Home Bancorp - Earnings Call - Q3 2025

Executive Summary

• Q3 delivered another step-up in profitability: diluted EPS was $1.59 (+9% q/q; +35% y/y), ROA rose to 1.41%, and NIM expanded 6 bps to 4.10%—the sixth straight quarter of NIM expansion.
• Solid top-line on spread income and fees: net interest income grew to $34.1M (+2% q/q) and noninterest income was $3.7M; efficiency improved to 59.5% (vs. 60.5% in Q2).
• Funding/Liquidity tailwinds: deposits grew to $3.0B (+$67M q/q), FHLB advances fell sharply to $3.1M (from $88.2M), and overall cost of deposits ran at 1.88% in Q3, positioning NIM for resilience as rates move lower.
• Credit mixed near-term but manageable: NPAs rose to $30.9M (0.88% of assets) on five relationships moved to nonaccrual; management does not anticipate losses given collateral and guarantor strength; ALLL held at 1.21%.
• Result vs. Street: HBCP beat S&P Global consensus on both EPS ($1.59 vs. $1.36*) and revenue ($38.07M* vs. $33.33M*), aided by NIM expansion and lower funding costs; dividend raised 7% to $0.31. Values retrieved from S&P Global.

What Went Well and What Went Wrong

• What Went Well

  • NIM expansion and earnings momentum: “Net interest margin expanded for the sixth consecutive quarter to 4.10%, and ROA increased to 1.41%”.
  • Funding mix and costs improved: deposits up 2% q/q to $3.0B with growth in lower-cost money markets; overall deposit cost at 1.88% and FHLB advances down $75M q/q.
  • Capital return and dividend signal: quarterly dividend increased 7% to $0.31; TBV/share rose to $43.29.

• What Went Wrong

  • Loan balances declined: total loans down $58.6M (-2.1% q/q) on slower production and elevated paydowns, including $45M tied to customer asset sales.
  • Credit migration: NPAs increased $5.5M q/q to $30.9M (0.88% of assets), largely five relationships moved to nonaccrual; substandard rose to $57.6M.
  • Higher noninterest-bearing deposit beta risk on the way down: management noted deposit betas will be “a little bit less than peers,” but still rising over time, limiting downside in funding cost from rate cuts relative to some peers.

Transcript

Operator (participant)

Good morning, ladies and gentlemen, and welcome to the Home Bancorp's third quarter 2025 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 will be an opportunity to ask questions. Please note this call is being recorded. I would now like to turn the conference over to Home Bancorp's Chairman, President, and CEO John Bordelon, and Chief Financial Officer David Kirkley. Please go ahead, Mr. Kirkley.

David Kirkley (Senior EVP and CFO)

Thank you, Konstantin. Good morning and welcome to Home Bank's third quarter 2025 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 our investor presentation and our SEC filings. Now I'll hand it over to John to make a few comments about the quarter. John?

John Bordelon (Chairman, President, and CEO)

Thanks, 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. Yesterday afternoon, we reported third quarter net income of $12.4 million or $1.59 per share, up $0.14 per share from the second quarter and $0.41 from a year ago. Net interest margin expanded for the sixth consecutive quarter to 4.10%, and our return on assets increased by 10 basis points to 1.41%. Home Bank's efficiency ratio also improved in the third quarter and is now back down below 60%. We've been able to grow revenues significantly faster than expenses over the last couple of years, with revenues increasing twice as fast as expenses.

Loans decreased by $58 million in the third quarter, as we saw payoffs and paydowns that were $52 million higher than average paydowns over the last six quarters. This was driven by a number of long-term customers selling their businesses or property. I think it's worth mentioning that we're not losing them to other banks. Eight customers alone that sold their businesses or property in the third quarter made up $45 million of the decline. In almost every case, Home Bank remains these customers' primary banking relationship, which bodes well for the future but challenges our near-term growth. Customers are always waiting for a lower rate before they move ahead with their projects that require financing.

We have a lot of great conversations going on, but the media coverage over the last 10 months has convinced many that big rate cuts are coming, and so people are choosing to remain on the sidelines until there's more clarity on rates. While we are hopeful that we'd see 4%-6% loan growth this year, we're now expecting more moderate growth of 1%-2% in 2025. We've always maintained loan structure discipline and have prioritized risk-adjusted returns over growth, and we don't intend to abandon our principles now. On a high note, deposits increased 9% annualized in the third quarter, with good growth in relatively low-cost money market accounts. Thanks to a concerted effort and a focus on building franchise value, we've increased deposits by 17% in the last nine quarters versus loans, which also grew a respectable 8%.

Most of this increase has been in core deposits and includes good growth in Texas, which we entered back in 2022. Our loan-to-deposit ratio is now 91%, which positions us well for when loan growth picks up. Non-performing loans have increased in 2025, but our charge-offs remain very low. We don't expect for that to change due to low loan-to-values, our conservative underwriting standards, and proactive credit management. As a reminder, you can see on Slide 16, our net charge-offs have averaged about six basis points over the last six-plus years. M&A activity nationwide has accelerated, and we continue to look for the right opportunity to leverage our acquisition experience. We are confident in Home Bank's future and our ability to meet our high standards.

Our senior leadership team has 981 years of cumulative experience for an average of 26.6 years, and we have a track record of outperformance in all economic climates. With that, I will turn it back over to David, our Chief Financial Officer.

David Kirkley (Senior EVP and CFO)

Thanks, John. Slide 5 in our investor presentation has a summary of the last six quarters. Net income totaled $12.4 million, a 9% increase from the prior quarter and a 31% increase from a year ago. Net interest income increased $754,000 quarter-over-quarter, as NIM increased 6 basis points to 4.10%. Yield on loans increased 3 basis points quarter-over-quarter, as the contractual rate on new loan originations was 7.35%, which continues to support an expanding NIM as lower-yielding loans reprice. Slides 14 and 17 provide additional details on cash flows from our loan and investment securities portfolio, and we think we can continue to increase asset yields even if there are rate cuts. Excluding floating-rate loans repricing in the next three months, 41% of loans with a blended rate of 5.7% are expected to reprice or refinance over the next three years.

Over that same time period, paydown of our investment portfolio is projected to be paid off with a roll-off yield of 2.56%, which is well below current available yields of approximately 4%. Slides 15 and 16 of our investor presentation provide some additional detail on credit. We had $376,000 in net charge-offs in the quarter related to smaller C&I loans. Year-to-date, our net charge-offs totaled $743,000, which is a very low 4 basis points of total loans and $58,000 less than a prior year. Third quarter non-performing assets increased $5.5 million to $30.9 million, or 88 basis points of total assets. The increase was primarily due to the downgrade of five relationships and partially offset by payment. The largest was a $5.1 million relationship with two separate land development loans in Houston.

We feel between the loan-to-value on these properties and the guarantor strength that there will be no material losses on this relationship. The second largest was a $1.2 million acquired CRE loan that was placed on non-accrual status in September that was made current as of 9/30. Once again, we believe we are well collateralized on this loan as well as other loans classified as non-accrual and/or substandard. We had a negative $229,000 provision expense during the quarter as a result of loan balance declines, which was partially offset by $376,000 of net charge-offs. We feel very confident in reserves as our allowance for loan loss ratio was stable from the second quarter at 1.21%. The cost of interest-bearing liabilities decreased two basis points to 2.69% as continued strong deposit growth allowed us to pay down more expensive short-term advances.

Interest-bearing deposit costs increased five basis points in Q3 due to changes in the deposit mix, but we will see decreases when we get some additional Fed rate cuts. The cost of CDs declined one basis point to 3.85% even as balances increased $15 million during the quarter. We are keeping CD terms short with 77% of our CD portfolio maturing in the next six months and 97% within a year, so we will have the opportunity to react quickly when rates decline. Non-interest-bearing deposits, which represent 27% of total deposits, increased $5 million in Q3 and $69 million, or 9.4% year-to-date. Our overall cost of deposits in Q3 was an attractive 1.88%. This was an increase of four basis points quarter-over-quarter, but once again, we were able to pay off FHLB advances and reduce our total cost of interest-bearing liabilities by two basis points.

Short-term advances from the FHLB declined $75 million quarter-to-date and $137 million year-to-date. Slide 22 of the presentation has some additional details on noninterest income and expenses. Third quarter noninterest income was $3.7 million, which was in line with expectations. We expect noninterest income to be between $3.6 and $3.8 million over the next several quarters. Noninterest expenses increased by $124,000 to $22.5 million and was in line with expectations. Noninterest expenses expected to be between $22.5 and $23 million per quarter for the next two quarters. Slides 23 and 24 summarize the impact our capital management strategy has had on Home Bank. Since 2019, we grew tangible book value per share adjusted for AOCI at a 9.5% annualized growth rate. Over the same period, we also increased EPS at an 11.2% annualized growth rate.

We increased our dividends per share by 36% and repurchased 17% of our shares outstanding, and we've done this while maintaining robust capital ratios. This positions us to be successful in varying economic environments and to take advantage of any opportunities as they arise. With that, operator, please open the line for Q&A.

Operator (participant)

We will now begin the question and answer session. To ask a question, you may press star then the number one on your touch-tone 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 number two. At this time, we will pause momentarily to assemble a roster. Your first question comes from the line of Joseph Yanchunis from Raymond James. Please go ahead.

Joseph Yanchunis (Managing Director)

Good morning.

David Kirkley (Senior EVP and CFO)

Hey, good morning, Joseph.

John Bordelon (Chairman, President, and CEO)

Hey, Joseph.

Joseph Yanchunis (Managing Director)

So I thought we could start with the NIM here. So how should we think about the NIM trajectory, particularly as we think about the yield curve and your increased asset sensitivity? And at what point do you think the NIM peaks?

David Kirkley (Senior EVP and CFO)

All right, so the increased asset sensitivity is more so due to the cash on hand on our balance sheet, so that's increasing the sensitivity as cash reprices daily. I would say as far as NIM, I think we have a great opportunity to keep NIM at least flat and grow a couple of basis points quarter-over-quarter. We have highlighted that we have a lot of loans and investment securities repricing, and we still think we have room to reprice upwards, and also, with Fed rate cuts, we did lower some of our deposit rates, and we think as the Fed continues to cut, we have the opportunity to lower deposit rates even further, and that has the ability to offset the reduction in loan yield due to Fed rate cuts as our adjustable rate loans reprice downward.

So I think we're really well positioned to continue to keep NIM at least flat to increase a couple of basis points.

Joseph Yanchunis (Managing Director)

I appreciate that. And your updated 2025 loan growth guide implies a pretty big step up in forward-looking loan growth. What levels of payoffs and paydowns are implied in this guide, and how does the loan pipeline currently compare to recent history? Just trying to get a sense of the jumping-off point as we get into 2026.

David Kirkley (Senior EVP and CFO)

Sure. Third quarter was the beginning of the decline of new loan originations. We see a little healthier portfolio coming forth in the fourth quarter. Maybe not all of that gets closed in the fourth quarter, but so it is a little healthier than what we had in third quarter originations. So those numbers were down probably about, without the exact amount, but probably about $30-something million in the quarter from prior quarters. So we do think we'll see some pickup. Hopefully, we can pick up all that $36 million and be more normalized in the fourth quarter. But I think definitely, if we get a couple more rate cuts, the first quarter should be very strong.

Joseph Yanchunis (Managing Director)

All right. Well, thank you for taking my questions.

David Kirkley (Senior EVP and CFO)

Thank you, Joseph.

Operator (participant)

Again, if you have a question, please press star then the number one. Your next question comes from the line of Feddie Strickland from Janney Montgomery Scott. Please go ahead.

Feddie Strickland (VP and Equity Research Analyst)

Hey, good morning, John, David.

David Kirkley (Senior EVP and CFO)

Good morning, Fed.

Feddie Strickland (VP and Equity Research Analyst)

I appreciate the commentary and the relief that you don't expect losses on the credits that migrated non-accrual this quarter. You gave some more color on the call. So it sounds like we shouldn't necessarily see charge-offs from that, but I'm just curious, as you work through some of these credits, could we start to see the direction of non-performers reverse and maybe start to see those come down some?

John Bordelon (Chairman, President, and CEO)

Yeah. I think if you, as we look at it, there's no, I guess, similarity in what's starting to have problems. It's just some one-offs here or there. We have one of our classifieds that called us this week and said they're going to be paying us off by the end of the month. So we would hope, but the worst part about NPAs is sometimes it takes them a little bit longer to fix themselves. What we're happy about is we're not seeing a lot of them going into bankruptcy, which really takes anywhere a little bit faster in Texas, but slower in Louisiana. In some cases, up to a year to be able to move on that. So we're working through them.

One of our problem assets that we had from a couple of years ago, we finally are getting out of bankruptcy, and we'll be able to take those properties back and begin the process of selling them. So it's kind of a longer-term situation when you have the bankruptcies, but fortunately, most of ours are not in bankruptcy. So hopefully, they can either sell or upgrade their business and be able to start paying as agreed.

Feddie Strickland (VP and Equity Research Analyst)

Appreciate that. And just shifting gears to deposits, can you talk about the level of deposit competition you're seeing today versus maybe a quarter ago? And how are you thinking about deposit betas on the way down if we do get rate cuts?

John Bordelon (Chairman, President, and CEO)

So our deposit betas are going to be a little bit, I would say, less than peers. We will continue to see our deposit betas increase from where they are over time. And I think they're going to be a little bit less than peers because we didn't raise our deposit rates as much as some of our competitors did and have the overall lower cost of funds to start off with. So that's going to give us less room to go down, but we still have room to adjust as yields come down. As far as competition goes, I would say there are a couple, count on one hand, banks that are kind of out of the norm of our peer grouping. They pop up here and there, and I would say mostly in the Texas market, one or two banks in Louisiana that have some outlying pricing.

Overall, we're able to retain most customers. We are able to offer competitive rates, and I don't feel like the pricing is as fierce as it has been in the past. I feel like banks are some of our competitors in the market. They are very quick to lower their deposit costs and looking to lower their liability costs, and that bodes well for us given our NIM position and our desire to continue to increase our liquidity.

Also adding to that, with a 91% loan-to-deposit ratio, it should be a little bit easier for us to lower our deposit costs. When we were at 98, we were very much kind of in the lead as far as the price of CDs and such. I think a little bit of that pressure will be taken off.

Feddie Strickland (VP and Equity Research Analyst)

Got it. Thanks. I'll step back in the queue.

Operator (participant)

This concludes our question and answer session. I would like to turn the conference back over to John for closing remarks. Sir, please go ahead.

John Bordelon (Chairman, President, and CEO)

Thank you. Once again, thank you all today for joining us. We look forward to speaking to you in many days and weeks ahead. Thank you for your interest in Home Bancorp. Have a great day.

Operator (participant)

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