HBCP Q3 2024 NIM stable on deposit repricing; originations at $80M
- Margin Improvement Potential: Q&A participants highlighted that Home Bank’s ability to reprice both loans and deposits in a changing rate environment could help boost net interest margins over time, suggesting a resilient margin profile even if rates adjust gradually.
- Effective Deposit Cost Management: Executives noted that competitors are lowering CD rates and that Home Bank’s strategic approach to managing deposit costs—supported by flat quarter-over-quarter funding costs and effective repricing—positions the bank favorably to sustain earnings in a rate-cut environment.
- Opportunistic Loan Growth Prospects: Despite slower loan growth in Q3, management indicated expectations for improvement as lower rates spur new lending opportunities, particularly in commercial and construction segments, signaling potential future growth.
- Sustained slowdown in loan growth: The Q&A revealed that new originations were around $80 million with unusually high principal paydowns – the highest since Q1 2023 – which could constrain future revenue growth.
- Potential margin compression from rate cuts: Executives warned that methodical rate cuts (e.g., 50 basis points in November and 15 in December) could depress net interest margins until loan yields eventually overtake deposit costs, delaying margin recovery.
- Rising operating expenses: The discussion about upcoming annual raises effective April 1, 2025 indicates that increased compensation expenses may pressure operating leverage if not adequately offset by cost-saving measures.
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Loan Growth
Q: Can rate cuts boost loan growth?
A: Management expects lending to pick up by Q2 if rate cuts of at least 100 bps materialize, easing current cautious borrower behavior. -
Margin Outlook
Q: Will gradual rate cuts affect margins?
A: They believe that instead of a shock hit from a sudden 100 bps drop, gradual cuts allow time to reprice loans and deposits, which should help margins recover over successive quarters. -
Deposit Pricing
Q: Can deposit cost cuts stabilize NII?
A: Management is lowering CD rates in line with competitors, expecting reduced funding costs to offset muted loan demand and support net interest income. -
Loan Production
Q: What were the Q3 new originations?
A: They originated about $80 million in new loans, although higher principal paydowns, notably a $19 million C&I payoff, tempered growth. -
Funding Risk
Q: How will maturing BTFP funding be replaced?
A: They are evaluating options including overnight advances and term funding, with excess cash providing added flexibility. -
Operating Leverage
Q: Will operating leverage turn positive in 2025?
A: With stabilization in NIM and careful deposit repricing, management is optimistic that positive operating leverage will materialize next year. -
Expense Outlook
Q: Are expenses set to rise later 2025?
A: Annual raises starting in April may cause a modest uptick in compensation costs, but no major capital expenditures are expected. -
Geographic Focus
Q: Which regions drive commercial growth?
A: The strongest markets remain Houston, New Orleans, and Lafayette, consistently delivering commercial performance. -
Credit Quality
Q: What’s the update on nonaccrual credits?
A: They are addressing a situation in New Orleans involving rental properties, with a resolution expected through share-of-sale transactions and about $2 million equity at stake. -
Loan Payoffs
Q: What are the trends in loan payoffs?
A: Aside from the one-off $19 million C&I payoff, normal payoff levels are anticipated, with fresh lending opportunities already appearing.
Research analysts covering HOME BANCORP.