Home Bancorp, Inc. — Q3 2022 Form 10-Q
Reporting period: Three and nine months ended September 30, 2022. Home Bancorp is a Louisiana bank holding company. Unless otherwise stated, dollar amounts below are in millions.
Financial and operating highlights
| Metric | Q3 2022 / Sep. 30, 2022 | Comparable period / prior date |
|---|---|---|
| Net income | $10.4; diluted EPS $1.28 | Q3 2021: $15.1; diluted EPS $1.79 |
| Net interest income | $32.0 for Q3; $84.7 year to date | Q3 2021: $27.1; nine months 2021: $76.3 |
| Net interest margin | 4.11% Q3; 3.77% year to date | 4.16% Q3 2021; 4.01% nine months 2021 |
| Total assets | $3,167.7 | $2,938.2 at Dec. 31, 2021 |
| Total loans | $2,303.3 | $1,840.1 at Dec. 31, 2021 |
| Total deposits | $2,738.4 | $2,535.8 at Dec. 31, 2021 |
| Cash and cash equivalents | $150.6 | $601.4 at Dec. 31, 2021 |
| Shareholders’ equity | $316.7 | $351.9 at Dec. 31, 2021 |
| Allowance for loan losses | $27.4; 1.19% of loans | $21.1; 1.15% at Dec. 31, 2021 |
Results and changes from prior periods
- Q3 net income declined $4.6 million year over year; nine-month net income declined $15.1 million. For the nine months, net interest income rose 11.0%, but noninterest income fell 17.2% and noninterest expense rose 24.0%.
- Comparisons were affected by the 2021 non-taxable $1.7 million BOLI benefit following a former employee’s death, and by substantially larger PPP loan fees in 2021. Q3 2022 also included a $1.7 million loan-loss provision, versus a $2.4 million reversal in Q3 2021.
- Q3 noninterest expense rose 26.1% to $20.7 million, reflecting Friendswood-related growth, higher staffing and operating costs. Nine-month expense included $2.0 million of merger costs; Q3 included $60,000.
- On March 26, 2022, the company acquired Friendswood Capital Corporation, parent of Texan Bank, for $64.9 million cash. The acquired portfolio added $317.5 million of loans and $368.0 million of deposits at acquisition; $22.5 million of goodwill was recorded. Purchase accounting estimates remain preliminary.
- Loan balances grew 25.2% from year-end; management reported 10.1% organic growth excluding acquired loans and PPP loans. Commercial real estate loans were $1,086.7 million, the largest portfolio category.
- Cash flow from operations was $36.7 million for the nine months. Investing used $373.2 million, including securities purchases, business-combination and banking-center outlays; financing used $114.4 million, including deposit outflows, dividends and repurchases, partly offset by subordinated-note proceeds. Cash declined $450.9 million from year-end.
Credit, capital, liquidity and risk
- Nonperforming assets increased to $17.5 million, or 0.55% of assets, from $14.5 million, or 0.49%, at year-end. Management attributed much of the increase to acquired Friendswood problem assets. Nonaccrual loans were $17.1 million; $7.7 million were acquired PCD loans.
- Special-mention loans rose to $10.8 million from $3.4 million, primarily from downgrades. Substandard loans were $20.1 million, up from $17.5 million, including acquired commercial real estate loans. Nine-month net charge-offs were $655,000. Management cautions that the allowance depends on estimates and could require further adjustment.
- Available-for-sale securities had $59.6 million of net unrealized losses at September 30, versus $653,000 at year-end, primarily reflecting rising rates. The company recorded no securities credit-loss allowance, concluding the declines were not credit-related. The loss contributed to a $43.6 million nine-month other comprehensive loss and reduced equity.
- Regulatory capital ratios at the Bank exceeded stated well-capitalized thresholds: common equity Tier 1 12.49%, total risk-based capital 13.65%, and Tier 1 leverage 9.76%.
- Liquidity included $1.1 billion of additional FHLB borrowing capacity. Certificates of deposit totaling $274.7 million mature within 12 months. Outstanding commitments included $356.5 million in available lines, $179.9 million of undisbursed loans in process, and $218.9 million of commitments to originate loans.
- The company issued $55.0 million of 5.75% fixed-to-floating subordinated notes due 2032, intended to qualify as Tier 2 capital. The rate floats at three-month SOFR plus 282 basis points beginning in 2027.
Outlook, contingencies and other disclosures
- The filing provides no specific earnings or financial guidance. Management discusses sensitivity to interest rates: its model estimates projected net interest income would change +2.5% with a 300-basis-point increase and −3.3% with a 100-basis-point decrease, subject to assumptions and actual repricing behavior.
- Management identifies credit quality, interest rates, real estate values, economic conditions, funding availability, competition, regulatory changes, cyber incidents, fraud, severe weather and other external events among risks that could affect results. It states there were no material changes to previously disclosed risk factors.
- Management said ordinary-course claims and litigation are not expected to materially affect financial condition or results. The filing reports no material control changes during the quarter and concludes disclosure controls were effective.
- Share repurchases totaled 77,021 shares in Q3 at an average $37.06 per share. The quarterly dividend declared was $0.23 per share.
Important facts for investors to verify
- Whether acquired Friendswood loans, goodwill, merger costs and integration expenses develop as expected; acquisition fair values are preliminary.
- Credit trends, especially acquired nonaccrual loans, commercial real estate exposure, rising special-mention balances and adequacy of the allowance.
- The effects of interest-rate changes on securities values, net interest margin, deposit pricing and funding costs; securities unrealized losses materially reduced equity.
- Deposit retention and liquidity, including the $274.7 million of certificates maturing within 12 months and the decline in cash during the period.
- Underlying earnings comparisons after accounting for the prior-year BOLI benefit, PPP fee runoff, provision reversals and current-year acquisition-related costs.