Operator: Good morning, ladies and gentlemen. Welcome to Home Bancorp's Q3 2026 earnings call. At this time, all lines are in a listen-only mode. Following the presentation, we will conduct a question-and-answer session. If at any time during this call you require immediate assistance, please press star zero for the operator. At this time, I would like to turn the call over to Home Bancorp's Chairman and CEO, John Bordelon, President Darren Guidry, and Chief Financial Officer David Kirkley. Mr. Kirkley, please go ahead.
David Kirkley: Thank you. Good morning, and welcome to Home Bancorp's Q3 2026 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 the investor presentation and our SEC filings. Now I'll hand it over to John to make a few comments about the Q3. John?
John Bordelon: Thank you, David. Good morning, and thank you for joining our earnings call today. We appreciate your interest in Home Bancorp as we discuss our results, expectations for the future, and our approach to creating long-term shareholder value. Before we discuss the Q3, I want to share some personal news. I've informed our board of directors yesterday of my decision to retire as chief executive officer in January 2027, and the board has named Darren Guidry, our president, as my successor. I will remain part of Home Bancorp's leadership as chairman of the board, and I look forward to working closely with Darren and the rest of our leadership team in that role. This is a planned and deliberate transition.
John Bordelon: When we named Darren president in July, we said we were putting in place a leadership structure to sustain our next phase of growth, and this is the next step in that plan. Darren has more than 40 years of banking experience, more than three decades here at Home Bancorp. He knows our customers, our markets, our credit culture, as well as everyone in the company. Our executive team has worked closely together for many years, and our shareholders, customers, and employees do not expect any significant change in how we operate. Leading Home Bancorp has been a privilege of my career. Over my 45 years with the bank, including 33 years as CEO, I've watched Home Bancorp grow from a Lafayette-based savings institution into one of the leading community banks in the Gulf South.
John Bordelon: Since our IPO in 2008, we have completed six acquisitions, expanded into Greater New Orleans, Baton Rouge, Mississippi, and Houston, and grown total assets at a compound annual rate of more than 11% to $3.6 billion with 43 locations. What I am most proud of, however, is not the size of the balance sheet but the quality of the franchise we have built. We have a core deposit base that is among the most valuable in our region, with a high level of non-interest-bearing deposits and a cost of deposits that is one of the lowest in our peer group. We have a relationship-based lending culture, a strong capital position, and a long record of consistent profitability. Most importantly, we have a team of bankers who are committed to taking care of our customers and our communities.
John Bordelon: I am confident that Home Bancorp's best days are ahead of it and that the company is in very good hands. With that, I will turn it over to the President and soon-to-be CEO, Darren Guidry, to discuss our Q3 results. Darren?
Darren Guidry: Thank you, John. Before turning to our results, I want to say a few words about John. No one has had a greater impact on Home Bancorp. Under John's leadership, the bank has successfully navigated hurricanes, the S&L crisis, the financial crisis, a pandemic, and multiple interest rate cycles. Through all of it, he kept us focused on disciplined underwriting, the strength of our core deposit franchise, and building long-term value for our shareholders. On a personal level, John has been a mentor and a friend to me for more than 30 years. I am honored by the confidence that John and the board have placed in me and in our team. I am very happy that John will continue to help lead Home Bancorp as chairman of the board. His experience and perspective will continue to be a tremendous asset to this company.
Darren Guidry: I look forward to working with John, the board, and our team as we build on the foundation he established and lead Home Bancorp into its next chapter. Now, turning to our Q3 results. Yesterday afternoon, we reported Q3 net income of $10.1 million, or $1.28 per share, compared to $1.48 per share in Q2. Return on assets was 1.12% for the quarter. Our results were impacted by higher credit-related costs, including elevated foreclosed asset expense and the reversal of interest on loans moved to non-accrual status. The quarter did demonstrate the resilience of our core earnings. Net interest income reached a record high for Home Bank, and our cost of deposits remains one of the lowest in our peer group. Loans decreased $4 million in Q3. Production was steady, but payoffs were elevated and construction fundings slowed during the quarter.
Darren Guidry: Year to date, loans have grown at an annualized rate of approximately 1.5%, with our Houston market continuing to lead the way at 6% annualized. Looking ahead, our pipeline is healthy. Both our approved commitments and the volume of loans in underwriting are running above normal levels. We expect a good portion of those commitments to close by the end of the year. The pipeline is well diversified across our markets and loan types and consists primarily of smaller business banking credits with a heavy focus on C&I and owner-occupied commercial real estate, along with a few larger commercial relationships. However, as we work through our problem loans, we expect paydowns and payoffs from those workouts to offset a portion of the new production, which will likely temper net loan growth in the near term. We will continue to focus on growing relationships that produce appropriate risk-adjusted returns.
Darren Guidry: Deposits were down slightly in Q3. Year to date, deposits have grown at an annualized rate of approximately 4%, and our loan-to-deposit ratio of 91% remains in our target range. Credit was the primary challenge this quarter, and we moved promptly to recognize and address emerging credit issues. Six loan relationships totaling $19.5 million were placed on non-accrual status during the quarter, which drove the increase in non-performing assets. These reflect individual borrower situations rather than stress in any one industry or market. Based on our current assessment, we believe these credits are appropriately reserved, and we are working closely with each borrower to resolve. We also recorded elevated foreclosed asset expense in Q3, primarily due to write-downs on properties in other real estate owned, resulting from updated appraisals and list price reductions.
Darren Guidry: We are making progress on resolving these properties, with several currently under contract. Going forward, we expect foreclosed asset expense to be lower than what we saw in Q3, although likely above historical levels, as we continue to work through our problem assets. We are also seeing some encouraging signs across the rest of our watch list. Several substandard credits are positioned for upgrades or paydowns, and we expect to see some of those resolutions in Q4, with others extending into early 2027. While we may see a few additional downgrades through year end, we do not currently expect any of significant size. Past due loans are limited to credits we've already identified and are actively monitoring. We have workout strategies in place for all substandard and non-accrual loans.
Darren Guidry: Net charge-offs, which were 7 basis points annualized year to date, may be somewhat elevated over the next couple of quarters as we resolve these credits. But our approach remains the same: identify problems early, work in the resolution, and limit our loss exposure. At the same time, while higher interest rates benefit our net interest income, they could place pressure on certain borrowers over time. We are monitoring these exposures closely as rates move. Importantly, the fundamentals of Home Bank remain very strong, with robust capital, a solid reserve position, ample liquidity, and a balance sheet that is well positioned for a rising rate environment. With that, I'll turn it over to David, our Chief Financial Officer. David?
David Kirkley: Thanks, Darren. Please feel free to refer to the investor presentation we have provided as I discuss the company's Q3 financial performance. Net interest income was a record $35.9 million in Q3, an increase of $110,000 from Q2, and $1.8 million or 5% from a year ago. NIM was 4.19% in Q3, down five basis points from Q2. Loan yields declined six basis points to 6.4%, as interest reversals of $862,000 on loans moved to non-accrual status reduced loan yield by 12 basis points. Excluding the interest reversals, NIM would have been 4.28%, up four basis points from Q2. The yield on our investment portfolio increased 19 basis points to 2.87% as we continue to reinvest cash flows at higher rates. On the funding side, our cost of interest-bearing liabilities increased four basis points to 2.42%.
David Kirkley: Slide 14 details the repricing and maturity profile of our loan investments portfolio. Approximately 27% of our loan portfolio is floating rate and reprices within three months, and 46% of the portfolio is variable rate. Our investment portfolio, with a weighted average rate of 2.8%, has $69 million of cash flows expected over the next 12 months and 46% of the portfolio over the next three years that we can reinvest at current market yields. We believe our balance sheet remains well-positioned for a rising rate environment. As shown on slides 18 and 19, total deposits were $3.1 billion at quarter end, down $15.4 million or less than 1% from Q2.
David Kirkley: Core deposits decreased $28.3 million, primarily in NOW accounts, which was offset by an increase of $14.3 million in money market accounts and $13 million in CDs. Non-interest-bearing deposits continue to represent 27% of total deposits. Our total cost of deposits was 1.69% for the quarter, and the average cost of interest-bearing deposits increased five basis points to 2.33%, reflecting the higher interest rate environment and competitive pricing in our markets. We expect continued competition for deposits but will remain well-disciplined in our pricing. Slides 15 and 16 provide additional detail on credit quality. Non-performing loans increased during the quarter from $26.4 million to $42.2 million, or from 95 basis points to 1.52% of total loans, primarily due to the six relationships Darren mentioned.
David Kirkley: Foreclosed assets declined $1.2 million to $11.6 million, reflecting property sales and write-downs. Total non-performing assets were $53.7 million or 1.49% of total assets. Substandard loans increased $14 million to $82.9 million, while special mention loans declined $4.7 million to $22.2 million. We provisioned $1 million in Q3 compared to $762,000 in Q2, primarily reflecting higher specific reserves. Net charge-offs were $586,000 for the quarter. The allowance for loan losses stands at $34.4 million or 1.24% of total loans, and we are comfortable with our reserve levels given the composition and risk profile of the portfolio. Slide 22 provides detail on non-interest income and expenses.
David Kirkley: Non-interest income totaled $4.2 million in Q3, up $282,000 from Q2, driven by higher service fees and other income. We expect quarterly non-interest income to remain stable in the range of $4 million to $4.2 million. Non-interest expense totaled $26.3 million in Q3, an increase of $1.8 million from Q2. As you can see on slide 22, excluding foreclosed asset expense, non-interest expense was essentially flat compared to Q2. The Q3 increase was primarily driven by a $1.7 million increase in foreclosed asset expense, which totaled $2 million for the quarter. The write-downs were spread across several properties and our foreclosed asset portfolio remains granular, with no single property carried at more than $2.2 million.
David Kirkley: Excluding foreclosed asset costs, we expect non-interest expense to be in the range of $24.2 million to $24.6 million over the next couple of quarters. Beginning in Q2 2027, we expect non-interest expense to reflect a typical annual increase of approximately 4% to 5%, primarily driven due to annual merit increases and other investments. Slides 23 and 24 summarize our capital position and the progress of our capital management strategy. Tangible book value per share was $46.97 per share, essentially unchanged from Q2, as earnings were offset by a $9.1 million increase in unrecognized losses in our investment portfolio due to higher interest rates. Tangible book value per share is up more than 8% from a year ago.
David Kirkley: Capital ratios remain strong with a tangible common equity ratio of 10.5%, a Tier 1 leverage ratio of 12.3%, and a total risk-based capital ratio of 16.1%. Since 2019, we have grown tangible book value per share at a compounded annual rate of more than 8%, repurchased approximately 17% of our shares outstanding, and consistently increased our dividend. With that, operator, please open the line for Q&A.
Operator: Thank you. Ladies and gentlemen, we will now begin the question and answer session. If you would like to ask a question, you will need to press star then the number 1 on your telephone keypad. If you would like to withdraw your question, please press star then the number 2. Again, that will be star then the number 1 on your telephone keypad to ask questions. Your first question comes from Stephen Scouten from Piper Sandler. Please go ahead.
Stephen Scouten: Yeah. Thanks, guys. Appreciate the time. And congrats, John, on a storied career. It is shocking to see you go. Kind of felt like you would be around forever. So it will be different days, but.
John Bordelon: Well, I cannot leave these guys alone. I am going to have to be around a little bit.
Stephen Scouten: Well, yeah. You will still be chairman, I know, but it will be different. But exciting times, I am sure, for the bank too.
John Bordelon: No question.
John Bordelon: I guess my first question would just be these 6 loans that you guys know, the problem loans, and forgive me if I missed this, but have you given any context on kind of geography of these loans, maybe what loan types these are, and kind of any specific reserves that are related to them that gives you confidence around potential loss rates?
Darren Guidry: Yeah, the geography is not consistent in any one of our markets. It is throughout. There is one in almost every one of our markets, so there is no concentration of issues. Loan types, the CRE multi-use facility, owner-occupied CRE, C&I credit, construction development. So there is no concentration that we can see. We have been looking for a tie, and at this point, we cannot see anything.
Stephen Scouten: Okay. Any specific reserves related to those loans currently? Or again, what gives confidence in the, I think the commentary was that no sizable incremental losses are expected.
Darren Guidry: Yeah, a couple of them already have specific reserves tied to them.
Darren Guidry: Yeah.
Darren Guidry: Beyond that, we do not expect any significant losses.
Stephen Scouten: Okay. One reminder, I know you guys used to play a little bit in the short-term rental property space. Is there still any meaningful exposure there? If so, how is that book holding up?
Darren Guidry: Yeah. We still have a significant amount of credit in short-term rentals. It is concentrated in the New Orleans market. No credit issues that are apparent as of now. So, we are fairly pleased and optimistic that will continue. So, no concern with that exposure.
Stephen Scouten: Great. Okay. Maybe just thinking about the margin. What would be a good starting point to think about for Q4? I think, my math, I was getting maybe a 9 or 10 basis point impact to the NIM from the interest reversal. Just kind of wondering how you think about that heading into Q4, then maybe the confidence in the balance sheet being well-positioned for upside on high rates.
David Kirkley: Yeah. It impacted, I believe 9 basis points to interest reversal. Outside of surprises like that in the future, we continue to see good repricing opportunities from our loan portfolio and our investment portfolio. You can see the yield rising on the investment securities portfolio quarter over quarter as our reinvestment yields are north of 5% with a low yield of 2.5% to 3%. We have a loan portfolio that every rate hike, you get 6 basis points of additional loan yield from our loans that reprice automatically, which offsets our money market increases. As we continue to see CDs reprice upwards, I think that will be offset or more than offset by investment and loan cash flow repricing. I think a starting point for this quarter, 427, 428 is your starting point going forward.
Stephen Scouten: Okay. Perfect. Yep, that makes sense. Okay, great. Thanks for the color there, and Darren Guidry, congrats. Look forward to working with you moving forward.
Darren Guidry: Thank you.
Operator: Your next question comes from Feddie Strickland from Hovde Group. Please go ahead.
Feddie Strickland: Hey, good morning. Congratulations to both John, a well-deserved retirement, and to Darren as well.
Darren Guidry: Morning.
Feddie Strickland: Wanted to ask on the deposit line here, can you talk about a little bit what you have seen so far just in terms of rate and level of competition? It seems like funding costs held in pretty well this quarter. I know the rate hike came in pretty late, so just curious what you have seen so far.
David Kirkley: From a competitive pricing standpoint, it is starting to get more divergence in duration of CDs that are being offered. You are seeing some competitors get more aggressive. You are seeing some of the brokerage firms get even more aggressive than that, pricing more off of, I guess, Treasury curves. I would say by and large, the banking CD pricing for CD rates is generally in the four to four and a quarter range. That is what we are seeing. I think we have had success at maintaining our CD portfolio so far after the rate hike. Our top stated rate, I believe, is around 4.1%. That works for the majority of our customers and provide a— We can adjust accordingly pretty quickly going forward as well, need be.
Feddie Strickland: Got it. Are you seeing any more competition in one market versus the other? I assume Texas is probably more competitive than Louisiana, but you never know.
David Kirkley: Yeah. Texas is always a little bit more competitive. There is just a larger number of banks with varying balance sheet strategies over there. So there are some banks that are more aggressive. But you are seeing some of the big global institutions that are offering some nice pricing with the marketing that goes along with it.
Feddie Strickland: Got it. Just switching gears for a second to the margin. Just want to make sure I understood correctly. Obviously, you will have the interest accrual piece backed out. But as we get through 2027 here, if we get another, let us say we get another hike in December, another one early in the Q1, you guys should be in pretty good position for the margin to continue to march higher under those conditions, assuming deposit competition does not run off into something crazy. Is that fair?
David Kirkley: Yeah, I think one aspect of it is the deposit pricing, and two is how loan pricing plays out over this period. We have seen, I would say, more aggressive loan pricing that is questionable as opposed to CD pricing, which is in line with alternative funding. So it is the ability to be able to reprice the loan portfolio at a proper margin and see how competitors price their loans going forward, as there is lots of reinvestment opportunities. New business is getting harder and harder to come by with rates increasing. But overall, our balance sheet is well-positioned to take on some rising rate environment and continue a slight upward march in NIM or at least stability after a quarter or two more hikes.
Feddie Strickland: Got it. Thanks for all the color. I will step back.
David Kirkley: Thanks, Ben. Thank you.
Operator: Again, if you would like to ask a question, please press star then the number 1 on your telephone keypad. Your next question comes from Joe Yanchunis from Raymond James. Please go ahead.
Joe Yanchunis: Good morning.
David Kirkley: Morning.
John Bordelon: Morning.
John Bordelon: Hi, Joe.
Joe Yanchunis: And John, for starters, want to echo a lot of the comments said earlier. Congrats on the retirement. We will certainly miss hearing you on these earnings calls and seeing you throughout the year.
John Bordelon: Yeah, the problem with it is I got to keep these guys in line and I do not get paid anymore. So much better make the right move.
Joe Yanchunis: All right. So wanted to start on credit here. On the last call, you outlined a roadmap for about $30 million in problem asset resolutions by year-end, and then your prepared remarks, it sounded like you expect some credits to resolve in Q4. Are you optimistic that we are at peak NPAs right now?
Darren Guidry: Yeah. We would love to say definitively yes, Joe. We are optimistic. We are looking at the past due report, and it appears so. We have identified all of our issues. We continue to get updated financial information to be able to recognize issues. But we are optimistic that we have gotten close to the peak, if we are not there already.
John Bordelon: I would just add to that, Joe, that obviously the Fed's moves are going to, I think, impact lending throughout the country. A lot of people have elevated NPAs at this particular point, and if the Fed tightens again in Q4 and Q1, that is going to just exacerbate those issues. I do not think to the degree that we saw this quarter for sure, but we are on high alert, just making sure that we pay attention to a lot of our customers.
Joe Yanchunis: I appreciate that was helpful, and going to touch on that in this follow-up here. In your prepared remarks, you talked about pay-downs remaining elevated. It is likely to remain a headwind in the coming quarters. Can you quantify the pay-downs you experienced in the September quarter and give an update on the loan pipeline relative to where it sit at the end of June? I guess I am also just trying to see how our borrowers are looking at projects now in this current environment.
Darren Guidry: Well, we have received about $5 million in pay-downs already, Joe, since we had mentioned it last quarter. We also anticipate very realistically another $5 million by the end of the year, and early in the first quarter, another $5 million. In addition, we have lots of plans out there and hopeful that we continue to get pay-downs or potentially upgrades for some of our clients going forward.
John Bordelon: You want to talk about the pipeline?
David Kirkley: Joe, the pipeline is robust. There is about $440 million of loans in the pipeline with about $132 million of that that is committed. Most of the $400 will close by the end of the year and mid Q1. So a healthy pipeline, possibly offset by some success in problem resolution.
Joe Yanchunis: Okay, that was great. Last one from me here. I know you have looked and passed on a lot of deals over the years, but Darren, I am curious, what is your view on bank M&A?
Darren Guidry: We are well-positioned to take advantage of any acquisition that would be available. We are hopeful that it happens. We look to continue to grow our franchise both within our markets and connecting the dots between the markets we are not in. So we are hopeful to continue to do what we do throughout the South Louisiana, our Texas market, as well as Mississippi and normal. So where it makes sense geographically, culturally, and acquisition of talent, we are well-positioned to take advantage.
Joe Yanchunis: Well, I appreciate you taking my questions, and John and Darren, again, congrats on the milestones.
Darren Guidry: Thank you, Joe.
Operator: Again, if you would like to ask a question, please press star then the number one on your telephone keypad. There are no further questions at this time. I will turn the call back over to John Bordelon.
John Bordelon: Thank you. Once again, thank you all for joining us today. I also want to thank our shareholders, the analysts who cover us, and many of the investors I have had the opportunity to get to know over the years for your support of Home Bancorp. We look forward to speaking to many of you in the next coming hours or days. Thank you very much for participating today. Have a great day.
Operator: Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.
