Home Bancorp, Inc.

Ladies and gentlemen, and welcome to the Home Bank Corp's first quarter 2025 earnings conference call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing this card 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 Chairman, President and CEO, John Bordelon, and Chief Financial Officer, David Kirkley. Please go ahead, Mr. Kirkley.

Thank you, Anna. Good morning and welcome to HomeBank's first quarter 2025 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 first quarter. John?

Thanks, David. Good morning, and thank you for joining our earnings 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. Yesterday afternoon, we reported first quarter net income of $11 million, or $1.37 per share, which was a healthy 13% increase from the fourth quarter and a 20% increase from a year ago. Net interest margin expanded for the fourth consecutive quarter to 3.91%, and our return on assets increased by 17 basis points to 1.29%. First quarter margin expansion was driven by a 13 basis point decline in the cost of interest-bearing liabilities, stable yields on interest-earning assets, and loan growth. Loans grew by $29.1 million in the first quarter, or about 4% annualized, and we've continued to see good growth so far in April. There have been a lot of headlines recently concerning the economy and tariffs that may change the direction of the economy quickly. But for now, we're sticking with our guidance of 4-6% loan growth in 2025. Deposits increased in the first quarter at a 7% annualized rate due to seasonal inflows of public funds and continued effort on our part to fund our loan growth with core deposits. Non-interest-bearing deposits increased 21.9 million, which equated to 27% of total deposits at the end of the quarter. CDs also increased, and we've had good success using our CD product to attract and retain customer deposits since the end of the pandemic. At 27% of total deposits, CDs are a larger percentage of funding than we are used to seeing, but we expect that percentage to decline as rates eventually fall. We continue to optimize our Houston market, which has been a tremendous success since we acquired it three years ago. We have a strong team in place and believe there are opportunities to upgrade and expand our physical footprint that will drive even more business. In 2024, we opened an LTO and hired a commercial team for Northwest Houston. And just recently, we purchased a full-service branch building in Napa, Tennessee that we are renovating and hope to move into by the end of the year. The entire executive team recently completed business for every branch in every market, where we had the opportunity to talk to employees and customers. Each market would then host a Cajun-style crawfish bowl with the executives serving the employees. These bowls included delicious crawfish with all the fixing, music, games, raffles, and camaraderie with all of our employees. These visits have long been a tradition at HomeBank where we believe in the concept of servant leadership. They started back when we were small enough that everyone knew each other and felt like they were part of a family. As we've grown, we've found that these gatherings are a great way to maintain that family culture and generate enthusiasm. The time in the branches gives management an opportunity to answer questions from frontline staff and meet customers both big and small. Our employees that have worked elsewhere are amazed that the executive team will spend this quality time with all our employees. As I've said for the last few quarters, and despite the recent headlines and volatility in the markets, We feel very good about HomeBank's outlook and our ability to continue to outperform. We've been doing this for a long time, and we have a strong track record of performing above our peers in all kinds of economic environments. We continue to focus on customer service, expanding relationships with new and existing customers, and maintaining our solid credit culture. This focus helps us to maintain strong performance through COVID and the rapid increase in rates. We remain confident in our outlook and think that the NIM and earnings will continue to expand in 2025, even without any rate cuts. With that, I'll turn it back over to David, our Chief Financial Officer.

Thanks, John. Slide 5 in our investor presentation has a summary of the last six quarters and shows how strong HomeBank's recent performance has been. Over that period, we maintained a NIM that never dropped below 3.64% and reached 3.91% in Q1, up 9 basis points from Q4, and an ROA that bottomed out at 97 basis points but quickly recovered and is now 1.29%. Slide 7 shows even a longer history, back to 2014, but the results are similar. We maintained a core pre-provision ROA that has always been above 1%, and was 1.32% in the first quarter. Core return on average tangible common equity has always been above 10%, and was 14.3% in the first quarter. And our purchase on expenses has helped us maintain a core efficiency ratio between 60 and 65%, which declined to 60% in Q1. As John said, we think that we can continue to deliver improving performance from here, even without any Fed rate cuts. Net interest income was stable at $31.7 million in the first quarter compared to $31.6 million in the fourth quarter, but we expect it to increase from here due to continued loan growth, increasing asset yields, and moderating funding costs. We expect loans to grow at 4% to 6% annually and asset yields to continue to increase as new originations drive average loan yields higher and lower yielding securities mature. New loan originations in Q1 had a blended contractual rate of 7.4% compared to the 6.43% yield in our existing portfolio. Slide 14 provides additional details and cash flows from our loan and investment securities portfolio. Almost half of our investment portfolio is projected to be paid off over the next three years with a roll-off yield of 2.68%. Slide 15 and 16 of our investor presentation provide some additional detail and credit, which remains very strong. We had $32,000 in net charge-offs in the quarter, which was less than one basis point annualized, after recording just four basis points of net charge-offs in 2024. First quarter non-performing assets increased $5.9 million to $21.5 million, or 62 basis points of total assets. This increase was primarily due to the downgrade of two relationships that were previously categorized as substandard. We feel that we have sufficient collateral on these loans, and we do not anticipate any material principal losses as we work to resolve them by the end of the year. Total criticized loans at quarter end were $37.2 million, or 1.36% of loans, up slightly from 1.35% in the fourth quarter. Our allowance to loan loss ratio was stable from the fourth quarter at 1.21%. Cost of interest-bearing deposits declined 15 basis points in Q1, driven largely by a 33 basis point reduction in the cost of CDs. Over the past two quarters, we lowered the cost of CDs by 59 basis points as we shortened the duration of our portfolio. While we've had good success reducing costs and retaining customer deposits, Absent further rate cuts, we expect the pace of rate reductions to moderate in the coming quarters. With 62% of our CD portfolio maturing in the next six months, we have the ability to adjust quickly to market conditions. Non-maturity interest-bearing deposits make up 46% of total deposits and cost 1.68% in Q1, down five basis points quarter over quarter. Nine interest-bearing deposits, a strength of our balance sheet, increased $22 million in Q1 and comprised 27% of total deposits. As a result of our deposit mix and pricing strategy, the cost of total deposits in Q1 was 1.85%. Slide 21 provides our funding data. So far in this down rate cycle, we've seen a 27% beta on interest-bearing deposits. While this beta may be lower than peers, it still supports expanding NIM and is due in part to the fact that our cost of interest-bearing deposits peaked at only 2.78%, which has been lower than our peers. Yields on earning assets increased two basis points in Q1 due to a $59 million increase in average loans. Loan yields have been stable the last three quarters at 6.43%, despite the 100 basis points of rate cuts by the Fed. Our loan portfolio is 59% fixed, which slurred asset yield increases when rates were rising, but now provides yield protection from further rate cuts and supports an expanding NIM. Slide 22 of the presentation has some additional details on non-interest income and expenses. First quarter non-interest income was $4 million, an increase of $400,000 compared to the prior quarter. We recognized a gain of $310,000 in Q1 on the sale of SBA loans, a 100% increase from the prior quarter. We expect non-insured income to be between $3.6 and $3.8 million over the next two quarters. Non-insured expense decreased by $776,000 to $21.6 million and was driven by a $660,000 decline in comp and benefits and no provision for unfunded submittals. The decline in compensation was related to seasonality and payroll type. We still expect non-interest expenses to increase by 3.5% in 2025 as raises come into effect starting in Q2 and technology-related expenses increase. Non-interest expense is expected to be between $22.5 and $23 million per quarter for the remainder of the year. We put the damage of recent share price volatility to repurchase 297,000 shares through April 17th at an average price of $43.82 per share. We have about 14,500 shares remaining in our existing buyback plan, and yesterday, our board approved a new 400,000 share repurchase plan. We plan to remain active as the volatility continues, as we are confident that our intrinsic value is well above recent market prices. Slide 23 and 24 summarize the impact our capital management strategy has had on home banks. Since 2019, we grew tangible book value per share at a 7.7% annualized growth rate, while growing tangible book value per share adjusted for AOCI at a rate of 9.3%. Over that same period, we also increased annual EPS at an 8.9% growth rate. We've increased our dividends per share by 21% and repurchased 16% of our shares. And we've done this while maintaining robust capital ratios. This positions us to be successful in varying economic environments and to take advantage of any opportunities as they arise. And with that, operator, please open the line for Q&A.

We will now begin the question and answer session. To ask a question, you may press star then 1 on your touchtone phone. If you are using a speakerphone, please pick up your handset before pressing the key. To withdraw your question, please press star then 2. At this time, we will pause momentarily to assemble our offers. The first question comes from Joe Bianconi.

Good morning.

Morning, Joe. Morning, Joe.

So I thought we could touch a bit more on the go-forward margin expectation after the improvement in the first quarter. And then can you share what the NIM was for the month of March and how you expect the NIM to behave with a 25-base point rate test?

All right. Let's keep milling that real quick. I think from what we're going to see, if that doesn't do any such, I think we'll see a slowdown in second quarter of our deposit costs. Basically, the CDs are pricing those pretty high to be able to stay up with our plumbing needs. So I don't see as much drop in the margin in the first quarter. That will continue on probably becoming almost no changes unless Fed does cut. Typically, when Fed does cut, we don't get the full cut in reduction. We've got the percentage of that cut. David, what would you say? About 20 base points out of the 25? 18 to 20 base points out of the 25. But where we're going to continue to grow the NIM would be on the loan side as we continue to reprice, while lower rates than what we saw in 2024, still higher than what we have in the portfolio today. So that's going to be the driving force throughout the rest of the year.

Yeah, Joe, we have the opportunity to reprice a good bit of loan investment securities cash flow. And as we mentioned, New loan originations are coming in at a contractual rate of around 7.4%. So we still see a couple of basis points uptick per quarter in contractual loan yields, given no rate cuts. So I think, as John said, you're not going to see as much contraction on liability costs, but you're going to see growth in earning asset yields. To answer your second question about March, March in the end was about 3.95%. Oh, sorry, the third part of your question, a 25 basis point rate reduction. You know, we've seen what happened to our loan yields. I forgot which slide it is. We have a chart with our loan yields being stable at 6.43%. That's in part due to a little bit lower concentration of adjustable rate loans. So whenever there's a 25 basis point rate cut, that's about a three basis point decline in loan yields, which is really offset by new loan originations. And then you also see they have about $135 million on average with overnight advances from the FHLB, which reprice automatically. And then we also have a very short concentration of CD portfolio, duration of our CDs, which we have the ability to reprice very quickly as well as we've seen the last couple quarters. So even in a 25 base point rate cut, I would anticipate stable to slightly increasing them.

That was very thorough. I appreciate it. And then kind of switching over to credit. Can you discuss the two loan relationships that moved to not a curl in the quarter? You know, what factors, what geographies were they in? And then I also understand, you know, there's a lot of unknowns at the moment with respect to the potential pair and trade war. But it would be helpful to get a sense for what parts of the books you're paying a little closer attention to. You know, what are some outside exposures?

These sites have been problematic for some time. One of the sites is in Mississippi. And it is basically a development of condominiums to be sold. They sold three condominiums in the early part of 2024 and have not really sold any since then. The peak time to sell those is right now, spring and summer. And so we're giving them until I think the end of May. And when we evaluate to see what's going on, we may start foreclosure, may ask for a dash on the property, whatever. We believe there's equity in the property, but we also believe that the owner is asking too high a price for the property. But as I said, even if we cut the price significantly, the cost that we have, we still should be able to recoup all of that. The other credit was it's a hotel. that's 101 reservations in the Houston market. And, you know, the promises are there that we're going to redo all the rooms and obviously have a higher occupancy once that happens. We've asked them for a pay down based upon the cash flow that they've had the last six months. And they're wanting to take another route of putting their money into the building to make sure that they can increase revenue and make full payments to it. So we'll see how that goes. The property's in a relatively good location, so we would, I think, do well, especially if oil and gas comes back to the Texas area. This hotel would do very well should that happen.

All right. Well, thank you for taking my questions. Thank you, Joe.

Thank you. Again, if you have a question, please press R, then 1.

Second question comes from Chris Martinez of G. Montgomery.

Hey, thanks. Good morning. Thank you for hosting us. I wanted to go back to the office portfolio and Just get a sense, John or David, about anything anecdotal in terms of the maturities that you've had there, kind of how those have been either reset or paid off, et cetera. I know you've got a longer book. I think it was seven and a half years disclosed for that. I just was curious on kind of what you've seen and any maturities that have happened recently.

We've not seen any changes, actually. A lot of the ones that have matured have renewed. Not a lot of movement there. We don't have, you know, what a lot of people maybe have in bigger cities or the high-rises and things of that nature. We have two of those in Baton Rouge, but they are, one's a condo high-rise and the other is 100% occupied by Louisiana government. So our office portfolio has performed extremely well. As shown on page 11 of our presentation, really don't have any criticized assets in that.

Okay, great. Thank you for that additional background. And then you mentioned about the higher CD pricing. So just to clarify, is that going to change this quarter? I'm just trying to take the pricing out from the Fed decision, whether they do or don't cut. I mean, will you still keep those rates somewhat elevated?

I think they're going to remain a little bit elevated, but below our overnight funding costs. we have the opportunity to reduce marginally our rates, we believe, but there will most likely remain a slightly elevated cost of fees will come down incrementally over the next quarter, but not very materially.

Okay. And then in general, do you plan to see the loan-to-deposit ratio come down over time? I mean, it's been It's fairly consistent. I'm just curious if you look at the next year or two if you think that's going to change much from here.

You know, it's been a really weird cycle considering everything that's happened with COVID and the higher interest rates that we still have as much loan demand as we do. That's kind of unprecedented in the history of the home bank. Usually when higher rates come up, the loan demand slows. I think the general population thinks that rates were going to go up and come back down quicker than they did. And so they went ahead with their project. I'm not sure, but yeah, I think we keep waiting for a lower loan demand and really haven't seen it. So the question of the loan deposit ratio, I think it's going to stay tight until such time as we see a lower loan demand in our area. We're working very hard. We're working very hard to attract core deposits and expansion in our use and mortgage and how to spend it.

Perfect. Thank you both. I appreciate it.

Next question will come from Jason Sutton of Piper's Hamburg.

Thanks. Good morning, guys. Good morning. I'm curious, you know, you've got a lot of history on, I think,

We can't quite hear you. Can you hear me better now? Yeah. Okay. Can you help me reconcile what looks like asset sensitivity with what in practice sounds like maybe liability sensitivity on rate cuts?

Yeah, I think one of the issues that we're having is an interpretation of changes in interest sensitivity. So if you look at our slide deck, it shows that we are slightly asset sensitive. Really, we're projecting in a base case a rising NIM, and even in a down 100 basis point rate environment, we're seeing a change from that base case down slightly, almost 2%, but still a rising NIM from where we are today. I just want to clarify that point that you still see NMWA increasing from where we are today, even in a 100 basis point rate environment. Our loan portfolio, which is 41% variable, about almost 60% of those loans are adjustable daily, with some of the other loans being more annual repricing. So that impacts the sensitivity a little bit. And as we said earlier on our call, our beta is a little bit lower on our deposit repricing than some peers because we're starting at a lower point. So we don't have as much room to come down as quickly as some of our other peers. So all those things combined help explain the difference in our asset sensitivity position.

Okay, very helpful. Thanks, David. And then I guess following up on that, slide 21 and all the data you provided, do you think we start to see a catch-up at some point with those betas on the deposit side similar to what we saw on the way up? Or to that last point, because we're at lower rates, maybe do we not see the same improvement on the way back down maybe that we saw on the way up?

I think it's going to play out over time. And I think it would catch up over time. But as we talked about on our last slide, our learning to pause ratio is a little bit tighter than we'd like it to be. And so it is going to be a little bit slower. But I have no reason to believe that it wouldn't fall into the average of around 35%. Or 40%, excuse me.

Okay, great. And then How aggressive do you think you'll be around the share repurchase?

Probably not as aggressive as we've been in the first quarter here, but, you know, when there's opportunity, especially when our stock price drops down to 42, 43, just above tangible book value, it's a no-brainer. So I think marginally if our stock price continues to go up, that percentage of repurchases will come down significantly.

Yeah, I mean, we really honestly feel comfortable with our capital positions. We feel like they're very strong. And we feel confident in our ability to perform in the next couple of quarters. So given the opportunity, we're going to be in the market. Hopefully our share price increases and we'll be less in the market.

I agree. I like it. Thanks for the time, Nicholas.

Thank you. Appreciate it.

Again, if you have a question, please press star then 1. I think there are no more questions, so this concludes our question and answer session. I would like to turn the conference over to John for any closing remarks.

Once again, thank you all for joining us today. We look forward to speaking to many of you in the coming days and weeks. Hope you have a wonderful day and remainder of the week. Thank you.

The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.