HOME BANCORP, INC.

Previous wording

The purpose of this discussion and analysis is to focus on significant changes in the financial condition of the Company and the Bank from December 31, 2023 through September 30, 2024 and on its results of operations for the three and nine months ended September 30, 2024 and 2023. This discussion and analysis is intended to highlight and supplement information presented elsewhere in this quarterly report on Form 10-Q, particularly the consolidated financial statements and related notes appearing in Item 1.

Current wording

The purpose of this discussion and analysis is to focus on significant changes in the financial condition of the Company and the Bank from December 31, 2024 through March 31, 2025 and on its results of operations for the three months ended March 31, 2025 and 2024. This discussion and analysis is intended to highlight and supplement information presented elsewhere in this quarterly report on Form 10-Q, particularly the consolidated financial statements and related notes appearing in Item 1.

Previous wording

Key components of the Company’s performance during the three and nine months ended September 30, 2024 include:

Current wording

Key components of the Company’s performance during the three months ended March 31, 2025 include:

Previous wording

•Total loans were $2.7 billion at September 30, 2024, up $86.6 million, or 3.4%, from December 31, 2023.

Current wording

•Total loans were $2.7 billion at March 31, 2025, up $29.1 million, or 1.1%, from December 31, 2024.

Previous wording

•The ALL totaled $32.3 million, or 1.21% of total loans, at September 30, 2024 compared to $31.5 million, or 1.22% of total loans, at December 31, 2023. The ACL, which is comprised of the allowance for loan losses plus the allowance for unfunded lending commitments, totaled $34.7 million, or 1.30% of total loans, at September 30, 2024 compared to $34.1 million, or 1.32% of total loans, at December 31, 2023.

Current wording

•The ALL totaled $33.3 million, or 1.21% of total loans, at March 31, 2025 compared to $32.9 million, or 1.21% of total loans, at December 31, 2024. The ACL, which is comprised of the allowance for loan losses plus the allowance for unfunded lending commitments, totaled $36.0 million, or 1.31% of total loans, at March 31, 2025 compared to $35.6 million, or 1.31% of total loans, at December 31, 2024.

Previous wording

•Nonperforming assets increased $8.0 million, or 76.7%, from $10.4 million, or 0.31% of total assets, at December 31, 2023 to $18.4 million, or 0.53% of total assets, at September 30, 2024. The increase in nonperforming assets was primarily due to four loan relationships being downgraded to substandard during the 2024 period.

Current wording

•Nonperforming assets increased $5.9 million, or 37.6%, from $15.6 million, or 0.45% of total assets, at December 31, 2024 to $21.5 million, or 0.62% of total assets, at March 31, 2025. The increase in nonperforming assets was primarily due to two loan relationships, which were classified as substandard in 2024 and moved to nonaccrual status in the first quarter of 2025.

Previous wording

•Total deposits amounted to $2.8 billion at September 30, 2024, an increase of $106.9 million, or 4.0%, from December 31, 2023.

Current wording

•Total deposits amounted to $2.8 billion at March 31, 2025, an increase of $46.5 million, or 1.7%, from December 31, 2024.

Previous wording

•The average rate paid on total interest-bearing deposits was 2.78% for the third quarter of 2024, which was up 94 bps from the third quarter of 2023. For the nine months ended September 30, 2024, the average rate paid on total interest-bearing deposits was 2.66%, up 134 bps from the nine months ended September 30, 2023.

Current wording

•The average rate paid on total interest-bearing deposits was 2.51% for the first quarter of 2025, which was down 1 bps from the first quarter of 2024.

Previous wording

Total loans at September 30, 2024 were $2.7 billion, up $86.6 million, or 3.4%, from December 31, 2023.

Current wording

Total loans at March 31, 2025 were $2.7 billion, up $29.1 million, or 1.1%, from December 31, 2024.

Previous wording

The ACL which equals the sum of the ALL and the ACL on unfunded lending commitments, is established through provisions for credit losses. Management recalculates the ACL at least quarterly to reassess the estimate of credit losses for the total portfolio at the relevant reporting date. Under ASC Topic 326, the ACL is measured on a pool basis when similar risk characteristics exist. For each pool of loans, management also evaluates and applies qualitative adjustments to the calculated ACL based on several factors, including, but not limited to, changes in current and expected future economic conditions, changes in industry experience and industry loan concentrations, changes in the volume and severity of nonperforming assets, changes in lending policies and personnel and changes in the competitive and regulatory environment of the banking industry. Loans that do not share similar risk characteristics are individually evaluated and are excluded from the pooled loan analysis.

Current wording

The ACL which equals the sum of the ALL and the ACL on unfunded lending commitments, is established through provisions for credit losses. Management recalculates the ACL at least quarterly to reassess the estimate of credit losses for the total portfolio at the relevant reporting date. Under ASC Topic 326, the ACL is measured on a pool basis when similar risk characteristics exist. For each pool of loans, management also evaluates and applies qualitative adjustments to the calculated ACL based on several factors, including, but not limited to, changes in current and expected future economic conditions, changes in industry experience and industry loan concentrations, changes in the volume and severity of NPAs, changes in lending policies and personnel and changes in the competitive and regulatory environment of the banking industry. Loans that do not share similar risk characteristics are individually evaluated and are excluded from the pooled loan analysis.

Previous wording

At September 30, 2024, the ALL totaled $32.3 million, or 1.21% of total loans, up $741,000 from $31.5 million, or 1.22% of total loans, at December 31, 2023. During the nine months ended September 30, 2024, the Company provisioned $1.5 million of the allowance loan losses primarily due to loan growth and net charge-offs. Net loan charge-offs totaled $801,000 for the nine months ended September 30, 2024.

Current wording

At March 31, 2025, the ALL totaled $33.3 million, or 1.21% of total loans, up $362,000 from $32.9 million, or 1.21% of total loans, at December 31, 2024. During the three months ended March 31, 2025, the Company provisioned $394,000 of the allowance loan losses primarily due to loan growth. Net loan charge-offs totaled $32,000 for the three months ended March 31, 2025.

Previous wording

At September 30, 2024 and December 31, 2023, loans identified as credit deteriorated loans and individually evaluated for expected losses were $4.4 million and $4.2 million, respectively. The following tables provide a summary of loans individually evaluated for credit losses as of the dates indicated.

Current wording

At March 31, 2025 and December 31, 2024, loans identified as credit deteriorated loans and individually evaluated for expected losses were $3.1 million and $5.0 million, respectively. The following tables provide a summary of loans individually evaluated for credit losses as of the dates indicated.

Previous wording

At September 30, 2024 and December 31, 2023, loans classified as substandard totaled $34.7 million and $28.2 million, respectively. There were no assets classified as doubtful at either date. For additional information, refer to Note 5 to the Consolidated Financial Statements. The $6.5 million, or 23.1%, increase in substandard loans at September 30, 2024 compared to December 31, 2023 was primarily due to four credit relationships being downgraded, partially offset by loan payoffs and improvements in other classified loans.

Current wording

At March 31, 2025 and December 31, 2024, loans classified as substandard totaled $36.4 million and $35.8 million, respectively. There were no assets classified as doubtful at either date. For additional information, refer to Note 5 to the Consolidated Financial Statements.

Previous wording

Total nonperforming loans increased by $9.3 million, or 105.2%, to $18.1 million at September 30, 2024, compared to $8.8 million at December 31, 2023. The primary reason for the increase was one loan relationship with an aggregate outstanding balance of $4.7 million at September 30, 2024 that became nonperforming during the first quarter of 2024. This relationship is secured by 17 residential units in eight investment properties in New Orleans with an aggregate loan-to-value ratio of approximately 65%. We have commenced foreclosure proceedings on this relationship and do not expect any loss. There were also additional smaller loan balances downgraded to nonperforming during the period, but we do not anticipate any losses associated with these loans.

Current wording

Total nonperforming loans increased by $5.4 million, or 40.1%, to $19.0 million at March 31, 2025, compared to $13.6 million at December 31, 2024. The primary reason for the increase was two loan relationships with an aggregate outstanding balance of $5.6 million at March 31, 2025 that became nonperforming during the first quarter of 2025.

Previous wording

A bank’s determination as to the classification of its assets and the amount of its valuation allowances is subject to review by Federal bank regulators which can order the establishment of additional general or specific loss allowances. The Federal banking agencies have adopted an interagency policy statement on the allowance for loan and lease losses. The policy statement provides guidance for financial institutions on both the responsibilities of management for the assessment and establishment of allowances and guidance for banking agency examiners to use in determining the adequacy of general valuation guidelines. Generally, the policy statement recommends that institutions have effective systems and controls to identify, monitor and address asset quality problems; that management analyze all significant factors that affect the collectability of the portfolio in a reasonable manner; and that management establish acceptable allowance evaluation processes that meet the objectives set forth in the policy statement. Management maintains, based on current and forecasted information, an ACL that reflects a current estimate of expected credit losses for the estimated life of the loan portfolio at reporting periods subsequent to the adoption date. For all reporting periods, actual losses are uncertain and dependent upon future events and, as such, further additions to the level of ACL may become necessary.

Current wording

Generally, the policy statement recommends that institutions have effective systems and controls to identify, monitor and address asset quality problems; that management analyze all significant factors that affect the collectability of the portfolio in a reasonable manner; and that management establish acceptable allowance evaluation processes that meet the objectives set forth in the policy statement. Management maintains, based on current and forecasted information, an ACL that reflects a current estimate of expected credit losses for the estimated life of the loan portfolio at reporting periods subsequent to the adoption date. For all reporting periods, actual losses are uncertain and dependent upon future events and, as such, further additions to the level of ACL may become necessary.

Previous wording

(1)Nonaccrual acquired loans include PCD loans of $1.3 million and $1.4 million at September 30, 2024 and December 31, 2023, respectively.

Current wording

(1)Nonaccrual acquired loans include PCD loans of $1.2 million and $1.3 million at March 31, 2025 and December 31, 2024, respectively.

Previous wording

The Company’s investment securities portfolio totaled $421.8 million as of September 30, 2024, a decrease of $13.2 million, or 3.0%, from December 31, 2023. During the third quarters of 2024 and 2023, the Company had no gains or losses related to the sale of available-for-sale investment securities. At September 30, 2024, the Company had a net unrealized loss on its available for sale investment securities portfolio of $32.2 million, compared to a net unrealized loss of $43.4 million at December 31, 2023. The Company’s investment securities portfolio had an effective duration of 3.7 years and 4.2 years at September 30, 2024 and December 31, 2023, respectively.

Current wording

The Company’s investment securities portfolio totaled $401.6 million as of March 31, 2025, a decrease of $2.2 million, or 0.6%, from December 31, 2024. During the first quarters of 2025 and 2024, the Company had no gains or losses related to the sale of available-for-sale investment securities. At March 31, 2025, the Company had a net unrealized loss on its available for sale investment securities portfolio of $34.0 million, compared to a net unrealized loss of $41.0 million at December 31, 2024. The Company’s investment securities portfolio had an effective duration of 3.7 years and 3.9 years at March 31, 2025 and December 31, 2024, respectively.

Previous wording

The following table summarizes activity in the Company’s investment securities portfolio during the nine months ended September 30, 2024.

Current wording

The following table summarizes activity in the Company’s investment securities portfolio during the three months ended March 31, 2025.

Previous wording

Deposits totaled $2.8 billion at September 30, 2024, an increase of $106.9 million, or 4.0%, compared to December 31, 2023. The following table summarizes the changes in the Company’s deposits from December 31, 2023 to September 30, 2024.

Current wording

Deposits totaled $2.8 billion at March 31, 2025, an increase of $46.5 million, or 1.7%, compared to December 31, 2024. The following table summarizes the changes in the Company’s deposits from December 31, 2024 to March 31, 2025.

Previous wording

The average rate paid on interest-bearing deposits was 2.78% for the third quarter of 2024, up 94 bps compared to the third quarter of 2023. At September 30, 2024, certificates of deposit maturing within the next 12 months totaled $680.8 million.

Current wording

The average rate paid on interest-bearing deposits was 2.51% for the first quarter of 2025, down 1 bps compared to the first quarter of 2024. At March 31, 2025, certificates of deposit maturing within the next 12 months totaled $708.2 million.

Previous wording

The total amounts of our uninsured deposits (deposits in excess of $250,000, as calculated in accordance with FDIC regulations) were $818.7 million at September 30, 2024 and $748.6 million at December 31, 2023. Public funds in excess of the FDIC insurance limits are fully collateralized.

Current wording

The total amounts of our uninsured deposits (deposits in excess of $250,000, as calculated in accordance with FDIC regulations) were $844.2 million at March 31, 2025 and $813.6 million at December 31, 2024. Public funds in excess of the FDIC insurance limits are fully collateralized.

Previous wording

On June 30, 2022, the Company issued$55.0 million in aggregate principal amount of its 5.75% Fixed-to-Floating Rate Subordinated Notes due 2032. The Notes were issued at a price equal to 100% of the aggregate principal amount. The Notes have a stated maturity date of June 30, 2032 and bear interest at a fixed rate of 5.75% per year from and including the issue date to but excluding June 30, 2027. From June 30, 2027, the Notes will bear interest at a floating rate equal to the then current three-month term secured overnight financing rate (“SOFR”), plus 282 basis points. The Notes may be redeemed by the Company, in whole or in part, on or after June 30, 2027. The Notes are intended to qualify as Tier 2 capital for regulatory purposes.

Current wording

On June 30, 2022, the Company issued$55.0 million in aggregate principal amount of its 5.75% Fixed-to-Floating Rate Subordinated Notes due 2032. The Notes were issued at a price equal to 100% of the aggregate principal amount. The Notes have a stated maturity date of June 30, 2032 and bear interest at a fixed rate of 5.75% per year from and including the issue date to but excluding June 30, 2027. From June 30, 2027, the Notes will bear interest at a floating rate equal to the then current three-month term secured overnight financing rate (“SOFR”), plus 282 basis points. The Notes may be redeemed by the

Previous wording

The carrying value of subordinated debt was $54.4 million and $54.2 million at September 30, 2024 and December 31, 2023, respectively. The subordinated debt was recorded net of issuance costs and amortized using the straight-line method over five years.

Current wording

The carrying value of the Notes was $54.5 million and $54.5 million at March 31, 2025 and December 31, 2024, respectively. The subordinated debt was recorded net of issuance costs and amortized using the straight-line method over five years.

Previous wording

The average balance of total FHLB advances was $56.7 million for the third quarter of 2024, down $216.3 million compared to the third quarter of 2023. For the nine months ended September 30, 2024, the average balance of total FHLB advances was $58.3 million, down $195.7 million compared to the nine months ended September 30, 2023. We reduced our FHLB advances in 2024 primarily due to our increased utilization of BTFP loans as an alternative source of funds.

Current wording

The average balance of total FHLB advances was $180.7 million for the first quarter of 2025, up $109.0 million compared to the first quarter of 2024. We reduced our FHLB advances in 2024 primarily due to our increased utilization of BTFP loans as an alternative source of funds.

Previous wording

The Company had no short-term FHLB advances as of September 30, 2024 compared to $150.0 million as of December 31, 2023. At September 30, 2024 and December 31, 2023, the Company had $38.4 million and $42.7 million in long-term FHLB advances, respectively, and $1.1 billion and $1.0 billion in additional FHLB advances available, respectively.

Current wording

The Company had $150.0 million short-term FHLB advances as of March 31, 2025, up $12.8 million, or 9.3%, compared to $137.2 million as of December 31, 2024. At March 31, 2025 and December 31, 2024, the Company had $13.3 million and $38.3 million in long-term FHLB advances, respectively, and $1.1 billion and $1.1 billion in additional FHLB advances available, respectively.

Previous wording

Total shareholders’ equity increased $26.0 million, or 7.1%, from $367.4 million at December 31, 2023 to $393.5 million at September 30, 2024. Shareholders' equity increased primarily due to net income of $26.8 million and a decrease in accumulated other comprehensive loss on available for sale investment securities, which were partially offset by cash dividends and share repurchases during the nine months ended September 30, 2024.

Current wording

Total shareholders’ equity increased $6.7 million, or 1.7%, from $396.1 million at December 31, 2024 to $402.8 million at March 31, 2025. Shareholders' equity increased primarily due to net income of $11.0 million and a decrease in accumulated other comprehensive loss on available for sale investment securities, which were partially offset by cash dividends and share repurchases during the three months ended March 31, 2025.

Previous wording

The Company uses its liquidity to fund existing and future loan commitments, to fund maturing certificates of deposit and demand deposit withdrawals, to invest in other interest-earning assets and to meet operating expenses. At September 30, 2024, certificates of deposit maturing within the next 12 months totaled $680.8 million. Based upon historical experience, the Company anticipates that a significant portion of the maturing certificates of deposit will be redeposited with us.

Current wording

The Company uses its liquidity to fund existing and future loan commitments, to fund maturing certificates of deposit and demand deposit withdrawals, to invest in other interest-earning assets and to meet operating expenses. At March 31, 2025, certificates of deposit maturing within the next 12 months totaled $708.2 million. Based upon historical experience, the Company anticipates that a significant portion of the maturing certificates of deposit will be redeposited with us.

Previous wording

In addition to cash flow from loan and securities payments and prepayments as well as from sales of securities available for sale, the Company has significant borrowing capacity available to fund liquidity needs. In recent years, the Company has utilized borrowings as a cost efficient addition to deposits as a source of funds. Borrowings consist of advances from the FHLB of Dallas, of which the Company is a member. Under terms of the collateral agreement with the FHLB, the Company pledges residential mortgage loans and investment securities as well as the Company’s stock in the FHLB as collateral for such advances. For the nine months ended September 30, 2024, the average balance of outstanding FHLB advances was $58.3 million. At September 30, 2024, the Company had $38.4 million in total outstanding FHLB advances.

Current wording

In addition to cash flow from loan and securities payments and prepayments as well as from sales of securities available for sale, the Company has significant borrowing capacity available to fund liquidity needs. In recent years, the Company has utilized borrowings as a cost efficient addition to deposits as a source of funds. Borrowings consist of advances from the FHLB of Dallas, of which the Company is a member. Under terms of the collateral agreement with the FHLB, the Company pledges residential mortgage loans and investment securities as well as the Company’s stock in the FHLB as collateral for such advances. For the three months ended March 31, 2025, the average balance of outstanding FHLB advances was $180.7 million. At March 31, 2025, the Company had $163.3 million in total outstanding FHLB advances.

Previous wording

To meet the financing needs of its customers, the Company issues financial instruments which represent conditional obligations that are not recognized, wholly or in part, in the statements of financial condition. These financial instruments include commitments to extend credit and standby letters of credit. Such instruments expose the Company to varying degrees of credit and interest rate risk in much the same way as funded loans. The same credit policies are used in these commitments as for on-balance sheet instruments. At both September 30, 2024 and December 31, 2023, the Company's allowance for credit losses on unfunded commitments totaled $2.5 million.

Current wording

To meet the financing needs of its customers, the Company issues financial instruments which represent conditional obligations that are not recognized, wholly or in part, in the statements of financial condition. These financial instruments include commitments to extend credit and standby letters of credit. Such instruments expose the Company to varying degrees of credit and interest rate risk in much the same way as funded loans. The same credit policies are used in these commitments as for on-balance sheet instruments. At both March 31, 2025 and December 31, 2024, the Company's allowance for credit losses on unfunded commitments totaled $2.7 million.

Previous wording

Net income for the third quarter of 2024 was $9.4 million, down $317,000 compared to the third quarter of 2023. Diluted EPS for the third quarter of 2024 was $1.18, down $0.04 compared to the third quarter of 2023.

Current wording

Net income for the first quarter of 2025 was $11.0 million, up $1.8 million compared to the first quarter of 2024. Diluted EPS for the first quarter of 2025 was $1.37, up $0.23 compared to the first quarter of 2024.

Previous wording

Net interest income is the difference between the interest income earned on interest-earning assets, such as loans and investment securities, and the interest expense paid on interest-bearing liabilities, such as deposits and borrowings. The Company’s net interest income is largely determined by our net interest spread, which is the difference between the average yield earned on interest-earning assets and the average rate paid on interest-bearing liabilities, and the relative amounts of interest-earning assets and interest-bearing liabilities. The Company’s tax-equivalent net interest spread was 2.80% and 2.99% for the quarters ended September 30, 2024 and 2023, respectively, and 2.80% and 3.33% for the nine months ended September 30, 2024 and 2023, respectively.

Current wording

Net interest income is the difference between the interest income earned on interest-earning assets, such as loans and investment securities, and the interest expense paid on interest-bearing liabilities, such as deposits and borrowings. The Company’s net interest income is largely determined by our net interest spread, which is the difference between the average yield earned on interest-earning assets and the average rate paid on interest-bearing liabilities, and the relative amounts of interest-earning assets and interest-bearing liabilities. The Company’s tax-equivalent net interest spread was 3.10% and 2.81% for the quarters ended March 31, 2025 and 2024, respectively.

Previous wording

The Company’s tax-equivalent net interest margin, which is net interest income as a percentage of average interest-earning assets, was 3.71% and 3.75% for the quarters ended September 30, 2024 and 2023, respectively. For the same periods, the average loan yield was 6.43% and 5.95%, respectively. The net interest margin for the nine months ended September 30, 2024 and 2023 was 3.67% and 3.95%, respectively. For the same periods, the average loan yield was 6.30% and 5.82%, respectively.

Current wording

The Company’s tax-equivalent net interest margin, which is net interest income as a percentage of average interest-earning assets, was 3.91% and 3.64% for the quarters ended March 31, 2025 and 2024, respectively. For the same periods, the average loan yield was 6.43% and 6.18%, respectively.

Previous wording

Acquired loan discount accretion included in interest income totaled $452,000 and $634,000 for the quarters ended September 30, 2024 and 2023, respectively. For the nine months ended September 30, 2024 and 2023, acquired loan discount accretion included in interest income totaled $1.5 million and $1.9 million, respectively.

Current wording

Acquired loan discount accretion included in interest income totaled $356,000 and $525,000 for the quarters ended March 31, 2025 and 2024, respectively.

Previous wording

Noninterest expense for the third quarter of 2024 totaled $22.3 million, up $920,000, or 4.3%, from the third quarter of 2023. Noninterest expense increased over the comparable quarters primarily due to increases in compensation and benefits (up $566,000, primarily due to increases in salaries), occupancy expenses (up $322,000), and other noninterest expense (up $267,000), which were partially offset by marketing and advertising (down $256,000).

Current wording

Noninterest expense for the first quarter of 2025 totaled $21.6 million, up $711,000, or 3.4%, from the first quarter of 2024. Noninterest expense increased over the comparable quarters primarily due to increases in compensation and benefits (up $482,000, primarily due to increases in salaries), foreclosed assets, net (up $162,000), data processing and communication (up $128,000), and occupancy (up $107,000), which were partially offset by decreases in professional services (down $70,000) and marketing and advertising (down $37,000).

Previous wording

Income tax expense for the three and nine months ended September 30, 2024 totaled $2.2 million and $6.4 million, respectively, compared to $2.5 million and $7.8 million for the three and nine months ended September 30, 2023, respectively. Income tax expense decreased over the prior comparable quarter primarily due to decreased taxable earnings. The Company's effective tax rates for the third quarters of 2024 and 2023 were 19.2% and 20.2%, respectively. For the nine months ended September 30, 2024 and 2023, the Company's effective tax rates were 19.4% and 20.2%, respectively.

Current wording

Income tax expense for the three months ended March 31, 2025 totaled $2.8 million compared to $2.2 million for the three months ended March 31, 2024. Income tax expense increased over the prior comparable quarter primarily due to increased taxable earnings. The Company's effective tax rates for the first quarters of 2025 and 2024 were 20.5% and 19.6%, respectively.