HOME BANCORP, INC. quarterly report, Q3 FY2023

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Home Bancorp, Inc. — Q3 2023 Form 10-Q

Business context and reporting period: Home Bancorp is a bank holding company for Home Bank, N.A. The filing reports the quarter and nine months ended September 30, 2023; balance-sheet comparisons are against December 31, 2022. Amounts below are in U.S. dollars; financial statement amounts are in millions unless otherwise stated.

Financial performance

  • Third quarter: Net income was $9.8 million, or $1.22 diluted EPS, versus $10.4 million and $1.28 a year earlier. Net interest income was $29.5 million, down 7.7%; net interest margin was 3.75%, down from 4.11%.
  • Nine months: Net income was $30.9 million, or $3.82 diluted EPS, versus $23.3 million and $2.84 in 2022. Net interest income was $91.4 million, up 7.9%; net interest margin was 3.95%, up from 3.77%.
  • Revenue drivers and costs: Third-quarter interest income rose to $42.1 million from $34.3 million, but interest expense increased to $12.6 million from $2.3 million, reflecting higher deposit costs and FHLB borrowing. The average rate paid on interest-bearing deposits rose 157 basis points to 1.84%. Third-quarter noninterest income increased 26.6% to $4.4 million, including a $640,000 gain from SBA loan sales and higher bank-card fees. Noninterest expense rose 3.0% to $21.3 million.
  • Cash flow: For the nine months, operating activities provided $31.2 million, investing activities used $95.5 million, and financing activities provided $61.5 million. Cash and cash equivalents ended at $84.5 million, down $2.9 million from year-end 2022.

Financial position, funding and credit

  • Growth and assets: Total assets were $3.32 billion, up 2.8% from year-end. Loans were $2.57 billion, up $138.3 million, or 5.7%; commercial real estate loans totaled $1.18 billion.
  • Deposits and liquidity: Deposits were $2.60 billion, down $35.7 million. Noninterest-bearing deposits fell $118.9 million, while certificates of deposit grew $221.0 million. Uninsured deposits were $755.5 million; $460.6 million of certificates mature within 12 months. FHLB advances totaled $283.8 million ($241.0 million short-term), compared with $176.2 million at year-end. The company reported $1.24 billion in available primary and secondary liquidity sources, including $914.1 million of FHLB capacity.
  • Credit quality: The allowance for loan losses was $31.1 million, or 1.21% of loans; the total allowance for credit losses, including unfunded commitments, was $33.6 million, or 1.31%. Nonperforming assets rose to $12.3 million, or 0.37% of assets, from $11.0 million and 0.34%. Substandard loans increased to $31.0 million from $21.5 million, primarily after four credit relationships were downgraded; management attributed the NPA increase mainly to three relationships placed on nonaccrual. Nine-month net loan recoveries were $148,000.
  • Capital and debt: Shareholders’ equity was $345.3 million. The Bank’s regulatory capital ratios included 12.51% CET1, 13.73% total risk-based capital and 10.71% Tier 1 leverage; the filing says capital exceeded regulatory requirements. Subordinated debt carrying value was $54.2 million; the notes bear 5.75% fixed interest through June 2027, then float at three-month SOFR plus 282 basis points.
  • Securities and other comprehensive loss: Available-for-sale and held-to-maturity securities totaled $428.1 million. Available-for-sale securities had $63.4 million in net unrealized losses, mostly on securities in a loss position for over 12 months; management attributed these declines to noncredit factors and recorded no securities credit-loss allowance. Accumulated other comprehensive loss was $45.8 million, versus $39.3 million at year-end.

Changes, outlook and risks

  • Quarterly earnings declined year over year as the rise in funding costs outweighed higher interest income. For the nine-month comparison, earnings benefited from higher loan income and lower 2022 merger-related expenses; 2022 included $1.6 million of after-tax Friendswood acquisition expenses.
  • Management provided no specific earnings or financial guidance. It expects a significant portion of upcoming maturing certificates of deposit to renew, based on historical experience. Its interest-rate model estimates projected net interest income changes of +0.9% for a +300-basis-point shock and -1.1% for a -100-basis-point shock; actual results may differ.
  • Key exposures include deposit competition and repricing, reliance on FHLB funding, interest-rate and securities valuation risk, and credit and commercial real estate risk. The allowance depends on management estimates and may require future adjustment. The filing reports no material change to previously disclosed risk factors and no legal proceedings expected to have a material effect.
  • During Q3, the company repurchased 37,805 shares at an average $32.63 per share. A new authorization for up to 405,000 shares was approved October 18, 2023 and may begin after the existing plan is completed.

Important facts for investors to verify

  • Whether deposit pricing, deposit mix and the $460.6 million of certificates maturing within 12 months affect funding costs and margins.
  • Whether FHLB borrowing remains elevated and how available liquidity changes as loans grow and deposits fluctuate.
  • Developments in substandard loans, nonperforming assets and commercial real estate credits, and whether the allowance remains adequate.
  • Potential effects of persistent unrealized securities losses, rate movements and securities sales on equity and liquidity.
  • Actual renewal rates on maturing deposits, future buybacks under the new authorization, and reported results versus the filing’s interest-rate sensitivity estimates.