Home Bancorp, Inc. — 2020 Form 10-K
Reporting period: Fiscal year ended December 31, 2020. Home Bancorp is the holding company for Home Bank, N.A., a community bank operating 40 offices in south Louisiana and west Mississippi. The bank principally funds loans and securities with customer deposits and borrowings.
Financial performance and position
| Metric | 2020 | 2019 | Change / context |
|---|---|---|---|
| Total assets | $2.592 billion | $2.200 billion | Up 17.8% |
| Total loans | $1.980 billion | $1.714 billion | Up 15.5%; excluding $221.2 million of PPP loans, up 2.6% |
| Total deposits | $2.214 billion | $1.821 billion | Up 21.6%, led by demand and NOW accounts |
| Net interest income | $92.2 million | $86.0 million | Up 7.2% |
| Net income | $24.8 million | $27.9 million | Down 11.3% |
| Diluted EPS | $2.85 | $3.05 | Down 6.6% |
| Net interest margin | 3.96% | 4.26% | Down 30 basis points |
| Provision for loan losses | $12.7 million | $3.0 million | Up $9.7 million, primarily reflecting COVID-19-related expected losses |
Profitability and expenses: Interest income was $104.1 million and interest expense was $11.9 million. Lower deposit costs and PPP loan income supported net interest income, while lower asset yields and excess cash balances pressured the margin. Noninterest income was $14.3 million, down 0.8%; noninterest expense was $63.0 million, down 1.0%. Return on average assets was 0.99% versus 1.27%, and the efficiency ratio was 59.13% versus 63.34%.
Cash flow and liquidity: Operating cash flow was $49.0 million; investing cash flow was negative $260.0 million, including a $271.8 million increase in loans; financing cash flow was $359.1 million, primarily reflecting $392.8 million of deposit growth. Cash and cash equivalents increased by $148.1 million to $188.0 million. The company reported $1.156 billion of primary and secondary liquidity, including $787.2 million of available FHLB advances and $55.0 million of unsecured credit lines.
Debt and capital: Year-end FHLB advances were $28.8 million, down from $40.6 million; other borrowings were $5.5 million. Shareholders’ equity was $321.8 million. The Bank was categorized as well capitalized, with a 13.92% common equity Tier 1 risk-based ratio, 15.18% total risk-based capital ratio, and 9.68% leverage ratio.
Asset quality: The allowance for loan losses was $33.0 million, or 1.66% of loans; total allowance for credit losses, including unfunded commitments, was $34.4 million, or 1.74%. Nonperforming loans were $18.7 million, or 0.94% of loans, and nonperforming assets were $20.0 million, or 0.77% of assets. These ratios are affected by the adoption of CECL and changes in acquired-loan classification, which limit direct comparison with prior periods.
Material changes versus 2019
- Net income declined despite higher net interest income, chiefly because the provision for loan losses rose substantially during the first half of 2020.
- Deposit costs fell: the average rate on interest-bearing deposits declined to 0.72% from 1.10%. The overall net interest margin nevertheless compressed to 3.96% from 4.26%.
- PPP lending drove much of reported loan growth: $221.2 million remained outstanding at year-end. Excluding PPP, loan growth was 2.6%.
- COVID-related payment deferrals fell to $36.0 million, or 2% of loans, from $558.8 million, or 28%, at June 30, 2020. Of loans that had exited deferral, $469.2 million, or 98%, were current and performing at year-end.
- Nonperforming assets decreased to $20.0 million from $28.5 million. Total substandard loans fell to $35.3 million from $39.8 million, although construction and land substandard loans increased.
- CECL adoption on January 1, 2020 increased the allowance by $6.1 million before tax and reduced retained earnings by $4.0 million after tax. A fourth-quarter estimate revision released $2.2 million of the reserve for unfunded commitments, including $1.3 million recognized as a reduction in noninterest expense and $940,000 as an increase to retained earnings.
Outlook, risks and other notable items
- The filing gives no specific earnings, revenue, margin, or credit-loss guidance. Management said the bank was prepared to assist with the renewed PPP program and would continue to assess pandemic-related developments.
- Management identified uncertainty around COVID-19, including borrower repayment capacity, collateral values, credit-loss reserves, deposit and loan demand, and the effect of near-zero interest rates on asset yields and margins.
- Geographic concentration in south Louisiana and west Mississippi exposes the bank to regional economic and energy-sector volatility, as well as hurricanes and flooding. Energy-sector loans were $31.3 million, with another $10.1 million of unfunded commitments.
- Commercial real estate, commercial and industrial, and construction lending carry greater concentration and loss risk than residential lending. Construction and land loans were $221.8 million, or 11.2% of the loan portfolio.
- The company repurchased 530,504 shares during 2020 at an average price of $26.41 and declared dividends of $0.88 per share, up from $0.84. A new plan authorized repurchases of up to 444,000 shares; 300,080 remained available at year-end.
- Other notable items include $4.1 million of PPP lender fees recognized in 2020, with $5.4 million of deferred fees remaining; 2020 loan-sale gains increased to $2.9 million. The prior year included a $1.2 million BOLI death benefit, absent in 2020.
- The independent auditor issued unqualified opinions on the financial statements and internal control over financial reporting; the allowance for collectively evaluated loans was identified as a critical audit matter. Ordinary-course legal matters were not expected by management to have a material effect.
Key facts for investors to verify
- How PPP forgiveness, remaining deferred fees, and subsequent PPP originations affect loan balances, interest income, and reported growth.
- Whether borrowers exiting COVID-related deferrals remain current, and whether the $36.0 million still modified at year-end shows renewed stress.
- The adequacy and sensitivity of the CECL allowance, especially for commercial real estate, construction and land, and energy exposures; review the fourth-quarter reserve revision and its accounting treatment.
- Whether deposit growth is durable and how the sizable 2021 certificate-of-deposit maturities, excess cash, and available borrowing capacity evolve.
- How lower interest rates, repricing of assets and liabilities, and the disclosed interest-rate sensitivity scenarios affect future net interest margin and earnings.