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spk00: Good morning, ladies and gentlemen, and welcome to the HomeBank Corp second quarter 2024 earnings conference call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. Please note, this event is being recorded. I would now like to turn the conference over to HomeBank Corp's Chairman President and CEO, John Borlone, and Chief Financial Officer, David Kirkley. Mr. Kirkley, please go ahead.
spk04: Thank you, Kenneth. Good morning and welcome to HomeBank's second quarter 2024 earnings call. Our earnings release and investor presentation are available on our website. I ask that everyone please refer to the disclaimer regarding forward-looking statements and investor presentation in our SEC filings. Now I'll hand it over to John to make a few comments about the second quarter. John?
spk03: Thanks, David. Good morning, and thank you for joining HomeBank's earning call today. We appreciate your interest in HomeBank as we discuss our results, expectations for the future, and our approach to creating long-term shareholder value. We reported second quarter net income of $8.1 million, or $1.02 per share. And most importantly... a slight improvement in our net interest margin, which appears to have stabilized. The NIM came in at 3.66%, which was two basis points higher than the first quarter. We're cautiously optimistic that continued steady increases in asset yields and stabilization in our cost of funds will continue to support net interest income growth and improving margins, even without any Fed rate cuts. We added $39.7 million of loans in the second quarter with growth in all sectors except for construction and land loans, which declined slightly. Given the strong loan growth we had in the first half of the year, we're still anticipating that 2024 loan growth will be between 4% and 6%. The duration of higher rates appears to now be negatively impacting our loan pipeline, but we're optimistic that if forecasted rate cuts occur, we could see loan demand pick back up. Deposits, including demand deposits, were stable from the last quarter after very strong growth in the fourth and first quarters. We were pleased to see 12.6 million of core deposit growth in our Houston market as our teams there brought over the operating accounts of a number of new clients. We relocated another one of our Houston branches and continue to look for opportunities to improve our coverage of the markets we serve by adding brick and mortar and talent. Despite all the negative headlines, we here at HomeBank are actually seeing improvements in credit. In the past few months, we have had a $5 million construction loan go from non-performing to performing with interest reserves after we worked with the borrower, who we've known for years, to manage through some delays and cost overruns. We also recently resolved a non-performing $3.4 million multifamily loan without any principal loss. We feel very good about a non-performing $4.7 million loan lending relationship that has about $2 million of equity behind it. A year ago, David and I were in New York, and we were both struck by the number of high-rise buildings with empty floors. We just don't have that same problem in our markets, and I know most of our colleagues at other community banks feel the same way. We lend to people we know in markets we know. We're not making the loans that are being written about in the financial press. Community banking is about providing our shareholders with an attractive, risk-adjusted return. We are not in the business of making loans that could result in huge losses on relationships that aren't the right fit. Finally, before I turn it back over to David, I'd like to welcome Mark Herpin to the Home Bank team, where he joins as Senior Executive Vice President and Chief Operations Officer. Mark has had a long and successful career in community banking, and we look forward to his contributions at Home Bank. I'd also like to congratulate Natalie Lemoine, our Chief Administrative Officer, and John Zollinger, our Chief Banking Officer, on their promotions to Senior Executive Vice President of the bank. With that, I'll turn it back over to David.
spk04: Thanks, John. Net interest income totaled $29.4 million in Q2, up $492,000 from the previous quarter. Loan growth continued at a 6% annualized pace during the quarter, with new loans coming in at a rate of 8.25%, compared to the 6.28% we earned on our total loan portfolio in Q2. Deposits were essentially flat quarter over quarter, which increased our loan-to-deposit ratio to 97.7%. The pace of deposit migration has definitely slowed, and non-interest-bearing deposits actually increased by $4.3 million in the second quarter. We did experience declines in interest-bearing checking accounts and savings accounts, which were down about $25 million combined. This outflow is offset by an increase in money market and CD balances of $21 million. The outflows that we did see mostly occurred in April, coinciding with taxes. The impact of the slowing deposit migration can be seen in the slower increases in the rates we were paying on our interest-bearing deposits, which increased by 17 basis points in the second quarter, after having increased by 28 basis points in the first quarter, 40 basis points in the fourth quarter, and 54 basis points in the third quarter last year. Pages 11 and 12 of our investor presentation provide some additional detail on credit, which John has already covered. Non-performing loans did decrease by 3.5 million in the second quarter to 16.8 million, or 0.63 percent of total loans. Provision expense for the quarter was 1.3 million, up 1.1 million from the prior quarter. Our allowance for loan loss ratio increased one basis point to 1.21 percent in the second quarter. There were no changes in our qualitative factors during the quarter, and we feel confident in our reserve levels. We did have $510,000 or eight basis points annualized and net charge-offs in the second quarter. These charge-offs were very much customer-specific issues and not industry-related. Slide 16 has some detail on our historic NIM and its components. As John mentioned, we're cautiously optimistic that NIM has bottomed out and should start to slowly increase from here. Loan yields have been steadily increasing due to a combination of loan growth and loan repricing, and with the reduced pace of increases in liability costs, our NIM has increased each month this quarter. We have approximately 490 million of CDs maturing in the next six months. The majority of these CDs are in specials at rates a little north of 5%. So if rates and deposit mix remain unchanged, we could see flat to marginal declines in CD costs, but we have opportunities for more meaningful cost reductions if we do see rate cuts. Slide 18 of the presentation has some additional details on non-interest income and expenses. Non-interest income increased by about $200,000 to $3.8 million and should be between $3.6 and $3.8 million in the third and fourth quarters. Non-interest expense increased by $904,000 to $21.8 million due primarily to annual salary increases that took effect April 1st. This was at the low end of our expectations. We expect core non-interest expense to be between $22 and $22.5 million in the third and fourth quarters. We were a little more aggressive with the buyback and repurchased about 77,000 shares at an average price of $37 per share in the second quarter, which equates to 92% of tangible book value excluding AOCI. Slide 19 summarizes the impact our capital management strategy has had on HomeBank over the last few years. We've grown adjusted tangible book value per share by 58% since 2018, increased our dividend by 67% since 2016, and repurchased 14% of our shares all while maintaining robust capital ratios, which positions us to be successful in any economic environment and take advantage of opportunities as they arise. And with that, operator, please open the line for Q&A.
spk00: Thank you. We will now begin the question and answer session. To ask a question, you may press the star key, then one on your touchtone phone. If you are using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press the star key, then two. At this time, we will pause momentarily to assemble our roster. The first question comes from Fetty Strickland with Havd Group. Please go ahead.
spk01: Hey, good morning, John and David. John, you touched on this in your opening comments a little bit. I was just wondering if you can talk through a little bit more of the non-interest-bearing deposits. Obviously a positive to see those grow. Is that really just success on the C&I side in Houston, or was that more footprint-wide?
spk03: Well, I think what we were referring to there was mostly in Houston. We pulled out a team at the beginning of the year from another bank, and a lot of the efforts that happened in Houston came from that team. They're in a loan production office in the northwest section of Houston, and and they've done a very good job of attracting new customers, and our focus has been on the deposit side. So they've attracted some that are loan and deposit and some that are just deposit. So that was what we were highlighting there was the success of that new team.
spk04: We've also seen some growth in the DDA space and the Acadiana market as that market has been focused more heavily on the C&I business as well.
spk01: And along those same lines, I mean, as we think about the type of loan growth you're looking for going forward, it sounds like you're focused on bringing in more CNI, just given that it's more likely to come with deposits, correct?
spk03: Absolutely.
spk01: Got it. And one last question for me, just on share repurchases. I mean, do you think we'll see that? potentially slow down a little bit if the share price kind of keeps moving upwards here, or do you think that you'll still have some level of repurchases going forward and just keep in mind some dry powder?
spk04: We'd probably slow it down at the elevated or the higher prices that we've experienced over the last week and keep the dry powder.
spk01: Got it. Thanks for taking the questions.
spk04: Thank you. Thanks.
spk00: Again, if you have a question, please press the star key, then 1. The next question comes from Joe Yanchinus with Raymond James. Please go ahead, sir. Good morning.
spk02: Morning. Hey, Joe. So with the NIM expansion, you know, appearing to occur, you know, a little bit ahead of schedule, can you provide some of the puts and takes on what will drive the NIM in the second half of the year?
spk04: So one of the driving factors is, of course, loan growth and loan repricings. You can see on our slide deck on slide 16, we've been consistently raising our loan yield by about 10 basis points each quarter and still expect that to continue as we still have a weighted average rate of our loan portfolio at 6.28% compared to what we're bringing on loans at 8.25%. So that's one component of it. Second component of it is you're really seeing a slowdown in opportunities for deposits to reprice higher. There is still some deposit migration, but the vast majority of our CD portfolio has already repriced higher. We touched up on it a little bit on the call when we said the CDs are already a little bit north of 5% and our CD special rates are actually a little bit lower in some cases. So there's not as much repricing opportunities to occur on the CD and deposit space. So we think that the pace of loan yield increases is going to more than offset deposit cost increases.
spk03: Not to mention any movement by the Fed this year will contribute to the ability to re-own these deposits or maintain these deposits at a little bit lower rate. So we feel very comfortable in the fact that our CD rates should stabilize or head downward based upon what the Fed does.
spk02: Understood. And we've heard from your peers some increased competition on deposits. Is that something you've experienced? And kind of how should we think about the near-term trajectory of deposit costs?
spk03: We haven't seen that much pressure. There are some one-offs here or there that we obviously – take care of. But for the most part, most everyone in our market, I think there was one bank in the Houston market that was in the, you know, five and a quarter, five and three-eighths area. But for the most part, we have not had any problem attracting deposits.
spk02: Okay. And then if I could just sneak in one more here. Okay. So asset quality metrics improved pretty nicely in the quarter. Though you elected to increase your reserve ratio, can you discuss what really drove this thought process? And secondly, perhaps it's too early to call, but if we get a couple rate cuts and the economy doesn't deteriorate, would it be fair to say that criticizing NPAs might have already peaked?
spk04: Let me take the Cecil question first. We really didn't decide to increase our allowance. It's just a mixture of the mixed change in our loan portfolio quarter over quarter and the duration, perhaps, of new loans. That's really it. We didn't change any qualitative factors. We didn't make any adjustments with regards to any industry-specific qualitative factors. So it's just a function, really, of our loan portfolio change.
spk03: As it relates to the remainder of the year, I'm very optimistic that there could be a little bit of issues as far as credit, but we're not really seeing it in any one particular industry or just individually. We've had a couple of one-offs here and there that have gone bad, had really nothing to do with the economy, had more to do with the operators themselves. So we're feeling as though the economy is going to actually improve possibly in 2025 because of a lower rate environment.
spk02: All right. Well, thank you for taking my questions.
spk00: Thank you. This concludes our question and answer session. I would like to turn the conference back over to John for any closing remarks. Please go ahead.
spk03: Once again, thank you all for joining us today. I'm very excited about the position the bank has gotten to at this point and look forward to the rest of the year and speaking to many of you in the next day or so. Thank you very much for attending. Have a good day.
spk00: The conference has now concluded. Thank you for attending today's presentation.
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