HBCP Q2 2024 NIM Rises on 8.25% Loan Yields, Boosted by Deposit Gains
- Robust Deposit Growth: The team in Houston has successfully generated significant noninterest-bearing deposit growth, with further deposit gains in other markets like Acadiana, underscoring the bank’s ability to attract and retain core deposits.
- Improving Net Interest Margin: Consistent upward adjustments in loan yields—with the current average at 6.28% versus new loans at 8.25%—indicate a healthy spread improvement that can drive stronger overall profitability.
- Stable Credit Quality & Deposit Costs: The Q&A highlights that credit issues have been isolated and that the bank is not experiencing significant competitive pressure on deposit costs, suggesting sound asset quality and a stable funding base.
- Cautious Capital Deployment: Management indicated a potential slowdown in share repurchases given elevated share prices, suggesting a reluctance to aggressively deploy capital, which could dampen investor sentiment.
- Credit Quality Concerns: Despite improvements in asset quality, the increase in the loan loss allowance was attributed to shifts in the loan portfolio mix, hinting at underlying credit risks that may surface if the economic environment deteriorates further.
- Competitive Deposits Environment: Although competition hasn't been a significant issue to date, the mention of other local banks offering competitive deposit rates implies that increased pressure on deposit costs could emerge, negatively impacting margins.
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Margin Outlook
Q: What’s driving the expanding NIM?
A: Management explained that NIM is set to improve as loan yields rise from new loans at 8.25% versus a portfolio yield of 6.28%, coupled with fewer opportunities to reprice deposit costs, implying a favorable margin environment moving forward. -
Credit Quality
Q: Why did reserves increase despite quality improvements?
A: They noted the reserve rise was due solely to a change in the loan mix without any qualitative deterioration, and with current trends, any worsening credit is expected to be isolated. -
Share Repurchases
Q: Will share buybacks slow at high prices?
A: Management indicated repurchases will likely be scaled back at elevated share prices in order to conserve dry powder for future opportunities. -
Deposit Focus
Q: Are noninterest deposits Houston-driven?
A: The increase in noninterest-bearing deposits is mainly attributed to a focused, high-performing team in Houston that has successfully attracted new customers. -
Deposit Costs
Q: Are competitive pressures increasing deposit costs?
A: Management stated that they have seen minimal deposit cost pressure, with the market remaining relatively stable in this area. -
C&I Lending
Q: Is the focus shifting to C&I lending?
A: They confirmed a continued emphasis on C&I loans since these tend to bring in corresponding deposit relationships, reinforcing their market strategy.