Home Bancorp, Inc. — Q2 2019 Form 10-Q
Reporting period: Three and six months ended June 30, 2019; balance-sheet comparisons are to December 31, 2018. Home Bancorp is a Louisiana bank holding company operating through Home Bank, N.A. Dollar amounts below are in millions unless stated otherwise.
Financial performance and position
| Metric | Q2 / June 30, 2019 | Comparable period / prior date |
|---|---|---|
| Interest income | Q2: $25.9 | Q2 2018: $25.6 |
| Net interest income | Q2: $21.9; first half: $43.6 | Q2 2018: $23.3; first half 2018: $45.8 |
| Net income | Q2: $6.6; first half: $14.5 | Q2 2018: $7.8; first half 2018: $15.2 |
| Diluted EPS | Q2: $0.71; first half: $1.56 | Q2 2018: $0.83; first half 2018: $1.64 |
| Tax-equivalent net interest margin | Q2: 4.36%; first half: 4.39% | Q2 2018: 4.69%; first half 2018: 4.59% |
| Total assets | $2,220.4 | December 31, 2018: $2,153.7 |
| Loans, net of unearned income | $1,692.9 | December 31, 2018: $1,649.8 |
| Deposits | $1,829.2 | December 31, 2018: $1,773.2 |
| Cash and cash equivalents | $71.3 | December 31, 2018: $59.6 |
| Allowance for loan losses | $17.2; 1.02% of loans | December 31, 2018: $16.3; 0.99% |
| Shareholders’ equity | $313.5 | December 31, 2018: $304.0 |
For the six months ended June 30, 2019, operating cash flow was $23.1 million, investing cash flow was negative $53.6 million, and financing cash flow was positive $42.3 million. Cash and cash equivalents increased $11.7 million from year-end. The filing does not provide a conventional sales revenue figure; interest income and noninterest income are the relevant bank income measures.
Noninterest income was $3.0 million in Q2 and $6.1 million for the first half, versus $3.3 million and $6.8 million, respectively, in 2018. Noninterest expense was $16.0 million in Q2 and $31.2 million for the first half, compared with $16.3 million and $31.9 million.
Material changes versus comparable periods
- Q2 net income fell 15.4% and diluted EPS fell 14.5% year over year. First-half net income declined 5.0% and diluted EPS declined 4.9%.
- Q2 net interest income decreased 6.3%; first-half net interest income decreased 4.9%. Interest expense rose 80.7% in Q2 and 72.5% in the first half, mainly because deposit funding costs increased. The tax-equivalent net interest spread narrowed to 4.05% from 4.51% in Q2 and to 4.08% from 4.42% for the first half.
- Loans grew 2.6% from year-end, led by commercial real estate growth of $51.4 million; deposits grew 3.2%. Certificates of deposit increased 11.0% to $389.4 million, while core deposits grew 1.2% to approximately $1.4 billion.
- Nonperforming loans were $26.0 million, or 1.53% of loans, versus $24.4 million and 1.48% at year-end. Net loan charge-offs were $0.3 million for the first half, versus $1.4 million in first-half 2018.
- Q2 2019 included facilities-related charges of $504,000 after tax. Q2 2018 included $894,000 after-tax merger expenses; first-half 2018 included $1.6 million after-tax merger expenses. The 2019 first half also included $347,000 pre-tax of asset write-downs and $291,000 pre-tax to terminate acquired leased space.
Liquidity, debt, capital, and risk considerations
- Outstanding long-term Federal Home Loan Bank advances were $54.6 million, down from $58.7 million at year-end; other borrowings were $5.5 million. The company reported $717.5 million of additional FHLB borrowing capacity.
- Certificates of deposit totaling $250.9 million mature within 12 months. Management expects a significant portion to renew, based on historical experience.
- The Bank’s reported capital ratios exceeded minimums: common equity Tier 1 was 14.28%, total risk-based capital was 15.33%, and Tier 1 leverage was 11.15%. Management stated the Bank was well capitalized.
- Commercial real estate loans were $691.9 million, about 40.9% of total loans. Direct energy-sector loans were $40.5 million, or 2.4% of loans; 93.9% of the direct energy portfolio was performing under original agreements.
- Nonperforming assets were $28.0 million, or 1.26% of total assets. The allowance was 1.02% of total loans; excluding acquired loans, it was 1.33% of originated loans.
- The company reported $221.6 million of available lines of credit, $125.7 million of undisbursed loans in process, and $78.4 million of commitments to originate loans. These off-balance-sheet commitments may require funding.
Outlook, management commentary, contingencies, and unusual items
- No specific earnings or growth guidance was provided. Management attributed margin pressure primarily to higher deposit costs and said quarterly loan-loss provision growth reflected loan growth; the lower first-half provision versus 2018 reflected fewer loan downgrades.
- The company was evaluating the expected-credit-loss standard (CECL), effective for it in 2020. Management expected adoption to increase the allowance and provision, but said the amount was not yet known and would depend on portfolio characteristics and economic forecasts.
- The filing describes interest-rate sensitivity as a projected net interest income decrease of 0.8% under an immediate, sustained +200 basis-point shock and 1.5% under a -100 basis-point shock; the +100 basis-point scenario showed no change.
- Management said ordinary-course litigation was not expected to materially affect financial condition or results. No material changes to previously disclosed risk factors were reported. Disclosure controls were concluded to be effective, with no material second-quarter change in internal control over financial reporting.
- Available-for-sale securities had a $1.5 million net unrealized gain at June 30, 2019, compared with a $2.8 million net unrealized loss at year-end. Management stated that securities in unrealized loss positions were not considered other-than-temporarily impaired.
- The company repurchased 83,188 shares during Q2 at an average $36.17 per share; 118,889 shares remained authorized under the repurchase plan at quarter-end. Cash dividends declared were $0.21 per share in Q2.
Important facts for investors to verify
- Whether deposit pricing and certificate-of-deposit renewal trends continue to pressure net interest margin and earnings.
- Credit performance in the commercial real estate portfolio and changes in nonperforming loans, criticized loans, and allowance coverage.
- The eventual CECL adoption adjustment and its effects on the allowance, provision, and retained earnings.
- Funding needs and liquidity as $250.9 million of certificates mature and outstanding loan commitments are drawn.
- Whether the reported one-time facilities charges, asset write-downs, and lease-termination costs recur or are fully resolved.