Home Bancorp, Inc. — Q1 2021 Form 10-Q
Business context and period. Home Bancorp is a Louisiana bank holding company operating through Home Bank, N.A. This unaudited filing covers the three months ended March 31, 2021; balance-sheet comparisons are with December 31, 2020, and operating results are compared with Q1 2020. Amounts below are in U.S. dollars.
Financial performance and condition
| Metric | Q1 2021 / March 31, 2021 | Comparison |
|---|---|---|
| Net interest income | $25.1 million | Up 17.7% from Q1 2020 |
| Noninterest income | $4.1 million | Up 20.9% from Q1 2020 |
| Net income / diluted EPS | $11.9 million / $1.41 | $2.5 million / $0.27 in Q1 2020 |
| Net interest margin | 4.14% | 4.18% in Q1 2020 |
| Net interest spread, taxable-equivalent | 3.98% | 3.86% in Q1 2020 |
| Total assets | $2.71 billion | Up $115.7 million, or 4.5%, from year-end |
| Total loans | $1.98 billion | Essentially unchanged from year-end |
| Total deposits | $2.33 billion | Up $114.5 million, or 5.2%, from year-end |
| Cash and cash equivalents | $282.7 million | Up $94.7 million from year-end |
| Operating cash flow | $11.2 million | $7.9 million in Q1 2020 |
| Shareholders’ equity | $328.6 million | Up $6.8 million from year-end |
Interest expense fell to $1.8 million from $3.9 million in Q1 2020; the average rate paid on interest-bearing deposits declined to 0.42% from 1.07%. Noninterest expense rose 3.6% to $16.0 million. The effective tax rate was 19.9%, compared with 17.5%.
The allowance for loan losses was $30.0 million, or 1.51% of loans (1.72% excluding PPP loans), versus $33.0 million, or 1.66%, at year-end. Including the $1.4 million allowance for unfunded commitments, total allowance for credit losses was $31.4 million. Nonperforming assets fell to $17.3 million from $20.0 million; nonperforming loans were 0.79% of loans. Substandard loans increased to $37.0 million from $35.3 million, while special-mention loans declined to $7.3 million from $9.3 million.
Outstanding FHLB advances were $28.1 million, and other borrowings were $5.5 million. The company reported $808.8 million of additional FHLB borrowing capacity. Bank capital ratios exceeded stated minimums: common equity Tier 1 and Tier 1 risk-based capital were each 14.11%, total risk-based capital was 15.37%, and Tier 1 leverage was 9.89%.
Material changes and key drivers
- Net income increased $9.4 million year over year, primarily reflecting a $1.7 million reversal of loan-loss provision in Q1 2021 versus a $6.3 million provision in Q1 2020, higher net interest income, and PPP fee income.
- Q1 2021 loan income included $3.3 million of recognized deferred PPP lender fees. Unrecognized PPP fees were $8.3 million at quarter-end and are expected to be amortized into interest income over the loans’ lives.
- PPP loans totaled $235.7 million, up $14.5 million from year-end. Excluding PPP loans, total loans declined $14.5 million, or 0.8%; construction and land lending grew while residential mortgage balances declined, primarily from refinancing.
- Mortgage loan-sale gains rose $871,000 year over year, supporting higher noninterest income. Service fees declined $392,000, primarily because of lower overdraft fees.
- Available-for-sale securities increased to $275.0 million, but their net unrealized gain declined to $1.7 million from $6.5 million at year-end. Q1 other comprehensive loss was $2.7 million, including a $4.8 million unrealized securities loss, partly offset by cash-flow hedge gains.
- Cash dividends declared were $0.22 per share, unchanged from Q1 2020. The company repurchased 41,477 shares during the quarter for approximately $1.2 million.
Outlook, commentary, and risks
The filing provides no specific earnings or revenue guidance. Management said banking operations were not restricted by COVID-19 measures and described continued monitoring of borrowers and industries vulnerable to pandemic effects. COVID-related principal and/or interest deferrals totaled $27.7 million, or 1% of loans, at March 31, 2021, down from $558.8 million, or 28%, at June 30, 2020. Of loans that had exited deferral, $443.0 million, or 99%, were current and performing at quarter-end. These deferrals were not classified as troubled debt restructurings under the cited relief provisions.
Management identified continuing uncertainty from COVID-19, including possible weaker demand, unemployment-related delinquencies and foreclosures, lower collateral values, additional credit-loss provisions, interest-rate effects on asset yields and funding costs, cybersecurity exposure from remote work, and potentially higher FDIC premiums. Its interest-rate model estimated projected net interest income changes of +8.8% for a +300-basis-point shock, +3.0% for +100 basis points, and −4.3% for −100 basis points; actual outcomes may differ. The company estimated $1.6 million of cash-flow hedge losses would be reclassified to interest expense over the next 12 months.
Management stated that ordinary-course legal matters were not expected to materially affect financial condition or results. No material change in previously disclosed risk factors was reported. Disclosure controls were considered effective, with no material change in internal control over financial reporting during the quarter.
Important facts for investors to verify
- Whether the unusually large year-over-year earnings increase is sustainable, given the loan-loss reversal and PPP fee recognition.
- Future credit performance, particularly in commercial real estate, construction and land, hotels, restaurants, and energy; review substandard loans and COVID-related deferrals.
- Whether PPP forgiveness and fee amortization, as well as loan growth and mortgage refinancing trends, affect future interest income and margins.
- The stability and cost of deposits, including $289.7 million of certificates of deposit maturing within 12 months, and the continued availability of FHLB funding.
- The effects of interest-rate movements on net interest income and the value of the securities portfolio, including the quarter’s decline in unrealized gains.
- Whether the allowance remains adequate as economic conditions and borrower performance evolve; management cautioned that estimates depend on assumptions and actual losses may differ.