Home Bancorp Q3 2023 Earnings Call Transcript

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Provided by Quartr
October 19, 2023

There are 8 speakers on the call.

Operator

Welcome to the

Speaker 1

Home Bancorp Incorporated Third Quarter 2023 Earnings Call. Our host for today's call is David Kirkley. I would now like to turn the call over to your host. Mr. Kirkley, you may begin.

Speaker 2

Thank you, Ross. Good morning and welcome to Home Bank's 3rd quarter 2023 earnings call. Our earnings release and investor presentation are available on our website. I'd ask that everyone please refer to the disclaimer regarding is forward looking statements and investor presentation and our SEC filings. Now I'll hand it over to John to make a few comments about the quarter.

Speaker 2

John?

Operator

Call is now open. Thanks, David. Good morning and thank you for joining Home Bancorp's earnings call today. We appreciate your interest in Home Bancorp as we discuss our results will be recorded and will be available on our

Speaker 3

website and will be available on our website and will be available on

Operator

our website and will be available on our website and will be available on our website and will be available on our website. Call is now open. The Q3 was no exception as we reported above average profitability, loan and deposit growth and strong credit quality. Call is really a testament to the strength of our relationships, many of which we've built over the decades that we were able to grow is due to the timing of our deposits in the Q3 without having to rely on wholesale funding. Like everyone, we're still seeing increases in the cost of our deposits, call is being recorded.

Operator

Most of that has been due to the remixing of our customers' deposit balances and not because we were forced to add brokerages. Call is now open. To put numbers behind this, deposits grew by about $46,000,000 or 7% annualized in the Q3 with most of that coming from existing is moving funds into our CD offerings. The movement into CDs and out of savings, checking and demand deposits brought the NIM down to 3.75 from 2nd quarter numbers of 3.94. Call is now open.

Operator

Assets grew $28,000,000 or about 3.4 percent annualized with loans growing $58,000,000 or 9.3 percent annualized. Call is available on the Investor Relations website. Most of that growth was in construction and development, C and I and residential mortgage. Securities continued to decline and cash flows were utilized to fund loan growth. Call is expected to generate about $50,000,000 in principal payments over the next 15 months.

Speaker 3

Call is

Operator

now open. With that, I'll turn it back over to David, our Chief Financial Officer.

Speaker 2

Thanks, John. Recorded. 3rd quarter net income was stable from the 2nd quarter at $9,800,000 or $1.22 per share. Is a

Speaker 4

great day to day event.

Speaker 2

The increase in non interest income was primarily due to a $640,000 gain is on the sale of SBA loans, which were originated over the prior 12 months. While we expect our SBA business will generate approximately $600,000 in fee revenues per year in the current rate environment, it's difficult to project the timing of those fees. Call is now open. As John mentioned, NIM declined in the 3rd quarter. But as you can see on Slide 18, the margin declined early in July and then is now being recorded at around $3.75 for each month of Q3.

Speaker 2

While there could be some additional pressure on NIM due to increasing deposit costs, call is now open. We're cautiously optimistic that the pace of decline has slowed and we are close to the bottom. Slide 19 has our historic and current deposit beta is now available on our website and shows that our current deposit beta for our interest bearing deposits is 31% this cycle, but averaged 38% in the last two rate cycles. Is now open. As John mentioned, we're pleased with our Q3 results.

Speaker 2

Return on average assets was 1.18% and and return on average tangible common equity was 15.2%, which we think highlights the ability of Home Bank to perform well in a variety of economic environments. Call is now open. The 9% loan growth that John mentioned was again above our 4% to 6% growth we were expecting this year call is now available as the loan pipeline led to stronger than anticipated originations. Fortunately, deposits have kept pace and allowed us to grow profitably without having to rely on wholesale broker deposits. Based on the most recent pipeline, we expect loan growth in the Q4 and into next year to will be a more moderate 4% to 6% growth rate.

Speaker 2

Pages 13 14 of our slide deck provide some additional detail on credit, which remains very strong. Call is recorded. We recorded a provision expense of $351,000 in the 3rd quarter due to loan growth, which resulted in allowance to loan loss ratio of 1.21%. Call. Criticized loans have increased about 50% on an absolute basis over the past 12 months, but are still relatively low at 1.56 percent of total loans.

Speaker 2

Call is the increase in substandard loans in the 3rd quarter is primarily due to 2 loans totaling 6,400,000 and we do not expect either loan to result in any losses. It's also worth noting that 60% of our substandard loans are paying as scheduled. Call is today. Non interest expenses increased $379,000 from the last quarter and we expect non interest will be available for the Q1 of 2019. We expect to be between $21,500,000 $22,000,000 in the 4th and 1st quarters.

Speaker 2

Slide 21 summarizes our capital management is the impact they've had on Home Bank. Since 2018, we've had an 8.4% growth in adjusted tangible book value per share, is available on the call, which includes the impact of a cash acquisition last year. During that same time, we've increased our dividend from $0.15 per share to $0.25 will be recorded for the Q3 of fiscal 2020. We've repurchased about 13% of our shares outstanding is 2017 and just approved the new 5% share repurchase plan, all while maintaining a consolidated CET1 capital ratio of is 11.1%. We'd like to think that these actions demonstrate our commitment to creating long term shareholder value.

Speaker 4

Call is

Speaker 2

now open. We continue to believe our relationship based approach to banking and conservative credit culture position us to succeed in any market and our results over the last couple of years demonstrates that. With that, Ross, please open the line for Q and A. Call

Operator

is

Speaker 1

call is being prepared to ask your question when prompted. On your phone now. And our first question comes from Graham Dyck from Piper Sandler. Please go ahead, Graham.

Speaker 2

Call is open. Good morning, gentlemen.

Speaker 5

Good morning. Just wanted to kind of start on the balance sheet. I is now open. I know you said loan growth is kind of going to return to that 4% to 6% pace that you all have been guiding to. But growth is impressive this quarter on both is Ron.

Speaker 5

So I'm just wondering how you're thinking about managing the balance between loans and deposits going forward and maybe how that relates call is where you'd like to see the loan to deposit ratio go in the near term?

Operator

Well, on a longer term basis, we'd obviously we like it is somewhere between $90,000,000 $95,000,000 that's where we feel we're most comfortable. But I think in the short term, we're seeing consistent movement back into the bank on the deposit side, most of that coming in the form of call is not only about CDs, but at least moving back in. We had lost earlier in the year, we were down about $130,000,000 in deposits, all deposits call is now open. And we're closing in, I think, surely by the end of the Q4, we will have recovered all that 130 call. So deposits are continuing to grow.

Operator

I think on the loan front, it's going to be more and more difficult with rising rate, continues to go up approaching 5%. So we're just anticipating that loan growth will continue to slow down call has more and more people decide to just hold off on new projects.

Speaker 5

Okay. So it sounds like you think, I mean at least over the immediate future that the recapture of some of those deposits and general growth in customer accounts could offset call is now open to the line

Operator

of our call. And part of the reason we think that's going to happen, we were a little bit slow in 2022 to raise our rates. We dragged our feet there and so that caused us to lose some deposits. We didn't lose customers, we lost deposits. And now we're seeing some of those deposits coming back in.

Operator

So a very positive movement there as our rates are very competitive in the markets that we serve.

Speaker 2

We've also have not purchased any investment securities this year. We anticipate our investment securities portfolio to continue to pay down, call, which will assist in the fund loan growth in the future. Great.

Speaker 5

That's and John, it's a good segue into my next question. Call is just on deposit cost, maybe David can help with this as well, but you guys closed the gap a fair amount to your deposit data guidance. Is I think it was 36% to 40% that you guys gave last quarter. You're a lot closer now, but it sounds like you think the NIM is close to a bottom. Is there any update to that deposit beta guidance?

Speaker 5

Do you think you might be able to come in slightly below that?

Speaker 2

You know, I think it's is I think we're at 31% for our interest bearing deposit beta, and we said right around 38%. So you're right on call is that range. I don't see that stopping, but I do see it slowing, call is the pace slowing and getting up to that 38%. But on the flip side, you also have your loans REITs offsetting that repricing going forward. So we think is now getting close to the bottom of NIM.

Speaker 2

We're optimistic that it has slowed down, and we feel like we're in a good spot right today.

Speaker 4

Call is open.

Speaker 5

Okay, great. And then just the last thing for me is on that loan repricing front. Do you guys have like, I guess, the duration is 2 and is how many loans are maturing, say, during 2024, I guess, or repricing, renewing during 2024? Do you guys have an estimate of that?

Operator

Call. That's on I forgot what page that is, but it's about 10%. Okay. That's the investment portfolio. You're You're right.

Operator

That is

Speaker 2

impressive. I'll have to get you that number later on today.

Speaker 5

Yes, no problem. Okay, that's all for me. Thanks guys.

Speaker 4

Call is

Speaker 1

And our next question comes from Kevin Fitzsimons from D. A. Davidson. Please go ahead, Kevin.

Speaker 4

Call is today's call.

Speaker 6

Hey, guys. Good morning.

Operator

Good morning, Kevin.

Speaker 6

So on the margin, call, given the I appreciate the monthly chart here on the NIM. So that call coupled

Speaker 1

with a

Speaker 6

slowing rising deposit costs and the fixed rate loans, repricing, all that kind of call speaks to you getting closer to a bottom. But looking further beyond that in a higher for longer, call is going to be more of a, not struggle, but is it going to be more fighting to kind of just keep that stable or do you think call is now open. At this certain point in 2024, the fixed rate loan repricing starts to overtake and you actually see the margin call, Bill Haire.

Operator

Yes. It's very hard to predict with Fed potentially tightening more than what they have. Call. That would put a little more pressure on the NIM, we think. Other banks in our region and their ability to attract deposits.

Speaker 4

Call is

Speaker 3

being recorded. So there are a

Operator

lot of variables that could cause us to go a little bit longer before our NIM settles, but We do feel as though in the

Speaker 7

early part of 'twenty four, we'll see a

Operator

turnaround in NIM. It's just very hard to predict. David and I have a bet And we're pretty far apart on it. So we're about 5 months apart.

Speaker 1

Call. Okay.

Speaker 6

So let me ask, so it sounds like, call is David, given your comments about the securities portfolio continuing just to cash flow, that's probably going to be the course of action. And call is now open. I'm wondering if there's any possibility of you guys looking at a more of a restructuring type transaction where you call is going to do something a little more meaningful in a

Speaker 2

quicker way. We sold some bonds in the Q1, is not a significant amount. We look at it. If it makes sense, we'll do it. Call is not in the pipeline for us that we're definitely it's going to happen.

Speaker 2

Call So there's no immediate plans for that happening. We would be open to it if it

Operator

made sense to us.

Speaker 6

Great. Call is today. And let me just so within expenses, was there anything call is very unusual in the run rate this quarter that helped. I just remember, I just thought out of last quarter's earnings report and call that the expenses were going to be were going to ramp up quicker. And call.

Speaker 6

So I mean you obviously did better than that, but maybe I just misheard that last quarter.

Speaker 2

I believe we suggested non interest is going to be in the $21,500,000 to $22,000,000 range. So it is a little bit below that. We didn't have any provision for unfunded commitments this past quarter, which was is $151,000 the previous month and compensation expense is running a little bit lower than we anticipated. Call. Marketing expense is also one of those areas that tends to ramp up towards the end of the year.

Speaker 2

Call will be increasing a little bit in the Q4. But no, there's no one time items call. That really altered our non interest expense for Q3.

Speaker 3

Okay.

Speaker 6

And David, I just want to clarify your comment on the call is a gain on the SBA loans. So that was like a full year's worth of selling and How should we think about that amount?

Operator

Yes. That's a little bit of

Speaker 2

a tough one. So we started up our program about is a year ago and we have originated 12 SBA loans during that time period over the course of the year. Call, we're almost at our attained our PLP status. And call is, we originated loans throughout the past 12 months, we sold them all in Q3, and we recognized that gain of about $640,000 call. We think that over the course of the year, we'll recognize about $600,000 to $700,000 in income call is related to gain on those loan sales, but it can be could be choppy quarter over quarter.

Speaker 2

Call. So I can't I don't feel comfortable saying exactly what each quarter is going to be because it's not very stable right this second. Call is now open. And also with regards to the high rates, SBA loan originations are still a little bit lower than they would ought to be if rates were a little bit lower. So we're still working through that, but we think $600,000,000 to $700,000,000 on an annual basis on a quarterly, it will be a little bit call is up and down.

Operator

We do anticipate, however, the Q4 receiving our certification from the SBA.

Speaker 6

Call is And what happens when you get back? Is that just like really is that a boost to what you

Operator

can do? Call. Yes, basically it's a reduction of scrutiny by the SBA in underwriting. We are charged with doing the underwriting ourselves. So call It allows for a faster pace to get from beginning to end of that process.

Speaker 6

Got it.

Speaker 1

Call. And our next question comes from Joe Hianciunas is Raymond James. Please go ahead, Joe. Good morning. Thank you for taking my questions.

Speaker 1

Good morning. Call is Dave. You called out a couple of downgrades in your prepared remarks. I was hoping you could provide more color on the sectors or geographies. And call, several if you could touch on where you're seeing any potential cracks in

Operator

the portfolio at this time? Yes. These are a couple of one offs. They're both call is multifamily. And one is a situation where construction costs ran a little bit heavy and so there's a call is a short fall.

Operator

Construction is on pace, but there's a shortfall. So what we're trying to do is help the borrower call utilize other collateral that he has to borrow. I think it's worth about $380,000 is to finish the project. So we took a conservative approach to move this to substandard, but it is I think going to probably come off of that within the next 3 to 4 months as it finishes the project and leases up. The other one is about $1,500,000 in participation with another bank call is on a kind of a micro apartment, if you will, multiuse vessel commercial in the 1st floor.

Operator

Call is, loan to value wise, in very, very good shape. We don't anticipate any losses on that either. But call is, and we're trying to get out of the fort so that we can either sell the collateral as is or finish the collateral to sell it.

Speaker 1

Call. And then you mentioned what was the participation, what is is your SNC exposure?

Operator

We participated that one out.

Speaker 2

We participated call That loan that John was discussing out, it was not a purchased participation. We had very minimal exposure to purchased loans.

Speaker 4

Call is

Speaker 1

open. Got it. I appreciate that. And then just one more kind of question for me here. Call is now open.

Speaker 1

So how should we think about, at this time non expense growth, non interest expense growth in 2024? Call. Do you guys have any large projects planned that would impact that growth rate? And kind of in that same vein, you previously discussed bringing on additional talent in the Houston market. Call is now open.

Speaker 1

I know it's kind of early in the budgeting process, but is there any way to quantify how many new hires you're looking to add over the next, say, 12 to 18 months?

Operator

Call. I think we're getting closer as far as the pullout in the Houston market. We don't really know that number because when you do call. I'll pull out like that, not everybody jumps on board. But we are interested in Houston such a huge market that call.

Operator

The people that we have can't cover it all. So we're very excited about having other talent in that market. And more than likely, what we'll start off with is a call is a small LPO office and eventually looking at creating more of a retail setting for call is being recorded. But our plan, I think, in the next 3 or 4 years is to continue to grow the talent base in that is Houston market, so as to continue to grow. We've had great success since acquiring Texan Bank and we think that's going to continue in 2024.

Operator

Call is

Speaker 1

now open. Yes. Well, I hope everyone's okay over there. Call, and that's all the questions for me.

Operator

Thank you. We hope we're okay,

Speaker 1

call. And at this time, there appears to be no further questions. I'd like to turn it back over to David for closing remarks.

Operator

Hey, once again, thank you all for joining us today. We look is forward to speaking to many of you in the coming days weeks about Home Bancorp. Have a great day. Thank you for attending.

Speaker 1

Call concludes today's conference call. Thank you for attending.

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Earnings Conference Call
Home Bancorp Q3 2023
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