Home Bancorp, Inc. (HBCP) Q3 2026 Earnings Report, Transcript and Summary

Good morning, ladies and gentlemen. Welcome to Home Bancorp's Third Quarter 2026 Earnings Call. [Operator Instructions] 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.

Thank you. Good morning, and welcome to Home Bank's Third Quarter 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 third quarter. John?

Thanks, David. Good morning, and thank you for joining our earnings call today. We appreciate your interest in Home Bank as we discuss our results, expectations for the future and our approach to creating long-term shareholder value. Before we discuss the quarter, I want to share some personal news, and I've informed our Board of Directors yesterday of my decision to retire as Chief Executive Officer in January of 2027. And the Board has named Darren Guidry, our President, as my successor. I will remain part of Home Bank'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. 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 3 decades here at Home Bank. 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 Bank has been a privilege of my career. Over my 45 years with the bank, including 33 years as CEO, I have watched Home Bank grow from a Lafayette-based savings institution into one of the leading community banks in the Gulf South. Since our IPO in 2008, we have completed 6 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'm 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 noninterest-bearing deposits and a cost of deposits that's 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. I am confident that Home Bank's best days are ahead of it and that the company is in very good hands. With that, I'll turn it over to President and soon to be CEO, Darren Guidry, to discuss our third quarter results. Darren?

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 Bank. Under John's leadership, the bank has successfully navigated hurricane, the S&L crisis, the financial crisis, a pandemic and multiple interest rate cycles. Through all of it, he kept his focus on disciplined underwriting, the strength of our core deposit franchise and building long-term value for our shareholders. And on a personal level, John has been a mentor and a friend to me for more than 30 years. I'm honored by the confidence that John and the Board have placed in me and in our team. I'm very happy that John will continue to help lead Home Bank as Chairman of the Board. His experience and perspective will continue to be a tremendous asset to this company. I look forward to working with John, the Board and our team as we build on the foundation he established and lead Home Bank into its next chapter. Now turning to our third quarter results. Yesterday afternoon, we reported third quarter net income of $10.1 million or $1.28 per share compared to $1.48 per share in the second quarter. 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 nonaccrual 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 remained one of the lowest in our peer group. Loans decreased $4 million in the third quarter. Production was steady, but payoffs were elevated and construction fundings slowed during the quarter. 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 and 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 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. Deposits were down slightly in the third quarter. 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 properly to recognize and address emerging credit issues. [ 6 ] loan relationships totaling $19.5 million were placed on nonaccrual status during the quarter, which drove the increase in nonperforming assets. These reflect individual borrower situations rather than stress in any one industry or market. And 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 the third quarter, primarily due to write-downs on properties in other real estate owned, resulting from updated appraisals and list price reductions. 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 the third quarter, 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 the fourth quarter 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 nonaccrual loans. Net charge-offs, which were 7 basis points annualized year-to-date, maybe 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, it 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?

Thanks, Darren. Please feel free to refer to the investor presentation we have provided as I discuss the company's third quarter financial performance. Net interest income was a record $35.9 million in the third quarter, an increase of $110,000 from the second quarter and $1.8 million or 5% from a year ago. NIM was 4.19% in the third quarter, down 5 basis points from the second quarter. Loan yields declined 6 basis points to 6.4% as interest reversals of $862,000 on loans moved to nonaccrual status reduced loan yield by 12 basis points. Excluding the interest reversals, NIM would have been 4.28%, up 4 basis points from the second quarter. 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 4 basis points to 2.42%. Slide 14 details the repricing and maturity profile of our loan and investments portfolio. Approximately 27% of our loan portfolio is floating rate and reprices within 3 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 3 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 the second quarter. 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. Noninterest-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 5 basis points to 2.33%, reflecting the higher interest rate environment and competitive pricing in our markets. We expect continued competition for deposits, but we will remain well disciplined in our pricing. Slides 15 and 16 provide additional detail on credit quality. Nonperforming 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 6 relationships Darren mentioned. Foreclosed assets declined $1.2 million to $11.6 million, reflecting property sales and write-downs. Total nonperforming 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 the third quarter compared to $762,000 in the second quarter, 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 noninterest income and expenses. Noninterest income totaled $4.2 million in the third quarter, up $282,000 from the second quarter, driven by higher service fees and other income. We expect quarterly noninterest income to remain stable in the range of $4 million to $4.2 million. Noninterest expense totaled $26.3 million in the third quarter, an increase of $1.8 million from the second quarter. As you can see on Slide 22, excluding foreclosed asset expense, noninterest expense was essentially flat compared to the second quarter. The third quarter increase was primarily driven by a $1.7 million increase in foreclosed asset expense, which totaled $2 million for the quarter. The write-downs are spread across several properties and our foreclosed asset portfolio remains granular with no single property carried at more than $2.2 million. Excluding foreclosed asset costs, we expect noninterest expense to be in the range of $24.2 million to $24.6 million over the next couple of quarters. Beginning in the second quarter of 2027, we expect noninterest 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 the second quarter 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. 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. And with that, operator, please open the line for Q&A.

[Operator Instructions] Your first question comes from Stephen Scouten from Piper Sandler.

And congrats, John, on a storied career. It's shocking to see you go. It kind of felt like you'd be around forever. So it'll be different.

I can't leave these guys alone. I have to be around a little bit.

Well, yes, he'll still be Chairman, I know, but it will be different. But exciting times, I'm sure, for the bank, too. So I guess my first question would just be these 6 loans that you guys noted, 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?

Yes. I'll -- the geography is -- it's not consistent in any one of our markets. It's throughout and it's one in almost every one of our markets. So there's no concentration of issues and loan types, the CRE, multi-use facility, owner-occupied CRE, C&I credit, construction development. So there's no concentration that we can see. We've been looking for a tie. And at this point, we can't see anything.

Okay. And any specific reserves related to those loans currently? Or again, what gives confidence kind of in the -- I think the commentary was that no sizable incremental losses are expected?

A couple of them already have specific reserves tied to them. Beyond that, we don't expect any significant losses.

Okay. And then one reminder. I know you guys used to play a little bit in the kind of short-term rental property space. Is there still any meaningful exposure there? And if so, how is that book holding up?

Yes. We still have a significant amount of credit in short-term rental. It is concentrated in the New Orleans market. No credit issues that are apparent as of now. So we're fairly pleased and optimistic that will have will continue. So no concern with that exposure.

Great. Great. Okay. And then maybe just thinking about the margin, what would be a good starting point to think about for fourth quarter? 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 fourth quarter and then maybe the confidence in the balance sheet being well positioned for upside on higher rates?

Yes. It impacted, I believe, 9 basis points, the interest reversal. And 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 yield of 2.5% to 3%. You 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. And as we continue to see CDs reprice upwards, I think that will be offset or more than offset by investment and loan yield -- loan cash flow repricing. So I think starting point for this quarter, 4.27%, 4.28% is your starting point going forward.

Okay. Perfect. That make sense. Darren, congrats. Look forward to working with you moving forward.

Your next question comes from Feddie Strickland from Hovde Group.

Congratulations to both John, a well-deserved retirement and to Darren as well. Just wanted to ask on the deposit line here. I mean, can you talk about a little bit what you've seen so far just in terms of rate and level of competition? I mean it seems like funding costs held in pretty well this quarter, but I know the rate hike came in pretty late. So just curious what you've seen so far.

From a competitive pricing standpoint, it's starting to get more divergence in duration of CDs that are being offered. You're seeing some competitors get more aggressive. You're 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 4 to 4.40 range. And so that's what we're seeing. I think we've had success at maintaining our CD portfolio so far after the rate hike. Our top stated rate, I believe, is around 4.1%. And that works for the majority of our customers and provide -- we can adjust accordingly pretty quickly going forward as well if need be.

Got it. And are you seeing any more competition in one market versus the other? I mean I assume Texas is probably more competitive than Louisiana, but you never know.

Yes, Texas is always a little bit more competitive. There's 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.

Got it. And just switching gears for a second to the margin. Just want to make sure I understood correctly. Obviously, you'll have the interest accrual piece backed out. But as we get through '27 here, if we get another -- let's say, we get another hike in December, another one early in the first quarter, I mean, you guys should be in a pretty good position for the margin to continue to march higher under those conditions, assuming deposit competition doesn't run off into something crazy. Is that fair?

Yes. I think one aspect of it is the deposit pricing and two is how loan pricing plays out over this period. We've seen, I would say, more aggressive loan pricing that is questionable as opposed to CD pricing, which is kind of in line with alternative funding. So it's 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's lots of reinvestment opportunities and 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 2 more hikes.

[Operator Instructions] Your next question comes from Joe Yanchunis from Raymond James.

And John, for starters, I want to echo a lot of the comments said earlier, congrats on the retirement. We'll certainly miss hearing you on these earnings calls and seeing you throughout the year.

Yes. The problem with it is I got to keep these guys in line and I don't get paid anymore.

All right. So I wanted to kind of start on credit here. On the last call, you outlined a road map for about $30 million of problem asset resolutions by year-end. And in your prepared remarks, it sounds like you expect some credits to resolve before in the fourth quarter. But are you optimistic that we're at peak NPAs right now?

Yes. We'd love to say definitively, yes, Joe. We're optimistic. We're looking at the past due report, and it appears that we've identified all of our issues. We continue to get updated financial information to be able to recognize issues. But we're optimistic that we've gotten close to the peak if we're not there already.

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 Fed tighten again in fourth quarter and first quarter, that's going to just exacerbate those issues. So I don't think to the degree that we saw this quarter for sure, but we're kind of on high alert just making sure that we pay attention to a lot of our customers.

I appreciate. That was helpful and to kind of touch on that in a follow-up here. So in your prepared remarks, you talked about paydowns remaining elevated. It's likely to remain a headwind in the coming quarters. Can you quantify the paydowns you experienced in the September quarter and give an update on the loan pipeline relative to where it stood at the end of June? I guess I'm also just trying to see how are borrowers looking at projects now in this current environment.

Well, we have received about $5 million in paydowns already, Joe, since we've 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 paydowns or potentially upgrades for some of our clients going forward. Joe, the pipeline is robust. It's about $440 million of loans in the pipeline with about $132 million of that, that's committed. Most of the $400 million will close by the end of the year and mid first quarter. So a healthy pipeline, possibly offset by some success in problem resolution.

Okay. That was great. And then last one for me here. I know you've looked and passed on a lot of deals over the years. But Darren, I'm curious, what's your view on bank M&A?

We are well positioned to take advantage of any acquisition that would be available. We're hopeful that it happens. We look to continue to grow our franchise, both within our markets and connecting the dots between the markets we're not in. So we're hopeful to continue to do what we do throughout the South Louisiana, our Texas market as well as Mississippi and North. So where it makes sense geographically, culturally and acquisition of talent, we are well positioned to take advantage.

John and Darren, again, congrats on the milestones.

[Operator Instructions] There are no further questions at this time. I'll turn the call back over to John Bordelon.

Thank you. Once again, thank you all for joining us today. I also want to thank our shareholders, analysts who cover us and many of the investors I've 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.

Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.