Q3 2023 Home Bancorp Inc Earnings Call
[music].
Speaker 1: Welcome to the Home Bancorp Incorporated third quarter 2023 earnings call. Our host for today's call is David Kirk.
Yes.
Welcome to the home Bancorp incorporated third quarter 2023 earnings call.
Hosting todays call is David correctly.
At this time all participants are in a listen only mode. Later, we will conduct a question and answer session.
I would now like to turn the call over to your host Mr. Correctly, you may begin.
Speaker 2: Thank you, Ross. Good morning and welcome to HomeBank's third quarter 2023 earnings call. Our earnings release and investor presentation are available on our website. I'd ask that everyone please refer to the disclaimer regarding forward-looking statements in investor presentation and our SEC filings.
Thank you Ross good morning, and welcome to home Bank's third quarter 2023 earnings call.
Our earnings release and Investor presentation are available on our website I would ask that everyone. Please refer to the disclaimer regarding forward looking statements and the investor presentation, and our SEC filings.
Speaker 2: Now I'll hand it over to John to make a few comments about the quarter. John ?
Now ill hand, it over to John to make a few comments about the quarter John .
Speaker 3: Thanks, David. Good morning and thank you for joining HomeBank Corp's earnings call today. We appreciate your interest in HomeBank Corp as we discuss our results and describe our approach to creating long-term shareholder value.
Thanks, David Good morning, and thank you for joining <unk> Bancorp's earnings call. Today. We appreciate your interest in home Bancorp as we discuss our results and describe our approach to creating long term shareholder value.
Speaker 3: Home Bank has delivered exceptional results during this cycle of rapidly increasing interest rates. The third quarter was no exception, as we reported above average profitability, loan and deposit growth, and strong credit quality.
<unk> has delivered exceptional results during this cycle of rapidly increasing interest rates in the third quarter was no exception as we reported above average profitability loan and deposit growth and strong credit quality.
Speaker 3: It's really a testament to the strength of our relationships, many of which we've built over the decades, that we were able to grow deposits in the third quarter without having to rely on wholesale funds.
It's really a testament to the strength of our relationships many of which we've built over decades that we were able to grow deposits in the third quarter without having to rely on wholesale funding.
Speaker 3: Like everyone, we're still seeing increases in the cost of our deposits, but most of that has been due to the remixing of our customers' deposit balances and not because we were forced to add brokerages.
Like everyone, we're still seeing increases in the cost of our deposits, but most of that has been due to the remixing of our customers' deposit balances and not because we were forced to add broker Cds.
Speaker 3: To put numbers behind this, deposits grew by about 46 million or 7% annualized in the third quarter with most of that coming from existing customers moving funds into our CD off.
To put numbers behind this deposits grew by about $46 million or 7% annualized in the third quarter was most of that coming from existing customers moving funds into our CD offerings.
Speaker 3: The movement into CDs and auto savings, checking and demand deposits brought the NIM down to 3.75 from second quarter numbers of 3.94.
Moving into Cds and out of savings checking and demand deposits brought the NIM down to $3 75 from second quarter numbers of $3 94.
Speaker 3: Assets grew 28 million or about 3.4% annualized with loans growing 58 million or 9.3% annualized. Most of that growth was in construction and development, C&I, and residential mortgage.
Assets grew $28 million or about three 4% annualized with loans growing $58 million or nine 3% annualized.
Most of that growth was in construction development C&I and residential mortgage securities.
Speaker 3: Securities continued to decline and cash flows were utilized to fund loan growth. The duration of the securities portfolio is 4.5 years and is expected to generate about 50 million in principal payments over the next 15 months. With that, I'll turn it back over to David.
Securities continued to decline in the cash flows were utilized to fund loan growth the duration of the securities portfolio was four five years and is expected to generate about $50 million principal payments over the next 15 months.
With that I'll turn it back over to David Our Chief Financial Officer.
Speaker 2: Thanks John . Third quarter net income was stable from the second quarter at $9.8 million or $1.22 per share.
Thanks, John .
Third quarter net income was stable from the second quarter at $9 8 million or $1 22 per share.
Speaker 2: Deposit costs increased due to a combination of higher rates and the remixing that John referenced earlier.
Deposit cost increased due to a combination of higher rates and the remixing that John referenced earlier.
Speaker 2: but the lower net interest income was offset by lower provisions, tight expense controls, and an increase in non-interest income.
But the lower net interest income was offset by lower provisions tight expense controls and an increase in noninterest income.
Speaker 2: The increase in non-interest income was primarily due to a 640,000 gain on the sale of SBA loans, which were originated over the prior 12 months.
The increase in noninterest income was primarily due to a 640000 gain on the sale of SBA loans, which were originated over the prior 12 months, while we expect our SBA business will generate approximately 600000 in fee revenues per year and the current rate environment, it's difficult to project the timing of those fees.
Speaker 2: While we expect our SBA business will generate approximately $600,000 in fee revenues per year in the current rate environment, it's difficult to project the timing of those fees.
Speaker 2: As John mentioned, NIM declined in the third quarter. But as you can see on slide 18, the margin declined early in July and then stabilized at around 375 for each month of the third quarter.
As John mentioned NIM declined in the third quarter, but as you can see on slide 18, our margin declined early in July and then stabilized at around $3 75 for each month of the third quarter.
Speaker 2: While there could be some additional pressure on NIM due to increasing deposit costs, we're cautiously optimistic that the pace of decline has slowed and we are close to the bottom.
Well there could be some additional pressure on NIM due to increasing deposit costs. We're cautiously optimistic that the pace of decline has slowed and we are close close to the bottom.
Speaker 2: Slide 19 has our historic and current deposit beta statistics and shows that our current deposit beta for our interest-bearing deposits is 31% this cycle, but averaged 38% in the last two rate cycle.
Slide 19 is our historic and current deposit beta statistics and shows that our current deposit beta for our interest bearing deposits is 31% this cycle, but averaged 38% in the last two rate cycles.
Speaker 2: As John mentioned, we're pleased with our Q3 results. Return on average assets was 1.18%, and return on average tangible common equity was 15.2%, which we think highlights the ability of Home Bank to perform well in a variety of economic environments.
As John mentioned, we're pleased with our Q3 results return on average assets was one 8% and return on average tangible common equity was 15, 2%, which we think highlights the ability of home bank to perform well in a variety of economic environments.
Speaker 2: The 9% loan growth that John mentioned was again above our 4% to 6% growth we were expecting this year as the loan pipeline led to stronger than anticipated origination.
The 9% loan growth that John mentioned was again above our 4% to 6% growth we were expecting this year as the loan pipeline led to stronger than anticipated originations.
Speaker 2: Fortunately, deposits have kept pace and allowed us to grow profitably without having to rely on wholesale broker deposits.
Fortunately deposits have kept pace and allowed us to grow profitably without having to rely on wholesale broker deposits.
Speaker 2: Based on the most recent pipeline, we expect loan growth in the fourth quarter and into next year to be a more moderate 4-6% growth rate.
Based on the most recent pipeline, we expect loan growth in the fourth quarter and into next year to be a more moderate 4% to 6% growth rate.
Speaker 2: Pages 13 and 14 of our slide deck provide some additional detail and credit, which remains very strong.
Pages, 13, and 14 of our slide deck provides some additional detail on credit which remains very strong.
Speaker 2: We recorded a provision expense of $351,000 in the third quarter due to loan growth, which resulted in an allowance to loan loss ratio of 1.21%.
We recorded a provision expense of 351000 in the third quarter due to loan growth, which resulted in an allowance to loan loss ratio of one point to 1%.
Speaker 2: Criticized loans have increased about 50% on an absolute basis over the past 12 months, but are still relatively low at 1.56% of total loan.
Criticized loans have increased about 50% on an absolute basis over the past 12 months, but are still relatively low at 1.5%, 6% of total loans the increase in substandard loans in the third quarter is primarily due to two loans totaling $6 4 million and we do not expect either alone to result in any losses.
Speaker 2: The increase in substandard loans in the third quarter is primarily due to two loans totaling $6.4 million and we do not expect either loan to result in any losses.
Speaker 2: It's also worth noting that 60% of our substandard loans are paying as scheduled.
It's also worth noting that 60% of our substandard loans are paying as scheduled.
Speaker 2: Non-interest expenses increased $379,000 from the last quarter, and we expect non-interest expense to be between $21.5 and $22 million in the fourth and first quarters.
Noninterest expenses increased 379000 from the last quarter, and we expect noninterest expense to be between 21, and a half and $22 million in the fourth and first quarters.
Speaker 2: Slide 21 summarizes our capital management strategies and the impact they've had on home banks.
Slide 21 summarizes our capital management strategies and the impact they've had on home back.
Speaker 2: Since 2018, we've had an 8.4% growth and adjusted tangible book value per share, which includes the impact of a cash acquisition last year.
Since 2018, we've had eight 4% growth in adjusted tangible book value per share, which includes the impact of a cash acquisition last year.
Speaker 2: During that same time, we've increased our dividend from 15 cents per share to 25 cents per share on a quarterly basis, and generally try to target a dividend payout ratio of 20%.
During that same time, we've increased our dividend from <unk> 15 per share to 25 per share on a quarterly basis, and generally try to target a dividend payout ratio of 20%.
Speaker 2: We've repurchased about 13% of our shares outstanding since 2017 and just approved the new 5% share repurchase plan. All while maintaining a consolidated CET 1 capital ratio of 11.1%.
We've repurchased about 13% of our shares outstanding since 2017, and just approved a new 5% share repurchase plan, all while maintaining our consolidated CET one capital ratio of 11, 1%.
Speaker 2: We'd like to think that these actions demonstrate our commitment to creating long-term shareholder value.
We'd like to think that these actions demonstrate our commitment to creating long term shareholder value.
Speaker 2: We continue to believe our relationship-based approach to banking and conservative credit culture position us to succeed in any market, and that our results over the last couple of years demonstrates that. With that, Ross, please open the line for Q&A.
We continue to believe our relationship based approach to banking and conservative credit culture position us to succeed in any market and then our results over the last couple of years demonstrates that.
With that Ross Please open the line for Q&A.
If you would like to ask a question. Please press star one on your telephone keypad now and you will be placed into the queue in the order received.
Please be prepared to ask your question when prompted.
Once again, if you'd like if you would like to ask a question. Please press star one on your phone now.
Okay.
And our first question comes from Graham <expletive> from Piper Sandler. Please go ahead Graham.
Good morning, gentlemen.
Speaker 4: Morning, just wanted to kind of start on balance.
Good morning.
Just wanted to kind of start on the balance sheet. I know you said loan growth kind of going to return to that 46% pace you all been guiding to you.
Speaker 4: said, loan growth is kind of going to return to that 4% to 6% pace.
Speaker 4: But you know, growth is impressive this quarter, you know, on both fronts. I'm just wondering how you're thinking about managing the balance between loans and deposits going forward and maybe how that relates to where you'd like to see the loan to deposit ratio go.
But you know growth was impressive this quarter on both fronts I'm just wondering how you are thinking about managing the balance between loans and deposits going forward and maybe how that relates to where you'd like to see the loan to deposit ratio go in the near term.
Speaker 3: Well, on a longer term basis, we'd obviously, we like it somewhere between 90 and 95. That's where we feel we're most comfortable. But I think in the short term, we're seeing consistent movement back into the bank on the deposit side, most of that coming in the form of CDs, but at least moving back in. We had lost, earlier in the year, we were down about 130 million in deposits, all deposits, and we're closing in.
Well on a longer term basis without the we likely somewhere between 90 and 95.
So that's why we feel we're most comfortable but.
I think in the short term we are seeing consistent we're seeing consistent movement back into the bank on the deposit side most of that coming in the form of Cds, but at least moving back in we had lost earlier in the year you were down about $130 million in deposits all deposits.
We're closing in I think.
Speaker 3: Surely by the end of the fourth quarter we will have recovered all that 130 by May. So deposits are continuing to grow. I think on the loan front it's going to be more and more difficult with rising rates. Ten years continues to go up, approaching 5%. So we're just anticipating that loan growth will continue to slow down as more and more people decide to just hold off on new projects.
Surely by the end of the fourth quarter, we will have recovered all of that $135 million. So.
The deposits are continuing to grow I think on the loan front, it's going to be more and more difficult with rising rates 10 year continues to go up approaching 5%. So.
We're just anticipating that loan growth will continue to slow down.
As more and more people decided to just hold off on new projects.
Speaker 4: Okay, so it sounds like you think, I mean, at least over the immediate future, that the recapture some of those deposits and
Okay. So it sounds like you think I mean at least over the immediate future that they're there.
Our recapture some of those deposits in general growth in customer accounts could could offset our loan growth and maybe see the loan to deposit ratio move a little bit lower from here is that fair.
Speaker 3: growth in customer accounts could offset loan growth and maybe see the loan to deposit ratio move a little bit lower from here. Is that fair? We are anticipating that. And part of the reason we think that's going to happen, we were a little bit slow in 2022 to raise that rate.
And part of the reason, we think that's going to happen, we were a little bit slow in 2022 to raise that rate.
Speaker 2: We drug our feet there and so that caused us to lose some deposits. We didn't lose customers, we lost deposits. And now we're seeing some of those deposits coming back in. So a very positive movement there as our rate are very competitive in the markets that we serve. We've also have not purchased any investment securities this year. We anticipate our investment securities portfolio to continue to pay down, which will assist in the fund loan growth in the future.
We've got our feet there and so on.
That caused us to loosen some deposits we didn't lose customers in Las Palmas and now we're seeing some of those deposits coming back in so very positive movement. There as our rates are very competitive in the markets that we serve we are also have not purchased any investment securities. This year.
We anticipate our investment securities portfolio to continue to pay down.
We will assist in the <unk>.
To fund loan growth in the future.
Great. That's a you know John .
Speaker 4: John , it's a good segue into my next question. Just on deposit costs, maybe David could help with this as well, but you guys closed the gap a fair amount to your deposit beta guidance. I think it was 36 to 40% that you guys gave last quarter. You're a lot closer now, but it sounds like you think the NIM is close to a bottom. Is there any update to that deposit beta guidance? Do you think you might be able to come in slightly below that?
John It's a good segue into my next question.
On deposit costs, maybe David can help with this as well, but you guys closed the gap a fair amount to your deposit data guidance I think it was 36% to 40%.
You guys gave last quarter, you're a lot closer now, but it sounds like you think the NIM. It's close to a bottom is there any update to that deposit beta guidance do you think you might be able to come in slightly below that.
Speaker 2: You know, I think we're at 31% for interest bearing deposit beta. And we said right around 38%. So you're right on that range.
You know I think.
I think we're at 31% for our interest bearing deposit beta and we were we said right around 38%. So you are right.
That range.
Speaker 2: I don't see that stopping, but I do see it slowing, the pace slowing and getting up to that 38%. But on the flip side, you also have your loans offsetting that repricing going forward. So we think we're getting close to the bottom of NIM. We're optimistic that it has slowed down. And we feel like we're in a good spot right today.
I don't I don't see that stopping but I do see it slowing the pace slowing in getting up to that 38%, but on the flip side. You also have your loans.
Offsetting that repricing going forward. So we think now we're getting close to the bottom of NIM.
Domestic that it has slowed down.
Or.
And we feel like we're in a good spot rate today.
Speaker 4: Okay, great. And then just the last thing for me is on that loan re-pricing front. You guys have like, I guess the duration is two and a half years, but how many loans are maturing say during 2024, I guess, or re-pricing, renewing during 2021?
Okay, Great and then just the last thing for me is on that loan repricing front.
Have like.
I guess, if the duration is two and a half years, but how many how many loans are maturing say during 2020 for I guess, a repricing renewing during 2024 and you guys have an estimate of that.
Speaker 3: I forgot what page that is but it's about 10%
Excellent.
Page that is above 10%.
Speaker 5: That's the investment portfolio.
The investment portfolio.
Sure.
Speaker 2: You're right, that is invisible. I'll have to get you that number later on today.
Youre right.
I'll have to get you that number.
Later on today.
Speaker 6: Yeah, no problem. Okay, that's all for me. Thanks, guys. Thank you, Dave. And our next question.
No problem.
Okay. That's all from me thanks, guys.
Okay.
And our next question comes from Kevin Fitzsimmons from D. A Davidson. Please go ahead Kevin.
Hey, guys good morning.
Yes.
Speaker 7: Um, so on the, on the margin, so if, you know, given.
So on the on the margin so.
Given.
No.
Speaker 7: I appreciate the monthly chart here on the NIMS. So that coupled with
I appreciate the monthly chart here on the NIM so that.
That coupled with.
Speaker 7: a slowing rise in deposit costs and the fixed rate loans, repricing, all that kind of speaks to you getting closer to a bottom. But looking further beyond that, higher for longer, is it just going to be more of a...
A slowly.
Rising deposit cost and the fixed rate loans re pricing all that kind of speaks to you getting closer to a bottom, but but looking further beyond that higher for longer is it just is it going to be more of a.
Speaker 7: struggle, but is it going to be more fighting to kind of just keep that
Hum.
Struggle, but is it going to be more fighting to kind of just keep that stable or do you think.
Speaker 7: At a certain point in 2024, the fixed rate loan replacing starts to overtake, and you actually see the margin go higher.
At a certain point in 2020 for fixed rate loans re pricing starts to overtake.
And you actually see the margin go higher yes.
Speaker 3: Yeah, it's very hard to predict, you know, with Fed potentially tightening more than what they have, that would put a little more pressure on them, we think. Other banks in our region and their ability to attract deposits. So, there are a lot of variables that could cause us to...
Yes, it's very hard to predict.
With the fed potentially tightening more than what they have.
I would put it a little more pressure on the NIM, we think other banks in our region.
Our ability to attract deposits so no manav.
That could cause us to go a little bit longer before our NIM settles, but we do feel as though an early part of 'twenty four we will see a turnaround in the NIM.
Speaker 3: go a little bit longer before our NIMS settles, but we do feel as though in early part of the year before we'll see a turnaround in the NIMS.
Speaker 3: It's just very hard to predict. Dave and I have a bet on when that's gonna happen, and we're pretty far apart on it. So, we're buff.
It's just very hard to predict that Dave and I have a bet on when that's going to happen and we're pretty far apart on us.
Well, we're about five months apart.
Speaker 7: Okay, okay. So let me ask
Okay. Okay.
Joe.
Let me ask.
So it sounds like David given your comments about it.
Speaker 7: the securities portfolio continuing just a cash flow. Probably going to be the course of that.
Securities portfolio, continuing just to cash flow thats, probably going to be the course of action.
Speaker 8: I'm wondering if there's any possibility of you guys looking at a more of a restructuring type transaction where you do something a little more meaningful in a quicker way.
I'm wondering if there is any possibility of you guys looking at.
More of a restructuring type transaction, where you do something a little more.
Meaning full.
In a quicker way.
Speaker 2: You know, we sold some bonds in the first quarter, not a significant amount. We look at it, if it makes sense, we'll do it. It's not in the pipeline for us that we're definitely going to happen.
We sold some bonds in the first quarter not a not a significant amount.
We look at it if it makes sense, we'll do it.
I don't it's not in the pipeline for us that we're we're definitely that's going to happen.
Speaker 2: So there's no immediate plans for that happening. We would be open to it if it made sense to us.
So there's no immediate plans for that happening we would be open to it if it made sense to us.
Great.
Yeah.
And.
Speaker 7: Let me just show within expenses. Was there anything
Let me just so within expenses.
Was there anything unusual in the run rate this quarter that helped I just I just remember I just thought of.
Speaker 7: usual in the run rate this quarter that helped. I just I just remember I just thought about of love laughing.
Lap.
Speaker 7: quarters earnings report and call that the expenses were going to be, we're going to ramp up.
Quarters earnings report and call that the expenses were going to be we're going to ramp up.
Speaker 8: quicker. And so, I mean, you obviously did better than that, but maybe I just misheard that.
<unk> and.
So I mean, you, obviously did better than that but maybe I, just misheard that last quarter.
Speaker 2: I believe we suggested non-interest expense is going to be in the 21.5 to 22 range. So it is a little bit below that. We didn't have any provision for unfunded commitments this past quarter, which was $151,000 the previous month. And compensation expense is running a little bit lower than we anticipated.
I believe we suggested noninterest expenses came in at 21 522 range.
So it is a little bit below that we didn't have any provision for unfunded commitments. This past quarter, which was $151000. The previous month and compensation expense is running a little bit lower than we anticipated.
Speaker 2: Marketing expense is also one of those areas that tends to ramp up towards the end of the year. So, it will be increasing a little bit in the fourth quarter.
Marketing expense is also one of those areas that tends to ramp up towards the end of the year. So.
It will be increasing a little bit in the fourth quarter.
Speaker 2: But no, there was no one-time items that really altered our non-exist expense for Q3.
But no there isn't there is no one time items.
That really altered our noninterest expense for Q3.
Speaker 8: Okay, and David, I just want to clarify your comment on the
Okay.
And David I, just wanted to clarify your comment on the.
Speaker 8: gain on the SBA loans. So that was like a full year's worth of selling. And how should we think about that?
Gain on the SBA loans, so that was a full year's worth of.
Selling and how should we think about that amount.
Speaker 2: Yeah, that's a little bit of a tough one. So we started up our program about a year ago and we have originated.
Yes.
So that's a little bit of a tough one.
So we started up our program about a year ago and we have originated.
Speaker 2: We've got 12 SBA loans during that time period over the course of the year. We've attained our PLP status.
<unk> SBA loans over that time period over the course of the year.
We are almost at our attained our PLP status.
Speaker 2: What happened was we originated the loans throughout the past 12 months, we sold them all in Q3 and we recognized that gain of about $640,000.
What.
<unk> was we originate the loans throughout the past 12 months, we sold them all in Q3.
And we recognized a gain of about $640000.
Speaker 2: We think that over the course of the year will recognize about 6 to $700,000 in income related to gain on those loan sales, but it could be choppy quarter over quarter. So I can't. I don't feel comfortable saying exactly what each quarter is going to be because it's not very stable right this second and also with regards to the high rates.
We think that over the course of the year, we will recognize about six to $700000 in income related to gain on those loan sales, but it can be could be choppy.
Quarter over quarter.
So I cant I don't feel comfortable saying exactly what each quarter is going to be because it's not very stable right. This second.
And also with regards to the high rates.
Speaker 2: SBA loan originations are still a little bit lower than they would ought to be if rates were a little bit lower. So we're still working through that, but we think 600 to 700 on an annual basis on a quarterly, it'll be a little bit up and down.
SBA loan originations are still a little bit lower than they would ought to be if rates were a little bit lower so we're still working through that but we think 600 to 700 on an annual basis on a quarterly and it'll be a little bit up and down.
Speaker 3: We do anticipate, however, the fourth quarter receiving our certification from the SBA.
We do anticipate however, the fourth quarter receiving certification from the SBA.
And what happens when you get that is that just.
Speaker 6: like really is that a boost to what you can do? Yeah, basically it's a reduction of scrutiny by the SBA and underwriting. We're charged with doing the underwriting ourselves. So it allows for a faster pace to get from a beginning to end of that process. Got it. OK. OK, guys, that's all I have. Thank you. Thank you. Thank you.
Like really is that.
Boost to what you do.
Basically it's a reduction of scrutiny by the SBA in underwriting.
We're charged with doing the underwriting ourselves so.
Now for a faster pace to get from beginning to end of that process.
Got it okay. Okay, guys. That's all I had thank you. Thank.
Thank you. Thank you.
And our next question comes from Joe <unk> from Raymond James. Please go ahead Joe.
Good morning, Thanks for taking my questions good morning.
Speaker 9: We called out a couple downgrades in your prepared remarks. I was hoping you could provide more color on those sectors or geographies. And separately, if you could touch on where you're seeing any potential cracks and partly assignhen that to that power line.
You called out a couple of downgrades in your prepared remarks, I was hoping you could provide more color on those sectors or geographies.
Separately, if you could touch on where you are seeing any potential cracks on the portfolio at this time.
Speaker 3: Yeah, these are a couple of one-offs. They're both multi-family.
Yes. These are a couple of one offs there.
<unk>.
Multifamily and <unk>.
Speaker 3: And one is the situation where construction costs ran a little bit heavy. And so there's a shortfall. Construction is on pace, but there's a shortfall. So what we're trying to do is help the borrower utilize other collateral that he has to borrow. I think the shortfall is about $380,000 to finish the project. So we took a conservative approach to move it to substandard, but it is a little bit
One is the situation where construction costs around ran a little bit heavy and so they are the shortfall construction is on pace, but there is a shortfall. So what we're trying to do is help the borrower.
Operator: Today's call is David Kirkley. At this time, our participants are in a listen only mode.
Operator: Later, we will conduct a question and an intercession.
David Kirkley: I would now like to turn the call over your host, Mr. Kirkley. You may begin. Thank you, Ross. Good morning and welcome to Home Banc's third quarter, 2023 earnings call. Our earnings release and investor presentation are available on our website. I'd ask that everyone please refer to the disclaimer regarding forward-looking statements and investor presentation and our essays. We see filings.
Utilize other collateral that you have to borrow.
It was about $380000 to finish the project. So we took a conservative approach.
But it is.
Speaker 3: I think going to probably come off of that within the next three to four months as it finishes the project and it leases up. The other one is about a million and a half participation with another bank on a...
I think going to probably come off of that within the next three to four months as it's finished the project and the lease is up the other one is.
David Kirkley: Now, I'll hand it over to John to make a few comments about the quarter. John?
In the half.
And with another bank.
John Bordelon: Thank you, David. Good morning and thank you for joining Home Bancorp's earnings call today. We appreciate your interest in Home Bancorp as we discuss our results and describe our approach to creating long-term shareholder value. Home Banc had delivered exceptional results during this cycle of rapidly increasing interest rates. The third quarter was no exception, as we reported above average profitability. Loan and deposit growth and strong credit quality.
On a.
Speaker 3: kind of a micro apartment if you will, multi-use, that's in commercial, first floor. And that one is, loan to value wise very very good shape, we don't anticipate any losses on that either but hopefully it's going to exceed the gift and we're planning to get it out of the court so that we can either sell the collateral as is or finish the collateral to sell it. So we don't anticipate losses on either one of those projects.
Kind of a micro apartment if you will.
Multi use that in commercial.
Florida and that one is loan to value wise is very very good shape, we don't anticipate any losses on that either but.
Hopefully.
The refinery gate, so that we can either sell it lateral as is or finished the collateral itself. So we don't anticipate losses on either one of those.
John Bordelon: It's really a testament to the strength of our relationships, many of which we've built over the decades, that we were able to grow deposits from the third quarter without having to rely on wholesale funding. Like everyone, we're still seeing increases in the cost of our deposits, and most of that has been due to the remixing of our customers' deposit balances and not because we were forced to add brokerages. To put numbers behind this, deposits grew by about 46 million or 7% annualized in the third quarter, with most of that coming from existing customers moving funds into our CD offerings.
Yes.
Speaker 10: Got it. And then you mentioned what was the participation? What is your exposure? What is your SNCC exposure?
Got it and then you mentioned one was the participation what is your exposure what is your snick exposure.
We participate in that.
We.
Just painted that.
Speaker 2: that one that John was discussing out. It was not a purchased participation. We had very minimal exposure to purchase less.
That loan that Jamba discussing it was not a purchased participation we have very minimal exposure to purchase loans.
Speaker 9: Got it. I appreciate that. Man, just one more kind of question for me here.
Got it I appreciate that and then just one more kind of question for me here.
John Bordelon: The movement into CDs and out of savings, checking, and the men to pilots brought the them down to 3.75 from second quarter numbers of 3.94. As such, through 28 million or about 3.4% annualized with loans growing 58 million or 9.3% annualized, most of that growth was in construction development, CNI, and residential mortgage. Securities continued to decline and cash flows were utilized to fund loan growth.
Speaker 9: So how should we think about, you know, at this time, non-expense growth, non-interest expense growth in 2024? Do you guys have any large projects planned that would impact that growth rate? And kind of in that same vein, you previously discussed bringing on additional talent to Houston Market.
So how should we think about.
At this time, you're on expense growth non interest expense growth in 2024 do you guys have any large projects planned that would impact that growth rate.
And kind of in that same vein, you've previously discussed bringing on additional talent the Houston market.
Speaker 9: You know, I know it's kind of early in the budgeting process, but is there any way to quantify how many new hires you're looking to add over the next, say, 12, 18 months?
I know, it's kind of really the budgeting process, but is there any way to quantify how many new hires youre looking to add over the next say.
12 to 18 months.
Speaker 3: I think we're getting closer as far as a pullout in the Houston market.
I think we're getting closer as far as the rollout in the Houston market.
Speaker 3: We don't really know that number because when you do a pull out like that, not everybody jumps on board.
We don't really know that number because when you do a whole lot like that not everybody jumps on board, but.
John Bordelon: The duration of the securities portfolio was 4.5 years, and expected to generate about 50 million in principal payments over the next 15 months.
Speaker 3: But we are interested in using such a huge market that...
We are interested in using such a huge market.
David Kirkley: With that, I'll turn it back over to David, our chief financial officer. Thanks, John. Third quarter net income was stable from the second quarter at 9.8 million, or $1.22 cents per share. The deposit cost increased due to a combination of higher rates and the remixing that John referenced earlier. But the lower net interest income was offset by lower provisions, tight expense controls, and an increase in non-interest income. The increase in non-interest income was primarily due to a 640,000 gain on the sale of SBA loans, which were originated over the prior 12 months.
Speaker 3: The people that we have can't cover it all, so we're very excited about it.
The people that we have can't cover at all so we're very excited about having other talent in that market and more than likely we'll start off with is <unk>.
LBO office and eventually looking at creating more of a retail setting for that team to be able to perform but.
Our plan I think in the next.
Three or four years is continuing to grow the talent base in that Houston market. So as to continue to grow we've had great success acquiring taxes back in.
Speaker 1: talent base in that Houston market so as to continue to grow. We've had great success since acquiring Texas Bank and we think that's going to continue in 2044. Well, I hope everyone's okay over there. That's all the questions for me. Thank you. We hope we're okay all the time. As a reminder, if you would like to ask a question, please press star 1 on your phone now.
I think thats going to continue.
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Four.
David Kirkley: While we expect our SBA business will generate approximately 600,000 in fee revenues per year in the current rate environment, it's difficult to project the timing of those fees. As John mentioned, NIM declined in the third quarter. But as you can see on slide 18, the margin declined early in July, and then stabilized at around $3.75 for each month of the third quarter. Well, there could be some additional pressure on NIM due to increasing deposit costs were cautiously optimistic that the pace of decline has slowed, and we are close to the bottom.
Speaker 9: God, well, I hope everyone's okay over there. And that's all the questions for me. Thank you.
Got it well.
Hope everyone's okay over there.
And that's all the questions for me.
Thank you.
Speaker 1: We hope we're OK all of them. As a reminder, if you would like to ask a question, please press star 1 on your phone now.
We hope Brookdale.
As a reminder, if you would like to ask a question. Please press star one on your phone now.
And at this time there appear to be no further questions I'd like to turn it back over to David for closing remarks.
Speaker 3: Hey, once again, thank you all for joining us today. We look forward to speaking to many of you in the coming days and weeks about home bank work. Have a great day. Thank you for attending.
Once again, thank you all for joining us today, and we look forward to speaking to many of you in the coming days and weeks about home Bancorp.
David Kirkley: Slide 19 has our historic and current deposit beta statistics and shows that our current deposit beta for our interest bearing deposits is 31 percent this cycle but average 38 percent in the last two rate cycles. As John mentioned we're pleased with our Q3 results. Return on average assets was 1.18 percent and return on average tangible common equity was 15.2 percent, which we think highlights the ability of home bank to perform well in a variety of economic environments.
Thank you for attending.
This concludes today's conference call. Thank you for attending.
Speaker 11: The host has ended this call. Goodbye.
The host has ended this call.
David Kirkley: The 9 percent loan growth that John mentioned was again above our 4 to 6 percent growth we were expecting this year as the loan pipeline led to stronger than anticipated originations. Fortunately deposits have kept pace and allowed us to grow profitably without having to rely on wholesale broker deposits. Based on the most recent pipeline we expect loan growth in the fourth quarter and into next year to go be a more moderate 4 to 6 percent growth rate.
David Kirkley: Pages 13 and 14 of our slide deck provide some additional detail on credit which remains very strong. We recorded a provision expense of 351,000 in the third quarter due to loan growth which resulted in an allowance to loan loss ratio of 1.21 percent. Criticized loans have increased about 50 percent on an absolute basis over the past 12 months but are still relatively low at 1.56 percent of total loans. The increase in substandard loans in the third quarter is primarily due to two loans totaling 6.4 million and we do not expect either loan to result in any losses.
David Kirkley: It's also worth noting that 60 percent of our substandard loans are paying as scheduled. Non-interest expenses increase 379,000 from the last quarter and we expect non-interest expense to be between 21.5 and 22 million dollars in the fourth and first quarters.
David Kirkley: Slide 21 summarizes our capital management strategies and the impact they've had on home bank. Since 2018 we've had an 8.4 percent growth and adjusted tangible book value for share which includes the impact of a cash acquisition last year. During that same time we've increased our dividend from 15 cents per share to 25 cents per share on a quarterly basis and generally try to target a dividend pay or ratio of 20 percent.
David Kirkley: We've repurchased about 13 percent of our shares at Sanix in 2017 and just approved the new 5 percent share repurchased plan all while maintaining a consolidated CET-1 capital ratio of 11.1 percent. We'd like to think that these actions demonstrate our commitment to creating long-term shareholder value. We continue to believe our relationship based approach to banking and conservative credit culture position us to succeed in any market and that our results over the last couple of years demonstrates that.
Operator: With that, Ross, please open the line for Q&A. If you would like to ask a question, please press star one on your telephone keypad now and you will be placed into the queue in the order received. Please be prepared to ask your question when prompted. Once again, if you would like to ask a question, please press star one on your phone now.
Graham Dick: And our first question comes from Graham Dick from Piper Sandler. Please go ahead, Graham. Morning, gentlemen, for it. Just wanted to kind of start on balance sheet. I know you said loan growth is kind of going to return to that 4% to 6% pace. You've all been guiding to, but you know growth was impressive this quarter on both fronts. I'm just wondering how you're thinking about managing the balance between loans and deposits going forward and maybe how that relates to where you'd like to see the loan deposit ratio go in the near term.
John Bordelon: Well on a longer term basis we like it somewhere between 90 and 95. That's where we feel we're most comfortable, but I think in the short term we're consistent movement back into the bank on the deposit side. Most of that coming in the form of CDs, but at least moving back in. We had lost earlier in the year, you were down by 130 million in deposits, all deposits, and we're closing in.
John Bordelon: I think surely by the end of the fourth quarter we will have recovered all that 130 by May. So deposits are continuing to grow. I think on the loan front it's going to be more and more difficult with riding rate 10 years continues to go up approaching 5%. So we're just anticipating that loan growth will continue to slow down as more and more people decide to just hold off on new projects.
John Bordelon: Okay, so it sounds like you think, I mean at least over the immediate future, the recapture of some of those deposits and general growth in customer accounts could offset a loan growth and maybe see the loan deposit ratio move a little bit lower from here. Is that fair? We are anticipating that. And part of the reason we think that's going to happen, we were a little bit slow in 2022 to rate our rate.
John Bordelon: We drug our feet there, and so that causes to lose some deposits. We didn't lose customers, we lost the deposit, and now we're seeing some of those deposits coming back in. So a very positive movement there as our rate are very competitive in the markets that we serve.
John Bordelon: We've also have not purchased any investment securities this year. We anticipate our investment securities portfolio to continue to pay down, which will assist them the fund loan growth in the future.
David Kirkley: Great, that's a, you know, John's a good segue into my next question. Just on deposit cost, maybe David could help with this as well. But you guys closed the gap, a fair amount to your deposit, dated guidance. I think it was 36 to 40%. So you guys gave last quarter, you're a lot closer now, but it sounds like you think the name is close to a bottom. Is there any update to that deposit-bated guidance, you think you might be able to come in slightly below that?
David Kirkley: You know, I think it's, I think we're at 31% for intersparing deposit data, and we said right around 38%, so you're right on that range. I don't see that stopping, but I do see it's slowing, the pace is slowing, and getting up to that 38%. But on the flip side, you also have your loans offsetting that repricing going forward. So we think we're getting close to the bottom of NIM. We're optimistic that it has slowed down, and we feel like we're in a good spot right today.
Graham Dick: Okay, great.
Graham Dick: And then just the last thing for me is on that loan reprising front. You guys have like, I guess the durations two and a half years, but how many how many loans are maturing, say, during 2024, I guess, a reprising renewing during 2024? Do you guys have an estimate of that? That's a long enough. I've got what page that is, but it's about 10 percent. That's the investment portfolio. You're right. I'll have to get you that number. Later on today. Yeah, no problem.
Graham Dick: Okay, that's all for me. Thanks, guys. Thank you, man.
Kevin Pettyman: And our next question comes from Kevin Pettyman from D.A. Davidson. Let's go ahead, Kevin. Hey, guys. Good morning. So I'm on the margin. So, you know, given, you know, I appreciate the monthly chart here on the name. So that, that coupled with, you know, a slowing rise in the positive cross in the fixed rate loans reprising all that kind of speaks to you get a poster to a bottom. But looking further beyond that in a higher for longer, is it just, is it going to be more of a struggle, but is it going to be more fighting to kind of just keep that stable?
Kevin Pettyman: Or do you think at a certain point in 2024, the fixed rate loan reprising starts to overtake and you actually see the margin go higher? Yeah, it's very hard to predict, you know, with Fed potentially tightening more than what they have. That would put a little more pressure on the, on the only thing. Other banks in our region and their ability to attract deposits.
David Kirkley: So there are a lot of variables that could call this to, to go a little bit longer before our name settles, but we do feel as though in early part of 2024, we'll see, we'll see a turnaround in the name. It's just very hard to predict. Dave, Dave and I have a battle on when that's going to happen. And we're pretty far apart on it. So we're about five miles apart. Okay. So let me ask, so it sounds like, Dave had given your comments about this security portfolio continuing just to cash below.
David Kirkley: That's probably going to be the course of action and I'm wondering if there's any possibility of you guys looking at a more of a restructuring type transaction where you do something a little more meaningful in a quicker way. You know, we sold some bonds in the first quarter, not a significant amount. We look at it. If it makes sense, we'll do it. It's, I don't, it's not in the pipeline for us that we're, we're definitely it's going to happen. So there's no immediate plans for that happening. We would be open to it if it made sense to us. Great.
Kevin Pettyman: And let me just, so within expenses, was there anything? I'm unusual in the run rate, this quarter that helped, I just remember I just thought of last quarter's earnings report and call that the expenses were going to be, we're going to ramp up quicker. And so I mean, obviously did better than that, but maybe I just misheard that last quarter.
David Kirkley: I believe we suggested non-interest expenses to be in the 21 and a half to 22 range. So it is a little bit below that. We didn't have any provision for unfunded commitments as past quarter, which was $151,000 a previous month, and compensation expense is running a little bit lower than we anticipated. Marketing expense is also one of those areas that tends to ramp up towards the end of the year. So it will be increasing a little bit in the fourth quarter.
Kevin Pettyman: But no, there was no one-time items that really altered our non-assist expense for key three. Okay.
Kevin Pettyman: And David, I just want to clarify your comment on the game on the SBA loans.
David Kirkley: So that was like a bullfighter's birth of selling, and how should we think about that amount? Yeah, that's a little bit of a tough one. So we started up our program about a year ago, and we have originated at 12 SBA loans during that time period of the course of the year. We're almost attained our PLP status. And what happens was, we originated the loans throughout the past 12 months. We sold them all in Q3, and we recognize, again, about $640,000.
David Kirkley: We think that over the course of the year, we'll recognize about $700,000 in income related to gain on those loan sales, but it could be choppy quarter over quarter. So I don't feel comfortable saying exactly what each quarter is going to be, because it's not very stable right this second. And also with regards to the high rates, SBA loan originations are still a little bit lower than they would ought to be if rates were a little bit lower. So we're still working through that, but we think 600 to 700 on an annual basis on a quarterly, it'll be a little bit up and down.
David Kirkley: We do anticipate, however, the fourth quarter receiving our certification from the SBA. And what happens when you get that, is that just like really is that a boost to what you could do? Yeah, but basically it's a reduction of scrutiny by the SBA in underwriting, where we're charged with doing the underwriting ourselves. So it allows for a faster pace to get from a beginning to end of that process. Got it. Okay.
David Kirkley: Okay, guys, that's a lot of thank you. Thank you.
Joel Yantunis: And our next question comes from Joel. Yeah, and Tunis from Raymond James. You so had Joe.
John Bordelon: Morning. Thank you for the name of questions. Morning. You called out a couple of downgrades in your prepared remarks. I hope you could provide more color on, you know, the sectors or geographies and you know, separately, if you could touch on where you're seeing any potential cracks from the portfolio. Yeah, these are a couple of one-offs. They're both multi-family and one is the situation where construction costs ran a little bit heavy and so there's a shortfall.
John Bordelon: Construction is on pace but there's a shortfall so what we're trying to do is help the borrower utilize other collateral that he has to borrow. I think this shortfall is about $380,000 to finish the project. So we took a conservative approach to the substandard but it is I think going to probably come off of that within the next three or four months as it finishes the project and leases up. The other one is about me and a half participation with another bank on a kind of a micro apartment if you will.
John Bordelon: Multi-use, that's the commercial, the first word and that one is loan-of-value-wise and very very good shape. We don't anticipate any losses on that either but hopefully we can receive it here and we're trying to get out of the court so that we can either sell the collateral as it is or finish the collateral to sell it. So we don't anticipate any losses on either one of those bodies. Got it and then you mentioned one was a participation. What is your exposure? What is your SNCC exposure? We participated that one out. We participated that one that John was discussing out. It was not a purchased participation. We had very good. I appreciate that.
Joel Yantunis: One more kind of question for me here. So how should we think about this time non-expense growth? Do you have any large projects planned that would impact that growth rate? Kind of in that same vein, you previously discussed spring on additional talent in the Houston market.
John Bordelon: I know it's kind of early in the budget process but is there any way to quantify how many or 18 months? I think we're getting closer as far as a pull-out in the Houston market. We don't really know that number because when you do a pull-out like that, not everybody jumps on board but we are interested in using such a huge market that the people that we have can't cover at all.
John Bordelon: So we're very excited about having other talent in that market and more than likely what we'll start off with is a small LPO office and eventually looking at creating more of a retail setting or that team to be able to perform. But a plan I think in the next three or four years is to continue to grow the talent base in that Houston market so as to continue to grow it has great success as acquiring Texan Bank and I think that's going to continue in Seattle in 44.
Joel Yantunis: God, well, I hope everyone's okay over there and that's all the questions for me. Thank you. We don't broke it all, but as a reminder, if you would like to ask a question, please press star one on your phone now and at this time, do you appear to be know for the questions?
David Kirkley: I could turn it back over to David for closing remarks Hey, once again, thank you all for joining us today. We look forward to speaking to many of you in the coming days and weeks about Home Bancorp.
David Kirkley: Have a great day. Thank you for attending.
Operator: This concludes today's conference call. Thank you for attending.
Operator: The host has ended this call.
Operator: Goodbye.