Good for business. Good for life.
March 22, 2019
To Our Valued Shareholders:
We celebrated two major milestones in 2018. First, Home Bank marked its 110th anniversary in
July. Through two World Wars, the Great Depression, multiple oil industry downturns and the
Great Recession, Home Bank has proven to be as resilient as the incredible businesses and
families we serve. Second, we celebrated Home Bancorp’s 10th anniversary as a public company
in October. The capital provided by our shareholders has allowed us to expand our geographic
reach and significantly enhance the financial tools we’re able to provide our customers. As a
result of the tremendous efforts of our employees, the loyalty of our customers and the
commitment of our shareholders, we posted our 5th consecutive year of record earnings in 2018.
As we look at 2019 and beyond, there are many opportunities and challenges ahead. Our
earnings and strong capital position give us the ability to continually invest in our employees and
the state-of-the-art technologies needed to grow our customer base. Given our solid track record
with bank mergers, we also remain well positioned to grow through strategic acquisitions.
The current interest rate environment provides quite the challenge for our industry. While rising
deposit rates are great for our customers, competition for deposits is likely to continue putting
pressure on our strong net interest margin. To combat this environment, we must be even more
effective in attracting new customer relationships. To that end, we are planning to open a new
branch in Baton Rouge in April, and will be relocating two existing branches to more prominent
locations during the year. The branch relocations will occur in our Baton Rouge and New Orleans
markets. While the focus of our customer investments will continue to be in technology, we
expect these branches to give us greater access to highly-coveted businesses and individuals in
these major Louisiana markets.
What we’ve come to discover over the years is that our competitive advantage lives in our people.
While we may not possess all of the financial resources of our much larger competitors, we
succeed because our highly-engaged team of bankers puts adding value to our customers’
financial lives first. At Home Bank, we steadfastly remain Good for Business, Good for Life.
We are grateful for your investment in our Company and your confidence in our future.
Sincerely,
John W. Bordelon
President and Chief Executive Officer
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
Annual report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the fiscal year ended: December 31, 2018
Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the transition period from ______ to ______
or
Commission File Number: 001-34190
HOME BANCORP, INC.
(Exact name of Registrant as specified in its charter)
Louisiana
(State or Other Jurisdiction of
Incorporation or Organization)
503 Kaliste Saloom Road, Lafayette, Louisiana
(Address of Principal Executive Offices)
71-1051785
(I.R.S. Employer
Identification Number)
70508
(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
Common Stock, $0.01 par value per share
Name of each exchange on which registered
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.
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
YES
NO
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 (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the
past 90 days.
YES
NO
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation
S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
YES
NO
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) 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, a smaller reporting company, or an emerging
growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2
of the Exchange Act.
Large accelerated filer
Non-accelerated filer
Accelerated filer
Smaller reporting company
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised
financial accounting standards provided pursuant to section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).
YES
NO
The aggregate market value of the 8,014,907 shares of the Registrant’s common stock held by non-affiliates, based upon the closing price of $46.55 for the common
stock on June 30, 2018, as reported by the Nasdaq Stock Market, was approximately $373.1 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, 2019: 9,495,745
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 2019 Annual Meeting of Shareholders are incorporated by reference into Part III, Items 10-14 of this Form 10-K.
HOME BANCORP, INC.
2018 ANNUAL REPORT ON FORM 10-K
TABLE OF CONTENTS
PART I
Item 1.
Business .................................................................................................................
Item 1A.
Risk Factors ...........................................................................................................
Item 1B.
Unresolved Staff Comments ..................................................................................
Item 2.
Item 3.
Item 4.
Item 5.
Item 6.
Item 7.
Properties ...............................................................................................................
Legal Proceedings ..................................................................................................
Mine Safety Disclosures ........................................................................................
PART II
Market for the Registrant’s Common Equity, Related Stockholder Matters and
Issuer Purchases of Equity Securities ..................................................................
Selected Financial Data .........................................................................................
Management’s Discussion and Analysis of Financial Condition and Results of
Operations ..........................................................................................................
Item 7A.
Quantitative and Qualitative Disclosures about Market Risk .................................
Item 8.
Item 9.
Financial Statements and Supplementary Data ......................................................
Changes in and Disagreements with Accountants on Accounting and Financial
Disclosure ...........................................................................................................
Item 9A.
Controls and Procedures ........................................................................................
Item 9B.
Other Information ..................................................................................................
PART III
Item 10.
Item 11.
Item 12.
Item 13.
Item 14.
Item 15.
Item 16.
Directors, Executive Officers and Corporate Governance ......................................
Executive Compensation .......................................................................................
Security Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters ............................................................................................
Certain Relationships and Related Transactions, and Director Independence ........
Principal Accounting Fees and Services ................................................................
PART IV
Exhibits and Financial Statement Schedules ..........................................................
Form 10-K Summary .............................................................................................
SIGNATURES ...............................................................................................................................
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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 or 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) changes in the
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 39 banking offices in the Acadiana, 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. In September 2018, the Bank established HB Investment Fund I, LLC, a wholly-owned
subsidiary of the Bank to invest in New Market Tax Credits (“NMTC”) in our market areas.
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,
1
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, the most significant of which is compensation and benefits.
Although we continue to be an active originator of residential home mortgage loans and other consumer loans in
our market areas, our efforts are focused on originating 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 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: Acadiana, Baton Rouge, Greater New Orleans,
and the Northshore (of Lake Pontchartrain) and two primary market areas in west Mississippi: Natchez and
Vicksburg. Since completing its initial public offering of stock in October 2008, the Company has acquired five
other financial institutions. In 2010, the Company expanded into the Northshore (of Lake Pontchartrain) through
a Federal Deposit Insurance Corporation (“FDIC”) assisted transaction of certain assets and liabilities 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 the acquisition of GS Financial Corporation
(“GSFC”) and its subsidiary, Guaranty Savings Bank (“Guaranty”). In February 2014, the Company expanded into
Natchez and Vicksburg, Mississippi through the 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 one banking office in Vicksburg. In September 2015, the Company increased
its presence in Greater New Orleans through the acquisition of Louisiana Bancorp, Inc. (“LABC”) and its
subsidiary, Bank of New Orleans. The Bank currently operates six banking offices in the Greater New Orleans
area. In December 2017, the Company increased its presence in the Acadiana region through its acquisition of St.
Martin Bancshares (“SMB”) and its subsidiary, St. Martin Bank & Trust Company (“St. Martin Bank”). The
Company now operates 20 banking offices in the Acadiana region. The Bank currently operates three banking
offices in Baton Rouge. 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
other banks, 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. 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. More
recently, innovations in loan and deposit products brought about by financial technology companies have added to
the level of competition for originating loans and attracting deposits.
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. In the
2
last several years, the Company has experienced heightened regulatory requirements and scrutiny following the
global financial crisis and the enactment in 2010 of the Dodd-Frank Wall Street Reform and Consumer Protection
Act (the “Dodd-Frank Act”). Resulting reforms have caused the Company’s compliance and risk management
processes, and the costs thereof, to increase. The legislation enacted in 2018 and summarized below may reduce
some of the burdens associated with implementation of the Dodd-Frank Act, but the actual impact of this
administration’s policies regarding the Dodd-Frank reforms and the 2018 regulatory reforms is impossible to
predict with any certainty.
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 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. In addition, the FDIC, as the insurer of the Bank’s deposits,
can initiate enforcement proceedings, remove Bank officials and suspend or terminate deposit insurance. Any
change in such regulations could have a material adverse impact on the Company and the Bank.
In May 2018, the Economic Growth, Regulatory Relief and Consumer Protection Act (the “Act”), was enacted to
modify or remove certain financial reform rules and regulations, including some of those implemented under the
Dodd-Frank Act. While the Act maintains most of the regulatory structure established by the Dodd-Frank Act, it
amends certain aspects of the regulatory framework for small depository institutions with assets of less than $10
billion and for large banks with assets of more than $50 billion. Many of these changes could result in meaningful
regulatory relief for community banks such as the Bank
The Act, among other matters, expands the definition of qualified mortgages which may be held by a financial
institution and simplifies the regulatory capital rules for financial institutions and their holding companies with
total consolidated assets of less than $10 billion by instructing the federal banking regulators to establish a single
“Community Bank Leverage Ratio” of between 8 and 10 percent to replace the leverage and risk-based regulatory
capital ratios. The Act also expands the category of holding companies that may rely on the “Small Bank Holding
Company and Savings and Loan Holding Company Policy Statement” by raising the maximum amount of assets a
qualifying holding company may have from $1 billion to $3 billion. This expansion also excludes such holding
companies from the minimum capital requirements of the Dodd-Frank Act. In addition, the Act includes regulatory
relief for community banks regarding regulatory examination cycles, call reports, the Volcker Rule (proprietary
trading prohibitions), mortgage disclosures and risk weights for certain high-risk commercial real estate loans.
It is difficult at this time to predict when or how any new standards under the Act will ultimately be applied to us
or what specific impact the Act and the final implementing rules and regulations will have on community banks.
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. 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.
3
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, N.A. -
Recent Regulatory Capital Regulations.”
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 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.
Volcker Rule Regulations. Regulations have been 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, 2018. However, a provision in the Act enacted in May 2018 exempts banks with
assets less than $10 billion from the Volcker Rule.
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, the Bank 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
4
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 the Bank 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 Dodd Frank Act raises the minimum reserve ratio of the Deposit Insurance Fund from 1.15% to 1.35% and
requires the FDIC to offset the effect of this increase on insured institutions with assets of less than $10 billion
(small institutions). In March 2016, the FDIC adopted a rule to accomplish this by imposing a surcharge on larger
institutions commencing when the reserve ratio reaches 1.15% and ending when it reaches 1.35%. The reserve
ratio reached 1.15% effective as of June 30, 2016. The surcharge period began effective July 1, 2016 and ended on
September 30, 2018 when the reserve ratio reached 1.36%. Small institutions will receive credits for the portion
of their regular assessments that contributed to growth in the reserve ratio between 1.15% and 1.35%. The credits
will apply to reduce regular assessments by 2.0 basis points for quarters when the reserve ratio is at least 1.38%.
Effective July 1, 2016, the FDIC adopted changes that eliminated its risk-based premium system. Under the new
premium system, the FDIC assesses deposit insurance premiums on the assessment base of a depository institution,
which is its average total assets reduced by the amount of its average tangible equity. For a small institution (one
with assets of less than $10 billion) that has been federally insured for at least five years, effective July 1, 2016, the
initial base assessment rate ranges from 3 to 30 basis points, based on the institution’s CAMELS composite and
component ratings and certain financial ratios; its leverage ratio; its ratio of net income before taxes to total assets;
its ratio of nonperforming loans and leases to gross assets; its ratio of other real estate owned to gross assets; its
brokered deposits ratio (excluding reciprocal deposits if the institution is well capitalized and has a CAMELS
composite rating of 1 or 2); its one year asset growth ratio (which penalizes growth adjusted for mergers in excess
of 10%); and its loan mix index (which penalizes higher risk loans based on historical industry charge off rates).
The initial base assessment rate is subject to downward adjustment (not below 1.5%) based on the ratio of unsecured
debt the institution has issued to its assessment base, and to upward adjustment (which can cause the rate to exceed
30 basis points) based on its holdings of unsecured debt issued by other insured institutions. Institutions with assets
of $10 billion or more are assessed using a scorecard method.
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 2018 was 0.000014% 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.
Basel III and Dodd-Frank Act 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 which
became fully phased in on a global basis on January 1, 2019. The 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
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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 which became fully phased in on 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 ranging from 0% to 1250% based on the risks inherent in the type of assets. The Bank does not have any assets
assigned to a risk category over 400%.
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, 2018, the 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 11.15%, 14.55%, 14.55%
and 15.59%, respectively.
As summarized above, in May 2018 the Act amended certain aspects of the Dodd-Frank Act to ease the regulatory
burden for small- to medium-sized U. S. banks. The new legislation, among other things, raised the systemically
important financial institution (“SIFI”) threshold which dictates capital requirements and imposed new rules aimed
at simplifying the calculation of regulatory capital ratios.
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.
6
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
Well capitalized
Adequately capitalized
Undercapitalized
Significantly undercapitalized
Total
Risk-Based
Capital
10% or more
8% or more
Less than 8%
Less than 6%
Tier 1
Risk-Based
Capital
8% or more
6% or more
Less than 6%
Less than 4%
Tier 1
Common
Equity
Capital
6.5% or more
4.5% or more
Less than 4.5% Less than 4%
Less than 3%
Less than 3%
Tier 1
Leverage
Capital
5% or more
4% or more
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 OCC 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, 2018, the 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 the Bank to pay
dividends. The 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 the 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.
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,
7
an executive officer, 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. The Bank
currently is subject to Sections 22(g) and (h) of the Federal Reserve Act, and as of December 31, 2018 was in
compliance with the above restrictions.
Consumer Financial Services. The historical structure of federal consumer protection regulation applicable to all
providers of consumer financial products and services changed significantly with the establishment of the
Consumer Financial Protection Bureau (“CFPB”) as part of the Dodd-Frank Act reforms. On July 21, 2011, the
CFPB commenced operations to supervise and enforce consumer protection laws. The CFPB has broad rulemaking
authority for a wide range of consumer protection laws that apply to all providers of consumer products and
services, including the Bank, as well as the authority to prohibit “unfair, deceptive or abusive” acts and practices.
CFPB has examination and enforcement authority over providers with more than $10 billion in assets. FDIC-
insured institutions with $10 billion or less in assets, like the Bank, continue to be examined by their applicable
bank regulators.
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. The Bank has established policies and procedures to ensure compliance with
these provisions.
Federal Home Loan Bank System. The 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,
2018, the Bank had $58.7 million of FHLB advances and $726 million available on its line of credit with the FHLB.
As a member, the Bank is required to purchase and maintain stock in the FHLB of Dallas in an amount equal to at
least 0.4% of its total assets in Class B-1 stock and activity-based investment of Class B-2 stock equal to 4.1% of
its advances outstanding and 2.0% of acquired members advances currently on the Bank’s balance sheet. As of
December 31, 2018, the Bank had $5.6 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, 2018, the 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.
8
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.
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
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 an aggregate of
98.9%, 81.5% and 65.6%, respectively, from December 31, 2014 through December 31, 2018. Generally, multi-
family residential lending, commercial real estate lending and commercial and industrial lending involve a higher
degree of risk than single-family residential lending due to a variety of factors. Due to the larger loan balances
typically involved in these loans, an adverse development with respect to one loan or one borrower 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, 2018, the largest outstanding balances of our commercial real estate
loans, multi-family residential loans, and commercial and industrial loans were $14.6 million, $9.0 million and $8.8
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 multi-family residential, commercial real estate and commercial and industrial loans, the Bank holds
a significant portfolio of construction and land loans. As of December 31, 2018, the Bank's construction and land
loans amounted to $193.6 million, or 11.7% 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.
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.
9
Fluctuations in interest rates due to economic conditions and governmental or regulatory policies may
adversely affect our net interest income and profitability.
Interest rates are highly sensitive to many factors beyond the Company’s control, including general economic
conditions and the policies of the FRB and other governmental and regulatory agencies. Changes in monetary policy,
including changes in interest rates, will influence the origination of loans, the prepayment of loans, the fair value of
existing assets and liabilities, the purchase of investments, the retention and generation of deposits and the rates
received on loans and investment securities and paid on deposits or other sources of funding. If the interest rates paid
on deposits and other borrowings increase at a faster rate than the interest rates received on loans and other
investments, our earnings could be adversely affected. Earnings could also be adversely affected if the interest rates
received on loans and other investments fall more quickly than the interest rates paid on deposits and other borrowings.
We have adopted asset and liability management policies to mitigate the potential adverse effects of changes in interest
rates on net interest income or earnings. However, even with these policies in place, a change in interest rates can
impact our results of operations or financial condition.
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 and floods.
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 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.
Economic conditions could result in increases in our level of non-performing loans and/or reduce demand for
our products and services, which could have an adverse effect on our results of operations.
Prolonged deteriorating economic conditions could significantly affect the markets in which we do business, the
value of our loans and investment securities and our ongoing operations, costs and profitability. Further, declines
in real estate values and sales volumes and elevated unemployment levels may result in higher loan delinquencies,
increases in our non-performing and classified assets and a decline in demand for our products and services. These
events may cause us to incur losses and may adversely affect our financial condition and results of operations.
Reduction in problem assets can be slow, and the process can be exacerbated by the condition of the properties
securing non-performing loans and the length of time involved in the foreclosure process. To the extent that we
must work through the resolution of assets, economic problems may cause us to incur losses and adversely affect
our capital, liquidity and financial condition.
Our financial performance and future growth may be negatively affected if we are unable to successfully
execute our growth plans, which may include acquisitions.
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 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.
10
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.
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 routinely scrutinize 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, 2018, our allowance for loan losses amounted to $16.3 million, or 0.99% of total loans. Excluding acquired
loans, our allowance for loan losses amounted to 1.36% of total loans as of December 31, 2018.
We are subject to certain risks in connection with our strategy of growing through mergers and acquisitions.
Mergers and acquisitions are currently a component of our business model and growth strategy. Accordingly, it is
possible that we could acquire other banking institutions, other financial services companies or branches of banks
in the future. Acquisitions typically involve the payment of a premium over book and trading values and, therefore,
may result in the dilution of our tangible book value per share. Our ability to engage in future mergers and
acquisitions depends on various factors, including: (1) our ability to identify suitable merger partners and
acquisition opportunities; (2) our ability to finance and complete transactions on acceptable terms and at acceptable
prices; and (3) our ability to receive the necessary regulatory and, when required, shareholder approvals. Our
inability to engage in an acquisition or merger for any of these reasons could have an adverse impact on the
implementation of our business strategies. Furthermore, mergers and acquisitions involve a number of risks and
challenges, including: (1) our ability to achieve planned synergies and to integrate the branches and operations we
acquire and the internal controls and regulatory functions into our current operations and (2) the diversion of
management’s attention from existing operations, which may adversely affect our ability to successfully conduct
our business and negatively impact our financial results.
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. The oil and
gas industry has a significant presence in the market areas in which we operate. Regional economic conditions
affect the demand for our products and services as well as the ability of our customers to repay loans. While crude
oil prices have rebounded somewhat in the past three years, they have declined considerably since mid-2014.
Continued fluctuations in crude oil prices could adversely affect our operations and economic conditions in some
of our markets during 2019 and future periods, which could adversely affect our future results of operations.
Although the Company attempts to mitigate risk by diversifying its borrower base, approximately $45.6 million, or
2.8%, of the Company’s loan portfolio at December 31, 2018 was comprised of loans to borrowers in the oil and gas
industry (which is also referred to as the “energy sector”). We had an additional $10.1 million in unfunded loan
commitments to companies in the energy sector at such date. At December 31, 2018, $1.5 million of our loans in the
energy sector were on nonaccrual status, and $623,000 of our total allowance for loan losses was attributable to energy
sector loans. Historically, the oil and gas industry has been an important factor in the local economy in our Acadiana
and Natchez markets. If oil prices continue to remain low, 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.
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.
11
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. We record an impairment charge against
individual securities if management’s review concludes that the decline in value is other than temporary.
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.
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 amount 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.
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.
We expect that the implementation of a new accounting standard could require us to increase our allowance
for loan losses and may have a material adverse effect on our financial condition and results of operations.
The Financial Accounting Standards Board (“FASB”) has adopted a new accounting standard that will be effective
for the Company and the Bank for our first fiscal year after December 15, 2019. This standard, referred to as Current
Expected Credit Loss (“CECL”), will require financial institutions to determine periodic estimates of lifetime
expected credit losses on loans, and provide for the expected credit losses as allowances for loan losses. This will
change the current method of providing allowances for loan losses that are probable, which we expect to require us
to increase our allowance for loan losses, and will likely greatly increase the data we need to collect and review to
determine the appropriate level of the allowance for loan losses. Any increase in our allowance for loan losses, or
expenses incurred to determine the appropriate level of the allowance for loan losses, may have a material adverse
effect on our financial condition and results of operations.
12
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. 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, governmental agencies that make available low cost or guaranteed
loans to certain borrowers and non-traditional financial technology firms that are offering an increasing array of
online loan, deposit and treasury management products. Some of our larger competitors have substantially greater
resources, technological capabilities, lending limits, 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.
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.
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
13
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 or all of these problems could have a material adverse effect on our results of operations and financial
condition. Although we have security measures, including firewalls and penetration tests, designed to mitigate the
possibility of break-ins, breaches and other disruptive problems, there can be no assurance that such security
measures will be effective in preventing such problems.
We are dependent on our information technology and telecommunications systems and third-party service
providers; systems failures, interruptions and cybersecurity breaches could have a material adverse effect
on us.
Our business is dependent on the successful and uninterrupted functioning of our information technology and
telecommunications systems and third-party service providers. The failure of these systems, or the termination of
a third-party software license or service agreement on which any of these systems is based, could interrupt our
operations. Because our information technology and telecommunications systems interface with and depend on
third-party systems, we could experience service denials if demand for such services exceeds capacity or such third-
party systems fail or experience interruptions. If significant, sustained or repeated, a system failure or service denial
could compromise our ability to operate effectively, damage our reputation, result in a loss of customer business
and/or subject us to additional regulatory scrutiny and possible financial liability, any of which could have a material
adverse effect on us.
Our third-party service providers may be vulnerable to unauthorized access, computer viruses, phishing schemes
and other security breaches. We likely will expend additional resources to protect against the threat of such security
breaches and computer viruses, or to alleviate problems caused by such security breaches or viruses. To the extent
that the activities of our third-party service providers or the activities of our customers involve the storage and
transmission of confidential information, security breaches and viruses could expose us to claims, regulatory
scrutiny, litigation costs and other possible liabilities.
The occurrence of fraudulent activity, breaches or failures of our information security controls or
cybersecurity-related incidents could have a material adverse effect on our business, financial condition, results
of operations and growth prospects.
As a bank, we are susceptible to fraudulent activity, information security breaches and cybersecurity-related incidents
that may be committed against us or our customers, which may result in financial losses or increased costs to us or
our customers, disclosure or misuse of our information or our customer information, misappropriation of assets,
privacy breaches against our customers, litigation or damage to our reputation. Such fraudulent activity may take many
forms, including check fraud, electronic fraud, wire fraud, phishing, social engineering and other dishonest acts.
Information security breaches and cybersecurity-related incidents may include fraudulent or unauthorized access to
systems used by us or our customers, denial or degradation of service attacks and malware or other cyber-attacks. In
recent periods, there continues to be a rise in electronic fraudulent activity, security breaches and cyber-attacks within
the financial services industry, especially in the commercial banking sector due to cyber criminals targeting
commercial bank accounts. Moreover, in recent periods, several large corporations, including financial institutions
and retail companies, have suffered major data breaches, in some cases exposing not only confidential and proprietary
corporate information, but also sensitive financial and other personal information of their customers and employees
and subjecting them to potential fraudulent activity. Some of our customers may have been affected by these breaches,
which could increase their risks of identity theft and other fraudulent activity that could involve their accounts with
us.
Information pertaining to us and our customers is maintained, and transactions are executed, on networks and systems
maintained by us and certain third-party partners, such as our online banking, mobile banking or accounting systems.
The secure maintenance and transmission of confidential information, as well as execution of transactions over these
systems, are essential to protect us and our customers against fraud and security breaches and to maintain the
confidence of our customers. Breaches of information security also may occur through intentional or unintentional
acts by those having access to our systems or the confidential information of our customers, including employees. In
addition, increases in criminal activity levels and sophistication, advances in computer capabilities, new discoveries,
vulnerabilities in third-party technologies (including browsers and operating systems) or other developments could
result in a compromise or breach of the technology, processes and controls that we use to prevent fraudulent
14
transactions and protect data about us, our customers and underlying transactions, as well as the technology used by
our customers to access our systems. Our third-party partners’ inability to anticipate, or failure to adequately mitigate,
breaches of security could result in a number of negative events, including losses to us or our customers, loss of
business or customers, damage to our reputation, the incurrence of additional expenses, disruption to our business,
additional regulatory scrutiny, penalties or exposure to civil litigation and possible financial liability, any of which
could have a material adverse effect on our business, financial condition, results of operations and growth prospects.
We may be adversely affected by recent changes in U.S. tax laws and regulations.
Changes in tax laws contained in the Tax Cuts and Jobs Act, which was enacted in December 2017, include a
number of provisions that have an impact on the banking industry, borrowers and the market for residential real
estate. Included in this legislation was a reduction of the corporate income tax rate from 35% to 21%. In addition,
other changes included: (i) a lower limit on the deductibility of mortgage interest on single-family residential
mortgage loans, (ii) the elimination of interest deductions for home equity loans, (iii) a limitation on the
deductibility of business interest expense and (iv) a limitation on the deductibility of property taxes and state and
local income taxes.
The recent changes in the tax laws may have an adverse effect on the market for, and valuation of, residential
properties, and on the demand for such loans in the future, and could make it harder for borrowers to make their
loan payments. If home ownership becomes less attractive, demand for mortgage loans could decrease. The value
of the properties securing loans in our loan portfolio may be adversely impacted as a result of the changing
economics of home ownership, which could require an increase in our provision for loan losses, which would
reduce our profitability and could materially adversely affect our business, financial condition and results of
operations.
Item 1B. Unresolved Staff Comments.
Not applicable.
Item 2. Properties.
We currently conduct business from 20 banking offices in Acadiana, three banking offices in Baton Rouge, six
banking offices in Greater New Orleans, six banking offices in the Northshore (of Lake Pontchartrain) region of
Louisiana, three banking offices in Natchez, Mississippi, and one banking office in Vicksburg, Mississippi. The
Bank owns 37 of its 39 banking offices. The Bank leases the land for one banking office in our Northshore market,
and leases one banking office in Acadiana and Greater New Orleans, respectively.
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.
Item 4. Mine Safety Disclosures.
Not applicable.
15
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, 2018, there were 9,459,050 shares of common stock outstanding,
held by approximately 716 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 graph shows a 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 period beginning December
31, 2013 and ending December 2018. The graph below represents $100 invested in our common stock at its closing
price on December 31, 2013.
Total Return Performance
Home Bancorp,
Inc.
NASDAQ
Composite
SNL Bank & Thrift
l
e
u
a
V
x
e
d
n
I
250
225
200
175
150
125
100
75
50
12/31/2013
12/31/2014
12/31/2015
12/31/2016
12/31/2017
12/31/2018
Index
12/31/13 12/31/14 12/31/15 12/31/16
12/31/17
12/31/18
Home Bancorp, Inc.
NASDAQ Composite
SNL Bank and Thrift
100.00
100.00
100.00
122.07
113.40
111.63
140.01
119.89
113.89
211.19
128.89
143.78
239.87
165.29
169.07
199.79
158.87
140.45
Period Ending
The stock price information shown above is not necessarily indicative of future price performance. Information
used was obtained from S&P Global Market Intelligence, 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 2018 that were not registered under the Securities Act
of 1933.
16
For information regarding the Company’s equity compensation plans, see Item 12.
(b)
(c)
Not applicable.
On April 26, 2016, the Company announced an additional stock repurchase program (the “2016
Repurchase Program”). Under the 2016 Repurchase Program, the Company can repurchase up to 365,000
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 2018
(which were made pursuant to the 2016 Repurchase Program) are set forth in the following table.
Total
Number of
Shares
Purchased
Total Number of
Shares Purchased
as Part of Publicly
Announced Plans
or Programs
Maximum Number of
Shares that May Yet
be Purchased Under
the Plans or
Programs
Average
Price Paid
per Share
Period
October 1 - October 31, 2018
November 1 - November 30, 2018
December 1 - December 31, 2018
Total
471
17
22,116
22,604
$
$
40.77
38.89
35.93
36.03
471
17
22,116
22,604
358,215
358,198
336,082
336,082
17
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.”
(dollars in thousands)
Selected Financial Condition Data:
Total assets
Cash and cash equivalents
Interest-bearing deposits in banks
Investment securities:
Available for sale
Held to maturity
Loans receivable, net
Intangible assets
Deposits
Federal Home Loan Bank advances
Securities sold under repurchase agreements
Shareholders’ equity
2018
2017
2016
2015
2014
As of December 31,
$
2,153,658 $
59,618
939
2,228,121 $
150,418
2,421
1,556,732 $
29,315
1,884
1,551,912 $
24,798
5,144
1,221,415
29,078
5,526
260,131
10,872
1,633,406
66,055
1,773,217
58,698
-
304,040
234,993
13,034
1,642,988
68,033
1,866,227
71,825
-
277,871
183,730
13,365
1,215,323
12,762
1,248,072
118,533
-
179,843
176,762
13,927
1,214,818
15,304
1,244,217
125,153
-
165,046
174,801
11,705
901,208
4,266
993,573
47,500
20,371
154,144
(dollars in thousands, except per share data)
2018
2017
2016
2015
2014
For the Years Ended December 31,
Selected Operating Data:
Interest income
Interest expense
Net interest income
Provision for loan losses
Net interest income after provision for loan
losses
Noninterest income
Noninterest expense
Income before income taxes
Income taxes
Net income
Earnings per share - basic
Earnings per share - diluted
Cash dividends per share
$
102,312 $
10,306
74,398 $
6,549
67,684 $
5,268
58,410 $
3,866
92,006
3,943
88,063
13,447
63,225
38,285
6,695
31,590 $
3.48 $
3.40 $
0.71 $
67,849
2,317
65,532
9,962
46,177
29,317
12,493
16,824 $
2.36 $
2.28 $
0.55 $
62,416
3,200
59,216
11,157
46,797
54,544
2,071
52,473
8,770
42,022
23,576
7,568
16,008 $
2.34 $
2.25 $
0.41 $
19,221
6,671
12,550 $
1.87 $
1.79 $
0.30 $
$
$
$
$
54,323
3,284
51,039
2,364
48,675
8,175
41,772
15,078
5,206
9,872
1.51
1.42
0.07
18
Selected Operating Ratios: (1)
Average yield on interest-earning
assets (TE)
Average rate on interest-bearing
liabilities
Average interest rate spread (TE) (2)
Net interest margin (TE) (3)
Average interest-earning assets to
average interest-bearing liabilities
Noninterest expense to average assets
Efficiency ratio (4)
Return on average assets
Return on average common equity
Return on average tangible common
equity (Non-GAAP) (8)
Common stock dividend payout ratio
Average equity to average assets
Book value per common share
Tangible book value per common share
$
2018
As of or For the Years Ended December 31,
2016
2015
2017
2014
5.15 %
4.91 %
4.71 %
4.75 %
4.84 %
0.73
4.42
4.62
139.72
2.93
59.96
1.46
10.88
0.59
4.32
4.48
135.70
2.86
59.35
1.04
8.63
0.49
4.22
4.34
134.34
3.04
63.61
1.04
9.19
0.43
4.32
4.43
136.76
3.14
66.37
0.94
7.83
14.80
20.88
13.43
32.14 $
9.66
24.12
12.06
29.57 $
10.32
18.22
11.30
24.47 $
8.53
16.76
11.99
22.80 $
0.39
4.45
4.54
133.91
3.38
70.54
0.80
6.65
7.16
4.93
12.02
21.64
21.04
(Non-GAAP) (9)
25.16
22.33
22.73
20.68
Asset Quality Ratios: (5) (6)
Non-performing loans as a percent of
total loans receivable
1.40 %
2.38 %
1.39 %
0.71 %
0.55 %
Non-performing assets as a percent of
total assets
0.97
1.49
1.07
0.51
0.56
Allowance for loan losses as a percent
of non-performing loans as of end of
period
Allowance for loan losses as a percent
of net loans as of end of period
96.6
1.36
63.9
1.52
99.4
1.38
162.35
191.03
1.15
1.04
Capital Ratios: (5) (7)
Tier 1 risk-based capital ratio
Leverage capital ratio
Total risk-based capital ratio
____________________
(1) With the exception of end-of-period ratios, all ratios are based on average monthly balances during the respective periods.
(2)
12.54 %
11.66
13.48
14.55 %
11.15
15.59
9.94
13.96
12.91 %
11.61 %
8.74
12.43
Average interest rate spread represents the difference between the average yield on interest-earning assets and the average rate paid on interest-bearing
16.94 %
11.96
17.85
liabilities.
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 21% for the year ended December 31, 2018 and 35% for the years ended December 31, 2017, 2016, 2015 and 2014.
The efficiency ratio represents noninterest expense as a percentage of total revenues. Total revenues is the sum of net interest income and noninterest
income.
Asset quality and capital ratios are end of period ratios.
(3)
(4)
(5)
19
(6)
Asset quality ratios represent legacy non-performing assets. At December 31, 2018, 2017, 2016, 2015 and 2014, we also had $9.0 million, $2.7 million,
$1.5 million, $2.6 million and $4.3 million, respectively, of acquired nonimpaired loans, which were on nonaccrual or 90 days or more past due which
are not included in the table above. In addition, not included in the table above are $1.4 million, $584,000, $2.2 million, $3.0 million and $3.4 million,
respectively, in acquired assets which were repossessed assets at December 31, 2018, 2017, 2016, 2015 and 2014, respectively, and which are excluded
from the asset quality ratios above. See page 26 for the asset quality ratios including acquired nonimpaired loans and acquired repossessed assets.
Nonperforming loans consist of nonaccruing loans and loans 90 days or more past due excluding acquired loans. 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)
(8)
(9)
Capital ratios are for Home Bank only.
Tangible calculation eliminates goodwill, core deposit intangible and the corresponding amortization expense, net of tax.
Tangible calculation eliminates goodwill and core deposit intangible.
This Selected Financial Data contains financial information prepared other than in accordance with generally
accepted accounting principles (“GAAP”). The Company uses these non-GAAP financial measures in its analysis
of the Company’s performance. Management believes that the non-GAAP information provides useful data in
understanding the Company’s operations and in comparing the Company’s results to peers. This non-GAAP
information should be considered in addition to the Company’s financial information prepared in accordance with
GAAP, and is not a substitute for, or superior to, GAAP results. A reconciliation of GAAP to non-GAAP disclosures
is included in the table below.
Non-GAAP Reconciliation
(dollars in thousands, except per share data)
2018
As of or For the Years Ended December 31,
2016
2017
2015
Book value per common share
$
Less: Intangibles
Tangible book value per common share
32.14 $
6.98
25.16
29.57 $
7.24
22.33
24.47 $
1.74
22.73
22.80 $
2.12
20.68
Net Income
Add: CDI amortization, net of tax
Non-GAAP tangible income
31,590
1,458
33,048
16,824
496
17,320
16,008
521
16,529
12,550
483
13,033
2014
21.64
0.60
21.04
9,872
715
10,587
Return on common equity
Add: Intangibles
Return on average tangible common equity
10.88 %
3.92
14.80
8.63 %
1.03
9.66
9.19 %
1.13
10.32
7.83 %
0.70
8.53
6.65 %
0.51
7.16
20
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
The Company earned record net income for 2018 of $31.6 million, an increase of 87.8% from the $16.8 million
earned in 2017. Diluted earnings per share for 2018 were $3.40, an increase of 49.1% from the $2.28 earned in
2017. The Company’s income for the year ended December 31, 2018 was positively impacted by the acquisition
St. Martin Bancshares, Inc. (“SMB”), the holding company for St. Martin Bank & Trust Company (“St. Martin
Bank”) of St. Martinville, Louisiana, on December 6, 2017. Key components of the Company’s performance in
2018 are summarized below.
Total assets as of December 31, 2018 were $2.2 billion, a decrease of $74.5 million, or 3.3%, from December
31, 2017. The decrease was primarily due to a reduction in cash and cash equivalents, which was partially
offset by an increase in investment securities.
Total loans as of December 31, 2018 were $1.6 billion, a decrease of $8.0 million, or 0.5%, from December
31, 2017. Growth in originated loans was offset by a decrease in the acquired loan portfolio.
Total customer deposits as of December 31, 2018 were $1.8 billion, a decrease of $93.0 million, or 5.0%, from
December 31, 2017. Core deposits (i.e., checking, savings, and money market accounts) totaled $1.4 billion
as of December 31, 2018, a decrease of $54.8 million, or 3.7%, compared to December 31, 2017. Certificates
of deposit (“CDs”) totaled $351.0 million as of December 31, 2018, a decrease of $38.2 million, or 9.8%,
compared to December 31, 2017.
Interest income increased $27.9 million, or 37.5%, in 2018 compared to 2017 primarily due to the impact of
SMB’s interest-earning assets for a full year period.
Interest expense increased $3.8 million, or 57.4%, in 2018 compared to 2017 primarily due to an increase in
the cost of deposits and the addition of SMB’s interest-bearing liabilities for the full year. The average cost of
deposits increased by 17 basis points during 2018.
The provision for loan losses totaled $3.9 million in 2018, 70.2% higher than the $2.3 million recorded in 2017.
The higher provision was primarily due to organic loan growth and further downgrades in certain previously
identified problem credits. The Company’s ratio of allowance for loan losses to total loans was 0.99% at
December 31, 2018, compared to 0.89% at December 31, 2017. The ratio of the allowance for loan losses to
total originated loans decreased to 1.36% at December 31, 2018, compared to 1.52% at December 31, 2017.
Noninterest income increased $3.5 million, or 35.0%, in 2018 compared to 2017 primarily due to the increase
in customer accounts as a result of the SMB acquisition.
Noninterest expense increased $17.0 million, or 36.9%, in 2018 compared to 2017 primarily due to growth of
the Company’s employee base and higher data processing and occupancy costs as a result of the SMB
acquisition. The Company incurred $2.0 million and $1.1 million in merger-related expenses during 2018 and
2017, respectively.
21
Income tax expense decreased by $5.8 million, or 46.4%, to $6.7 million in 2018 compared to $12.5 million in
2017. An updated analysis of the Company’s depreciation of certain assets, the recognition of certain tax credits
and the absence of a re-measurement charge related to the 2017 Tax Cuts and Jobs Act were the primary drivers
for the decrease in income tax expense.
For the year ended December 31, 2018, return on average assets, return on average equity and return on average
tangible common equity were 1.46%, 10.88% and 14.80%, respectively, compared to 1.04%, 8.63%, and 9.66%
in 2017.
ACQUISITION ACTIVITY
The Company has completed five acquisitions since 2010. The following table is a summary of the Company’s
acquisition activity as recorded.
SUMMARY OF ACQUISITION ACTIVITY
(dollars in thousands)
Acquisition
Statewide Bank
GS Financial Corporation
Britton & Koontz Capital Corporation
Louisiana Bancorp, Inc.
St. Martin Bancshares, Inc.
Total Acquisitions
Acquisition
Date
03/12/2010
07/15/2011
02/14/2014
09/15/2015
12/06/2017
Total
Assets
188,026 $
256,677
298,930
352,897
592,852
1,689,382 $
Total
Loans
110,415 $
182,440
161,581
281,583
439,872
1,175,891 $
$
$
Goodwill
560 $
296
43
8,454
49,135
58,488 $
Core
Deposit
Intangible
Total
Deposits
1,429 $
206,925
859
193,518
3,030
216,600
1,586
208,670
6,766
533,497
13,670 $ 1,359,210
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
22
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, 2018, our allowance for loan losses included $1.5 million allocated to Acquired Loans
since the date of acquisition. Our accounting policy for Acquired Loans is described below.
Accounting for Loans. The following describes the distinction between originated and Acquired Loans and certain
significant accounting policies relevant to each category.
Originated Loans
Loans originated for investment are reported at the principal balance outstanding net of unearned income. Interest on
loans and accretion of unearned income are computed in a manner that approximates a level yield on recorded
principal. Interest on loans is recorded as income as earned. The accrual of interest on an originated loan is
discontinued when it is probable the borrower will not be able to meet payment obligations as they become due. The
Company maintains an allowance for loan losses on originated loans that represents management’s estimate of
probable losses incurred in this portfolio category.
Acquired Loans
Acquired Loans are those collectively associated with our acquisitions of Statewide, GSFC, Britton & Koontz, BNO
and SMB. 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 as of the date of acquisition 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.
23
Business Combinations. Assets and liabilities acquired in business combinations are recorded at their fair value. In
accordance with ASC Topic 805, Business Combinations, the Company generally records provisional amounts at the
time of acquisition based on the information available to the Company. The provisional estimates of fair values may
be adjusted for a period of up to one year (“measurement period”) from the date of acquisition if new information is
obtained. Subsequently, adjustments recorded during the measurement period are recognized in the current reporting
period.
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 (“DTA”), which arise from temporary differences between the tax
and financial statement recognition of revenues and expenses and enacted changes in tax rates and laws are
recognized in the period in which they occur. 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.
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 FRB, legislative tax policies
and governmental budgetary matters.
24
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 table shows the composition of the Company’s loan portfolio as of the dates indicated.
(dollars in thousands)
2018
2017
2016
2015
2014
December 31,
Real estate loans:
One- to four-family first mortgage $
Home equity loans and lines
Commercial real estate
Construction and land
Multi-family residential
Total real estate loans
Other loans:
Commercial and industrial
Consumer
Total other loans
Total loans
$
450,363
83,976
640,575
193,597
54,455
1,422,966
172,934
53,854
226,788
1,649,754
$
$
477,211
94,445
611,358
177,263
50,978
1,411,255
185,284
61,256
246,540
1,657,795
$
$
341,883
88,821
427,515
141,167
46,369
1,045,755
139,810
42,268
182,078
1,227,833
$
$
371,238
94,060
405,379
136,803
43,863
1,051,343
125,108
47,915
173,023
1,224,366
$
$
222,157
56,000
352,863
100,246
27,375
758,641
104,446
45,881
150,327
908,968
The loan portfolio decreased $8.0 million, or 0.5%, during 2018. Organic loan growth of $153.2 million was offset
by paydowns in the Acquired Loan portfolios of $161.3 million. The balance of loans to companies in the energy
sector totaled $45.6 million, or 2.8%, of our outstanding loan portfolio at December 31, 2018. In addition to
outstanding loans at December 31, 2018, we also had unfunded loan commitments to companies in the energy
sector amounting to $10.1 million at such date.
The following table reflects contractual loan maturities as of December 31, 2018, unadjusted for scheduled principal
reductions, prepayments, or repricing opportunities. Of the $1.3 billion in loans which have contractual maturity
dates subsequent to December 31, 2019, $993.9 million have fixed interest rates and $289.1 million have floating
or adjustable interest rates.
(dollars in thousands)
One- to four-family first mortgage
Home equity loans and lines
Commercial real estate
Construction and land
Multi-family residential
Commercial and industrial
Consumer
One year or
$
$
less
32,501
3,207
104,742
123,704
17,825
79,984
4,877
Total
$
366,840
$
Due In
One through
five years
More than five
years
117,422
13,527
337,592
50,548
25,123
75,319
20,199
639,730
$
$
300,440
67,242
198,241
19,345
11,507
17,631
28,778
643,184
$
Total
450,363
83,976
640,575
193,597
54,455
172,934
53,854
$
1,649,754
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
25
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 and commercial and industrial loans are individually evaluated for impairment.
Third party property valuations are obtained at the time of origination for real estate secured loans. When a
determination is made that a loan has deteriorated to the point of becoming a problem loan, updated valuations may
be ordered to help determine if there is impairment, which may lead to a recommendation for partial charge off or
appropriate allowance allocation. Property valuations are ordered through, and are reviewed by, an appraisal officer.
The Company typically orders an “as is” valuation for collateral property if the loan is in a criticized loan classification.
The Board of Directors is provided with monthly reports on impaired loans. As of December 31, 2018 and 2017,
loans identified as impaired and individually evaluated for impairment, excluding Acquired Loans, amounted to
$9.9 million and $3.5 million, respectively. As of December 31, 2018 and 2017, acquired impaired loans, which
are loans considered to have had deteriorated credit quality at the time of acquisition, amounted to $10.0 million
and $14.2 million, respectively. As of December 31, 2018 and 2017, substandard loans, excluding Acquired Loans,
amounted to $21.7 million and $27.0 million, respectively. As of December 31, 2018 and 2017, Acquired Loans
considered substandard amounted to $24.5 million and $20.3 million, respectively. The rise in acquired substandard
loans during 2018 was due primarily to the acquired SMB loan portfolio. The amount of the allowance for loan
losses allocated to originated impaired loans totaled $1.2 million and $2.0 million as of December 31, 2018 and
2017, respectively. The amount of allowance for loan losses allocated to Acquired Loans totaled $1.5 million and
$504,000, respectively, at such dates. There were no assets classified as doubtful or loss as of December 31, 2018
or 2017.
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. As of December 31, 2018 and 2017, we had a total of $46.2 million and $47.3 million,
respectively, in assets classified as substandard. We had no assets classified as doubtful or loss at either date. For
additional information, see Note 5 to the Consolidated Financial Statements.
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
26
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, excluding acquired impaired loans, as of the dates indicated.
(dollars in thousands)
Nonaccrual loans (1):
Real estate loans:
One- to four-family first mortgage
Home equity loans and lines
Commercial real estate
Construction and land
Multi-family residential
Other loans:
Commercial and industrial
Consumer
Total nonaccrual loans
Accruing loans 90 days or more past due
Total nonperforming loans
Foreclosed property
Total nonperforming assets
Performing troubled debt restructurings
Total nonperforming assets and
troubled debt restructurings
2018
2017
December 31,
2016
2015
2014
$
$
$
$
5,172 $
1,699
11,343
1,594
-
3,988
616
24,412
3,173
1,542
8,757
449
-
10,610
502
25,033
1,724
1,088
1,963
75
-
8,542
361
13,753
1,458
260
2,684
156
763
2,458
476
8,255
2,894
136
1,291
742
1,560
1,210
359
8,192
-
-
-
-
-
24,412
1,558
25,970
1,406
25,033
728
25,761
2,536
13,753
2,893
16,646
4,650
8,255
3,128
11,383
2,549
8,192
5,215
13,407
1,860
$
27,376 $
28,297
$
21,296
$
13,932
$
15,267
1.48 % 1.51 % 1.12 % 0.67 %
1.13 % 1.12 % 0.88 % 0.53 %
1.21 % 1.16 % 1.07 % 0.73 %
Nonperforming loans to total loans
Nonperforming loans to total assets
Nonperforming assets to total assets
____________________
(1) Table excludes Acquired Loans which were being accounted for under ASC 310-30 because they continue to earn
interest from accretable yield regardless of their status as past due or otherwise not in compliance with their contractual
terms. Acquired Loans with deteriorated credit quality, which were being accounting for under ASC 310-30 and which
were 90 days or more past due, totaled $1.7 million, $4.3 million, $2.7 million, $4.0 million and $5.4 million as of
December 31, 2018, 2017, 2016, 2015 and 2014, respectively.
0.90 %
0.67 %
1.10 %
Total nonaccrual loans decreased by $621,000, or 2.5%, to $24.4 million at December 31, 2018, compared to $25.0
million at December 31, 2017. The ratio of non-performing loans to total assets was 1.13% at December 31, 2018,
compared to 1.12% at December 31, 2017. A $7.0 million decrease in nonaccrual originated loans was partially
offset by a $6.4 million increase in nonaccrual acquired loans. The increase in nonaccrual acquired loans was
primarily due to the SMB loan portfolio. Management believes it has sufficient fair-value discounts recorded on
the SMB loan portfolio to absorb loan losses associated with these loans without the need for additional provision
to the allowance for loan losses.
Net loan charge-offs for 2018 were $2.4 million, compared to $21,000 in 2017. The increase in net loan charge-
offs resulted primarily from further deterioration in three commercial loan relationships.
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
27
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. At December 31, 2018, repossessed assets totaled $1.6 million, an increase of $830,000, or 114.0%,
compared to $728,000 at December 31, 2017.
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 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, 2018, $100,000 of the allowance for loan losses was allocated to Acquired Loans
accounted for under ASC 310-30.
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.
28
The following table presents the activity in the allowance for loan losses for the years indicated.
(dollars in thousands)
Balance, beginning of year
Provision charged to operations
Loans charged off:
One- to four-family first mortgage
Home equity loans and lines
Commercial real estate
Construction and land
Multi-family residential
Commercial and industrial
Consumer
Recoveries on charged off loans
Balance, end of year
For the Years Ended December 31,
$
2018
14,807 $
3,943
2017
12,511
2,317
$
2016
9,547
3,200
$
2015
7,760
2,071
$
2014
6,918
2,364
(1)
-
-
-
-
(2,506)
(74)
179
(29)
(10)
(3)
-
-
(358)
(64)
443
(33)
(9)
-
-
-
(242)
(162)
210
(104)
(27)
-
(111)
-
(190)
(130)
278
(213)
(2)
(41)
(19)
-
(1,407)
(32)
192
$
16,348
$
14,807
$
12,511
$
9,547
$
7,760
At December 31, 2018, the ratio of allowance for loan losses to total loans was 0.99%, compared to 0.89% at
December 31, 2017. Excluding Acquired Loans, the ratio of allowance for loan losses to total originated loans was
1.36% at December 31, 2018, compared to 1.52% at December 31, 2017. The balance of loans to companies in the
energy sector totaled $45.6 million, or 2.8%, of outstanding loans at December 31, 2018. In addition to outstanding
loans at December 31, 2018, we also had unfunded loan commitments to companies in the energy sector amounting
to $10.1 million at such date. The Company remains in close contact with our energy sector borrowers, and
continues to monitor economic data to assess the potential indirect impact of low energy prices on our loan portfolio.
The following table presents the allocation of the allowance for loan losses as of December 31 of the years indicated.
2018
2017
2016
2015
2014
December 31,
(dollars in
thousands)
One- to four-family
first mortgage
Home equity loans
and lines
Commercial real
estate
Construction and land
Multi-family
residential
Commercial and
industrial
Consumer
Total
Amount
%
Loans
Amount
%
Loans
Amount
%
Loans
Amount
%
Loans
Amount
%
Loans
$
2,136
27.3 % $
1,663
28.7 % $
1,511
27.9 % $
1,464
30.3 %
$
1,310
24.5 %
1,079
5.1
1,102
5.7
728
7.2
760
7.7
553
6.2
6,125
2,285
38.8
11.7
4,906
1,749
36.9
10.7
4,177
1,782
34.8
11.5
3,152
1,417
33.1
11.2
2,922
1,101
38.8
11.0
550
3.3
355
3.1
361
3.8
173
3.6
192
3.0
3,228
10.5
4,530
11.2
3,439
11.4
2,010
10.2
1,161
11.5
945
3.3
502
3.7
513
3.4
$
16,348
100.0 % $
14,807
100.0 % $
12,511
100.0 % $
571
9,547
3.9
100.0 %
$
521
7,760
5.0
100.0 %
29
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 Operations 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 $23.0 million, or 9.3%, during 2018. Securities
available for sale made up 96.0% of the investment securities portfolio as of December 31, 2018. The following
table sets forth the amortized cost and market value of our investment securities portfolio as of the dates indicated.
December 31,
2018
2017
2016
Amortized
Cost
Market
Value
Amortized
Cost
Market
Value
Amortized
Cost
Market
Value
(dollars in thousands)
Available for sale:
U.S. agency mortgage-backed
Collateralized mortgage obligations
Municipal bonds
U.S. government agency
Total available for sale
$
86,487 $
145,814
21,453
9,169
262,923
85,909 $
143,591
21,477
9,154
260,131
84,639 $
115,435
25,362
11,026
236,462
84,690 $
113,735
25,521
11,047
234,993
78,361 $
75,193
21,212
8,946
183,712
78,931
74,330
21,428
9,041
183,730
Held to maturity:
Municipal bonds
Total held to maturity
Total investment securities
$
10,872
10,872
273,795 $
10,841
10,841
270,972 $
13,034
13,034
249,496 $
13,055
13,055
248,048 $
13,365
13,365
197,077 $
13,362
13,362
197,092
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.
(dollars in thousands)
Fixed rate:
Available for sale
Held to maturity
Total fixed rate
Adjustable rate:
Available for sale
Total adjustable rate
December 31,
2018
2017
2016
$
234,694 $
10,872
245,566
28,229
28,229
204,143
13,034
217,177
32,319
32,319
249,496
$
$
151,074
13,365
164,439
32,638
32,638
197,077
Total investment securities
$
273,795
$
30
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, 2018. No tax-exempt yields have
been adjusted to a tax-equivalent basis. All amounts are shown at amortized cost.
(dollars in thousands)
Available for sale:
U.S. agency mortgage-backed
Collateralized mortgage obligations
Municipal bonds
U.S. government agency
$
Total available for sale
Weighted average yield
Held to maturity:
Municipal bonds
Total held to maturity
Weighted average yield
Total investment securities
$
Weighted average yield
Amounts as of December 31, 2018 which mature in:
One Year
or Less
One Year
to Five
Years
Five to
Ten Years
Over Ten
Years
Total
86,487
145,814
21,453
9,169
262,923
1,711 $
-
3,167
3,999
8,877
2.00 %
-
-
- %
8,877 $
2.0 %
15,422 $
5,589
9,726
-
30,737
34,182 $
18,102
4,929
3,802
61,015
35,172 $
122,123
3,631
1,368
162,294
2.32 %
2.45 %
2.78 %
2.62 %
5,737
5,737
1.71 %
36,474 $
2.22 %
4,087
4,087
1.86 %
65,102 $
2.41 %
1,048
1,048
1.24 %
163,342 $
2.77 %
10,872
10,872
1.74 %
273,795
2.58 %
The following table summarizes activity in the Company’s investment securities portfolio during 2018.
(dollars in thousands)
Balance, December 31, 2017
Purchases
Sales
Principal maturities, prepayments and calls
Amortization of premiums and accretion of discounts
Decrease in market value
Balance, December 31, 2018
Available for Sale
Held to Maturity
$
$
234,993
78,462
-
(50,280)
(1,721)
(1,323)
260,131
$
$
13,034
-
-
(1,855)
(307)
-
10,872
As of December 31, 2018, the Company had a net unrealized loss on its available for sale investment securities
portfolio of $2.8 million, compared to a net unrealized loss of $1.5 million as of December 31, 2017.
31
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 $1.8 billion as of December 31, 2018, a decrease of $93.0 million, or 5.0%, compared to $1.9
billion as of December 31, 2017. Core deposits (i.e., checking, savings, and money market accounts) totaled $1.4
billion as of December 31, 2018, a decrease of $54.8 million, or 3.7%, compared to December 31, 2017. Certificates
of deposit (“CDs”) totaled $351.0 million as of December 31, 2018, a decrease of $38.2 million, or 9.8%, compared
to December 31, 2017. The following table sets forth the composition of the Company’s deposits as of the dates
indicated.
(dollars in thousands)
2018
2017
December 31,
Increase/(Decrease)
Amount
Percent
$
Demand deposit
Savings
Money market
NOW
Certificates of deposit
Total deposits
$
438,146
201,393
295,705
486,979
350,994
1,773,217
$
$
461,999
217,639
306,509
490,924
389,156
1,866,227
$
$
(23,853)
(16,246)
(10,804)
(3,945)
(38,162)
(93,010)
(5.2)
(7.5)
(3.5)
(0.8)
(9.8)
(5.0)
%
%
The following table shows the average balance and average rate paid for each type of interest-bearing deposit for
the periods indicated.
(dollars in thousands)
Savings, checking and money market
Certificates of deposit
Total interest -bearing deposits
For the Years Ended December 31,
Average
Balance
2018
Interest
Expense
Average
Rate Paid
Average
Balance
2017
Interest
Expense
Average
Rate Paid
Average
Balance
2016
Interest
Expense
Average
Rate Paid
$ 990,733
356,296
$ 5,287
3,789
0.53% $731,660
295,929
1.06
$ 2,422
2,739
0.33%
0.93
$672,444
267,878
$ 1,577
2,124
0.23%
0.79
$1,347,029
$ 9,076
0.67% $1,027,589
$ 5,161
0.50%
$940,322
$ 3,701
0.39%
32
Certificates of deposit in the amount of $100,000 and over decreased $26.0 million, or 12.7%, from $204.9 million
as of December 31, 2017 to $178.9 million as of December 31, 2018. The following table details the remaining
maturity of large-denomination certificates of deposit of $100,000 and over as of the dates indicated.
(dollars in thousands)
3 months or less
3 - 6 months
6 - 12 months
12 - 36 months
More than 36 months
Total certificates of deposit greater than $100,000 $
$
December 31,
2018
26,512
31,720
43,507
71,550
5,561
178,850
$
$
2017
59,087
31,649
51,813
50,753
11,556
204,858
$
$
2016
19,795
20,175
25,405
51,376
11,212
127,963
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.
The Company had no short-term FHLB advances as of December 31, 2018, compared to $3.6 million as of
December 31, 2017.
Long-term FHLB advances totaled $58.7 million as of December 31, 2018, a decrease of $9.5 million, or 13.9%,
compared to $68.2 million as of December 31, 2017.
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,
2018, shareholders' equity totaled $304.0 million, an increase of $26.2 million, or 9.4%, compared to $277.9 million
as of December 31, 2017. The increase was primarily due to the Company’s earnings for the year ended December
31, 2018.
RESULTS OF OPERATIONS
The Company earned net income of $31.6 million in 2018, an increase of $14.8 million, or 87.8%, compared to
2017. The Company’s net income of $16.8 million in 2017 was an increase of $816,000, or 5.1%, compared to
2016. Diluted earnings per share for 2018 were $3.40, an increase of 49.1% from 2017. Diluted earnings per share
for 2017 were $2.28, an increase of 1.3% from 2016.
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 $92.0 million in 2018, an increase of $24.2 million, or 35.6%, compared to $67.8 million
in 2017. The increase was due to a $27.9 million, or 37.5%, increase in interest income, which was partially offset
by a $3.8 million, or 57.4%, increase in interest expense. The increases in 2018 compared to 2017 were primarily
due to the addition of SMB’s interest-earning assets and interest-bearing liabilities for the full year.
In 2017, net interest income totaled $67.8 million, an increase of $5.4 million, or 8.7%, compared to $62.4 million
in 2016. The increase was due to a $6.7 million, or 9.9%, increase in interest income, which was partially offset by
a $1.3 million, or 24.3%, increase in interest expense. The increases in 2017 compared to 2016 were primarily due
to an increase in accretion income of $3.1 million and a higher volume of average interest-earning assets.
33
The Company’s net interest spread was 4.42%, 4.32%, and 4.22% for the years ended December 31, 2018, 2017,
and 2016, respectively. The Company’s net interest margin, which is net interest income as a percentage of average
interest-earning assets, was 4.62%, 4.48%, and 4.34% during the years ended December 31, 2018, 2017, and 2016,
respectively.
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 marginal tax rates of 21% for
2018 and 35% for 2017 and 2016.
(dollars in thousands)
2018
For the Years Ended December 31,
2017
2016
Average
Balance
Interest
Average
Yield/
Rate
Average
Balance
Interest
Average
Yield/
Rate
Average
Balance
Interest
Average
Yield/
Rate
$1,636,844
$ 94,303
5.71%
$1,253,576
$ 69,167
5.47%
$1,225,690
$ 63,731
5.15%
240,334
33,971
274,305
5,948
708
6,656
65,008
1,353
102,312
1,976,157
184,785
$2,160,942
2.47
2.64
2.50
2.08
5.15
180,208
31,908
212,116
3,894
637
4,531
43,316
700
1,509,008
74,398
2.16
3.07
2.30
1.61
4.91
106,730
$1,615,738
152,426
34,168
186,594
19,695
1,431,979
109,761
$1,541,740
3,002
675
3,677
276
67,684
1.97
3.04
2.17
1.40
4.71
Interest-earning assets:
Loans receivable(1)
Investment securities (TE)
Taxable
Tax-exempt
Total investment securities
Other interest-earning assets
Total interest-earning assets
(TE)
Noninterest-earning assets
Total assets
Interest-bearing liabilities:
Deposits:
Savings, checking and money
market
$ 990,733
$ 5,287
0.53%
$ 731,660
$ 2,422
0.33%
$ 672,444
$ 1,577
0.23%
Certificates of deposit
356,296
Total interest-bearing deposits
1,347,029
Other borrowings
FHLB advances
Total interest-bearing
liabilities
Noninterest-bearing liabilities
Total liabilities
Shareholders’ equity
Total liabilities and
shareholders’ equity
Net interest-earning assets
Net interest income; net interest
spread (TE)
Net interest margin (TE)
1,229
66,138
1,414,396
456,229
1,870,625
290,317
$2,160,942
$ 561,761
3,789
9,076
46
1,184
10,306
1.06
0.67
3.79
1.79
0.73
295,929
1,027,589
-
84,404
1,111,993
308,872
1,420,865
194,873
$1,615,738
$ 397,015
2,739
5,161
-
1,388
6,549
0.93
0.50
-
1.64
0.59
267,878
940,322
-
125,653
1,065,975
301,515
1,367,490
174,250
$1,541,740
$ 366,004
2,124
3,701
-
1,567
5,268
0.79
0.39
-
1.24
0.49
$ 92,006
4.42%
$ 67,849
4.32%
$ 62,416
4.22%
4.62%
4.48%
4.34%
____________________
(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.
34
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).
2018 Compared to 2017
Change Attributable To
2017 Compared to 2016
Change Attributable To
Rate
Volume
Total
Increase
(Decrease)
Rate
Volume
Total
Increase
(Decrease)
$
$
3,505
595
253
4,353
21,631
1,530
400
23,561
$
25,136 $
2,125
653
27,914
$
4,017
339
67
4,423
1,419
515
357
2,291
$
5,436
854
424
6,714
(dollars in thousands)
Interest income:
Loans receivable
Investment securities
Other interest-earning assets
Total interest income
Interest expense:
Savings, checking and money market
accounts
Certificates of deposit
Other borrowings
FHLB advances
Total interest expense
Increase (decrease) in net interest income
$
1,842
450
-
64
2,356
1,997
1,023
600
46
(268)
1,401
$
22,160
$
2,865
1,050
46
(204)
657
374
-
187
3,757
24,157 $
1,218
3,205
$
188
241
-
(366)
63
2,228
845
615
-
(179)
1,281
5,433
$
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, 2018, the Company recorded a provision for loan losses of $3.9 million, compared
to $2.3 million and $3.2 million for 2017 and 2016, respectively. The provision for 2018 was primarily due to
organic loan growth and downgrades in two organic loan relationships. Similarly, the provision for 2017 and 2016
primarily related to downgrades recorded on certain loans as a result of our internal loan review and classification
policy, as well as organic loan growth.
Net charge-offs were $2.4 million for 2018, compared to $21,000 and $237,000 for 2017 and 2016, respectively.
The increase in net charge-offs in 2018 was primarily due to the deterioration of three previously recognized non-
performing commercial and industrial loan relationships.
35
At December 31, 2018, the Company’s ratio of allowance for loan losses to total loans was 0.99%, compared to
0.89% at December 31, 2017. Excluding Acquired Loans, the ratio of allowance for loan losses to total originated
loans was 1.36% at December 31, 2018, compared to 1.52% at December 31, 2017.
Noninterest Income – The following table illustrates the primary components of noninterest income for the years
indicated.
(dollars in thousands)
Noninterest income:
2018
2017
2018 vs 2017
Percent
Increase
(Decrease)
$
Service fees and charges
Bank card fees
Gain on sale of loans, net
Income from bank-owned life insurance
(Loss) gain on sale of assets, net
Other income
Total noninterest income
$
6,370 $
4,494
872
656
(52)
1,107
13,447 $
4,229
3,003
1,196
494
(162)
1,202
9,962
50.6 % $
49.7
(27.1)
32.8
67.9
(7.9)
35.0 % $
2018 compared to 2017
2017 vs 2016
Percent
Increase
(Decrease)
4.1 %
15.4
(32.4)
2.3
(127.2)
(26.9)
(10.7) %
2016
4,061
2,603
1,770
483
595
1,645
11,157
Noninterest income for 2018 totaled $13.4 million, an increase of $3.5 million, or 35.0%, compared to 2017. The
increase was primarily due to the increase in customer accounts primarily as a result of the SMB acquisition, which
led to an increase in service fees and charges (up $2.1 million) and bank card fees (up $1.5 million).
2017 compared to 2016
Noninterest income for 2017 totaled $10.0 million, a decrease of $1.2 million, or 10.7%, compared to 2016. The
decrease in 2017 was primarily the result of decreases in gains on the sale of assets (down $758,000 due to a write
down taken on the closure of a banking center in Vicksburg, Mississippi in 2017 compared to a gain on the sale of
a banking center in 2016), gains on the sale of mortgage loans (down $574,000) and other income (down $442,000
primarily due to fewer recoveries on previously charged off Acquired Loans), which were partially offset by
increases in bank card fees (up $400,000) and service fees and charges (up $168,000).
36
Noninterest Expense –The following table illustrates the primary components of noninterest expense for the
years indicated.
(dollars in thousands)
Noninterest expense:
2018 vs 2017
Percent
Increase
(Decrease)
2018
2017
$
Compensation and benefits
Occupancy
Marketing and advertising
Data processing and communication
Professional services
Forms, printing and supplies
Franchise and shares tax
Regulatory fees
Foreclosed assets, net
Amortization of acquisition intangible
Other expenses
Total noninterest expense
$
36,796
6,658
1,162
7,646
1,119
973
1,030
1,559
397
1,845
4,040
63,225
$
$
28,162
5,065
1,008
4,329
1,590
594
948
1,264
(298)
763
2,752
46,177
30.7 % $
31.5
15.3
76.6
(29.6)
63.8
8.6
23.3
233.2
141.8
46.8
36.9 % $
2018 compared to 2017
2017 vs 2016
Percent
Increase
(Decrease)
1.9 %
(3.6)
(5.2)
(12.8)
61.7
(4.7)
15.4
(4.0)
(313.4)
(4.7)
(13.8)
(1.3) %
2016
27,634
5,255
1,063
4,967
983
623
821
1,317
140
801
3,193
46,797
Noninterest expense for 2018 totaled $63.2 million, an increase of $17.0 million, or 36.9%, from 2017. Noninterest
expense included merger-related expenses of $2.0 million and $1.1 million for the years ended December 31, 2018
and 2017, respectively. The increase in noninterest expense in 2018 primarily reflects the overall growth of the
Company due to the SMB acquisition. An increase in the Company’s employee and customer base resulted in higher
compensation expense (up $8.6 million), higher data processing costs (up $3.3 million) and occupancy expense (up
$1.6 million).
2017 compared to 2016
Noninterest expense for 2017 totaled $46.2 million, a decrease of $620,000, or 1.3%, from 2016. Noninterest
expense includes merger-related expenses of $1.1 million and $856,000 for the years ended December 31, 2017
and 2016, respectively. Excluding merger-related expenses, noninterest expense decreased $849,000, or 1.8%,
during 2017. The decrease was primarily the result of lower foreclosed assets expenses (down $437,000), other
expenses (down $342,000), data processing and communications (down $239,000), occupancy (down $176,000)
and professional services (down $168,000), which were partially offset by higher compensation and benefits (up
$458,000).
Income Taxes – For the years ended December 31, 2018, 2017 and 2016, the Company incurred income tax expense
of $6.7 million, $12.5 million and $7.6 million, respectively. The reduction in income tax expense in 2018
compared to 2017 reflects, in part, the effects of the change in the federal corporate statutory tax rate from 35% to
21% as a result of the Tax Cuts and Jobs Act (the “2017 Tax Act”). The Company's effective tax rate amounted to
17.5%, 42.6% and 32.1% during 2018, 2017 and 2016, respectively. The reduced effective tax rate recorded for
the year ended December 31, 2018 was partially the result of two federal income tax related items. An updated
analysis of the Company’s depreciation of certain assets as a result of a cost segregation study reduced 2018 income
tax expense by $819,000, and the recognition of certain tax credits and benefits upon the Company’s new investment
in a New Market Tax Credit (“NMTC”) project reduced 2018 income tax expense by an additional $400,000. The
benefit of the cost segregation study is not expected to be recurring, while the savings related to the NMTC are
expected to be achieved annually for the next six years.
The higher effective tax rate recorded for the year ended 2017 was the result of the 2017 Tax Act. The 2017 Tax
Act reduced the federal corporate statutory tax rate from 35% to 21%, which required a re-measurement charge of
the Company’s deferred tax asset (“DTA “) of $2.7 million in the fourth quarter of 2017. The carrying value of our
37
DTA was reduced reflecting lower future tax benefits due to the lower corporate tax rate. The effective tax rate for
the year ended 2016 was lower than the 2016 statutory tax rate due primarily to the adoption of ASU No. 2016-09,
Compensation - Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting.
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, 2018, our cash and cash equivalents totaled $59.6 million. In
addition, as of such date, our available for sale investment securities totaled $260.1 million.
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, 2018, we had certificates of deposit maturing within the next 12 months totaling $203.4 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, 2018, the average balance of our outstanding FHLB advances was
$66.1 million. As of December 31, 2018, we had $58.7 million in outstanding FHLB advances and $726.0 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, 2018.
Shift in Interest Rates
(in bps)
+300
+200
+100
% Change in Projected
Net Interest Income
(1.5) %
(0.6)
0.0
38
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 repricing, 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
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. 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.
(dollars in thousands)
Standby letters of credit
Available portion of lines of credit
Undisbursed portion of loans in process
Commitments to originate loans
$
Contract Amount
$
2018
4,288
186,446
108,307
92,656
2017
6,620
203,367
78,578
96,183
39
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.
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, 2018.
(dollars in thousands)
Unused commercial lines of credit
Unused personal lines of credit
Undisbursed portion of loans in process
Standby letters of credit
Commitments to originate loans
Total
Less
Than One
Year
79,837 $
3,400
70,699
2,757
90,468
247,161 $
$
$
One to
Three
Years
Three to
Five
Years
Over Five
Years
29,337 $
4,509
33,279
1,531
2,188
70,844 $
6,146 $
8,886
2,049
-
-
17,081 $
590 $
53,741
2,280
-
-
56,611 $
Total
115,910
70,536
108,307
4,288
92,656
391,697
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, 2018 are shown
in the following table.
(dollars in thousands)
2019
2020
2021
2022
2023
Thereafter
Total
Operating leases
$
576 $
581 $
581 $
581 $
581 $
1,095 $
3,995
Certificates of deposit
Long-term FHLB advances
203,414
15,120
92,237
30,475
40,534
1,617
10,638
6,788
3,449
156
722
4,542
Total
$
219,110 $
123,293 $
42,732 $
18,007 $
4,186 $
6,359 $
350,994
58,698
413,687
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.
40
Item 8. Financial Statements and Supplementary Data.
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholders
Home Bancorp, Inc.
Lafayette, Louisiana
Opinions on the Consolidated Financial Statements and Internal Control Over Financial Reporting
We have audited the accompanying consolidated statements of financial condition of Home Bancorp, Inc. and
subsidiary (the “Company”) as of December 31, 2018 and 2017, 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, 2018, and the related notes (collectively, the consolidated financial statements). We also have
audited the Company’s internal control over financial reporting as of December 31, 2018, based on criteria
established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of
the Treadway Commission in 2013.
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, 2018 and 2017, and the results of their operations and their
cash flows for each of the years in the three-year period ended December 31, 2018, 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, 2018, based on criteria
established in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of
the Treadway Commission in 2013.
Basis for Opinions
The Company’s management is responsible for these consolidated financial statements, for maintaining effective
internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial
reporting, included in the accompanying Report of Management. Our responsibility is to express an opinion on the
Company’s consolidated financial statements and an opinion on the Company’s internal control over financial
reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting
Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in
accordance with U.S. federal securities laws and applicable rules and regulations of the Securities and Exchange
Commission and the PCAOB.
41
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and
perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of
material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting
was maintained in all material respects.
Our audits of the consolidated financial statements included performing procedures to assess the risks of material
misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures
that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts
and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting
principles used and significant estimates made by management, as well as evaluating the overall presentation of
the consolidated financial statements. 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.
Definition and Limitations of Internal Control Over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of consolidated 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 (1) pertain to the maintenance of records that, in reasonable
detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide
reasonable assurance that transactions are recorded as necessary to permit preparation of consolidated financial
statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the
company are being made only in accordance with authorizations of management and directors of the company; and
(3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or
disposition of the company’s assets that could have a material effect on the consolidated financial statements.
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.
We have served as the Company’s auditor since 2009.
Atlanta, Georgia
March 13, 2019
/s/ Porter Keadle Moore, LLC
42
HOME BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(dollars in thousands)
Assets
Cash and cash equivalents
Interest-bearing deposits in banks
Investment securities available for sale, at fair value
Investment securities held to maturity (fair values of $10,841 and
$13,055, respectively)
Mortgage loans held for sale
Loans, net of unearned income
Allowance for loan losses
Total loans, net of unearned income and allowance for loan losses
Office properties and equipment, net
Cash surrender value of bank-owned life insurance
Goodwill and core deposit intangibles
Accrued interest receivable and other assets
Total Assets
Liabilities
Deposits:
Noninterest-bearing
Interest-bearing
Total deposits
Other borrowings
Short-term Federal Home Loan Bank advances
Long-term Federal Home Loan Bank advances
Accrued interest payable and other liabilities
Total Liabilities
Shareholders' Equity
Preferred stock, $0.01 par value - 10,000,000 shares authorized;
none issued
Common stock, $0.01 par value - 40,000,000 shares authorized;
9,459,050 and 9,395,488 shares issued and outstanding, respectively
Additional paid-in capital
Unallocated common stock held by:
Employee Stock Ownership Plan (ESOP)
Recognition and Retention Plan (RRP)
Retained earnings
Accumulated other comprehensive loss
Total Shareholders' Equity
Total Liabilities and Shareholders' Equity
December 31,
2018
2017
$
59,618
939
260,131
$
150,418
2,421
234,993
10,872
2,086
1,649,754
(16,348)
1,633,406
47,124
29,560
66,055
43,867
2,153,658
$
13,034
5,873
1,657,795
(14,807)
1,642,988
45,605
28,904
68,033
35,852
2,228,121
$
$
438,146
1,335,071
1,773,217
5,539
-
58,698
12,164
1,849,618
$
461,999
1,404,228
1,866,227
-
3,642
68,183
12,198
1,950,250
-
95
168,243
-
94
165,341
(3,481)
(58)
141,447
(2,206)
304,040
2,153,658
$
(3,838)
(84)
117,313
(955)
277,871
2,228,121
$
The accompanying Notes are an integral part of these Consolidated Financial Statements.
43
HOME BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
(dollars in thousands except per share data)
Interest Income
Loans, including fees
Investment securities:
Taxable interest
Tax-exempt interest
Other investments and deposits
Total interest income
Interest Expense
Deposits
Other borrowings expense
Short-term Federal Home Loan Bank advances
Long-term Federal Home Loan Bank advances
Total interest expense
Net interest income
Provision for loan losses
Net interest income after provision for loan losses
Noninterest Income
Service fees and charges
Bank card fees
Gain on sale of loans, net
Income from bank-owned life insurance
Gain (loss) on sale of assets, net
Other income
Total noninterest income
Noninterest Expense
Compensation and benefits
Occupancy
Marketing and advertising
Data processing and communication
Professional services
Forms, printing and supplies
Franchise and shares tax
Regulatory fees
Foreclosed assets, net
Amortization of acquisition intangible
Other expenses
Total noninterest expense
Income before income tax expense
Income tax expense
Net Income
Earnings per share:
Basic
Diluted
Years Ended December 31,
2017
2018
2016
$
94,303
$
69,168
$
63,731
5,948
708
1,353
102,312
9,076
46
40
1,144
10,306
92,006
3,943
88,063
6,370
4,494
872
656
(52)
1,107
13,447
36,796
6,658
1,162
7,646
1,119
973
1,030
1,559
397
1,845
4,040
63,225
38,285
6,695
31,590
$
$
$
$
3.48
3.40
3,894
637
699
74,398
5,161
-
99
1,289
6,549
67,849
2,317
65,532
4,229
3,003
1,196
494
(162)
1,202
9,962
3,002
675
276
67,684
3,701
-
188
1,379
5,268
62,416
3,200
59,216
4,061
2,603
1,770
483
595
1,645
11,157
28,162
5,065
1,008
4,329
1,590
594
948
1,264
(298)
763
2,752
46,177
29,317
12,493
16,824
$
27,634
5,255
1,063
4,967
983
623
821
1,317
140
801
3,193
46,797
23,576
7,568
16,008
$
$
2.36
$
2.34
$
2.28
$
2.25
Cash dividends declared per common share
$
0.71
$
0.55
$
0.41
The accompanying Notes are an integral part of these Consolidated Financial Statements.
44
HOME BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(dollars in thousands)
Net Income
Other Comprehensive Loss
Unrealized losses on investment securities
Tax effect
Other comprehensive loss, net of taxes
For the Years Ended
December 31,
2017
2016
2018
$
31,590
$
16,824
$
16,008
(1,323)
278
(1,045)
(1,487)
520
(1,323)
463
(967)
(860)
Comprehensive Income
$
30,545
$
15,857
$
15,148
The accompanying Notes are an integral part of these Consolidated Financial Statements.
45
HOME BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(dollars in thousands except share and per share data)
Common
Stock
Additional
Paid-in
Capital
Unallocated
Unallocated
Common Stock Common Stock
Held by RRP
Held by ESOP
Retained
Earnings
Accumulated
Other
Comprehensive
Income (Loss)
Total
Balance, December 31, 2015
$
72
$
76,949
$
(4,553)
$
(159)
$
91,865
$
872
$
165,046
Net income
Other comprehensive loss
Purchase of Company's common
stock at cost, 12,826 shares
Cash dividends declared,
$0.41 per share
Common Stock issued under
incentive plans, net of shares
surrendered in payment,
including tax benefit, 3,877 shares
Exercise of stock options
RRP shares released for allocation
ESOP shares released for allocation
Share-based compensation cost
Balance, December 31, 2016
Net income
Other comprehensive loss
Purchase of Company's common
stock at cost, 1,776 shares
Cash dividends declared,
$0.55 per share
Common Stock issued under
incentive plans, net of shares
surrendered in payment,
including tax benefit, 8,485 shares
Exercise of stock options
RRP shares released for allocation
ESOP shares released for allocation
Share-based compensation cost
Common stock issued for acquisition,
1,936,117 shares
Balance, December 31, 2017
(860)
16,008
(229)
(2,988)
(9)
357
39
$
(4,196)
$
(120)
$
104,647
$
12
(967)
16,824
(53)
(4,070)
16,008
(860)
-
(357)
(2,988)
-
(5)
1,416
13
1,200
370
179,843
$
16,824
(967)
(70)
(4,070)
(35)
(1)
358
36
-
1
1
$
74
(128)
3
1,415
(26)
843
370
79,426
$
-
-
1
(17)
34
1,192
(12)
1,261
516
19
94
$
82,941
165,341
$
$
(3,838)
$
(84)
$
117,313
$
(955)
Net income
Other comprehensive loss
Reclassification of stranded tax effects
in accumulated other comprehensive income (1)
Purchase of Company's common
stock at cost, 30,887 shares
Cash dividends declared,
$0.71 per share
Common Stock issued under
incentive plans, net of shares
surrendered in payment,
including tax benefit, 17,691 shares
Exercise of stock options
RRP shares released for allocation
ESOP shares released for allocation
Share-based compensation cost
Balance, December 31, 2018
(1) See Note 2 - Recent Accounting Pronouncements
-
-
1
$
95
(309)
141
913
(26)
1,442
741
168,243
$
(1,045)
(206)
31,590
206
(885)
(6,706)
(71)
357
26
$
(3,481)
$
(58)
$
141,447
$
(2,206)
The accompanying Notes are an integral part of these Consolidated Financial Statements.
46
1,193
24
1,619
516
-
82,960
277,871
$
31,590
(1,045)
(1,194)
(6,706)
70
914
-
1,799
741
304,040
$
HOME BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(dollars in thousands)
Cash flows from operating activities, net of effects of acquisitions:
Net income
Adjustments to reconcile net income to net cash provided
by operating activities:
Provision for loan losses
Depreciation
Amortization and accretion of purchase accounting valuations and intangibles
Net amortization of mortgage servicing asset
Federal Home Loan Bank stock dividends
Net amortization of premium on investments
Gain on loans sold, net
Proceeds, including principal payments, from loans held for sale
Originations of loans held for sale
Non-cash compensation
Deferred income tax expense (benefit)
Impact of Tax Cuts and Jobs Act on deferred taxes
Increase in accrued interest receivable and other assets
Increase in cash surrender value of bank-owned life insurance
Decrease in accrued interest payable and other liabilities
Net cash provided by operating activities
Cash flows from investing activities, net of effects of acquisitions:
Purchases of securities available for sale
Proceeds from maturities, prepayments and calls on securities available for sale
Proceeds from maturities, prepayments and calls on securities held to maturity
Proceeds from sales on securities available for sale
(Increase) decrease in loans, net
Reimbursement from FDIC for covered assets
Decrease in interest-bearing deposits in banks
Proceeds from sale of repossessed assets
Purchases of office properties and equipment
Proceeds from sale of office properties and equipment
Cash received in excess of cash paid in business combination
Proceeds from redemption of Federal Home Loan Bank stock
Investment in new market tax credit
Net cash (used in) provided by investing activities
Cash flows from financing activities, net of effects of acquisitions:
(Decrease) increase in deposits, net
Borrowings on Federal Home Loan Bank advances
Repayments of Federal Home Loan Bank advances
Proceeds from exercise of stock options
Issuance of stock under incentive plans
Dividends paid to shareholders
Purchase of Company's common stock
Net cash (used in) provided by financing activities
Net change in cash and cash equivalents
Cash and cash equivalents at beginning of year
Cash and cash equivalents at end of year
Supplementary cash flow information:
Interest paid on deposits and borrowed funds
Income taxes paid
Noncash investing and financing activities:
Transfer of loans to repossessed assets
Common stock issued in consideration of St. Martin Bancshares, Inc.
Assets acquired and liabilities assumed in acquisitions:
Assets acquired in acquisitions
Liablities assumed in acquisitions
Years Ended December 31,
2017
2016
2018
$
31,590
$
16,824
$
16,008
3,943
2,504
8,288
151
(125)
2,027
(872)
98,471
(93,812)
2,540
2,137
-
(8,970)
(656)
(88)
47,128
(78,462)
50,280
1,855
-
(2,177)
26
1,482
731
(5,010)
1,051
-
-
5,539
(24,685)
(93,106)
3,000
(16,221)
914
70
(6,706)
(1,194)
(113,243)
2,317
1,959
6,635
200
(109)
1,717
(1,196)
123,321
(123,842)
2,135
2,512
2,721
(3,497)
(494)
(6,451)
24,752
(56,997)
39,606
-
17,040
4,040
142
693
2,847
(1,915)
827
68,212
4,180
-
78,675
84,657
130,750
(194,783)
1,193
(1)
(4,070)
(70)
17,676
3,200
1,795
3,256
254
(87)
1,653
(1,770)
179,639
(176,373)
1,570
(321)
-
(589)
(483)
(7,264)
20,488
(47,076)
37,458
235
-
(7,062)
51
3,260
1,411
(4,112)
4,335
-
-
-
(11,500)
3,943
2,642,250
(2,648,730)
1,416
(5)
(2,988)
(357)
(4,471)
(90,800)
150,418
59,618
$
121,103
29,315
150,418
$
4,517
24,798
29,315
$
$
10,391
5,075
$
6,549
10,053
$
5,207
7,913
$
1,816
-
$
535
82,960
$
1,885
-
-
-
592,896
559,202
-
-
The accompanying Notes are an integral part of these Consolidated Financial Statements.
47
HOME BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Description of Business
Home Bancorp, Inc., a Louisiana Corporation (the “Company”), was organized by Home Bank (a federally-
chartered savings bank and the predecessor of Home Bank, N.A.) (the “Bank”) in May 2008 to facilitate the
conversion of the Bank from the mutual to the stock form (the “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. The Company and Bank
are headquartered in Lafayette, Louisiana. As of December 31, 2018, the Company was a bank holding company.
As of December 31, 2018, 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, and, in May 2015, the Bank became a national bank. In September 2018, the Bank established HB
Investment Fund I, LLC, a wholly-owned subsidiary of the Bank to invest in New Market Tax Credits (“NMTC”)
in our market area.
In 2010, the Bank expanded into the Northshore (of Lake Pontchartrain) region 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 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. In December 2017, the Bank expanded its presence in the
Acadiana market through the acquisition of St. Martin Bancshares (“SMB”), the former holding company of St.
Martin Bank & Trust Company (“St. Martin Bank”) of St. Martinville, Louisiana. As of December 31, 2018, the
Bank conducted business from 39 banking offices in the Acadiana, 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 general operating expenses and interest
expense on deposits and borrowings.
The Company’s primary banking regulator is the Board of Governors of the Federal Reserve Systems (the”Federal
Reserve”). The Bank’s primary regulator is the Office of the Comptroller of the Currency (“OCC”). Its deposits
are insured to the maximum amount permissible under federal law by the FDIC.
2. Summary of Significant Accounting Policies
Principles of Consolidation
The consolidated financial statements include the accounts of the Company, HB Investment Fund I, LLC 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 accounting principles generally accepted in the United
States (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts of
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
48
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 may be 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, 2018 or 2017.
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, 2018 or 2017.
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.
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.
49
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, 2018 and 2017, the Company had $2,086,000 and $5,873,000, respectively, in
loans classified as “Mortgage loans held for sale.”
As of December 31, 2018 and 2017 the Company had $139,303,000 and $164,322,000, respectively, outstanding
in loans sold to government agencies that it was servicing through a third party.
Loans
The following describes the distinction between originated and Acquired Loans and certain significant accounting
policies relevant to each category.
Originated Loans
Originated loans are carried net of discounts on loan originations and 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.
50
Acquired Loans
Acquired Loans at December 31, 2018 and 2017 are those associated with our acquisitions of Statewide, GSFC,
Britton & Koontz, Louisiana Bancorp and SMB. 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.
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 estimated collateral values. As these
factors change, adjustments to the allowance for loan losses 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 its judgment of
information available to it as of the time of its 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
51
its examination. As part of the Bank’s 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 date
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 $1,558,000 and $728,000 of repossessed assets as of December 31, 2018 and 2017, 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
three 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. 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.
Shareholders’ Equity
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. . For the years ended December 31,
2018, 2017 and 2016, the cost of shares repurchased by the Company have been allocated to common stock, additional
paid-in capital, and retained earnings.
52
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, 2018, 2017 and 2016, 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.
Investments that generate investment tax credits are accounted for under the deferral method. Under the deferral
method, the allowable investment credit is recognized as a reduction in income tax expense over the life of the
acquired investment.
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.
53
The Company may issue restricted stock under the 2009 Recognition and Retention Plan and restricted stock
through May 12, 2019 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 losses on investment securities was
$(278,000), $(520,000) and $(463,000) for the periods ending December 31, 2018, 2017 and 2016, respectively.
The reclassification adjustment for gains included in net income had no tax effect for the periods ending December
31, 2018, 2017 and 2016. 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 February 2016, the FASB issued ASU No. 2016-02, “Conforming Amendments Related to Leases”. This ASU
amends the codification regarding leases in order to increase transparency and comparability. Under current GAAP,
the recognition of lease assets and lease liabilities by lessees is not required if the terms of the lease qualify it as an
operating lease. ASU No. 2016-02 requires companies to recognize lease assets and liabilities on the statement of
condition and disclose key information about leasing arrangements, for both operating and capital or finance leases.
Upon implementation, a lessee will 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. We will implement an accounting policy election to keep leases with an initial
term of 12 months or less off the Company’s consolidated balance sheet. The Company expects to recognize right-
of-use assets and liabilities of approximately $2.3 million. We do not believe the standard will have a notable impact
on the consolidated statement of income.
In June 2016, the FASB issued ASU No. 2016-13, “Measurement of Credit Losses on Financial Instruments”. The
ASU requires a financial asset (or a group of financial assets) measured at amortized cost basis to be presented at
the net amount expected to be collected. The standard introduces a new impairment model known as CECL (Current
Expected Credit Losses). The allowance for credit losses is a valuation account that is deducted from the amortized
cost basis of the financial assets to present the net carrying value at the amount expected to be collected on the
financial assets. The income statement reflects the measurement of credit losses for newly recognized financial
assets, as well as the expected increases or decreases of expected credit losses that have taken place during the
period. An entity must use judgment in determining the relevant information and estimation methods that are
appropriate in its circumstances. The allowance for credit losses for purchased financial assets with a more-than-
insignificant amount of credit deterioration since origination that are measured at amortized cost basis is determined
in a similar manner to other financial assets measured at amortized cost basis; however, the initial allowance for
credit losses is added to the purchase price rather than being reported as a credit loss expense. Only subsequent
changes in the allowance for credit losses are recorded as a credit loss expense for these assets. Off-balance-sheet
arrangements such as commitments to extend credit, guarantees and standby letters of credit that are not
unconditionally cancellable are also within the scope of this amendment. Credit losses relating to debt securities
should be recorded through an allowance for credit losses. This ASU is effective for fiscal years beginning after
54
December 31, 2019. An entity will apply the amendments in this update on a modified retrospective basis, through
a cumulative-effect adjustment to retained earnings as of the beginning of the first reporting period in which the
guidance is effective. Under current GAAP, credit losses are not recognized until the occurrence of the loss is
probable and entities, in general, only consider past events and current conditions when measuring incurred losses.
ASU No. 2016-13 will require entities to recognize a current estimate of all expected credit losses, known as the
CECL model, thus eliminating the “probable” recognition threshold. To produce a current estimate of all expected
credit losses, the standard will require entities to incorporate forecasted information along with relevant information
about past events, including historical experience, and current conditions that affect the collectability of the reported
amount of financial assets. The Company is in the process of implementing a new software application to assist in
determining the impact to our Consolidated Financial Statements. The adoption of this ASU could result in material
changes in our accounting for credit losses. Currently, the Company expects the adoption of the ASU to increase
the allowance for loan losses and the provision for loan losses. The extent of the impact upon adoption is not known
and will depend on the characteristics of the Company’s loan portfolio and economic conditions on that date as
well as forecasted conditions thereafter.
In August 2016, the FASB issued ASU No. 2016-15, “Statement of Cash Flows (Topic 230): Classification of
Certain Cash Receipts and Cash Payments”. The amendments in this ASU clarify the proper classification for
certain cash receipts and cash payments, including clarification on debt prepayment or debt extinguishment costs,
settlement of zero-coupon debt instruments, contingent consideration payments made after a business combination,
proceeds from the settlement of insurance claims and proceeds from the settlement of corporate-owned life
insurance policies, including bank-owned life insurance policies, among others. The amendments in this update are
effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years.
The Company’s adoption of standard did not have a material impact on our Consolidated Financial Statements.
In January 2017, FASB issued ASU No. 2017-04, “Intangibles – Goodwill and Other, Simplifying the Test for
Goodwill Impairment”. The amendment in this ASU eliminates the requirement to calculate the implied fair value
of goodwill in order to measure a goodwill impairment charge. An entity will record an impairment charge based
on the excess of the carrying amount over its fair value. This ASU is effective for fiscal and interim testing periods
beginning after December 15, 2019. The Company does not anticipate it will have a material impact on our
Consolidated Financial Statements.
In April 2017, FASB issued ASU No. 2017-08, “Receivables - Nonrefundable Fees and Other Costs (Subtopic 310-
20): Premium Amortization on Purchased Callable Debt Securities”. This ASU shortens the amortization period
for the premium on certain purchased callable debt securities to the earliest call date. The accounting for purchased
callable debt securities held at a discount does not change under the new guidance. This ASU is effective for fiscal
and interim periods beginning after December 15, 2018. The adoption of the ASU did not have an impact on our
Consolidated Financial Statements.
ASU No. 2018-02, “Income Statement — Reporting Comprehensive Income (Topic 220): Reclassification of
Certain Tax Effects from Accumulated Other Comprehensive Income.” ASU No. 2018-02 was issued to address
the income tax accounting treatment of the stranded tax effects within accumulated other comprehensive income
as a result of tax reform. This issue came about from the enactment of the Tax Cuts and Jobs Act of 2017 on
December 22, 2017 that changed the Company’s statutory federal income tax rate from 35% to 21%. The ASU
changed current accounting whereby an entity may elect to reclassify the stranded tax effect from accumulated
other comprehensive income to retained earnings. The ASU is effective for periods beginning after December 15,
2018 although early adoption is permitted. The Company adopted ASU No. 2018-02 in the first quarter of 2018
and reclassified its stranded tax credit of $206,000 from accumulated other comprehensive income to retained
earnings.
In July 2018, the FASB issued ASU No. 2018-11, “Leases – Targeted Improvements” to provide alternative
transition methods to reduce the costs and complexities of implementing the new leases standard, ASU No. 2016-
02. The amendments in the update allow entities to recognize a cumulative-effect adjustment in the opening balance
of retained earnings in the period of adoption of ASU No. 2016-02, which eliminates the need to re-state amounts
presented for prior-periods. In addition, under certain conditions, lessors are allowed to account for lease and non-
lease components as a single component. The amendments have the same effective date as ASU No. 2016-02
(periods beginning after December 15, 2018). The Company expects to adopt the standard upon adoption of ASU
No. 2016-02. The Company does not believe ASU No. 2018-11 will have an impact on our Consolidated Financial
55
Statements, as the update only provides implementation guidance for ASU No. 2016-02.
In August 2018, the FASB issued ASU No. 2018-13, “Disclosure Framework - Changes to the Disclosure
Requirements for Fair Value Measurement.” The ASU removes, modifies and adds certain disclosure requirements
for fair value measurements. For example, public entities will no longer be required to disclose the valuation
processes for Level 3 fair value measurements, but will be required to disclose the range and weighted average
used to develop significant unobservable inputs for Level 3 fair value measurements. ASU No. 2018-13 is effective
for interim and annual reporting periods beginning after December 15, 2019. In addition, entities may early adopt
the modified or eliminated disclosure requirements and delay adoption of the additional disclosure requirements
until their effective date. The Company does not believe ASU No. 2018-13 will have a material impact on our
Consolidated Financial Statements, as the update only revises disclosure requirements.
3. Acquisition Activity
SUMMARY OF ACQUISITION ACTIVITY
(dollars in thousands)
Acquisition
Statewide Bank
GS Financial Corporation
Britton & Koontz Capital Corporation
Louisiana Bancorp, Inc.
St. Martin Bancshares, Inc.
Total Acquisitions
$
Acquisition
Date
03/12/2010
07/15/2011
02/14/2014
09/15/2015
12/06/2017
Total
Assets
188,026 $
256,677
298,930
352,897
592,852
Total
Loans
110,415 $
182,440
161,581
281,583
439,872
$ 1,689,382 $ 1,175,891 $
Goodwill
560 $
296
43
8,454
49,135
58,488 $
Core
Deposit
Intangible
Total
Deposits
206,925
193,518
216,600
208,670
533,497
13,670 $ 1,359,210
1,429 $
859
3,030
1,586
6,766
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. None of the loans acquired in the acquisition of
Louisiana Bancorp were considered impaired as of the date of acquisition.
The nonaccretable discount on loans acquired from SMB totaled $3,760,000 as of December 6, 2017 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 changes in accretable yield on the loans acquired from SMB with deteriorated
credit quality for the years ended December 31, 2018 and 2017, respectively.
(dollars in thousands)
Balance, beginning of period
Acquisition accretable yield
Accretion
Net transfers from nonaccretable discount to accretable yield
Balance, end of period
2018
2017
$
(1,947) $
- $
-
646
(1,538)
(1,981)
34
-
$
(2,839) $
(1,947) $
As of December 31, 2018, the weighted average remaining contractual life of the loan portfolio acquired with
deteriorated credit quality from SMB was 6.5 years.
56
The nonaccretable discount 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.
The following table summarizes the changes in accretable yield on the loans acquired from Britton & Koontz with
deteriorated credit quality for the years ended December 31, 2018, 2017 and 2016, respectively.
(dollars in thousands)
Balance, beginning of period
Accretion
Net transfers from nonaccretable discount to accretable yield
Balance, end of period
2018
2017
(140) $
244
(154)
(1,782) $
2,926
(1,284)
(50) $
(140) $
$
$
2016
(1,682)
1,072
(1,172)
(1,782)
As of December 31, 2018, the weighted average remaining contractual life of the loan portfolio acquired with
deteriorated credit quality from Britton & Koontz was 1.6 years.
The nonaccretable discount 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 changes in accretable yield on the loans acquired from GSFC with deteriorated
credit quality for the years ended December 31, 2018, 2017 and 2016, respectively.
(dollars in thousands)
Balance, beginning of period
Accretion
Net transfers from nonaccretable discount to accretable yield
Balance, end of period
2018
2017
$
$
(236) $
174
(11)
(73) $
(298) $
118
(56)
(236) $
2016
(1,240)
942
-
(298)
As of December 31, 2018, the weighted average remaining contractual life of the loan portfolio acquired with
deteriorated credit quality from GSFC was 13.1 years.
The nonaccretable discount on loans acquired from Statewide totaled $61,478,000 as of March 12, 2010 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 changes in accretable yield on the loans acquired from Statewide for the years
ended December 31, 2018, 2017 and 2016, respectively.
(dollars in thousands)
Balance, beginning of period
Accretion
Net transfers from nonaccretable discount to accretable yield
Balance, end of period
2018
2017
$
$
(6,980) $
1,361
(566)
(6,185) $
(9,011) $
2,031
-
(6,980) $
2016
(13,870)
4,859
-
(9,011)
As of December 31, 2018, the weighted average remaining contractual life the of loan portfolio acquired with
deteriorated credit quality from Statewide was 4.0 years.
57
4. Investment Securities
Summary information regarding the Company’s investment securities classified as available for sale and held to
maturity as of December 31, 2018 and 2017 follows.
(dollars in thousands)
December 31, 2018
Available for sale:
U.S. agency mortgage-backed
Collateralized mortgage obligations
Municipal bonds
U.S. government agency
Total available for sale
Held to maturity:
Municipal bonds
Total held to maturity
(dollars in thousands)
December 31, 2017
Available for sale:
U.S. agency mortgage-backed
Collateralized mortgage obligations
Municipal bonds
U.S. government agency
Total available for sale
Held to maturity:
Municipal bonds
Total held to maturity
$
$
$
$
$
$
$
$
Amortized
Cost
Gross
Unrealized
Gains
Gross Unrealized Losses
Over 1
Year
Less Than
1 Year
Fair Value
86,487 $
145,814
21,453
9,169
262,923 $
10,872 $
10,872 $
485 $
129
52
29
695 $
11 $
11 $
171 $
161
16
19
367 $
892 $
2,191
12
25
3,120 $
85,909
143,591
21,477
9,154
260,131
5 $
5 $
37 $
37 $
10,841
10,841
Amortized
Cost
Gross
Unrealized
Gains
Gross Unrealized Losses
Over 1
Year
Less Than
1 Year
Fair Value
84,639 $
115,435
25,362
11,026
236,462 $
13,034 $
13,034 $
619 $
46
177
42
884 $
54 $
54 $
270 $
671
17
21
979 $
298 $
1,075
1
-
1,374 $
84,690
113,735
25,521
11,047
234,993
18 $
18 $
15 $
15 $
13,055
13,055
58
Management evaluates securities for other-than-temporary impairment at least semi-annually, 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,
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, 2018, 159 of the Company’s debt securities had unrealized losses totaling 1.9% of the
individual securities’ amortized cost basis and 1.3% of the Company’s total amortized cost basis of the investment
securities portfolio. Of the 159 securities, 97 had been in a continuous loss position for over 12 months at such
date. The 97 securities had an aggregate amortized cost basis and unrealized loss of $130,936,000 and $3,157,000,
respectively, at December 31, 2018. Management has the intent and ability to hold these debt securities until
maturity or until anticipated recovery. No declines in these 159 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, 2018 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)
Fair Value
Securities available for sale:
U.S. agency mortgage-backed
Collateralized mortgage obligations
Municipal bonds
$
U.S. government agency
Total securities available for sale
$
One Year
or Less
After One
Year through
Five Years
After Five
Years
through Ten
Years
After Ten
Years
Total
1,708 $
-
3,167
3,974
8,849 $
15,165 $
5,576
9,744
-
33,658 $
17,776
4,939
3,831
35,378 $
120,239
3,627
1,349
30,485 $
60,204 $
160,593 $
85,909
143,591
21,477
9,154
260,131
Securities held to maturity:
Municipal bonds
Total securities held to maturity
$
$
- $
- $
5,739 $
5,739 $
4,061 $
4,061 $
1,041 $
1,041 $
10,841
10,841
59
(dollars in thousands)
Amortized Cost
Securities available for sale:
U.S. agency mortgage-backed
Collateralized mortgage obligations
Municipal bonds
$
U.S. government agency
Total securities available for sale
$
One Year
or Less
After One
Year through
Five Years
After Five
Years
through Ten
Years
After Ten
Years
Total
1,711 $
-
3,167
3,999
8,877 $
15,422 $
5,589
9,726
-
34,182 $
18,102
4,929
3,802
35,172 $
122,123
3,631
1,368
30,737 $
61,015 $
162,294 $
86,487
145,814
21,453
9,169
262,923
Securities held to maturity:
Municipal bonds
Total securities held to maturity
$
$
- $
- $
5,737 $
5,737 $
4,087 $
4,087 $
1,048 $
1,048 $
10,872
10,872
For the years ended December 31, 2018, 2017 and 2016, the Company recorded no gross gains or losses related
to the sale of investment securities.
As of December 31, 2018 and 2017, the Company had accrued interest receivable for investment securities of
$1,076,000 and $990,000, respectively.
As of December 31, 2018 and 2017, the Company had $157,198,000 and $121,984,000, respectively, of securities
pledged to secure public deposits.
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)
Real estate loans:
One- to four-family first mortgage
Home equity loans and lines
Commercial real estate
Construction and land
Multi-family residential
Total real estate loans
Other loans:
Commercial and industrial
Consumer
Total other loans
Total loans
2018
2017
$
450,363 $
83,976
640,575
193,597
54,455
477,211
94,445
611,358
177,263
50,978
1,422,966
1,411,255
172,934
53,854
226,788
1,649,754 $
$
185,284
61,256
246,540
1,657,795
The net discount on the Company’s loans was $18,811,000 and $26,411,000 at December 31, 2018, and 2017,
respectively, of which $7,865,000 and $11,025,000 for the same time periods, respectively, was related to impaired
loans. In addition, loan balances as of December 31, 2018 and 2017 are reported net of $2,716,000 and $2,177,000,
respectively, in unearned income.
60
A summary of activity in the Company’s allowance for loan losses for the years ended December 31, 2018, 2017
and 2016 is as follows.
(dollars in thousands)
Originated loans:
Allowance for loan losses:
For the Year Ended December 31, 2018
Beginning
Balance
Charge-offs
Recoveries
Provision
$
One- to four-family first mortgage
Home equity loans and lines
Commercial real estate
Construction and land
Multi-family residential
Commercial and industrial
Consumer
Total allowance for loan losses
$
1,574
1,024
4,766
1,742
355
4,346
496
14,303
Acquired loans:
Allowance for loan losses:
$
One- to four-family first mortgage
Home equity loans and lines
Commercial real estate
Construction and land
Multi-family residential
Commercial and industrial
Consumer
Total allowance for loan losses
$
89
78
140
7
-
184
6
504
Total loans:
Allowance for loan losses:
$
One- to four-family first mortgage
Home equity loans and lines
Commercial real estate
Construction and land
Multi-family residential
Commercial and industrial
Consumer
Total allowance for loan losses
$
1,663
1,102
4,906
1,749
355
4,530
502
14,807
$
$
$
$
$
$
(1)
-
-
-
-
(2,506)
(74)
(2,581)
-
-
-
-
-
-
-
-
(1)
-
-
-
-
(2,506)
(74)
(2,581)
$
$
$
$
$
$
-
5
-
-
-
158
16
179
-
-
-
-
-
-
-
-
-
5
-
-
-
158
16
179
$
$
$
$
$
$
364
2
990
538
167
864
34
2,959
110
(30)
229
(2)
28
182
467
984
474
(28)
1,219
536
195
1,046
501
3,943
$
$
$
$
$
$
(dollars in thousands)
Originated loans:
Allowance for loan losses:
For the Year Ended December 31, 2017
Beginning
Balance
Charge-offs
Recoveries
Provision
One- to four-family first mortgage $
Home equity loans and lines
Commercial real estate
Construction and land
Multi-family residential
Commercial and industrial
Consumer
Total allowance for loan losses $
1,436
654
4,177
1,763
361
3,316
513
12,220
$
$
(29)
(10)
(3)
-
-
(358)
(64)
(464)
$
$
-
20
-
-
-
408
15
443
$
$
167
360
592
(21)
(6)
980
32
2,104
$
$
Ending
Balance
1,937
1,031
5,756
2,280
522
2,862
472
14,860
199
48
369
5
28
366
473
1,488
2,136
1,079
6,125
2,285
550
3,228
945
16,348
Ending
Balance
1,574
1,024
4,766
1,742
355
4,346
496
14,303
61
(dollars in thousands)
Acquired loans:
Allowance for loan losses:
One- to four-family first mortgage $
Home equity loans and lines
Commercial real estate
Construction and land
Multi-family residential
Commercial and industrial
Consumer
Total allowance for loan losses $
Total loans:
Allowance for loan losses:
One- to four-family first mortgage $
Home equity loans and lines
Commercial real estate
Construction and land
Multi-family residential
Commercial and industrial
Consumer
For the Year Ended December 31, 2017
Beginning
Balance
Charge-offs
Recoveries
Provision
$
$
$
75
74
-
19
-
123
-
291
1,511
728
4,177
1,782
361
3,439
513
- $
-
-
-
-
-
-
-
(29)
(10)
(3)
-
-
(358)
(64)
(464)
$
$
$
-
-
-
-
-
-
-
-
-
20
-
-
-
408
15
443
$
$
$
$
$
$
14
4
140
(12)
-
61
6
213
181
364
732
(33)
(6)
1,041
38
Ending
Balance
89
78
140
7
-
184
6
504
1,663
1,102
4,906
1,749
355
4,530
502
Total allowance for loan losses $
12,511
$
$
2,317
$
14,807
(dollars in thousands)
Originated loans:
Allowance for loan losses:
For the Year Ended December 31, 2016
Beginning
Balance
Charge-offs
Recoveries
Provision
One- to four-family first mortgage $
Home equity loans and lines
Commercial real estate
Construction and land
Multi-family residential
Commercial and industrial
Consumer
Total allowance for loan losses $
1,372
536
3,152
1,360
173
2,010
571
9,174
Acquired loans:
Allowance for loan losses:
One- to four-family first mortgage $
Home equity loans and lines
Commercial real estate
Construction and land
Multi-family residential
Commercial and industrial
Consumer
Total allowance for loan losses $
92
224
-
57
-
-
-
373
$
$
$
$
-
(9)
-
-
-
(242)
(162)
(413)
(33)
-
-
-
-
-
-
(33)
$
$
$
$
-
2
1
52
-
56
5
116
-
-
-
-
-
94
-
94
$
$
$
$
64
125
1,024
351
188
1,492
99
3,343
16
(150)
-
(38)
-
29
-
(143)
Ending
Balance
1,436
654
4,177
1,763
361
3,316
513
12,220
75
74
-
19
-
123
-
291
$
$
$
$
62
(dollars in thousands)
Total loans:
Allowance for loan losses:
For the Year Ended December 31, 2016
Beginning
Balance
Charge-offs
Recoveries
Provision
One- to four-family first mortgage $
Home equity loans and lines
Commercial real estate
Construction and land
Multi-family residential
Commercial and industrial
Consumer
Total allowance for loan losses $
1,464
760
3,152
1,417
173
2,010
571
9,547
$
$
(33)
(9)
-
-
-
(242)
(162)
(446)
$
$
-
2
1
52
-
150
5
210
$
$
80
(25)
1,024
313
188
1,521
99
3,200
$
$
Ending
Balance
1,511
728
4,177
1,782
361
3,439
513
12,511
The Company’s allowance for loan losses and recorded investment in loans as of the dates indicated is as follows.
As of December 31, 2018
Originated Loans
Collectively
Evaluated
for
Impairment
Individually
Evaluated
for
Impairment
Acquired
Loans
(dollars in thousands)
Allowance for loan losses:
One- to four-family first mortgage $
Home equity loans and lines
Commercial real estate
Construction and land
Multi-family residential
Commercial and industrial
Consumer
Total allowance for loan losses $
1,937 $
682
5,272
2,280
522
2,541
472
13,706
$
-
349
484
-
-
321
-
1,154
$
$
199
48
369
5
28
366
473
1,488
$
$
Total
2,136
1,079
6,125
2,285
550
3,228
945
16,348
As of December 31, 2018
(dollars in thousands)
Loans:
Originated Loans
Collectively
Evaluated
for
Impairment
Individually
Evaluated
for
Impairment
One- to four-family first mortgage $
Home equity loans and lines
Commercial real estate
Construction and land
Multi-family residential
Commercial and industrial
Consumer
Total loans
$
227,602
53,049
432,217
161,232
42,222
131,250
37,711
1,085,283
$
$
-
866
7,059
-
-
1,952
-
9,877
$
$
Acquired
Loans(1)
222,761
30,061
201,299
32,365
12,233
39,732
16,143
554,594
Total
450,363
83,976
640,575
193,597
54,455
172,934
53,854
1,649,754
$
$
63
As of December 31, 2017
(dollars in thousands)
Allowance for loan losses:
Originated Loans
Collectively
Evaluated
for
Impairment
Individually
Evaluated
for
Impairment
One- to four-family first mortgage $
Home equity loans and lines
Commercial real estate
Construction and land
Multi-family residential
Commercial and industrial
Consumer
Total allowance for loan losses $
1,574
676
4,766
1,742
355
2,721
496
12,330
$
$
-
348
-
-
-
1,625
-
1,973
$
$
Acquired
Loans
89
78
140
7
-
184
6
504
Total
1,663
1,102
4,906
1,749
355
4,530
502
14,807
$
$
As of December 31, 2017
(dollars in thousands)
Loans:
Originated Loans
Collectively
Evaluated
for
Impairment
Individually
Evaluated
for
Impairment
One- to four-family first mortgage $
Home equity loans and lines
Commercial real estate
Construction and land
Multi-family residential
Commercial and industrial
Consumer
Total loans
$
199,199
53,349
369,740
124,963
30,540
120,818
39,854
938,463
$
$
-
925
22
-
-
2,512
-
3,459
$
$
Acquired
Loans(1)
278,012
40,171
241,596
52,300
20,438
61,954
21,402
715,873
Total
477,211
94,445
611,358
177,263
50,978
185,284
61,256
1,657,795
$
$
(1) $10.0 million and $14.2 million in Acquired Loans were accounted for under ASC 310-30 at December 31, 2018
and 2017, 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.
64
Credit quality indicators on the Company’s loan portfolio as of the dates indicated are as follows.
(dollars in thousands)
Pass
Special
Mention
Substandard
Doubtful
Total
December 31, 2018
Originated loans:
One- to four-family first mortgage
Home equity loans and lines
Commercial real estate
Construction and land
Multi-family residential
Commercial and industrial
Consumer
Total originated loans
Acquired loans:
One- to four-family first mortgage
Home equity loans and lines
Commercial real estate
Construction and land
Multi-family residential
Commercial and industrial
Consumer
Total acquired loans
Total loans:
One- to four-family first mortgage
Home equity loans and lines
Commercial real estate
Construction and land
Multi-family residential
Commercial and industrial
Consumer
Total loans
(dollars in thousands)
Originated loans:
One- to four-family first mortgage
Home equity loans and lines
Commercial real estate
Construction and land
Multi-family residential
Commercial and industrial
Consumer
Total originated loans
$
$
$
$
$
$
$
$
221,930 $
52,344
425,851
159,428
42,222
126,126
37,312
1,065,213 $
213,199 $
29,451
183,514
30,005
11,401
35,918
15,521
519,009 $
435,129 $
81,795
609,365
189,433
53,623
162,044
52,833
1,584,222 $
1,852 $
69
4,463
-
-
1,717
126
8,227 $
2,474 $
270
5,189
917
582
1,376
262
11,070 $
4,326 $
339
9,652
917
582
3,093
388
19,297 $
3,820 $
1,502
8,962
1,804
-
5,359
273
21,720 $
7,088 $
340
12,596
1,443
250
2,438
360
24,515 $
10,908 $
1,842
21,558
3,247
250
7,797
633
46,235 $
- $
-
-
-
-
-
-
- $
227,602
53,915
439,276
161,232
42,222
133,202
37,711
1,095,160
- $
-
-
-
-
-
-
- $
222,761
30,061
201,299
32,365
12,233
39,732
16,143
554,594
- $
-
-
-
-
-
-
- $
450,363
83,976
640,575
193,597
54,455
172,934
53,854
1,649,754
December 31, 2017
Pass
Special
Mention
196,203 $
52,492
356,020
122,076
30,540
105,097
39,335
901,763 $
990 $
283
5,080
2,043
-
4,640
120
13,156 $
Substandard
Doubtful
Total
2,006 $
1,499
8,662
844
-
13,593
399
27,003 $
- $
-
-
-
-
-
-
- $
199,199
54,274
369,762
124,963
30,540
123,330
39,854
941,922
65
(dollars in thousands)
Pass
Special
Mention
Substandard
Doubtful
Total
December 31, 2017
Acquired loans:
One- to four-family first mortgage
Home equity loans and lines
Commercial real estate
Construction and land
Multi-family residential
Commercial and industrial
Consumer
Total acquired loans
Total loans:
One- to four-family first mortgage
Home equity loans and lines
Commercial real estate
Construction and land
Multi-family residential
Commercial and industrial
Consumer
Total loans
$
$
$
$
269,144 $
39,603
218,234
48,748
19,644
56,635
21,172
673,180 $
465,347 $
92,095
574,254
170,824
50,184
161,732
60,507
1,574,943 $
2,825 $
307
12,522
3,056
636
2,998
69
22,413 $
3,815 $
590
17,602
5,099
636
7,638
189
35,569 $
6,043 $
261
10,840
496
158
2,321
161
20,280 $
8,049 $
1,760
19,502
1,340
158
15,914
560
47,283 $
- $
-
-
-
-
-
-
- $
278,012
40,171
241,596
52,300
20,438
61,954
21,402
715,873
- $
-
-
-
-
-
-
- $
477,211
94,445
611,358
177,263
50,978
185,284
61,256
1,657,795
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, 2018 and 2017, respectively, and were generally updated within the prior three
months.
66
Age analysis of past due loans, as of the dates indicated, is as follows.
30-59
Days
Past
Due
3,913
326
714
576
-
5,529
362
319
681
6,210
4,196
462
3,104
1,050
84
8,896
4,315
357
4,672
13,568
8,109
788
3,818
1,626
84
14,425
$
$
$
$
$
$
$
$
$
$
December 31, 2018
60-89
Days
Past
Due
Greater
Than
90 Days
Past
Due
Total
Past
Due
Current
Loans
Total
Loans
270 $
61
34
-
-
365
64 $
41
168
740
-
1,013
4,247 $
428
916
1,316
-
6,907
223,355 $
53,487
438,360
159,916
42,222
917,340
227,602
53,915
439,276
161,232
42,222
924,247
1,369
131
1,500
1,865 $
265
196
461
1,474 $
1,996
646
2,642
9,549 $ 1,085,611 $
131,206
37,065
168,271
133,202
37,711
170,913
1,095,160
1,258 $
116
265
488
-
2,127
3,702 $
163
1,143
813
-
5,821
9,156 $
741
4,512
2,351
84
16,844
213,605 $
29,320
196,787
30,014
12,149
481,875
222,761
30,061
201,299
32,365
12,233
498,719
109
277
386
2,513 $
329
262
591
6,412 $
4,753
896
5,649
22,493 $
34,979
15,247
50,226
532,101 $
39,732
16,143
55,875
554,594
1,528 $
177
299
488
-
2,492
3,766 $
204
1,311
1,553
-
6,834
13,403 $
1,169
5,428
3,667
84
23,751
436,960 $
82,807
635,147
189,930
54,371
1,399,215
450,363
83,976
640,575
193,597
54,455
1,422,966
4,677
676
5,353
19,778
$
$
1,478
408
1,886
4,378 $
594
458
1,052
7,886 $
6,749
1,542
8,291
32,042 $ 1,617,712 $
166,185
52,312
218,497
172,934
53,854
226,788
1,649,754
(dollars in thousands)
Originated loans:
Real estate loans:
One- to four-family first mortgage
Home equity loans and lines
Commercial real estate
Construction and land
Multi-family residential
Total real estate loans
Other loans:
Commercial and industrial
Consumer
Total other loans
Total originated loans
Acquired loans:
Real estate loans:
One- to four-family first mortgage
Home equity loans and lines
Commercial real estate
Construction and land
Multi-family residential
Total real estate loans
Other loans:
Commercial and industrial
Consumer
Total other loans
Total acquired loans
Total loans:
Real estate loans:
One- to four-family first mortgage
Home equity loans and lines
Commercial real estate
Construction and land
Multi-family residential
Total real estate loans
Other loans:
Commercial and industrial
Consumer
Total other loans
Total loans
67
30-59
Days
Past
Due
837
1,018
670
744
-
3,269
882
380
1,262
4,531
3,867
137
5,071
2,089
-
11,164
809
329
1,138
12,302
4,704
1,155
5,741
2,833
-
14,433
$
$
$
$
$
$
$
$
$
$
December 31, 2017
60-89
Days
Past
Due
Greater
Than
90 Days
Past
Due
Total
Past
Due
Current
Loans
Total
Loans
131 $
-
-
-
-
131
825
9
834
965 $
2,087 $
61
436
159
-
2,743
44 $
26
-
200
-
270
1,012 $
1,044
670
944
-
3,670
198,187 $
53,230
369,092
124,019
30,540
775,068
1,641
278
1,919
2,189 $
2,816 $
46
1,864
239
-
4,965
3,348
667
4,015
7,685 $
119,982
39,187
159,169
934,237 $
8,770 $
244
7,371
2,487
-
18,872
269,242 $
39,927
234,225
49,813
20,438
613,645
199,199
54,274
369,762
124,963
30,540
778,738
123,330
39,854
163,184
941,922
278,012
40,171
241,596
52,300
20,438
632,517
678
152
830
3,573 $
185
95
280
5,245 $
1,672
576
2,248
21,120 $
60,282
20,826
81,108
694,753 $
61,954
21,402
83,356
715,873
2,218 $
61
436
159
-
2,874
2,860 $
72
1,864
439
-
5,235
9,782 $
1,288
8,041
3,431
-
22,542
467,429 $
93,157
603,317
173,832
50,978
1,388,713
477,211
94,445
611,358
177,263
50,978
1,411,255
1,691
709
2,400
16,833
$
$
1,503
161
1,664
4,538 $
1,826
373
2,199
7,434 $
5,020
1,243
6,263
28,805 $ 1,628,990 $
180,264
60,013
240,277
185,284
61,256
246,540
1,657,795
(dollars in thousands)
Originated loans:
Real estate loans:
One- to four-family first mortgage
Home equity loans and lines
Commercial real estate
Construction and land
Multi-family residential
Total real estate loans
Other loans:
Commercial and industrial
Consumer
Total other loans
Total originated loans
Acquired loans:
Real estate loans:
One- to four-family first mortgage
Home equity loans and lines
Commercial real estate
Construction and land
Multi-family residential
Total real estate loans
Other loans:
Commercial and industrial
Consumer
Total other loans
Total acquired loans
Total loans:
Real estate loans:
One- to four-family first mortgage
Home equity loans and lines
Commercial real estate
Construction and land
Multi-family residential
Total real estate loans
Other loans:
Commercial and industrial
Consumer
Total other loans
Total loans
As of December 31, 2018 and 2017, the Company did not have any loans greater than 90 days past due which were
accruing interest.
68
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.
(dollars in thousands)
With no related allowance recorded:
One- to four-family first mortgage
Home equity loans and lines
Commercial real estate
Construction and land
Multi-family residential
Commercial and industrial
Consumer
Total
With an allowance recorded:
One- to four-family first mortgage
Home equity loans and lines
Commercial real estate
Construction and land
Multi-family residential
Commercial and industrial
Consumer
Total
Total impaired loans:
One- to four-family first mortgage
Home equity loans and lines
Commercial real estate
Construction and land
Multi-family residential
Commercial and industrial
Consumer
Total
(dollars in thousands)
With no related allowance recorded:
One- to four-family first mortgage
Home equity loans and lines
Commercial real estate
Construction and land
Multi-family residential
Commercial and industrial
Consumer
Total
$
$
$
$
$
$
$
$
For the Year Ended December 31, 2018
Unpaid
Principal
Balance
Related
Allowance
Average
Recorded
Investment
Recorded
Investment
- $
441
149
-
-
1,540
-
2,130 $
- $
425
6,910
-
-
412
-
7,747 $
- $
866
7,059
-
-
1,952
-
9,877 $
- $
476
161
-
-
1,904
-
2,541 $
- $
457
6,910
-
-
442
-
7,809 $
- $
933
7,071
-
-
2,346
-
10,350 $
- $
-
-
-
-
-
-
- $
- $
349
484
-
-
321
-
1,154 $
- $
349
484
-
-
321
-
1,154 $
- $
454
32
-
-
438
-
924 $
- $
440
2,057
-
-
1,367
-
3,864 $
- $
894
2,089
-
-
1,805
-
4,788 $
For the Year Ended December 31, 2017
Unpaid
Principal
Balance
Related
Allowance
Average
Recorded
Investment
Recorded
Investment
- $
470
22
-
-
428
-
920 $
- $
476
32
-
-
434
-
942 $
- $
-
-
-
-
-
-
- $
- $
395
19
-
-
2,849
-
3,263 $
69
Interest
Income
Recognized
-
-
7
-
-
-
-
7
-
-
38
-
-
1
-
39
-
-
45
-
-
1
-
46
Interest
Income
Recognized
-
1
-
-
-
2
-
3
(dollars in thousands)
With an allowance recorded:
One- to four-family first mortgage
Home equity loans and lines
Commercial real estate
Construction and land
Multi-family residential
Commercial and industrial
Consumer
Total
Total impaired loans:
One- to four-family first mortgage
Home equity loans and lines
Commercial real estate
Construction and land
Multi-family residential
Commercial and industrial
Consumer
Total
(dollars in thousands)
With no related allowance recorded:
One- to four-family first mortgage
Home equity loans and lines
Commercial real estate
Construction and land
Multi-family residential
Commercial and industrial
Consumer
Total
With an allowance recorded:
One- to four-family first mortgage
Home equity loans and lines
Commercial real estate
Construction and land
Multi-family residential
Commercial and industrial
Consumer
Total
Total impaired loans:
One- to four-family first mortgage
Home equity loans and lines
Commercial real estate
Construction and land
Multi-family residential
Commercial and industrial
Consumer
Total
$
$
$
$
$
$
$
$
$
$
For the Year Ended December 31, 2017
Unpaid
Principal
Balance
Related
Allowance
Average
Recorded
Investment
Recorded
Investment
- $
455
-
-
-
2,084
-
2,539 $
- $
925
22
-
-
2,512
-
3,459 $
- $
461
-
-
-
2,157
-
2,618 $
- $
937
32
-
-
2,591
-
3,560 $
- $
348
-
-
-
1,625
-
1,973 $
- $
348
-
-
-
1,625
-
1,973 $
42 $
383
296
-
-
1,985
-
2,706 $
42 $
778
315
-
-
4,834
-
5,969 $
For the Year Ended December 31, 2016
Unpaid
Principal
Balance
Related
Allowance
Average
Recorded
Investment
- $
-
-
-
-
3,178
-
3,178 $
260 $
-
483
-
-
1,737
-
2,480 $
260 $
-
483
-
-
4,915
-
5,658 $
- $
-
-
-
-
-
-
- $
39 $
-
19
-
-
737
-
795 $
39 $
-
19
-
-
737
-
795 $
- $
-
-
-
-
262
-
262 $
93 $
-
423
-
-
1,635
-
2,151 $
93 $
-
423
-
-
1,897
-
2,413 $
Recorded
Investment
- $
-
-
-
-
3,144
-
3,144 $
252 $
-
462
-
-
1,700
-
2,414 $
252 $
-
462
-
-
4,844
-
5,558 $
70
Interest
Income
Recognized
-
1
-
-
-
52
-
53
-
2
-
-
-
54
-
56
Interest
Income
Recognized
-
-
-
-
-
166
-
166
13
-
14
-
-
87
-
114
13
-
14
-
-
253
-
280
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, 2018 and 2017 is as follows.
Originated
December 31, 2018
Acquired(1)
Total
Originated
December 31, 2017
Acquired(1)
Total
(dollars in thousands)
Nonaccrual loans:
One- to four-family first
mortgage
Home equity loans and lines
Commercial real estate
Construction and land
Multi-family residential
Commercial and industrial
Consumer
$
1,984 $
1,457
7,940
740
-
2,986
273
15,380 $
3,188 $
242
3,403
854
-
1,002
343
5,172 $
1,699
11,343
1,594
-
3,988
616
2,006 $
1,434
8,662
200
-
9,678
399
22,379 $
1,167 $
108
95
249
-
932
103
3,173
1,542
8,757
449
-
10,610
502
2,654 $ 25,033
$
Total
____________________
(1) Table excludes Acquired Loans which were being accounted for under ASC 310-30 because they continue to earn
interest from accretable yield regardless of their status as past due or otherwise not in compliance with their contractual
terms. Acquired Loans with deteriorated credit quality, which were being accounting for under ASC 310-30 and which
were 90 days or more past due, totaled $1.7 million and $4.3 million as of December 31, 2018 and 2017, respectively.
9,032 $ 24,412 $
As of December 31, 2018, the Company was not committed to lend additional funds to any customer whose loan
was classified as impaired.
As of December 31, 2018 and 2017, the Company had accrued interest receivable for loans of $7,017,000 and
$6,593,000, 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 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.
71
In its determination of whether the customer is experiencing financial difficulties, the Company considers numerous
indicators, including, but not limited to:
whether the customer is currently in default on its existing loan, or is in an economic position where it is
probable the customer will be in default on its loan in the foreseeable future without a modification,
whether the customer has declared or is in the process of declaring bankruptcy,
whether there is substantial doubt about the customer’s ability to continue as a going concern,
whether, based on its projections of the customer’s current capabilities, the Company believes the customer’s
future cash flows will be insufficient to service the debt, including interest, in accordance with the contractual
terms of the existing agreement for the foreseeable future and
whether, without modification, the customer cannot obtain sufficient funds from other sources at an effective
interest rate equal to the current market rate for similar debt for a non-troubled debtor.
If the Company concludes that both a concession has been granted and the concession was granted to a customer
experiencing financial difficulties, the Company identifies the loan as a TDR. For purposes of the determination of
an allowance for loan losses on TDRs, such loans are reviewed for specific impairment in accordance with the
Company’s allowance for loan loss methodology. If it is determined that losses are probable on such TDRs, either
because of delinquency or other credit quality indicators, the Company specifically allocates a portion of the
allowance for loan losses to these loans.
Information about the Company’s TDRs is presented in the following tables.
As of December 31, 2018
Past Due
Greater Than
30 Days
Nonaccrual
TDRs
Current
(dollars in thousands)
Originated loans:
Real estate loans:
One- to four-family first mortgage
Home equity loans and lines
Commercial real estate
Construction and land
Multi-family residential
Total real estate loans
Other loans:
Commercial and industrial
Consumer
Total other loans
Total loans
Acquired loans:
Real estate loans:
One- to four-family first mortgage
Home equity loans and lines
Commercial real estate
Construction and land
Multi-family residential
Total real estate loans
Other loans:
Commercial and industrial
Consumer
Total other loans
Total loans
$
$
$
$
- $
44
-
-
-
44
-
-
-
44 $
- $
-
-
-
-
-
-
-
-
- $
218 $
-
722
133
-
1,073
-
-
-
1,073 $
214 $
-
-
-
-
214
68
7
75
289 $
72
Total
TDRs
2,138
609
8,015
133
-
10,895
1,920 $
565
7,293
-
-
9,778
424
77
501
10,279 $
424
77
501
11,396
647 $
66
2,682
-
-
3,395
740
35
775
4,170 $
861
66
2,682
-
-
3,609
808
42
850
4,459
(dollars in thousands)
Total loans:
Real estate loans:
One- to four-family first mortgage
Home equity loans and lines
Commercial real estate
Construction and land
Multi-family residential
Total real estate loans
Other loans:
Commercial and industrial
Consumer
Total other loans
Total loans
(dollars in thousands)
Originated loans:
Real estate loans:
One- to four-family first mortgage
Home equity loans and lines
Commercial real estate
Construction and land
Multi-family residential
Total real estate loans
Other loans:
Commercial and industrial
Consumer
Total other loans
Total loans
Acquired loans:
Real estate loans:
One- to four-family first mortgage
Home equity loans and lines
Commercial real estate
Construction and land
Multi-family residential
Total real estate loans
Other loans:
Commercial and industrial
Consumer
Total other loans
Total loans
$
$
$
$
$
$
As of December 31, 2018
Past Due
Greater Than
30 Days
Nonaccrual
TDRs
Current
$
432
-
722
133
-
1,287
68
7
75
1,362 $
$
-
44
-
-
-
44
-
-
-
44 $
Total
TDRs
2,999
675
10,697
133
-
14,504
$
2,567
631
9,975
-
-
13,173
1,164
112
1,276
14,449 $
1,232
119
1,351
15,855
As of December 31, 2017
Past Due
Greater Than
30 Days
Nonaccrual
TDRs
Total
TDRs
Current
274 $
64
332
-
-
670
-
-
-
670 $
3 $
-
803
-
-
806
-
-
-
806 $
473 $
316
1,942
-
-
2,731
4,581
178
4,759
7,490 $
59 $
91
-
-
-
150
203
-
203
353 $
1,053
655
2,370
169
-
4,247
4,581
178
4,759
9,006
276
91
803
-
-
1,170
203
-
203
1,373
306 $
275
96
169
-
846
-
-
-
846 $
214 $
-
-
-
-
214
-
-
-
214 $
73
(dollars in thousands)
Total loans:
Real estate loans:
One- to four-family first mortgage
Home equity loans and lines
Commercial real estate
Construction and land
Multi-family residential
Total real estate loans
Other loans:
Commercial and industrial
Consumer
Total other loans
Total loans
As of December 31, 2017
Past Due
Greater Than
30 Days
Nonaccrual
TDRs
Total
TDRs
Current
$
$
$
520
275
96
169
-
1,060
-
-
-
1,060 $
$
277
64
1,135
-
-
1,476
-
-
-
1,476 $
$
532
407
1,942
-
-
2,881
1,329
746
3,173
169
-
5,417
4,784
178
4,962
7,843 $
4,784
178
4,962
10,379
A summary of information pertaining to loans modified as of the periods indicated is as follows.
For the Years Ended December 31,
2018
Pre-
Post-
2017
Pre-
Post-
modification
modification
modification
modification
Outstanding
Outstanding
Outstanding
Outstanding
Number of
Recorded
Recorded
Number of
Recorded
Recorded
Contracts
Investment
Investment
Contracts
Investment
Investment
$
8
-
5
-
-
2
4
19
$
3,195
-
10,105
-
-
697
44
14,041
$
$
1,974
-
9,603
-
-
635
42
12,254
$
6
2
5
-
-
1
2
16
$
465
38
1,433
-
-
1,423
59
3,418
$
$
456
36
1,427
-
-
1,030
57
3,006
(dollars in thousands)
Troubled debt restructurings:
One- to four-family first
mortgage
Home equity loans and lines
Commercial real estate
Construction and land
Multi-family residential
Commercial and industrial
Other consumer
Total
None of the performing troubled debt restructurings as of December 31, 2018 had defaulted subsequent to the
restructuring through the date the financial statements were available to be issued.
74
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)
2018
2017
Mortgage loans sold to Federal Home Loan Mortgage Corporation
without recourse
Mortgage loans sold to Federal National Mortgage Association
without recourse
Mortgage loans sold to Federal Home Loan Bank without recourse
Balance, end of period
$
$
4,438 $
5,653
134,550
315
139,303 $
158,235
434
164,322
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. Changes in the carrying value of servicing assets are
recorded in service fees and charges on the Consolidated Statements of Income. Activity related to servicing assets
for the years ended December 31, 2018, 2017 and 2016 is summarized as follows.
(dollars in thousands)
Balance at the beginning of the year
Amortization
Balance, end of period
Fair value, end of period
$
$
2018
422 $
(150)
272
622 $
(200)
422
789 $
1,141 $
2017
2016
876
(254)
622
1,050
Custodial and escrow account balances maintained in connection with the foregoing loan servicing arrangements
were $2,366,000 and $2,725,000 as of December 31, 2018 and 2017, 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)
Land
Buildings and improvements
Furniture and equipment
Total office properties and equipment
Less accumulated depreciation
Total office properties and equipment, net
2018
2017
14,034 $
34,311
15,197
63,542
16,418
47,124 $
14,322
35,362
10,744
60,428
14,823
45,605
$
$
Depreciation expense for the years ended December 31, 2018, 2017 and 2016 was $2,504,000, $1,959,000 and
$1,795,000, respectively.
75
8. Goodwill and Intangibles
Goodwill and other intangible assets are presented in the table below. Changes in carrying amount of the
Company’s goodwill and core deposit intangible (“CDI”) for the years ended December 31, 2018, 2017 and 2016
were as follows.
(dollars in thousands)
Goodwill
CDI
Balance as of December 31, 2015
Louisiana Bancorp, Inc. acquisition
Amortization of intangibles
Balance as of December 31, 2016
SMB acquisition
Amortization of intangibles
Balance as of December 31, 2017
SMB acquisition
Amortization of intangibles
Balance as of December 31, 2018
$
11,095 $
(1,742)
-
9,353
49,268
-
58,621
(133)
-
$
58,488 $
4,210
-
(801)
3,409
6,766
(763)
9,412
-
(1,845)
7,567
9. Deposits
The Company’s deposits consisted of the following major classifications as of December 31 of the years indicated.
(dollars in thousands)
Demand deposit accounts
Savings
Money market accounts
NOW accounts
Certificates of deposit
Total deposits
$
$
2018
438,146
201,393
295,705
486,979
350,994
2017
461,999
217,639
306,509
490,924
389,156
$
1,773,217
$
1,866,227
As of December 31, 2018, the scheduled maturities of the Company’s certificates of deposit were as follows.
(dollars in thousands)
2019
2020
2021
2022
2023
Thereafter
Total certificates of deposit
Amount
203,414
92,237
40,534
10,638
3,449
722
350,994
$
$
As of December 31, 2018 and 2017, the aggregate amount of certificates of deposit with balances of $250,000 or
more was $54,924,000 and $58,744,000, respectively.
10. Other Borrowings
Other borrowings at December 31, 2018 included a $5,539,000 note payable with a rate of 3.83% on the Company’s
investment in a new market tax credit entity. The note payable is a 20-year leverage loan with interest-only
payments for the first seven years.
76
11. Short-term FHLB Advances
As of December 31, 2018, the Company had no short-term FHLB advances compared to $3,642,000 as of December
31, 2017. For the years ended December 31, 2018 and 2017, the average volume of short-term FHLB advances
carried by the Company was $2,157,000 and $13,869,000, 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, 2018 and
2017.
As of December 31, 2018 and 2017, the Bank had $725,988,000 and $519,967,000, respectively, of additional
FHLB advances available. As of December 31, 2018 and 2017, the Company had $752,558,000 and $715,339,000,
respectively, of loans pledged through the Bank’s blanket lien.
12. Long-term FHLB Advances
As of December 31, 2018 and 2017, the Company’s long-term FHLB advances totaled $58,698,000 and
$68,183,000, respectively. The following table summarizes long-term advances as of December 31, 2018.
(dollars in thousands)
Amount
Weighted
Average
Rate
Fixed rate advances maturing in:
2019
2020
2021
2022
2023
Thereafter
Total long-term FHLB advances
$
$
15,120
30,475
1,617
6,788
156
4,542
58,698
1.69 %
1.71
1.99
2.08
2.14
2.28
1.80 %
13. Income Taxes
The Tax Cuts and Jobs Act of 2017 (the “2017 Tax Act”) included a number of changes to existing U.S. tax laws
that impact the Company, most notably a reduction of the U.S. corporate income tax rate from 35% to 21% for tax
years beginning after December 31, 2017. The 2017 Tax Act required a re-measurement of the Company’s deferred
tax asset (“DTA”) in the fourth quarter of 2017. As a result, the Company recorded a charge of $2.7 million to
write down the DTA during the fourth quarter of 2017.
The Company files federal income tax returns on a calendar year basis. Income tax expense for the years indicated
is summarized as follows:
(dollars in thousands)
Current
Deferred
NMTC
Impact of Tax Cuts and Jobs Act
Total income tax expense
2018
2017
5,747 $
7,260 $
2,137
(400)
(789)
6,695 $
2,512
-
2,721
12,493 $
2016
7,889
(321)
-
-
7,568
$
$
77
The components of the Company’s net deferred tax asset as of December 31 of the years indicated are as follows:
(dollars in thousands)
Deferred tax assets:
Provision for loan losses
Discount on purchased loans
Salary continuation plan
Mortgage servicing rights
Deferred compensation
Stock-based compensation
Unrealized loss on securities available for sale
Other
Deferred tax assets
Deferred tax liabilities:
FHLB stock dividends
Accumulated depreciation
Intangible assets
Premium on investment securities acquired
NMTC
Other
Deferred tax liabilities
Net deferred tax asset
2018
2017
3,433 $
2,916
656
115
107
340
586
102
3,110
4,055
657
132
98
316
308
176
8,255 $
8,852
(162) $
(136)
$
$
$
(3,298)
(1,135)
(88)
(24)
(161)
(4,868)
$
3,387 $
(1,717)
(1,467)
(151)
-
(135)
(3,606)
5,246
For the years ended December 31, 2018, 2017 and 2016, the Company’s provision for federal income taxes
differed from the amount computed by applying the federal income tax statutory rates of 21%, 35% and 35%,
respectively, on income from operations as indicated in the following analysis:
(dollars in thousands)
Federal tax based on statutory rate
State tax based on statutory rate
(Decrease) increase resulting from:
NMTC
Effect of tax-exempt income
Changes in the cash surrender value of bank owned life insurance
Nondeductible merger-related expenses
Nondeductible share based compensation expense
Exercise of stock options
DTA write down – impact of Tax Act
Other
Income tax expense
Effective tax rate
$
$
2018
2017
2016
8,023 $
82
10,242 $
54
8,232
55
(400)
(171)
(138)
-
191
(131)
(789)
28
-
(234)
(173)
129
374
(656)
2,721
36
-
(228)
(169)
4
246
(606)
-
34
6,695 $
17.5 %
12,493 $
42.6 %
7,568
32.1 %
Retained earnings as of December 31, 2018 and 2017, 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, 2018 and 2017. Current
78
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, 2018 and 2017.
14. Commitments
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)
Standby letters of credit
Available portion of lines of credit
Undisbursed portion of loans in process
Commitments to originate loans
2018
$
4,288 $
186,446
108,307
92,656
2017
6,620
203,367
78,578
96,183
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. Beginning January 1, 2016, minimum Common equity tier
1, Tier 1 risk-based capital and Total risk-based are subject to a capital conservation buffer of 0.625%. This capital
buffer increased in subsequent years by 0.625% annually until it was fully phased in on January 1, 2019 at 2.5%.
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 requires 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-
79
weighted assets (as defined). Management believes, as of December 31, 2018 and 2017, that the Bank met all
capital adequacy requirements to which it was subject.
As of December 31, 2018 and 2017, 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.
The following table presents actual and required capital ratios for the the Bank under the Basel III Capital Rules. The
minimum required capital amounts presented include the minimum required capital levels as of December 31, 2018
based on the phase-in provisions of the Basel III Capital Rules and the minimum required capital levels as of January 1,
2019 when the Basel III Capital Rules were fully phased-in. Capital levels required to be considered well capitalized
are based upon prompt corrective action regulations, as amended to reflect the changes under the Basel III Capital
Rules.
Minimum Capital
Required – Basel III
Phase-In Schedule
Minimum Capital
Required – Basel III
Fully Phased-In
Actual
To Be Well
Capitalized Under
Prompt Corrective
Action Provisions
(dollars in thousands)
Amount
Ratio
Amount
Ratio
Amount
Ratio
Amount
Ratio
December 31, 2018
Bank:
Common equity Tier 1 capital
Tier 1 risk-based capital
Total risk-based capital
Tier 1 leverage capital
$ 230,708 14.55%
230,708 14.55
247,056 15.59
230,708 11.15
$ 101,055
124,832
156,536
82,744
6.38%
7.88
9.88
4.00
$ 110,962
134,740
166,443
82,744
7.00%
8.50
10.50
4.00
6.50%
$ 103,036
126,814
8.00
158,517 10.00
5.00
103,430
Minimum Capital
Required – Basel III
Phase-In Schedule
Minimum Capital
Required – Basel III
Fully Phased-In
Actual
To Be Well
Capitalized Under
Prompt Corrective
Action Provisions
(dollars in thousands)
Amount
Ratio
Amount
Ratio
Amount
Ratio
Amount
Ratio
December 31, 2017
Bank:
Common equity Tier 1 capital
Tier 1 risk-based capital
Total risk-based capital
Tier 1 leverage capital
$ 197,900 12.54%
197,900 12.54
212,708 13.48
197,900 11.66
$ 90,720
114,386
145,941
67,902
5.75%
7.25
9.25
4.00
$ 110,442
134,108
166,663
67,902
7.00%
8.50
10.50
4.00
6.50%
$ 102,553
126,219
8.00
157,774 10.00
5.00
84,877
16. Benefit Plans
401(k) 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. Beginning January 1, 2017, the Company’s matching
contributions changed from 4% of the employees’ salaries for the year ended December 31, 2016 to a matching
contribution of 100% of the employee’s contributions up to 2%, plus 50% of the employees’ contributions over 2%
but not over 6% of the employee’s pay. For the years ended December 31, 2018, 2017 and 2016, the Company
made contributions of $872,000, $701,000 and $657,000, respectively, in connection with the plan, which is
included in compensation and benefits expense in the accompanying statements of income.
80
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.
Compensation cost related to the ESOP was $1,345,000, $1,262,000 and $928,000 for the years ended December
31, 2018, 2017 and 2016, respectively. The fair value of the unearned ESOP shares, using the closing quoted
market price per share as of year-end, was approximately $12,324,000 and $16,590,000 as of December 31, 2018
and 2017, respectively. A summary of the ESOP share allocation as of December 31, 2018 and 2017 follows.
Shares allocated, beginning of year
Shares allocated during the year
Shares distributed during the year
Allocated shares held by ESOP trust as of year end
Unallocated shares
Total ESOP shares
2018
2017
259,320
35,708
(10,738)
284,290
348,148
632,438
235,060
35,708
(11,448)
259,320
383,856
643,176
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.
Benefits under the agreement vest over ten years, with 50% of this benefit having vested in 2007. 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.
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
a 15-year period from the time of acquisition in February 2014. 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 10 years subsequent to the time of the
81
acquisition in September 2015. SMB had a salary continuation agreement for an executive officer related to its
acquisition of American Bank in 2007. The Bank will pay the former executive of American Bank or their
beneficiary $358,000 over a 14-year period from the time of the SMB acquisition in December 2017. The Company
had an outstanding liability totaling $3,124,000 and $3,129,000 as of December 31, 2018 and 2017, 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 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 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 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, 2018, options to acquire an aggregate of 352,370 shares were outstanding under the 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 2018 fair values:
Expected dividends
Expected volatility
Risk-free interest rate
Expected term (in years)
1.52%
21.76%
2.9%
6.5
As of December 31, 2018, there was $532,000 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, 2018, 2017 and 2016, the Company recognized $168,000, $162,000 and
$132,000, respectively, in compensation cost related to stock options, which is included in compensation and
benefits expense in the accompanying consolidated statements of income.
82
The following table represents stock option activity for the years indicated.
Options
Outstanding as of December 31, 2015
Granted
Exercised
Forfeited
Outstanding as of December 31, 2016
Granted
Exercised
Forfeited
Outstanding as of December 31, 2017
Granted
Exercised
Forfeited
Outstanding as of December 31, 2018
Number of
Options
559,733 $
47,725
(119,230)
(3,540)
484,688 $
28,290
(103,240)
(1,260)
408,478 $
28,790
(83,348)
(1,550)
352,370 $
Exercisable as of December 31, 2016
391,215 $
Exercisable as of December 31, 2017
Exercisable as of December 31, 2018
315,912
258,319
Restricted Stock Plans
Weighted-
Average
Exercise
Price
12.85
27.96
11.88
16.64
14.55
35.25
11.73
30.56
16.64
44.88
12.90
28.34
19.78
12.18
13.23
14.65
Weighted-
Average
Grant Date
Fair Value
4.02
5.33
3.91
4.22
4.17
7.14
3.81
5.95
4.46
10.35
3.99
5.59
5.05
3.93
4.09
4.27
$
$
$
$
$
Weighted-
Average
Remaining
Contractual
Term
(Years)
3.9
3.7
3.6
2.8
2.3
2.0
The Company has issued restricted stock under the RRP to directors, officers and other key employees. During
2009, the Company purchased in the open market all shares required to fund the RRP at an average cost of $11.81
per share. As of December 31, 2018, the cost of such shares held by the RRP totaled $58,000, 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 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, 2018, unearned share-based compensation associated
with these awards totaled $1,520,000.
For the years ended December 31, 2018, 2017 and 2016, the Company recognized $573,000, $354,000 and
$239,000, 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.
83
The following table represents unvested restricted stock activity for the years indicated.
Number of
Shares
Weighted-Average
Grant Date Fair
Value
Balance, December 31, 2015
Granted
Forfeited
Released
Balance, December 31, 2016
Granted
Forfeited
Released
Balance, December 31, 2017
Granted
Forfeited
Released
Balance, December 31, 2018
30,815
25,645
(200)
(7,703)
48,557
18,660
(400)
(12,182)
54,635
16,345
(195)
(15,405)
55,380
$
$
$
$
16.25
27.96
22.25
13.00
24.89
37.02
28.84
23.76
29.26
44.88
30.79
27.46
34.36
18. Earnings Per Share
Earnings per common share was computed based on the following:
(dollars in thousands, except per share data)
Numerator:
Income applicable to common shares
Denominator:
Weighted average common shares outstanding
Effect of dilutive securities:
Restricted stock
Stock options
Weighted average common shares outstanding - assuming dilution
Earnings per common share
Earnings per common share - assuming dilution
Years Ended December 31,
2018
2017
2016
$
31,590 $
16,824 $
16,008
9,069
7,117
6,842
20
210
9,299
8
265
7,390
$
$
3.48 $
3.40 $
2.36 $
2.28 $
4
261
7,107
2.34
2.25
Options on 29,334, 50,356 and 70,522 shares of common stock were not included in computing diluted earnings
per share for the years ended December 31, 2018, 2017 and 2016, respectively, because the effect of these shares
were anti-dilutive.
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. A summary of related party loan activity during 2018 follows.
(dollars in thousands)
Balance, beginning of year
New loans
Repayments, net
Balance, end of year
$
$
5,659
1,974
(674)
6,959
84
None of the related party loans were identified as impaired or exceeded 5% of shareholders’ equity for the years
ended 2018 or 2017.
Related party deposits totaled $15,077,000 and $15,544,000 as of December 31, 2018 and 2017, 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, 2018, management did not make
adjustments to prices provided by the third-party pricing service as a result of illiquid or inactive markets.
85
The following tables present the balances of assets and liabilities measured on a recurring basis as of December 31,
2018 and 2017 aggregated by the level in the fair value hierarchy in which these measurements fall.
(dollars in thousands)
Available for sale securities:
December 31, 2018
Level 1
Level 2
Level 3
U.S. agency mortgage-backed
$
85,909
$
Collateralized mortgage obligations
Municipal bonds
U.S. government agency
Total
$
143,591
21,477
9,154
260,131
(dollars in thousands)
Available for sale securities:
December 31, 2017
U.S. agency mortgage-backed
Collateralized mortgage obligations
$
Municipal bonds
U.S. government agency
Total
$
84,690
113,735
25,521
11,047
234,993
$
$
$
-
-
-
-
-
$
85,909 $
143,591
21,477
9,154
260,131 $
$
-
-
-
-
-
Level 1
Level 2
Level 3
-
-
-
-
-
$
$
84,690
113,735
25,521
11,047
234,993
$
$
-
-
-
-
-
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.
Fair Value Measurements Using
(dollars in thousands)
December 31, 2018
Level 1
Level 2
Level 3
Assets
Impaired loans
Repossessed assets
Total
$
$
8,723
$
-
$
-
$
8,723
1,558
-
-
10,281
$
-
$
-
$
1,558
10,281
86
Fair Value Measurements Using
(dollars in thousands)
December 31, 2017
Level 1
Level 2
Level 3
Assets
Impaired loans
Repossessed assets
Total
$
$
1,486
$
-
$
-
$
1,486
728
-
-
728
2,214
$
-
$
-
$
2,214
The following table shows significant unobservable inputs used in the fair value measurement of Level 3 assets.
(dollars in thousands)
As of December 31, 2018:
Impaired loans
Fair
Value Valuation Technique
Unobservable
Inputs
Range of
Discounts
Weighted
Average
Discount
$
8,723 Third party appraisals
and discounted cash
flows
Collateral
discounts and
discount rates
0% - 100%
12%
Repossessed assets
$
1,558
Third party
appraisals, sales
contracts, Broker price
opinions
Collateral
discounts and
estimated costs
to sell
6% - 68%
20%
(dollars in thousands)
As of December 31, 2017:
Impaired loans
Fair
Value Valuation Technique
Unobservable
Inputs
Range of
Discounts
Weighted
Average
Discount
$
1,486 Third party appraisals
and discounted cash
flows
Collateral
discounts and
discount rates
0% - 100%
57%
Repossessed assets
$
728
Third party
appraisals, sales
contracts, Broker price
opinions
Collateral
discounts and
estimated costs
to sell
6% - 100%
28%
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.
87
Fair value estimates included herein are based on existing on- and off-balance-sheet financial instruments without
attempting to estimate the value of anticipated future business and the fair value of assets and liabilities that are not
required to be recorded or disclosed at fair value like premises and equipment. In addition, the tax ramifications
related to the realization of the unrealized gains and losses can have a significant effect on fair value estimates and
have not been considered in the estimates.
The following methods and assumptions were used to estimate the fair value of each class of financial instruments
for which it is practicable to estimate that value:
The carrying value of cash and cash equivalents and interest-bearing deposits in banks approximate their fair value.
The fair value for investment securities is determined from quoted market prices when available. If a quoted market
price is not available, fair value is estimated using third party pricing services or quoted market prices of securities
with similar characteristics.
The carrying value of mortgage loans held for sale 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, 2018 and 2017 was immaterial.
(dollars in thousands)
Financial Assets
Cash and cash equivalents
Interest-bearing deposits in banks
Investment securities available for sale
Investment securities held to maturity
Mortgage loans held for sale
Loans, net
Cash surrender value of BOLI
Financial Liabilities
Deposits
Other borrowings
Long-term FHLB advances
Fair Value Measurements at December 31, 2018
Carrying
Amount
Total
Level 1
Level 2
Level 3
$
$
59,618 $
939
260,131
10,872
2,086
1,633,406
29,560
59,618 $
939
260,131
10,841
2,086
1,623,920
29,560
59,618 $
939
-
-
-
-
29,560
- $
-
260,131
10,841
2,086
1,615,197
-
-
-
-
-
-
8,723
-
1,773,217 $
5,539
58,698
1,769,087 $
5,542
57,527
- $
-
-
1,769,087 $
5,542
57,527
-
-
-
88
(dollars in thousands)
Financial Assets
Cash and cash equivalents
Interest-bearing deposits in banks
Investment securities available for sale
Investment securities held to maturity
Mortgage loans held for sale
Loans, net
Cash surrender value of BOLI
Financial Liabilities
Deposits
Short-term FHLB advances
Long-term FHLB advances
Fair Value Measurements at December 31, 2017
Carrying
Amount
Total
Level 1
Level 2
Level 3
$
$
150,418 $
2,421
234,993
13,034
5,873
1,642,988
28,904
150,418 $
2,421
234,993
13,055
5,873
1,642,634
28,904
150,418 $
2,421
-
-
-
-
28,904
- $
-
234,993
13,055
5,873
1,641,148
-
-
-
-
-
-
1,486
-
1,866,227 $
3,642
68,183
1,864,735 $
3,642
67,143
- $
3,642
-
1,864,735 $
-
67,143
-
-
-
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, 2018 and 2017
(dollars in thousands)
Assets
Cash in bank
Investment in subsidiary
Other assets
Total assets
Liabilities
Shareholders’ equity
Total liabilities and shareholders’ equity
2018
2017
$
5,998 $
294,557
3,495
12,531
263,097
2,322
$
$
$
304,050 $
277,950
10 $
304,040
79
277,871
304,050 $
277,950
89
Condensed Statements of Operations
For the Years Ended December 31, 2018, 2017 and 2016
(dollars in thousands)
Operating income
Interest income
Dividend from subsidiary
Total operating income
Operating expenses
Other expenses
Total operating expenses
Loss before income tax benefit and equity in undistributed earnings of
subsidiary
Income tax benefit
Loss before equity in undistributed earnings of subsidiary
2018
2017
2016
$
$
-
-
-
- $
-
-
-
-
-
219
219
(219)
44
(175)
217
217
(217)
87
(130)
192
192
(192)
77
(115)
Undistributed earnings of subsidiary
Net income
$
31,765
31,590 $
16,954
16,824 $
16,123
16,008
Condensed Statements of Cash Flows
For the Years Ended December 31, 2018, 2017 and 2016
(dollars in thousands)
2018
2017
2016
Cash Flows from Operating Activities
Net income
Adjustments to reconcile net income to net cash provided by (used in)
operating activities:
Non-cash compensation
(Increase) decrease in accrued interest and other assets
Undistributed earnings in subsidiary
Decrease in accrued expenses and other liabilities
Net Cash Provided by (Used in) Operating Activities
Cash Flows from Financing Activities
Proceeds from exercise of stock options
Payment of dividends on common stock
Issuance of stock under incentive plan
Purchase of Company’s common stock
Net Cash Used in Financing Activities
Net Decrease in Cash and Cash Equivalents
Cash and Cash Equivalents as of Beginning of Period
Cash and Cash Equivalents as of End of Period
$
31,590
$
16,824 $
16,008
1,799
(1,173)
(31,765)
(68)
383
914
(6,706)
70
(1,194)
(6,916)
(6,533)
12,531
1,619
(877)
(16,954)
(26)
586
1,193
(4,070)
(32)
(70)
(2,979)
(2,393)
14,924
1,200
135
(16,123)
(3,865)
(2,645)
1,416
(2,988)
(14)
(357)
(1,943)
(4,588)
19,512
$
5,998
$
12,531 $
14,924
90
22. Consolidated Quarterly Results of Operations (unaudited)
(dollars in thousands, except per share data)
Year Ended December 31, 2018
Total interest income
Total interest expense
Net interest income
Provision for loan losses
Net interest income after provision for loan losses
Noninterest income
Noninterest expense
Income before income taxes
Income tax expense
Net income
Earnings per share – basic
Earnings per share – diluted
First
Quarter
Second
Quarter
Third
Quarter
Fourth
Quarter
$
24,725 $
2,220
25,575 $
2,239
26,109 $
2,599
22,505
964
21,541
3,482
15,590
23,336
581
22,755
3,345
16,322
23,510
786
22,724
3,341
15,696
9,433
1,970
7,463 $
0.83 $
0.81 $
9,778
2,002
7,776 $
0.85 $
0.83 $
10,369
2,107
8,262 $
0.91 $
0.89 $
$
$
$
25,903
3,248
22,655
1,612
21,043
3,279
15,617
8,705
616
8,089
0.89
0.87
(dollars in thousands, except per share data)
Year Ended December 31, 2017
Total interest income
Total interest expense
Net interest income
Provision for loan losses
Net interest income after provision for loan losses
Noninterest income
Noninterest expense
Income before income taxes
Income tax expense
Net income
Earnings per share – basic
Earnings per share – diluted
First
Quarter
Second
Quarter
Third
Quarter
Fourth
Quarter
$
17,363 $
1,394
17,399 $
1,501
17,666 $
1,710
15,969
307
15,662
2,826
11,031
15,898
150
15,748
2,164
11,051
15,956
660
15,296
2,293
11,340
7,457
2,452
5,005 $
0.72 $
0.69 $
6,861
2,375
4,486 $
0.64 $
0.62 $
6,249
2,158
4,091 $
0.57 $
0.56 $
$
$
$
21,970
1,944
20,026
1,200
18,826
2,679
12,755
8,750
5,508
3,242
0.43
0.41
91
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, 2018. 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.
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,
2018 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, 2018. Our independent registered public accountants have issued an audit report on the Company's
internal control over financial reporting. This report appears on pages 41 and 42.
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 2018 that has materially affected, or is
reasonably likely to materially affect, our internal control over financial reporting.
Item 9B. Other Information.
Not applicable.
92
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 2019 Annual Meeting of Shareholders expected to be held in May 2019 (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, 2018 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.
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)
407,748(1)
$ 19.78(1)
-
407,748
-
$ 19.78
153,637
-
153,637
Plan Category
Equity compensation plans
approved by security
holders
Equity compensation plans
not approved by security
holders
Total
___________________
(1)
Includes 3,458 shares subject to restricted stock grants and 51,920 restricted share units which were not
vested as of December 31, 2018. The weighted-average exercise price excludes such restricted stock
grants.
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.
93
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.
3.1
3.2
4.0
10.1
10.2
10.3
10.4
10.5
10.6
10.7
10.8
10.9
Description
Articles of Incorporation of Home Bancorp, Inc.
Amended and Restated Bylaws of Home Bancorp, Inc.
Form of Stock Certificate of Home Bancorp, Inc.
Salary Continuation Agreement by and between Home Bank and John W. Bordelon*
Salary Continuation Agreement by and between Home Bank and Darren E. Guidry*
Amendment No. 1 to the Salary Continuation Agreement by and between Home Bank and
John W. Bordelon*
Amendment No. 1 to the Salary Continuation Agreement by and between Home Bank and
Darren E. Guidry*
2005 Directors' Deferral Plan*
Amended and Restated Employment Agreement by and between Home Bank and John W.
Bordelon*
Amended and Restated Employment Agreement by and between Home Bancorp, Inc. and
John W. Bordelon*
Amended and Restated Employment Agreement by and between Home Bank and Darren E.
Guidry*
Amended and Restated Employment Agreement by and between Home Bank and Joseph B.
Zanco*
Location
(1)
(2)
(1)
(1)
(1)
(3)
(3)
(3)
(4)
(4)
(4)
(4)
94
10.15
10.16
10.17
10.18
No.
10.10
10.11
10.12
10.13
10.14
Description
Home Bancorp, Inc. 2009 Stock Option Plan*
Home Bancorp, Inc. 2009 Recognition and Retention Plan and Trust Agreement*
Employment Agreement by and between Home Bank and Scott A. Ridley*
Home Bancorp, Inc. 2014 Equity Incentive Plan
Amendment to the Amended and Restated Employment Agreement between Home Bancorp,
Inc. and John W. Bordelon*
Amendment to the Amended and Restated Employment Agreement between Home Bank and
John W. Bordelon*
Amendment to the Amended and Restated Employment Agreement between Home Bank and
Darren E. Guidry*
Amendment to the Employment Agreement between Home Bank and Scott A. Ridley*
Amendment to the Amended and Restated Employment Agreement between Home Bank and
Joseph B. Zanco*
Employment Agreement between Home Bank, N.A. and Jason P. Freyou*
Amendment to the Employment Agreement between Home Bank, N.A. and Jason P. Freyou*
Consent of Porter Keadle Moore, LLC
Rule 13(a)-14(a) Certification of the Chief Executive Officer
Rule 13(a)-14(a) Certification of the Chief Financial Officer
Section 1350 Certification
101.INS XBRL Instance Document
101.SCH XBRL Taxonomy Extension Schema Document
101.CAL XBRL Taxonomy Extension Calculation Linkbase Document
101.LAB XBRL Taxonomy Extension Label Linkbase Document
101.PRE XBRL Taxonomy Extension Presentation Linkbase Document
101.DEF XBRL Taxonomy Extension Definitions Linkbase Document
10.19
10.20
23.1
31.1
31.2
32.0
Location
(5)
(6)
(7)
Filed herewith
(8)
(8)
(8)
(8)
(8)
(9)
(8)
Filed herewith
Filed herewith
Filed herewith
Filed herewith
_____________________
*
Denotes a management contract or compensatory plan or arrangement.
(1)
(2)
(3)
(4)
(5)
(6)
(7)
(8)
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).
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).
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).
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).
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).
Incorporated by reference from Appendix B to Home Bancorp’s definitive proxy statement filed April 1, 2009 (SEC File No. 001-
34190).
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).
Incorporated by reference from the exhibit included Home Bancorp’s Current Report on Form 8-K, dated as of May 21, 2018 and
filed on May 22, 2018 (SEC File No. 001-34190).
(9) 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.
Item 16. Form 10-K Summary
Not applicable.
95
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.
SIGNATURES
March 13, 2019
HOME BANCORP, INC.
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
/s/ Michael P. Maraist
Michael P. Maraist
/s/ Paul J. Blanchet, III
Paul J. Blanchet, III
/s/ Richard J. Bourgeois
Richard J. Bourgeois
/s/ Mark M. Cole
Mark M. Cole
/s/ Daniel G. Guidry
Daniel G. Guidry
/s/ John A. Hendry
John A. Hendry
/s/ Marc W. Judice
Marc W. Judice
/s/ Chris P. Rader
Chris P. Rader
/s/ Donald W. Washington
Donald W. Washington
/s/ Joseph B. Zanco
Joseph B. Zanco
/s/ Mary H. Hopkins
Mary H. Hopkins
President, Chief Executive Officer
and Director
March 13, 2019
Chairman of the Board
March 13, 2019
March 13, 2019
March 13, 2019
March 13, 2019
March 13, 2019
March 13, 2019
March 13, 2019
March 13, 2019
March 13, 2019
March 13, 2019
March 13, 2019
Director, Chairman of Audit
Committee
Director
Director
Director
Director
Director
Director
Director
Executive Vice President and
Chief Financial Officer
Home Bank First Vice President
and Director of Financial
Management
96
EXHIBIT 23.1
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We consent to the incorporation by reference in the registration statements (File No. 333-203835, File No. 333-
160155 and File No. 333-153805) on Forms S-8 of our reports, dated March 13, 2019, relating to our audit of the
consolidated financial statements and internal control over financial reporting of Home Bancorp, Inc., which appear
in Home Bancorp, Inc.’s Annual Report on Form 10-K for the year ended December 31, 2018.
/s/ Porter Keadle Moore, LLC
Atlanta, Georgia
March 13, 2019
CERTIFICATION OF CHIEF EXECUTIVE OFFICER
EXHIBIT 31.1
I, John W. Bordelon, certify that:
1.
I have reviewed this annual report on Form 10-K of Home Bancorp, Inc. (the “registrant”);
2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to
state a material fact necessary to make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by this report;
3.
Based on my knowledge, the financial statements and other financial information included in this report,
fairly present in all material respects the financial condition, results of operations and cash flows of the registrant
as of, and for, the periods presented in this report;
4.
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure
controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over
financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a)
(b)
(c)
(d)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to
be designed under our supervision, to ensure that material information relating to the registrant, including
its consolidated subsidiary, is made known to us by others within those entities, particularly during the
period in which this report is being prepared;
Designed such internal control over financial reporting, or caused such internal control over financial
reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability
of financial reporting and the preparation of financial statements for external purposes in accordance with
generally accepted accounting principles;
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this
report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of
the period covered by this report based on such evaluation; and
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred
during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an
annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s
internal control over financial reporting.
5.
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of
internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board
of directors (or persons performing the equivalent functions):
(a)
(b)
All significant deficiencies and material weaknesses in the design or operation of internal control over
financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process,
summarize and report financial information; and
Any fraud, whether or not material, that involves management or other employees who have a significant
role in the registrant’s internal control over financial reporting.
Date: March 13, 2019
/s/ John W. Bordelon
John W. Bordelon
President and Chief Executive Officer
CERTIFICATION OF CHIEF FINANCIAL OFFICER
EXHIBIT 31.2
I, Joseph B. Zanco, certify that:
1.
I have reviewed this annual report on Form 10-K of Home Bancorp, Inc. (the “registrant”);
2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to
state a material fact necessary to make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by this report;
3.
Based on my knowledge, the financial statements and other financial information included in this report,
fairly present in all material respects the financial condition, results of operations and cash flows of the registrant
as of, and for, the periods presented in this report;
4.
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure
controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over
financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a)
(b)
(c)
(d)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to
be designed under our supervision, to ensure that material information relating to the registrant, including
its consolidated subsidiary, is made known to us by others within those entities, particularly during the
period in which this report is being prepared;
Designed such internal control over financial reporting, or caused such internal control over financial
reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability
of financial reporting and the preparation of financial statements for external purposes in accordance with
generally accepted accounting principles;
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this
report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of
the period covered by this report based on such evaluation; and
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred
during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an
annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s
internal control over financial reporting.
5.
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of
internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board
of directors (or persons performing the equivalent functions):
(a)
(b)
All significant deficiencies and material weaknesses in the design or operation of internal control over
financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process,
summarize and report financial information; and
Any fraud, whether or not material, that involves management or other employees who have a significant
role in the registrant’s internal control over financial reporting.
Date: March 13, 2019
/s/ Joseph B. Zanco
Joseph B. Zanco
Executive Vice President and
Chief Financial Officer
EXHIBIT 32.0
SECTION 1350 CERTIFICATION OF THE
CHIEF EXECUTIVE OFFICER AND CHIEF FINANCIAL OFFICER
Each of John W. Bordelon, President and Chief Executive Officer, and Joseph B. Zanco,
Executive Vice President and Chief Financial Officer, of Home Bancorp, Inc. (the “Company”), hereby
certify, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350, that:
(1)
(2)
The Annual Report on Form 10-K of the Company for the fiscal year ended December 31, 2018
(the “Report”) fully complies with the requirements of Section 13(a) or 15(d) of the Securities
Exchange Act of 1934 (15 U.S.C. Sections 78m(a) or 78o(d)); and
The information contained in the Report fairly presents, in all material respects, the financial
condition and results of operations of the Company.
Date: March 13, 2019
By:
/s/ John W. Bordelon
John W. Bordelon
President and Chief Executive Officer
Date: March 13, 2019
By:
/s/ Joseph B. Zanco
Joseph B. Zanco
Executive Vice President and Chief Financial
Officer
Note: A signed original of this written statement required by Section 906 of the Sarbanes-Oxley Act has
been provided to Home Bancorp, Inc. and furnished to the Securities and Exchange Commission
or its staff upon request.
Check presentation to New Vision Leadership Foundation.
WE SUPPORT OUR COMMUNITY.
Home Bancorp, Inc. is the parent company
of Home Bank, N.A., a national bank
headquartered in Lafayette, Louisiana.
Home Bank offers a full range of
deposit and loan products with
banking centers in vibrant
regions of Louisiana
and Mississippi.
Good for business. Good for life.