Home Bancorp, Inc. (NASDAQ:HBCP) Q2 2025 Earnings Call Transcript

Home Bancorp, Inc. (NASDAQ:HBCP) Q2 2025 Earnings Call Transcript July 23, 2025

Operator: Good morning, ladies and gentlemen, and welcome to the Home Bancorp Second Quarter 2025 Earnings Conference Call. [Operator Instructions] Please note this event is being recorded. 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.

David Kirkley: Thank you, Natasha. Good morning, and welcome to Home Bank’s Second 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 second quarter. John?

John Bordelon: 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. Yesterday afternoon, we reported second quarter net income of $11.3 million or $1.45 per share, up $0.08 from the first quarter and $0.43 from a year ago. Net interest margin expanded for the fifth consecutive quarter to 4.04% and our ROA increased 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 noninterest-bearing deposits.

Loans grew by $17.3 million in the second quarter or about 3%. Second quarter growth was negatively impacted by slower commercial construction activity and paydowns, which was about $20 million in the second quarter. We think growth will pick back up if we get one or two 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. We do expect loan yields to continue to tick higher as new originations come in around 7.4%, replacing maturing loans. We’ve maintained pricing discipline on new loans to ensure the bank receives a proper risk-adjusted return, which we prioritize over growth. 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.

Noninterest-bearing deposits increased by $41.9 million and remained at 27% of total deposits at the end of the quarter. Classified and nonperforming loans increased primarily due to 4 loans downgraded during the quarter totaling $18 million. We aren’t expecting to incur any losses due to the relatively low loan-to-value, our conservative underwriting standards and proactive credit management. 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. 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.

Our solid capital levels, improving valuation, stellar relationship with our regulators and successful experience in executing prior acquisitions puts us in a position to capitalize when the right opportunity is built. We feel very good about Home Bank’s outlook and our ability to continue to deliver on our own high expectations. 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. With that, I’ll turn it back over to David, our Chief Financial Officer.

David Kirkley: Thanks, John. Slide 5 in our investor presentation has a summary of the last 6 quarters. Net income totaled $11.3 million, a 3% increase from the prior quarter and a 39% increase from a year ago. NIM has continued to increase, and as John mentioned, is now above 4%. We posted a 4.04% NIM in Q2, which is a 13 basis point increase from the prior quarter. 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. Originations remained solid, but the pace of loan growth declined quarter-over-quarter to 3% annualized due mainly to higher paydowns in the construction and CRE portfolios. As John mentioned earlier, we are seeing less volume in new construction projects.

The contractual rate on new loan originations was 7.44% in Q2, which continues to support an expanding NIM as lower-yielding loans reprice. Slides 14 and 17 provide additional details on cash flows from our loan and investment securities portfolio. 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 roll-off yield of 2.56%. Slides 15 and 16 of our investor presentation provides some additional detail on credit. We had $335,000 in net charge-offs in the quarter related to smaller consumer and C&I loans with the largest being about $150,000. Year-to-date, our net charge-offs to loans is very low 3 basis points. Second quarter nonperforming assets increased $4 million to $25.4 million or 0.73% of total assets.

This increase was primarily due to the downgrade of 4 relationships and partially offset by paydowns. The largest is a $3.9 million acquired CRE relationship in Houston with an approximate 50% loan-to-value that was previously categorized as substandard. We feel we have sufficient collateral on these loans and do not anticipate any material principal losses as we work to resolve them. Total criticized loans at quarter end were $51.6 million, an increase of $14.4 million or 1.87% of loans, up from 1.36% in the first quarter. 3 CRE loans located in New Orleans and Houston made up the majority of these increases. The highest loan-to-value of these 3 credits is 68%. Our allowance for loan loss ratio was stable for the first quarter at 1.21%. The cost of interest-bearing liabilities decreased 3 basis points to 2.71% as strong deposit growth allowed us to pay down more expensive short-term advances.

Interest-bearing deposit costs increased 1 basis point in Q2 due to changes in deposit mix, and we think they’ll stabilize at this level until we get some Fed rate cuts. The cost of CDs declined 14 basis points to 3.86% even as balances increased $64 million during the quarter. 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. Noninterest-bearing deposits, which comprised 27% of total deposits, increased $42 million in Q2 and $50 million year-to-date. Our overall cost of deposits in Q2 was 1.84%, a decline of 1 basis point quarter-over-quarter. Slide 22 of the presentation has some additional details on noninterest income and expenses.

First quarter noninterest income was $3.7 million, which was in line with expectations. We expect noninterest income to be between $3.6 million and $3.8 million over the next 2 quarters. Noninterest expenses increased by $828,000 to $22.4 million, primarily due to compensation-related expenses. Comp and benefits were up $670,000 in Q2 as annual raises took effect April 1. Other noninterest expense increased $980,000 due to a $987,000 write-down of SBA receivables acquired from Texan Bank. 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.

That expense was offset by a $970,000 reversal in provision for unfunded commitments. This reversal was due primarily to a reduction in construction commitments to several projects paid off or went permanent, and a reduction in the average life of our loan portfolio. Noninterest expense is expected to be between $22.5 million and $23 million per quarter for the remainder of the year. We took advantage of share price volatility earlier in the quarter to repurchase 147,000 shares at an average price of $43.72. We have about 391,000 shares remaining on our buyback plan that was approved by the Board in April. Slide 23 and 24 summarize the impact of 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%.

Over the same period, we also increased our annual EPS at a 10.2% growth rate. We’ve increased our dividend per share by 27% and repurchased 17% of our shares, and we’ve done this while maintaining a 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.

Q&A Session

Operator: [Operator Instructions] Taking the first question. First question comes from Stephen Scouten with Piper Sandler.

Stephen Scouten: On loan growth trends, 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 you’re thinking about the need for rate cuts to drive incremental demand? Are there just a lot of projects that are just waiting on the sidelines waiting for 50 or 100 basis points to cut? Or what kind of gives you the confidence there from a loan demand perspective?

John Bordelon: I definitely think there is some demand that’s waiting for lower interest rates. It’s hard to gauge exactly what that volume will be. But in the first and second quarter, we had some paydowns of loans, which hurt our growth rate. We thought it would be closer to 5% or 6%, instead of maybe 4% or 3% even in this quarter. So paydowns are a great thing for the customer. They’re not exactly the best thing for the bank. But — it’s been consistent. I wouldn’t say it’s been robust, but it’s been very consistent through the quarter. And I think if there’s any hope of growing that, I think it’s going to be based upon a lower interest rate, no question.

Stephen Scouten: Okay. Got it. And then for you guys, from an NII dollars perspective, how do you think about the best case scenario from a rate environment perspective? I mean you’re still slightly asset sensitive to theoretically NII should tick down a little bit with rate cuts, presuming it happens that way in reality? But potentially, it sounds like better growth. So how do you think about the best case scenario for you guys from a rate…

David Kirkley: So the best case is a little bit more steepness in the rate curve if we get 25, 50 basis points of rate cut. We’re still able to generate a growing NIM in this rate environment. The ability for us to price loans where we’re pricing them today and raise funds at where we’re raising them today, still supports an expanding NIM albeit at a slower pace than we’ve been growing the past couple of quarters. But we still see earning asset yields repricing the investment portfolio being able to add some new higher-yielding investments as well as just repricing loans. So I think net interest income will continue to increase a little bit further down the road as well as NIM has the opportunity to increase if rates stay where they are today.

John Bordelon: A couple of other points to that. We have maintained our bulk of our CD portfolio in very short term CDs. So the turnover of that and reduction based upon rate cuts will come relatively quickly. And then the other side, which David alluded to is as we have considerable amount of loans that are repricing from maybe the 4s or 5s, though, even with rate cuts, they’ll still be going up in rate. So we should be able to offset the decline in some assets by the increase in the other. So…

David Kirkley: Yes, I’d like to add on top of that to John. If you look at Slide 20 of our slide deck. When rates started being cut by the Fed back in Q3 ’24, our loan yield was 6.43%. And despite the amount of rate cuts that we had we were able to offset the reduction in our loan yield that are variable by having new repricings come on. So we had 3 quarters of stable loan yields despite a 100 basis point rate cut. So we still able to reprice our loan portfolio in a manner given albeit a 50 to 75 basis points of rate cuts, we still have the ability to reprice our overall loan portfolio yield higher, which offset some rate reductions.

Stephen Scouten: Got it. All really helpful color. And just last thing for me. New CDs versus the CDs as they roll off, what’s kind of the spread there between the on/off yields you’re…

David Kirkley: So the weighted average renewal/new CD rate is around 3.85%. New customer CDs are coming in around 4.1%.

Stephen Scouten: Okay. And what’s the balance of what you see from — I mean, I would assume new CDs are a much smaller percentage versus what’s renewing every quarter. Is that the right way to think about it?

David Kirkley: I’m sorry, could you…

John Bordelon: Yes. Definitely, the bulk of that is renewals. We’re maintaining about 90% of our existing CDs at renewal.

Operator: And the next question comes from Joe Yanchunis with Raymond James.

Joseph Yanchunis: So the Houston franchise continues to be a growth driver for the company. And at the same time, you’ve discussed plans to upgrade your branch footprint. In the aggregate, how much more productive do you think these new branch locations will be?

John Bordelon: Well, it’s going to be hard to tell on the deposit side. The group that we pulled out of another bank has already been productive. So nothing changes except for the location. I think there’ll be considerably productive. But our hope is that with the full service branch, we’re able to attract 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 much more on the deposit side while they’re also looking out to bringing some loan customers.

Joseph Yanchunis: I appreciate that. And then just kind of sticking with deposits there. So deposit growth was really strong in the quarter, particularly on the DDA front. Several banks that have reported earnings so far have noted increased competition for deposits. Can you talk about if there’s been any change in strategy to growing DDA balance, which may have led to the success in this quarter?

John Bordelon: Yes. I think just the group we’re talking about that we pulled out 18 months ago in Houston, we told them we don’t care if we don’t bring a loan in, our focus needs to be on core deposit growth. So we have focused on that. We’ve changed our incentive plan over the last 3 years to pay more out for core deposits than we paid for loan growth. And the third aspect of that, which I think is helping also is we are slowing down our loan growth in the non-owner-occupied CRE, which are big transactions, low deposits. So that has been something that’s really eating up our deposits, and we’re — if we’re going to attain our 90% to 92% loan-to-deposit ratio, we’re going to have to slow down a little bit on some of those larger loan relationships that don’t carry much in deposits.

Joseph Yanchunis: Appreciate that. And then just kind of last one for me here. Stepping to the NIM. Were there any one-timers that might have accelerated NIM expansion in the quarter? And then do you have a sense what the NIM was for the month of June?

David Kirkley: NIM was right at 4 — 4, I believe, 4 or 5 for — in June.

Joseph Yanchunis: I see that in the deck side.

David Kirkley: I’m sorry, the first question was?

Joseph Yanchunis: If there was any one-timers that might have accelerated…

David Kirkley: No, there was not — when loans slipped to nonaccrual, you have a little bit of a reversal. So that was a little bit of a negative to NIM, but there was no onetime adjustments that really impacted NIM and any capacity on an upward trajectory.

Operator: [Operator Instructions] The next question comes from Feddie Strickland with Hovde Group.

Feddie Strickland: Just wanted to touch on the NIM discussion a little more time. Is the yield expansion from repricing loans maybe a little slower next quarter, just given — I’m looking at Slide 14 in your deck, and you have a weighted average rate, I think, at 7.42%. I think you said 7.44% or so was what was rolling on this quarter. So does that maybe slow down a little bit in the third quarter that maybe pick back up in the fourth quarter when you’ve got, I think, 5.82% as the weighted average rate?

David Kirkley: Yes. I think I need to update this slide a little bit to segregate variable rate loans that are kind of the lines that are maturing and take out the — and segregate those into just variable versus fixed. But we are going to see a little bit of a slowdown in repricing. I think you’re actually going to — 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 repricing opportunities for fixed rate loans that are maturing.

Feddie Strickland: Got it. I appreciate the clarification. That makes sense on the fixed versus adjustable on that column there.

John Bordelon: The way we looked at it, Feddie, is we made a lot of — when rates dropped in ’20 and ’21, that’s when we did a lot of 5-year balloons. And so most of those should be worked through at the lower rates and increasing their rates by the end of ’26.

David Kirkley: I think if you flip through the slide deck, you could see a little bit more color on the loan segments and you can see the C&I portfolio on Slide 12. A good chunk of that is repricing. And that’s once again mostly revolving lines that are just going to renew.

Feddie Strickland: Understood. And just shifting gears to capital here. You increased the dividend, you executed share repurchases at a pretty good price, particularly considering where the stock is today. It seems like M&A conversations are picking up a little bit here. Can you refresh us on your criteria for M&A? What size you’re looking for, geographies, any particular characteristics for a potential partner?

John Bordelon: Yes. I think the last couple of years, we’ve been kind of hamstrung as far as what we could look at pretty small because it was probably going to be a cash deal with our stock trading 105% of intangible. So now that we’re moving up to $140 million, if we can sustain that, I think it opens up the door for us to look at a little bit larger. Our mindset has been pretty much like $350 million to $1 billion, but we’ve not really looked at a whole lot of banks over $500 million in the last 2 years. So this would open up that door a little bit, maybe get us up to $1 billion or in that area.

Feddie Strickland: And is it virtually in Texas, John?

John Bordelon: Actually, we’ve had conversations in Louisiana and Texas. I’d say the bulk were in Texas, yes.

Operator: This concludes our question-and-answer session. I would like to turn the conference back over to John for any closing remarks.

John Bordelon: 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 Bancorp. Have a good day.

Operator: This conference has now concluded. Thank you for attending today’s presentation. You may now disconnect.