Home Bancorp, Inc. — Q3 2019 Form 10-Q
Business context and period: Home Bancorp is a Louisiana-based bank holding company. This unaudited report covers the quarter and nine months ended September 30, 2019; balance-sheet comparisons are to December 31, 2018. Dollar amounts below are in millions unless noted.
Financial performance and position
| Metric | Q3 / Sep. 30, 2019 | Comparable period / prior date |
|---|---|---|
| Net income | $6.9; diluted EPS $0.75 | Q3 2018: $8.3; diluted EPS $0.89 |
| Nine-month net income | $21.3; diluted EPS $2.32 | Nine months 2018: $23.5; diluted EPS $2.53 |
| Net interest income | Q3: $21.1; nine months: $64.7 | Down 10.1% and 6.7%, respectively, year over year |
| Tax-equivalent net interest margin | Q3: 4.12%; nine months: 4.30% | Q3 2018: 4.74%; nine months 2018: 4.64% |
| Total assets | $2,218 | $2,154 at Dec. 31, 2018 |
| Loans, net of allowance | $1,690 | $1,633 at Dec. 31, 2018 |
| Total deposits | $1,831 | $1,773 at Dec. 31, 2018 |
| Allowance for loan losses | $17.6; 1.03% of loans | $16.3; 0.99% at Dec. 31, 2018 |
| Shareholders’ equity | $314.7 | $304.0 at Dec. 31, 2018 |
Cash flow: For the first nine months, operating activities provided $31.0 million; investing activities used $60.7 million; financing activities provided $31.4 million. Cash and cash equivalents ended the period at $61.3 million, up $1.7 million from year-end 2018.
Debt and liquidity: Long-term FHLB advances were $47.9 million, down from $58.7 million at year-end; other borrowings were $5.5 million. The company reported $255.1 million of available-for-sale securities and $727.3 million of additional FHLB borrowing capacity. Certificates of deposit totaling $293.9 million mature within 12 months; management expects a significant portion to renew. Bank capital ratios were above regulatory minimums: common equity Tier 1 14.21%, total risk-based capital 15.25%, and leverage capital 11.12%.
Changes versus prior periods
- Q3 net income decreased 17.0%; nine-month net income decreased 9.3%. The 2018 nine-month comparison included $1.6 million of merger-related expenses, net of tax.
- Interest expense rose 66.7% in Q3 and 70.4% for the nine-month period, primarily because of higher average deposit rates. Net interest income and margins consequently declined.
- Loans grew 3.5% from year-end, led by commercial real estate growth of $78.8 million (12.3%); residential mortgage loans declined $17.4 million. Deposits increased 3.3%, including a 12.2% increase in certificates of deposit.
- Noninterest income increased 42.9% in Q3, primarily reflecting a $1.2 million nontaxable bank-owned life insurance benefit. Noninterest expense rose 5.8% in Q3, including higher compensation costs.
- Nonperforming loans were $25.0 million, or 1.13% of total assets, versus $24.4 million and 1.13% at year-end. Nonperforming assets were $27.6 million, or 1.24% of assets, versus $26.0 million and 1.21%.
Outlook, commentary, and risks
- The filing gives no specific earnings or growth guidance. Management described forward-looking statements as subject to risks and disclaimed an obligation to update them.
- Q3 provision for loan losses was $1.1 million, up 45.8% year over year; management attributed the increase and higher quarterly charge-offs mainly to a $6.4 million nonperforming commercial relationship that filed for bankruptcy. The allowance was 1.03% of loans.
- Management expects adoption of CECL, effective in 2020, to increase the allowance and provision; the amount of impact was not yet known.
- Other unusual items included a $680,000 pretax write-off of an FDIC loss-sharing indemnification receivable, $347,000 of pretax asset write-downs in Q2, $291,000 of office-lease termination costs in Q2, and $287,000 of Q3 compensation expense related to a former executive’s departure. The FDIC agreement expires in March 2020; management does not expect further reimbursable losses under it.
- Commercial real estate is the largest loan category at $719.4 million. Direct energy-sector loans were $40.1 million, or 2.4% of loans; 94.9% of that portfolio was performing to original terms. Interest-rate simulations indicated projected net interest income changes of +1.1% for a 200-basis-point increase and −2.5% for a 100-basis-point decrease.
- Management said there were no material changes to previously disclosed risk factors. Ordinary-course legal matters were not expected to materially affect financial condition or results.
Important facts for investors to verify
- Whether the commercial borrower bankruptcy results in additional charge-offs, provisions, or collateral losses.
- Whether elevated deposit costs continue to pressure net interest margin and earnings.
- Loan quality and concentration trends, especially commercial real estate, acquired loans, and energy exposure.
- The eventual CECL adoption impact on reserves, earnings, and capital.
- Renewal rates and pricing for the $293.9 million of certificates of deposit maturing within 12 months, alongside actual liquidity needs and FHLB capacity.
- The durability of reported earnings excluding the one-time BOLI benefit and other unusual items, and the pace and terms of share repurchases.