Home Bancorp Q3 2024 Earnings Report

Home Bancorp EPS Results

• Actual EPS: $1.18
• Consensus EPS: $0.97
• Beat/Miss: Beat by +$0.21
• One Year Ago EPS: N/A

Home Bancorp Revenue Results

• Actual Revenue: $34.07 million
• Expected Revenue: $33.10 million
• Beat/Miss: Beat by +$970.00 thousand
• YoY Revenue Growth: N/A

Home Bancorp Announcement Details

• Quarter: Q3 2024
• Date: 10/17/2024
• Time: N/A
• Conference Call Date: Friday, October 18, 2024
• Conference Call Time: 11:30AM ET

Home Bancorp (NASDAQ:HBCP) is the bank holding company for The Home National Bank, a full-service financial institution headquartered in Lafayette, Louisiana. The company operates as a regional commercial bank serving individuals, small businesses and municipalities across Louisiana and East Texas. Through its network of branches and digital banking platforms, Home Bancorp offers a range of deposit and lending solutions designed to meet the needs of its local markets.

The company’s core offerings include retail deposit products such as checking, savings and money market accounts, as well as a variety of commercial and consumer lending services. Home Bancorp provides commercial real estate lending, construction financing, small business loans and mortgage services. In addition to traditional banking services, the company supports clients with treasury and cash management, merchant services and online banking capabilities to facilitate seamless financial operations.

Committed to community banking principles, Home Bancorp emphasizes personalized service and local decision-making. Its leadership maintains a community-focused strategy, aiming to foster long-term relationships with customers, support economic development initiatives and contribute to the growth of the regions it serves. The company continues to invest in technology and service enhancements to improve customer experience and expand its presence in key markets within Louisiana and Southeast Texas.

Home Bancorp Q3 2024 Earnings Call Transcript

Key Takeaways

• Q3 net income of $9.4 M ($1.18/share) with net interest margin up 5 bps to 3.71% and return on assets rising to 1.1%, reflecting expanding asset yields.
• Loan growth slowed to about $7 M in Q3, driven by a $19 M medical C&I loan payoff, and full-year 2024 loan growth is expected at the lower end of the 4–6% guidance range.
• Deposits increased by $55 M (8% annualized), led by money market and interest-bearing checking, positioning the bank to benefit from anticipated rate cuts to lower funding costs.
• Interest income dynamics remained favorable as asset yields rose 12 bps versus a 9 bps increase in funding costs, lifting net interest income to $30.4 M, up $989 K quarter-over-quarter.
• Capital management actions included repurchasing 24 K shares at an average price of $38.50 and raising the dividend by $0.01 to $0.26/share, while maintaining strong capital ratios.

Presentation

[Operator]

Good morning, ladies and gentlemen, and welcome to the Home Bancorp's third quarter 2024 earnings conference call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there'll be an opportunity to ask questions.

[Operator]

Please note this event is being recorded. I'd now like to turn the conference over to Home Bancorp's Chairman, President, and CEO, John Bordelon, and Chief Financial Officer, David Kirkley. Mr. Kirkley, please go ahead.

[David Kirkley, CFO at Home Bancorp]

Thank you, Eric. Good morning, and welcome to Home Bank's third quarter 2024 earnings call. Our earnings release and investor presentation are available on our website. I'd ask that everyone please refer to the disclaimer regarding forward-looking statements in the investor presentation and our SEC filings. Now I'll hand it over to John to make a few comments about the third quarter. John?

[John Bordelon, Chairman, President, and CEO at Home Bancorp]

Thank you, David. Good morning, and thank you for joining our earnings call today. We appreciate your interest in Home Bank as we discuss our results, expectations for the future, and our approach to creating long-term shareholder value.

[John Bordelon, Chairman, President, and CEO at Home Bancorp]

We reported third quarter net income of $9.4 million, or $1.18 per share, which was a nice improvement from last quarter's strong results. Net interest margin continued to expand, increasing 5 basis points to 3.71%. We're optimistic that the trend will continue as the Fed rate cuts reduce pressure on our cost of funds. Return on assets also increased and was 1.1% in the third quarter, up 13 basis points from the second quarter.

[John Bordelon, Chairman, President, and CEO at Home Bancorp]

Loan growth slowed in the third quarter and was impacted by the paydown of a $19 million medical C&I loans. As we said last quarter, two-plus years of sustained higher rates has had a material impact on loan demand in our markets. We're optimistic that rate cuts and some clarity in November could lead to a pickup in loan demand and originations.

[John Bordelon, Chairman, President, and CEO at Home Bancorp]

Based on the soft demand we saw in the third quarter and are seeing in the fourth, we're expecting 2024 loan growth to finish at the lower end of our 4%-6% guidance. Even in the current low demand environment, which we don't expect to last, we think we have an opportunity to drive asset yields higher as our fixed-rate book naturally reprices.

[John Bordelon, Chairman, President, and CEO at Home Bancorp]

Deposits increased $55 million or 8% annualized, with most of the growth coming from money market and interest-bearing checking accounts. Money market CD rates were quick to adjust lower after the rate cut in September, and we're optimistic that future rate cuts will have a similar impact. David will provide some more details on our asset and liability repricing to give everyone a sense of the potential to drive our asset yields higher and reduce our funding costs over the next few quarters.

[John Bordelon, Chairman, President, and CEO at Home Bancorp]

It has been frustrating over the last three years that Home Bank continues to perform well and the market hasn't responded accordingly. This frustration exists because we continue to feel very good about Home Bank's outlook and have demonstrated strong performance in a variety of economic cycles.

[John Bordelon, Chairman, President, and CEO at Home Bancorp]

But we can't control the market, so we'll focus on the things that we can control, such as providing exceptional customer service, expanding relationships with new and existing customers, and maintaining our conservative credit culture. In the long term, we are confident that our approach will continue to build shareholder value at Home Bank. With that, I'll turn it back over to David, our Chief Financial Officer.

[David Kirkley, CFO at Home Bancorp]

Thanks, John. We continued to see increases in asset yields outpace increases in funding costs in the third quarter. The yield on average interest-earning assets increased by 12 basis points to 5.82%, while the yield on average interest-bearing liabilities increased by 9 basis points to 3.02%. This dynamic continued to benefit net interest income, which increased to $30.4 million, up $989,000 from the previous quarter.

[David Kirkley, CFO at Home Bancorp]

As John mentioned, loan growth slowed during the quarter to $7 million or about 1% annualized, and that contributed to a lower loan loss provision of $140,000. The slower loan growth, combined with the $55 million increase in deposits, reduced our loan-to-deposit ratio to 96.1%.

[David Kirkley, CFO at Home Bancorp]

Despite the slower loan growth, we believe we have near-term opportunities to pick up some spread as loans reprice. The origination market is competitive and the rate environment is volatile, but we're continually originating loans with yields above 7.5%, which compares favorably to our fixed-rate loan portfolio.

[David Kirkley, CFO at Home Bancorp]

62% of our loan portfolio is fixed rate and yields a weighted average rate of 5.27%, so while our mix of fixed- to floating-rate loans slowed asset yield increases when rates were climbing, we think it should provide some downward protection on yields and NIM now that we appear to be in a decreasing rate environment. We also think we have an opportunity to stabilize or reduce our liability costs in the next few quarters, depending, of course, what happens with market rates.

[David Kirkley, CFO at Home Bancorp]

We have approximately $500 million or 70% of CDs maturing in the next six months with a weighted average rate of about 4.75%. New CD origination rates from October are at least 35 basis points lower. We also have $135 million of 4.76% BTFP borrowings maturing in January.

[David Kirkley, CFO at Home Bancorp]

Slide eight breaks down our loan portfolio composition, and you may notice some changes. The increase in the percentage of one-to-four family mortgages and the decrease in CRE was due to updates to our loan coding systems as opposed to actual shifts in collateral or origination activity. Slides nine through 12 are new and provide additional details on our CRE and C&I portfolios.

[David Kirkley, CFO at Home Bancorp]

Slides 14 and 15 of our investor presentation provide some additional detail on credit. Non-performing loans increased by $1.3 million in the third quarter to $18.1 million or only 0.68% of total loans. Our allowance for loan losses ratio was stable from the second quarter at 1.21%.

[David Kirkley, CFO at Home Bancorp]

Slide 21 of the presentation has some additional details on noninterest income and expenses. Third quarter noninterest income decreased slightly to $3.7 million and should be between $3.6 million and $3.8 million over the next two quarters. Noninterest expense increased by $450,000 to $22.3 million, which was in line with expectations. We expect core noninterest expenses to be between $22 million and $22.5 million during the next two quarters.

[David Kirkley, CFO at Home Bancorp]

We repurchased 24,000 shares at an average price of $38.50 in the third quarter, which equates to 94% of tangible book value, excluding AOCI. We also increased our dividend by $0.01 to $0.26 per share, which gets us close to the midpoint of our target dividend payout ratio of 20%-25.5% of earnings.

[David Kirkley, CFO at Home Bancorp]

Slide 22 summarizes the impact our capital management strategy has had on Home Bank over the last few years. Over the last five years, we grew adjusted tangible book value per share at a 9.1% annualized growth rate, and over the same period, we also increased EPS at a 7.9% annualized growth rate.

[David Kirkley, CFO at Home Bancorp]

We've increased our dividends per share by 20% and repurchased 14% of our shares during the same time period, and we've done this while maintaining robust capital ratios, which positions us to be successful in a varying economic environment and to take advantage of any opportunities as they arise. With that, operator, please open the line for Q&A.

[Operator]

[audio distortion] star then one on your touchtone phone. If you are using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press star then the two. At this time, we will pause momentarily to assemble our roster. Your first question comes from Feddie Strickland. Please go ahead.

[Feddie Strickland, Director of Equity Research at Hovde Group]

Hey, good morning, guys.

[John Bordelon, Chairman, President, and CEO at Home Bancorp]

Morning, Feddie.

[Feddie Strickland, Director of Equity Research at Hovde Group]

Just wanted to start with loan growth. John, I think you touched on this a little bit in your opening comments, but, I mean, if we start to get a series of rate cuts as Fed funds futures are showing, I mean, can we see loan growth maybe return to something more like a mid- to high-single-digit annualized rate as we get into 2025 if we see, you know, a series of 25 basis point cuts throughout the year?

[John Bordelon, Chairman, President, and CEO at Home Bancorp]

Absolutely. I think the most obvious one is the one to four portfolio that's begun to shrink as new originations have slowed significantly. With the 10 year going up, mortgage rates have climbed into the higher sixes, and so I think that's had a negative impact with the builders not wanting to put too much product out there. So I know that will, with the rate cuts on the long end, that would definitely help the mortgage industry.

[John Bordelon, Chairman, President, and CEO at Home Bancorp]

As far as, you know, just other commercial loans, I do believe that many of our customers have paused momentarily just to see where rates are going, where they're gonna stop, what's going on economically and throughout the United States. I think it's prudent that they do kind of hesitate shortly, but I'm anticipating, you know, first, second quarter, that they should pick that back up, assuming that we've dropped at least 100 basis points in rate.

[Feddie Strickland, Director of Equity Research at Hovde Group]

Got it. That's helpful. And then just geographically, I mean, do you expect that New Orleans and Houston still drive a good bit of the commercial growth going forward? Or is there some opportunities maybe in other parts of the footprint that you haven't touched yet?

[John Bordelon, Chairman, President, and CEO at Home Bancorp]

Surely, the strongest markets are Houston, New Orleans, and Lafayette. Other markets periodically come in with some improvement, but the strength of the company is in those three markets, no question.

[Feddie Strickland, Director of Equity Research at Hovde Group]

Gotcha. And just shifting to credit for a second, was wondering if you could talk a little bit more about the relationships that were put on nonaccrual this quarter, and wanted to ask if those are the same ones that seemed to migrate into substandard in the construction category.

[John Bordelon, Chairman, President, and CEO at Home Bancorp]

Yeah. So we have one credit in the New Orleans area where it is, I think, 15 different rental properties, and this stems from a disagreement with the partners. And the properties are still being rented. It's off of St. Charles Avenue, around Tulane University. And so there's no problems with the property, it's just a disagreement with the owners.

[John Bordelon, Chairman, President, and CEO at Home Bancorp]

We are heading for sheriff's sale. I think there are five different sheriff's sale dates for all these properties, and I think the first ones are at the end of this month and then November and then January, so we should be completely free of that. There's about $2 million of equity in all the properties, so we anticipate being taken out at sheriff's sale on all those.

[Feddie Strickland, Director of Equity Research at Hovde Group]

That's it for me. I'll step back in the queue.

[John Bordelon, Chairman, President, and CEO at Home Bancorp]

Thank you, Feddie.

[Operator]

Please go ahead.

[Joe Yanchunis, Senior Equity Research Associate at Raymond James]

Hello.

[Operator]

Your next question comes from the line of Joe Yanchunis. Please go ahead.

[Joe Yanchunis, Senior Equity Research Associate at Raymond James]

Good morning.

[John Bordelon, Chairman, President, and CEO at Home Bancorp]

Morning, Joe.

[Joe Yanchunis, Senior Equity Research Associate at Raymond James]

Yeah. So I wanted to circle back on loans for a minute. And I appreciate the color on the reclassification of the loan categories. I'm curious to know. What was gross loan production in the quarter? And just trying to get an idea of kind of payoffs here, and if, you know, kind of CRE payoffs are to accelerate, you know, that'd be a headwind to loan growth, but, you know, it would also lead to better lending opportunities if rates fall. Just kind of trying to get a little more color on that.

[John Bordelon, Chairman, President, and CEO at Home Bancorp]

We're looking that up.

[David Kirkley, CFO at Home Bancorp]

We were about $80 million in new originations in Q3, which is about equal or a little bit less than prior quarter. Our weighted average rate coming in around 7.85 on those new originations. We did have higher levels of principal pay downs and payoffs during the quarter, probably the highest since Q1 of 2023, so higher pay downs than we've experienced, which stymied some of our growth this past quarter. Joe, I'm sorry, was there another question in that one as well?

[Joe Yanchunis, Senior Equity Research Associate at Raymond James]

I was just kind of wondering how you see kind of payoffs kind of behaving as we, you know, kind of move into a rate cutting environment [crosstalk].

[John Bordelon, Chairman, President, and CEO at Home Bancorp]

Yeah, I think that.

[Joe Yanchunis, Senior Equity Research Associate at Raymond James]

Incremental lending opportunities will, you know, offset, you know, that headwind.

[John Bordelon, Chairman, President, and CEO at Home Bancorp]

The $19 million payoff in C&I came about, basically it's a major hospital that opened up a new line of manufacturing gloves and other PPE. And that has not, they have not really performed as well as they wanted. So they had the excess cash. They just paid us off instead of paying us, you know, 7% or 8%.

[John Bordelon, Chairman, President, and CEO at Home Bancorp]

So that's kind of a one-off that we don't expect anymore, but we're seeing. In fact, I'm vetting two new opportunities this afternoon. So I do think that, with lower rates, there's going to be more projects done. The two we're looking at this afternoon, one is construction and the other is an existing facility.

[John Bordelon, Chairman, President, and CEO at Home Bancorp]

So it's hard to really predict. I do think, had we not had that $19 million payoff, we would've probably, you know, looked very similar to the first and second quarter, but it has slowed, there's no question. Our construction book is slower than where it was in the first and second quarter. We anticipate, as rates go down, as the new presidency takes over, that things will settle down, probably in the second quarter, and take off again.

[Joe Yanchunis, Senior Equity Research Associate at Raymond James]

Got it. And just kind of flipping over to deposits, can you talk about, you know, deposit pricing? What does competition look like in your markets? And kind of how do you believe betas will behave on the way down? And kind of piggybacking off that, you know, if loan demand remains relatively muted in the near term, as you've alluded to, and you do continue to see kind of pressure around deposit pricing, you know, how should we think about the NII trajectory, you know, moving forward?

[John Bordelon, Chairman, President, and CEO at Home Bancorp]

I'll make a comment then let David follow up on that. I do believe that most all of the banks in our markets have followed suit and dropped their rates. We are seeing some people pull out a little bit of their CDs and search for other rates. Those may be with brokerage houses or whatever but not necessarily banks. We're not seeing that.

[John Bordelon, Chairman, President, and CEO at Home Bancorp]

So most of the players are doing as we're doing and trying to lower their deposit costs. So I think, with additional cuts by the Fed, we should see the ability to continue to bring down our costs. Our highest rate today is at 4.75% for three months, and we would anticipate that coming down significantly, if not throughout the remainder of this year, surely in the first quarter.

[David Kirkley, CFO at Home Bancorp]

Yeah, Joe, if you look at our cost of funds on slide 18, you'll notice cost of CDs were flat quarter-over-quarter. If you look at the spot rate from June compared to the spot rate of September, we're actually down about 25 basis points on CD yields. So you'll see that play out in Q3. And if you look at our NIM slide on slide 19, you'll see uptick in yields in September. So we are seeing the ability to lower our CD pricing a good bit. And as John pointed out, our competitors have mostly been aggressive in CD rate cuts and money market rate cuts after the Fed announcement.

[David Kirkley, CFO at Home Bancorp]

As I talked about earlier, our loan rates, we have less variable-rate loan in our portfolio than some of our competitors, so our loan yields should not be as negatively impacted as some of our other competitors as rate cuts continue down the next couple of quarters.

[David Kirkley, CFO at Home Bancorp]

To give you a little bit more context on that. Spot rate on loans from June to September was actually up 6 basis points despite the 50 basis point rate cut in September. So we have a lot of fixed-rate loan opportunities coming due and they're coming due at lower rates, so being able to reprice some of those loans a bit higher should offset some of the rate cuts in the future.

[Joe Yanchunis, Senior Equity Research Associate at Raymond James]

I appreciate that. Just kind of sticking with slide 19 here. You know, you have the BTFP funding that's going to mature in January. Do you have a plan to kind of to backfill that?

[David Kirkley, CFO at Home Bancorp]

We're looking into options. I think, given two rate cuts, we're going to be kind of in the money on that with really no impact if we have to go out and borrow overnight. We're looking at some options to divvy that up between maybe some overnight advances as well as some term funding.

[John Bordelon, Chairman, President, and CEO at Home Bancorp]

We've been carrying a little bit of excess cash over the quarter, just not knowing exactly what's going to happen with deposit flow.

[Joe Yanchunis, Senior Equity Research Associate at Raymond James]

Okay. And if I could just slip in one more here.

[John Bordelon, Chairman, President, and CEO at Home Bancorp]

Yep.

[Joe Yanchunis, Senior Equity Research Associate at Raymond James]

You know, I know it's early for 2025, but some banks, you know, over the past week, have talked about generating positive operating leverage next year. Is that something you believe will occur?

[David Kirkley, CFO at Home Bancorp]

Yeah, look, Joe, we think there's the opportunity. I think we're in a good spot, with our loan book and our deposit book, that we should see, at the very least, stabilization in NIM. We expect, based off of deposit behavior and the ability for us to reprice some loans, that we're going to be able to tick up on NIM over the next couple of quarters as well.

[John Bordelon, Chairman, President, and CEO at Home Bancorp]

The severity of the cuts or the speed of the cuts, I think, is what would cause us the most damage to our NIM. If they methodically, throughout 2025, reduce rates, then I think our loan yields will be able to exceed the deposit costs, but if they drop, you know, 50 points in November and 50 in December, then it may take, to David's points, a couple of quarters for our NIM to start back up again.

[Joe Yanchunis, Senior Equity Research Associate at Raymond James]

Perfect. I appreciate you taking my questions.

[David Kirkley, CFO at Home Bancorp]

Thanks, Joe.

[John Bordelon, Chairman, President, and CEO at Home Bancorp]

Great. Thank you, Joe.

[Operator]

Again, if you have a question, please press star then one. The next question comes from Feddie Strickland with Hovde Group. Please go ahead.

[Feddie Strickland, Director of Equity Research at Hovde Group]

Hey, John, just a quick follow-up after your last question or that last comment on the margin. It sounds like the difference between your rate sensitivity disclosure saying that, if we have down 100, NII goes down, is basically all of that happening at once in that shock scenario, versus what, you know, appears to be the current reality, which is potentially having that gradually happen over time, and it's kind of the puts and takes there that you're able to react.

[Feddie Strickland, Director of Equity Research at Hovde Group]

You've got some deposits repricing, loans repricing, and you can actually manage it, versus all that hitting at once and it just hitting some of your floating-rate loans. Is that sort of the puts and takes between what the rate sensitivity disclosures are and what we could actually see happen over the course of 2025?

[David Kirkley, CFO at Home Bancorp]

Yeah. You know, the big problem right now that I think we're having as the Home Bank, as well as other banks, is figuring out deposit behavior with rate cuts. I think, this past rate cut when they announced 50 basis points, the market expected basically another 100 basis points of rate cuts by the end of 2024 and continued into 2025.

[David Kirkley, CFO at Home Bancorp]

I think a lot of people reacted and were able to lower their CD rates with that expectation, and since then, rate cut expectations have moderated a little bit. Finding that right balance where we're able to retain our CD customers and grow our deposits is really dependent on how much cuts that we're going to be expecting, when they're cut, when they're going to occur, and how our competitors react to those cuts.

[David Kirkley, CFO at Home Bancorp]

I feel like there may be some upward pressure on deposit prices over the next couple of months with regards to maybe there was too much rate reductions on deposit rates across the market with the expectations of rapid rate cuts. I think there may be some stabilization or the beta is not being as high when further rate cuts are announced.

[John Bordelon, Chairman, President, and CEO at Home Bancorp]

That drove pretty much our decision on how we're pricing our CDs right now. We have a rate on a three month that is one of the higher in all of our markets. So we wanted to stay a little bit high because of David's comments here that we're not sure exactly what's going to happen in November. Do we do 50? Do we do 25? Do we not do anything? So we do anticipate the ability to be able to move that rate down. We're just gonna measure the market and see how far we can go.

[Feddie Strickland, Director of Equity Research at Hovde Group]

Got it. That's helpful. Thanks, guys. And just one last follow-up for me, too, on expenses. Appreciate the near-term guidance there. Just curious if there's anything on the horizon down the road that, maybe in later 2025, that could cause any sort of acceleration, you know, whether it's merit increases or investment in, you know, new technology or new core system or something. Just curious if there's anything on the horizon that could cause expenses to materially tick up a little bit in the back half of 2025.

[David Kirkley, CFO at Home Bancorp]

Yeah, we generally have annual raises that take effect April 1, so you'll see an uptick in comp and benefit expense during that time period. We are going through the budget process right now and evaluating those things. There are no material objects that are jumping out that are out of the course of the ordinary right now from a capital expenditure standpoint.

[John Bordelon, Chairman, President, and CEO at Home Bancorp]

But I am looking for cost saves so those merit raises aren't as impactful as they would be normally.

[Feddie Strickland, Director of Equity Research at Hovde Group]

Got it. Thanks. That's helpful. That's it for me.

[John Bordelon, Chairman, President, and CEO at Home Bancorp]

Thank you very much.

[Operator]

This concludes our question-and-answer session. I would like to turn the conference back over to John for any closing remarks.

[John Bordelon, Chairman, President, and CEO at Home Bancorp]

Once again, thank you all for joining us today. We look forward to speaking to many of you in the coming days and hope you have a wonderful weekend. Thank you.

[Operator]

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.

Participants

Executives

• John Bordelon, Chairman, President, and CEO
• David Kirkley, CFO

Analysts

• Feddie Strickland, Director of Equity Research at Hovde Group
• Joe Yanchunis, Senior Equity Research Associate at Raymond James