HOME BANCORP, INC. Q3 FY2024 earnings call

• Net income improved, net interest margin expanded to 3.71%.
• Loan growth slowed due to a $19 million C&I loan paydown; expecting loan demand pickup with rate cuts.
• Deposits increased $55 million, with money market and interest-bearing checking accounts driving growth.
• Asset yields outpaced funding costs; yield on average interest-earning assets up 12 basis points to 5.82%, and on average interest-bearing liabilities up 9 basis points to 3.02%.
• Near-term opportunities to pick up spread as loans reprice; 62% of loan portfolio is fixed rate.
• Approximately $500 million of CDs maturing in next six months with weighted average rate 4.75%, new CD origination rates lower; $135 million BTFP borrowings maturing in January.
• Repurchased 24,000 shares in third quarter, increased dividend by $0.01 to $0.26 per share.

Net income for the third quarter was $9.4 million, or $1.18 per share. Net interest margin increased 5 basis points to 3.71%. Return on assets was 1.1% in the third quarter, up 13 basis points from the second quarter. Loan growth slowed in the third quarter, impacted by a $19 million medical C&I loan paydown. Deposits increased $55 million or 8% annualized, with most growth from money market and interest-bearing checking accounts. Loan-to-deposit ratio reduced to 96.1% due to slower loan growth and deposit increase. Non-performing loans increased to $18.1 million in the third quarter.

• Expecting 2024 loan growth to finish at lower end of 4% to 6% guidance.
• Optimistic about driving asset yields higher as fixed rate book reprices.
• Potential to stabilize or reduce liability costs in next few quarters depending on market rates.
• Approximately $500 million CDs maturing in next six months with lower new origination rates, and $135 million BTFP borrowings maturing in January.

• Market rate fluctuations could impact liability costs.
• Uncertainty in deposit behavior with rate cuts may affect NII trajectory.
• Potential upward pressure on deposit prices in next couple of months if rate cut expectations moderate.

Q: How might loan growth return with rate cuts?

A: Absolutely, rate cuts on the long end would help mortgage industry; commercial loans may pick up assuming at least 100 basis point rate drop by first/second quarter.

Q: What was gross loan production in the quarter?

A: About $80 million in new originations in Q3, weighted average rate around 78.5%, higher principal paydowns and payoffs stymied growth.

Q: How do you see payoffs behaving in rate-cutting environment?

A: Incremental lending opportunities will offset headwind.

Q: Talk about deposit pricing and NII trajectory?

A: Most banks in markets dropped rates, Home Bank seeing ability to lower CD costs; loan yields should not be as negatively impacted as competitors due to less variable rate loans.

Q: Plan to backfill BTFP funding maturing in January?

A: Looking at options, including overnight advances and term funding.

Q: Expenses horizon in back half of 2025?

A: Annual raises take effect April 1, expecting uptick in comp and benefit expense, but looking for cost saves to mitigate impact.