Home Bancorp, Inc. Q3 FY2025 earnings call

• Net income totaled $12.4 million, a 31% increase from the previous year. Net interest income increased $754,000 quarter-over-quarter as the net interest margin rose 6 basis points to 4.10%. - The yield on loans increased 3 basis points quarter-over-quarter, with the contractual rate on new loan originations at 7.35%. - Deposits had a 9% annualized increase in the third quarter, with good growth in core deposits and in Texas. - M&A activity nationwide has accelerated, and the company continues to seek suitable acquisition opportunities. - Since 2019, tangible book value per share adjusted for AOCI has grown at a 9.5% annualized rate, EPS at 11.2% annualized rate, dividends have been increased, and shares have been repurchased.

Net income for the third quarter was $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 to 4.10% for the sixth consecutive quarter, and return on assets increased by 10 basis points to 1.41%. The efficiency ratio improved and is now below 60%. Loans decreased by $58 million in the third quarter. Deposits increased 9% annualized in the third quarter. The loan-to-deposit ratio is now 91%. Nonperforming loans have increased in 2025, but charge-offs remain very low.

• Originally expecting 4%-6% loan growth in 2025, the company now anticipates more moderate growth of 1%-2% in 2025. - Noninterest income is expected to be between $3.6 million and $3.8 million over the next several quarters. - Noninterest expense is expected to be between $22.5 million and $23 million per quarter for the next 2 quarters.

• Nonperforming assets increased by $5.5 million to $30.9 million in the third quarter, primarily due to the downgrade of 5 relationships. - Loans decreased due to payoffs and paydowns, posing challenges to near-term growth.

Q: 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 board curve and your increased asset sensitivity? And at what point do you think the NIM peaks?

A: All right. So the increased asset sensitivity is more due to the cash on hand on our balance sheet, which makes it reprice daily. As for the NIM, we think we have a good chance to keep NIM at least flat or increase a few basis points quarter-over-quarter. We have many loans in the investment securities that are repricing, and we still believe there is room to reprice upwards. With Fed rate cuts, we have lowered some deposit rates, and as the Fed continues to cut, we can further lower deposit rates, which can offset the reduction in loan yield due to Fed rate cuts as adjustable rate loans reprice downward. So we are well-positioned to keep NIM at least flat or increase a few basis points.

Q: Your updated 2025 loan growth guide implies a pretty big step-up in 4Q 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 to probably get a sense on the jumping off point as we get into 2026.

A: Sure. The third quarter was the start of the decline in new loan originations. We see a slightly healthier portfolio emerging in the fourth quarter. Maybe not all of it gets closed in the fourth quarter, but it is a bit healthier than the third quarter originations. So the numbers were down by probably around $30 million from prior quarters. So we do think we will see some pickup. Hopefully, we can pick up all that $36 million and be more normalized in the fourth quarter. But definitely, if we get a couple more rate cuts, the first quarter should be very strong.

Q: I appreciate the commentary in the release that you don't expect losses on the credits that migrated to nonaccrual 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 nonperformers reverse and maybe start to see those come down some?

A: Yes. I think when we look at it, there is no similarity in what is starting to have problems; it's just some one-offs here and there. One of our classified loans called us this week and said they will pay us off by the end of the month. So we hope so, but the worst part about NPAs is sometimes it takes them a bit longer to fix themselves. What we are happy about is we are not seeing a lot of them going into bankruptcy, which in Texas takes a bit faster but in Louisiana in some cases up to a year to move on. So we are working through them. One of our problem assets from a couple of years ago is finally getting out of bankruptcy, and we will be able to take those properties back and start the process of selling them. So when there are bankruptcies, it's a longer-term situation. But fortunately, most of ours are not in bankruptcy. So hopefully, they can either sell or upgrade their business and start paying as agreed.

Q: 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?

A: So our deposit betas are going to be a bit less than peers. We will continue to see our deposit betas increase over time. And I think they will be a bit less than peers because we didn't raise our deposit rates as much as some competitors who didn't have an overall lower cost of funds to start with. So that will give us less room to go down, but we still have room to adjust as yields come down. As for competition, I would say there are a couple, maybe one hand full, of banks that are out of the norm of our peer grouping. They pop up here and there. And I would say mostly in the Texas market, 1 or 2 banks in Louisiana have some outlying pricing. But overall, we are able to retain most customers, we can 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 - some of our competitors in the market - are very quick to lower their deposit costs and look to lower their liability cost, and that is good for us given our NIM position and our desire to continue to increase our liquidity. John Bordelon: Also adding to that, with the 91% loan-to-deposit ratio, it should be a bit easier for us to lower our deposit costs. When we were at 98%, we were very much in the lead as far as the price of CDs and such. So I think a bit of that pressure will be taken off.