Home Bancorp, Inc.

Thank you, ladies and gentlemen, and welcome to the home band for its first quarter 2025 Ernie's Conference call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing this car 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 home bank thoughts chairman, president and CEO, John Bardelon, and Chief Financial Officer, David Kirke. Please go ahead, Mr. Kirke.

Thank you, Anna. Good morning and welcome to home banks first quarter 2025 Ernie's 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 and investor presentation in 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 Ernie's 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. 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 .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 continue 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 -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 poor 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 TD products 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 Appleton that we are renovating and hope to move into by the end of the year. The entire executive team recently completed visits to every branch and every market where we had the opportunity to talk to employees and customers. Each market was then host a Cajun-style crawfish boil with the executive serving employees. These boils 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 Home Bank 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. So, as 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 market, we feel very good about Home Bank'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 performance 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 helped 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 EARNES 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 Home Bank's recent performance has been. Over that period, we maintained a NIM that never dropped below .64% and reached .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 2020, but the results are similar. We maintained a core pre-provision ROA that has always been above 1% and was .32% in the first quarter. Core return on average tangible common equity has always been above 10% and was .3% in the first quarter. An approach upon 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 improvement performance from here even without any sub-rate cuts. Net interest income was stable at 31.7 million in the first quarter compared to 31.6 million in the fourth quarter, which we expected 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 .4% compared to the .43% yield on our existing portfolio. Squad 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 four years with a roll-off yield of .68% Squad 15 and 16 of our investor presentations provide some additional detail on 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 reporting 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 .36% of loans, up slightly from .35% in the fourth quarter. Our allowance for 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 few 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 on our trading 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 .68% in Q1, down five basis points quarter over quarter. Non-intersparing 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 .43% despite the 100 basis points of rate cuts by the Fed. Our loan portfolio is 59% fixed, which squared 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 recognize again a $310,000 in Q1 on the sale of SBA loans, a 100% increase in the prior quarter. We expect non-interest income to be between $3.6 and $3.8 million over the next two quarters. Non-interest 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 titles. We still expect non-interest expenses to increase by .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 a balance of recent share price volatility to repurchase 297,000 shares through April 17 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. The plan will 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 Bank. Since 2019 we grew tangible book value per share at a .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 ETS at an .9% growth rate. We've increased our dividend 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 burying 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 touch phone phone. If you are using a speaker phone please take off your handkerchief before pressing the key. To withdraw your question please press star then 2. At this time we will pause momentarily to assemble our offer. The first question comes from Joe Van Coen of Rewenchin.

Good morning. Morning Joe. So I was hoping you 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

cut? Alright,

let's keep the middle of that real quick. I think from what we're going to see if Fed doesn't do any such, I think we'll see a slowdown in second quarter of our profit cost. Basically the CDs are, we're pricing those pretty high to stay up with our funding needs. So I don't see as much drop in the margin from the deposit side in second quarter as we did 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 gotten a 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 will be on the low side as we continue to reach price. While lower rates than what we saw in 2024 still higher than what we had in the portfolio today. So that's going to be the driving force throughout the rest of the year. Yeah, we have the opportunity to reprice a bit of loan and investment securities cash flow. And as we mentioned new loan originations are coming in around a contrast 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 in liability costs as you're going to see growth in earning asset yields. To answer your second question about March, March NIM was about 3.95%. Oh sorry, the third part of your question is a 25 basis point rate reduction. You know we've seen what happened to our loan yields. I forgot what slide it is. We have a chart with our loan yields being stable at 6.43%. And 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 3 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 FHLD which reprice automatically. And then we also have a very short concentration of CD portfolio, the duration of our CDs. Which we have the ability to reprice very quickly as well as we've seen in the last couple quarters. So even in a 25 basis 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 few loan relationships that moved to not accrual in the quarter? What sectors, what geographies were they in? And then I also understand 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 book you're paying a little closer attention to. That's what these guys have been problematic for some time. One of the prices 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 key condos and salvos is right now, spring and summer. And so we're giving them until I think the end of May. And we'll reevaluate to see what's going on. We may start with 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 can say, even if we cut the price significantly, the cost that we have, we still should go to a coup all of that. The other credit is a hotel that's under going to renovations in the Houston market. And 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 in the last six months. And they're wanting to take the other lot 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 is in a relatively good location so we would, I think, do well. Expecting a holding act comes back to protect this 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 par. Then one. Second question comes from Chris Marinette 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 had there, kind of how those have been either reset or paid off, etc. 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 condo's high rise and the other 100% occupied by Louisiana government. So our office portfolio has performed extremely well. As you know on page 11 of our presentation, we 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 said decision whether they do or don't cut. 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, still. But they will most likely remain slightly elevated and 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? It's been 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 home banks. Usually when higher rates come up, the loan demand slows. I think the general population thinks that rates wouldn't go up and come back down quicker than they did. And so they went ahead with their projects. I'm not sure, but yeah, I think we keep waiting for a slower 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 for the time as we see a lower loan demand in our area. We're working very hard to attract quarter deposits and expansion in our Houston markets and Albuquerque.

Perfect. Thank you both. I appreciate it. You too.

Next question will come from Jason Sautin of HyperTanzer.

I think, good morning. Good morning. I'm curious,

you know, you just a lot of history with the loan. I think you did say that you... If you break it up, we can't quite hear you. Can you hear me better now? Can you hear me now? Yes. 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 and down slightly almost 2%, but still a rising NIM from where we are today. So, I just want to clarify that point that we still see NIM 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 between 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 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 loan deposit 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%.

Okay, great. And then... How aggressive do you think you'll be around the share purchase? 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 the Angela 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 to the new beginning. 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 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 like it. Thanks for the time and the color.

Thank you, it's been great.

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 the remainder of the week. Thank you.

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