Q2 2025 Home Bancorp Inc Earnings Call
Good morning, ladies and gentlemen, and welcome to the home fan. Corpse second quarter 2025 earnings conference call. All participants will be in listen-only mode. Should you need assistance? Please signal a conference specialist by prison pressing the star key followed by zero.
After today's presentation, there will be an option to ask questions, please note this event is being recorded.
Speaker Change: I would now like to turn the conference over to homebound Corps. Chairman president and CEO John bordone and Chief Financial Officer. David Kirkley. Please go ahead Mr. Kirkley.
David Kirkley: Thank you, Natasha.
David Kirkley: Good morning and welcome to Home Bank. Second quarter 2025 earnings call.
David Kirkley: 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.
David Kirkley: now, I'll hand it over to John to make a few comments about the second quarter, John
John Bordone: Thanks David. Good morning and thank you for joining our earnings call today. We appreciate your interest in Home Bank and we as we discuss our results, expectations for the future and our approach to creating long-term shareholder value.
John Bordone: Yesterday afternoon, we reported second quarter, net income of 11.3 million or a1.45 per. Share up 8 cents from the first quarter and 43 cents from a year ago.
John Bordone: That interest margin expanded for the 5th consecutive quarter to 4.04%.
And our Roa increase by 2 basis. Points to 1.31% the second quarter's margin expansion, was primarily driven by an 8 basis. Point increase in earning asset yields stable interest-bearing deposit costs loan growth and a 6% increase in non-interest bearing deposits.
John Bordone: Loans, grew by 17.3 million in the second quarter or about 3%.
John Bordone: Second quarter growth was negatively impacted by slower commercial construction activity and pay Downs, which was about 20 million in the second quarter. We think growth will pick back up if we get 1 or 2 Cuts in the second half of the year. But without those cuts, we think loan growth will come in at the lower end of our 4 to 6% guidance.
John Bordone: We do expect loan yields to continue to tick higher as new originations come in around 7.4% replacing maturing loans.
John Bordone: We've maintained pricing discipline on new loans to ensure the bank receives a proper risk adjusted return.
Which we prioritize over growth.
John Bordone: Deposits increased at an 11% annual rate in the second quarter as we continue to focus on funding, our loan growth with core deposits, and reducing our loan to deposit ratio. To get to our 90, to 92% target range. Non-interest bearing deposits increased by 41.9 million, and remained at 27% of total deposits. At the end of the quarter.
Classified and non-performing Loans increase primarily due to 4 loans downgraded. During the quarter totaling 18 million
John Bordone: We aren't expecting to incur any losses due to the relatively low loan of value. Our conservative underwriting, standards and proactive credit management.
John Bordone: As a reminder you can see on slide 16. Our net charge offs have averaged about 6 basis points over the last 6 plus years.
John Bordone: M&a, activity Nationwide has picked up over the past couple of months which is great to see while we have not had a transaction since 2022, we have evaluated multiple opportunities and remain committed to finding partners that are good, long-term fit for Home Bank and its shareholders.
John Bordone: Start a relationship with our regulators and successful experience and executing prior Acquisitions. Puts us in position to capitalize when the right opportunity is available,
John Bordone: We feel very good about home, bank's Outlook and our ability to continue to deliver on our own high expectations.
John Bordone: We have very talented leadership throughout the bank with Decades of experience and a strong track record of Performing above our peers, in all economic environments.
John Bordone: With that, I'll turn it back over to David our Chief Financial Officer.
David Kirkley: Thanks John.
David Kirkley: Slide 5 in our investor presentation, has a summary of the last 6 quarters.
David Kirkley: Net income totaled, 11.3 million a 3% increase from the prior quarter and a 39% increase from a year ago.
David Kirkley: Nim has continued to increase and as John mentioned is now above 4%.
David Kirkley: We posted a 4.04% Nim in Q2, which is a 13 basis point increase from the prior quarter.
David Kirkley: As a result of nim expansion and earning asset growth, net interest income increased to 33.4 million in the second quarter.
From 31.7 million in q1.
David Kirkley: Originations remain solid, but the pace of loan growth declined. Quarter of a quarter to 3% annualized due mainly to higher pay Downs, in the construction and CR portfolios.
As John mentioned earlier, we are seeing less volume in new construction projects.
Speaker Change: The contractual rate on new loan. Originations was 7.44% in Q2 which continues to support an expanding Nim, as lower yielding loans re-priced
Speaker Change: Slides 14 and 17 provide additional details on cash. Flows from our loan and investment Securities portfolio.
Speaker Change: We expect to see margin and revenue growth here as close to half of our Investment. Portfolio is projected to be paid off over the next 3 years. With a rolloff yield of 2.56%
Speaker Change: Slides 15 and 16 of our investor presentation provides some additional detail on credit.
Speaker Change: we had 335,000 in net, charge offs in the quarter related to smaller consumer and cni loans with the largest being about 150,000 dollars,
Speaker Change: Year to date our net charge off to loans is very low 3 basis points.
Speaker Change: Second quarter non-performing assets, increase 4 million to 25.4 million or 0.73% of total assets.
Speaker Change: This increase was primarily due to the downgrade of 4 relationships and partially offset by pay Downs.
Speaker Change: The largest is a 3.9 million acquired CRA relationship in Houston with an approximate 50% loan to value. That was previously categorized as substandard.
Speaker Change: We feel we have sufficient collateral on these loans and do not anticipate any material principle losses as we work to resolve them.
Speaker Change: total criticized loans at quarter end, were 51.6 million and increase of 14.4 million or 1.87% of loans up from 1.36% in the first quarter,
Speaker Change: 3 CR 3 CR loans, located in New Orleans and Houston made up the majority of the these increases.
Speaker Change: The highest Loan in the value of these 3 credits is 68%.
Speaker Change: Our allowance for loan loss, ratio was stable for the first quarter at 1.21%.
Speaker Change: The cost of interest-bearing liabilities decreased 3, basis points to 2.71% a strong deposit growth allowed us to pay down, more expensive short-term advances.
Speaker Change: Interest-bearing deposit costs. Increase 1 basis, point in Q2 due due to changes in deposit, mix. And we think they'll stabilize at this level until we get some Fed rate cuts.
Speaker Change: The cost of CDs declined, 14 basis points to 3.86%. Even as balances increased 64 million during the quarter.
Speaker Change: We are keeping CD terms short with 58% of our CD portfolio, maturing in the next 6 months and 95% over a 1 year period. So we will have the opportunity to react quickly. If and when rates decline,
Speaker Change: non-interest bearing deposits, which comprise 27% of total deposits, increase, 42 million in Q2 and 50 million a year to date.
Speaker Change: Our overall cost of deposits in Q2 was 1.84% a decline of 1 basis. Point quarter over quarter.
Speaker Change: Slide. 22 of the presentation has some additional details and non-interest income and expenses.
First quarter, non-interest income was 3.7 million, which was in line with expectations.
Speaker Change: We expect non-interest income to be between 3.6 and 3.8 million over the next 2 quarters.
Speaker Change: Non-interest expenses increased by 828,000 to 22.4 million primarily due to compensation related expenses.
70,000 in Q2 as annual raises took effect April 1st.
Speaker Change: Other non-interest expense increased 980,000, due to a 987,000 write down of SBA receivables. Acquired from Texan Bank.
Speaker Change: We have been working through the SBA procedures for recovery and are still in the appeals process. But the timing and probability of recovery are unknown. At this time, we have no further SBA receivables from Acquisitions. And there were no loan charge offs as the loans associated with these receivables, were foreclosed and sold prior to the acquisition.
Speaker Change: That expense was offset by a 970,000 reversal and provision for unfunded commitments.
This reversal was was due primarily to a reduction in construction commitments, as several projects paid off, or went permanent and a reduction in the average life of our loan portfolio.
Speaker Change: Non-interest expense is expected to be between 22 and 1/2 and 23 million per quarter for the remainder of the year.
Speaker Change: We took advantage of share price volatility earlier in the quarter to repurchase 147,000 shares at an average price of 43.72.
Speaker Change: We have about 391,000 shares remaining on our buyback plan that was approved by the board in April.
Speaker Change: 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 an 8% annualized growth rate while growing tangible book. Value per share adjusted for aoci at 9.4%.
Speaker Change: Over the same period. We also increase our annual EPS at a 10.2% growth rate.
Speaker Change: We've increased our dividends per share by 27% and repurchased, 17% of our shares.
Speaker Change: 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.
For session to ask a question. You may press star then 1 on your touchtone phone. If you're using a speaker-phone, please pick up your handset before pressing the keys.
Speaker Change: To withdraw your question. Please. Press star. Then 2
Speaker Change: At this time, we'll pause momentarily to assemble our roster.
Speaker Change: Taking the first question. First, question comes from Stephen scotten with Piper Sandler. Please go ahead.
Speaker Change: Hi, good morning guys. Um, my name is Stephen.
Speaker Change: On um, on loan growth trends.
Speaker Change: Can you give a little more color about what you're seeing in terms of existing loan pipelines? Kind of how that compares maybe to earlier in the year and how how you're thinking about the need for rate, cuts to drive incremental demand, or they're just a lot of a lot of projects that are just waiting on the sidelines waiting for 50 or 100 basis points of cuts or or what kind of gives you a a confidence there from a loan demand perspective.
Speaker Change: I definitely think um there is some demand that's waiting for lower interest rates. It's hard to gauge exactly what what that volume will be but um, you know, when first and second quarter, we had some pay Downs of loans which which heard our growth rate. We thought it would be closer to 5 or 6% instead of maybe 4% or 3% even in this quarter. So uh, pay Downs are a great thing for the customer. They're not exactly the the best thing for the bank. But uh, it's been consistent. I wouldn't say it's been robust but it's been very consistent through the quarter. And I think, you know, if there's any hope of of growing that I think is going to be based upon a lower interest rate, no question.
Speaker Change: Okay, got it. And then for you guys from a from an ni dollars perspective, how do you think about the best case scenario from a
Um, a rate environment perspective, I mean, you, you're still slightly acid sensitive to theoretically, and I should should take down a little bit with rate Cuts. Presuming it. It happens that way in in reality. Um, but but potentially, it sounds like better growth. So how do you think about the best case scenario for you guys from a rate environment?
Speaker Change: Increasing repricing loans. So, um, I think net interest income will continue to, uh, increase a little bit further down the road as well as, uh, Nim has the opportunity to increase a rate to stay where they are today.
Speaker Change: Hello. All the points to that, we have maintained our, um, bulk of our CD portfolio, and very short term, um, CDs. So the, the turnover of that and reduction based upon rate Cuts, will will come relatively quickly. And then the other side, which David alluded to is. As we have, uh, considerable amount of loans that are repricing, uh, from May maybe the fours or fives, they'll even with rate Cuts, they'll still be going up in rate. So we, we should be able to offset the, the decline in, in some assets by the increase in the other. So yeah, yeah. I'd like to add on, um, on top of that, to John, if you look at slide 20 of our slide deck,
Speaker Change: Uh, when rates started being cut by the FED back in, uh, Q3 a 24, our loan yield was 6.43% and despite the the amount of rate cuts that we had, uh, we were able to offset the, the reduction in our loan yield that are variable by having new repricing. Uh, come on. So we had 3 quarters of uh, stable loan yields despite 100 basis, point and rate Cuts. So we're still able to reprice our loan portfolio in a manner. Uh, given albeit a, you know, 50 to 75 basis points of rate Cuts will at least
Speaker Change: still have the ability to reprice our overall loan portfolio yield higher which offsets some rate reductions
Speaker Change: Got it all really helpful color and just last thing for me, new CD.
Speaker Change: Versus the CDs. As they roll off. What? What's kind of the
Speaker Change: the spread there between the ahnaf um, yield
Speaker Change: so, the way that average, uh, renewal
Speaker Change: Slash new CD rate is around 3.85%.
Speaker Change: Uh, new customer CDs are coming in around 4.1%.
Speaker Change: Okay. And and what's the balance of what you see from a I mean I would assume new CDs are a much smaller percentage of versus what's renewing. Every quarter is that the right way to think about it.
Speaker Change: Uh, I'm sorry. I could you. Yeah. So definitely the the bulk of that is renewals. We're maintaining about 90% of our existing CDs in at renewal.
Okay, great. Thanks for all the color and the time this morning guys. Appreciate it. Great quarter. Thank you Scott, thanks.
Speaker Change: Thank you, and the next question.
Speaker Change: Comes from.
Speaker Change: Good morning.
Hey, good morning Joe. Hey Joe.
Speaker Change: And franchise continues to be a growth driver for the company.
Speaker Change: And, you know,
you know, and the aggregate, how much more productive, do you think these new branch locations will be?
Speaker Change: Well, it's it's gonna be hard to tell on the the deposit side. The the group that we pulled out of another bank, uh, has already been productive. So uh, if nothing changes except for the location, I think they'll be uh considerably productive but our hope is that with the full service Branch. We're able to attract the more more deposits especially for the commercial customers. Who right now it's very difficult because we have to travel halfway across Houston to be able to make the deposits. So it will be very very convenient for our team to bring in uh much more on the deposit side. While they're also looking out to to bring in some loan customers.
Speaker Change: I appreciate that and then just kind of sticking with deposits there. So deposit growth is really strong in the quarter, you know, particularly on the DBA front.
Speaker Change: Several banks that have reported uh, earnings so far have noted increased competition for deposits.
Speaker Change: Can you talk about if there's been any, you know, change in strategy to Growing DDA balance, which you know, may have led to the success in this quarter?
Slow down a little bit on on some of those larger loan relationships that don't carry much in deposits.
Appreciate that, then just kind of last 1 from me here. Um, shifting to the Nim. You know, were there any 1 timers that might have accelerated, Nim expansion in the quarter and then do you have a sense for the Nim was for the month of June?
Speaker Change: Uh,
Speaker Change: Nim was right, right? Right at uh, 40.
Speaker Change: 4, I believe 405 for June.
Speaker Change: I see that in the deck. Sorry.
Speaker Change: Um,
Speaker Change: I'm sorry. The first question was
Speaker Change: You know, if there was any, you know, 1 times that might have accelerated. Oh oh no. There there was not um
Speaker Change: the, the
Speaker Change: you know, when loans flipped in on a cruel, uh, you have a little bit of a reversal so that was a little bit of a negative, uh, to, um,
Speaker Change: To Nim. But there was no uh, 1 time adjustments that really impacted Nim and any uh, capacity in an upward uh trajectory
Speaker Change: All right, perfect, I appreciate you taking my questions.
No problem.
Speaker Change: Thank you again. If you have a question, please press star then 1.
Speaker Change: The next question comes from Freddy, Strickland with hoveyda group. Please go ahead, Freddy.
Freddy Strickland: David. Um,
Speaker Change: just,
Is the yield expansion from repricing loans. Maybe a little slower next quarter just given looking at slide, 14 your back and you have a weighted average rate I think is 7.42%, I think you said 7.44. So it was what was rolling on this quarter, so does that maybe slow down a little bit in the third quarter, but maybe pick back up in the fourth quarter. When you've got, I think 5.82% is the way we would average.
Speaker Change: Yeah, I I think I need to uh update this slide a little bit to segregate, uh, variable rate loans that are kind of the lines that are, that are maturing and take out the and segregate those into the just variable versus fixed. Um, but we are going to see a little bit of a Slowdown and repricing. I think you're actually going to in the in Q4, you're going to see a good bit more repricing opportunities come through. So, you might have a little bit of a Slowdown in Q3, but I think Q4 and Beyond, you're going to have more more, uh, repricing opportunities for fixed rate loans that are maturing
Speaker Change: I got it. I appreciate the clarification. That that makes sense on the fixed versus, uh, adjustable on that column there. Yeah, we we looked at it, said he is, you know, we made a lot of when rates dropped in 2021. That's when we did a lot of 5 year balloons. And so uh, most of those should be worked through uh, at the at the lower rates and and increasing their rates by the end of 26.
Speaker Change: I think if you flip, I think if you flip through the slide deck, uh, you can see a little bit more color on, uh, the the loan segments and, uh, you can see, the cni portfolio on slide 12. A good chunk of that is, uh, repricing. And that's once again most, uh, mostly uh, revolving lines that are just going to renew.
Speaker Change: Understood and just shifted gears to to Capital here.
Speaker Change: Um, you increase the dividend, you executed, you know, share repurchases at a pretty good price. Particularly considering where the stock is today, it seems like, uh, m&a conversations are picking up a little bit here, C. Can you refresh using your criteria for m&a? What size are you looking for geographies? Um, any particular characteristics for potential partner?
Speaker Change: Yeah, I think the last couple of years, we, we've been kind of hamstrung as far as what we could look at, uh, pretty small because it was probably going to be a cash deal, um, with our stock trading, 105% of tangible. So, uh, now that we're moving up to 140, if we can sustain that I I think it opens up the door for us to look at a little bit larger. Uh our our mindset has been pretty much like, you know, 350 to a billion uh but we've not really looked at a whole lot of banks over 500 million in the last 2 years. So um this would open up that door a little bit, maybe get us up to a billion or in that area.
Speaker Change: And and is it mostly in Texas, John.
John Bordone: Um, actually, we've had conversations, uh, in Louisiana and Texas. Um, I'd say the bulk were in Texas. Yes,
Speaker Change: All set back. Thanks for taking my questions.
John Bordone: Thank you. Thanks man.
John Bordone: To turn the conference back over to John for any closing remarks.
John Bordone: Well 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 week and thank you for looking into Home Bank War.
John Bordone: Have a good day.
Speaker Change: Your conference has now. Concluded, thank you for attending today's presentation. You may now disconnect