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Date
Tuesday, Jan. 28, 2025 at 8:30 a.m. ET
Call participants
- Chairman, President, and Chief Executive Officer — John W. Bordelon
- Senior Executive Vice President and Chief Financial Officer — David T. Kirkley
- Operator
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Takeaways
- Net income -- $9.7 million, or $1.21 per share, for the quarter.
- Net interest margin (NIM) -- Expanded for the third consecutive quarter to 3.82%, driven by a 15 basis point decline in the cost of interest-bearing liabilities and a higher mix of non-interest-bearing deposits.
- Loan growth -- 7.5% annualized in the fourth quarter and 5.3% for the full year, with commercial real estate, construction, and multi-family loans accounting for most of the $50 million quarterly increase.
- Loan originations -- $50 million in the fourth quarter, with a blended yield of 7.75%, approximately 130 basis points above the current portfolio yield.
- Deposits -- Grew by 4.1% in 2024, with a shift toward money market accounts and certificates of deposit; non-interest-bearing deposits declined slightly but remain 26% of total deposits.
- Loan to deposit ratio -- Ended the quarter at 97.8%.
- Net interest income -- $31.6 million in the fourth quarter, up $1.2 million or 4% sequentially.
- Cost of interest-bearing liabilities -- Fell by 15 basis points during the quarter, supporting margin expansion.
- Certificates of deposit (CDs) repricing -- $555 million, or 76% of CDs, mature in the next six months, with current rates 40 basis points higher than new originations.
- Asset and loan yields -- Earning asset yields were flat quarter over quarter at 5.82%; reported loan yields were flat at 6.43%.
- Loan loss provision -- Increased to $873,000 in the fourth quarter due to higher originations.
- Non-performing assets -- Decreased by $2.7 million to $15.6 million, representing 0.45% of total assets, mainly due to an upgrade of a $3.2 million commercial and industrial loan.
- Net charge offs -- Remained low at 4 basis points for the year.
- Allowance for loan loss ratio -- Stable at 1.21% from the prior quarter.
- Non-interest income -- Slightly lower at $3.6 million for the quarter; management guides $3.6 million-$3.8 million for the next two quarters.
- Non-interest expense -- Rose $97,000 to $22.4 million; a 3.5% increase is guided for 2025, primarily from compensation and technology, offset by reduced occupancy expenses.
- Share repurchases -- 2,000 shares repurchased in the quarter; 312,000 shares remain authorized under the 2023 plan.
- Tangible book value per share -- Grew at a 7.1% annualized rate over five years; 9.2% annualized growth when adjusted for accumulated other comprehensive income (AOCI).
- EPS and dividend growth -- EPS up 8.3% annualized and dividend per share increased 20% over five years; 14% of total shares repurchased in the same timeframe.
- Strategic expansion -- New branch to open in Northwest Houston by the second half of 2025 following the conclusion of a prior lease, as part of continued franchise development.
- Guidance -- Loan growth expected between 4%-6% for 2025; management anticipates expanding NIM and earnings in 2025 even in a base case of flat or slightly lower rate environment.
Summary
Home Bancorp (HBCP +0.25%) reported stable earnings and three consecutive quarters of net interest margin expansion, supported by declining funding costs and strong loan origination yields above current portfolio levels. Management outlined continued margin expansion potential due to the fixed-rate loan portfolio mix and the approaching repricing of CDs at lower rates, while non-interest income is expected to remain consistent over the next two quarters. New strategic investments include converting an existing loan production office to a full-service branch in Houston and ongoing cost initiatives aimed at reducing occupancy expenses and improving operational efficiency.
- Management is shifting the loan book toward more commercial and industrial and core operating account relationships for long-term deposit stability.
- Initiatives targeting customer behavior and technology adoption are underway, with the goal of possibly consolidating branches where transactions are highly concentrated in check deposits and cashing activities.
- The CFO stated, "We still have the ability to reduce some of our money market rates and we're actively managing them," highlighting deposit cost management's role in future performance.
- Guidance confirms expectations for loan growth and margin expansion, even considering market competition and potential pressure in the certificate of deposit space.
Industry glossary
- Net interest margin (NIM): The difference between interest income generated and interest paid out, relative to average earning assets.
- Allowance for loan loss ratio: Percentage of total loans reserved for potential future credit losses.
- AOCI (accumulated other comprehensive income): Cumulative net income not reflected in net income, typically from unrealized securities gains or losses.
- C&I (commercial and industrial): Loans made to business entities for working capital, equipment, or other operational needs.
Full Conference Call Transcript
John W. Bordelon: Thanks, David. Good morning and thank you for joining our earnings call today from snowy Louisiana. 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 fourth quarter net income of 9.7 million or $1.21 per share with net interest margin expanding for the third consecutive quarter to 3.82%. Fourth quarter's NIM expansion was driven by a 15 basis point decline in the cost of interest bearing liabilities, an increase in the average non-interest bearing deposits, stable yields on interest earning assets, and a slight increase in our loans to deposit ratio.
After a slow October, loan growth picked up in November and December resulting in fourth quarter annualized loan growth of 7.5%, which helped push our 2024 loan growth to 5.3%. CRE, construction, and multi-family drove most of the $50 million of loan growth in the fourth quarter. Originations have remained strong in the first few weeks of January, but it's too early in the year to change our guidance therefore, we will continue to expect loans to grow between 4% and 6% in 2025. Deposits were flat from last year, but grew by 4.1% in 2024, with most of the growth coming from customers moving into money market accounts and CDs.
Non-interest bearing deposits were down slightly in 2004, but make up a strong 26% of total deposits a year in. We continue to look at opportunities for strategic expansion, but as you probably know by now, we're not going to do a deal unless it checks all the boxes. We do plan to open a new branch in Northwest Houston, which should help develop the valuable franchise we're building there. As a reminder, at the beginning of 2024, we hired a commercial team in Northwest Houston and they're making great progress developing relationships. As I said last quarter, we feel very good about Home Bank’s outlook and our ability to perform and we think our success in 2024 demonstrates that.
Our focus on customer service, expanding relationships with new and existing customers, and maintaining our solid credit culture continues to build shareholder value and demonstrates the strength of our bank. We remain confident in our outlook and think that NIM and earnings will continue to expand in 2025. With that, I'll turn it back over to David, our Chief Financial Officer.
David T. Kirkley: Thanks, John. After increasing for the last two and a half years, we saw a 15 basis point decrease in the cost of interest bearing liabilities in the fourth quarter, which as John mentioned, supported a healthy 11 basis point increase in NIM. It also supported the third consecutive quarter of increasing net interest income, which was 31.6 million in the fourth quarter, an increase of 1.2 million or 4% from the previous quarter. We think we have an opportunity to bring funding costs down incrementally over the first half of the year, assuming the yield curve does not invert again.
We have approximately 555 million or 76% of CDs maturing in the next six months with a weighted average rate of 4.48%, which is about 40 basis points above Q4 origination rates. As you could see on Slide 18, we were able to reduce the weighted average CD rate by 26 basis points in the fourth quarter, so we're already making good progress there. It also shows we haven't reduced rates with non-maturity deposits as quickly as their blended rate is already low at 1.73%. The bottom right table on Slide 20 shows our cycle funding data, and you could see that we are early in the process of using deposit rates.
We also replaced 135 million of 4.76% BTFP advances in the fourth quarter of lower costs, short-term FHLB advances. Yields on earning assets were flat quarter-over-quarter at 5.82%, despite the 100 basis points of rate cuts by the Fed. Reported loan yields were also flat at 6.43% from the prior quarter. We did see a 3 basis point boost in loan yield from the recognition of 189,000 of loan income on a non-performing relationship that paid off in December. Our loan portfolio is 61% fixed, which slowed asset yield increases when rates were rising, but now provides yield protection from Fed rate cuts and supports an expanding NIM.
The steepening of the yield curve has also provided some spread expansion and should offer pre-payment protection. As John mentioned, loan originations picked up in November and December. The 50 million of fourth quarter originations had a blended yield of 7.75%, which is about 130 basis points higher than our current loan portfolio yields. The increase in originations contributed to a higher fourth quarter loan loss provision of 873,000 and increased the loan to deposit ratio to 97.8%. Slides 14 and 15 of our presentation provides some additional detail on credit. Credit remains very strong with net charge off of 4 basis points in 2024, which follows 0 basis points in 2023 and 3 basis points in 2022.
Fourth quarter non-performing assets decreased 2.7 million to 15.6 million or 0.45% of total assets. The decline was primarily due to an upgrade of a 3.2 million C&I loan. Our allowance for loan loss ratio was stable from the third quarter at 1.21%. Slide 21 of the presentation has some additional details on non-interest income and expenses. Fourth quarter non-interest income decreased slightly to 3.6 million and should be between 3.6 million and 3.8 million over the next two quarters. Non-interest expense increased by 97,000 to 22.4 million, which was in line with expectations. We expect non-interest expenses to increase by 3.5% in 2025.
Most of the increases will be in compensation and technology related and will be offset by some reductions in occupancy expenses. We only repurchased 2,000 shares in the fourth quarter, but we still have 312,000 shares on our 2023 repurchase plan and will be active buyers if market volatility warrants it. Slides 22 and 23 summarize the impact of capital management strategy has had on Home Bank. Over the last five years, we grew tangible book value per share at a 7.1% annualized growth rate while growing tangible book value per share adjusted for AOCI at 9.2%. Over the same period, we also increased EPS at 8.3% annualized growth rate.
We've increased our dividends per share by 20% and repurchased 14% of our total shares. And we've done this while maintaining robust capital ratios. This positions us to be successful in varying economic environments and to take advantages of any opportunities that may arise. With that operator, please open the line for Q&A.
Operator: Thank you. [Operator Instructions]. Your first question is from Joe Yanchunis from Raymond James. Your line is now open.
Joseph Yanchunis: Good morning.
John W. Bordelon: Good morning, Joe.
Joseph Yanchunis: So I was hoping to dig a little more into your thoughts on your expectation for kind of the NIM to expand throughout 2025. Is that inclusive of a static rate environment or does that include any rate cuts, I know that your balance sheet shifted to being more neutral in posture, just any kind of color you could give on that would be appreciated?
John W. Bordelon: Yeah, we, I mean, both in the base case and a slight rate cut environment, we do expect NIM to continue to expand as loans reprice higher and our CD portfolio has the opportunity to reprice a little bit lower. As we mentioned, we really weren't overly aggressive on cutting any -- much of our money market rates in Q4. We still have the opportunity to lower some of those costs a little bit. The bottom line is it's the mix of our loan portfolio and the fact that we don't have as many variable rate loans so we don't have as much pressure on declining loan yields from fed rate cuts.
We just have the opportunity to reprice higher and get a little bit of pickup with some higher yields in the investment portfolio, but not a significant amount from the investment portfolio pickup. But bottom line, it's just a mix of our maturing liabilities and being able to reprice loans higher than we have on the balance sheet right now.
Joseph Yanchunis: Okay, I appreciate that. And then, you know, in your response you talked about and as well as in your prepared remarks, how you didn't really cut your money market rates in 4Q. Kind of given that uptick in your loan to deposit ratio, how should we think about kind of down rate betas and the cadence as we move throughout the year?
David T. Kirkley: Yeah, I think once again, our deposit betas may be a little bit slower on the non-maturity deposit side just because we didn't really raise them as high as some of our competitors and well, had a little bit maybe higher CD rates towards the back half of 2024. We still have the ability to reduce some of our money market rates and we're actively managing them. We do have some pockets here and there that we can incrementally lower those money market rates without having really a significant impact on deposit runoffs. In December, we did see a decline in non-interest DDA accounts that was more of a function of timing as opposed to customers leaving the bank.
So we are optimistic that we're going to right size the loan deposit ratio a little bit better than what ended at year end. And we may have to be a little bit more aggressive, perhaps on money markets. We are seeing a little bit more CD competition, market prices rising a little bit in the CD space. So we are cognizant of that. Even with an uptick in new CD originations, we still are pretty confident that NIM will be expanding throughout 2025.
Joseph Yanchunis: I appreciate that. Then just one more for me here. So, when is your Northwestern Houston branch expected to open and I assume that's baked into your non-interest expense outlook or the growth of 3.5%? And -- why would opening that other branch lead to a decrease in occupancy expense?
John W. Bordelon: So there's two parts to that. We actually got out of our lease, our last lease from the Texan Bank acquisition in September of 2024. And that was their corporate headquarters. So that was a sizable chunk, which is going to help reduce occupancy expenses in 2025. And we're looking at Northwest Houston, where we're evaluating options and we're evaluating locations. And we don't anticipate that opening until more towards the back half of 2025. And that's why we see a reduction in occupancy expense in 2025.
Joseph Yanchunis: I appreciate it. Thanks for taking my questions.
John W. Bordelon: Thank you. And just, just -- I'm sorry, just to be clear, the Northwest Houston, we do currently have an LPO there and we're going to convert that to a full service branch.
Operator: Thank you. [Operator Instructions]. Your next question is from Feddie Strickland from Hovde Group. Your line is now open.
Feddie Strickland: Hey, good morning. Just wanted to continue the expense question here. Appreciate the overall guide and the detail you just gave. But beyond the April 1st salary adjustments and that branch opening later in the year, which sounds like it may not be a huge expense since you already have the LPO there, is there any lumpiness to account for throughout the year on the expense side?
John W. Bordelon: Not specifically. As we said -- you said it, raises take effect April 1st. So you're going to see an uptick in Q2. We do have some projects that are planned throughout the year. But really, I don't foresee or expect any lumpiness. I'm sure something will come up, but we don't have anything baked in right now that would -- that looks like it is going to appear to be a significant impact to any quarter.
David T. Kirkley: Well, one of the initiatives that we're bringing on -- actually brought on late fourth quarter and focusing on 2025 is changing customer behavior. And the end result of changing that behavior of utilizing branches to the degree that they do, we have two branches that we are analyzing right now, where 90% of the transactions are depositing a check or cashing a check. So if we can change the behaviors of our customer base, then surely that would have a positive impact on our expense base as we can reduce staff and potentially close some branches. So that's an initiative that we're working hard on.
Not sure how far we'll get in 2025, but we're going to work very hard to change the habits of our customers to utilize more technology.
Feddie Strickland: Gotcha, gotcha. No, that's helpful. Just wanted to switch to loans. Just wondered if you can talk about what kind of loans you have in the pipeline, will it be a sort of similar mix to what you did this quarter, in longer term where do you see the most opportunity for growth?
John W. Bordelon: Well, we're focusing a lot on C&I. We have done in 2024 probably a little more multifamily than we historically have done. But, our leadership is dedicated towards more C&I loans and less non-owner occupied. So I think that's going to be the focus going forward in all of our markets. If you look at the last four years, the relationship managers that we've brought in have all been C&I type lenders. So that's where we want to focus because it brings in the whole relationship. It's not a deposit eater, it's a deposit provider. And has a wide variety of opportunities in the lending space. So that's going to be our focus.
Feddie Strickland: Understood, that makes sense. And then on the loan side as well, I mean, it sounds like you guys think you can keep pushing yields up some here given some of the back book repricing and new production. I was just wondering if you could talk about what you're seeing from the competition, competitive pricing pressures on the loan side, whether there's any incremental changes quarter-to-quarter range in entrants or anything like that we need to keep in mind?
John W. Bordelon: I think there was a little bit of pressure when rates were dropping in the third quarter. Then as loan side of the yield curve kind of went back up in the fourth quarter, pricing has somewhat stabilized a little bit. So, if we're pricing off of Prime, we do -- I think we have baked in 2025 to 25 basis point rate cuts. So we'll see rates come down a little bit there. But for the most part, as David pointed out in his script that we're still anticipating what's going to mature in 2025 and 2026 will have a higher yield for us than what it has currently. So we're still looking for that loan rate expansion.
Feddie Strickland: Understood. Last question for me. Appreciate the guide on the non-interest income growth. Can you talk a little bit about kind of how much you expect core fees versus gain on sale over time, I know it's a little tougher environment for some gain on sale stuff, but just wondered if you can talk about pipelines there and kind of where maybe we see that mix of fee income coming from in future quarters?
John W. Bordelon: Yeah, that's a little difficult from the standpoint, most of our fee income probably comes from the deposit side. We're not sure what CFPB is going to push down, what OCC is going to push down from CFPB on that regard. So there's potential problems in some of those fees. But, do you have any other comments.
David T. Kirkley: Yeah. So, some of the fee income has been volatile as the SBA loan sales and mortgage loan sales we do anticipate some uptick in that from 2024. So we've been pretty successful at increasing our Treasury management fees as John pointed out. There's been a C&I focus and hiring the C&I lenders that are getting a lot more operating accounts. And we've increased our Treasury management platform over the past couple of years. And, that has driven nice increases year-over-year over the past couple of years. And we continue to expect further development from that space as well.
Feddie Strickland: Got it. Thanks for taking my question. I'll step back.
David T. Kirkley: Thanks, Feddie.
Operator: Thank you. This concludes our question-and-answer session. I would now like to turn the conference back over to John for any closing remarks.
John W. Bordelon: Once again, thank you for joining us today. We look forward to speaking with many of you in the coming days and thank you for your interest in Home Bancorp. Have a great day.
Operator: Thank you. The conference has now concluded. Thank you for attending today’s presentation. You may now disconnect your lines.