

The OCC’s enforcement authority over national banks includes, among other things, the ability to assess civil money penalties, to issue cease and desist or removal orders and to initiate injunctive actions. In general, these enforcement actions may be initiated for violations of laws and regulations and unsafe or unsound practices. Other actions or inactions may provide the basis for enforcement action, including misleading or untimely reports filed with the OCC.

Insurance of Accounts. The deposits of Home Bank, N.A. are insured to the maximum extent permitted by the Deposit Insurance Fund and are backed by the full faith and credit of the U.S. government. The Dodd-Frank Act permanently increased deposit insurance on most accounts to $250,000. As insurer, the FDIC is authorized to conduct examinations of, and to require reporting by, insured institutions. It also may prohibit any insured institution from engaging in any activity determined by regulation or order to pose a serious threat to the FDIC. The FDIC also has the authority to initiate enforcement actions against insured institutions.

The FDIC’s risk-based premium system provides for quarterly assessments. Each insured institution is placed in one of four risk categories depending on supervisory and capital considerations. Within its risk category, an institution is assigned to an initial base assessment rate which is then adjusted to determine its final assessment rate based on its brokered deposits, secured liabilities and unsecured debt. Following the Dodd-Frank Act, the FDIC amended its deposit insurance regulations (1) to change the assessment base for insurance from domestic deposits to average assets minus average tangible equity and (2) to lower overall assessment rates. The revised assessment rates are between 2.5 to 9 basis points for banks in the lowest risk category and between 30 to 45 basis points for banks in the highest risk category.

In addition, all institutions with deposits insured by the FDIC are required to pay assessments to fund interest payments on bonds issued by the Financing Corporation, a mixed-ownership government corporation established to recapitalize the predecessor to the Deposit Insurance Fund. The annual assessment rate set for the fourth quarter of 2015 was 0.00150% of insured deposits and is adjusted quarterly. These assessments will continue until the Financing Corporation bonds mature in 2019.

The FDIC may terminate the deposit insurance of any insured depository institution if it determines after a hearing that the institution has engaged or is engaging in unsafe or unsound practices, is in an unsafe or unsound condition to continue operations, or has violated any applicable law, regulation, order or any condition imposed by an agreement with the FDIC. It also may suspend deposit insurance temporarily during the hearing process for the permanent termination of insurance, if the institution has no tangible capital. If insurance of accounts is terminated, the accounts at the institution at the time of the termination, less subsequent withdrawals, shall continue to be insured for a period of six months to two years, as determined by the FDIC. Management is aware of no existing circumstances which would result in termination of the Bank’s deposit insurance.

 

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Recent Regulatory Capital Regulations. In July of 2013 the respective U.S. federal banking agencies issued final rules implementing Basel III and the Dodd-Frank Act capital requirements to be fully-phased in on a global basis on January 1, 2019. The new regulations establish a new tangible common equity capital requirement, increase the minimum requirement for the current Tier 1 risk-weighted asset (“RWA”) ratio, phase out certain kinds of intangibles treated as capital and certain types of instruments and change the risk weightings of certain assets used to determine required capital ratios. The new common equity Tier 1 capital component requires capital of the highest quality – predominantly composed of retained earnings and common stock instruments. For community banks, such as Home Bank, a common equity Tier 1 capital ratio of 4.5% became effective on January 1, 2015. The new capital rules also increased the current minimum Tier 1 capital ratio from 4.0% to 6.0% beginning on January 1, 2015. In addition, in order to make capital distributions and pay discretionary bonuses to executive officers without restriction, an institution must also maintain greater than 2.5% in common equity attributable to a capital conservation buffer to be phased in from January 1, 2016 until January 1, 2019. The new rules also increase the risk weights for several categories of assets, including an increase from 100% to 150% for certain acquisition, development and construction loans and more than 90-day past due exposures. The new capital rules maintain the general structure of the prompt corrective action rules (described below), but incorporate the new common equity Tier 1 capital requirement and the increased Tier 1 RWA requirement into the prompt corrective action framework.

Regulatory Capital Requirements. National banks are required to maintain minimum levels of regulatory capital. Current OCC capital standards require these institutions to satisfy a common equity Tier 1 capital requirement, a leverage capital requirement and a risk-based capital requirement. The common equity Tier 1 capital component generally consists of retained earnings and common stock instruments and must equal at least 4.5% of risk-weighted assets. Leverage capital, also known as “core” capital, must equal at least 3.0% of adjusted total assets for the most highly rated national banks. Core capital generally consists of common stockholders’ equity (including retained earnings). An additional cushion of at least 100 basis points is required for all other institutions, which effectively increases their minimum Tier 1 leverage ratio to 4.0% or more. Under the OCC’s regulations, the most highly-rated national banks are those that the OCC determines are strong banking organization and are rated composite 1 under the Uniform Financial Institutions Rating System. Under the risk-based capital requested, “total” capital (a combination of core and “supplementary” capital) must equal at least 8.0% of “risk-weighted” assets. The OCC also is authorized to impose capital requirements in excess of these standards on individual institutions on a case-by-case basis.

In determining compliance with the risk-based capital requirement, a national bank is allowed to include both core capital and supplementary capital in its total capital, provided that the amount of supplementary capital included does not exceed the national bank’s core capital. Supplementary capital generally consists of general allowances for loan losses up to a maximum of 1.25% of risk-weighted assets, together with certain other items. In determining the required amount of risk-based capital, total assets, including certain off-balance sheet items, are multiplied by a risk weight based on the risks inherent in the type of assets. The risk weights range from 0% for cash and securities issued by the U.S. Government or unconditionally backed by the full faith and credit of the U.S. Government to 100% for loans (other than qualifying residential loans weighted at 80%) and repossessed assets.

National banks must value securities available for sale at amortized cost for regulatory capital purposes. This means that in computing regulatory capital, national banks should add back any unrealized losses and deduct any unrealized gains, net of income taxes, on debt securities reported as a separate component of capital, as defined by generally accepted accounting principles.

At December 31, 2015, Home Bank exceeded all of its regulatory capital requirements, with Tier 1, Tier 1 common equity, Tier 1 common equity (to risk-weighted assets) and total risk-based capital ratios of 8.74%, 11.61%, 11.61% and 12.43%, respectively.

Any national bank that fails any of the capital requirements is subject to possible enforcement action by the OCC or the FDIC. Such action could include a capital directive, a cease and desist order, civil money penalties, the establishment of restrictions on the institution’s operations, termination of federal deposit insurance and the appointment of a conservator or receiver. The OCC’s capital regulations provide that such actions, through enforcement proceedings or otherwise, could require one or more of a variety of corrective actions.

 

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Prompt Corrective Action. The following table shows the amount of capital associated with the different capital categories set forth in the prompt corrective action regulations.

 

Capital Category

   Total
Risk-Based
Capital
   Tier 1
Risk-Based
Capital
   Tier 1
Common
Equity Capital
   Tier 1
Leverage
Capital
Well capitalized    10% or more    8% or more    6.5% or more    5% or more
Adequately capitalized    8% or more    6% or more    4.5% or more    4% or more
Undercapitalized    Less than 8%    Less than 6%    Less than 4.5%    Less than 4%
Significantly undercapitalized    Less than 6%    Less than 4%    Less than 3%    Less than 3%

In addition, an institution is “critically undercapitalized” if it has a ratio of tangible equity to total assets that is equal to or less than 2.0%. Under specified circumstances, a federal banking agency may reclassify a well capitalized institution as adequately capitalized and may require an adequately capitalized institution or an undercapitalized institution to comply with supervisory actions as if it were in the next lower category (except that the FDIC may not reclassify a significantly undercapitalized institution as critically undercapitalized).

An institution generally must file a written capital restoration plan which meets specified requirements within 45 days of the date that the institution receives notice or is deemed to have notice that it is undercapitalized, significantly undercapitalized or critically undercapitalized. A federal banking agency must provide the institution with written notice of approval or disapproval within 60 days after receiving a capital restoration plan, subject to extensions by the agency. An institution which is required to submit a capital restoration plan must concurrently submit a performance guaranty by each company that controls the institution. In addition, undercapitalized institutions are subject to various regulatory restrictions, and the appropriate federal banking agency also may take any number of discretionary supervisory actions.

As of December 31, 2015, Home Bank was deemed a well capitalized institution for purposes of the above regulations and as such is not subject to the above mentioned restrictions.

Limitations on Dividends. OCC regulations impose various restrictions on the ability of Home Bank to pay dividends. Home Bank generally may pay dividends during any calendar year in an amount up to 100% of net income for the year-to-date plus retained net income for the two preceding years, so long as it is well-capitalized after the distribution. If Home Bank proposes to pay a dividend when it does not meet its capital requirements or that will exceed these limitations, it must obtain the OCC’s prior approval. The OCC may object to a proposed dividend based on safety and soundness concerns. No insured depository institution may pay a dividend if, after paying the dividend, the institution would be undercapitalized. In addition, as noted above, beginning in 2016, if Home Bank does not have the required capital conservation buffer, its ability to pay dividends to the Company will be limited.

Limitations on Transactions with Affiliates. Transactions between a national bank and any affiliate are governed by Sections 23A and 23B of the Federal Reserve Act. An affiliate of a national bank includes any company or entity which controls the national bank or that is controlled by a company that controls the national bank. In a holding company context, the holding company of a national bank (such as the Company) and any companies which are controlled by such holding company are affiliates of the national bank. Generally, Section 23A limits the extent to which the national bank or its subsidiaries may engage in “covered transactions” with any one affiliate to an amount equal to 10% of such bank’s capital stock and surplus, and contain an aggregate limit on all such transactions with all affiliates to an amount equal to 20% of such capital stock and surplus. Section 23B applies to “covered transactions” as well as certain other transactions and requires that all transactions be on terms substantially the same, or at least as favorable, to the national bank as those provided to a non-affiliate. The term “covered transaction” includes the making of loans to, purchase of assets from and issuance of a guarantee to an affiliate and similar transactions. Section 23B transactions also include the provision of services and the sale of assets by a national bank to an affiliate.

 

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In addition, Sections 22(g) and (h) of the Federal Reserve Act, place restrictions on loans to executive officers, directors and principal shareholders of a national bank and its affiliates. Under Section 22(h), loans to a director, an executive officer and to a greater than 10% shareholder of a national bank, and certain affiliated interests of either, may not exceed, together with all other outstanding loans to such person and affiliated interests, a national bank’s loans to one borrower limit (generally equal to 15% of the bank’s unimpaired capital and surplus). Section 22(h) also requires that loans to directors, executive officers and principal shareholders be made on terms substantially the same as offered in comparable transactions to other persons unless the loans are made pursuant to a benefit or compensation program that (i) is widely available to employees of the bank and (ii) does not give preference to any director, executive officer or principal shareholder, or certain affiliated interests of either, over other employees of the national bank. Section 22(h) also requires prior board approval for certain loans. In addition, the aggregate amount of extensions of credit by a national bank to all insiders cannot exceed the bank’s unimpaired capital and surplus. Furthermore, Section 22(g) places additional restrictions on loans to executive officers. Home Bank currently is subject to Sections 22(g) and (h) of the Federal Reserve Act, and as of December 31, 2015 was in compliance with the above restrictions.

Anti-money Laundering. All financial institutions, including national banks, are subject to federal laws that are designed to prevent the use of the U.S. financial system to fund terrorist activities. Financial institutions operating in the United States must develop anti-money laundering compliance programs, due diligence policies and controls to ensure the detection and reporting of money laundering. Such compliance programs are intended to supplement compliance requirements, also applicable to financial institutions, under the Bank Secrecy Act and the Office of Foreign Assets Control Regulations. Home Bank has established policies and procedures to ensure compliance with these provisions.

Federal Home Loan Bank System. Home Bank is a member of the FHLB of Dallas, which is one of 11 regional FHLBs that administer the home financing credit function of various financial institutions. Each FHLB serves as a reserve or central bank for its members within its assigned region. It is funded primarily from proceeds derived from the sale of consolidated obligations of the FHLB System. It makes loans to members (i.e., advances) in accordance with policies and procedures established by the board of directors of the FHLB. As of December 31, 2015, Home Bank had $125.2 million of FHLB advances and $480.7 million available on its line of credit with the FHLB.

As a member, Home Bank is required to purchase and maintain stock in the FHLB of Dallas in an amount equal to at least 1.0% of its aggregate unpaid residential mortgage loans or similar obligations at the beginning of each year. As of December 31, 2015, Home Bank had $8.2 million in FHLB stock, which was in compliance with this requirement.

The FHLBs are required to provide funds for the resolution of troubled savings institutions and to contribute to affordable housing programs through direct loans or interest subsidies on advances targeted for community investment and low- and moderate-income housing projects. These contributions have adversely affected the level of FHLB dividends paid in the past and could do so in the future. These contributions also could have an adverse effect on the value of FHLB stock in the future.

Federal Reserve System. The FRB requires all depository institutions to maintain reserves against their transaction accounts and non-personal time deposits. The required reserves must be maintained in the form of vault cash or an account at the FRB. As of December 31, 2015, Home Bank had met its reserve requirement.

Privacy. Financial institutions are required to disclose their policies for collecting and protecting confidential information. Customers generally may prevent financial institutions from sharing personal financial information with nonaffiliated third parties except for third parties that market the institutions’ own products and services.

Additionally, financial institutions generally may not disclose consumer account numbers to any nonaffiliated third party for use in telemarketing, direct mail marketing or other marketing through electronic mail to consumers. The Bank has established policies and procedures designed to safeguard its customers’ personal financial information and to ensure compliance with applicable privacy laws.

 

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Federal Taxation

General. Home Bancorp, Inc. and Home Bank are subject to federal income taxation in the same general manner as other corporations with some exceptions listed below. The following discussion of federal, state and local income taxation is only intended to summarize certain pertinent income tax matters and is not a comprehensive description of the applicable tax rules. The Company’s federal and state income tax returns for taxable years through December 31, 2009 have been closed for purposes of examination by the Internal Revenue Service.

The Company will file a consolidated federal income tax return with the Bank. Accordingly, it is anticipated that any cash distributions made by Home Bancorp to its shareholders would be treated as cash dividends and not as a non-taxable return of capital to shareholders for federal and state tax purposes.

Method of Accounting. For federal income tax purposes, we report income and expenses on the accrual method of accounting and file our federal income tax return on a fiscal year basis.

Bad Debt Reserves. The Small Business Job Protection Act of 1996 eliminated the use of the reserve method of accounting for bad debt reserves by savings institutions, effective for taxable years beginning after 1995. Prior to that time, Home Bank was permitted to establish a reserve for bad debts and to make additions to the reserve. These additions could, within specified formula limits, be deducted in arriving at taxable income. As a result of the Small Business Job Protection Act of 1996, savings associations must use the specific charge-off method in computing their bad debt deduction beginning with their 1996 federal tax return. In addition, federal legislation required the recapture over a six year period of the excess of tax bad debt reserves as of December 31, 1995 over those established as of December 31, 1987.

Taxable Distributions and Recapture. Prior to the Small Business Job Protection Act of 1996, bad debt reserves created prior to January 1, 1988 were subject to recapture into taxable income if Home Bank failed to meet certain thrift asset and definitional tests. Federal legislation eliminated these savings association related recapture rules. However, under current law, pre-1988 reserves remain subject to recapture should Home Bank make certain non-dividend distributions or cease to maintain a bank charter.

As of December 31, 2015, the total federal pre-1988 reserve was approximately $1.2 million. The reserve reflects the cumulative effect of federal tax deductions by Home Bank for which no federal income tax provisions have been made.

Alternative Minimum Tax. The Internal Revenue Code imposes an alternative minimum tax at a rate of 20% on a base of regular taxable income plus certain tax preferences. The alternative minimum tax is payable to the extent that the tax computed on such alternative minimum taxable income is in excess of the regular income tax. Net operating losses, of which the Company has none, can offset no more than 90% of alternative minimum taxable income. Certain payments of alternative minimum tax may be used as credits against regular tax liabilities in future years. The Company has not been subject to the alternative minimum tax or any such amounts available as credits for carryover.

Net Operating Loss Carryovers. For net operating losses in tax years beginning before August 6, 1997, the Company may carry back net operating losses to the three years preceding the loss year and then forward to fifteen years following the loss years. For net operating losses in years beginning after August 5, 1997, net operating losses can be carried back to the two years preceding the loss year and forward to the 20 years following the loss year. As of December 31, 2015, the Company had $498,000 in net operating loss carry forwards for federal income tax purposes from the acquisition of Britton & Koontz.

Corporate Dividends-Received Deduction. The Company may exclude from its income 100% of dividends received from the Bank as a member of the same affiliated group of corporations. The corporate dividends received deduction is 80% in the case of dividends received from corporations which a corporate recipient owns less than 80%, but at least 20% of the distribution corporation. Corporations which own less than 20% of the stock of a corporation distributing a dividend may deduct only 70% of dividends received.

 

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Item 1A. Risk Factors.

In analyzing whether to make or to continue an investment in our securities, investors should consider, among other factors, the following risk factors.

Risks Related to Our Business

Our business is geographically concentrated in south Louisiana and west Mississippi, which are areas where the oil and gas industry has a significant presence. Low prices in crude oil and gas, among other factors, could cause a downturn in the local economy, which could adversely affect the Company’s financial condition and results of operations.

Most of our loans are to individuals and businesses located in south Louisiana and west Mississippi. Regional economic conditions affect the demand for our products and services as well as the ability of our customers to repay loans. Since mid-2014, oil prices have declined considerably, which could adversely affect our operations and economic conditions in the State of Louisiana during 2016 and future periods. Although the Company attempts to mitigate risk by diversifying its borrower base, approximately $35.4 million, or 2.9%, of the Company’s loan portfolio at December 31, 2015 was comprised of loans to borrowers in the energy industry. We had an additional $8.9 million in unfunded loan commitments to companies in the energy sector at such date. Historically, the oil and gas industry has been an important factor in the local economy in most of the markets that we operate. If oil prices remain low for a prolonged period of time, it could have an adverse effect on our customers resulting in increased levels of nonperforming loans, provisions for loan losses and expense associated with loan collection efforts.

There are increased risks involved with commercial real estate, including multi-family residential, commercial and industrial and construction and land lending activities.

Our lending activities include loans secured by commercial real estate and commercial and industrial loans. Our multi-family residential, commercial real estate and commercial and industrial loans increased by 118.0%, 78.6% and 50.8%, respectively, from December 31, 2011 through December 31, 2015. Multi-family residential lending, commercial real estate lending and commercial and industrial lending generally are considered to involve a higher degree of risk than single-family residential lending due to a variety of factors. As a result of the larger loan balances typically involved in these loans, an adverse development with respect to one loan or one credit relationship can expose us to greater risk of loss compared to an adverse development with respect to a one- to four-family residential mortgage loan. As of December 31, 2015, the largest outstanding balances of our commercial real estate loans and commercial and industrial loans were $12.3 million and $3.8 million, respectively. If a large loan were to become non-performing, as we have experienced in the past, it can have a significant impact on our results of operations. Because we intend to continue our growth in commercial real estate and commercial and industrial loans, our credit risk exposure may increase and we may need to make additional provisions to our allowance for loan losses, which could adversely affect our future results of operations.

In addition to commercial real estate and commercial and industrial loans, Home Bank holds a significant portfolio of construction and land loans. As of December 31, 2015, the Bank’s construction and land loans amounted to $116.8 million, or 9.5% of our loan portfolio. Construction and land loans generally have a higher risk of loss than single-family residential mortgage loans due primarily to the critical nature of the initial estimates of a property’s value upon completion of construction compared to the estimated costs, including interest, of construction as well as other assumptions. If the estimates upon which construction loans are made prove to be inaccurate, we may be confronted with projects that, upon completion, have values which are below the loan amounts. If the Bank is forced to liquidate the collateral associated with such loans at values less than the remaining loan balance, it could have a significant impact on our results of operations.

Our allowance for loan losses may not be adequate to cover probable losses.

We have established an allowance for loan losses based upon various assumptions and judgments about the collectability of our loan portfolio which we believe is adequate to offset probable losses on our existing loans.

 

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While we are not aware of any specific factors indicating a deficiency in the amount of our allowance for loan losses, in light of the current economic environment, one of the most pressing issues faced by financial institutions is the adequacy of their allowance for loan losses. Federal bank regulators have increased their scrutiny of the level of the allowance for losses maintained by regulated institutions. In the event that we have to increase our allowance for loan losses beyond current levels, it would have an adverse effect on our results in future periods. As of December 31, 2015, our allowance for loan losses amounted to $9.5 million, or 0.78% of total loans. Excluding acquired loans, our allowance for loan losses amounted to 1.15% of total loans as of December 31, 2015.

Our decisions regarding the fair value of assets acquired could be inaccurate, which could materially and adversely affect our business, financial condition, results of operations and future prospects.

Management makes various assumptions and judgments about the collectability of acquired loan portfolios, including the creditworthiness of borrowers and the value of the real estate and other assets serving as collateral for the repayment of secured loans. If our assumptions are incorrect, increased loss reserves may be needed to respond to different economic conditions or adverse developments in the acquired loan portfolio. Any increase in future loan losses would have a negative effect on our operating results.

Other than temporary declines in the value of our investment securities may require us to take additional charges to earnings.

We evaluate our securities portfolio for other-than-temporary impairment (“OTTI”) throughout the year. Each investment with a fair value less than book value is reviewed quarterly. An impairment charge is recorded against individual securities if management’s review concludes that the decline in value is other than temporary. As of December 31, 2015, our investment securities portfolio included 12 non-agency mortgage-backed securities with an aggregate amortized cost and fair value of $6.1 million and a net unrealized gain of $10,000. Delinquencies and defaults in the mortgage loans underlying these securities may adversely affect the cash flows received by us and may result in a conclusion in future periods that the securities are other-than-temporarily impaired. Such a conclusion of OTTI would require us to take additional charges to earnings to write down the value of these securities.

We may not succeed in our plan to grow, which could reduce future profitability.

Over the past several years, we have grown our branch system primarily through acquisitions of other financial institutions. Our ability to successfully acquire other institutions depends on our ability to identify, acquire and integrate such institutions into our franchise. Our experience in mergers and acquisitions consists of an acquisition in 2006 of a building and loan association located in Crowley, Louisiana, an FDIC-assisted acquisition in 2010 of a bank with branches located in the Northshore (of Lake Pontchartrain) region of Louisiana, an acquisition in 2011 of a savings bank with branches located in Greater New Orleans, an acquisition in February 2014 of a national bank headquartered in Natchez, Mississippi with branches located in Natchez and Vicksburg, Mississippi and Baton Rouge, Louisiana, and an acquisition in 2015 of a savings bank with branches located in the Greater New Orleans area. Our results of operations could be adversely affected if our analysis of past or future acquisitions was not complete and correct or our integration efforts were not successful. Currently, we have no agreements or understandings with anyone regarding a future acquisition.

A natural disaster, especially one affecting our market areas, could adversely affect the Company’s financial condition and results of operations.

Since a considerable portion of our business is conducted in south Louisiana, most of our credit exposure is in that area. Historically, south Louisiana has been vulnerable to natural disasters, including hurricanes, floods and tornadoes. Natural disasters could harm our operations directly through interference with communications, which would prevent us from gathering deposits, originating loans and processing and controlling our flow of business, as well as through the destruction of facilities and our operational, financial and management information systems. A natural disaster or recurring power outages may also impair the value of our loan portfolio, as uninsured or underinsured losses, including losses from business disruption, may reduce our borrowers’ ability to

 

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repay their loans. Disasters may also reduce the value of the real estate securing our loans, impairing our ability to recover on defaulted loans through foreclosure and making it more likely that we would suffer losses on defaulted loans. Although we have implemented several back-up systems and protections (and maintain business interruption insurance), these measures may not protect us fully from the effects of a natural disaster. The occurrence of natural disasters in our market areas could have a material adverse effect on our business, prospects, financial condition and results of operations.

Changes in interest rates could have a material adverse effect on our operations.

The operations of financial institutions are dependent to a large extent on net interest income, which 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. Changes in the general level of interest rates can affect our net interest income by affecting the difference between the weighted average yield earned on our interest-earning assets and the weighted average rate paid on our interest-bearing liabilities, or interest rate spread, and the average life of our interest-earning assets and interest-bearing liabilities. If general market rates of interest increase, our interest expense on deposits and borrowings would likely increase which could adversely affect our interest rate spread and net interest income. Changes in interest rates also can affect our ability to originate loans; the value of our interest-earning assets and our ability to realize gains from the sale of such assets; our ability to obtain and retain deposits in competition with other available investment alternatives; and the ability of our borrowers to repay adjustable or variable rate loans. Interest rates are highly sensitive to many factors, including governmental monetary policies, domestic and international economic and political conditions and other factors beyond our control.

We face strong competition which adversely affects our profitability.

We are subject to vigorous competition in all aspects and areas of our business from banks and other financial institutions, including banks, savings and loan associations, finance companies, credit unions and other providers of financial services, such as money market mutual funds, brokerage firms, consumer finance companies and insurance companies. We are significantly smaller than the larger depository institutions operating in our market areas. The financial resources of these larger competitors may permit them to pay higher interest rates on their deposits and to be more aggressive in new loan originations. We also compete with non-financial institutions, including retail stores that maintain their own credit programs and governmental agencies that make available low cost or guaranteed loans to certain borrowers. Some of our competitors are larger financial institutions with substantially greater resources, more advanced technological capabilities, lending limits, larger branch systems and a wider array of commercial banking services. Vigorous competition from both bank and non-bank organizations is expected to continue.

We operate in a highly regulated environment, and we may be adversely affected by changes in laws and regulations.

We are subject to extensive regulation, supervision and examination by the FRB, the OCC and the FDIC. Such regulation and supervision governs the activities in which an institution and its holding company may engage and are intended primarily for the protection of the insurance fund and the depositors and borrowers of the Bank rather than for holders of our common stock. Regulatory authorities have extensive discretion in their supervisory and enforcement activities, including the imposition of restrictions on our operations, the classification of our assets and determination of the level of our allowance for loan losses. Any change in such regulation and oversight, whether in the form of regulatory policy, regulations, legislation or supervisory action, may have a material impact on our operations.

Historically low interest rates may adversely affect our net interest income and profitability.

During the past several years, it has been the policy of the FRB to maintain interest rates at historically low levels through its targeted federal funds rate and the purchase of mortgage-backed securities. As a result, market rates

 

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on the loans we have originated and the yields on securities we have purchased have been at historically lower levels. As a general matter, our interest-bearing liabilities reprice or mature more quickly than our interest-earning assets, which has been a contributing factor to increases in net interest income in the short term. Our ability to further lower our interest expense is limited as these interest rate levels already are at very low levels, while the average yield on our interest-earning assets may continue to decrease. Accordingly, our net interest income (the difference between interest income earned on assets and interest expense paid on liabilities) may decrease, which would have an adverse effect on our profitability.

Our goodwill may be determined to be impaired at a future date depending on the results of periodic impairment tests.

We test goodwill for impairment annually, or more frequently if necessary. According to applicable accounting requirements, acceptable valuation methods include present-value measurements based on multiples of earnings or revenues, or similar performance measures. If the quoted market price of our common stock were to decline significantly, or if it was determined that the carrying amount of our goodwill exceeded its implied fair value, we would be required to write down the asset recorded for goodwill. This, in turn, would result in a charge to earnings and, thus, a reduction in shareholders’ equity. See Notes 2 and 8 to the Consolidated Financial Statements for additional information concerning our goodwill and the required impairment test.

A failure in our operational systems or infrastructure, or those of third parties, could impair our liquidity, disrupt our businesses, result in the unauthorized disclosure of confidential information, damage our reputation and cause financial losses.

Our ability to adequately conduct and grow our business is dependent on our ability to create and maintain an appropriate operational and organizational control infrastructure. Operational risk can arise in numerous ways including employee fraud, customer fraud, and control lapses in bank operations and information technology. Our dependence on our employees and automated systems, including the automated systems used by acquired entities and third parties, to record and process transactions may further increase the risk that technical failures or tampering of those systems will result in losses that are difficult to detect. We are also subject to disruptions of our operating systems arising from events that are wholly or partially beyond our control. Failure to maintain an appropriate operational infrastructure can lead to loss of service to customers, legal actions, and noncompliance with various laws and regulations.

We continuously monitor our operational and technological capabilities and make modifications and improvements when we believe it will be cost effective to do so. In some instances, we may build and maintain these capabilities ourselves. We also outsource some of these functions to third parties. These third parties may experience errors or disruptions that could adversely impact us and over which we may have limited control. We also face risk from the integration of new infrastructure platforms and/or new third party providers of such platforms into its existing businesses.

Changes in accounting policies or in accounting standards could materially affect how we report our financial condition and results of operations.

Our accounting policies are fundamental to the understanding of our financial condition and results of operations. The preparation of consolidated financial statements in conformity with generally accepted accounting principles in the United States (“GAAP”) requires management to make significant estimates and assumptions that affect the financial statements by affecting the value of our assets or liabilities and results of operations. Some of our accounting policies are critical because they require management to make difficult, subjective and complex judgments about matters that are inherently uncertain and because materially different amounts may be reported if different estimates or assumptions were used. If such estimates or assumptions underlying the financial statements are incorrect, we could experience material losses. From time to time, the Financial Accounting Standards Board (“FASB”) and the Securities and Exchange Commission (“SEC”) change the financial accounting and reporting standards or the interpretation of such standards that govern the preparation of our external financial statements. These changes are beyond our control, can be difficult to predict and could materially impact how we report our financial condition and results of operations. Additionally, it is possible, if unlikely, we could be required to apply a new or revised standard retrospectively, resulting in the restatement of prior period financial statements in material amounts.

 

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We may be subject to losses due to fraudulent and negligent conduct of our customers, third party service providers and employees.

When we make loans to individuals or entities, we rely upon information supplied by borrowers and other third parties, including information contained in the applicant’s loan application, property appraisal reports, title information and the borrower’s net worth, liquidity and cash flow information. While we attempt to verify information provided through available sources, we cannot be certain all such information is correct or complete. Our reliance on incorrect or incomplete information could have a material adverse effect on our financial condition or results of operations.

System failure or cybersecurity breaches of our network security could subject us to increased operating costs as well as litigation and other potential losses.

We rely heavily on communications and information systems to conduct our business. The computer systems and network infrastructure we use could be vulnerable to unforeseen hardware and cybersecurity issues. Our operations are dependent upon our ability to protect our computer equipment against damage from fire, power loss, telecommunications failure or a similar catastrophic event. Any damage or failure that causes an interruption in our operations could have an adverse effect on our financial condition and results of operations. In addition, our operations are dependent upon our ability to protect the computer systems and network infrastructure we use, including our Internet banking activities, against damage from physical break-ins, cybersecurity breaches and other disruptive problems caused by the Internet or users. Such problems could jeopardize the security of our customers personal information and other information stored in and transmitted through our computer systems and network infrastructure, which may result in significant liability to us, subject us to additional regulatory scrutiny, damage our reputation, result in a loss of customers, or inhibit current and potential customers from our Internet banking services, any of all of which could have a material adverse effect on our results of operations and financial condition. Although we have security measures designed to mitigate the possibility of break-ins, breaches and other disruptive problems, including firewalls and penetration testing, there can be no assurance that such security measures will be effective in preventing such problems.

 

Item 1B. Unresolved Staff Comments.

Not applicable.

 

Item 2. Properties.

We currently conduct business from nine banking offices in Greater Lafayette, three banking offices in Baton Rouge, seven banking offices in Greater New Orleans, six banking offices in the Northshore (of Lake Pontchartrain) region of Louisiana, three offices in Natchez, Mississippi and two offices in Vicksburg, Mississippi. The Bank owns 28 of its 30 banking offices. The Bank leases the land for one banking office in our Northshore market and leases one banking office in Greater New Orleans.

 

Item 3. Legal Proceedings.

From time-to-time, the Bank is named as a defendant in various legal actions arising from the normal course of business in which damages of various amounts may be claimed. While the amount, if any, of ultimate liability with respect to any such matters cannot be currently determined, management believes, after consulting with legal counsel, that any such liability will not have a material adverse effect on the Company’s consolidated financial position, results of operations, or cash flows.

 

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Item 4. Mine Safety Disclosures.

Not applicable.

PART II

 

Item 5. Market for the Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.

(a) Home Bancorp, Inc.’s common stock is listed on the Nasdaq Global Select Market under the symbol “HBCP”. The common stock commenced trading on the Nasdaq Stock Market on October 3, 2008. As of the close of business on December 31, 2015, there were 7,239,821 shares of common stock outstanding, held by approximately 754 shareholders of record, not including the number of persons or entities whose stock is held in nominee or “street” name through various brokerage firms and banks.

The following table sets forth the high and low prices of the Company’s common stock as reported by the Nasdaq Stock Market and cash dividends declared per share for the periods indicated.

 

For The Quarter Ended

  

High

    

Low

    

Cash Dividends

Declared

 

March 31, 2014

   $ 23.60       $ 18.60       $  —     

June 30, 2014

   $ 22.18       $ 19.79       $ —     

September 30, 2014

   $ 22.93       $ 21.33       $ —     

December 31, 2014

   $ 23.23       $ 21.78       $ 0.07   

March 31, 2015

   $ 23.00       $ 20.40       $ 0.07   

June 30, 2015

   $ 25.50       $ 21.00       $ 0.07   

September 30, 2015

   $ 26.50       $ 22.68       $ 0.08   

December 31, 2015

   $ 27.22       $ 24.31       $ 0.08   

The following graph demonstrates comparison of the cumulative total returns for the common stock of Home Bancorp, Inc., the Nasdaq Composite Index and the SNL Securities Bank and Thrift Index for the periods indicated. The graph assumes that an investor originally purchased shares on December 31, 2008, the first day that our shares were traded. The graph below represents $100 invested in our common stock at its closing price on December 31, 2008.

 

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LOGO

 

     Period Ending         

Index

   12/31/08      12/31/09      12/31/10      12/31/11      12/31/12      12/31/13      12/31/14      12/31/15  

Home Bancorp, Inc.

     100.00         125.03         141.74         158.97         187.18         193.33         236.00         270.69   

NASDAQ Composite

     100.00         143.89         168.22         165.19         191.47         264.84         300.31         317.52   

SNL Bank and Thrift

     100.00         98.66         110.14         85.64         115.00         157.46         175.78         179.33   

The stock price information shown above is not necessarily indicative of future price performance. Information used was obtained from SNL Financial LC, Charlottesville, Virginia. The Company assumes no responsibility for any errors or omissions in such information.

The Company did not sell any of its equity securities during 2015 that were not registered under the Securities Act of 1933.

For information regarding the Company’s equity compensation plans, see Item 12.

(b) Not applicable.

(c) On June 7, 2013, the Company’s Board of Directors approved a share repurchase program authorizing management to repurchase up to 370,000 shares, or approximately 5%, of its common stock outstanding through open market or privately negotiated transactions. The Company’s purchases of its common stock made during the fourth quarter of 2015 under the plan 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
 

October 1 - October 31, 2015

     517       $ 26.35         517         26,581   

November 1 - November 30, 2015

     200         26.07         200         26,381   

December 1 - December 31, 2015

     9,810         26.34         9,810         16,571   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

     10,527       $ 26.33         10,527         16,571   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

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Item 6. Selected Financial Data.

Set forth below is selected summary historical financial and other data of the Company. When you read this summary historical financial data, it is important that you also read the historical financial statements and related notes contained in Item 8 of this Form 10-K, as well as “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

 

     As of December 31,  

(dollars in thousands)

   2015      2014      2013      2012      2011  

Selected Financial Condition Data:

              

Total assets

   $ 1,551,912       $ 1,221,415       $ 984,241       $ 962,926       $ 963,789   

Cash and cash equivalents

     24,798         29,078         32,639         39,539         31,769   

Interest-bearing deposits in banks

     5,144         5,526         2,940         3,529         5,583   

Investment securities:

              

Available for sale

     176,762         174,801         149,632         157,256         155,260   

Held to maturity

     13,927         11,705         9,405         1,665         3,462   

Loans receivable, net

     1,214,818         901,208         700,538         667,809         661,267   

Deposits

     1,244,217         993,573         741,312         771,429         730,734   

Federal Home Loan Bank advances

     125,153         47,500         97,000         46,257         93,623   

Securities sold under repurchase agreements

     —           20,371         —           —           —     

Shareholders’ equity

     165,046         154,144         141,910         141,574         134,285   
     For the Years Ended December 31,  

(dollars in thousands, except per share data)

   2015      2014      2013      2012      2011  

Selected Operating Data:

              

Interest income

   $ 58,410       $ 54,323       $ 43,721       $ 46,122       $ 38,435   

Interest expense

     3,866         3,284         3,503         4,914         5,217   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Net interest income

     54,544         51,039         40,218         41,208         33,218   

Provision for loan losses

     2,071         2,364         3,653         2,411         1,460   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Net interest income after provision for loan losses

     52,473         48,675         36,565         38,797         31,758   

Noninterest income

     8,770         8,175         7,670         7,761         7,000   

Noninterest expense

     42,022         41,772         33,205         32,763         31,003   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Income before income taxes

     19,221         15,078         11,030         13,795         7,755   

Income taxes

     6,671         5,206         3,736         4,605         2,635   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Net income

   $ 12,550       $ 9,872       $ 7,294       $ 9,190       $ 5,120   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Earnings per share - basic

   $ 1.87       $ 1.51       $ 1.11       $ 1.33       $ 0.72   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Earnings per share - diluted

   $ 1.79       $ 1.42       $ 1.06       $ 1.28       $ 0.71   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Cash dividends per share

   $ 0.30       $ 0.07       $ —         $ —         $ —     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

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     As of or For the Years Ended December 31,  
     2015     2014     2013     2012     2011  

Selected Operating Ratios: (1)

          

Average yield on interest-earnings assets (TE)

     4.75     4.84     5.06     5.36     5.37

Average rate on interest-bearing liabilities

     0.43        0.39        0.54        0.72        0.90   

Average interest rate spread (TE) (2)

     4.32        4.45        4.52        4.64        4.47   

Net interest margin (TE) (3)

     4.43        4.54        4.65        4.79        4.64   

Average interest-earning assets to average interest-bearing liabilities

     136.76        133.91        132.63        126.81        124.18   

Noninterest expense to average assets

     3.14        3.38        3.45        3.38        3.77   

Efficiency ratio (4)

     66.37        70.54        69.34        66.91        77.09   

Return on average assets

     0.94        0.80        0.76        0.95        0.62   

Return on average equity

     7.83        6.65        5.14        6.60        3.88   

Average equity to average assets

     11.99        12.02        14.74        14.38        16.01   

Asset Quality Ratios: (5) (6)

          

Non-performing loans as a percent of total loans receivable

     0.71     0.55     1.17     0.43     0.85

Non-performing assets as a percent of total assets

     0.51        0.56        0.81        0.63        0.54   

Allowance for loan losses as a percent of non-performing loans as of end of period

     159.08        129.30        95.14        103.55        127.43   

Allowance for loan losses as a percent of net loans as of end of period

     1.15        1.04        1.12        1.01        1.14   

Capital Ratios: (5) (7)

          

Tier 1 risk-based capital ratio

     11.61     16.94     20.84     20.97     20.34

Leverage capital ratio

     8.74        11.96        14.17        13.67        12.53   

Total risk-based capital ratio

     12.43        17.85        21.88        21.83        21.13   

 

(1) With the exception of end-of-period ratios, all ratios are based on average monthly balances during the respective periods.
(2) Average interest rate spread represents the difference between the average yield on interest-earning assets and the average rate paid on interest-bearing liabilities.
(3) Net interest margin represents net interest income as a percentage of average interest-earning assets. Taxable equivalent yields are calculated using a marginal tax rate of 35%.
(4) The efficiency ratio represents noninterest expense as a percentage of total revenues. Total revenues is the sum of net interest income and noninterest income.
(5) Asset quality and capital ratios are end of period ratios.
(6) Asset quality ratios exclude acquired loans. At December 31, 2015, 2014, 2013, 2012 and 2011, $7.2 million, $19.4 million, $17.8 million, $19.8 million and $17.7 million, respectively, of acquired loans were contractually not performing. In addition, we had $3.0 million, $3.4 million, $4.5 million, $3.7 million and $8.8 million, respectively, in acquired assets which were repossessed assets at December 31, 2015, 2014, 2013, 2012 and 2011, respectively, and which are excluded from the asset quality ratios above. See page 26 for the asset quality ratios including acquired loans and acquired repossessed assets, respectively.

Nonperforming loans consist of nonaccruing loans and loans 90 days or more past due. Nonperforming assets consist of nonperforming loans and repossessed assets. It is our policy to cease accruing interest on all loans 90 days or more past due. Repossessed assets consist of assets acquired through foreclosure or acceptance of title in-lieu of foreclosure. For information on our asset quality ratios see page 26.

(7)  Capital ratios are for Home Bank.

 

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Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following is an analysis and discussion of the financial condition and results of operations of Home Bancorp, Inc. (the “Company”), and its wholly owned subsidiary, Home Bank, N.A. (the “Bank”). This discussion and analysis should be read in conjunction with our Consolidated Financial Statements and related notes included herein in Part II, Item 8, “Financial Statements and Supplementary Data” and the description of our business included herein in Part 1, Item 1 “Business”.

EXECUTIVE OVERVIEW

Net income for 2015 totaled $12.5 million, an increase of 27.1% from the $9.9 million earned in 2014. Diluted earnings per share for 2015 were $1.79, an increase of 26.1% from the $1.42 in diluted earnings per share earned in 2014. Key components of the Company’s performance in 2015 are summarized below.

The Company’s financial condition and income as of and for the period ended December 31, 2015 were impacted by the acquisition of Louisiana Bancorp, Inc. (“Louisiana Bancorp”), the holding company for Bank of New Orleans (“BNO”) of Metairie, Louisiana, on September 15, 2015. As a result of the acquisition, the Company acquired assets of $351.1 million, which included loans of $281.6 million, and $291.3 million in deposits and other liabilities. Shareholders of Louisiana Bancorp received $24.25 per share in cash, resulting in an aggregate purchase price of $70.0 million. The Company incurred $1.4 million in pre-tax merger-related expenses during the year ended December 31, 2015. See Note 3 to the Consolidated Financial Statements for additional information regarding the acquisition of Louisiana Bancorp.

 

    Assets totaled $1.6 billion as of December 31, 2015, up $330.5 million, or 27.1%, from December 31, 2014. The increase was primarily the result of the Louisiana Bancorp acquisition.

 

    Investment securities totaled $190.7 million as of December 31, 2015, an increase of $4.2 million, or 2.2%, from December 31, 2014. The increase was driven by $36.4 million in securities acquired from Louisiana Bancorp as of the date of acquisition.

 

    Loans as of December 31, 2015 were $1.2 billion, an increase of $315.4 million, or 34.7%, from December 31, 2014. The increase in loans was primarily driven by the $281.6 million in loans acquired from Louisiana Bancorp at the acquisition date. Growth in our originated loan portfolio during the year was primarily related to construction and land loans, commercial and industrial loans and one- to four-family first mortgage loans.

 

    Net office properties and equipment as of December 31, 2015 were $40.8 million, an increase of $2.9 million, or 7.5%, from December 31, 2014. The Company began 2015 with 27 banking offices. The acquisition of three BNO locations increased our total number of banking offices to 30.

 

    Total customer deposits as of December 31, 2015 were $1.2 billion, an increase of $250.6 million, or 25.2%, from December 31, 2014. The Louisiana Bancorp acquisition added $208.7 million in deposits at the acquisition date. Excluding the deposits assumed from Louisiana Bancorp, core deposits increased $76.5 million, or 9.9%, while certificate of deposits decreased $34.5 million, or 15.6%.

 

    Interest income increased $4.1 million, or 7.5%, in 2015 compared to 2014. The increase was primarily due to higher average volume of interest-earning assets as the result the Louisiana Bancorp acquisition and organic loan growth.

 

    Interest expense increased $582,000, or 17.7%, in 2015 compared to 2014. The increase was primarily due to a higher average volume of interest-bearing liabilities as the result of the Louisiana Bancorp acquisition and organic core deposit growth.

 

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    The provision for loan losses totaled $2.1 million in 2015, 12.4% lower than the $2.4 million recorded in 2014. At December 31, 2015, the Company’s ratio of allowance for loan losses to total loans was 0.78%, compared to 0.85% at December 31, 2014. The ratio of the allowance for loan losses to total originated loans was 1.15% at December 31, 2015, compared to 1.04% at December 31, 2014. Based upon our analysis of the risk elements in our loan portfolio, including continued low energy prices, the Company increased its allowance for loan losses on originated loans by 11 basis points, or $873,000, during 2015. Net charge-offs for 2015 were $283,000, or 0.02% of total loans, compared to $1.5 million, or 0.17%, in 2014.

 

    Noninterest income increased $595,000, or 7.3%, in 2015 compared to 2014. The increase was primarily the result of higher gains on the sale of mortgage loans (up $316,000), bank card fees (up $235,000) and service fees and charges (up $191,000) due to increased sales and transaction volume.

 

    Noninterest expense increased $251,000, or 0.6%, in 2015 compared to 2014. The Company incurred $1.4 million and $2.3 million in merger-related expenses during 2015 and 2014, respectively. Excluding merger-related expenses, noninterest expense increased $1.1 million, or 2.9%. The increase was primarily the result of higher compensation and benefits, data processing and communications, and occupancy expenses due to the Company’s growth.

ACQUISITION ACTIVITY

On September 15, 2015, the Company acquired Louisiana Bancorp, Inc., the former holding company of Bank of New Orleans of Metairie, Louisiana. Shareholders of Louisiana Bancorp received $24.25 per share in cash, resulting in aggregate purchase price of $70.0 million. As a result of the acquisition, four former Bank of New Orleans branches in the Greater New Orleans area were added to the Bank’s branch office network, net of one former Bank of New Orleans banking office in the Northshore that was closed or consolidated in January 2016. Assets acquired from Louisiana Bancorp totaled $351.1 million, which included loans of $281.6 million, investment securities of $36.4 million and cash of $14.1 million. The Bank also recorded a core deposit intangible asset of $1.6 million and goodwill of $10.2 million relating to the acquisition, and assumed liabilities of $291.3 million, which included $208.7 million in deposits and $76.0 million in Federal Home Loan Bank (“FHLB”) advances.

On February 14, 2014, the Company acquired Britton & Koontz Capital Corportation (“Britton & Koontz”) the former holding company of Britton & Koontz Bank, N.A. (“Britton & Koontz Bank”) of Natchez, Mississippi. Shareholders of Britton & Koontz received $16.14 per share is cash, yielding an aggregate purchase price of $34.5 million. As a result of the acquisition, five former Britton & Koontz branches in west Mississippi were added to the Bank’s branch office network, net of two former Britton & Koontz banking offices that were closed or consolidated in March 2014. Assets acquired from Britton & Koontz totaled $298.9 million, which included loans of $161.2 million, investment securities of $98.0 million and cash of $15.3 million. The Bank also recorded a core deposit intangible asset of $3.0 million and goodwill of $43,000 relating to the acquisition, and assumed liabilities of $264.5 million, which included $216.6 million in deposits, $9.3 million in FHLB advances and $27.3 million in securities sold under repurchase agreements.

On July 15, 2011, the Company acquired GS Financial Corporation (“GSFC”), the former holding company of Guaranty Savings Bank of Metairie, Louisiana. Shareholders of GSFC received $21.00 per share in cash, yielding an aggregate purchase price of $26.4 million. As a result of the acquisition, the four former Guaranty branches in the Greater New Orleans area were added to the Bank’s branch office network. Assets acquired from GSFC totaled $256.7 million, which included loans of $182.4 million, investment securities of $46.5 million and cash of $9.3 million. The Bank also recorded a core deposit intangible asset of $859,000 and goodwill of $296,000 relating to the acquisition of GSFC, and assumed liabilities of $230.6 million, which included $193.5 million in deposits and $34.7 million in FHLB advances.

On March 12, 2010, the Bank acquired certain assets and liabilities of the former Statewide Bank, a full-service community bank formerly headquartered in Covington, Louisiana, from the FDIC. As a result of the Statewide acquisition, the Bank’s branch office network was expanded to include six branches in the Northshore (of Lake Pontchartrain) region of Louisiana. Assets acquired in the Statewide transaction totaled $188.0 million, which included loans of $110.4 million, investment securities of $24.8 million and cash of $11.6 million. In addition, the

 

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Bank recorded a FDIC Asset, representing the portion of estimated losses covered by loss sharing agreements between the Bank and the FDIC, of $34.4 million. The loss sharing agreements between the Bank and the FDIC afforded us significant protection against losses in the loan portfolio and repossessed assets acquired in the Statewide transaction. The Bank also recorded a core deposit intangible asset of $1.4 million and goodwill of $560,000 relating to the Statewide acquisition, and assumed liabilities of $223.9 million, which included $206.9 million in deposits and $16.8 million in FHLB advances.

CRITICAL ACCOUNTING POLICIES

The accounting and financial reporting policies of the Company conform to generally accepted accounting principles in the United States (“GAAP”) and to general practices within the banking industry. Accordingly, the financial statements require certain estimates, judgments and assumptions, which are believed to be reasonable, based upon the information available. These estimates and assumptions affect the reported amounts of assets and liabilities as of the date of the financial statements and the reported amounts of income and expenses during the periods presented. The following accounting policies comprise those that management believes are the most critical to aid in fully understanding and evaluating our reported financial results. These policies require numerous estimates or economic assumptions that may prove inaccurate or may be subject to variations which may significantly affect our reported results and financial condition for the period or in future periods.

Allowance for Loan Losses. The allowance for loan losses on loans in our portfolio is maintained at an amount which management determines covers the reasonably estimable and probable losses on such portfolio. The allowance for loan losses is established through a provision for loan losses charged to expense. Loans are charged against the allowance for loan losses when management believes that the collectability of the principal is unlikely. Subsequent recoveries are added to the allowance. The allowance is an amount that represents the amount of probable and reasonably estimable known and inherent losses in the loan portfolio, based on evaluations of the collectability of loans. The evaluations take into consideration such factors as changes in the types and amount of loans in the loan portfolio, historical loss experience, adverse situations that may affect the borrower’s ability to repay, estimated value of any underlying collateral, estimated losses relating to specifically identified loans and current economic conditions. This evaluation is inherently subjective as it requires material estimates including, among others, exposure to default, the amount and timing of expected future cash flows on loans, value of collateral, estimated losses on our commercial and residential loan portfolios as well as consideration of general loss experience. All of these estimates may be susceptible to significant change.

While management uses the best information available to make loan loss allowance evaluations, adjustments to the allowance may be necessary based on changes in economic and other conditions or changes in accounting guidance. The OCC, as an integral part of its examination processes, periodically reviews our allowance for loan losses. The OCC may require the recognition of adjustments to the allowance for loan losses based on their judgment of information available to them at the time of their examinations. To the extent that actual outcomes differ from management’s estimates, additional provisions to the allowance for loan losses may be required that would adversely impact earnings in future periods. As part of the risk management program, an independent review is performed on the loan portfolio, which supplements management’s assessment of the loan portfolio and the allowance for loan losses. The result of the independent review is reported directly to the Audit Committee of the Board of Directors.

Acquired Loans were recorded at fair value at the date of acquisition with no carryover of the allowance for loan losses. As of December 31, 2015, our allowance for loan losses included $373,000 allocated to Acquired Loans with credit quality which had deteriorated since the date of acquisition. Our accounting policy for Acquired Loans is described below.

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

Originated Loans

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

 

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Acquired Loans

Acquired Loans are those collectively associated with our acquisitions of Statewide, GSFC, Britton & Koontz and BNO. These 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 fair value discount for the loan pool. Once the discount is fully depleted, losses are applied against the allowance established for that pool. Acquired performing loans are placed on nonaccrual status and considered and reported as nonperforming or past due using the same criteria applied to the originated portfolio.

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

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

Certain loans purchased in the Statewide acquisition are covered by loss sharing agreements between the FDIC and the Company. Historically, the Company has referred to loans subject to loss share agreements with the FDIC as “covered loans.” However, as of March 31, 2015, a significant portion of the loss share agreements had expired and any future losses on certain formerly covered loans are no longer eligible for reimbursement from the FDIC. As of March 2015, only residential mortgage loans acquired from Statewide remained subject to loss sharing agreements with the FDIC. As of December 31, 2015, the Company’s remaining covered loans amounted to approximately $3.7 million, or less than 0.2% of the Company’s total loan portfolio, at such date. Given the limited amount of covered loans remaining, the Company is no longer reporting such loans as “covered loans,” and the remaining covered loans are included in “acquired loans.”

Income Taxes. We make estimates and judgments to calculate some of our tax liabilities and determine the recoverability of some of our deferred tax assets, which arise from temporary differences between the tax and financial statement recognition of revenues and expenses. We also estimate a valuation allowance for deferred tax assets if, based on the available evidence, it is more likely than not that some portion or all of the recorded deferred tax assets will not be realized in future periods. These estimates and judgments are inherently subjective. Historically, our estimates and judgments to calculate our deferred tax accounts have not required significant revision to our initial estimates.

 

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In evaluating our ability to recover deferred tax assets, we consider all available positive and negative evidence, including our past operating results, recent cumulative losses and our forecast of future taxable income. In determining future taxable income, we make assumptions for the amount of taxable income, the reversal of temporary differences and the implementation of feasible and prudent tax planning strategies. These assumptions require us to make judgments about our future taxable income and are consistent with the plans and estimates we use to manage our business. Any reduction in estimated future taxable income may require us to record a valuation allowance against our deferred tax assets. An increase in the valuation allowance would result in additional income tax expense in the period and could have a significant impact on our future earnings.

Other-than-temporary Impairment of Investment Securities. Securities are evaluated periodically to determine whether a decline in their fair value is other-than-temporary. The term “other-than-temporary” is not intended to indicate a permanent decline in value. Rather, it means that the prospects for near term recovery of value are not necessarily favorable, or that there is a lack of evidence to support fair values equal to, or greater than, the carrying value of the investment. Management reviews criteria such as the magnitude and duration of the decline, the reasons for the decline and the performance and valuation of the underlying collateral, when applicable, to predict whether the loss in value is other-than-temporary and the intent and ability of the Company to retain the investment for a period of time sufficient to allow for any anticipated recovery in fair value. Once a decline in value is determined to be other-than-temporary, the carrying value of the security is reduced to its fair value and a corresponding charge to earnings is recognized for the decline in value determined to be credit related. The decline in value attributable to noncredit factors is recognized in other comprehensive income.

Stock-based Compensation. The Company accounts for its stock options in accordance with ASC Topic 718, Compensation Stock Compensation. ASC 718 requires companies to expense the fair value of employee stock options and other forms of stock-based compensation. Management utilizes the Black-Scholes option valuation model to estimate the fair value of stock options. The option valuation model requires the input of highly subjective assumptions, including expected stock price volatility and option life. These subjective input assumptions materially affect the fair value estimate.

FINANCIAL CONDITION

Loans, Loan Quality and Allowance for Loan Losses

Loans – The types of loans originated by the Company are subject to federal and state laws and regulations. Interest rates charged on loans are affected principally by the demand for such loans and the supply of money available for lending purposes and the rates offered by our competitors. These factors are, in turn, affected by general and economic conditions, the monetary policy of the federal government, including the Federal Reserve Bank (“FRB”), legislative tax policies and governmental budgetary matters.

The Company’s lending activities are subject to underwriting standards and loan origination procedures established by our Board of Directors and management. Loan originations are obtained through a variety of sources, primarily existing customers as well as new customers obtained from referrals and local advertising and promotional efforts. Single-family residential mortgage loan applications and consumer loan applications are taken at any of the Bank’s branch offices. Applications for other loans typically are taken personally by one of our loan officers, although they may be received by a branch office initially and then referred to a loan officer. All loan applications are processed and underwritten centrally at the Bank’s main office.

The following tables show the composition of the Company’s loan portfolio as of the dates indicated.

 

     December 31,  

(dollars in thousands)

   2015      2014      2013      2012      2011  

Real estate loans:

              

One- to four-family first mortgage

   $ 391,266       $ 233,249       $ 179,506       $ 177,816       $ 182,817   

Home equity loans and lines

     94,060         56,000         40,561         40,425         43,665   

Commercial real estate

     405,379         352,863         269,849         252,805         226,999   

Construction and land

     116,775         89,154         83,271         75,529         78,994   

Multi-family residential

     43,863         27,375         16,578         19,659         20,125   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total real estate loans

     1,051,343         758,641         589,765         566,234         552,600   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Other loans:

              

Commercial and industrial

     125,108         104,446         77,533         72,253         82,980   

Consumer

     47,915         45,881         40,158         34,641         30,791   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total other loans

     173,023         150,327         117,691         106,894         113,771   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total loans

   $ 1,224,366       $ 908,968       $ 707,456       $ 673,128       $ 666,371   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

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The loan portfolio increased $315.4 million, or 34.7%, during 2015. The increase includes loans acquired from Louisiana Bancorp, which were recorded at their fair value of $281.6 million on the acquisition date, and growth in originated loans of $92.5 million. Growth in originated loans during the year was related primarily to construction and land loans, commercial and industrial loans, and one- to four-family first mortgage loans.

The following table reflects contractual loan maturities as of December 31, 2015, unadjusted for scheduled principal reductions, prepayments or repricing opportunities. Of the $963.7 million in loans which have contractual maturity dates subsequent to December 31, 2016, $752.4 million have fixed interest rates and $211.3 million have floating or adjustable interest rates.

 

     Due In         

(dollars in thousands)

   One year or
less
     One through
five years
     More than five
years
     Total  

One- to four-family first mortgage

   $ 34,315       $ 63,685       $ 293,266       $ 391,266   

Home equity loans and lines

     37,914         8,370         47,776         94,060   

Commercial real estate

     35,367         220,368         149,644         405,379   

Construction and land

     83,858         28,891         4,026         116,775   

Multi-family residential

     9,040         17,472         17,351         43,863   

Commercial and industrial

     56,675         55,831         12,602         125,108   

Consumer

     3,481         10,359         34,075         47,915   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 260,650       $ 404,976       $ 558,740       $ 1,224,366   
  

 

 

    

 

 

    

 

 

    

 

 

 

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

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 commercial real estate, multi-family residential, construction and land loans and commercial and industrial loans are individually evaluated for impairment. Third party property valuations are obtained at the time of origination for

 

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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 December 31, 2015 and 2014, impaired loans, loans individually evaluated for impairment, excluding Acquired Loans, amounted to $966,000 and $2.0 million, respectively. As of December 31, 2015 and 2014, acquired impaired loans, loans considered to have deteriorated credit quality at the time of acquisition, amounted to $20.0 million and $32.0 million, respectively. As of December 31, 2015 and 2014, substandard loans, excluding Acquired Loans, amounted to $7.7 million and $7.2 million, respectively. As of December 31, 2015 and 2014, Acquired Loans considered substandard amounted to $9.7 million and $23.6 million, respectively. The amount of the allowance for loan losses allocated to originated impaired or substandard loans totaled $153,000 and $140,000 as of December 31, 2015 and 2014, respectively. The amount of allowance for loan losses allocated to Acquired Loans totaled $373,000 and $418,000, respectively. There were no assets classified as doubtful or loss as of December 31, 2015 and 2014.

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

A bank’s determination as to the classification of its assets and the amount of its valuation allowances is subject to review by Federal bank regulators which can order the establishment of additional general or specific loss allowances. The Federal banking agencies have adopted an interagency policy statement on the allowance for loan and lease losses. The policy statement provides guidance for financial institutions on both the responsibilities of management for the assessment and establishment of allowances and guidance for banking agency examiners to use in determining the adequacy of general valuation guidelines. Generally, the policy statement recommends that institutions have effective systems and controls to identify, monitor and address asset quality problems; that management analyze all significant factors that affect the collectability of the portfolio in a reasonable manner; and that management establish 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 allowances for loan losses may become necessary.

The following table sets forth the composition of the Company’s total nonperforming assets and troubled debt restructurings as of the dates indicated.

 

     December 31,  

(dollars in thousands)

   2015     2014     2013     2012     2011  

Nonaccrual loans:

          

Real estate loans:

          

One- to four-family first mortgage

   $ 3,577      $ 6,501      $ 7,617      $ 7,260      $ 8,526   

Home equity loans and lines

     534        547        723        284        857   

Commercial real estate

     4,196        6,327        7,117        6,984        7,891   

Construction and land

     207        5,356        1,831        4,113        2,624   

Multi-family residential

     763        1,770        2,248        1,327        —     

Other loans:

          

Commercial and industrial

     2,984        2,359        4,835        1,916        1,382   

Consumer

     552        421        388        63        187   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total nonaccrual loans

     12,813        23,281        24,759        21,947        21,467   

Accruing loans 90 days or more past due

     —          —          —          —          —     
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total nonperforming loans

     12,813        23,281        24,759        21,947        21,467   

Foreclosed property

     3,128        5,214        4,566        6,454        8,964   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total nonperforming assets

     15,941        28,495        29,325        28,401        30,431   

Performing troubled debt restructurings

     1,290        725        430        1,114        598   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total nonperforming assets and troubled debt restructurings

   $ 17,231      $ 29,220      $ 29,755      $ 29,515      $ 31,029   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Nonperforming loans to total loans

     1.05     2.56     3.50     3.26     3.22

Nonperforming loans to total assets

     0.83     1.91     2.52     2.28     2.23

Nonperforming assets to total assets

     1.03     2.33     2.98     2.95     3.16

 

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Net loan charge-offs for 2015 were $283,000, or 0.02%, of total loans, compared to $1.5 million, or 0.17%, in 2014. The elevated level of charge-offs during 2014 resulted primarily from a $1.3 million charge-off on a $1.7 million single commercial and industrial loan relationship.

Repossessed assets which are acquired as a result of foreclosure are classified as repossessed assets until sold. Third party property valuations are obtained at the time the asset is repossessed and periodically until the property is liquidated. Repossessed assets are recorded at 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.

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. Our 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 rankings to segments of the loan portfolio. Such risk ratings are periodically reviewed by management and revised as deemed appropriate. These efforts are supplemented by independent reviews and validations performed by an independent loan reviewer. The results of the reviews are reported directly to the Audit Committee of the Board of Directors. The establishment of the allowance for loan losses is significantly affected by management judgment and uncertainties and there is a likelihood that different amounts would be reported under different conditions or assumptions. Federal regulatory agencies, as an integral part of their examination process, periodically review our allowance for loan losses. Such agencies may require management to make additional provisions for estimated loan losses based upon judgments different from those of management.

With respect to Acquired Loans, the Company follows the reserve standard set forth in ASC 310, Receivables. At acquisition, the Company reviews each loan to determine whether there is evidence of deterioration in credit quality since origination and if it is probable that the Company will be unable to collect all amounts due according to the loan’s contractual terms. The Company considers expected prepayments and estimates the amount and timing of undiscounted expected principal, interest and other cash flows for each loan pool meeting the criteria above, and determines the excess of the loan pool’s scheduled contractual principal and interest

 

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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.

Acquired Loans were recorded as of their acquisition date fair value, which was based on expected cash flows and included an estimation of expected future loan losses. Under current accounting principles, if the Company determines that losses arose after the acquisition date, the additional losses will be reflected as a provision for loan losses. As of December 31, 2015, $128,000 of our allowance for loan losses was allocated to Acquired Loans with deteriorated credit quality.

We will continue to monitor and modify our allowance for loan losses as conditions dictate. 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 for the years indicated.

 

     For the Years Ended December 31,  

(dollars in thousands)

   2015     2014     2013     2012     2011  

Balance, beginning of year

   $ 7,760      $ 6,918      $ 5,319      $ 5,104      $ 3,920   

Provision charged to operations

     2,071        2,364        3,653        2,411        1,460   

Loans charged off:

          

One- to four-family first mortgage

     (104     (213     (112     —          —     

Home equity loans and lines

     (27     (2     —          (32     —     

Commercial real estate

     —          (41     —          (1,980     —     

Construction and land

     (111     (19     (44     (215     —     

Multi-family residential

     —          —          —          —          —     

Commercial and industrial

     (190     (1,407     (1,990     (60     (281

Consumer

     (130     (32     (9     (38     (53

Recoveries on charged off loans

     278        192        101        129        58   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance, end of year

   $ 9,547      $ 7,760      $ 6,918      $ 5,319      $ 5,104   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

At December 31, 2015, the Company’s ratio of allowance for loan losses to total loans was 0.78%, compared to 0.85% at December 31, 2014. Excluding acquired loans, the ratio of allowance for loan losses to total originated loans was 1.15% at December 31, 2015, compared to 1.04% at December 31, 2014. The balance of loans to companies in the energy sector totaled $35.4 million, or 2.9%, of our outstanding loan portfolio at December 31, 2015. In addition to outstanding loans at December 31, 2015, we also had unfunded loan commitments to companies in the energy sector amounting to $8.9 million at such date. Based upon our analysis of the risk elements in our loan portfolio, including current market conditions and the effects on state and local economies of continued low energy prices, the Company increased its allowance for loan losses on originated loans by 11 basis points, or $873,000, during 2015. The Company remains in close contact with our energy company borrowers, and continues to monitor economic data to assess the potential indirect impact of low energy prices on our loan portfolio.

 

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The following table presents the allocation of the allowance for loan losses as of December 31 of the years indicated.

 

     December 31,  
     2015     2014     2013     2012     2011  

(dollars in thousands)

   Amount      % Loans     Amount      % Loans     Amount      % Loans     Amount      % Loans     Amount      % Loans  

One- to four-family first mortgage

   $ 1,464         31.8   $ 1,310         25.7   $ 1,088         25.4   $ 982         26.4   $ 778         27.4

Home equity loans and lines

     760         7.8        553         6.2        424         5.7        343         6.0        336         6.6   

Commercial real estate

     3,152         33.2        2,922         38.8        2,528         38.1        2,040         37.6        1,755         34.1   

Construction and land

     1,417         9.5        1,101         9.8        977         11.8        785         11.2        904         11.9   

Multi-family

     173         3.6        192         3.0        90         2.3        86         2.9        64         3.0   

Commercial and industrial

     2,010         10.2        1,161         11.5        1,338         11.0        683         10.7        922         12.4   

Consumer

     571         3.9        521         5.0        473         5.7        400         5.2        345         4.6   
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

Total

   $ 9,547         100.0   $ 7,760         100.0   $ 6,918         100.0   $ 5,319         100.0   $ 5,104         100.0
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

Investment Securities

The Company invests in securities pursuant to our Investment Policy, which has been approved by our Board of Directors. The Investment Policy is designed primarily to manage the interest rate sensitivity of our assets and liabilities, to generate a favorable return without incurring undue interest rate or credit risk and to provide and maintain liquidity. The Asset-Liability Committee (“ALCO”), comprised of the Chief Executive Officer, Chief Financial Officer, Chief Banking Officer, Chief Credit Officer, Director of Financial Management and Treasurer, monitors investment activity and ensures that investments are consistent with the Investment Policy. The Board of Directors of the Company reviews investment activity monthly.

The investment securities portfolio increased by an aggregate of $4.2 million, or 2.2%, during 2015. Securities available for sale made up 92.7% of the investment securities portfolio as of December 31, 2015. The following table sets forth the amortized cost and market value of our investment securities portfolio as of the dates indicated.

 

     December 31,  
     2015      2014      2013  

(dollars in thousands)

   Amortized
Cost
     Market
Value
     Amortized
Cost
     Market
Value
     Amortized
Cost
     Market
Value
 

Available for sale:

                 

U.S. agency mortgage-backed

   $ 134,748       $ 135,478       $ 120,009       $ 121,498       $ 96,145       $ 96,785   

Non-U.S. agency mortgage-backed

     6,055         6,065         7,757         7,764         9,765         9,749   

Municipal bonds

     22,453         22,933         24,388         24,896         19,879         19,799   

U.S. government agency

     12,166         12,286         20,639         20,643         23,543         23,299   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total available for sale

     175,422         176,762         172,793         174,801         149,332         149,632   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Held to maturity:

                 

U.S. agency mortgage-backed

     —           —           —           —           132         133   

Municipal bonds

     13,927         14,121         11,705         11,889         9,273         9,142   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total held to maturity

     13,927         14,121         11,705         11,889         9,405         9,275   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total investment securities

   $ 189,349       $ 190,883       $ 184,498       $ 186,690       $ 158,737       $ 158,907   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

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The following table sets forth the fixed versus adjustable rate profile of the investment securities portfolio as of the dates indicated. All amounts are shown at amortized cost.

 

     December 31,  

(dollars in thousands)

   2015      2014      2013  

Fixed rate:

        

Available for sale

   $ 133,700       $ 122,883       $ 87,974   

Held to maturity

     13,927         11,705         9,405   
  

 

 

    

 

 

    

 

 

 

Total fixed rate

     147,627         134,588         97,379   
  

 

 

    

 

 

    

 

 

 

Adjustable rate:

        

Available for sale

     41,722         49,910         61,358   

Held to maturity

     —           —           —     
  

 

 

    

 

 

    

 

 

 

Total adjustable rate

     41,722         49,910         61,358   
  

 

 

    

 

 

    

 

 

 

Total investment securities

   $ 189,349       $ 184,498       $ 158,737   
  

 

 

    

 

 

    

 

 

 

The following table sets forth the amount of investment securities which mature during each of the periods indicated and the weighted average yields for each range of maturities as of December 31, 2015. No tax-exempt yields have been adjusted to a tax-equivalent basis. All amounts are shown at amortized cost.

 

     Amounts as of December 31, 2015 which mature in:  

(dollars in thousands)

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

Available for sale:

          

U.S. agency mortgage-backed

   $ 1      $ 5,296      $ 31,859      $ 97,592      $ 134,748   

Non-U.S. agency mortgage-backed

     —          —          —          6,055        6,055   

Municipal bonds

     928        7,615        11,809        2,101        22,453   

U.S. government agency

     —          7,988        —          4,178        12,166   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total available for sale

     929        20,899        43,668        109,926        175,422   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Weighted average yield

     1.01     2.03     1.96     2.15     2.08
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Held to maturity:

          

U.S. agency mortgage-backed

     —          —          —          —          —     

Municipal bonds

     235        1,088        8,599        4,005        13,927   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total held to maturity

     235        1,088        8,599        4,005        13,927   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Weighted average yield

     4.13     1.55     1.69     1.65     1.71
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total investment securities

   $ 1,164      $ 21,987      $ 52,267      $ 113,931      $ 189,349   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

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

 

(dollars in thousands)

   Available for Sale      Held to Maturity  

Balance, December 31, 2014

   $ 174,801       $ 11,705   

Purchases

     18,713         2,928   

Sales

     (21,187      —     

Principal maturities, prepayments and calls

     (30,095      (400

Amortization of premiums and accretion of discounts

     (1,224      (306

Acquired from LABC, at fair value

     36,420         —     

Decrease in market value

     (666      —     
  

 

 

    

 

 

 

Balance, December 31, 2015

   $ 176,762       $ 13,927   
  

 

 

    

 

 

 

 

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Table of Contents

As of December 31, 2015, the Company had a net unrealized gain on its available for sale investment securities portfolio of $1.3 million, compared to $2.0 million as of December 31, 2014. The Company acquired $36.4 million of investment securities from Louisiana Bancorp at the acquisition date, and subsequently sold $12.7 million of the acquired investments during the third and fourth quarters of 2015. During 2015, the Company sold an aggregate of $21.2 million in investment securities at net gains totaling $7,000.

Funding Sources

General – Deposits, loan repayments and prepayments, proceeds from investment securities sales, calls, maturities and paydowns, cash flows generated from operations and FHLB advances are our primary, ongoing sources of funds for use in lending, investing and for other general purposes.

Deposits – The Company offers a variety of deposit accounts with a range of interest rates and terms. Our deposits consist of checking, both interest-bearing and noninterest-bearing, money market, savings and certificate of deposit accounts.

The flow of deposits is influenced significantly by general economic conditions, changes in market interest rates and competition. Our deposits are obtained predominantly from the areas where our branch offices are located. We have historically relied primarily on a high level of customer service and long-standing relationships with customers to attract and retain deposits; however, market interest rates and rates offered by competitors significantly affect our ability to attract and retain deposits. The Company uses traditional means of advertising its deposit products, including broadcast and print media. The Company generally does not solicit deposits from outside our market area.

Total deposits were $1.2 billion as of December 31, 2015, an increase of $250.6 million, or 25.2%, compared to $993.6 million as of December 31, 2014. The acquisition of Louisiana Bancorp added $208.7 million in deposits during the third quarter of 2015.

The Company experienced strong core deposit (i.e., checking, savings, money market and accounts) growth during 2015. Core deposits totaled $967.4 million as of December 31, 2015, an increase of $194.6 million, or 25.2%, compared to December 31, 2014. Excluding core deposits acquired from Louisiana Bancorp, core deposits increased $76.5 million, or 9.9%, during 2015.

Certificates of deposit (“CD”) totaled $276.9 million as of December 31, 2015, an increase of $56.1 million, or 25.4%, compared to December 31, 2014. Excluding CDs acquired from Louisiana Bancorp, CDs decreased $34.5 million, or 15.6%, compared to December 31, 2014. The following table sets forth the composition of the Company’s deposits as of the dates indicated.

 

     December 31,      Increase/(Decrease)  

(dollars in thousands)

   2015      2014      Amount      Percent  

Demand deposit

   $ 296,617       $ 267,660       $ 28,957         10.8

Savings

     109,393         81,145         28,248         34.8   

Money market

     293,637         219,456         74,181         33.8   

NOW

     267,707         204,536         63,171         30.9   

Certificates of deposit

     276,863         220,775         56,088         25.4   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total deposits

   $ 1,244,217       $ 993,572       $ 250,645         25.2
  

 

 

    

 

 

    

 

 

    

 

 

 

 

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The following table shows the average balance and average rate paid for each type of deposit for the periods indicated.

 

     For the Years Ended December 31,  

(dollars in thousands)

   2015     2014     2013  
     Average
Balance
     Interest
Expense
     Average
Rate Paid
    Average
Balance
     Interest
Expense
     Average
Rate Paid
    Average
Balance
     Interest
Expense
     Average
Rate Paid
 

Savings, checking and money market

   $ 588,684       $ 1,331         0.23   $ 491,832       $ 1,102         0.22   $ 376,205       $ 967         0.26

Certificates of deposit

     236,803         1,742         0.74        231,164         1,640         0.71        225,464         2,077         0.92   
  

 

 

    

 

 

    

 

 

   

 

 

    

 

 

    

 

 

   

 

 

    

 

 

    

 

 

 

Total interest - bearing deposits

   $ 825,487       $ 3,073         0.37   $ 722,996       $ 2,742         0.38   $ 601,669       $ 3,044         0.51
  

 

 

    

 

 

    

 

 

   

 

 

    

 

 

    

 

 

   

 

 

    

 

 

    

 

 

 

Certificates of deposit in the amount of $100,000 and over increased $25.3 million, or 26.3%, from $96.0 million as of December 31, 2014 to $121.3 million as of December 31, 2015. The following table details the remaining maturity of large-denomination certificates of deposit of $100,000 and over.

 

     December 31,  

(dollars in thousands)

   2015      2014      2013  

3 months or less

   $ 22,913       $ 16,179       $ 16,768   

3 - 6 months

     18,042         15,853         14,287   

6 - 12 months

     27,253         35,039         17,115   

12 - 36 months

     37,907         20,386         25,187   

More than 36 months

     15,198         8,568         10,506   
  

 

 

    

 

 

    

 

 

 

Total certificates of deposit greater than $100,000

   $ 121,313       $ 96,025       $ 83,863   
  

 

 

    

 

 

    

 

 

 

Federal Home Loan Bank Advances – Advances from the FHLB may be obtained by the Company upon the security of the common stock it owns in the FHLB and certain of its real estate loans and investment securities, provided certain standards related to creditworthiness have been met. Such advances are made pursuant to several credit programs, each of which has its own interest rate and range of maturities. Advances from the FHLB may be either short-term, maturities of one year or less, or long-term, maturities in excess of one year.

Short-term FHLB advances totaled $39.9 million as of December 31, 2015, an increase of $8.9 million, or 28.8%, compared to $31.0 million as of December 31, 2014.

Long-term FHLB advances totaled $85.2 million as of December 31, 2015, an increase of $68.7 million, or 416.4%, compared to $16.5 million as of December 31, 2014. The increase was primarily the result of $42.6 million in long term FHLB advances acquired from Louisiana Bancorp.

Shareholders’ Equity – Shareholders’ equity provides a source of permanent funding, allows for future growth and provides the Company with a cushion to withstand unforeseen adverse developments. As of December 31, 2015, shareholders’ equity totaled $165.0 million, an increase of $10.9 million, or 7.1%, compared to $154.1 million as of December 31, 2014. The increase was primarily the result of a $12.5 million increase in retained earnings due to net income for 2015 and a $3.3 million increase in additional paid in capital from the exercise of stock options. These increases were partially offset by a reduction in retained earnings due to dividends declared on common stock of $2.2 million in the aggregate and purchases of the Company’s common stock totaling $3.5 million.

RESULTS OF OPERATIONS

The Company earned net income of $12.5 million in 2015, an increase of $2.7 million, or 27.1%, compared to 2014. The Company earned net income of $9.9 million in 2014, an increase of $2.6 million, or 35.3%, compared to 2013. Diluted earnings per share for 2015 were $1.79, an increase of 26.1% from 2014. Diluted earnings per share for 2014 were $1.42, an increase of 34.0% from 2013.

 

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Net Interest Income – Net interest income is the difference between the interest income earned on interest-earning assets, such as loans and investment securities, and the interest expense paid on interest-bearing liabilities, such as deposits and borrowings. Our 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.

Net interest income totaled $54.5 million in 2015, an increase of $3.5 million, or 6.9%, compared to the $51.0 million earned in 2014. The increase was due to a $4.1 million, or 7.5%, increase in interest income, which was partially offset by a $582,000, or 17.7%, increase in interest expense. The increases in 2015 compared to 2014 were primarily due to increases in our average loan and deposit portfolios driven by organic growth and acquired balances from Louisiana Bancorp in the third quarter of 2015.    

In 2014, net interest income totaled $51.0 million, an increase of $10.8 million, or 26.9%, compared to the $40.2 million earned in 2013. The increase was due to a $10.6 million, or 24.2%, increase in interest income and a $219,000, or 6.3%, decrease in interest expense. The increase in net interest income in 2014 compared to 2013 was primarily due to an increase in our average loan portfolio and an improved mix of interest-bearing liabilities, primarily as a result of the Britton & Koontz acquisition.    

The Company’s net interest spread was 4.32%, 4.45% and 4.52% for the years ended December 31, 2015, 2014 and 2013, respectively. The Company’s net interest margin, which is net interest income as a percentage of average interest-earning assets, was 4.43%, 4.54% and 4.65% during the years ended December 31, 2015, 2014 and 2013, respectively.

 

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

 

    For the Years Ended December 31,  

(dollars in thousands)

  2015     2014     2013  
    Average
Balance
    Interest     Average
Yield/
Rate
    Average
Balance
    Interest     Average
Yield/
Rate
    Average
Balance
    Interest     Average
Yield/
Rate
 

Interest-earning assets:

                 

Loans receivable (1)

  $ 1,013,482      $ 54,466        5.33   $ 891,401      $ 50,273        5.59   $ 679,593      $ 40,536        5.91

Investment securities (TE)

                 

Taxable

    154,102        3,032        1.97        155,480        3,149        2.03        132,633        2,558        1.93   

Tax-exempt

    36,249        712        3.02        36,621        737        3.10        22,872        503        3.38   
 

 

 

   

 

 

     

 

 

   

 

 

     

 

 

   

 

 

   

Total investment securities

    190,351        3,744        2.17        192,101        3,886        2.23        155,505        3,061        2.14   
 

 

 

   

 

 

     

 

 

   

 

 

     

 

 

   

 

 

   

Other interest-earning assets

    24,935        199        0.80        38,965        163        0.42        27,539        124        0.45   
 

 

 

   

 

 

     

 

 

   

 

 

     

 

 

   

 

 

   

Total interest-earning assets (TE)

    1,228,768        58,409        4.75        1,122,467        54,322        4.84        862,637        43,721        5.06   
   

 

 

       

 

 

       

 

 

   

Noninterest-earning assets

    109,258            111,643            99,998       
 

 

 

       

 

 

       

 

 

     

Total assets

  $ 1,338,026          $ 1,234,110          $ 962,635       
 

 

 

       

 

 

       

 

 

     

Interest-bearing liabilities:

                 

Deposits:

                 

Savings, checking and money market

  $ 588,683      $ 1,331        0.23   $ 491,832      $ 1,102        0.22   $ 376,205      $ 967        0.26

Certificates of deposit

    236,804        1,742        0.74        231,164        1,640        0.71        225,464        2,077        0.92   
 

 

 

   

 

 

     

 

 

   

 

 

     

 

 

   

 

 

   

Total interest-bearing deposits

    825,487        3,073        0.37        722,996        2,742        0.38        601,669        3,044        0.51   

Securities sold under repurchase agreements

    10,291        39        0.38        20,716        73        0.35        —          —          —     

FHLB advances

    62,677        753        1.20        94,531        468        0.49        48,738        459        0.94   
 

 

 

   

 

 

     

 

 

   

 

 

     

 

 

   

 

 

   

Total interest-bearing liabilities

    898,455        3,865        0.43        838,243        3,283        0.39        650,407        3,503        0.54   
   

 

 

       

 

 

       

 

 

   

Noninterest-bearing liabilities

    279,200            247,490            170,353       
 

 

 

       

 

 

       

 

 

     

Total liabilities

    1,177,655            1,085,733            820,760       

Shareholders’ equity

    160,371            148,377            141,875       
 

 

 

       

 

 

       

 

 

     

Total liabilities and shareholders’ equity

  $ 1,338,026          $ 1,234,110          $ 962,635       
 

 

 

       

 

 

       

 

 

     

Net interest-earning assets

  $ 330,313          $ 284,224          $ 212,230       
 

 

 

       

 

 

       

 

 

     

Net interest income; net interest spread (TE)

    $ 54,544        4.32     $ 51,039        4.45     $ 40,218        4.52
   

 

 

   

 

 

     

 

 

   

 

 

     

 

 

   

 

 

 

Net interest margin (TE)

        4.43         4.54         4.65
     

 

 

       

 

 

       

 

 

 

 

(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 life 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).

 

     2015 Compared to 2014
Change Attributable To
    2014 Compared to 2013
Change Attributable To
 

(dollars in thousands)

   Rate     Volume     Total
Increase
(Decrease)
    Rate     Volume     Total
Increase
(Decrease)
 

Interest income:

            

Loans receivable

   $ (1,511   $ 5,704      $ 4,193      $ (2,709   $ 12,446      $ 9,737   

Investment securities

     (107     (35     (142     5        821        826   

Other interest-earning assets

     122        (86     36        (11     50        39   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total interest income

     (1,496     5,583        4,087        (2,715     13,317        10,602   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Interest expense:

            

Savings, checking and money market accounts

     9        220        229        (124     259        135   

Certificates of deposit

     61        41        102        (483     46        (437

Securities sold under repurchase agreements

     4        (38     (34     —          73        73   

FHLB advances

     (185     470        285        56        (47     9   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total interest expense

     (111     693        582        (551     331        (220
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Increase (decrease) in net interest income

   $ (1,385   $ 4,890      $ 3,505      $ (2,164   $ 12,986      $ 10,822   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Interest income includes interest income earned on earning assets as well as applicable loan fees earned. Interest income that would have been earned on nonaccrual loans had they been on accrual status is not included in the data reported above.

Provision for Loan Losses - We have identified the evaluation of the allowance for loan losses as a critical accounting policy where amounts are sensitive to material variation. This policy is significantly affected by our judgment and uncertainties. There is likelihood that materially different amounts would be reported under different, but reasonably plausible, conditions or assumptions. Our activity in the provision for loan losses, which are charges or recoveries to operating results, is undertaken in order to maintain a level of total allowance for loan losses that management believes covers all known and inherent losses that are both probable and reasonably estimable as of each reporting date. Our evaluation process typically includes, among other things, an analysis of delinquency trends, non-performing 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 the loan, the borrower’s ability to repay and repayment performance, the number of loans requiring heightened management oversight, general economic conditions and industry experience. The OCC, as an integral part of its examination process, periodically reviews our allowance for loan losses. The OCC may require the Bank to make additional provisions for estimated loan losses based upon judgments different from those of management. As part of the risk management program, independent reviews are performed on the loan portfolio, which supplement management’s assessment of the loan portfolio and the allowance for loan losses. The results of independent reviews are reported to the Audit Committee of the Board of Directors.

For the year ended December 31, 2015, the Company recorded a provision for loan losses of $2.1 million, compared to provisions of $2.4 million and $3.7 million for 2014 and 2013, respectively. The balance of loans to companies in the energy sector totaled $35.4 million, or 2.9%, of our outstanding loan portfolio at December 31, 2015. In addition to outstanding loans at December 31, 2015, we also had unfunded loan commitments to companies in the energy sector amounting to $8.9 million at such date. Based upon our analysis of the risk elements in our loan portfolio, including current market conditions and the effects on state and local economies of continued low energy prices, the Company increased its allowance for loan losses on originated loans by 11 basis points, or $873,000, during 2015. The provision for 2014 related primarily to a $1.3 million partial charge-off on

 

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a $1.7 million medical equipment loan relationship and organic loan growth. The higher level of provision for loan losses recorded during 2013 resulted primarily from a $1.7 million partial charge-off on a $2.0 million accounts receivable line of credit, modest downgrades of certain other loans in the Company’s originated loan portfolio and decreased cash flow expectations in the acquired GSFC loan portfolio.

Net charge-offs were $283,000 for 2015, compared to $1.5 million and $2.1 million for 2014 and 2013, respectively. Charge-offs during 2014 resulted primarily from a $1.3 million partial charge-off on a $1.7 million medical equipment loan relationship. During 2013, the level of charge-offs resulted primarily from a $1.7 million partial charge-off on a $2.0 million accounts receivable line of credit.

At December 31, 2015, the Company’s ratio of allowance for loan losses to total loans was 0.78%, compared to 0.85% at December 31, 2014. Excluding acquired loans, the ratio of allowance for loan losses to total originated loans was 1.15% at December 31, 2015, compared to 1.04% at December 31, 2014.

Noninterest Income – The following table illustrates the primary components of noninterest income for the years indicated.

 

(dollars in thousands)

   2015      2014      2015 vs 2014
Percent
Increase
(Decrease)
    2013      2014 vs 2013
Percent
Increase
(Decrease)
 

Noninterest income:

             

Service fees and charges

   $ 3,938       $ 3,747         5.1   $ 2,729         37.3

Bank card fees

     2,413         2,178         10.8        1,731         25.8   

Gain on sale of loans, net

     1,528         1,212         26.0        1,554         (22.0

Income from bank-owned life insurance

     504         458         10.0        464         (1.3

Gain (loss) on sale of securities, net

     7         2         298.6        428         (99.6

Other income

     379         578         (34.3     764         (24.3
  

 

 

    

 

 

    

 

 

   

 

 

    

 

 

 

Total noninterest income

   $ 8,770       $ 8,175         7.3   $ 7,670         6.6
  

 

 

    

 

 

    

 

 

   

 

 

    

 

 

 

2015 compared to 2014

Noninterest income for 2015 totaled $8.8 million, an increase of $595,000, or 7.3%, compared to 2014. The increase was primarily the result of increases in gains on the sale of mortgage loans (up $316,000), bank card fees (up $235,000) and service fees and charges (up $191,000). The increases were due to increased activity and the acquisition of Louisiana Bancorp.    

2014 compared to 2013

Noninterest income for 2014 totaled $8.2 million, an increase of $505,000, or 6.6%, compared to 2013. The increase was primarily the result of increases in service fees and charges (up $1.0 million) and bank card fees (up $447,000) resulting from the Britton & Koontz acquisition, which were partially offset by decreases in gains on the sale of securities (down $426,000) and gains on the sale of mortgage loans (down $341,000).    

 

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Noninterest Expense –The following table illustrates the primary components of noninterest expense for the years indicated.

 

(dollars in thousands)

   2015      2014      2015 vs 2014
Percent
Increase
(Decrease)
    2013      2014 vs 2013
Percent
Increase
(Decrease)
 

Noninterest expense:

             

Compensation and benefits

   $ 25,036       $ 24,387         2.7   $ 20,330         20.0

Occupancy

     4,876         4,670         4.4        3,524         32.5   

Marketing and advertising

     486         919         (47.1     766         20.0   

Data processing and communication

     4,045         4,431         (8.7     2,442         81.4   

Professional services

     1,755         1,160         51.3        1,061         9.3   

Forms, printing and supplies

     597         662         (9.9     430         54.0   

Franchise and shares tax

     650         574         13.3        711         (19.3

Regulatory fees

     1,122         1,067         5.2        890         19.9   

Foreclosed assets, net

     443         997         (55.5     523         90.6   

Other expenses

     3,012         2,905         3.7        2,528         14.9   
  

 

 

    

 

 

    

 

 

   

 

 

    

 

 

 

Total noninterest expense

   $ 42,022       $ 41,772         0.6   $ 33,205         25.8
  

 

 

    

 

 

    

 

 

   

 

 

    

 

 

 

2015 compared to 2014

Noninterest expense for 2015 totaled $42.0 million, an increase of $250,000, or 0.6%, from 2014. Noninterest expense includes merger-related expenses related to the acquisition of Louisiana Bancorp of $1.4 million for the year ended December 31, 2015 and $2.3 million for the year ended December 31, 2014 due to the Britton & Koontz acquisition.    Excluding merger-related expenses, noninterest expense increased $1.1 million, or 2.9%, for the year ended December 31, 2015. The increase in noninterest expense was primarily the result of the addition of Louisiana Bancorp employees, its operation and facilities.

2014 compared to 2013

Noninterest expense for 2014 totaled $41.8 million, an increase of $8.5 million, or 25.8%, from 2013. Noninterest expense in 2014 includes merger-related expenses of $2.3 million related to the Britton & Koontz acquisition in February 2014. Excluding merger-related expenses, noninterest expense increased $6.6 million, or 20.0%, from 2013. The increase in noninterest expense was primarily the result of the addition of Britton & Koontz employees, its operations and facilities and higher costs associated with foreclosed assets.

Income Taxes For the years ended December 31, 2015, 2014 and 2013, the Company incurred income tax expense of $6.7 million, $5.2 million and $3.7 million, respectively. The Company’s effective tax rate amounted to 34.7%, 34.5% and 33.9% during 2015, 2014 and 2013, respectively. The difference between the effective tax rate and the statutory tax rate primarily related to variances in items that are non-taxable or non-deductible, primarily the effect of tax-exempt income and various tax credits taken. See Note 13 to the Consolidated Financial Statements for additional information concerning our income taxes.

LIQUIDITY AND CAPITAL RESOURCES

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. We also maintain excess funds in short-term, interest-bearing assets that provide additional liquidity. As of December 31, 2015, our cash and cash equivalents totaled $24.8 million. In addition, as of such date, our available for sale investment securities totaled $176.8 million.

 

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We use our 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 December 31, 2015, we had certificates of deposit maturing within the next 12 months totaling $164.5 million. Based upon historical experience, we anticipate that the majority of the maturing certificates of deposit will be redeposited with us in certificates of deposit or other deposit accounts.

In addition to cash flows from loan and securities payments and prepayments as well as from sales of available for sale securities, we have significant borrowing capacity available to fund liquidity needs. In recent years, we have utilized borrowings as a cost efficient addition to deposits as a source of funds. Our borrowings consist of advances from the FHLB, of which we are a member. Under terms of the collateral agreement with the FHLB, we may pledge residential mortgage loans and mortgage-backed securities as well as our stock in the FHLB as collateral for such advances. For the year ended December 31, 2015, the average balance of our outstanding FHLB advances was $62.7 million. As of December 31, 2015, we had $125.2 million in outstanding FHLB advances and $480.7 million in additional FHLB advances available to us.

Liquidity management is both a daily and long-term function of business management. Excess liquidity is generally invested in short-term investments such as overnight deposits. On a longer-term basis, the Company maintains a strategy of investing in various lending and investment security products. The Company uses its sources of funds primarily to meet its ongoing commitments and fund loan commitments. The Company has been able to generate sufficient cash through its deposits, as well as borrowings, and anticipates it will continue to have sufficient funds to meet its liquidity requirements.

ASSET/ LIABILITY MANAGEMENT AND MARKET RISK

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.

Our interest rate sensitivity is also monitored by management through the use of models which generate 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 December 31, 2015.

 

Shift in Interest Rates (in bps)

   % Change in Projected
Net Interest Income

+300

   (0.5)%

+200

   (0.1)

+100

   —  

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 interest-earning assets and maintain a desired mix of interest-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.

Market risk is the risk of loss from adverse changes in market prices and rates. Our market risk arises primarily from the interest rate risk which is inherent in our lending and deposit taking activities. To that end, management actively monitors and manages interest rate risk exposure. In addition to market risk, our primary risk is credit risk on our loan portfolio. We attempt to manage credit risk through our loan underwriting and oversight policies.

The principal objective of our interest rate risk management function is to evaluate the interest rate risk embedded in certain balance sheet accounts, determine the level of risk appropriate given our business strategy, operating

 

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environment, capital and liquidity requirements, performance objectives and interest rate environment and manage the risk consistent with approved guidelines. We seek to manage our exposure to risks from changes in interest rates while at the same time trying to improve our net interest spread. We monitor interest rate risk as such risk relates to our operating strategies. We have established an Asset/Liability Committee (“ALCO”), which is comprised of our Chief Executive Officer, Chief Financial Officer, Chief Banking Officer, Chief Credit Officer, Chief Operating Officer, Director of Financial Management and Treasurer. ALCO is responsible for reviewing our asset/liability and investment policies and interest rate risk position. ALCO meets at least monthly. The extent of the movement of interest rates is an uncertainty that could have a negative impact on future earnings.

In recent years, we primarily have utilized the following strategies in our efforts to manage interest rate risk:

 

    we have increased our originations of shorter term loans, particularly commercial real estate and commercial and industrial loans;

 

    we generally sell our conforming long-term (30-year) fixed-rate single-family residential mortgage loans into the secondary market; and

 

    we have invested in securities, consisting primarily of mortgage-backed securities and collateral mortgage obligations, with relatively short average lives, generally three to five years, and we maintain adequate amounts of liquid assets.

OFF-BALANCE SHEET ACTIVITIES

To meet the financing needs of its customers, the Company 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 the undisbursed portion of construction loans as of December 31 of the years indicated.

 

     Contract Amount  

(dollars in thousands)

   2015      2014  

Standby letters of credit

   $ 3,764       $ 5,405   

Available portion of lines of credit

     127,393         107,242   

Undisbursed portion of loans in process

     73,699         54,200   

Commitments to originate loans

     89,653         96,506   

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

Unfunded commitments under commercial lines-of-credit and revolving credit lines 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 position or results of operations of the Company.

 

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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 the undisbursed portion of construction loans as of December 31, 2015.

 

(dollars in thousands)

   Less Than
One Year
     One to
Three Years
     Three to
Five Years
     Over Five
Years
     Total  

Unused commercial lines of credit

   $ 64,749       $ 9,906       $ 150       $ —         $ 74,805   

Unused personal lines of credit

     1,846         4,747         4,608         41,387         52,588   

Undisbursed portion of loans in process

     73,699         —           —           —           73,699   

Commitments to originate loans

     89,653         —           —           —           89,653   

Standby letters of credit

     3,652         4         108         —           3,764   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 233,599       $ 14,657       $ 4,866       $ 41,387       $ 294,509   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

The Company has utilized leasing arrangements to support the ongoing activities of the Company. The required payments under such commitments and other contractual cash commitments as of December 31, 2015 are shown in the following table.

 

(dollars in thousands)

   2016      2017      2018      2019      2020      Thereafter      Total  

Operating leases

   $ 312       $ 313       $ 264       $ 134       $ 100       $ 739       $ 1,862   

Certificates of deposit

     164,500         59,267         21,111         11,561         9,050         11,374         276,863   

Long-term FHLB advances

     5,358         22,854         5,986         12,551         32,622         5,842         85,213   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 170,170       $ 82,434       $ 27,361       $ 24,246       $ 41,772       $ 17,955       $ 363,938   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

IMPACT OF INFLATION AND CHANGING PRICES

The financial statements, accompanying notes and related financial data of the Company presented herein have been prepared in accordance with GAAP, which require the measurement of financial position and operating results in terms of historical dollars without considering the changes in purchasing power of money over time due to inflation. The impact of inflation is reflected in the increased cost of operations. Most of our assets and liabilities are monetary in nature; therefore, the impact of interest rates has a greater impact on its performance than the effects of general levels of inflation. Interest rates do not necessarily move in the same direction or to the same extent as the prices of goods and services.

 

Item 7A. Quantitative and Qualitative Disclosures about Market Risk.

The information contained in the section captioned “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Asset/Liability Management and Market Risk” in Item 7 hereof is incorporated herein by reference.

 

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Item 8. Financial Statements and Supplementary Data.

 

LOGO

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Shareholders

Home Bancorp, Inc.

Lafayette, Louisiana

We have audited the accompanying consolidated statements of financial condition of Home Bancorp, Inc. and subsidiary (the “Company”) as of December 31, 2015 and 2014, and the related consolidated statements of income, comprehensive income, changes in shareholders’ equity, and cash flows for each of the three years in the period ended December 31, 2015. We also have examined the internal control over financial reporting of the Company as of December 31, 2015, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission in 2013. The Company’s management is responsible for these financial statements, for maintaining effective internal control over financial reporting, and for its assertion of the effectiveness of internal control over financial reporting included in the accompanying Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on these financial statements and an opinion on the Company’s internal control over financial reporting based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement and whether effective internal control over financial reporting was maintained in all material respects. Our audits of the financial statements included examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (a) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (b) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with accounting principles generally accepted in the United States of America and that receipts and expenditures of the company are being made only in accordance with authorizations of management and those charged with governance; and (c) provide reasonable assurance regarding prevention, or timely detection and correction, of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

 

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Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2015 and 2014, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 2015, in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2015, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission in 2013.

/s/ Porter Keadle Moore, LLC

Atlanta, Georgia

March 14, 2016

 

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HOME BANCORP, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION

 

     December 31,  
     2015     2014  

Assets

    

Cash and cash equivalents

   $ 24,797,599      $ 29,077,907   

Interest-bearing deposits in banks

     5,143,585        5,526,000   

Investment securities available for sale, at fair value

     176,762,200        174,800,516   

Investment securities held to maturity (fair values of $14,120,842 and $11,889,335, respectively)

     13,926,861        11,705,470   

Mortgage loans held for sale

     5,651,250        4,516,835   

Loans, net of unearned income

     1,224,365,916        908,967,871   

Allowance for loan losses

     (9,547,487     (7,759,500
  

 

 

   

 

 

 

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

     1,214,818,429        901,208,371   
  

 

 

   

 

 

 

Office properties and equipment, net

     40,815,744        37,964,714   

Cash surrender value of bank-owned life insurance

     19,666,900        19,163,110   

Accrued interest receivable and other assets

     50,329,032        37,451,687   
  

 

 

   

 

 

 

Total Assets

   $ 1,551,911,600      $ 1,221,414,610   
  

 

 

   

 

 

 

Liabilities

    

Deposits:

    

Noninterest-bearing

   $ 296,616,693      $ 267,660,145   

Interest-bearing

     947,599,823        725,912,448   
  

 

 

   

 

 

 

Total deposits

     1,244,216,516        993,572,593   

Short-term Federal Home Loan Bank advances

     39,939,375        31,000,000   

Long-term Federal Home Loan Bank advances

     85,213,222        16,500,000   

Securities sold under repurchase agreements

     —          20,370,892   

Accrued interest payable and other liabilities

     17,496,133        5,827,369   
  

 

 

   

 

 

 

Total Liabilities

     1,386,865,246        1,067,270,854   
  

 

 

   

 

 

 

Shareholders’ Equity

    

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

     —          —     

Common stock, $0.01 par value - 40,000,000 shares authorized; 7,239,821 and 9,008,745 shares issued; 7,239,821 and 7,123,442 shares outstanding, respectively (1)

     72,399        90,088   

Additional paid-in capital (1)

     76,948,914        93,332,108   

Treasury stock at cost - 0 and 1,885,303 shares, respectively (1)

     —          (28,572,891

Unallocated common stock held by:

    

Employee Stock Ownership Plan (ESOP)

     (4,552,670     (4,909,750

Recognition and Retention Plan (RRP)

     (158,590     (202,590

Retained earnings

     91,864,543        93,101,915   

Accumulated other comprehensive income

     871,758        1,304,876   
  

 

 

   

 

 

 

Total Shareholders’ Equity

     165,046,354        154,143,756   
  

 

 

   

 

 

 

Total Liabilities and Shareholders’ Equity

   $ 1,551,911,600      $ 1,221,414,610   
  

 

 

   

 

 

 

 

(1) See Note 2 for details on the Louisiana Business Corporation Act.    

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

 

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HOME BANCORP, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF INCOME

 

     Years Ended December 31,  
     2015      2014      2013  

Interest Income

        

Loans, including fees

   $ 54,466,025       $ 50,273,076       $ 40,535,633   

Investment securities:

        

Taxable interest

     3,031,381         3,146,187         2,557,614   

Tax-exempt interest

     712,602         740,333         502,907   

Other investments and deposits

     199,646         162,965         124,355   
  

 

 

    

 

 

    

 

 

 

Total interest income

     58,409,654         54,322,561         43,720,509   
  

 

 

    

 

 

    

 

 

 

Interest Expense

        

Deposits

     3,072,725         2,742,106         3,043,982   

Securities sold under repurchase agreements

     39,126         72,986         —     

Short-term Federal Home Loan Bank advances

     51,406         125,021         46,716   

Long-term Federal Home Loan Bank advances

     702,136         343,306         412,210   
  

 

 

    

 

 

    

 

 

 

Total interest expense

     3,865,393         3,283,419         3,502,908   
  

 

 

    

 

 

    

 

 

 

Net interest income

     54,544,261         51,039,142         40,217,601   

Provision for loan losses

     2,070,894         2,364,358         3,652,694   
  

 

 

    

 

 

    

 

 

 

Net interest income after provision for loan losses

     52,473,367         48,674,784         36,564,907   
  

 

 

    

 

 

    

 

 

 

Noninterest Income

        

Service fees and charges

     3,937,797         3,746,580         2,729,469   

Bank card fees

     2,413,459         2,178,194         1,730,960   

Gain on sale of loans, net

     1,527,721         1,212,157         1,553,598   

Income from bank-owned life insurance

     503,790         458,163         464,170   

Gain on sale of securities, net

     7,279         1,826         428,200   

Other income

     379,473         577,858         763,452   
  

 

 

    

 

 

    

 

 

 

Total noninterest income

     8,769,519         8,174,778         7,669,849   
  

 

 

    

 

 

    

 

 

 

Noninterest Expense

        

Compensation and benefits

     25,035,862         24,386,501         20,329,834   

Occupancy

     4,875,945         4,670,318         3,524,567   

Marketing and advertising

     486,341         919,483         766,388   

Data processing and communication

     4,044,553         4,430,519         2,441,796   

Professional services

     1,755,286         1,159,814         1,060,656   

Forms, printing and supplies

     596,748         662,074         429,888   

Franchise and shares tax

     650,461         574,060         710,775   

Regulatory fees

     1,122,254         1,066,999         889,967   

Foreclosed assets, net

     443,228         996,633         522,903   

Other expenses

     3,011,748         2,905,191         2,527,922   
  

 

 

    

 

 

    

 

 

 

Total noninterest expense

     42,022,426         41,771,592         33,204,696   
  

 

 

    

 

 

    

 

 

 

Income before income tax expense

     19,220,460         15,077,970         11,030,060   

Income tax expense

     6,670,559         5,206,383         3,736,138   
  

 

 

    

 

 

    

 

 

 

Net Income

   $ 12,549,901       $ 9,871,587       $ 7,293,922   
  

 

 

    

 

 

    

 

 

 

Earnings per share:

        

Basic

   $ 1.87       $ 1.51       $ 1.11   
  

 

 

    

 

 

    

 

 

 

Diluted

   $ 1.79       $ 1.42       $ 1.06   
  

 

 

    

 

 

    

 

 

 

Cash dividends declared per common share

   $ 0.30       $ 0.07       $ —     
  

 

 

    

 

 

    

 

 

 

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

 

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HOME BANCORP, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

 

    

For the Years Ended

December 31,

 
     2015     2014     2013  

Net Income

   $ 12,549,901      $ 9,871,587      $ 7,293,922   

Other Comprehensive (Loss) Income

      

Unrealized (losses) gains on investment securities

     (659,057     1,709,151        (4,177,585

Reclassification adjustment for gains included in net income

     (7,279     (1,826     (428,200

Tax effect

     233,218        (597,564     1,562,965   
  

 

 

   

 

 

   

 

 

 

Other comprehensive (loss) income, net of taxes

     (433,118     1,109,761        (3,042,820
  

 

 

   

 

 

   

 

 

 

Comprehensive Income

   $ 12,116,783      $ 10,981,348      $ 4,251,102   
  

 

 

   

 

 

   

 

 

 

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

 

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HOME BANCORP, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY

 

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

Balance, December 31, 2012

  $ 89,506      $ 90,986,820      $ (21,719,954   $ (5,623,910   $ (1,831,759   $ 76,435,222      $ 3,237,935      $ 141,573,860   

Net income

              7,293,922          7,293,922   

Other comprehensive income

                (3,042,820     (3,042,820

Purchase of Company’s common stock at cost, 347,713 shares

        (6,291,444             (6,291,444

Exercise of stock options

    79        91,026                  91,105   

RRP shares released for allocation

      (655,173         813,262            158,089   

ESOP shares released for allocation

      295,680          357,080              652,760   

Share-based compensation cost

      1,474,057                  1,474,057   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance, December 31, 2013

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

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income

              9,871,587          9,871,587   

Other comprehensive income

                1,109,761        1,109,761   

Purchase of Company’s common stock at cost, 26,222 shares

        (561,493             (561,493

Cash dividends declared, $0.07 per share

              (498,816       (498,816

Exercise of stock options

    503        580,585                  581,088   

RRP shares released for allocation

      (584,015         815,907            231,892   

ESOP shares released for allocation

      447,496          357,080              804,576   

Share-based compensation cost

      695,632                  695,632   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance, December 31, 2014

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

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income

              12,549,901          12,549,901   

Other comprehensive income

                (433,118     (433,118

Purchase of Company’s common stock at cost, 155,218 shares

        (3,465,959             (3,465,959

Reclassification of treasury stock per Louisiana law (1)

    (20,405     (20,393,258     32,038,850            (11,625,187       —     

Cash dividends declared, $0.30 per share

              (2,162,086       (2,162,086

Exercise of stock options

    2,716        3,279,481                  3,282,197   

RRP shares released for allocation

      (32,106         44,000            11,894   

ESOP shares released for allocation

      641,576          357,080              998,656   

Share-based compensation cost

      121,113                  121,113   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance, December 31, 2015

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

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

(1)  See Note 1 for details on the Louisiana Business Corporation Act.

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

 

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HOME BANCORP, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CASH FLOWS

 

     Years Ended December 31,  
     2015     2014     2013  

Cash flows from operating activities, net of effects of acquisitions:

      

Net income

   $ 12,549,901      $ 9,871,587      $ 7,293,922   

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

      

Provision for loan losses

     2,070,894        2,364,358        3,652,694   

Depreciation

     1,807,480        1,737,579        1,420,986   

Amortization of purchase accounting valuations and intangibles

     4,045,736        8,650,398        1,500,774   

Net amortization of mortgage servicing asset

     180,364        160,071        195,938   

Federal Home Loan Bank stock dividends

     (12,800     (18,800     (9,300

Net amortization of discount on investments

     1,530,144        1,327,352        1,085,587   

Gain on sale of investment securities, net

     (7,279     (1,826     (428,200

Gain on loans sold, net

     (1,527,721     (1,212,157     (1,553,598

Proceeds, including principal payments, from loans held for sale

     153,954,728        113,074,911        83,134,006   

Originations of loans held for sale

     (153,561,422     (112,793,674     (78,005,929

Non-cash compensation

     1,119,769        1,451,883        2,126,817   

Deferred income tax expense (benefit)

     630,864        516,456        (1,265,038

Decrease in accrued interest receivable and other assets

     8,905,751        7,688,608        2,187,267   

Increase in cash surrender value of bank-owned life insurance

     (503,790     (458,163     (464,170

Decrease (increase) in accrued interest payable and other liabilities

     4,982,769        (4,458,388     403,640   
  

 

 

   

 

 

   

 

 

 

Net cash provided by operating activities

     36,165,388        27,900,195        21,275,396   
  

 

 

   

 

 

   

 

 

 

Cash flows from investing activities, net of effects of acquisitions:

      

Purchases of securities available for sale

     (18,713,312     (22,810,016     (34,548,121

Purchases of securities held to maturity

     (2,927,988     (3,000,747     (8,383,189

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

     30,094,652        29,337,106        29,285,461   

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

     400,000        466,470        561,882   

Proceeds from sales on securities available for sale

     21,194,622        66,905,382        7,704,863   

Increase in loans, net

     (41,104,084     (57,637,109     (42,046,336

Reimbursement from FDIC for covered assets

     403,865        837,396        1,463,468   

Decrease in interest-bearing deposits in banks

     863,700        1,237,000        589,000   

Proceeds from sale of repossessed assets

     5,378,286        6,771,868        5,926,909   

Purchases of office properties and equipment

     (828,723     (3,304,837     (1,346,437

Proceeds from sale of office properties and equipment

     2,016,239        60,480        —     

Net cash disbursed in business combinations

     (56,404,340     (22,995,649     —     

Purchases of Federal Home Loan Bank stock

     (4,751,000     (3,024,600     (4,007,100

Proceeds from redemption of Federal Home Loan Bank stock

     2,444,900        5,360,300        1,926,300   
  

 

 

   

 

 

   

 

 

 

Net cash used in investing activities

     (61,933,183     (1,796,956     (42,873,300
  

 

 

   

 

 

   

 

 

 

Cash flows from financing activities, net of effects of acquisitions:

      

Increase (decrease) in deposits

     42,055,227        35,778,663        (30,043,203

Borrowings on Federal Home Loan Bank advances

     4,931,772,337        13,972,850,000        2,090,900,000   

Repayments of Federal Home Loan Bank advances

     (4,929,994,229     (14,031,499,000     (2,039,959,020

Decrease in securitites sold under repurchase agreements

     (20,000,000     (6,314,674     —     

Proceeds from exercise of stock options

     3,282,197        581,088        91,105   

Dividends paid to shareholders

     (2,162,086     (498,816     —     

Purchase of Company’s common stock

     (3,465,959     (561,493     (6,291,444
  

 

 

   

 

 

   

 

 

 

Net cash provided (used in) by financing activities

     21,487,487        (29,664,232     14,697,438   
  

 

 

   

 

 

   

 

 

 

Net change in cash and cash equivalents

     (4,280,308     (3,560,993     (6,900,466

Cash and cash equivalents at beginning of year

     29,077,907        32,638,900        39,539,366   
  

 

 

   

 

 

   

 

 

 

Cash and cash equivalents at end of year

   $ 24,797,599      $ 29,077,907      $ 32,638,900   
  

 

 

   

 

 

   

 

 

 

Supplementary cash flow information:

      

Interest paid on deposits and borrowed funds

   $ 3,844,807      $ 3,524,374      $ 3,377,227   

Income taxes paid

     3,702,500        5,140,000        3,025,000   

Noncash investing and financing activities:

      

Transfer of loans to repossessed assets

   $ 3,073,326      $ 8,062,009      $ 4,824,784   

Assets acquired and liabilities assumed in acquisitions:

      

Assets acquired in acquisitions

     351,138,388        298,929,990        —     

Liablities assumed in acquisitions

     291,313,436        264,457,929        —     

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

 

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HOME BANCORP, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. Description of Business

Home Bancorp, Inc., a Louisiana Corporation (“Company”), was organized by Home Bank (a federally chartered savings bank and the predecessor of Home Bank, N.A.) (“Bank”) in May 2008 to facilitate the conversion of the Bank from the mutual to the stock form (“Conversion”) of ownership. The Conversion was completed on October 2, 2008, at which time the Company became the holding company for the Bank, with the Company owning all of the issued and outstanding shares of the Bank’s common stock. Shares of the Company’s common stock were issued and sold in an offering to certain depositors of the Bank. The Company and Bank are headquartered in Lafayette, Louisiana. As of December 31, 2015, the Company was a bank holding company.

As of December 31, 2015, Home Bank N.A. was a nationally chartered bank. The Bank was originally chartered in 1908 as a Louisiana state chartered savings association. The Bank converted to a federal mutual savings bank charter in 1993. In 2010, the Bank expanded into the Northshore (of Lake Pontchartrain) through a Federal Deposit Insurance Corporation (“FDIC”) assisted acquisition of certain assets and liabilities of the former Statewide Bank (“Statewide”). In July 2011, the Bank expanded into the Greater New Orleans region through its acquisition of GS Financial Corporation (“GSFC”), the former holding company of Guaranty Savings Bank (“Guaranty”). In February 2014, the Bank expanded into west Mississippi through its acquisition of Britton & Koontz Capital Corporation (“Britton & Koontz”), the holding company for Britton & Koontz Bank, N.A. (“Britton & Koontz Bank”) of Natchez, Mississippi. In September 2015, the Bank expanded its existing presence in the Greater New Orleans region through the acquisition of Louisiana Bancorp, Inc. (“Louisiana Bancorp”), the former holding company of Bank of New Orleans (“BNO”) of Metairie, Louisiana. As of December 31, 2015, the Bank conducts business from 30 banking offices in the Greater Lafayette, Northshore, Baton Rouge and Greater New Orleans regions of south Louisiana and west Mississippi.

The Bank is primarily engaged in attracting deposits from the general public and using those funds to invest in loans and investment securities. The Bank’s principal sources of funds are customer deposits, repayments of loans, repayments of investments and funds borrowed from outside sources such as the Federal Home Loan Bank (“FHLB”) of Dallas. The Bank derives its income principally from interest earned on loans and investment securities and, to a lesser extent, from fees received in connection with the origination of loans, service charges on deposit accounts and for other services. The Bank’s primary expenses are interest expense on deposits and borrowings and general operating expenses.

The Bank is regulated by the Office of the Comptroller of the Currency (“OCC”) and its deposits are insured to the maximum amount permissible under federal law by the FDIC. In July 2010, the Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank Act”) was passed by Congress. The act, among other things, imposed new restrictions and an expanded framework of regulatory oversight for financial institutions and their holding companies, including the Bank and the Company. The law also created the Consumer Financial Protection Bureau (“CFPB”) that has the authority to promulgate rules intended to protect consumers in the financial products and services market. Because many of the regulations under the new law have not been promulgated, we cannot determine the full impact on our business and operations at this time.

2. Summary of Significant Accounting Policies

Principles of Consolidation

The consolidated financial statements include the accounts of the Company and the Bank. All significant intercompany balances and transactions have been eliminated in consolidation.

Use of Estimates

The preparation of financial statements in conformity with generally accepted accounting principles in the United States (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts of

 

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assets and liabilities and disclosure of contingent assets and liabilities as of the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Material estimates that are particularly susceptible to significant change in the near term include, but are not limited to, the determination of the allowance for loan losses, income taxes, valuation of investments with other-than-temporary impairment, acquisition accounting valuations and valuation of share-based compensation.

Cash and Cash Equivalents

For purposes of reporting cash flows, cash and cash equivalents include cash on hand, due from banks and interest-bearing deposits with the FHLB. The Company considers all highly liquid debt instruments with original maturities of three months or less (excluding interest-bearing deposits in banks) to be cash equivalents.

The Bank is required to maintain cash reserves with the Federal Reserve Bank. The requirement is dependent upon the Bank’s cash on hand or noninterest-bearing balances. There was no reserve requirement as of December 31, 2015. The reserve requirement as of December 31, 2014 was $6,742,000 and the Bank was in compliance at such date.

Investment Securities

The Company follows the guidance under the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 320, Investments – Debt and Equity Securities. This standard addresses the accounting and reporting for investments in equity securities that have readily determinable fair values and for all investments in debt securities. Under the topic, investment securities, which the Company both positively intends and has the ability to hold to maturity, are classified as held to maturity and carried at amortized cost.

Investment securities that are acquired with the intention of being resold in the near term are classified as trading securities under ASC 320 and are carried at fair value, with unrealized holding gains and losses recognized in current earnings. The Company did not hold any securities for trading purposes at, or during the years ended, December 31, 2015 or 2014.

Securities not meeting the criteria of either trading securities or held to maturity are classified as available for sale and are carried at fair value. Unrealized holding gains and losses for these securities are recognized, net of related income tax effects in the Consolidated Statements of Comprehensive Income.

Interest income earned on securities either held to maturity or available for sale is included in current earnings, including the amortization of premiums and the accretion of discounts using the interest method. Premiums and discounts are amortized or accreted over the life of the related security as an adjustment to the yield. The gain or loss realized on the sale of securities classified as available for sale or held to maturity, as determined using the specific identification method for determining the cost of the securities sold, is computed with reference to its amortized cost and is also included in current earnings.

The Company reviews investment securities for other-than-temporary impairment quarterly. Impairment is considered to be other-than-temporary if it is likely that all amounts contractually due will not be received for debt securities and when there is no positive evidence indicating that an investment’s carrying amount is recoverable in the near term for equity securities. When a decline in the fair value of available for sale and held to maturity securities below cost is deemed to be credit related, a charge for other-than-temporary impairment is included in earnings as “Other-than-temporary impairment of securities”. The decline in fair value attributed to non-credit related factors is recognized in other comprehensive income and a new cost basis for the security is established. The new cost basis is not changed for subsequent recoveries in fair value. Increases and decreases between fair value and cost on available for sale securities are reflected in the Consolidated Statements of Comprehensive Income. In evaluating whether impairment is temporary or other-than-temporary, the Company considers, among other things, the time period the security has been in an unrealized loss position; the financial condition of the issuer and its industry; recommendations of investment advisors; economic forecasts; market or industry trends; changes in tax laws, regulations, or other governmental policies significantly affecting the issuer; any downgrades from rating agencies; and any reduction or elimination of dividends. The Company’s intent and ability to hold a security for a period of time sufficient to allow for any anticipated recovery in fair value is also considered.

 

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Loans Held for Sale

The Company sells mortgage loans and loan participations for an amount equal to the principal amount of loans or participations with yields to investors based upon current market rates. Realized gains and losses related to loan sales are included in noninterest income.

The Company allocates the cost to acquire or originate a mortgage loan between the loan and the right to service the loan if it intends to sell or securitize the loan and retain servicing rights. In addition, the Company periodically assesses capitalized mortgage servicing rights for impairment based on the fair value of such rights. To the extent that temporary impairment exists, write-downs are recognized in current earnings as an adjustment to the corresponding valuation allowance. Permanent impairment is recognized through a write-down of the asset with a corresponding reduction in the valuation allowance. For purposes of performing its impairment evaluation, the portfolio is stratified on the basis of certain risk characteristics, including loan type and interest rates. Capitalized servicing rights are amortized over the period of, and in proportion to, estimated net servicing income, which considers appropriate prepayment assumptions.

For financial reporting purposes, the Company classifies a portion of its loans as “Mortgage loans held for sale.” Included in this category are loans which the Company has the current intent to sell and loans which are available to be sold in the event that the Company determines that loans should be sold to support the Company’s investment and liquidity objectives, as well as to support its overall asset and liability management strategies. Loans included in this category for which the Company has the current intention to sell are recorded at the lower of aggregate cost or fair value. As of December 31, 2015 and 2014, the Company had $5,651,000 and $4,517,000, respectively, in loans classified as “Mortgage loans held for sale.”

As of December 31, 2015 and 2014 the Company had $226,379,000 and $103,447,000, respectively, outstanding in loans sold to government agencies that it was servicing through a third party.

Loans

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

Originated Loans

Loans are carried net of discounts on loan originations are amortized using the level yield interest method over the remaining contractual life of the loan. Nonrefundable loan origination fees, net of direct loan origination costs, are deferred and recognized over the life of the loan as an adjustment of yield using the interest method.

Interest on loans receivable is accrued as earned using the interest method over the life of the loan. Interest on loans deemed uncollectible is excluded from income. The accrual of interest is discontinued and reversed against current income once loans become more than 90 days past due or earlier if conditions warrant. The past due status of loans is determined based on the contractual terms. When a loan is placed on nonaccrual status, previously accrued and uncollected interest is charged against interest income on loans. Interest payments are applied to reduce the principal balance on nonaccrual loans. Loans are returned to accrual status when all past due payments are received in full and future payments are probable.

Third party property valuations are obtained at the time of origination for real estate secured loans. When a determination is made that a loan has deteriorated to the point of being deemed a criticized or classified 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 reviewed by, the Company’s Appraisal and Review Department. The Company typically orders an “as is” valuation for collateral property if the loan is in a criticized loan classification.

Loans, or portions of loans, are charged off in the period that such loans, or portions thereof, are deemed uncollectible. The collectability of individual loans is determined through an estimate of the fair value of the underlying collateral and/or assessment of the financial condition and repayment capacity of the borrower.

 

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Acquired Loans

Acquired loans at December 31, 2015 and 2014 are those associated with our acquisition of Statewide, GSFC, Britton & Koontz and Louisiana Bancorp. These 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 development 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 fair value discount for the loan pool. Once the discount is fully depleted, losses are applied against the allowance established for that pool. Acquired performing loans are placed on nonaccrual status and considered and reported as nonperforming or past due using the same criteria applied to the originated portfolio.

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

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

Certain loans purchased in the Statewide acquisition are covered by loss sharing agreements between the FDIC and the Company. Historically, the Company has referred to loans subject to loss share agreements with the FDIC as “covered loans.” However, in March 2015, a significant portion of the loss share agreements had expired and any future losses on these formerly covered loans are no longer eligible for reimbursement from the FDIC. As of December 31, 2015, only residential mortgage loans acquired from Statewide remained subject to loss sharing agreements with the FDIC. The Company’s remaining loans subject to loss sharing agreements with the FDIC amounted to approximately $3.7 million, or less than 0.2% of the Company’s total loan portfolio, at such date. Given the limited amount of covered loans remaining, the Company is no longer reporting such loans as “covered loans,” and they are included in “acquired loans.”

Allowance for Loan Losses

The allowance for loan losses on loans in our portfolio is maintained at an amount which management believes covers the reasonably estimable and probable losses on such portfolio. The allowance for loan losses is comprised of specific and general reserves. The Company determines specific reserves based on the provisions of ASC 310, Receivables. The Company’s allowance for loan losses includes a measure of impairment related to those loans specifically identified for evaluation under the topic. This measurement is based on a comparison of the recorded investment in the loan with either the expected cash flows discounted using the loan’s original effective interest rate, observable market price for the loan or the fair value of the collateral underlying certain collateral-dependent loans. General reserves are based on management’s evaluation of many factors, including current economic trends, industry experience, historical loss experience (generally three years), industry loan concentrations, the borrowers’ abilities to repay and repayment performance, probability of foreclosure and

 

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estimated collateral values. As these factors change, adjustments to the loan loss reserve are charged to current operations. Loans that are determined to be uncollectible are charged-off against the allowance for loan losses once that determination is made.

While management uses available information to make loan loss allowance evaluations, adjustments to the allowance may be necessary based on changes in economic and other conditions or changes in accounting guidance. The OCC, as an integral part of its examination processes, periodically reviews the allowance for loan losses. The OCC may require the recognition of adjustments to the allowance for loan losses based on their judgment of information available to them as of the time of their examinations. To the extent the OCC’s estimates differ from management’s estimates, additional provisions to the allowance for loan losses may be required as of the time of their examination. As part of the risk management program, an independent review is performed on the loan portfolio, which supplements management’s assessment of the loan portfolio and the allowance for loan losses. The result of the independent review is reported directly to the Audit Committee of the Board of Directors.

Repossessed Assets

Repossessed assets are recorded at fair value less estimated selling costs at the date acquired or upon receiving new property valuations. Costs relating to the development and improvement of foreclosed property are capitalized, and costs relating to holding and maintaining the property are expensed. Write-downs from cost to fair value at the dates of foreclosure are charged against the allowance for loan losses. Valuations are performed periodically and a charge to operations is recorded if the carrying value of a property exceeds its fair value less selling costs. Generally, the Company appraises the property at the time of foreclosure and at least every 12 months following the foreclosure. The Company had $3,128,000 and $5,214,000 of repossessed assets as of December 31, 2015 and 2014, respectively. Repossessed Assets are recorded in accrued interest receivable and other assets on the Consolidated Statements of Financial Condition.

Federal Home Loan Bank Stock

As a member of the FHLB, the Bank is required to maintain a minimum investment in its stock that varies with the level of FHLB advances outstanding. The stock is bought from and sold to the FHLB based upon its $100 par value. The stock does not have a readily determinable fair value and as such is classified as restricted stock, carried at cost and evaluated for impairment in accordance with GAAP. The stock’s value is determined by the ultimate recoverability of the par value rather than by recognizing temporary declines. The determination of whether the par value will ultimately be recovered is influenced by criteria such as: (a) the significance of the decline in net assets of the FHLB as compared to the capital stock amount and the length of time this situation has persisted, (b) commitments by the FHLB to make payments required by law or regulation and the level of such payments in relation to the operating performance, (c) the impact of legislative and regulatory changes on the customer base of the FHLB and (d) the liquidity position of the FHLB.

Office Properties and Equipment

Office properties and equipment are stated at cost less accumulated depreciation. Depreciation is computed using the straight-line method with rates based on the estimated useful lives of the individual assets, which range from 3 to 40 years. Expenditures which substantially increase the useful lives of existing property and equipment are capitalized while routine expenditures for repairs and maintenance are expensed as incurred.

Cash Surrender Value of Bank-owned Life Insurance

Life insurance contracts represent single premium life insurance contracts on the lives of certain officers of the Bank. The Bank is the beneficiary of these policies. These contracts are reported at their cash surrender value and changes in the cash surrender value are included in noninterest income.

Intangible Assets

Intangible assets consist of goodwill, core deposit intangibles and mortgage servicing rights. These assets are recorded in accrued interest receivable and other assets on the Consolidated Statements of Financial Condition. Goodwill represents the excess purchase price over the fair value of net assets acquired in business acquisitions. Goodwill is not amortized but rather is evaluated for impairment at least annually. Core deposit intangibles represent the estimated value related to customer deposit relationships assumed in the Company’s acquisitions. Core deposit intangibles are being amortized over nine to 15 years. The mortgage servicing rights represent servicing assets related to mortgage loans sold and serviced at fair value. Mortgage servicing rights are being amortized over a maximum of 10 years using an accelerated method.

 

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Shareholders’ Equity

Effective January 1, 2015, companies incorporated under Louisiana law became subject to the Louisiana Business Corporation Act. Provisions of the Louisiana Business Corporation Act eliminate the concept of treasury stock and provide that shares reacquired by a company are to be treated as authorized but unissued shares. Accounting principles generally accepted in the United States of America state that accounting for treasury stock shall conform to state law. The Company’s Consolidated Financial Statements at and for the year ended December 31, 2015 reflect this change. As of December 31, 2015, the cost of shares repurchased by the Company has been allocated to common stock, additional paid-in capital and retained earnings.

Transfer of Financial Assets

Transfers of financial assets are accounted for as sales when control over the assets has been relinquished. Control over transferred assets is deemed to be surrendered when the assets have been isolated from the Company, the transferee obtains the right, free of conditions that constrain it from taking advantage of that right, to pledge or exchange the transferred assets and the Company does not maintain effective control over the transferred assets through an agreement to repurchase them before maturity.

Salary Continuation Agreements

The Company records the expense associated with its salary continuation agreements over the service periods of the persons covered under these agreements.

Income Taxes

The Company accounts for income taxes under the liability method. Deferred tax assets and liabilities are recorded for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Future tax benefits are recognized to the extent that realization of such benefits is more likely than not. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which the assets and liabilities are expected to be recovered or settled. The effect of a change in tax rates on deferred tax assets and liabilities is recognized in income taxes during the period that includes the enactment date.

In the event the future tax consequences of differences between the financial reporting bases and the tax bases of the Company’s assets and liabilities results in deferred tax assets, an evaluation of the probability of being able to realize the future benefits indicated by such asset is required. A valuation allowance is provided for the portion of the deferred tax asset when it is more likely than not that some or all of the deferred tax asset will not be realized. In assessing the realizability of the deferred tax assets, management considers the scheduled reversals of deferred tax liabilities, projected future taxable earnings and tax planning strategies.

The income tax benefit or expense is the total of the current year income tax due or refundable and the change in deferred tax assets and liabilities.

A tax position is recognized as a benefit only if it is more likely than not that the tax position would be sustained in a tax examination, with a tax examination presumed to occur. The amount recognized is the largest amount of tax benefit that is greater than 50 percent likely of being realized on examination. For tax positions not meeting the more likely than not test, no tax benefit is recorded.

The Company recognizes interest and penalties accrued related to unrecognized tax benefits, if applicable, in noninterest expense. During the years ended December 31, 2015, 2014, and 2013, the Company did not recognize any interest or penalties in its financial statements, nor has it recorded an accrued liability for interest or penalty payments.

Stock-based Compensation Plans

The Company issues stock options under the 2009 Stock Option Plan and the 2014 Equity Incentive Plan to directors, officers and other key employees. In accordance with the requirements of ASC 718, Compensation – Stock Compensation, the Company has adopted a fair value based method of accounting for employee stock compensation plans, whereby compensation cost is measured as of the grant date based on the fair value of the award and is recognized over the service period, which is usually the vesting period.

 

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The Company may issue restricted stock under the 2009 Recognition and Retention Plan and restricted stock or restricted stock units under the 2014 Equity Incentive Plan for directors, officers and other key employees. Awards under the plans may not be sold or otherwise transferred until certain restrictions have lapsed. The unearned compensation related to these awards is amortized to compensation expense over the service period, which is usually the vesting period. The total share-based compensation expense for these awards is determined based on the market price of the Company’s common stock as of the date of grant applied to the total number of shares granted and is amortized over the vesting period.

Earnings Per Share

Earnings per share represents income available to common shareholders divided by the weighted-average number of common shares outstanding during the period. Diluted earnings per share reflects additional common shares that would have been outstanding if dilutive potential common shares had been issued, as well as any adjustment to income that would result from the assumed issuance.

Comprehensive Income

GAAP generally requires that recognized revenues, expenses, gains and losses be included in net earnings. Although certain changes in assets and liabilities, such as unrealized gains and losses on available for sale securities, are reported as a separate component of the equity section of the balance sheets, such items, along with net earnings, are components of comprehensive income. The tax effect for unrealized gains and losses on investment securities was ($230,670), $598,203 and ($1,413,095) for the periods ending December 31, 2015, 2014 and 2013, respectively. The reclassification adjustment for gains included in net income had a tax effect of ($2,548), ($639) and ($149,870) for the periods ending December 31, 2015, 2014 and 2013. Comprehensive income is reflected in the Consolidated Statements of Comprehensive Income.

Reclassifications

Certain reclassifications have been made to prior period balances to conform to the current period presentation.

Recent Accounting Pronouncements

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

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

In September 2015, the FASB issued ASU 2015-16, “Simplifying the Accounting for Measurement-Period Adjustments”. The guidance eliminates the requirement that an acquirer in a business combination account for measurement-period adjustments retrospectively. The ASU is effective for annual and interim periods beginning after December 15, 2015. The adoption of this ASU is not expected to have a material effect on our Consolidated Financial Statements.

In January 2016, the FASB issued 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 financial certain 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

 

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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.

3. Acquisition Activity

Louisiana Bancorp. On September 15, 2015, the Company completed the acquisition of Louisiana Bancorp, Inc., the former holding company of Bank of New Orleans of Metairie, Louisiana. Shareholders of Louisiana Bancorp received $24.25 per share in cash, resulting in aggregate purchase price of $70,021,000.

The acquisition was accounted for under the acquisition method of accounting in accordance with ASC 805, Business Combinations. In accordance with ASC 805, the Company recorded goodwill totaling $10,195,000 from the acquisition as a result of consideration transferred over net assets acquired. Both the assets acquired and liabilities assumed were recorded at their respective acquisition date fair values. Identifiable intangible assets, including core deposit intangible assets, were recorded at fair value.

The fair value estimates of Louisiana Bancorp’s assets and liabilities recorded are preliminary and subject to refinement as additional information becomes available. Under current accounting principles, the Company’s estimates of fair values may be adjusted for a period of up to one year from the acquisition date.

The assets acquired and liabilities assumed, as well as the adjustments to record the assets and liabilities at fair value, are presented in the following table as of September 15, 2015.

 

(dollars in thousands)

   As Acquired      Fair Value
Adjustments
    As recorded by
Home Bancorp
 

Assets

       

Cash and cash equivalents

   $ 14,098       $ —        $ 14,098   

Investment securities

     35,794         626 (a)      36,420   

Loans

     281,909         (326 )(b)      281,583   

Repossessed assets

     64         1 (c)      65   

Office properties and equipment, net

     3,349         2,989 (d)      6,338   

Core deposit intangible

     —           1,586 (e)      1,586   

Other assets

     10,747         302 (f)      11,049   
  

 

 

    

 

 

   

 

 

 

Total assets acquired

   $ 345,961       $ 5,178      $ 351,139   
  

 

 

    

 

 

   

 

 

 

Liabilities

       

Interest-bearing deposits

   $ 180,318       $ 37 (g)    $ 180,355   

Noninterest-bearing deposits

     28,315         —          28,315   

FHLB advances

     75,754         203 (h)      75,957   

Other liabilities

     5,993         693 (i)      6,686   
  

 

 

    

 

 

   

 

 

 

Total liabilities assumed

   $ 290,380       $ 933      $ 291,313   
  

 

 

    

 

 

   

 

 

 

Excess of assets acquired over liabilities assumed

          59,826   

Cash consideration paid

          (70,021
       

 

 

 

Total goodwill recorded

        $ 10,195   
       

 

 

 

 

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(a) The adjustment represents the market value adjustments on Louisiana Bancorp’s investments based on their interest rate risk and credit risk.
(b) The adjustment to reflect the fair value of loans includes:

 

    Adjustment of $2.4 million to reflect the removal of Louisiana Bancorp’s allowance for loan losses in accordance with ASC 805.

 

    Adjustment of ($2.7 million) for all loans determined not to be within the scope of ASC 310-30. In determining the fair value of the loans which are not within the scope of ASC 310-30, the acquired loan portfolio was evaluated based on risk characteristics and other credit and market criteria to determine a credit quality adjustment to the fair value of the loans acquired. The acquired loan balance was reduced by the aggregate amount of the credit quality adjustment in determining the fair value of the loans.

 

(c) The adjustment represents the write up of the book value of Louisiana Bancorp’s repossessed assets to their estimated fair value, as adjusted for estimated costs to sell.
(d) The adjustment represents the adjustment of Louisiana Bancorp’s office properties and equipment to their estimated fair value at the acquisition date.
(e) The adjustment represents the value of the core deposit base assumed in the acquisition. The core deposit asset was recorded as an identifiable intangible asset and will be amortized on an accelerated basis over the estimated life of the deposit base of 15 years.
(f) The adjustment is to record the deferred tax asset on the transaction and the estimated fair value on other assets.
(g) The adjustment represents the fair value of certificates of deposit acquired based on current interest rates for similar instruments. The adjustment will be recognized using a level yield amortization method based on maturities of the deposit liabilities.
(h) The adjustment is to record the fair value of FHLB advances acquired at various terms and maturities based on market rates at the acquisition date. The adjustment will be recognized using a level yield amortization method based on maturities of the borrowings.
(i) The adjustment is to accrue all the liabilities owed by Louisiana Bancorp payable at the acquisition date.

None of the acquired loans were considered impaired as of the date of acquisition.

The following pro forma information for the years 2015 and 2014 reflects the Company’s estimated condensed consolidated results of operations as if the acquisition of Louisiana Bancorp occurred at January 1, 2014, unadjusted for potential cost savings.

 

(dollars in thousands except per share information)

   2015      2014  

Net interest income

   $ 62,430       $ 61,346   

Noninterest income

     10,115         10,226   

Noninterest expense

     47,563         49,722   

Net income

     14,960         12,633   

Earnings per share – basic

   $ 2.23       $ 1.93   

Earnings per share – diluted

     2.14         1.82   

The selected pro forma financial information presented above is for illustrative purposes only and is not necessarily indicative of the financial results of the combined companies had the acquisition actually been completed at the beginning of the periods presented, nor does it indicate future results for any other interim or full-year period.

Britton & Koontz Capital Corporation. On February 14, 2014, the Company acquired Britton & Koontz, the former holding company of Britton & Koontz Bank of Natchez, Mississippi. Assets acquired from Britton & Koontz totaled $298,930,000, which included loans of $162,581,000, investment securities of $97,985,000 and cash of $15,342,000. The Bank also recorded a core deposit intangible asset of $3,030,000 and goodwill of $43,000 relating to the acquisition of Britton & Koontz, and assumed liabilities of $264,458,000, which included $216,600,000 in deposits, $9,252,000 in FHLB advances and $27,291,000 in other borrowings.

Acquired loans which are impaired as of the date of acquisition are accounted for under ASC 310-30, Loans and Debt Securities Acquired with Deteriorated Credit Quality. The nonaccretable difference on loans acquired from Britton & Koontz totaled $17,946,000 as of February 14, 2014 and represented an estimate of the undiscounted loss exposure in the acquired loans with deteriorated credit quality as of the acquisition date.

 

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The following table summarizes the accretable yield on the loans acquired from Britton & Koontz with deteriorated credit quality as of February 14, 2014 and the changes therein through December 31, 2015.

 

(dollars in thousands)

   2015      2014  

Balance, beginning of period

   $ (1,824    $ —     

Acquisition accretable yield

     —           (2,260

Accretion

     590         436   

Net transfers from nonaccretable difference to accretable yield

     (448      —     
  

 

 

    

 

 

 

Balance, end of period

   $ (1,682    $ (1,824
  

 

 

    

 

 

 

As of December 31, 2015, the weighted average remaining contractual life of the loan portfolio acquired with deteriorated credit quality from Britton & Koontz was 1.0 year.

GS Financial Corp. On July 15, 2011, the Company acquired GSFC, the former holding company of Guaranty Savings Bank of Metairie, Louisiana. Assets acquired from GSFC totaled $256,677,000, which included loans of $182,440,000, investment securities of $46,481,000 and cash of $9,262,000. The Bank also recorded a core deposit intangible asset of $859,000 and goodwill of $296,000 relating to the acquisition of GSFC, and assumed liabilities of $230,614,000, which included $193,518,000 in deposits and $34,707,000 in FHLB advances.

The nonaccretable difference on loans acquired from GSFC totaled $5,490,000 as of July 15, 2011 and represented an estimate of the undiscounted loss exposure in the acquired loans with deteriorated credit quality as of the acquisition date.

The following table summarizes the accretable yield on the loans acquired from GSFC with deteriorated credit quality as of July 15, 2011 and the changes therein through December 31, 2015.

 

(dollars in thousands)

   2015      2014      2013  

Balance, beginning of period

   $ (1,270    $ (1,281    $ (839

Acquisition accretable yield

     —           —           —     

Accretion

     2         11         133   

Net transfers from nonaccretable difference to accretable yield

     1,218         —           (575
  

 

 

    

 

 

    

 

 

 

Balance, end of period

   $ (50    $ (1,270    $ (1,281
  

 

 

    

 

 

    

 

 

 

As of December 31, 2015, the weighted average remaining contractual life of the loan portfolio acquired with deteriorated credit quality from GSFC was 5.6 years.

Statewide Bank. On March 12, 2010, the Bank acquired certain assets and liabilities of the former Statewide Bank, a full-service community bank formerly headquartered in Covington, Louisiana, from the FDIC. As a result of the Statewide acquisition, the Bank’s branch office network was expanded to include six branches in the Northshore (of Lake Pontchartrain) region of Louisiana. Assets acquired in the Statewide transaction totaled $188,026,000, which included loans of $110,415,000, investment securities of $24,841,000 and cash of $11,569,000. In addition, the Bank recorded an FDIC Asset, representing the portion of estimated losses covered by loss sharing agreements between the Bank and the FDIC, of $34,422,000. The loss sharing agreements between the Bank and the FDIC afforded us significant protection against losses in the loan portfolio and repossessed assets acquired in the Statewide transaction. The Bank also recorded a core deposit intangible asset of $1,429,000 and goodwill of $560,000 relating to the Statewide acquisition, and assumed liabilities of $223,910,000, which included $206,925,000 in deposits and $16,824,000 in FHLB advances.

The following table summarizes the accretable yield on the loans acquired from Statewide as of December 31, 2011 and the changes therein through December 31, 2015.

 

(dollars in thousands)

   2015      2014      2013  

Balance, beginning of period

   $ (7,706    $ (2,134    $ (3,973

Acquisition accretable yield

     —           —           —     

Accretion

     3,238         8,121         5,417   

Net transfers from nonaccretable difference to accretable yield

     203         (13,693      (3,578
  

 

 

    

 

 

    

 

 

 

Balance, end of period

   $ (4,265    $ (7,706    $ (2,134
  

 

 

    

 

 

    

 

 

 

 

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As of December 31, 2015, the weighted average remaining contractual life of loan portfolio acquired with deteriorated credit quality from Statewide was 5.0 years.

4. Investment Securities

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

 

(dollars in thousands)

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

Available for sale:

              

U.S. agency mortgage-backed

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

Non-U.S. agency mortgage-backed

     6,055         51         —           41         6,065   

Municipal bonds

     22,453         490         10         —           22,933   

U.S. government agency

     12,166         145         25         —           12,286   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total available for sale

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

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Held to maturity:

              

Municipal bonds

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

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total held to maturity

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

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

(dollars in thousands)

   Amortized
Cost
     Gross
Unrealized
Gains
     Gross Unrealized
Losses
     Fair Value  
December 31, 2014                  Less Than
1 Year
     Over 1
Year
        

Available for sale:

              

U.S. agency mortgage-backed

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

Non-U.S. agency mortgage-backed

     7,757         61         28         26         7,764   

Municipal bonds

     24,388         561         2         51         24,896   

U.S. government agency

     20,639         190         —           186         20,643   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total available for sale

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

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Held to maturity:

              

Municipal bonds

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

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total held to maturity

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

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

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; (3) the Company’s intent to sell a security or whether it is more likely than not we will be required to sell the security before the recovery of its amortized cost, which may extend to maturity and our ability and intent to hold the security for a period of time that allows for the recovery in value in the case of equity securities.

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,

 

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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 December 31, 2015, 48 of the Company’s debt securities had unrealized losses totaling 1.4% of the individual securities’ amortized cost basis and 0.5% of the Company’s total amortized cost basis of the investment securities portfolio. 13 of the 48 securities had been in a continuous loss position for over 12 months at such date. The 13 securities had an aggregate amortized cost basis and unrealized loss of $16,115,000 and $488,000, respectively, at December 31, 2015. Management has the intent and ability to hold these debt securities until maturity or until anticipated recovery. No declines in these 48 securities were deemed to be other-than-temporary.

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

 

(dollars in thousands)

   One Year
or Less
     After One
Year through
Five Years
     After Five
Years
through Ten
Years
     After Ten
Years
     Total  

Fair Value

              

Securities available for sale:

              

U.S. agency mortgage-backed

   $ 1       $ 5,381       $ 31,930       $ 98,166       $ 135,478   

Non-U.S. agency mortgage-backed

     —           —           —           6,065         6,065   

Municipal bonds

     930         7,765         12,032         2,206         22,933   

U.S. government agency

     —           8,016         —           4,270         12,286   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total securities available for sale

   $ 931       $ 21,162       $ 43,962       $ 110,707       $ 176,762   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Securities held to maturity:

              

Municipal bonds

   $ 237       $ 1,105       $ 8,783       $ 3,996       $ 14,121   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total securities held to maturity

   $ 237       $ 1,105       $ 8,783       $ 3,996       $ 14,121   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

(dollars in thousands)

   One Year
or Less
     After One
Year through
Five Years
     After Five
Years through
Ten Years
     After
Ten Years
     Total  

Amortized Cost

              

Securities available for sale:

              

U.S. agency mortgage-backed

   $ 1       $ 5,296       $ 31,859       $ 97,592       $ 134,748   

Non-U.S. agency mortgage-backed

     —           —           —           6,055         6,055   

Municipal bonds

     928         7,615         11,809         2,101         22,453   

U.S. government agency

     —           7,988         —           4,178         12,166   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total securities available for sale

   $ 929       $ 20,899       $ 43,668       $ 109,926       $ 175,422   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Securities held to maturity:

              

Municipal bonds

   $ 235       $ 1,088       $ 8,599       $ 4,005       $ 13,927   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total securities held to maturity

   $ 235       $ 1,088       $ 8,599       $ 4,005       $ 13,927   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

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For the year ended December 31, 2015, the Company recorded gross gains of $8,000 and gross losses of $1,000 related to the sale of investment securities. For the year ended December 31, 2014, the Company recorded gross gains of $2,000 and no gross losses related to the sale of investment securities.

As of December 31, 2015 and 2014, the Company had accrued interest receivable for investment securities of $784,000 and $781,000, respectively.

As of December 31, 2015 and 2014, the Company had $94,661,000 and $76,491,000, respectively, of securities pledged to secure public deposits. As of December 31, 2014, the Company had $21,211,000 of securities pledged to securities sold under repurchase agreements.

5. Loans

The Company’s loans, net of unearned income, consisted of the following as of December 31 of the years indicated.

 

(dollars in thousands)

   2015      2014  

Real estate loans:

     

One- to four-family first mortgage

   $ 391,266       $ 233,249   

Home equity loans and lines

     94,060         56,000   

Commercial real estate

     405,379         352,863   

Construction and land

     116,775         89,154   

Multi-family residential

     43,863         27,375   
  

 

 

    

 

 

 

Total real estate loans

     1,051,343         758,641   
  

 

 

    

 

 

 

Other loans:

     

Commercial and industrial

     125,108         104,446   

Consumer

     47,915         45,881   
  

 

 

    

 

 

 

Total other loans

     173,023         150,327   
  

 

 

    

 

 

 

Total loans

   $ 1,224,366       $ 908,968   
  

 

 

    

 

 

 

A summary of activity in the Company’s allowance for loan losses for the years ended December 31, 2015, 2014 and 2013 is as follows.

 

     For the Year Ended December 31, 2015  

(dollars in thousands)

   Beginning
Balance
     Charge-offs     Recoveries      Provision     Ending
Balance
 

Originated loans:

            

Allowance for loan losses:

            

One- to four-family first mortgage

   $ 1,136       $ (62   $ 30       $ 268      $ 1,372   

Home equity loans and lines

     442         (15     20         89        536   

Commercial real estate

     2,922         —          1         229        3,152   

Construction and land

     968         —          —           392        1,360   

Multi-family residential

     192         —          —           (19     173   

Commercial and industrial

     1,161         (190     226         813        2,010   

Consumer

     521         (130     1         179        571   
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

Total allowance for loan losses

   $ 7,342       $ (397   $ 278       $ 1,951      $ 9,174   
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

Acquired loans:

            

Allowance for loan losses:

            

One- to four-family first mortgage

   $ 174       $ (42   $ —         $ (40   $ 92   

Home equity loans and lines

     111         (12     —           125        224   

Commercial real estate

     —           —          —           —          —     

Construction and land

     133         (111     —           35        57   

Multi-family residential

     —           —          —           —          —     

Commercial and industrial

     —           —          —           —          —     

Consumer

     —           —          —           —          —     
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

Total allowance for loan losses

   $ 418       $ (165   $ —         $ 120      $ 373   
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

Total loans:

            

Allowance for loan losses:

            

One- to four-family first mortgage

   $ 1,310       $ (104   $ 30       $ 228      $ 1,464   

Home equity loans and lines

     553         (27     20         214        760   

Commercial real estate

     2,922         —          1         229        3,152   

Construction and land

     1,101         (111     —           427        1,417   

Multi-family residential

     192         —          —           (19     173   

Commercial and industrial

     1,161         (190     226         813        2,010   

Consumer

     521         (130     1         179        571   
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

Total allowance for loan losses

   $ 7,760       $ (562   $ 278       $ 2,071      $ 9,547   
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

 

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Table of Contents
     For the Year Ended December 31, 2014  

(dollars in thousands)

   Beginning
Balance
     Charge-offs     Recoveries      Provision     Ending
Balance
 

Originated loans:

            

Allowance for loan losses:

            

One- to four-family first mortgage

   $ 904       $ (99   $ —         $ 331      $ 1,136   

Home equity loans and lines

     366         (2     5         73        442   

Commercial real estate

     2,528         —          —           394        2,922   

Construction and land

     977         (19     —           10        968   

Multi-family residential

     90         —          —           102        192   

Commercial and industrial

     1,332         (1,407     184         1,052        1,161   

Consumer

     473         (32     3         77        521   
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

Total allowance for loan losses

   $ 6,670       $ (1,559   $ 192       $ 2,039      $ 7,342   
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

Acquired loans:

            

Allowance for loan losses:

            

One- to four-family first mortgage

   $ 184       $ (114   $ —         $ 104      $ 174   

Home equity loans and lines

     58         —          —           53        111   

Commercial real estate

     —           (41     —           41        —     

Construction and land

     —           —          —           133        133   

Multi-family residential

     —           —          —           —          —     

Commercial and industrial

     6         —          —           (6     —     

Consumer

     —           —          —           —          —     
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

Total allowance for loan losses

   $ 248       $ (155   $ —         $ 325      $ 418   
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

Total loans:

            

Allowance for loan losses:

            

One- to four-family first mortgage

   $ 1,088       $ (213   $ —         $ 435      $ 1,310   

Home equity loans and lines

     424         (2     5         126        553   

Commercial real estate

     2,528         (41     —           435        2,922   

Construction and land

     977         (19     —           143        1,101   

Multi-family residential

     90         —          —           102        192   

Commercial and industrial

     1,338         (1,407     184         1,046        1,161   

Consumer

     473         (32     3         77        521   
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

Total allowance for loan losses

   $ 6,918       $ (1,714   $ 192       $ 2,364      $ 7,760   
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

 

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Table of Contents
     For the Year Ended December 31, 2013  

(dollars in thousands)

   Beginning
Balance
     Charge-offs     Recoveries      Provision      Ending
Balance
 

Originated loans:

             

Allowance for loan losses:

             

One- to four-family first mortgage

   $ 798       $ (76   $ —         $ 182       $ 904   

Home equity loans and lines

     322         —          10         34         366   

Commercial real estate

     2,040         —          —           488         2,528   

Construction and land

     785         (44     10         226         977   

Multi-family residential

     86         —          —           4         90   

Commercial and industrial

     683         (1,990     57         2,582         1,332   

Consumer

     400         (9     24         58         473   
  

 

 

    

 

 

   

 

 

    

 

 

    

 

 

 

Total allowance for loan losses

   $ 5,114       $ (2,119   $ 101       $ 3,574       $ 6,670   
  

 

 

    

 

 

   

 

 

    

 

 

    

 

 

 

Acquired loans:

             

Allowance for loan losses:

             

One- to four-family first mortgage

   $ 184       $ (36   $ —         $ 36       $ 184   

Home equity loans and lines

     21         —          —           37         58   

Commercial real estate

     —           —          —           —           —     

Construction and land

     —           —          —           —           —     

Multi-family residential

     —           —          —           —           —     

Commercial and industrial

     —           —          —           6         6   

Consumer

     —           —          —           —           —     
  

 

 

    

 

 

   

 

 

    

 

 

    

 

 

 

Total allowance for loan losses

   $ 205       $ (36   $ —         $ 79       $ 248   
  

 

 

    

 

 

   

 

 

    

 

 

    

 

 

 

Total loans:

             

Allowance for loan losses:

             

One- to four-family first mortgage

   $ 982       $ (112   $ —         $ 218       $ 1,088   

Home equity loans and lines

     343         —          10         71         424   

Commercial real estate

     2,040         —          —           488         2,528   

Construction and land

     785         (44     10         226         977   

Multi-family residential

     86         —          —           4         90   

Commercial and industrial

     683         (1,990     57         2,588         1,338   

Consumer

     400         (9     24         58         473   
  

 

 

    

 

 

   

 

 

    

 

 

    

 

 

 

Total allowance for loan losses

   $ 5,319       $ (2,155   $ 101       $ 3,653       $ 6,918   
  

 

 

    

 

 

   

 

 

    

 

 

    

 

 

 

The Company’s allowance for loan losses and recorded investment in loans as of the periods indicated is as follows.

 

     As of December 31, 2015  
     Originated Loans                

(dollars in thousands)

   Collectively
Evaluated for
Impairment
     Individually
Evaluated for
Impairment
     Acquired
Loans
     Total  

Allowance for loan losses:

           

One- to four-family first mortgage

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

Home equity loans and lines

     536         —           224         760   

Commercial real estate

     3,066         86         —           3,152   

Construction and land

     1,360         —           57         1,417   

Multi-family residential

     173         —           —           173   

Commercial and industrial

     1,977         33         —           2,010   

Consumer

     571         —           —           571   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total allowance for loan losses

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

 

 

    

 

 

    

 

 

    

 

 

 

 

     As of December 31, 2015  
     Originated Loans                

(dollars in thousands)

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

Loans:

           

One- to four-family first mortgage

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

Home equity loans and lines

     40,251         —           53,809         94,060   

Commercial real estate

     285,856         181         119,342         405,379   

Construction and land

     109,007         —           7,768         116,775   

Multi-family residential

     14,962         —           28,901         43,863   

Commercial and industrial

     115,360         707         9,041         125,108   

Consumer

     45,641         —           2,274         47,915   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total loans

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

 

 

    

 

 

    

 

 

    

 

 

 

 

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Table of Contents
     As of December 31, 2014  
     Originated Loans                

(dollars in thousands)

   Collectively
Evaluated for
Impairment
     Individually
Evaluated for
Impairment
     Acquired
Loans
     Total  

Allowance for loan losses:

           

One- to four-family first mortgage

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

Home equity loans and lines

     442         —           111         553   

Commercial real estate

     2,815         107         —           2,922   

Construction and land

     968         —           133         1,101   

Multi-family residential

     192         —           —           192   

Commercial and industrial

     1,128         33         —           1,161   

Consumer

     521         —           —           521   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total allowance for loan losses

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

 

 

    

 

 

    

 

 

    

 

 

 

 

     As of December 31, 2014  
     Originated Loans                

(dollars in thousands)

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

Loans:

           

One- to four-family first mortgage

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

Home equity loans and lines

     34,485         —           21,515         56,000   

Commercial real estate

     279,493         777         72,593         352,863   

Construction and land

     77,057         —           12,097         89,154   

Multi-family residential

     16,507         —           10,868         27,375   

Commercial and industrial

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

Consumer

     43,049         —           2,832         45,881   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total loans

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

 

 

    

 

 

    

 

 

    

 

 

 

 

(1) $20.0 million and $32.0 million in acquired loans were accounted for under ASC 310-30 at December 31, 2015 and 2014, respectively.

Although the Company has a diversified loan portfolio, a substantial portion of the loan portfolio is collateralized by improved and unimproved real estate and is dependent, in part, on values in the real estate market.

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

 

     December 31, 2015  

(dollars in thousands)

   Pass      Special
Mention
     Substandard      Doubtful      Total  

Originated loans:

              

One- to four-family first mortgage

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

Home equity loans and lines

     39,736         394         121         —           40,251   

Commercial real estate

     282,963         988         2,086         —           286,037   

Construction and land

     107,901         —           1,106         —           109,007   

Multi-family residential

     14,962         —           —           —           14,962   

Commercial and industrial

     113,108         585         2,374         —           116,067   

Consumer

     45,133         38         470         —           45,641   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total originated loans

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

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Acquired loans:

              

One- to four-family first mortgage

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

Home equity loans and lines

     53,352         20         437         —           53,809   

Commercial real estate

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

Construction and land

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

Multi-family residential

     27,931         12         958         —           28,901   

Commercial and industrial

     7,071         1,191         779         —           9,041   

Consumer

     2,160         51         63         —           2,274   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total acquired loans

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

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total loans:

              

One- to four-family first mortgage

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

Home equity loans and lines

     93,088         414         558         —           94,060   

Commercial real estate

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

Construction and land

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

Multi-family residential

     42,893         12         958         —           43,863   

Commercial and industrial

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

Consumer

     47,293         89         533         —           47,915   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total loans

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

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

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Table of Contents
     December 31, 2014  

(dollars in thousands)

   Pass      Special
Mention
     Substandard      Doubtful      Total  

Originated loans:

              

One- to four-family first mortgage

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

Home equity loans and lines

     33,731         255         499         —           34,485   

Commercial real estate

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

Construction and land

     75,888         103         1,066         —           77,057   

Multi-family residential

     15,642         865         —           —           16,507   

Commercial and industrial

     88,309         39         1,191         —           89,539   

Consumer

     42,718         2         329         —           43,049   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total originated loans

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

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Acquired loans:

              

One- to four-family first mortgage

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

Home equity loans and lines

     20,842         57         616         —           21,515   

Commercial real estate

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

Construction and land

     6,407         1         5,689         —           12,097   

Multi-family residential

     8,175         923         1,770         —           10,868   

Commercial and industrial

     13,699         —           1,208         —           14,907   

Consumer

     2,741         40         51         —           2,832   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total acquired loans

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

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total:

              

One- to four-family first mortgage

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

Home equity loans and lines

     54,573         312         1,115         —           56,000   

Commercial real estate

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

Construction and land

     82,295         104         6,755         —           89,154   

Multi-family residential

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

Commercial and industrial

     102,008         39         2,399         —           104,446   

Consumer

     45,459         42         380         —           45,881   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total loans

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

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

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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 ratios. The loan 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-regulatory agency methodology that incorporates, among other factors, the extent of delinquencies and loan-to-value ratios. These classifications were the most current available as of December 31, 2015 and were generally updated within the prior three months. Loans acquired with deteriorated credit quality are excluded from the schedule of credit quality indicators.

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

 

     December 31, 2015  

(dollars in thousands)

   30-59
Days
Past Due
     60-89
Days
Past Due
     Greater
Than 90
Days

Past Due
     Total
Past Due
     Current
Loans
     Total
Loans
 

Originated loans:

                 

Real estate loans:

                 

One- to four-family first mortgage

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

Home equity loans and lines

     87         —           121         208         40,043         40,251   

Commercial real estate

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

Construction and land

     117         —           87         204         108,803         109,007   

Multi-family residential

     —           —           —           —           14,962         14,962   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total real estate loans

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

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Other loans:

                 

Commercial and industrial

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

Consumer

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

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total other loans

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

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total originated loans

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

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Acquired loans:

                 

Real estate loans:

                 

One- to four-family first mortgage

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

Home equity loans and lines

     327         40         317         684         53,125         53,809   

Commercial real estate

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

Construction and land

     592         7         48         647         7,121         7,768   

Multi-family residential

     —           14         12         26         28,875         28,901   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total real estate loans

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

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Other loans:

                 

Commercial and industrial

     14         7         429         450         8,591         9,041   

Consumer

     64         4         48         116         2,158         2,274   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total other loans

     78         11         477         566         10,749         11,315   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total acquired loans

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

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total loans:

                 

Real estate loans:

                 

One- to four-family first mortgage

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

Home equity loans and lines

     414         40         438         892         93,168         94,060   

Commercial real estate

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

Construction and land

     709         7         135         851         115,924         116,775   

Multi-family residential

     —           14         12         26         43,837         43,863   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total real estate loans

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

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Other loans:

                 

Commercial and industrial

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

Consumer

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

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total other loans

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

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total loans

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

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

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Table of Contents
     December 31, 2014  

(dollars in thousands)

   30-59
Days

Past Due
     60-89
Days

Past Due
     Greater
Than 90
Days

Past Due
     Total
Past Due
     Current
Loans
     Total
Loans
 

Originated loans:

                 

Real estate loans:

                 

One- to four-family first mortgage

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

Home equity loans and lines

     434         —           65         499         33,986         34,485   

Commercial real estate

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

Construction and land

     309         —           —           309         76,748         77,057   

Multi-family residential

     —           —           —           —           16,507         16,507   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total real estate loans

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

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Other loans:

                 

Commercial and industrial

     271         49         451         771         88,768         89,539   

Consumer

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

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total other loans

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

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total originated loans

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

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Acquired loans:

                 

Real estate loans:

                 

One- to four-family first mortgage

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

Home equity loans and lines

     249         97         220         566         20,949         21,515   

Commercial real estate

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

Construction and land

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

Multi-family residential

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

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total real estate loans

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

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Other loans:

                 

Commercial and industrial

     177         392         336         905         14,002         14,907   

Consumer

     47         33         41         121         2,711         2,832   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total other loans

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

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total acquired loans

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

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total loans:

                 

Real estate loans:

                 

One- to four-family first mortgage

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

Home equity loans and lines

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

Commercial real estate

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

Construction and land

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

Multi-family residential

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

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total real estate loans

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

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Other loans:

                 

Commercial and industrial

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

Consumer

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

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total other loans

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

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total loans

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

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

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As of December 31, 2015 and 2014, the Company did not have any loans greater than 90 days past due which were accruing interest.

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. The Company evaluates loans for impairment on an individual basis when it believes that there is a potential for loss. 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. The following is a summary of information pertaining to the Company’s impaired loans, excluding acquired loans, as of the dates indicated.

 

     For the Year 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 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   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

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     For the Year Ended December 31, 2014  

(dollars in thousands)

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

With no related allowance recorded:

              

One- to four-family first mortgage

   $ 78       $ 78       $ —         $ 214       $ —     

Home equity loans and lines

     —           —           —           —           —     

Commercial real estate

     —           —           —           64         —     

Construction and land

     —           —           —           15         —     

Multi-family residential

     —           —           —           —           —     

Commercial and industrial

     398         398         —           494         4   

Consumer

     —           —           —           —           —     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 476       $ 476       $ —         $ 787       $ 4   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

With an allowance recorded:

              

One- to four-family first mortgage

   $ —         $ —         $ —         $ —         $ —     

Home equity loans and lines

     —           —           —           —           —     

Commercial real estate

     777         777         107         239         10   

Construction and land

     —           —           —           —           —     

Multi-family residential

     —           —           —           —           —     

Commercial and industrial

     730         730         33         923         40   

Consumer

     —           —           —           —           —     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

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

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total impaired loans:

              

One- to four-family first mortgage

   $ 78       $ 78       $ —         $ 214       $ —     

Home equity loans and lines

     —           —           —           —           —     

Commercial real estate

     777         777         107         303         10   

Construction and land

     —           —           —           15         —     

Multi-family residential

     —           —           —           —           —     

Commercial and industrial

     1,128         1,128         33         1,417         44   

Consumer

     —           —           —           —           —     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

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

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

The Company reviews its significant nonaccrual loans for specific impairment in accordance with its allowance for loan loss methodology. If it is determined that losses are probable when other credit quality indicators are considered, the loan is considered impaired and the Company specifically allocates a portion of the allowance for loan losses to these loans. A summary of information pertaining to the Company’s nonaccrual loans as of December 31, 2015 and 2014 is as follows.

 

     December 31, 2015      December 31, 2014  

(dollars in thousands)

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

Nonaccrual loans:

                 

One- to four-family first mortgage

   $ 928       $ 2,649       $ 3,577       $ 1,429       $ 5,072       $ 6,501   

Home equity loans and lines

     121         412         534         65         482         547   

Commercial real estate

     1,671         2,526         4,197         829         5,498         6,327   

Construction and land

     87         121         207         —           5,356         5,356   

Multi-family residential

     —           763         763         —           1,770         1,770   

Commercial and industrial

     2,374         610         2,984         1,191         1,168         2,359   

Consumer

     470         81         552         329         92         421   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 5,651       $ 7,162       $ 12,813       $ 3,843       $ 19,438       $ 23,281   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

(1) Nonaccrual acquired loans accounted for under ASC 310-30 totaled $4.6 million and $11.8 million as of December 31, 2015 and 2014, respectively.

 

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

As of December 31, 2015 and 2014, the Company had accrued interest receivable for loans of $3,940,000 and $3,179,000, respectively.

Troubled Debt Restructurings

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

 

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

 

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

 

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

 

    a reduction of accrued interest receivable on the debt.

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

 

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

 

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

 

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

 

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

 

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

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

 

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

 

     As of December 31, 2015  

(dollars in thousands)

   Current      Past Due
Greater Than
30 Days
     Nonaccrual
TDRs
     Total
TDRs
 

Originated loans:

           

Real estate loans:

           

One- to four-family first mortgage

   $ 281       $ —         $ 38       $ 319   

Home equity loans and lines

     383         —           3         386   

Commercial real estate

     107         —           1,069         1,176   

Construction and land

     —           —           87         87   

Multi-family residential

     —           —           —           —     
  

 

 

    

 

 

    

 

 

    

 

 

 

Total real estate loans

     771         —           1,197         1,968   
  

 

 

    

 

 

    

 

 

    

 

 

 

Other loans:

           

Commercial and industrial

     —           —           2,374         2,374   

Consumer

     27         —           142         169   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total other loans

     27         —           2,516         2,543   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total loans

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

 

 

    

 

 

    

 

 

    

 

 

 

Acquired loans:

           

Real estate loans:

           

One- to four-family first mortgage

   $ 419       $ 73       $ 15       $ 507   

Home equity loans and lines

     —           —           —           —     

Commercial real estate

     —           —           1,192         1,192   

Construction and land

     —           —           52         52   

Multi-family residential

     —           —           —           —     
  

 

 

    

 

 

    

 

 

    

 

 

 

Total real estate loans

     419         73         1,259         1,751   
  

 

 

    

 

 

    

 

 

    

 

 

 

Other loans:

           

Commercial and industrial

     —           —           —           —     

Consumer

     —           —           —           —     
  

 

 

    

 

 

    

 

 

    

 

 

 

Total other loans

     —           —           —           —     
  

 

 

    

 

 

    

 

 

    

 

 

 

Total loans

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

 

 

    

 

 

    

 

 

    

 

 

 

Total loans:

           

Real estate loans:

           

One- to four-family first mortgage

   $ 700       $ 73       $ 53       $ 826   

Home equity loans and lines

     383         —           3         386   

Commercial real estate

     107         —           2,261         2,368   

Construction and land

     —           —           139         139   

Multi-family residential

     —           —           —           —     
  

 

 

    

 

 

    

 

 

    

 

 

 

Total real estate loans

     1,190         73         2,456         3,719   
  

 

 

    

 

 

    

 

 

    

 

 

 

Other loans:

           

Commercial and industrial

     —           —           2,374         2,374   

Consumer

     27         —           142         169   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total other loans

     27         —           2,516         2,543   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total loans

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

 

 

    

 

 

    

 

 

    

 

 

 

 

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Table of Contents
     As of December 31, 2014  

(dollars in thousands)

   Current      Past Due
Greater Than
30 Days
     Nonaccrual
TDRs
     Total
TDRs
 

Originated loans:

           

Real estate loans:

           

One- to four-family first mortgage

   $ —         $ —         $ 291       $ 291   

Home equity loans and lines

     —           —           —           —     

Commercial real estate

     111         —           —           111   

Construction and land

     103         —           —           103   

Multi-family residential

     —           —           —           —     
  

 

 

    

 

 

    

 

 

    

 

 

 

Total real estate loans

     214         —           291         505   
  

 

 

    

 

 

    

 

 

    

 

 

 

Other loans:

           

Commercial and industrial

     —           —           730         730   

Consumer

     —           —           —           —     
  

 

 

    

 

 

    

 

 

    

 

 

 

Total other loans

     —           —           730         730   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total loans

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

 

 

    

 

 

    

 

 

    

 

 

 

Acquired loans:

           

Real estate loans:

           

One- to four-family first mortgage

   $ 432       $ 77       $ 49       $ 558   

Home equity loans and lines

     —           —           —           —     

Commercial real estate

     —           —           967         967   

Construction and land

     —           —           117         117   

Multi-family residential

     —           —           —           —     
  

 

 

    

 

 

    

 

 

    

 

 

 

Total real estate loans

     432         77         1,133         1,642   
  

 

 

    

 

 

    

 

 

    

 

 

 

Other loans:

           

Commercial and industrial

     —           —           —           —     

Consumer

     2         —           2         4   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total other loans

     2         —           2         4   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total loans

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

 

 

    

 

 

    

 

 

    

 

 

 

Total loans:

           

Real estate loans:

           

One- to four-family first mortgage

   $ 432       $ 77       $ 340       $ 849   

Home equity loans and lines

     —           —           —           —     

Commercial real estate

     111         —           967         1,078   

Construction and land

     103         —           117         220   

Multi-family residential

     —           —           —           —     
  

 

 

    

 

 

    

 

 

    

 

 

 

Total real estate loans

     646         77         1,424         2,147   
  

 

 

    

 

 

    

 

 

    

 

 

 

Other loans:

           

Commercial and industrial

     —           —           730         730   

Consumer

     2         —           2         4   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total other loans

     2         —           732         734   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total loans

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

 

 

    

 

 

    

 

 

    

 

 

 

A summary of information pertaining to modified terms of loans, as of the date indicated is as follows.

 

     As of December 31, 2015      As of December 31, 2014  

(dollars in thousands)

   Number of
Contracts
     Pre-modification
Outstanding
Recorded
Investment
     Post-modification
Outstanding
Recorded
Investment
     Number of
Contracts
     Pre-modification
Outstanding
Recorded
Investment
     Post-modification
Outstanding
Recorded
Investment
 

Troubled debt restructurings:

                 

One- to four-family first mortgage

     5       $ 987       $ 826         5       $ 1,007       $ 849   

Home equity loans and lines

     2         386         386         —           —           —     

Commercial real estate

     6         2,513         2,368         2         1,088         1,078   

Construction and land

     2         469         139         2         494         220   

Multi-family residential

     —           —           —           —           —           —     

Commercial and industrial

     15         2,715         2,374         1         761         730   

Other consumer

     4         185         169         2         29         4   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

     34       $ 7,255       $ 6,262         12       $ 3,379       $ 2,881   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

None of the performing troubled debt restructurings as of December 31, 2015 has defaulted subsequent to the restructuring through the date the financial statements were available to be issued. The Company restructured, as a TDR, 25 loans totaling $3,645,000 during 2015 and one loan totaling $730,000 during 2014.

 

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6. Loan Servicing

Mortgage loans sold to and serviced for others are not included in the accompanying statements of financial condition. The unpaid principal balances of these loans as of December 31 of the years indicated are summarized as follows:

 

(dollars in thousands)

   2015      2014  

Mortgage loans sold to Federal Home Loan Mortgage Corporation without recourse

   $ 7,710       $ 10,821   

Mortgage loans sold to Federal National Mortgage Association without recourse

     217,869         92,626   

Mortgage loans sold to Federal Home Loan Bank without recourse

     800         —     
  

 

 

    

 

 

 

Balance, end of period

   $ 226,379       $ 103,447   
  

 

 

    

 

 

 

The Company records servicing assets related to mortgage loans sold and serviced at fair value and will amortize these servicing assets over the period of estimated net servicing income associated with each loan. Management assesses servicing assets for potential impairment annually. Activity related to servicing assets for the years ended December 31, 2015, 2014 and 2013 is summarized as follows.

 

(dollars in thousands)

   2015      2014      2013  

Balance at the beginning of the year

   $ 356       $ 516       $ 611   

Recognition of servicing assets from the transfer of financial assets

     18         —           101   

Acquired from LABC, at fair value

     682         —           —     

Amortization

     (180      (160      (196
  

 

 

    

 

 

    

 

 

 

Balance, end of period

   $ 876       $ 356       $ 516   
  

 

 

    

 

 

    

 

 

 

Fair value, end of period

   $ 1,561       $ 629       $ 1,009   
  

 

 

    

 

 

    

 

 

 

Custodial and escrow account balances maintained in connection with the foregoing loan servicing arrangements were $1,336,000 and $1,044,000 as of December 31, 2015 and 2014, respectively.

7. Office Properties and Equipment

Office properties and equipment consisted of the following as of December 31 of the years indicated.

 

(dollars in thousands)

   2015      2014  

Land

   $ 14,049       $ 12,224   

Buildings and improvements

     31,084         29,252   

Furniture and equipment

     10,917         11,403   
  

 

 

    

 

 

 

Total office properties and equipment

     56,050         52,879   

Less accumulated depreciation

     15,234         14,914   
  

 

 

    

 

 

 

Total office properties and equipment, net

   $ 40,816       $ 37,965   
  

 

 

    

 

 

 

Depreciation expense for the years ended December 31, 2015, 2014 and 2013 was $1,807,000, $1,738,000 and $1,421,000, respectively.

 

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8. Goodwill and Intangibles

The carrying amount of the Company’s goodwill was $11,095,000 and $899,000 as of December 31, 2015 and 2014, respectively.

A summary of the Company’s core deposit intangible assets as of December 31 of the years indicated follows.

 

(dollars in thousands)

   2015      2014  

Gross carrying amount

   $ 3,367       $ 1,053   

Core deposit intangibles acquired during the year

     1,586         3,030   

Less amortization

     (744      (716
  

 

 

    

 

 

 

Total core deposit intangible asset

   $ 4,209       $ 3,367   
  

 

 

    

 

 

 

Amortization expense on the Company’s core deposit intangible assets for the years ended December 31, 2015, 2014 and 2013 was $744,000, $716,000 and $332,000, respectively.

The carrying amount of the Company’s mortgage servicing asset as of December 31, 2015, 2014 and 2013 was $876,000, $356,000 and $516,000, respectively.

9. Deposits

The Company’s deposits consisted of the following major classifications as of December 31 of the years indicated.

 

(dollars in thousands)

   2015      2014  

Demand deposit accounts

   $ 296,617       $ 267,660   

Savings

     109,393         81,145   

Money market accounts

     293,637         219,456   

NOW accounts

     267,707         204,536   

Certificates of deposit

     276,863         220,775   
  

 

 

    

 

 

 

Total deposits

   $ 1,244,217       $ 993,572   
  

 

 

    

 

 

 

As of December 31, 2015, the scheduled maturities of the Company’s certificates of deposit are as follows.

 

(dollars in thousands)

   Amount  

2015

   $ 164,500   

2016

     59,267   

2017

     21,111   

2018

     11,561   

2019

     9,050   

Thereafter

     11,374   
  

 

 

 

Total certificates of deposit

   $ 276,863   
  

 

 

 

As of December 31, 2015 and 2014, the aggregate amount of certificates of deposit with balances of $250,000 or more was $27,272,000 and $20,179,000, respectively.

10. Short-term FHLB Advances

As of December 31, 2015, the Company’s short-term FHLB advances totaled $39,939,000, compared to $31,000,000 as of December 31, 2014. For the years ended December 31, 2015 and 2014, the average volume of short-term FHLB advances carried by the Company was $19,466,000 and $81,173,000, respectively.

Collateral for short and long-term FHLB advances is secured through a blanket lien evidenced by the Bank’s pledge of first mortgage collateral, demand deposit accounts, capital stock and certain other assets pursuant to the “Advances, Collateral Pledge and Security Agreement.” Under this collateral pledge agreement, the Bank must meet all statutory and regulatory capital standards and must meet all FHLB credit underwriting standards. Management believes that the Bank was in compliance with all such requirements as of December 31, 2015 and 2014.

 

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As of December 31, 2015 and 2014, the Bank had $480,654,000 and $423,182,000, respectively, of additional FHLB advances available. As of December 31, 2015, the Company had $542,674,000 of loans pledged through the Bank’s blanket lien.

11. Long-term FHLB Advances

As of December 31, 2015 and 2014, the Company’s long-term FHLB advances totaled $85,213,000 and $16,500,000, respectively. The following table summarizes long-term advances as of December 31, 2015.

 

(dollars in thousands)

   Amount      Weighted
Average Rate
 

Fixed rate advances maturing in:

     

2016

   $ 5,358         1.09

2017

     22,854         2.19   

2018

     5,986         1.32   

2019

     12,551         1.68   

2020

     32,622         1.60   

Thereafter

     5,842         2.18   
  

 

 

    

 

 

 

Total long-term FHLB advances

   $ 85,213         1.76
  

 

 

    

 

 

 

12. Securities Sold Under Repurchase Agreement

At December 31, 2014, the Company’s securities sold under repurchase agreement were $20,371,000. The repurchase agreement was acquired in the acquisition of Britton & Koontz with an effective interest rate of 0.36%, which matured in July 2015. The repurchase agreement was secured by various investment securities of U.S. Government obligations and obligations of other U.S. Government agencies. These securities totaled $21,211,000 at December 31, 2014 and had coupon rates ranging from 1.25% to 3.75% with maturity dates ranging from 2016 to 2028.

13. Income Taxes

The Company files federal income tax returns on a calendar year basis. Income tax (benefit) expense for the years indicated is summarized as follows:

 

(dollars in thousands)

   2015      2014      2013  

Current

   $ 6,040       $ 4,690       $ 5,001   

Deferred

     631         516         (1,265
  

 

 

    

 

 

    

 

 

 

Total income tax expense

   $ 6,671       $ 5,206       $ 3,736   
  

 

 

    

 

 

    

 

 

 

 

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The components of the Company’s net deferred tax asset as of December 31 of the years indicated are as follows:

 

(dollars in thousands)

   2015      2014  

Deferred tax assets:

     

Provision for loan losses

   $ 3,341       $ 2,716   

Discount on purchased loans

     1,278         1,999   

Borrowings

     —           130   

Acquired tax credits

     1,069         1,931   

Salary continuation plan

     929         538   

Mortgage servicing rights

     150         —     

Deferred compensation

     120         119   

Stock-based compensation

     730         710   

Real estate owned

     143         458   

Other

     1,808         880   
  

 

 

    

 

 

 

Deferred tax assets

   $ 9,568       $ 9,481   
  

 

 

    

 

 

 

Deferred tax liabilities:

     

FHLB stock dividends

   $ (60    $ (7

Accumulated depreciation

     (2,963      (1,297

Intangible assets

     (898      (545

Unrealized gain on securities available for sale

     (469      (703

Mortgage servicing rights

     —           (125

Premium on investment securities acquired

     (760      (446

Other

     (1,721      (84
  

 

 

    

 

 

 

Deferred tax liabilities

     (6,871      (3,207
  

 

 

    

 

 

 

Net deferred tax asset

   $ 2,697       $ 6,274   
  

 

 

    

 

 

 

For the years ended December 31, 2015, 2014 and 2013, the Company’s provision for federal income taxes differed from the amount computed by applying the federal income tax statutory rate of 35% on income from operations as indicated in the following analysis:

 

(dollars in thousands)

   2015     2014     2013  

Federal tax based on statutory rate

   $ 6,706      $ 5,263      $ 3,857   

State tax based on statutory rate

     60        41        10   

(Decrease) increase resulting from:

      

Effect of tax-exempt income

     (242     (225     (294

Changes the cash surrender value of bank owned life insurance

     (176     (160     (162

Nondeductible merger-related expenses

     261        52        62   

Nondeductible share based compensation expense

     178        203        230   

Other

     (116     32        33   
  

 

 

   

 

 

   

 

 

 

Income tax expense

   $ 6,671      $ 5,206      $ 3,736   
  

 

 

   

 

 

   

 

 

 

Effective tax rate

     34.7     34.5     33.9
  

 

 

   

 

 

   

 

 

 

Retained earnings as of December 31, 2015 and 2014, included $5,837,000 for which no deferred federal income tax liability has been recognized. This amount represents an allocation of income to bad debt deductions for tax purposes only. Reductions of amounts so allocated for purposes other than bad debt losses would create income for tax purposes only, which would be subject to the then-current federal statutory income tax rate. The unrecorded deferred income tax liability on the above amount was $1,985,000 as of December 31, 2015 and 2014. Current accounting standards do not require the accrual of this deferred tax amount to be recorded unless it is probable that the reserve (for tax purposes) will be significantly depleted by loan losses deductible for tax purposes in the future. Based on current estimates of losses within the Company’s loan portfolio, accrual of the deferred tax liability associated with this reserve was not required as of December 31, 2015 and 2014.

 

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14. Commitments and Contingencies

Standby letters of credit represent commitments by the Bank to meet the obligations of certain customers if called upon. The Bank normally secures its outstanding standby letters of credit with deposits from the customer. Additionally, in the normal course of business, there were various other commitments and contingent liabilities which are not reflected in the financial statements. Loan commitments are single-purpose commitments to lend which will be funded and reduced according to specified repayment schedules. Most of these commitments have maturities of less than one year. 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 the undisbursed portion of construction loans as of December 31 of the years indicated.

 

     Contract Amount  

(dollars in thousands)

   2015      2014  

Standby letters of credit

   $ 3,764       $ 5,405   

Available portion of lines of credit

     127,393         107,242   

Undisbursed portion of loans in process

     73,699         54,200   

Commitments to originate loans

     89,653         96,506   

The Bank uses the same credit policies in making commitments as it does for on-balance-sheet instruments. The Bank evaluates each customer’s creditworthiness on a case-by-case basis. The amount of collateral obtained, if deemed necessary by the Bank upon extension of credit, is based on management’s credit evaluation of the customer. Collateral held varies but may include certificates of deposit, property, plant and equipment and income-producing properties. There are no commitments which present an unusual risk to the Bank, and no material losses are anticipated as a result of these transactions.

15. Regulatory Matters

The Bank is subject to regulatory capital requirements administered by the OCC. Failure to meet minimum capital requirements can initiate certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have a direct material effect on the Company’s financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Bank must meet specific capital guidelines that involve quantitative measures of its assets, liabilities and certain off-balance sheet items as calculated under regulatory accounting practices. The Company and the Bank’s capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings and other factors.

In July 2013, the Federal bank regulatory agencies issued a final rule that revised their risk-based capital requirements and the method for calculating components of capital and of computing risk-weighted assets to make them consistent with agreements that were reached by the Basel Committee on Banking Supervision and certain provisions of the Dodd-Frank Act. The final rule applies to all depository institutions and top-tier bank holding companies with total consolidated assets of $1.0 billion or more. The rule establishes a new common equity Tier 1 minimum capital requirement, increases the minimum capital ratios and assigns a higher risk weight to certain assets based on the risk associated with these assets. The final rule includes transition periods that generally implement the new regulations over a five year period. These changes began phasing in beginning in January 2015.

Dividends paid by the Bank are the primary source of funds available to the Company. Banking regulations limit the amount of dividends that may be paid without prior approval of the regulatory authorities.

Quantitative measures established by regulation to ensure capital adequacy require the Company and the Bank to maintain minimum amounts and ratios (set forth in the table below) of total and Tier 1 capital (as defined) to average assets and risk-weighted assets (as defined). Management believes, as of December 31, 2015 and 2014, that the Company and the Bank met all capital adequacy requirements to which it was subject.

As of December 31, 2015 and 2014, the most recent notification from the OCC categorized the Bank as “well capitalized” under the OCC regulatory classification framework. To be categorized as “well capitalized,” the Bank must maintain minimum total risk-based, Tier 1 risk-based, Tier 1 leverage and tangible capital ratios as set forth in the following table. There are no conditions or events since that notification that management believes have changed the Bank’s category.

 

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The Company’s and the Bank’s actual capital amounts and ratios are presented in the following table.

 

(dollars in thousands)

   Actual     Minimum
For Capital
Adequacy Purposes
    To Be Well Capitalized
Under Prompt
Corrective Action
Provisions
 

December 31, 2015

               

Company

               

Tier 1 risk-based capital:

     151,221         13.05     69,534         6.0     N/A         N/A   

Total risk-based capital:

     160,769         13.87     92,712         8.0     N/A         N/A   

Tier 1 leverage capital:

     151,221         9.82     61,569         4.0     N/A         N/A   

Bank

               

Common Equity Tier 1 (to risk-weighted assets):

   $ 134,348         11.61   $ 52,087         4.5   $ 75,237         6.5

Tier 1 risk-based capital:

     134,348         11.61     69,449         6.0     92,599         8.0

Total risk-based capital:

     143,895         12.43     92,599         8.0     115,749         10.0

Tier 1 leverage capital:

     134,348         8.74     61,512         4.0     76,890         5.0

December 31, 2014

               

Bank

               

Tier 1 risk-based capital:

   $ 145,325         16.94   $ 34,303         4.0   $ 51,454         6.0

Total risk-based capital:

     153,085         17.85     68,605         8.0     85,757         10.0

Tier 1 leverage capital:

     145,325         11.96     48,603         4.0     60,755         5.0

16. Benefit Plans

401(k) Match and Profit Sharing Plan

The Company’s 401(k) defined contribution plan allows its participants to contribute up to 75% of their pretax earnings on a tax-deferred basis up to the statutory limit, and the Company contributes a matching contribution on behalf of plan participants limited to 4% of the employees’ salaries. For the years ended December 31, 2015, 2014 and 2013, the Company made contributions of $596,000, $524,000 and $335,000, respectively, in connection with the plans, which is included in compensation and benefits expense in the accompanying statements of income.

Employee Stock Ownership Plan

In 2008, the Company established an employee stock ownership plan (“ESOP”) for the benefit of all eligible employees of the Company. The leveraged ESOP is accounted for in accordance with the requirements of ASC 718, Compensation – Stock Compensation.

Employees of the Bank who have been employed for a six-month period and who have attained age 21 are eligible to participate in the ESOP. It is anticipated that contributions will be made to the plan in amounts necessary to amortize the debt to the Company over a period of 20 years.

Under ASC 718, unearned ESOP shares are not considered outstanding and are shown as a reduction of shareholders’ equity as unearned compensation. Dividends on unallocated ESOP shares are considered to be compensation expense. The Company recognizes compensation cost equal to the fair value of the ESOP shares during the periods in which they are committed to be released. To the extent that the fair value of the Company’s ESOP shares differ from the cost of such shares, the differential is credited to shareholders’ equity. The Company receives a tax deduction equal to the cost of the shares released. As the loan is internally leveraged, the loan receivable from the ESOP to the Company is not reported as an asset nor is the debt of the ESOP shown as a Company liability.

 

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Compensation cost related to the ESOP was $795,000, $756,000 and $653,000 for the years ended December 31, 2015, 2014 and 2013, respectively. The fair value of the unearned ESOP shares, using the closing quoted market price per share as of year-end, was approximately $11,828,000 and $11,263,000 as of December 31, 2015 and 2014, respectively. A summary of the ESOP share allocation as of December 31, 2015 follows.

 

     2015      2014  

Shares allocated, beginning of year

     198,836         171,945   

Shares allocated during the year

     35,708         35,708   

Shares distributed during the year

     (15,129      (8,817
  

 

 

    

 

 

 

Allocated shares held by ESOP trust as of year end

     219,415         198,836   

Unallocated shares

     455,271         490,978   
  

 

 

    

 

 

 

Total ESOP shares

     674,686         689,814   
  

 

 

    

 

 

 

Salary Continuation Agreements

As a supplement to its 401(k) retirement plan, the Bank has entered into nonqualified salary continuation agreements with two executive officers of the Bank. Under his salary continuation agreement, the Chief Executive Officer (“CEO”) will be entitled to a stated annual benefit for a period of ten years upon retirement from the Bank after attaining age 62. Benefits under the agreement vest over ten years, with 50% of this benefit having vested in 2007. In the event of early retirement, the Bank shall pay the CEO his vested benefits in 120 equal monthly installments upon his attaining age 62. Upon death during active service, the Bank shall distribute to the executive’s beneficiary an amount equal to two times his fully vested normal retirement benefit, payable in monthly installments over five years.

In the event of a separation from service within 24 months following a change in control but prior to normal retirement age, the Bank shall distribute to the CEO his fully vested annual benefit in 12 equal monthly installments for ten years beginning the earlier of 24 months after separation from service or age 62. If separation from service occurs more than 24 months following a change in control, the annual benefit shall be distributed beginning at age 62.

The Bank’s nonqualified salary continuation agreement with its Chief Credit Officer provides that the executive will be entitled to a stated annual benefit for a period of ten years upon retirement from the Bank after attaining age 65, distributed monthly. In the event of early retirement, the Bank shall pay the executive his vested benefits in 120 equal monthly installments upon attaining age 65. Upon death during active service, the Bank shall distribute the fully vested normal retirement benefit to the executive’s beneficiary in 120 monthly installments. In the event of a separation from service within 24 months following a change in control but prior to normal retirement age, the Bank shall distribute to the executive the vested portion of the annual benefit in a lump sum on the first day of the month following the separation from service. Benefits are subject to a six-month delay to the extent required by applicable law.

Britton & Koontz had two salary continuation agreements funded in the amount of $465,000 at the time of acquisition in February 2014. The Bank will pay former executives of Britton & Koontz or their beneficiary over the next 15 years. Louisiana Bancorp also had two salary continuation agreements funded in the amount of $1,200,000 at the time of acquisition in September 2015. The Bank will pay former executives of Louisiana Bancorp or their beneficiary within the next year. The Company had an outstanding liability totaling $2,868,000 and $1,537,000 as of December 31, 2015 and 2014, respectively, in connection with the agreements.

17. Stock-based Payment Arrangements

The Company’s shareholders approved the 2009 Stock Option Plan (the “SOP”) and the 2009 Recognition and Retention Plan (the “RRP”) on May 12, 2009 to provide incentives and awards for directors, officers and other key employees of the Company and its subsidiary. A maximum of 892,687 shares of Company common stock were reserved for issuance upon the exercise of options granted under the 2009 SOP. A total of 357,075 shares of the Company’s outstanding common stock, or 4% of total shares outstanding at the time the RRP was implemented, were approved for restricted stock awards under the RRP. On May 6, 2014, the Company’s shareholders approved the 2014 Equity Incentive Plan (the “2014 Plan”). The 2014 Plan authorizes the granting

 

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of stock options, restricted stock units, and other awards to directors, officers and other key employees. The aggregate number of shares of our common stock reserved and available for issuance pursuant to awards granted under the 2014 Plan is 350,000. These plans are administered by a committee appointed by the Board of Directors, which selects persons eligible to receive awards and determines the number of shares and/or options subject to each award, the terms, conditions and other provisions of the awards. In accordance with ASC 718, the Company adopted a fair value based method of accounting for employee stock compensation plans, whereby compensation cost is measured as of the grant date based on the fair value of the award and is recognized over the service period, which is usually the vesting period.

Stock Option Plans

The Company issues stock options under the 2009 SOP and the 2014 Plan to directors, officers and other key employees. The option exercise price cannot be less than the fair value of the underlying common stock as of the date of the option grant and the maximum option term cannot exceed ten years. All stock options granted have been issued with vesting periods of five years with accelerated vesting provided under certain circumstances. As of December 31, 2015, options to acquire 561,583 shares were outstanding under the 2009 SOP and the 2014 Plan.

The fair value of each option granted is estimated on the grant date using the Black-Scholes option pricing model. This model requires management to make certain assumptions, including the expected life of the option, the risk-free rate of interest, the expected volatility and the expected dividend yield. The following assumptions were made in estimating 2015 fair values:

 

Expected dividends

     1.3

Expected volatility

     21.62

Risk-free interest rate

     1.9

Expected term (in years)

     6.5   

As of December 31, 2015, there was $288,000 of unrecognized compensation cost related to stock options which is expected to be recognized over a period of 3.4 years.

For the years ended December 31, 2015, 2014 and 2013, the Company recognized $70,000, $295,000 and $681,000, respectively, in compensation cost related to stock options, which is included in compensation and benefits expense in the accompanying consolidated statements of income.

The following table represents stock option activity for the year ended December 31, 2015.

 

Options

   Number of
Options
     Weighted-
Average
Exercise
Price
     Weighted-
Average
Grant Date
Fair Value
     Weighted-
Average
Remaining
Contractual
Term
(Years)
 

Outstanding as of January 1, 2015

     793,170       $ 11.92       $ 3.90      

Granted

     42,910         22.35         4.80      

Exercised

     (271,597      11.56         3.78      

Forfeited

     (3,200      14.35         4.88      
  

 

 

          

Outstanding as of December 31, 2015

     561,283       $ 12.87       $ 4.02         4.2   
  

 

 

          

Exercisable as of December 31, 2015

     492,473       $ 11.82       $ 3.87         3.6   
  

 

 

          

Restricted Stock Plans

The Company has issued restricted stock under the 2009 RRP to directors, officers and other key employees. During 2009, the Company purchased in the open market all shares required to fund the 2009 RRP at an average

 

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cost of $11.81 per share. As of December 31, 2015, the cost of such shares held by the 2009 RRP totaled $158,590, which is included in the Company’s unallocated common stock held by the RRP in the consolidated statements of financial condition. Under the 2014 Plan, the Company may issue restricted stock units, restricted stock awards, options and other awards.

Awards under the 2009 RRP and the 2014 Plan may not be sold or otherwise transferred until certain restrictions have lapsed. The unearned compensation related to these awards is amortized to compensation expense over the five-year vesting period. The total share-based compensation expense for these awards is determined based on the market price of the Company’s common stock as of the date of grant applied to the total number of shares granted and is amortized over the vesting period. As of December 31, 2015, unearned share-based compensation associated with these awards totaled $582,000.

For the years ended December 31, 2015, 2014 and 2013, the Company recognized $51,000, $401,000 and $793,000, respectively, in compensation cost related to restricted stock and restricted stock units, which is included in compensation and benefits expense in the accompanying consolidated statements of income.

The following table represents unvested restricted stock activity in for the year ended December 31, 2015.

 

     Number of
Shares
     Weighted-Average
Grant Date Fair Value
 

Balance, beginning of year

     10,898       $ 16.74   

Granted

     24,615         22.26   

Forfeited

     (400      14.35   

Released

     (3,700      16.10   
  

 

 

    

 

 

 

Balance, end of period

     31,413       $ 21.17   
  

 

 

    

 

 

 

18. Earnings Per Share

Earnings per common share was computed based on the following:

 

     Years Ended December 31,  

(in thousands, except per share data)

   2015      2014      2013  

Numerator:

        

Income applicable to common shares

   $ 12,550       $ 9,872       $ 7,294   
  

 

 

    

 

 

    

 

 

 

Denominator:

        

Weighted average common shares outstanding

     6,708         6,553         6,591   

Effect of dilutive securities:

        

Restricted stock

     4         25         55   

Stock options

     289         355         262   
  

 

 

    

 

 

    

 

 

 

Weighted average common shares outstanding - assuming dilution

     7,001         6,933         6,908   
  

 

 

    

 

 

    

 

 

 

Earnings per common share

   $ 1.87       $ 1.51       $ 1.11   
  

 

 

    

 

 

    

 

 

 

Earnings per common share - assuming dilution

   $ 1.79       $ 1.42       $ 1.06   
  

 

 

    

 

 

    

 

 

 

Options on 45,877, 26,500 and 52,633 shares of common stock were not included in computing diluted earnings per share for the years ended December 31, 2015, 2014 and 2013, respectively, because the effect of these shares were anti-dilutive.

 

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19. Related Party Transactions

Certain directors and officers of the Company are customers of the Company. Loan transactions with directors, officers and employees are made on the same terms as those prevailing at the time for comparable loans to other persons. Loans outstanding to directors, executive officers and their affiliates totaled $7,590,000 and $7,279,000 as of December 31, 2015 and 2014, respectively. A summary of related party loan activity during 2015 follows.

 

(dollars in thousands)

      

Balance, beginning of year

   $ 7,279   

New loans

     2,365   

Repayments, net

     (2,054
  

 

 

 

Balance, end of year

   $ 7,590   
  

 

 

 

None of the related party loans were identified as impaired or exceeded 5% of shareholders’ equity for the years ended 2015 or 2014.

Related party deposits totaled $28,904,000 and $8,312,000 as of December 31, 2015 and 2014, respectively.

20. Fair Value Disclosures

The Company values its financial assets and liabilities measured 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 of inputs 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 of input that is significant to the fair value measurement. Management reviews and updates the fair value hierarchy classifications of the Company’s assets and liabilities on a quarterly basis.

Recurring Basis

Investment Securities Available for Sale

Fair values of investment securities available for sale are primarily measured using information from a third-party pricing service. This pricing service provides pricing information by utilizing evaluated pricing models supported with market data information. Standard inputs include benchmark yields, reported trades, broker/dealer quotes, issuer spreads, benchmark securities, bids, offers and 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 were estimated primarily by the use of pricing models. Level 2 investment securities were primarily comprised of mortgage-backed securities issued by government agencies and U.S. government-sponsored enterprises. In certain cases, where there is limited or less transparent information provided by the Company’s third-party pricing service, fair value is estimated by the use of secondary pricing services or through the use of non-binding third-party broker quotes. Investment securities are classified within Level 3 when little or no market activity supports the fair value.

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

 

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The following tables present the balances of assets and liabilities measured on a recurring basis as of December 31, 2015 and 2014 aggregated by the level in the fair value hierarchy in which these measurements fall.

 

(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       $ —     
  

 

 

    

 

 

    

 

 

    

 

 

 

 

(dollars in thousands)

   December 31, 2014      Level 1      Level 2      Level 3  

Available for sale securities:

           

U.S. agency mortgage-backed

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

Non-U.S. agency mortgage-backed

     7,764         —           7,764         —     

Municipal bonds

     24,896         —           24,896         —     

U.S. government agency

     20,643         —           20,643         —     
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

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

 

 

    

 

 

    

 

 

    

 

 

 

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

Nonrecurring Basis

In accordance with the provisions of ASC 310, Receivables, the Company records loans considered impaired at their 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. 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 and liabilities that are measured at fair value on a nonrecurring basis into the most appropriate level within the fair value hierarchy based on the inputs used to determine the fair value at the measurement date in the table below.

 

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            Fair Value Measurements Using  

(dollars in thousands)

   December 31, 2015      Level 1      Level 2      Level 3  

Assets

           

Acquired loans with deteriorated credit quality

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

Impaired loans excluding acquired loans

     813         —           —           813   

Repossessed assets

     3,128         —           —           3,128   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

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

 

 

    

 

 

    

 

 

    

 

 

 

 

            Fair Value Measurements Using  

(dollars in thousands)

   December 31, 2014      Level 1      Level 2      Level 3  

Assets

           

Acquired loans with deteriorated credit quality

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

Impaired loans excluding acquired loans

     1,843         —           —           1,843   

Repossessed assets

     5,214         —           —           5,214   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 38,965       $ —         $ —         $ 38,965   
  

 

 

    

 

 

    

 

 

    

 

 

 

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 statement element. These estimates are subjective in nature and involve uncertainties and matters of significant judgment and therefore cannot be determined with precision. Changes in assumptions could significantly affect the estimates.

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

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

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

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

 

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The carrying value of mortgage loans held for sale are recorded at the lower of aggregate cost or market value, which is a reasonable estimate of fair value.

The fair value of loans are 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 demand deposits, savings and interest-bearing demand deposits 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 carrying amount of the FHLB advances is estimated using the rates currently offered for advances of similar maturities.

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

The fair value of off-balance sheet financial instruments as of December 31, 2015 and 2014 was immaterial.

 

            Fair Value Measurements at December 31, 2015  
     Carrying                              

(dollars in thousands)

   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         —     

Securities sold under repurchase agreements

     —           —           —           —           —     

 

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Table of Contents
            Fair Value Measurements at December 31, 2014  
     Carrying                              

(dollars in thousands)

   Amount      Total      Level 1      Level 2      Level 3  

Financial Assets

              

Cash and cash equivalents

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

Interest-bearing deposits in banks

     5,526         5,526         5,526         —           —     

Investment securities available for sale

     174,801         174,801         —           174,801         —     

Investment securities held to maturity

     11,705         11,889         —           11,889         —     

Mortgage loans held for sale

     4,517         4,517         —           4,517         —     

Loans, net

     901,208         908,346         —           —           908,346   

Cash surrender value of BOLI

     19,163         19,163         19,163         —           —     

Financial Liabilities

              

Deposits

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

Short-term FHLB advances

     31,000         31,000         31,000         —           —     

Long-term FHLB advances

     16,500         16,987         —           16,987         —     

Securities sold under repurchase agreements

     20,371         20,371         —           —           20,371   

21. Condensed Parent Company Only Financial Statements

Condensed financial statements of Home Bancorp, Inc. (parent company only) are shown below. The parent company has no significant operating activities.

Condensed Balance Sheets

December 31, 2015 and 2014

 

(dollars in thousands)

   2015      2014  

Assets

     

Cash in bank

   $ 19,512       $ 2,668   

Investment in subsidiary

     148,172         150,883   

Other assets

     1,333         708   
  

 

 

    

 

 

 

Total assets

   $ 169,017       $ 154,259   
  

 

 

    

 

 

 

Liabilities

   $ 3,971       $ 115   

Shareholders’ equity

     165,046         154,144   
  

 

 

    

 

 

 

Total liabilities and shareholders’ equity

   $ 169,017       $ 154,259   
  

 

 

    

 

 

 

 

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Condensed Statements of Operations

For the Years Ended December 31, 2015, 2014 and 2013

 

(dollars in thousands)

   2015      2014      2013  

Operating income

        

Interest income

   $ —         $ 1       $ 44   

Gain on sale of investment

     —           —           241   

Dividend from subsidiary

     72,500         40,000         —     
  

 

 

    

 

 

    

 

 

 

Total operating income

     72,500         40,001         285   
  

 

 

    

 

 

    

 

 

 

Operating expenses

        

Interest expenses

     —           5         —     

Other expenses

     142         147         155   
  

 

 

    

 

 

    

 

 

 

Total operating expenses

     142         152         155   
  

 

 

    

 

 

    

 

 

 

Income before income tax expense and equity in undistributed earnings of subsidiary

     72,358         39,849         130   

Income tax (benefit) expense

     (57      (61      52   
  

 

 

    

 

 

    

 

 

 

Income before equity in undistributed earnings of subsidiary

     72,415         39,910         78   

(Dividends received in excess of earnings of subsidiary) Undistributed earnings of subsidiary

     (59,865      (30,038      7,216   
  

 

 

    

 

 

    

 

 

 

Net income

   $ 12,550       $ 9,872       $ 7,294   
  

 

 

    

 

 

    

 

 

 

Condensed Statements of Cash Flows

For the Years Ended December 31, 2015, 2014 and 2013

 

(dollars in thousands)

   2015      2014      2013  

Cash Flows from Operating Activities

        

Net income

   $ 12,550       $ 9,872       $ 7,294   

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

        

Net amortization of premium/discount on investments

     —           —           (3

Gain on sale of investment securities

     —           —           (241

Non-cash compensation

     999         805         652   

Increase in accrued interest and other assets

     (624      (58      (21

Dividends received in excess of earnings from subsidiary (undistributed earnings in subsidiary)

     59,865         30,038         (7,216

Increase (decrease) in accrued expenses and other liabilities

     3,855         (226      (189
  

 

 

    

 

 

    

 

 

 

Net Cash Provided by Operating Activities

     76,645         40,431         276   
  

 

 

    

 

 

    

 

 

 

Cash Flows from Investing Activities

        

Proceeds from prepayment on available for sale securities

     —           —           312   

Proceeds from sale of available for sale securities

     —           —           3,837   

Net cash paid in acquisitions

     (57,455      (37,597      —     
  

 

 

    

 

 

    

 

 

 

Net Cash Provided by (Used in) Investing Activities

     (57,455      (37,597      4,149   
  

 

 

    

 

 

    

 

 

 

Cash Flows from Financing Activities

        

Proceeds from exercise of stock options

     3,282         581         91   

Payment of dividends on common stock

     (2,162      (499      —     

Purchase of Company’s common stock

     (3,466      (561      (6,291
  

 

 

    

 

 

    

 

 

 

Net Cash Used in Financing Activities

     (2,346      (479      (6,200
  

 

 

    

 

 

    

 

 

 

Net Increase (Decrease) in Cash and Cash Equivalents

     16,844         2,355         (1,775

Cash and Cash Equivalents as of Beginning of Period

     2,668         313         2,088   
  

 

 

    

 

 

    

 

 

 

Cash and Cash Equivalents as of End of Period

   $ 19,512       $ 2,668       $ 313   
  

 

 

    

 

 

    

 

 

 

 

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22. Consolidated Quarterly Results of Operations (unaudited)

 

(dollars in thousands, except per share data)

   First
Quarter
     Second
Quarter
     Third
Quarter
     Fourth
Quarter
 

Year Ended December 31, 2015

           

Total interest income

   $ 13,305       $ 13,588       $ 14,425       $ 17,092   

Total interest expense

     814         823         894         1,335   
  

 

 

    

 

 

    

 

 

    

 

 

 

Net interest income

     12,491         12,765         13,531         15,757   

Provision for loan losses

     538         294         569         670   
  

 

 

    

 

 

    

 

 

    

 

 

 

Net interest income after provision for loan losses

     11,953         12,471         12,962         15,087   

Noninterest income

     2,079         2,039         2,197         2,455   

Noninterest expense

     9,719         10,228         10,522         11,553   
  

 

 

    

 

 

    

 

 

    

 

 

 

Income before income taxes

     4,313         4,282         4,637         5,989   

Income tax expense

     1,465         1,441         1,739         2,026   
  

 

 

    

 

 

    

 

 

    

 

 

 

Net income

   $ 2,848       $ 2,841       $ 2,898       $ 3,963   
  

 

 

    

 

 

    

 

 

    

 

 

 

Earnings per share – basic

   $ 0.43       $ 0.42       $ 0.43       $ 0.59   
  

 

 

    

 

 

    

 

 

    

 

 

 

Earnings per share – diluted

   $ 0.41       $ 0.41       $ 0.41       $ 0.56   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

(dollars in thousands, except per share data)

   First
Quarter
     Second
Quarter
     Third
Quarter
     Fourth
Quarter
 

Year Ended December 31, 2014

           

Total interest income

   $ 12,566       $ 13,940       $ 14,068       $ 13,749   

Total interest expense

     755         838         856         835   
  

 

 

    

 

 

    

 

 

    

 

 

 

Net interest income

     11,811         13,102         13,212         12,914   

Provision for loan losses

     145         811         892         516   
  

 

 

    

 

 

    

 

 

    

 

 

 

Net interest income after provision for loan losses

     11,666         12,291         12,320         12,398   

Noninterest income

     1,656         2,252         2,161         2,106   

Noninterest expense

     11,257         10,370         9,968         10,177   
  

 

 

    

 

 

    

 

 

    

 

 

 

Income before income taxes

     2,065         4,173         4,513         4,327   

Income tax expense

     631         1,420         1,637         1,518   
  

 

 

    

 

 

    

 

 

    

 

 

 

Net income

   $ 1,434       $ 2,753       $ 2,876       $ 2,809   
  

 

 

    

 

 

    

 

 

    

 

 

 

Earnings per share – basic

   $ 0.22       $ 0.42       $ 0.44       $ 0.43   
  

 

 

    

 

 

    

 

 

    

 

 

 

Earnings per share – diluted

   $ 0.21       $ 0.40       $ 0.41       $ 0.40   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure.

Not applicable.

 

Item 9A. Controls and Procedures.

Evaluation of Disclosure 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 December 31, 2015. 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.

 

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Management’s Report on Internal Control over Financial Reporting

The management of Home Bancorp, Inc. is responsible for establishing and maintaining adequate internal control over financial reporting. The Company’s internal control over financial reporting is a process designed under the supervision of the Company’s Chief Executive Officer and the Chief Financial Officer to provide reasonable assurance regarding the reliability of financial reporting and the preparation of the Company’s financial statements for external purposes in accordance with the accounting principles generally accepted in the United States of America. Internal control over financial reporting is defined in Rules 13a-15(f) and 15d-15(f) promulgated under the Securities Exchange Act of 1934, as amended.

The Company’s internal control systems are designed to ensure that transactions are properly authorized and recorded in the financial records and to safeguard assets from material loss or misuse. Such assurance cannot be absolute because of inherent limitations in any internal control system.

Management assessed the effectiveness of the Company’s internal control over financial reporting as of December 31, 2015 based on the criteria for effective internal control established in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission in 2013. Based on the assessment, management determined that the Company maintained effective internal control over financial reporting as of December 31, 2015. Our independent registered public accountants have issued an audit report on the company’s internal control over financial reporting. This report appears on pages 39 and 40.

Changes in Internal Control over Financial Reporting

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 fourth fiscal quarter of 2015 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

 

Item 9B. Other Information.

Not applicable.

 

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Table of Contents

PART III

 

Item 10. Directors, Executive Officers and Corporate Governance.

The information required herein is incorporated by reference from the information contained in the sections captioned “Information with Respect to Nominees for Director, Continuing Directors and Executive Officers” and “Beneficial Ownership of Common Stock by Certain Beneficial Owners and Management – Section 16(a) Beneficial Ownership Reporting Compliance” in the Company’s definitive proxy statement to be filed with the SEC for the 2016 Annual Meeting of Shareholders to be held in May 2016 (the “Proxy Statement”).

The Company has adopted a Code of Conduct and Ethics that applies to its principal executive officer and principal financial officer, as well as other officers and employees of the Company and the Bank. A copy of the Code of Ethics is available on the Company’s website at www.home24bank.com.

 

Item 11. Executive Compensation.

The information required herein with respect to the security ownership of certain beneficial owners and management is incorporated by reference from the information contained in the sections captioned “Management Compensation” in the Proxy Statement.

 

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.

Equity Compensation Plan Information. The following table provides information as of December 31, 2015 with respect to shares of common stock that may be issued under our existing equity compensation plans, which consist of the 2009 Stock Option Plan, 2009 Recognition and Retention Plan and the 2014 Equity Incentive Plan, each of which was approved by our shareholders.

 

Plan Category

   Number of securities to be
issued upon exercise of
outstanding options,
warrants
and rights
(a)
    Weighted-average
exercise price of
outstanding
options,
warrants and
rights
(b)
    Number of securities
remaining available for
future issuance under equity
compensation plans
(excluding securities
reflected in column (a))
(c)
 

Equity compensation plans approved by security holders

     593,696 (1)    $ 12.85 (1)      308,997   

Equity compensation plans not approved by security holders

     —          —          —     
  

 

 

   

 

 

   

 

 

 

Total

     593,696      $ 12.85        308,997   
  

 

 

   

 

 

   

 

 

 

 

(1)  Includes 8,598 shares subject to restricted stock grants and 22,815 restricted share units which were not vested as of December 31, 2015. The weighted-average exercise price excludes such restricted stock grants.

 

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Table of Contents

The information required herein is incorporated by reference from the information contained in the section captioned “Beneficial Ownership of Common Stock by Certain Beneficial Owners and Management” in the Proxy Statement.

 

Item 13. Certain Relationships and Related Transactions and Director Independence.

The information required herein is incorporated by reference from the information contained in the sections captioned “Management Compensation – Related Party Transactions” and “Information with Respect to Nominees for Director, Continuing Directors and Executive Officers” in the Proxy Statement.

 

Item 14. Principal Accounting Fees and Services.

The information required herein is incorporated by reference from the information contained in the sections captioned “Ratification of Appointment of Independent Registered Public Accounting Firm” in the Proxy Statement.

PART IV

 

Item 15. Exhibits and Financial Statement Schedules.

(a) (1) The following financial statements are incorporated by reference from Item 8 hereof:

 

Report of Independent Registered Public Accounting Firm

 

Consolidated Statements of Financial Condition

 

Consolidated Statements of Income

 

Consolidated Statements of Comprehensive Income

 

Consolidated Statements of Changes in Shareholders’ Equity

 

Consolidated Statements of Cash Flows

 

Notes to Consolidated Financial Statements

 

(2) All schedules are omitted because they are not required or applicable, or the required information is shown in the consolidated financial statements or the notes thereto.

(3) Exhibits

The following exhibits are filed as part of this Form 10-K and this list includes the Exhibit Index.

 

No.

  

Description

   Location
    3.1    Articles of Incorporation of Home Bancorp, Inc.    (1)
    3.2    Amended and Restated Bylaws of Home Bancorp, Inc.    (2)
    4.0    Form of Stock Certificate of Home Bancorp, Inc.    (1)
  10.1    Salary Continuation Agreement by and between Home Bank and John W. Bordelon*    (1)
  10.2    Salary Continuation Agreement by and between Home Bank and Darren E. Guidry*    (1)
  10.3   

Amendment No. 1 to the Salary Continuation Agreement by and between Home Bank and

John W. Bordelon*

   (3)
  10.4   

Amendment No. 1 to the Salary Continuation Agreement by and between Home Bank and

Darren E. Guidry*

   (3)
  10.5    2005 Directors’ Deferral Plan*    (3)
  10.6    Amended and Restated Employment Agreement by and between Home Bank and John W. Bordelon*    (4)
  10.7    Amended and Restated Employment Agreement by and between Home Bancorp, Inc. and John W. Bordelon*    (4)

 

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No.

  

Description

   Location
  10.8    Amended and Restated Employment Agreement by and between Home Bank and Darren E. Guidry*    (4)
  10.9    Amended and Restated Employment Agreement by and between Home Bank and Joseph B. Zanco*    (4)
  10.10    Home Bancorp, Inc. 2009 Stock Option Plan*    (5)
  10.11    Home Bancorp, Inc. 2009 Recognition and Retention Plan and Trust Agreement*    (6)
  10.12    Employment Agreement by and between Home Bank and Scott A. Ridley*    (7)
  10.13    Home Bancorp, Inc. 2014 Equity Incentive Plan*    (8)
  10.14    Amendment to the Amended and Restated Employment Agreement between Home Bancorp, Inc. and John W. Bordelon*    (9)
  10.15    Amendment to the Amended and Restated Employment Agreement between Home Bank and John W. Bordelon*    (9)
  10.16    Amendment to the Amended and Restated Employment Agreement between Home Bank and Darren E. Guidry*    (9)
  10.17    Amendment to the Employment Agreement between Home Bank and Scott A. Ridley*    (9)
  10.18    Amendment to the Amended and Restated Employment Agreement between Home Bank and Joseph B. Zanco*    (9)
  10.19    Employment Agreement between Home Bank, N.A. and Jason P. Freyou    (10)
  10.20    Amendment to the Employment Agreement between Home Bank, N.A. and Jason P. Freyou*    (9)
  23.1    Consent of Porter Keadle Moore, LLC    Filed herewith
  31.1    Rule 13(a)-14(a) Certification of the Chief Executive Officer    Filed herewith
  31.2    Rule 13(a)-14(a) Certification of the Chief Financial Officer    Filed herewith
  32.0    Section 1350 Certification    Filed herewith
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   

 

* Denotes a management contract or compensatory plan or arrangement.
(1) Incorporated by reference from the like-numbered exhibit included in Home Bancorp’s registration statement on Form S-1, filed June 6, 2008 (SEC File No. 333-151492).
(2) Incorporated by reference from the exhibit included in the Company’s Current Report on Form 8-K, dated as of March 23, 2009 and filed March 27, 2009 (SEC File No. 001-34190).
(3) Incorporated by reference from the exhibit included in the Company’s Current Report on Form 8-K, dated as of December 22, 2008 and filed December 29, 2008 (SEC File No. 001-34190).
(4) Incorporated by reference from the exhibit included in the Company’s Current Report on Form 8-K, dated as of March 28, 2011 and filed March 30, 2011 (SEC File No. 001-34190).
(5) Incorporated by reference from Appendix A to Home Bancorp’s definitive proxy statement filed April 1, 2009 (SEC File No. 001-34190) and included in Form S-8, filed June 23, 2009 (SEC File No. 333-160155).
(6) Incorporated by reference from Appendix B to Home Bancorp’s definitive proxy statement filed April 1, 2009 (SEC File No. 001-34190).
(7) Incorporated by reference from the exhibit included in the Company’s Current Report on Form 8-K, dated as of January 27, 2014 and filed January 31, 2014 (SEC File No. 001-34190).
(8) Incorporated by reference from Appendix A to Home Bancorp’s definitive proxy statement filed April 3, 2014 (SEC File No. 001-34190).
(9) Incorporated by reference from the exhibit included Home Bancorp’s Current Report on Form 8-K, dated as of May 27, 2015 and filed on May 28, 2015 (SEC File No. 001-34190).
(10) Incorporated by reference from the exhibit included in the Company’s Current Report on Form 8-K, dated as of April 27, 2015 and filed April 30, 2015 (SEC File No. 001-34190).

(b) Exhibits

The exhibits listed under (a)(3) of this Item 15 are filed herewith.

(c) Reference is made to (a)(2) of this Item 15.

 

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Table of Contents

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) 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.
March 14, 2016     By:  

 /s/ John W. Bordelon

      John W. Bordelon
      President and Chief Executive Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the date indicated.

 

Name

  

Title

 

Date

/s/ John W. Bordelon

John W. Bordelon

   President, Chief Executive Officer and Director   March 14, 2016

/s/ Michael P. Maraist

Michael P. Maraist

   Chairman of the Board   March 14, 2016

/s/ Paul J. Blanchet, III

Paul J. Blanchet, III

   Director   March 14, 2016

/s/ Richard J. Bourgeois

Richard J. Bourgeois

   Director   March 14, 2016

/s/ John A. Hendry

John A. Hendry

   Director   March 14, 2016

/s/ Marc W. Judice

Marc W. Judice

   Director   March 14, 2016

/s/ Joseph B. Zanco

Joseph B. Zanco

   Executive Vice President and Chief Financial Officer   March 14, 2016

 

91