Home Bancorp, Inc. — 2019 Form 10-K Summary
Reporting period: Fiscal year ended December 31, 2019; filed March 12, 2020. Home Bancorp is a Louisiana-based bank holding company operating Home Bank, N.A., with 40 offices in south Louisiana and west Mississippi.
Financial performance and position
| Metric | 2019 | 2018 |
|---|---|---|
| Total assets, year-end | $2.20 billion | $2.15 billion |
| Total loans, year-end | $1.71 billion | $1.65 billion |
| Total deposits, year-end | $1.82 billion | $1.77 billion |
| Net interest income | $86.0 million | $92.0 million |
| Net income | $27.9 million | $31.6 million |
| Diluted EPS | $3.05 | $3.40 |
| Net interest margin, taxable-equivalent | 4.26% | 4.62% |
| Return on average assets | 1.27% | 1.46% |
| Cash dividends per share | $0.84 | $0.71 |
Net interest income after provision for loan losses was $83.0 million. The provision was $3.0 million, down from $3.9 million. Noninterest income was $14.4 million and noninterest expense was $63.6 million. The efficiency ratio rose to 63.34% from 59.96%.
Cash flow: Operating activities generated $43.9 million; investing activities used $72.3 million; financing activities provided $8.6 million. Cash and cash equivalents declined $19.8 million to $39.8 million.
Funding, liquidity and capital: Year-end FHLB advances were $40.6 million, down from $58.7 million; other borrowings were $5.5 million. The Bank reported $739.0 million of additional FHLB borrowing capacity. Available-for-sale securities were $257.3 million. Certificates of deposit totaling $302.3 million mature within 12 months. Shareholders’ equity was $316.3 million. The Bank was classified as well capitalized, with a 15.28% total risk-based capital ratio and an 11.17% leverage ratio.
Changes versus the prior comparable period
- Net income fell 11.6% and diluted EPS fell 10.3%, mainly as higher deposit costs compressed net interest income. Interest expense rose $5.9 million; the average rate on interest-bearing deposits increased 43 basis points to 1.10%.
- Loan growth was a record for organic growth: loans increased $64.6 million, or 3.9%. Commercial real estate loans rose $82.2 million; commercial and industrial loans rose $11.8 million.
- Deposits grew $47.8 million, or 2.7%, driven chiefly by certificates of deposit, which increased $44.5 million, or 12.7%.
- Noninterest income increased 7.2%, principally reflecting a $1.2 million non-taxable bank-owned life insurance benefit after a former employee’s death. Noninterest expense increased 0.6%; 2019 included $291,000 in lease-termination expense and $287,000 related to a former executive’s departure. 2018 included $2.0 million of merger-related expenses.
- Nonperforming assets increased to $28.5 million from $26.0 million, or 1.30% of assets from 1.21%. Net charge-offs declined to $1.5 million from $2.4 million.
Fourth-quarter detail: 2019 Q4 net income was $6.6 million, or $0.73 diluted EPS, versus $8.1 million, or $0.87, in 2018 Q4. Q4 net interest income was $21.3 million versus $22.7 million.
Outlook, risks and unusual items
- The filing provides no specific earnings or revenue guidance. Management said it expected sufficient funds to meet liquidity requirements and anticipated that most CDs maturing within 12 months would be redeposited.
- The Company expected to adopt CECL in the first quarter of 2020. Preliminary estimates indicated a 30%–40% increase in the allowance for loan losses, principally related to acquired loans and unfunded lending commitments. The ultimate effect would depend on portfolio characteristics and economic and forecast conditions.
- Credit exposure warrants attention: commercial real estate was 42.2% of loans; construction and land loans were $195.7 million, or 11.4%. Energy-sector loans were $33.5 million, or 2.0% of loans, with a further $5.0 million in unfunded commitments.
- Management identified sensitivity to deposit competition and interest rates, local economic conditions and oil-and-gas activity, real estate and construction lending, natural disasters in south Louisiana, cybersecurity and operational disruptions, and regulatory change. Its rate model estimated projected net interest income changes of -2.0% under an immediate +300-basis-point shock and -0.7% under a -100-basis-point shock.
- Off-balance-sheet commitments totaled $452.7 million, including unused lines of credit, undisbursed loan amounts, standby letters of credit and loan-origination commitments. Management did not anticipate material losses from these commitments. Ordinary-course litigation was not expected to have a material effect.
- The Company repurchased 419,498 shares during 2019 at an average price of $36.82 and declared $0.84 per share in cash dividends. The auditor reported fairly presented financial statements and effective internal control over financial reporting.
Important facts for investors to verify
- Track whether deposit pricing and mix stabilize and whether net interest margin recovers after the 2019 compression.
- Review CECL’s actual opening adjustment and subsequent allowance needs against management’s 30%–40% estimate.
- Monitor commercial real estate, construction, acquired-loan and energy-sector credit quality, including nonperforming assets, charge-offs and collateral values.
- Assess the renewal and pricing of $302.3 million in near-term CD maturities and the effect of any deposit outflows on funding costs and liquidity.
- Confirm reported capital ratios, FHLB availability and the effect of continued dividends and share repurchases on capital and tangible book value.