Home Bancorp, Inc. — Q3 2021 Form 10-Q
Reporting period: Three and nine months ended September 30, 2021. Home Bancorp is a bank holding company operating through Home Bank, N.A.; amounts below are in U.S. dollars. Comparisons are with Q3 and the first nine months of 2020, or with December 31, 2020 for balance-sheet figures.
Financial performance and condition
- Profit: Q3 net income was $15.1 million, versus $8.8 million a year earlier; diluted EPS was $1.79 versus $1.01. Nine-month net income was $38.4 million, versus $14.2 million; diluted EPS was $4.54 versus $1.61.
- Net interest: Q3 net interest income rose 16.6% to $27.1 million; nine-month net interest income rose 13.9% to $76.3 million. Tax-equivalent net interest margin was 4.16% for Q3 and 4.01% year to date, compared with 3.82% and 3.91%, respectively, in 2020. Excluding PPP impacts, margins were lower year over year: 3.64% for Q3 and 3.74% year to date.
- Credit provision and asset quality: The company reversed $2.4 million of loan-loss provision in Q3 and $7.5 million year to date, primarily reflecting an improved assessment of COVID-19’s economic effects. The allowance for loan losses was $24.1 million, or 1.29% of loans, versus $33.0 million, or 1.66%, at year-end 2020. Nonperforming assets fell to $15.5 million (0.56% of assets) from $20.0 million (0.77%). Nine-month net charge-offs were $1.3 million.
- Other income and expenses: Noninterest income increased 41.9% to $5.4 million in Q3 and 24.2% to $12.7 million year to date. Noninterest expense increased 2.0% to $16.4 million in Q3 and 4.2% to $49.0 million year to date. Q3 income included a $1.7 million bank-owned life insurance benefit following an employee’s death.
- Balance sheet: Total assets were $2.76 billion, up 6.6% from year-end 2020. Loans were $1.88 billion, down 5.3%; excluding PPP loans, they increased 1.2%. Deposits were $2.37 billion, up 6.9%. Shareholders’ equity was $344.1 million, up 6.9%.
- Cash flow and liquidity: For the first nine months, operating cash flow was $43.9 million, investing cash flow was $46.8 million, and financing cash flow was $135.0 million. Cash and cash equivalents ended at $413.7 million, up $225.7 million from year-end. Certificates of deposit totaling $271.6 million mature within 12 months; management expects a significant portion to renew. The company reported $776.7 million of additional FHLB borrowing capacity.
- Debt and capital: Outstanding FHLB advances were $26.4 million and other borrowings were $5.5 million. The Bank’s reported capital ratios were 14.35% CET1, 15.60% total risk-based capital, and 10.05% leverage; management said capital was well above regulatory requirements.
Material changes and notable items
- Improved earnings reflected lower interest expense, loan growth excluding PPP, PPP lender-fee recognition, and the loan-loss provision reversal. PPP loans were $95.6 million at quarter-end, down 56.8% from year-end; $9.4 million of PPP lender fees were recognized year to date.
- Loan mix shifted: commercial real estate loans increased 6.9% and construction and land loans increased 8.8% from year-end, while commercial and industrial loans declined 31.8%, largely due to PPP loan forgiveness and paydowns.
- Available-for-sale securities increased to $304.1 million. Their net unrealized gain declined to $1.3 million from $6.5 million at year-end, contributing to a $3.3 million nine-month other comprehensive loss.
- The company recorded a $460,000 year-to-date net loss on asset sales, primarily related to a Mississippi branch sale-leaseback. Management expects the arrangement to reduce future operating costs.
- On August 27, 2021, the company agreed to sell its Vicksburg, Mississippi branch, approximately $15.7 million of deposits, approximately $2.3 million of loans, and related assets. Closing was expected in Q1 2022; management estimated a pretax loss of approximately $23,000.
Outlook, risks, and contingencies
- The filing provides no specific earnings, revenue, or margin guidance. Management describes continued monitoring of COVID-19-related borrower and industry exposures; future results remain subject to uncertain economic developments.
- Stated risks include weaker product demand, unemployment-related delinquencies and foreclosures, declining collateral values, possible future credit-loss provisions, interest-rate effects on asset and liability yields, cybersecurity exposure, and potentially higher FDIC insurance costs.
- COVID-related payment deferrals were $4.5 million at September 30, 2021, less than 1% of loans. Of loans that had exited deferral, $384.8 million, or 99%, were current and performing. The company also reported $4.5 million of CARES Act-related modifications not classified as TDRs.
- Off-balance-sheet commitments included $308.3 million of available lines of credit, $126.7 million of undisbursed loans in process, $135.0 million of loan-origination commitments, and $5.6 million of standby letters of credit. Management said ordinary-course legal matters were not expected to have a material effect.
- Interest-rate simulations estimated projected net interest income would increase 18.4% under an immediate, sustained 300-basis-point rise and decline 6.7% under a 100-basis-point decrease. These are model estimates, not forecasts.
- The company repurchased 159,762 shares during Q3. A new authorization for up to 430,000 shares was announced October 26, 2021, to commence after completion of the prior plan.
Most important facts for investors to verify
- How much of the earnings improvement is sustainable after the loan-loss reversals, one-time $1.7 million insurance benefit, and PPP fee income.
- Whether credit quality and the allowance remain adequate as PPP balances run off and commercial real estate, construction, and multifamily exposures evolve.
- The effect of excess cash, deposit pricing, and interest-rate changes on margins; also monitor upcoming certificate maturities and deposit retention.
- Completion and final economics of the Vicksburg branch sale, plus the costs and savings from the branch sale-leaseback.
- Execution and capital impact of the new share-repurchase authorization, alongside dividends and loan growth.