Q1 2025 Home Bancorp Inc Earnings Call
Speaker Change: Good morning, ladies and gentlemen, and welcome to the Home Bancorp's first quarter of 2025 earnings conference call.
Speaker Change: All participants will be in listen only mode. Should you need assistance, please signal a conference specialist by pressing the start key followed by zero.
Speaker Change: After today's presentation, there will be an opportunity to ask questions. Please note, this event is being recorded.
Speaker Change: I would now like to turn the conference over to Home Bancorp's Chairman, President and CEO John Bordelon and Chief Financial Officer David Kirkley. Please go ahead Mr. Kirkley.
Boom!
Thank you.
Speaker Change: Good morning and welcome to Home Banc's first quarter, 2025 Ernstall.
Speaker Change: Our ring's release and investor presentation are available on our website.
Speaker Change: I'd ask that everyone please refer to the disclaimer regarding forward-looking statements in the industrial presentation and our SEC filings.
Speaker Change: Now I'll hand it over to John to make a few comments about the first quarter. John ?
John Bordelon: Thanks David, good morning and thank you for joining our earnings 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.
John Bordelon: 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.
John Bordelon: 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%.
John Bordelon: 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.
John Bordelon: 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 .
John Bordelon: There have been a lot of headlines recently concerning the economy and tariffs that made change the direction of the economy quickly, but for now we're sticking with our guidance of the 46% loan growth in 2025.
John Bordelon: The politics increase 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 court
John Bordelon: Non-interest bearing deposits increase 21.9 million, which equated to 27% of total deposits at the end of the quarter.
John Bordelon: CD is also an increase and we've had good success using our CD product to attract and retain customer deposits since the end of the pandemic.
John Bordelon: 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.
John Bordelon: 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 would drive even more business.
John Bordelon: In 2024, we opened an LPO and hired a commercial team for Northwest Houston and just recently we purchased a full service branch building in that vicinity that we are renovating and hope to move into by the end of the year.
John Bordelon: The entire executive team recently completed business to every branch and every market where we had the opportunity to talk to employees and customers.
John Bordelon: Each market within hosts a Cajun style crawfish ball with the executive serving the employees. These balls include delicious crawfish with all the fixing, music, gains, raffles, and camaraderie with all of our employees.
John Bordelon: These vids have long been a tradition at home bank where we believe in the concept of the Servant Leadership.
John Bordelon: 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.
John Bordelon: The time and 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 at the executive team which spend this quality time with all our employees.
John Bordelon: As I've said for the last few quarters and despite the recent headlines and volatility in the market
John Bordelon: We feel very good about home banks 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.
John Bordelon: We continue to focus on customer service, expanding relationships with new and existing customers, and maintaining our solid credit culture.
John Bordelon: This focus helps us to maintain strong performance through COVID and the rapid increase in rates.
John Bordelon: We remain confident in our outlook and think that the NIM and earnings will continue to expand in 2025, even without any rate cuts.
John Bordelon: With that, I'll turn it back over to David, our chief financial officer.
Thanks, John .
John Bordelon: Slide 5 in our investor presentation has a summary of the last six quarters and show how strong home banks recent performance has been.
John Bordelon: 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 RWA that bottomed out at 97 basis points but quickly recovered and is now 1.29%.
John Bordelon: 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 1.32% in the
John Bordelon: Court return an average standsable common equity has always been above 10% and was 14.3% in the first quarter.
John Bordelon: And our focus on expenses has helped us maintain a core efficiency ratio between 60 and 65% which decline to 60% and Q1.
John Bordelon: As John said, we think that we can continue to deliver improving performance from here, even without any Fed brake tuts.
John Bordelon: That interest income was stable at 31.7 million in the first quarter compared to 31.6 million in the fourth quarter will expect it to increase from here due to continued loan growth, increasing asset yields and moderating funding costs.
John Bordelon: 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.
John Bordelon: New loan originations in Q1 had a blended contractual rate of 7.4% compared to the 6.43% yield on our existing portfolio.
John Bordelon: Slide 14 provides additional details on cash flows from our loan and investment securities portfolio.
John Bordelon: Almost half of our investment portfolio is projected to be paid off over the next three years with a rolloff yield of 2.68 percent.
John Bordelon: Slide 15 and 16 of our investor presentation provides some additional detail and credit, which remains very strong. We had $32,000 in net charge loss in the quarter, which was less than one basis point annualized, after recording just four basis points of net charge loss in 2024.
John Bordelon: First quarter non-performing assets increase $5.9 million to $21.5 million or 62 basis points of total assets.
John Bordelon: This increase was primarily due to the downgrade of two relationships that were previously categorized as a substandard.
John Bordelon: 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.
John Bordelon: Total Criticized Loans at Quarter End were 37.2 million or 1.36% of loans, up slightly from 1.35% in the fourth quarter.
John Bordelon: Cost of interest bearing deposits to coin 15 basis points in Q1, driven largely by a 33 basis point reduction in the cost of CDs.
John Bordelon: Over the past two quarters, we lowered the cost of CDs by 59 basis points as we shorten the duration of our Portfolio.
John Bordelon: While we've had good success reducing costs and retaining customer deposits, absent for the rate cuts we expect the pace of rate reductions to moderate in the coming quarters.
John Bordelon: With 62% of our CD portfolio maturing in the next six months, we have the ability to adjust quickly to market conditions.
John Bordelon: Non-matured, interest-bearing deposits make up 46% of the deposits and cost 1.68% in Q1, down 5 basis points quarter over quarter.
John Bordelon: 9-inch sparing deposits, a strength of our balance sheet increased 22 million in Q1 and price 27% of total deposits.
John Bordelon: As a result of our deposit mix in pricing strategy, the cost until deposits in Q1 was 1.85 percent.
Strike 21 provides our funding data
John Bordelon: 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 peak at only 2.78%, which has been lower than our peers.
. . . . . . .
John Bordelon: yields on earning assets increase two basis points in Q1 due to a $59 million increase in average loans
John Bordelon: Lone yields have been stable, the last three quarters at 6.43%, despite the 100 basis points of rate cuts by the Fed.
John Bordelon: Our low-import folio is 59% fixed, which slowed asset yield increases when rates were rising, but now provides yield protection from further rate cuts and supports an expanding
John Bordelon: So I, 22 of the presentation, has some additional details and non-interest income and expenses.
John Bordelon: First quarter, non-interest income was 4 million, an increase of $400,000 compared to the prior quarter.
John Bordelon: We recognize the gain of 310,000 in Q1 on the sale of SBA loans, 100% increase from the prior core.
John Bordelon: We expect non-interest income to be between 3.6 and 3.8 million over the next two quarters.
John Bordelon: Nine 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 commitments.
John Bordelon: The declining compensation was related to seasonality and payroll cycles.
John Bordelon: 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.
John Bordelon: Non-interest expense is expected to be between 22 and a half and 23 million per quarter for the remainder of the year.
John Bordelon: We took advantage of recent share price volatility to repurchase 297,000 shares through April 17th at an average price of $43.82 per share.
John Bordelon: We have about 14,500 shares remaining in our existing buyback plan, and yesterday, our board approved a new 400,000 share repurchase plan.
John Bordelon: Would plan to remain active if the volatility continues as we are confident that our intrinsic value is well above recent market prices.
John Bordelon: Slide 23 and 24 summarized the impact our capital management strategy has had on home banks.
John Bordelon: 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%.
John Bordelon: Over that same period, we also increased annual EPS at an 8.9% growth rate.
John Bordelon: We've increased our dividends per share by 21% and repurchased 16% of our shares.
Now, we've done this while maintaining robust capital ratios.
John Bordelon: This position is just to be successful in varying economic environments and take advantage of any opportunities as they arise.
And with that operator, please open the line for Q&A.
Speaker Change: We will now begin the question and answer session to ask a question you may press.
Speaker Change: Star, then one on your touch-tone phone. If you are using a speaker phone, please pick up your headset before pressing the keys. To withdraw your question, please press star, then two. At this time, we will pause momentarily to assemble our roster.
The first question comes from Joe Yanchunis of Raymond James.
Good morning!
Morning, Joe. Morning, Joe.
Speaker Change: So, there's something you could touch a bit more on the GoFord 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?
Speaker Change: Alright, let's piecemeal that real quick. I think what we're going to see if Fed doesn't do any cuts. I think we'll see a slowdown in second quarter.
Speaker Change: of our popping calls. Basically the CDs are reprising those pretty high. We have to stay up with our funding needs.
Speaker Change: So, I don't see as much drop in the margin from to the public side.
Speaker Change: in 2nd quarter as we have seen 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 it?
Speaker Change: 20 base points out of the 25, 18 to 20 base points out of the 25.
Speaker Change: But, you know, where we're going to continue to grow the NEM would be on the Loanside as we continue to reprise.
Speaker Change: 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.
Speaker Change: New loan originations are coming in around contractual rate of around 7.4%. So we still see a couple of bases points up tick per quarter and contractual loan yields, given no rate cuts.
Speaker Change: So I think as John said, you're not going to see as much contraction and liability cost, but you're going to see growth and earning asset yields.
Speaker Change: To answer your second question about March, March 9 was about 3.95%.
Oh, sorry, the third part of your question, a 25 basis point rate reduction, you know.
What?
Speaker Change: 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%.
Speaker Change: and that's in part due to a little bit lower concentration of adjustable rate loans. So whenever there's a 25-based point rate cut, that's about a three-basis point to find in loan yield, which is really offset by new loan originations.
Speaker Change: and then you also see they have about 135 million on average with
overnight advances from the FHLB, which reprised automatically.
Speaker Change: and then we also have a very short concentration of CD portfolio duration of our CDs.
Speaker Change: which we have the ability to reprise very quickly as well as we've seen the last couple quarters.
Speaker Change: So even in a 25 base point rate cut, I would anticipate stable to slightly increasing them.
That was very thorough, I appreciate it.
Speaker Change: I also understand, you know, there's a lot of unknowns at the moment with respect to the potential tariffs and trade war, but it'll be helpful to get a sense for what parts of the book you're paying a little closer attention to.
Speaker Change: These beds have been problematic for some time. One of the credits is in Mississippi, and it is basically...
a development of condominiums.
and have not really sold any strength in.
Speaker Change: 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.
Speaker Change: and we'll re-evaluate to see what's going on. We may start for closure, may ask for a dash all the property, whatever. We believe there's equity in the property but we also believe that the owner is asking too high a price.
Speaker Change: for the property, but that being 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 a hotel that's undergoing renovations in the Houston market.
Speaker Change: You know, the promises are there that we're going to read you all the rooms and obviously have a higher occupancy once that happened. We've asked them for a paydown based upon the cash flow that they've had in the last six months.
Speaker Change: and they're wanting to take the other out of putting their money into the building to make sure that they can increase revenue and make full payment to us. So we'll see how that goes.
Speaker Change: The property is in a relatively good location, so we would, I think, do well, especially if all in yes, 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, Bill.
2nd question comes from Chris Marina of Genie Montgomery
Chris Marinak: 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, etc. I know that you've got a longer book. I think it was seven and a half years disclosed for that. It just was curious on kind of what you've seen and any maturities that have happened recently. Thank you very much. Thank you.
Chris Marinak: 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...
Speaker Change: What, a lot of people may be having bigger cities or the high-rise things of that nature.
Speaker Change: We have two of those in Baton Rouge, but they are one condo high-rise and the others 100% occupied by Louisiana government.
Speaker Change: 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 if I'm the Fed decision whether they do or don't cut. I mean, will you still keep those rates somewhat elevated?
I think...
Speaker Change: I think they're going to remain a little bit elevated, but below our overnight funding cost.
Speaker Change: We have the opportunity to reduce marginally our rates, we believe, but
Speaker Change: There will most likely remain a slightly elevated and cost of cities will come down incrementally over the next quarter, but not very materially.
Speaker Change: 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.
Speaker Change: 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 bank, usually when higher rates come up, the loan demand slows.
Speaker Change: I think the general population thinks that race we're going to 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.
Speaker Change: We keep waiting for a slower loan-demand and really haven't seen it. So the question of the loan-demand deposit ratio, I think it's going to stay tight until such time as we see a slower loan-demand in our areas.
We're working very hard
Speaker Change: We're working very hard to attract quarter pilots and expansion in our use in the market is going to help us Fed.
Perfect, thank you both, I appreciate it.
The next question will come from students gotten of typeers and girls.
Thanks. Good morning, guys.
Good morning.
Speaker Change: You know, you've got a lot of fish pretty well, haven't you?
You did say that you'd-
Steven, you're breaking up, we can't...
White here you.
Can you hear me better now?
There we go.
Yeah.
Um...
Speaker Change: Yeah, I think one of the the issues that we're having is
and Interpretation of...
Speaker Change: It changes an interest sensitivity. So if you look at our slide deck it shows that we are slightly asset sensitive.
Really?
Speaker Change: 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.
Speaker Change: So, I just wanted to clarify that point that we still see an increase from where we are today, even in a hundred base point rate environment.
Our Lone Portfolio, which is 41% variable.
Um
Speaker Change: 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.
Speaker Change: 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 that, all those things combined, help.
to explain the difference between our asset sensitivity position.
Speaker Change: Okay, very helpful. Thanks, David. And then I guess following up on that slide 21 and all the data you provided
Speaker Change: 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 or to that last point because we're at lower rates maybe
Speaker Change: Do we not see the same improvement on the way back down and maybe that we saw on the way up?
Speaker Change: I think it's going to play out over time and I think it would catch up over time but as we talked about our last slide our learning deposit ratio is a little bit tighter than we'd like it to be.
Speaker Change: and so it is going to be a little bit slower.
Speaker Change: But I have no reason to believe that it wouldn't fall into the average of around 35%.
It's a 40% excuse me. Okay, great. And then...
David Kirkley, David Kirkley, John Bordelon, Home Bancorp Inc
So are we. We're listening. We're listening.
Yeah.
Speaker Change: 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 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 significantly again.
Speaker Change: 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 than the market.
Speaker Change: I agree. I like it. Thanks for the time in the color.
Thank you, appreciate it.
Speaker Change: Again, if you have a question, do you express star then one?
Speaker Change: I think there are no more questions, so they conclude our question and answer session. I would like to turn the conference over to John for any closing remarks.
John Bordelon: 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.
Speaker Change: The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.