Executive Summary / Key Takeaways

• Sustained Margin Expansion: Home Bancorp has demonstrated remarkable Net Interest Margin (NIM) expansion for five consecutive quarters, reaching 4.04% in Q2 2025, driven by disciplined loan pricing, stable deposit costs, and strategic asset repricing.
• Core Deposit Focus & Loan Quality: The company is actively growing core deposits, with noninterest-bearing deposits at 27% of total, and maintaining a conservative credit culture, evidenced by low net charge-offs despite a recent increase in nonperforming assets.
• Strategic Market Optimization: Expansion and optimization in key markets like Houston, including converting a Loan Production Office (LPO) to a full-service branch, are set to enhance deposit gathering and Commercial & Industrial (C&I) lending.
• Operational Efficiency & Digital Push: Investments in digital capabilities and a strategic initiative to shift customer behavior towards technology aim to drive long-term cost savings and improve the efficiency ratio.
• Shareholder-Friendly Capital Management: Robust capital ratios support opportunistic share repurchases and consistent dividend growth, reflecting management's confidence in intrinsic value and commitment to shareholder returns.

A Legacy of Local Strength and Strategic Evolution

Home Bancorp, Inc. (NASDAQ:HBCP), founded in 1908 and headquartered in Lafayette, Louisiana, has cultivated a deep-rooted community-focused approach, embodying a "servant leadership" culture from its early days. This foundational ethos continues to shape its relationship-based banking model across Louisiana, Mississippi, and Texas. The company's strategic journey has included pivotal acquisitions, notably Texan Bank in 2022, which provided a successful entry into the dynamic Houston market, now a key growth driver.

Following this acquisition, Home Bancorp has shifted its focus from large-scale M&A to optimizing its existing footprint and pursuing prudent organic growth. This involves a deliberate emphasis on attracting core deposits and fostering comprehensive customer relationships, particularly through Commercial & Industrial (C&I) lending. The company has even adjusted its incentive plans to prioritize core deposit growth over loan volume, demonstrating a clear strategic pivot.

Operational Innovation and Digital Evolution

While Home Bancorp does not disclose proprietary technological products, its strategic investments in digital capabilities and operational efficiency serve as critical differentiators in the regional banking landscape. The company offers online banking services and has been enhancing its Treasury management platform, which has already contributed to increasing fee income. These advancements streamline operations and improve customer convenience.

A significant strategic initiative for 2025 involves actively encouraging customers to utilize technology more for routine transactions, thereby reducing reliance on traditional branch services. This behavioral shift is explicitly aimed at driving long-term cost efficiencies, potentially leading to staff reductions and the strategic consolidation or closure of certain branches. For instance, the company exited a corporate headquarters lease in September 2024, contributing to anticipated occupancy expense reductions in 2025. This focus on digital enablement and operational optimization is crucial for maintaining a competitive edge and improving the efficiency ratio, which already declined to 60% in Q1 2025.

Financial Resilience and Strategic Growth

Home Bancorp's financial performance in the first half of 2025 underscores its strategic effectiveness. For the second quarter of 2025, the company reported net income of $11.3 million, or $1.45 diluted earnings per share, marking a significant 39.6% increase from the prior year. The Net Interest Margin (NIM) expanded for the fifth consecutive quarter, reaching 4.04%, and the Return on Assets (ROA) increased to 1.31%. This margin expansion was primarily fueled by an 8 basis point increase in earning asset yields, stable interest-bearing deposit costs, and a notable 6% increase in noninterest-bearing deposits.

Loan growth in Q2 2025 was 3% annualized, impacted by slower commercial construction and approximately $20 million in paydowns, bringing total loans to $2.76 billion. Despite this, new loan originations continue to come in at attractive yields, around 7.4% in Q2 2025, replacing lower-yielding maturing loans and supporting continued asset yield expansion. The company's loan portfolio, 59% fixed-rate, provides a degree of yield protection against future rate cuts, as many older fixed-rate loans will reprice upwards even in a declining rate environment.

Deposits grew by $127.5 million, or 4.6%, from December 31, 2024, to June 30, 2025, reaching $2.91 billion. This growth, particularly an 11% annualized increase in Q2 2025, was driven by a concerted effort to attract core deposits. The cost of interest-bearing deposits decreased by 3 basis points to 2.71% in Q2 2025, with the cost of Certificates of Deposit (CDs) declining 14 basis points to 3.86%. The company's strategy of keeping CD terms short, with 58% maturing in the next six months, provides agility in managing funding costs.

Noninterest income for the six months ended June 30, 2025, increased by 5.8% to $7.725 million, largely due to a $0.278 million gain on the sale of SBA loans and a $0.161 million increase in service fees and charges. Noninterest expense for Q2 2025 increased by 2.7% to $22.4 million, influenced by higher compensation and benefits and a $0.987 million write-down of acquired SBA receivables. However, this was partially offset by an $0.836 million reversal in the provision for credit losses on unfunded commitments, reflecting reduced construction commitments.

Navigating the Competitive Currents

Home Bancorp operates in a competitive regional banking landscape, primarily contending with larger players like Hancock Whitney Corporation (HWC), Regions Financial Corporation (RF), First Horizon Corporation (FHN), and Prosperity Bancshares, Inc. (PB). HBCP differentiates itself through its strong local brand and deep community ties, particularly in Louisiana and Mississippi, fostering robust customer loyalty. This localized approach allows it to compete effectively in niche segments like small business and consumer loans, where personalized service can outweigh the scale advantages of larger rivals.

Compared to its peers, HBCP's focus on relationship banking and C&I lending aims to attract "deposit providers," contrasting with larger competitors that might pursue broader, less deposit-intensive loan portfolios. While larger banks like RF and HWC may benefit from greater economies of scale and faster innovation cycles in digital banking, HBCP's operational advancements, such as its enhanced Treasury management platform and efforts to drive digital adoption, are crucial for narrowing this gap. HBCP's cost of interest-bearing deposits peaked lower than some peers, supporting its NIM expansion. Its loan portfolio's fixed-rate concentration also provides a unique defensive characteristic against rate volatility compared to rivals with higher variable-rate exposure.

Outlook and Shareholder Value

Home Bancorp's management remains confident in its outlook for 2025, projecting continued NIM and earnings expansion even without further interest rate cuts. Loan growth is guided at 4% to 6% for 2025, with the lower end anticipated if rate cuts do not materialize in the second half of the year. New loan originations are expected to maintain yields around 7.4%, continuing to drive overall loan portfolio yields higher as older, lower-rate loans reprice. The investment portfolio also presents an opportunity, with nearly half projected to pay off over the next three years at a roll-off yield of 2.56%, allowing reinvestment at higher rates.

Noninterest income is expected to remain stable, projected between $3.6 million and $3.8 million per quarter for the remainder of 2025. Noninterest expenses are anticipated to be between $22.5 million and $23 million per quarter for the rest of the year, reflecting a projected 3.5% increase for 2025 due to compensation and technology investments, partially offset by occupancy cost reductions. The company's robust capital levels position it well for opportunistic share repurchases, as demonstrated by the 147,000 shares bought back in Q2 2025 at an average price of $43.72.

The recent 7% increase in the quarterly dividend to $0.27 per share, bringing the payout ratio close to the 20%-25.5% target, further underscores management's commitment to returning value to shareholders.

Conclusion

Home Bancorp stands as a compelling investment case, rooted in its century-long commitment to community banking and a disciplined, profitability-focused strategy. The consistent expansion of its Net Interest Margin, driven by astute asset-liability management and a favorable loan repricing dynamic, forms the bedrock of its financial strength. Coupled with a strategic emphasis on core deposit growth and operational efficiencies through digital adoption, the company is well-positioned to enhance its profitability and adapt to evolving market conditions.

While the pace of loan growth may hinge on future interest rate movements, Home Bancorp's conservative credit culture and proactive risk management provide a stable foundation. Its ability to leverage local market expertise against larger competitors, combined with a shareholder-friendly approach to capital deployment, reinforces its long-term value proposition. Investors seeking a regional bank with a proven track record of resilient performance and a clear roadmap for continued earnings expansion should take a closer look at Home Bancorp.