Home Bancorp, Inc. Announces 2020 Second Quarter Results And Declares Quarterly Dividend

 Home Bancorp, Inc., the parent company for Home Bank, N.A. (the “Bank”) (www.home24bank.com), reported financial results for the second quarter of 2020.  For the quarter, the Company reported net income of $2.5 million, or $0.29 per diluted common share (“diluted EPS”), compared to $1.9 million, or $0.21 diluted EPS, for the first quarter of 2020.

“While the long-term impact of COVID-19’s effect on our economy remains tremendously difficult to estimate,” said John W. Bordelon, Chairman, President and Chief Executive Officer of the Company and the Bank, “I’ve admired how our customers have managed the short-term challenges they’ve faced.  They have adjusted their operations in countless ways to ensure they continue to serve their clients as best they can. That said, the challenges they face are significant as the virus spreads and the economy continues to struggle.”

“Just as the businesses we bank have stepped up to serve their clients, our bankers have done a wonderful job stepping up for our customers,” continued Bordelon. “Over the past several months, our employees have been reminded time and time again of the critical role we play in our communities.  Despite the uncertain road before us, the spirit within our company has never been higher.  We will rise to meet the challenges ahead.  We will serve one another, our customers and communities like never before.”

COVID-19 Response

While banking operations have not been restrained by state and local government COVID-19 restrictions, we have adapted to protect our employees and customers by working remotely as much as possible, enhancing cleaning procedures, and enacting several other measures to reduce the risk of transmission of the virus.  

The Company has been active in providing Small Business Administration (“SBA”) Paycheck Protection Program (“PPP”) loans. Through July 24, 2020, we have funded or are currently in the process of funding approximately 2,970 loans totaling $260.2 million under the PPP. At June 30, 2020, the total recorded net investment in PPP loans was $249.6 million.

To give immediate financial support to our customers, the Company began providing principal and/or interest payment relief options in March 2020.  When we last reported the level of such deferrals in our first quarter Form 10-Q (as of May 8, 2020), the level of  deferrals totaled  $533.0 million, or 27% of total loans.  As of July 24, 2020, the level of deferrals has decreased to $357.2 million, or 18% of total loans.

 Second Quarter 2020 Highlights

• Loans grew by $226.8 million on a linked-quarter basis due primarily to PPP loans;
• The provisions for loan losses and unfunded lending commitments totaled $7.0 million in the aggregate during the second quarter, reflecting our assessment of the change in expected losses due primarily to the economic impact of the COVID-19 pandemic;
• The allowance for loan losses totaled $33.8 million, or 1.72% of total loans, at June 30, 2020. The allowance for credit losses (“ACL”), which includes the allowance for unfunded lending commitments, totaled $37.5 million, or 1.91% of total loans at June 30, 2020. Excluding PPP loans, the ratio of allowance for loan losses to total loans and the ratio for allowance for credit losses was 1.97% and 2.18%, respectively;
• Preliminary Tier 1 leverage capital and total risk-based capital ratios were 9.11% and 14.83% at June 30, 2020, compared to 10.84% and 14.88% at March 31, 2020;
• The net interest margin was 3.75% for the three months ended June 30, 2020, down 43 basis points from the first quarter of 2020. The net interest margin for the second quarter includes the impact of PPP loans and higher level of cash and cash equivalents during the quarter; and
• The average yield on total interest-bearing deposits was 0.78% in the second quarter of 2020, down 29 basis points from the first quarter of 2020.

Loans

Total loans grew by $226.8 million, or 13%, from March 31, 2020 to June 30, 2020, due to PPP loans. Excluding PPP loans, loans decreased by $22.8 million, or 1%, during the quarter.  The following table summarizes the changes in the Company’s loan portfolio from March 31, 2020 to June 30, 2020. 

At June 30, 2020, the total recorded investment in PPP loans was $249.6 million. This amount is net of $8.5 million in deferred lender fees, which will be amortized into interest income over the life of the loans (on a contractual basis, approximately 2 years on average).

Credit Quality and Allowance for Credit Losses

Nonperforming assets (“NPAs”) totaled $28.0 million, or 1.06% of total assets, and $29.5 million, or 1.31% of total assets, at June 30, 2020 and March 31, 2020, respectively. The Company recorded net loan charge-offs of $1.1 million during the second quarter of 2020, compared to net loan charge-offs of $268,000 for the first quarter of 2020. The increase in net loan charge-offs during the second quarter was primarily due to $658,000 in charge-offs related to an acquired farm loan relationship and $385,000 in charge-offs related to an acquired energy loan relationship. Both relationships were classified as substandard prior to the COVID-19 crisis.

Beginning in March 2020, in response to the economic challenges brought on by the COVID-19 crisis, we began offering our borrowers payment relief options primarily in the form of deferrals of principal and/or interest payments for an initial term of up to three months.  When we last reported the level of such deferrals in our first quarter Form 10-Q (as of May 8), the level of  deferrals totaled  $533.0 million, or 27% of total loans.  As of July 24, 2020 the level of deferrals has decreased to $357.2 million, or 18% of total loans.

The provision for loan losses for the second quarter of 2020 totaled $6.5 million, up $214,000 from the first quarter of 2020. The second quarter provision for loan losses reflects our assessment of the change in expected losses due primarily to the current and anticipated economic impact of the COVID-19 pandemic. Changes in expected losses consider various factors including the changing economic activity, potential mitigating effects of governmental stimulus, the duration of the health crisis, customer specific information impacting changes in risk ratings, projected delinquencies and the impact of industry-wide loan modification efforts, among other factors.

The following table provides a summary of the loan portfolio at June 30, 2020, stratified by certain selected industry segments, and related reserve builds during the six months ended June 30, 2020. We have separately identified certain information regarding PPP loans which, due to the existence of full repayment guarantees from the SBA as well as the likelihood that the vast majority of such loans will be forgiven, we believe entail minimal credit risk to the Company.

Investment Securities

The following table summarizes the composition of the Company’s investment securities portfolio at June 30, 2020.

Securities available-for-sale (“AFS”) made up 98% of total investment securities and net unrealized gains on AFS securities totaled $6.7 million at June 30, 2020.

Deposits

Total deposits increased $409.2 million, or 22.0%, from March 31, 2020 to $2.3 billion at June 30, 2020. Customers who received PPP loans increased their deposit balances by a net of $210.2 million during the second quarter of 2020.  The following table summarizes the changes in the Company’s deposits from March 31, 2020 to June 30, 2020.

The average rate on interest-bearing deposits decreased 29 basis points from 1.07% for the first quarter of 2020 to 0.78% for the second quarter of 2020. At June 30, 2020, certificates of deposit maturing within the next 12 months totaled  $291.0 million.

Net Interest Income

The net interest margin (“NIM”) decreased 43 basis points from 4.18% for the first quarter of 2020 to 3.75% for the second quarter of 2020 primarily due to a decrease in the yield on interest-earning assets, which was down 66 basis points from the first quarter of 2020. Outstanding PPP loans negatively impacted the average loan yield by 23 basis points and the NIM by 7 basis points during the second quarter. During the second quarter of 2020, $882,000 of PPP lender fees were recognized in loan interest income. The remaining balance of $8.5 million in deferred lender fees will be amortized into interest income over the life of the PPP loans.  A $170.2 million, or 265%, increase in cash and cash equivalents at June 30, 2020 compared to March 31, 2020, resulted in higher average other interest-earning assets due primarily to the growth in deposits.  The increase in cash and cash equivalents negatively impacted the average yield on total interest-earning assets and the NIM by 30 and 26 basis points, respectively.

Loan accretion income from acquired loans totaled $746,000 during the second quarter of 2020, down $64,000 from $810,000 for the first quarter of 2020. At June 30, 2020, variable rate loans totaled $453.6 million, or 23% of total loans.

The following table summarizes the Company’s average volume and rate of its interest-earning assets and interest-bearing liabilities for the periods indicated.  Taxable equivalent (“TE”) yields on investment securities have been calculated using a marginal tax rate of 21%.

Noninterest Income

Noninterest income for the second quarter of 2020 totaled $3.1 million, down $255,000, or 8%, from the first quarter of 2020 due primarily to a decrease in service fees and charges (down $522,000), which was partially offset by an increase in the gain on the sale of loans (up $345,000).  Service fees and charges decreased primarily due to a decline in income from overdraft fees on deposit accounts.

Noninterest Expense

Noninterest expense for the second quarter of 2020 totaled $16.0 million, down $151,000, or 1%, from the first quarter of 2020. The decrease in noninterest expense was primarily due to decreases in the provision for credit losses on unfunded lending commitments (down $187,000) and marketing and advertising expenses (down $138,000) for the second quarter of 2020, partially offset by an increase in regulatory fees (up $246,000) as FDIC assessment credits were exhausted during the first quarter.

Capital and Liquidity

The Company’s tangible common equity ratio was 9.54% and 11.32% at June 30, 2020 and March 31, 2020, respectively. At June 30, 2020, the Bank’s preliminary Tier 1 leverage capital ratio was 9.11%, down 173 basis points from March 31, 2020, and preliminary total risk-based capital ratio was 14.83%, down five basis points from March 31, 2020. Loans covered under the PPP are included in the Bank’s Tier 1 leverage capital ratio.

The following table summarizes the Company’s primary and secondary sources of liquidity.

Dividend and Share Repurchases

The Company announced that its Board of Directors declared a quarterly cash dividend on shares of its common stock of $0.22 per share payable on August 21, 2020, to shareholders of record as of August 10, 2020. 

The Company repurchased 115,327 shares of its common stock during the second quarter of 2020 at an average price per share of $24.69, or an aggregate of $2.8 million, under the Company’s 2019 Repurchase Plan. An additional 82,916 shares remain eligible for purchase under the 2019 Repurchase Plan.  The book value per share and tangible book value per share of the Company’s common stock was $34.50 and $27.39, respectively, at June 30, 2020.

Non-GAAP Reconciliation 

This news release contains financial information determined by methods other than in accordance with generally accepted accounting principles (“GAAP”). The Company’s management uses this non-GAAP financial information in its analysis of the Company’s performance. In this news release, information is included which excludes intangible assets and PPP loans. Management believes the presentation of this non-GAAP financial information provides useful information that is helpful to a full understanding of the Company’s financial position and operating results. This non-GAAP financial information should not be viewed as a substitute for financial information determined in accordance with GAAP, nor is it necessarily comparable to non-GAAP financial information presented by other companies.  A reconciliation on non-GAAP information included herein to GAAP is presented below.

This news release contains certain forward-looking statements. Forward-looking statements can be identified by the fact that they do not relate strictly to historical or current facts.  They often include the words “believe,” “expect,” “anticipate,” “intend,” “plan,” “estimate” or words of similar meaning, or future or conditional verbs such as “will,” “would,” “should,” “could” or “may.”

Forward-looking statements, by their nature, are subject to risks and uncertainties.  A number of factors – many of which are beyond our control – could cause actual conditions, events or results to differ significantly from those described in the forward-looking statements.  Home Bancorp’s Annual Report on Form 10-K for the year ended December 31, 2019,  as supplemented by its Current Report on Form 8-K dated April 28, 2020, describes some of these factors, including risk elements in the loan portfolio, the level of the allowance for credit losses, the impact of the COVID-19 pandemic, risks of our growth strategy, geographic concentration of our business, dependence on our management team, risks of market rates of interest and of regulation on our business and risks of competition. Forward-looking statements speak only as of the date they are made.  We do not undertake to update forward-looking statements to reflect circumstances or events that occur after the date the forward-looking statements are made or to reflect the occurrence of unanticipated events.