Q4 2024 Home Bancorp Inc Earnings Call
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Speaker Change: Good morning, ladies and gentlemen, and welcome to the Home Bank Corps' fourth quarter 2024 earnings.
All participants will be in listen-only mode.
Speaker Change: Should you need assistance, please signal a conference specialist by pressing the store key followed by a zero. After today's presentation, there will be an opportunity to ask questions. Please note, this event is being recorded.
Speaker Change: I would now like to turn the conference over to Home Bank Corp's Chairman, President, and CEO, John Bordelon, and Chief Financial Officer, David Kirkley. Mr. Kirkley, please go ahead.
David Kirkley: Thank you, Jennifer. Good morning and welcome to Home Bank's fourth quarter 2024 earnings call.
David Kirkley: 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 the investor presentation and our SEC filings.
David Kirkley: Now, I'll hand it over to John to make a few comments about the year and the fourth quarter. John?
John Bordelon: Thanks, David. Good morning and thank you for joining Earnings Call today from snowy Louisiana. We appreciate your interest in HomeBank as we discuss our results, expectations for the future, and our approach to creating long-term shareholder value.
John Bordelon: 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%.
John Bordelon: 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 loan-to-deposit ratio.
John Bordelon: 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%.
John Bordelon: CRE, construction, and multifamily drove most of the $50 million of loan growth in the fourth quarter.
John Bordelon: 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 percent in 2025.
John Bordelon: Non-interest bearing deposits were down slightly in 2004, but make up a strong 26% of total deposits that year-end.
John Bordelon: 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.
John Bordelon: 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 are making great progress developing relationships.
John Bordelon: As I said last quarter, we feel very good about Home Bank's outlook.
John Bordelon: and our ability to perform. We think our success in 2024 demonstrates that.
John Bordelon: Our focus on customer service, expanding relationships with new and existing customers.
John Bordelon: and maintaining our solid credit culture continues to build shareholder value and demonstrates the strength of our bank.
John Bordelon: 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.
Thanks, John.
Speaker Change: 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.
Speaker Change: 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.
Speaker Change: 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.
Speaker Change: We have approximately 555 million or 76% of CDs maturing in the next 6 months with a weighted average rate of 4.48%, which is about 40 basis points above Q4 origination rates.
Speaker Change: As you can see on slide 18, we're able to reduce the weighted average CD rate by 26 basis points in the fourth quarter, so we're already making good progress there.
Speaker Change: It also shows we haven't reduced rates on non-maturity deposits as quickly as their blended rate is already a low low at 1.73 percent
Speaker Change: The bottom right table on slide 20 shows our cycle funding betas and you can see that we are early in the process of easing deposit rates.
Speaker Change: We also replaced 135 million of 4.76% BTFP advances in the fourth quarter with lower cost short-term FHLB advances.
Speaker Change: Yields and earning assets were flat quarter over quarter at 5.82% despite the 100 basis points of rate cuts by the Fed.
Speaker Change: Reported loan yields were also flat at 6.43% from the prior quarter.
Speaker Change: We did see a three 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.
Speaker Change: 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.
Speaker Change: The steepening of the yield curve has also provided some spread expansion and should offer prepayment protection.
Speaker Change: 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 yield.
Speaker Change: 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%.
Speaker Change: Slides 14 and 15 of our presentation provide some additional detail on credit. Credit remains very strong with net charge-offs of four basis points in 2024 which follows zero basis points in 23 and three basis points in 2022.
Speaker Change: 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 level.
Speaker Change: Our allowance for loan loss ratio was stable from the third quarter at 1.21 percent.
Speaker Change: Slide 21 of the presentation has some additional details on non-interest income and expenses.
Speaker Change: Fourth quarter non-interest income decreased slightly to $3.6 million and should be between $3.6 and $3.8 million over the next two quarters.
Speaker Change: 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.
Speaker Change: Most of most of the increases will be in compensation and technology related and will be offset by some reductions in occupancy expenses.
Speaker Change: 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.
Speaker Change: Slide 22 and 23 summarize the impact of capital management strategy has had on on Home Bank. Over the last five years we grew tangible book value per share at a 7.1 percent annualized growth rate while growing tangible book value per share adjusted for AOCI at 9.2 percent.
Speaker Change: Over the same period, we also increased EPS at an 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
Speaker Change: 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.
Speaker Change: Thank you. We will now begin the question and answer session. To ask a question, you may press star then one on a touchtone phone.
Speaker Change: If you are using a speakerphone, please pick up your phone set before pressing the keys.
Speaker Change: Your first question is from Joe Youngkunis from Raymond James. Your line is now open.
Good morning. Good morning.
Joe Youngkunis: So, I was hoping you could dig a little more into your thoughts on your expectation for
Joe Youngkunis: You know, is that inclusive of a, you know, a static rate environment, or does that include any rate cuts? I know that your balance sheet shifted to being more, you know, neutral in posture. Just any kind of color you could give on that would be appreciated.
Yeah, we, uh, I mean...
Joe Youngkunis: As we mentioned, we really weren't overly aggressive on cutting much of our money market rates in
Joe Youngkunis: The fact that we don't have as many variable rate loans, so we don't have as much pressure on
Joe Youngkunis: 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. 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.
Joe Youngkunis: Okay, I appreciate that. And then, you know, in your response, you talked about, as well as in your prepared remarks, how you didn't really cut your money market rates in 4Q. You know, kind of given that uptick in your loan to deposit ratio, how should we think about, you know, kind of down rate betas?
Joe Youngkunis: and you know the cadence as we move throughout the year.
Joe Youngkunis: 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 had a little bit maybe higher CD rates towards the back half of 2024.
Joe Youngkunis: Incrementally lower those money market rates without having really a significant impact on 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.
Joe Youngkunis: New CD Originations, we still are pretty confident that NIM will be expanding throughout 2025.
All right, I appreciate that, then just...
One more for me here.
Speaker Change: So, when is your Northwestern Houston branch expected to open? And I assume that's baked into your non-interest expense outlook of the growth of 3.5%.
Thanks for your time. It was a pleasure.
So, there's two parts to that.
Speaker Change: We actually got out of our lease, our last lease from the Texan Bank Acquisition in September of 24.
Speaker Change: And that was their corporate headquarters, so that was a sizable chunk which is going to help reduce occupancy expense in 2025. And we're looking at Northwest Houston, we're evaluating options, we're evaluating locations.
Speaker Change: and we don't anticipate that opening until more towards the back half of 25 and that's why we see a reduction in occupancy expense in 25.
I appreciate it. Thanks for taking the questions.
Thank you.
Speaker Change: 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.
Speaker Change: Thank you. Once again, if you have a question, please press star then 1.
Speaker Change: Your next question is from Sadie Strickland from OptiGrid. Your line is now open.
Speaker Change: But beyond the April 1 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 LTO there, is there any lumpiness to account for throughout the year on the expense side?
Speaker Change: 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's going to appear to be...
a significant impact to any quarter.
Speaker Change: 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...
Speaker Change: behavior of utilizing branches to the degree that they do. We have two branches that we were analyzing right now where 90% of the transactions are
Speaker Change: 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.
Speaker Change: Gotcha. No, that's helpful. I wanted to switch to loans. Just wondering 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?
Well, we're focusing a lot on C&I.
We
Speaker Change: have done in 2024, probably a little more multifamily than we historically have done, but our leadership is dedicated towards that.
More C&I loans.
Speaker Change: and the last 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.
Speaker Change: It's not a deposit eater, it's a deposit provider and has a wide variety of opportunities in the lending space.
That's going to be our focus.
Speaker Change: I understand that makes sense. And then, you know, on the loan side as well, I mean, it sounds like you guys think you can...
you know, whether there's any...
Speaker Change: any incremental changes quarter to quarter or any new entrants or anything like that that we need to keep in mind.
Speaker Change: I think there was a little bit of pressure when rates were dropping in third quarter. Then as long side of the yield curve kind of went back up in the fourth quarter, pricing has somewhat stabilized a little bit.
Speaker Change: So, you know if if we're pricing off a prime we do I think we have baked in 2025 to 25 base point rate cut
Speaker Change: 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
Speaker Change: What's going to mature in 25 and 26 will have a higher yield for us than what it has currently. So we're still looking for that loan rate expansion.
Speaker Change: Understood. And last question for me, appreciate the guide on the non-interest income growth.
Speaker Change: Can you talk a little bit about how much you expect in core fees versus gain on sale over time? I know it's a little tougher environment for some of the gain on sale stuff, but just wondering if you can talk about pipelines there and kind of where maybe we see that mix of fee income coming from in future quarters.
Speaker Change: Yeah, that's a little difficult from the standpoint. Most of our fee income probably comes from the deposit side. We're not sure, you know, what CFPB is going to push down, what OCC is going to push down from CFPB on that regard. So there's potential problems and in some of those fees, but...
Do you have any other comments?
Speaker Change: So some of the fee income that has been volatile is the SBA loan sales and mortgage loan sales
John Bordelon: We do anticipate some uptick in that from 2024. 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...
John Bordelon: operating accounts and we've increased our treasury management platform over the past couple years and that has driven nice increases year over year over the past couple years and we continue to expect further development from that space as well.
Got it. Thanks for taking my questions. I'll step back.
Bye. Bye.
John Bordelon: 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 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 Bank Corp.
Have a great day.
John Bordelon: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect your lines.
Thanks, Jennifer, Jenny.