Home Bancorp, Inc. — Q1 2020 Form 10-Q
Reporting period: Three months ended March 31, 2020; balance-sheet comparisons are to December 31, 2019 unless noted. Amounts are in U.S. dollars. The filing describes a Louisiana-based bank holding company and reports the economic impact of COVID-19 and falling oil prices as significant uncertainties.
Key financial results
| Metric | Q1 2020 / March 31, 2020 | Comparable period / change |
|---|---|---|
| Net income; diluted EPS | $1.9 million; $0.21 | Q1 2019: $7.9 million; $0.85 |
| Net interest income | $21.3 million | Down $399,000 (1.8%) year over year |
| Tax-equivalent net interest margin | 4.18% | 4.41% in Q1 2019 |
| Provision for loan losses | $6.3 million | $390,000 in Q1 2019 |
| Noninterest income / expense | $3.4 million / $16.1 million | Income up 6.1%; expense up 5.6% year over year |
| Total assets | $2.25 billion | $2.20 billion at year-end 2019 |
| Loans, net of unearned income | $1.74 billion | Up $24.8 million (1.4%) since year-end |
| Deposits | $1.86 billion | Up $36.5 million (2.0%) since year-end |
| Cash and cash equivalents | $64.1 million | $39.8 million at year-end |
| Shareholders’ equity | $311.5 million | $316.3 million at year-end |
Net interest margin and spread declined year over year, while net interest income fell modestly. Higher loan balances and loan-sale gains partly offset lower asset yields and higher deposit costs. Cash flow from operations was $7.9 million; investing activities used $26.5 million and financing activities provided $42.8 million. The quarter-end cash increase was $24.3 million.
Material changes and credit quality
- The company adopted CECL on January 1, 2020. The adoption increased the allowance for credit losses by $7.0 million before tax and reduced retained earnings by $4.7 million after tax. The quarter-end loan-loss allowance was $28.5 million; including $3.1 million for unfunded commitments, the total allowance for credit losses was $31.6 million.
- Management recorded a $6.3 million loan-loss provision, citing expected effects of COVID-19 and the significant decline in oil prices. The allowance for loan losses was 1.64% of loans; the total allowance including unfunded commitments was 1.82%.
- Nonperforming loans were $26.9 million, or 1.55% of loans, versus $24.4 million and 1.42% at year-end. Nonperforming assets were $29.5 million, or 1.31% of total assets, versus $28.5 million and 1.30%.
- Special-mention loans rose 28.6% to $17.7 million; substandard loans declined 6.6% to $37.2 million. No loans over 90 days past due were accruing at March 31.
- Available-for-sale securities were $265.6 million. Their net unrealized gain increased to $6.9 million from $876,000 at year-end, contributing $4.7 million of after-tax other comprehensive income in Q1. Management reported no credit-loss allowance for investment securities.
Liquidity, debt, and capital
- Long-term FHLB advances were $54.3 million, up $13.7 million from year-end, primarily due to prefunding maturities and PPP lending. Other borrowings were $5.5 million.
- Reported primary and secondary liquidity totaled $876.3 million, including $64.1 million cash, $86.8 million of unpledged securities at par, $669.9 million of additional FHLB borrowing availability, $55.0 million of unsecured credit lines, and $0.5 million of Federal Reserve discount-window availability.
- Certificates of deposit of $295.7 million mature within 12 months. The company said it expects a significant portion to be redeposited, based on historical experience.
- The Bank reported capital ratios above regulatory minimums: common equity Tier 1 of 13.62%, total risk-based capital of 14.88%, and Tier 1 leverage of 10.84%.
Outlook, management commentary, and risks
- The filing provides no numerical earnings or financial guidance. Management said deposit rates were expected to continue falling through Q2 2020, while noting uncertainty about the pandemic’s duration and economic effects.
- As of March 31, borrowers with $191.6 million of loans, or 11% of the portfolio, had received payment relief, primarily 90-day payment deferrals. By May 8, the amount had risen to $533.0 million, or 27%. These modifications were not classified as TDRs under applicable CARES Act provisions and interagency guidance.
- By May 8, the company had funded or was processing approximately 2,554 PPP loans totaling $253.8 million. These are subsequent-period figures, not March 31 balances.
- Management identified risks from prolonged business closures and unemployment, loan delinquencies and losses, declining collateral values, further oil-and-gas weakness, lower asset yields following near-zero Federal Reserve rates, and potential securities impairment. It also cited remote-work cybersecurity risk and possible higher FDIC insurance premiums.
- Commercial real estate, hotels and short-term rentals, restaurants and bars, and energy are notable exposures. At March 31, hotel and short-term-rental loans totaled $86.0 million; restaurants and bars, $60.9 million; and energy, $31.2 million. Management’s estimate of expected credit losses depends on forecasts and assumptions that may change materially.
- The company repurchased 188,341 shares during Q1 for $5.4 million and declared dividends of $0.22 per share. Management warned that sustained earnings deterioration could lead to suspension of repurchases or a lower dividend.
- Management said ordinary-course litigation was not expected to have a material effect. It also reported effective disclosure controls and no material change in internal control over financial reporting during the quarter.
Important facts for investors to verify
- How subsequent delinquency, nonperforming-loan, charge-off, and allowance trends compare with the Q1 CECL reserve build, especially for pandemic-sensitive and energy-related borrowers.
- Whether the $533.0 million of payment-relief loans reported as of May 8 resume payments, require further modification, or generate reversals of accrued interest and fees.
- PPP loan funding, processing, fee recognition, and associated funding needs; distinguish subsequent-period disclosures from Q1 results.
- Deposit pricing, deposit retention, FHLB borrowing, upcoming certificate maturities, and liquidity availability as customer credit lines are drawn.
- Changes in net interest margin, asset yields, noninterest expense, capital ratios, repurchases, and dividends under evolving economic conditions.