Q2 2023 Home Bancorp Inc Earnings Call
Speaker 1: Decision Conferencing Center. Please wait for the next available operator.
Conference Center, may I have your name for the call please?
Hi, this is for Rachel, last name Smith.
Okay, then what company are you with?
era, A-I-E-R-A. OK. Thank you.
Please be seated. Thank you. Your line is muted. The deposit beta that we've recognized.
Okay, and then on the lending side, can you talk maybe about where you're seeing new production come on and just the link order change in loan yields? Given what you have from a variable-weight perspective, it would seem like that would have moved.
little faster, any color on the current loan yield and where you see that headed.
Yeah, I think our long yields have risen considerably probably in the last part of the quarter. Competition has kind of pushed those slowly upward, but pretty much everything we're looking at now is in the 8th of the 9th. And we would anticipate...
a slow rise in our loan yields across the board over the next probably four quarters.
Okay. And then just lastly for me on capital, I'm presuming you're going to
finish the buyback and would you be looking to re-up the authorization following that?
Yes.
To both. Okay, great. Appreciate the color.
Thanks, Brad. Appreciate it.
And our next question comes from Christopher Maranek from Janie Montgomery Scott.
Your line is open. Thank you and thanks for hosting the call this morning. We appreciate all the information. I wanted to ask about credit and all the good information that you laid out last night you know from the criticize assets to reserves etc. What causes new criticize loans to come on you know whether it's NCRE or any or category.
where the property that he has rented is he's restructuring some of that so he kicked out some tenants and is trying to get some more profitable tenants in there so he has been slow to pay and and so we anticipate that hopefully by the end of third quarter to well
at least by the end of the year, to be off of classified assets. And so others are just, you know, as things happen, some improve their cash flow and are able to come off of substandard or non-performing and others...
aren't so lucky and stay on there a little bit longer. We have done a good job, I think, with our non-performing assets of reducing those over the course of the last three years and we'll continue to work hard to do that.
And John , even though those are slight changes this quarter, I mean does the reserve typically just have a little bit higher level when you have a criticized loan come on?
Well, not necessarily. We don't anticipate any loss with the criticized loans that came on in this particular quarter. What we put on was due to the loan growth that we had in the second quarter. So we anticipated...
When we budgeted for the year, we anticipated a little bit more problems than we're having. So, we, I think, anticipated increasing our
loan loss reserve to maybe 126.
127 and we haven't had to do that at all so it's totally due to the growth that we've experienced in the first two quarters.
Okay, great. This next question for me just has to do with kind of lowering your uninsured deposits. Is that something that might be a goal or an objective going forward? I know the coverage you have is great. I'm just curious if that's something that's of interest at this point.
So Chris, I wanted to point out something that make sure that we're on the same page. On slide 17, I believe that you were looking at approximately $570 million of uninsured deposits.
that make sure that we're on the same page. On slide 17, I believe that you are looking at that approximately $570 million of uninsured deposits.
That number is relatively unchanged from the prior quarter and I just want to make sure that everybody is that is hearing this and reading this graph understands that we're saying uninsured and under collateralized so we have about 8% of our deposits are public funds.
and a lot of those deposits are over the FDIC insurance limits but are collateralized. So we added this chart on slide 17 to make sure that everybody could see the diversification. That was something that we didn't do prior quarter, and so that's what makes it seem, if you look at the actual number.
It makes it seem like there was a change, but when I break it out this way, you can clearly see what deposits are uninsured and under collateralized.
That number.
declined about 10 million dollars quarter over quarter.
Part of the reason for that decline, especially on the retail side, we've been working with some of our customer base to change the account ownership a little bit. And so that's been able to position them to reduce that number on the retail side. I was just reading this morning again that FDIC is continuing to look at.
potentially commercial accounts, at least payroll accounts, being fully...
secured, so that will help that 17% on the commercial side.
Gotcha. Okay, no, that's helpful and thanks for the additional disclosure on that. Last question for me just goes back to the securities portfolio. Are there any opportunities for you to buy bonds, swap out of other stuff to enhance yield and margin? I'm just curious what kind of the opportunity, you know, cost and trade-offs that you see at this point.
So we did a little bit of this at the very end of March. I think we sold about $15 million in securities.
and had a very quick one, less than one year payback. I think with rates bouncing around, there's gonna present opportunities with the volatility in the markets. I think when rates went up a good bit, it was a little bit harder to essentially justify it.
As of right this second, we are more looking to letting the investment securities cash flow as opposed to buying new investments and replacing the
and purchasing them essentially with overnight advances or higher cost CDs right now.
Okay. And then we can obviously imply a sort of national amortization given the duration information that you shared.
Yeah, I got a on slide 15 of the slide deck. I do have a expected amortization schedule. You'll see over each year, over the next 10 years, how much cash flow we expect to...
get returned to us.
So David, does that play into the AOCI unwind for you, all things being equal?
Yeah, yes it does. You know we have a four and a half year effective duration on the portfolio which is a little bit longer than we like to manage but a lot of that you can see that 2026 and 2027 if you're looking at slide 15 have a lot of cash flows coming through and a lot of those that cash flow is see a bullet
CMBS type products.
So we expect to have a good bit of cash flow coming due starting in 2025, 26, 27. And we know that unrealized loss position is going to be slowly reverting down to zero as those cash flows come due from those CMBS products.
Gotcha. Great. Thank you for the additional background. I appreciate it.
Thank you, appreciate it. And as a reminder, if you do have a question, please press...
star one on your touch tone keypad now. And our next question comes from Kevin Fitzsimmons from DA Davidson.
Your line is open. Hey everyone, good morning.
Good morning, Kevin.
David, you kind of mentioned it already that you would expect some additional margin pressure just to try to put a little context in that. Is it fair? Let's assume the Fed does hike once more.
Is it fair to say that, you know, given that plus...
what you're likely seeing in deposit pricing competition that goes to margin grind slower, but maybe not to the extent.
you saw this quarter or is that or could we see similar kind of
impression that you saw in the second quarter? So I think in the prior couple quarters we were anticipating the Fed
pausing or starting to decline the later half of 2023, I think that expectation is pretty much
Gone with maybe some anticipation of one to two rate hikes for the remainder of the year and then flat till mid 2024 So I could see another quarter to two quarters of NIM compression Hopefully not to the extent that we had we we don't expect
the deposit runoff or the mix change from non-interest EDA to CDs as much as we experienced in the prior two quarters. We also don't anticipate the need to go out and borrow additional, increase our overnight advances from the FHLB.
So, long, long answer, more NIM compression. I think it'll be at a slower pace.
probably bottom out around first quarter 2024 now.
I would add to that, Kevin, that it's also very dependent upon competition. It seems as though there's a big need by all banks to have a deposit growth. So I think that's kind of the asterisk that we have to put on this and say we think...
as David pointed out that will have some nim compressions third and fourth, but that could change based upon what happens with competition.
And on the comment about hoping that non-interest bearing deposit outflow
you don't have the same amount or it abates. Have you started seeing that over the last month or two of a concord or early or throughout the fly so far? Have you seen any evidence of that abating or is that really more just kind of a hope at this point?
It's still there. I'm not going to say it's not there, but it is slowing down from where it was in the first quarter. Let's say the first four or five months of the year.
Okay. And it's at 33% today. Is there any...
you know, when you look at, you know, now obviously you've done the acquisition.
and probably structurally you've encouraged more non-interest bearing deposits, but do you guys have a bogey or a best guess on where that settles at 33%?
It would be a very good guess if I could get that right. We don't see a tremendous amount of shrinkage in that portfolio. As you pointed out, some of that portfolio came from the Texas acquisition. So we're anticipating it staying above.
pre-COVID levels closer to 30 than the 24 that we had in 2019. So we may see a little bit more shrinkage there but I wouldn't I would not think it would go below 31, 32.
Okay. And last one from you guys. You mentioned the leadership change in Texas.
Do we expect any strategic or noticeable?
change from the outside or is it or
or not, we shouldn't expect it.
I think Jeff brings to the table knowledge of the market and knowledge of the people in the market. So we do anticipate being able to expand in the Houston market with some talent that he's able to bring over. We were able to keep all of our commercial team.
throughout this whole transition period and I'm very excited about the future of that particular market. So, we'll probably be looking, you know.
late third quarter, early fourth quarter, adding some talent in that market.
Great. Thank you, guys.
All right, great, thank you guys. Thank you.
Thank you. And our next question comes from Graham <expletive> from Piper Sandler.
This question comes from Graham <expletive> from Piper Sandler. Your line is open.
Hey guys, good morning. Good morning. I'm Laura.
So I just kind of want to circle back to that non-interest bearing deposit conversation and just try to get a sense for how that portion of the deposit book has changed. I know like you said you did the deal in Texas but...
Who are the customers that make that up, that give you confidence that we could be close to seeing the end of
customers that make that up they give you confidence that you know we could be closer to seeing the end of outflows from there.
Well, I think our relationship managers have done a good job in all of our markets in going out and securing new clients and expanding existing clients. Some of those existing clients held balances in 2020 and 2021 that were not put in CDs because of the low yield on those CDs. Some of that has moved out already.
And in all categories, realistically, we've seen some shrinkage, but that one has shrunk the least of all. So we do anticipate that being pretty strong. Will there be a little bit more leakage? Possibly yes. But for the most part...
a lot of those large balances that were there because of low yields have moved into CDEs at this point.
We think there will be a lot less movement in third and fourth quarter.
Okay, that's helpful. It makes sense. Just trying to get a little color there. So that's good. And I guess I just wanted to turn to expenses quickly. You said, I think you said 21 or did you say 22 million in each quarter in the back half of the year? Yep. I wanted to get some color around what's driving the jump because like you said, the merit increases have kind of already happened.
Got to assume obviously the revenue environments a little harder Maybe incentive accrual isn't as much in the back after just any color you could provide around What's causing the jump in expenses be helped?
Okay.
Yeah.
There was probably a couple of random one-offs that individually in Q2
It doesn't really make sense to point out all the one-offs, but probably combined $300,000 of reduction in non-interest expense that we're not expecting to have.
in the next two quarters. That would be a little bit in data processing and a little bit in other. And then we have, like I said, the compensation. That took place in the second quarter. And we also expect a little bit more seasonality with regards to some marketing expense.
Okay, great. That's helpful. And then I guess just the last thing I wanted to hit on would be the reserve level, the level of
ratio. Just you guys thinking about keeping it around this you know 122 1.2 2% of loans or you see anything on the credit front that might make you want to build it conservatively I guess as you look out into the economy.
Absolutely, we'll be right in that area, whether it's 120 to 125, but definitely in the 122 area. And I think that's going to be dependent upon what we see coming down the pipe as far as bad credit or deteriorating credit. So we'll just have to keep an eye on that and see where it goes. Right now, our credit metrics are mostly improving.
So, yeah, I would say for probably the foreseeable future, 122, 123 is going to be where we hang out.
Okay, great. And then the last thing I wanted to hit on, I guess, would be something with credit. I saw on that, I guess, slide 11, the office exposure. I know you guys have a pretty small average balance here, but I just wanted to get some color around.
what the office portfolio in Houston looks like, in particular given that's the biggest, the largest geographic exposure. So if you could just provide any, you know, color on what the typical project looks like there and, you know, what you guys are going after in that market, that'd be helpful. I think there's a wide array of office buildings. Some, I don't think there's any hierarchy.
So they're not big high rises, they're just smaller buildings. I don't have a significant number of, I think, two in Baton Rouge or...
I think those are government occupied buildings, so pretty safe as far as that. We've had those credits for some time, and that's about $4.5 million.
five and a half million dollar credit. So the rest of that are all in Houston and
Yeah, that's one up top, right. All the rest of those are in Houston and for the most part real estate in Houston is a lot more expensive than it is in Louisiana. And I think we've got some good credits there and these are doing very well.
Okay, great. I appreciate it. Thank you, guys.
Thank you, appreciate it.
And our next question comes from Joe Yang-Chunas from Raymond James. Your line is open.
Good morning. Good morning. Thank you for taking my questions.
So I was hoping to go back to the Houston market. Can you discuss your expectations over the near term and do you think this current momentum can continue to drive mid-single digit loan growth for the balance of the year?
Well, surely the Fed and what they do with interest rates is going to control some of that. I think most people that were taking loans out in the early part of the year were thinking, OK, we'll have a high...
loan rate maybe for a year or so and then it will come back down. So I think that is slowing down what volume we will see, but Houston has been very very strong and it's slowing down, but it's still better than most markets. We anticipate probably we had 7% growth in
Second quarter we probably anticipate something below six.
or five, somewhere in the mid single digits again.
Yeah, Joe, I'd like to point out that since we have acquired Texan Bank there, John said it earlier, we've grown, we've been able to maintain all of our commercial bankers. And since then we've grown that loan portfolio by 25%.
We are also, as we pointed out, have the new market president, so we believe that he'll be able to expand in that market a little bit more to carry some more momentum. We're also evaluating some retail offices. We're moving some branches into much higher traffic, better locations. So we feel pretty optimistic about...
the future of the Houston franchise, being able to help the loan growth over the next couple quarters to years. Perfect. I appreciate the commentary. And then, is there any color you can provide on the rate and overall duration of the CDs you add in the quarter?
to help the loan growth over the next couple quarters to years. Perfect. I appreciate the commentary. And then is there any color you can provide on the rate and overall duration of the CDs you had in the quarter?
So they are relatively, they're not super long. I would say the majority of the CDs were the 11 month CDs or 11 to 12 month CDs that we added. We have a couple of options out there.
A lot of customers are trying to stay a little bit short, so we have some five-month CDs out there as well, which is not really a term that we've ever really offered before, but like I said, we have a five-month CD, but the majority of them are going into 11 and 12 month buckets right now. Perfect, that was all the questions I had.
Thank you much.
And ladies and gentlemen, if there are any final questions, please press star 1 on your phone now.
We're getting close.
And seeing no additional questions, I'll turn the call back over to our host.
And seeing no additional questions, I'll turn the call back over to our host.
Well, once again, thank you very much for attending Home Bank Corp's first live earnings release. We look forward to speaking to many of you in the next coming days and weeks and thank you for your interest in Home Bank Corp. Have a great day.