HOME BANCORP, INC. quarterly report, Q2 FY2020

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Home Bancorp, Inc. — Q2 2020 Form 10-Q

Reporting period: Three and six months ended June 30, 2020. Home Bancorp is a Louisiana-based bank holding company. Financial amounts below are in U.S. dollars; millions are rounded unless stated otherwise.

Financial performance

  • Q2 earnings: Net income was $2.5 million, down 62.1% from $6.6 million a year earlier. Diluted EPS was $0.29 versus $0.71.
  • First-half earnings: Net income was $4.4 million, down 69.6% from $14.5 million; diluted EPS was $0.50 versus $1.56.
  • Net interest: Q2 net interest income increased 2.5% to $22.4 million, while the tax-equivalent net interest margin fell to 3.75% from 4.36%. First-half net interest income was $43.7 million, up 0.3%, and margin was 3.95% versus 4.39%.
  • Credit provisions: Q2 provision for loan losses was $6.5 million, compared with $0.8 million in Q2 2019; an additional $0.5 million provision was recorded for unfunded commitments. First-half provisions were $12.7 million for loan losses and $1.3 million for unfunded commitments. Management attributed the increase primarily to expected COVID-19-related losses.
  • Other income and expense: Q2 noninterest income was $3.1 million, up 4.2%, including higher gains on loan sales; service fees declined, primarily from lower overdraft fees. Noninterest expense was $16.0 million, up 0.3%. First-half noninterest income was $6.5 million, up 5.2%, and expense was $32.1 million, up 2.9%.
  • Cash flow: For the first half, operating activities provided $12.9 million, investing activities used $246.3 million, and financing activities provided $427.9 million. Cash and cash equivalents ended the period at $234.3 million, up $194.4 million from year-end.

Financial position, credit and liquidity

  • Total assets were $2.637 billion at June 30, up $436.4 million, or 19.8%, from December 31, 2019. Loans net of unearned income were $1.966 billion, up $251.6 million, or 14.7%; nearly all net growth reflected $249.6 million of PPP loans. Excluding PPP, loans increased $1.9 million.
  • Deposits rose $445.7 million, or 24.5%, to $2.267 billion. PPP recipients’ deposits increased by a net $210.2 million during Q2. Shareholders’ equity was $309.3 million, down $7.0 million from year-end.
  • Allowance for loan losses was $33.8 million, or 1.72% of total loans; allowance for credit losses including unfunded commitments was $37.5 million, or 1.91% of loans. Excluding PPP loans, the respective ratios were 1.97% and 2.18%. Adoption of CECL on January 1 increased the allowance for credit losses by $7.0 million and reduced retained earnings by $4.7 million after tax.
  • Nonperforming loans were $26.0 million, or 1.32% of loans; nonperforming assets were $28.0 million, or 1.06% of assets. Loans classified as special mention increased to $17.0 million from $13.8 million at year-end, while substandard loans declined to $32.7 million from $39.8 million.
  • At June 30, outstanding FHLB advances were $35.0 million, other borrowings were $5.5 million, and total deposits were $2.267 billion. The company reported $1.133 billion in primary and secondary liquidity, including $234.3 million cash, $729.5 million of additional FHLB availability and $55.0 million in unsecured lines. Certificates of deposit totaling $291.0 million mature within 12 months.
  • The Bank reported capital ratios above stated regulatory minimums: common equity Tier 1 of 13.57%, total risk-based capital of 14.83% and Tier 1 leverage of 9.11%.

Material changes, outlook and risks

  • COVID-19 payment relief deferrals totaled $558.8 million, or 28% of loans, at June 30; the balance had fallen to $113.9 million, or 6%, by August 4. These CARES Act-related modifications were not classified as TDRs. By August 4, the company had funded or was processing approximately 3,051 PPP loans totaling $261.7 million.
  • CECL replaced the incurred-loss model with a lifetime expected-loss approach in 2020. Management noted that estimates depend on uncertain forecasts and could change materially as economic conditions and borrower performance evolve.
  • The company entered into $40 million of interest-rate swaps designated as cash flow hedges. It estimated $72,000 would be reclassified from accumulated other comprehensive income to interest expense over the next 12 months.
  • Management provided no specific earnings or financial guidance in the supplied filing text. It emphasized uncertainty around the duration and effects of COVID-19, including possible increases in delinquencies, nonperforming assets, credit losses, collateral-value declines and pressure on revenue and margins. Other disclosed risks include oil-and-gas market volatility, cyber risks associated with remote work, and potential increases in FDIC premiums.
  • Q2 repurchases totaled 115,327 shares at an average $24.69 per share. The company declared dividends of $0.22 per share for the quarter.
  • Management said ordinary-course legal matters were not expected to have a material effect. Disclosure controls were judged effective, and no material change in internal control over financial reporting was reported.

Most important facts for investors to verify

  • Whether COVID-19 deferrals continue to decline and how borrowers perform when relief periods end.
  • Whether CECL assumptions and reserve levels adequately reflect evolving economic conditions, particularly for commercial real estate, hospitality, restaurants and energy exposures.
  • The repayment and forgiveness pace of PPP loans, their effect on loan yields and the company’s concentration in PPP-related deposits.
  • Whether deposit growth, liquidity and regulatory capital remain robust if customer balances or credit commitments change.
  • Whether margin pressure, lower fee income and higher credit costs continue to affect earnings; no specific forward earnings guidance was provided.