Home Bancorp, Inc. (HBCP) Earnings

Management highlights

- John Bordelon mentioned first quarter net income of $11.4 million or $1.45 per share, earnings per share increased 6% from a year ago. Margin expansion was driven by a 22 basis point decline in cost of funds. Loan pipeline improved but timing of loan growth hard to predict. Success on deposit front with core deposits increase. Texas loans growing, new Northwest Houston branch opened. Credit manageable with nonperforming assets increase but losses expected immaterial. Annual business to all markets with crawfish boils. - David Kirkley discussed net interest income history, cost of interest-bearing liabilities decline, deposit growth, repayment of more expensive FHLB advances, nonperforming loans increase, provision expense change, noninterest income and expense details, capital management strategy impact including adjusted tangible book value per share increase.

Guidance

- Expect quarterly noninterest income to be in the range of $3.8 million to $4 million. - Expect noninterest expense to increase modestly beginning in the second quarter, with quarterly noninterest expenses between $23.3 million and $23.7 million for the remainder of 2026. - David Kirkley mentioned still seeing opportunity for NIM expansion without rate cuts, deposit side likely dictating NIM growth pace. - John Bordelon said M&A will come into focus with stock price allowing potentially larger deals than in previous years.

Segment performance

Net interest income totaled $34.5 million in the first quarter, an increase of $434,000 from the fourth quarter and $2.8 million from a year ago. Net interest margin expanded to 4.16% which was 10 basis points higher than the fourth quarter and 25 basis points higher than a year ago. Return on assets increased to 1.3% in the first quarter. Loans declined by 1% in the first quarter. Total deposits increased by $54 million in the quarter or 7% annualized as core deposits increased $118 million and were offset by noncore CD declines of $64 million. Noninterest-bearing deposits increased $37 million and represent 27% of total deposits. Loan-to-deposit ratio declined to approximately 90%. Loans in Texas grew to approximately 21% of total portfolio. Nonperforming assets increased during the quarter by $3.8 million, but net charge-offs remain extremely low at just 6 basis points annualized.

Risks & headwinds

- Continued market volatility and uncertainty around interest rates affecting loan growth timing and pace. - Geopolitical issues potentially slowing customer demand. - Longevity of special assets and slow process of working them through, causing accumulation of nonperforming assets.

Analyst Q&A

• Q: I'm curious -- and apologies if I missed any color you gave already, David. But in terms of the NIM trajectory from here, if we were to get no cuts, how does that affect kind of I think some of your previous statements of expecting expansion for the remainder of '26. Does that actually improve that expectation or make you a little more bullish given your asset-sensitive nature? Or how do you think about the NIM with this rate environment?

  A: I think, as I mentioned, we have a lot of opportunity for repricing in both the loan and investment securities portfolio. And you'll see that with -- you've seen that with our stable loan yield and slightly increasing investments. So I still think without any rate cuts, we're still seeing expansion in our loan yield on picking up about 40 basis points on cash flow versus new originations. I think that deposits are probably without any further rate cuts probably around their floor. So I still think that there is opportunity without any great cuts for expanded NIM.

• Q: John, could you give a little bit of color on kind of what you saw from a production standpoint on the loans on maybe customer demand throughout the quarter. I know you mentioned the strength in the Texas market. I think you said 3% growth there, but kind of how maybe that demand segmented by time of the month as well as those different markets?

  A: Yes. The demand, of course, the last 3 quarters, second, third and fourth of last year were, I guess, really hurt by some pay downs, companies selling businesses, selling whatever. This first quarter was very typical of previous quarters other than the last 3 years, first quarter -- I mean, first quarter typically are relatively flat and people kind of getting their footing and moving forward. The last 3 years, though, first quarter was much more productive. So I think this is a more natural period where I think we're looking for lower interest rates, they realized we're not going to get it. So I think we'll see higher demand potentially in second and third quarter. Assuming also geopolitical issues throughout the world are not slowing that demand.

• Q: So a pretty good quarter on the deposit front. And as you discussed in your prepared remarks, the lowered cost improved funding mix, can you talk about what you're seeing in the market from a competitive standpoint?

  A: I would say going back to Q4, when we started seeing the rate cuts, a good portion of the banks did lower their deposit rates accordingly. There are a couple of -- and we did as well. we saw an outflow of CDs. I think I mentioned that dollar amount, and we lowered our CD rates. And so we did have some CD runoff from noncore customers. Looking at some of the competitive peer data, we did see a couple of outliers in the 4% range. And we had to adjust our CD rates up slightly. When I say slightly, I'm talking from 3.65% as our top rate to 3.85% in most markets. And that stemmed the outflow of CDs for us a little bit. We are still seeing with rate expectations going cut rate going away. We have seen a couple of other competitors in Houston as well be a little bit more aggressive in the 4% to 4.25% range.

• Q: And David, just kind of going back to your expense guide. It sounds like you lowered your out-quarter expense guide from what you said on the prior quarter. Just wondering what's driving that decrease?

  A: Joe, I feel like it didn't change the guidance for the rest of 2026, I'll have to follow up with you individually on that. I feel like didn't change that guidance at all. So I'll have to connect with you.

• Q: And just to be clear, you had said 23.3% to 23.7% is the kind of go-forward number?

  A: Yes.

• Q: And then I kind of want to hit on the loan book a little one more time. So in your prepared remarks, you mentioned that the pipeline has improved I guess I was wondering, are you able to quantify the change in the pipeline versus the end of the December quarter? And then additionally, it looks like C&I utilization dipped about 400 basis points this quarter. In your view, what needs to happen to see some recovery there?

  A: Yes. I think one of the things that we focused on probably going back 2 years now is we're action in our appetite for nonowner-occupied. So what you've seen so far in 2026 first quarter was a reduction in those types of loans. There are some players out there that are very, very competitive on rates. And so we were able to hold on to those. So those are a lot of rental properties and things of that nature. So that's where our loan reduction is coming from. So we still have a decent pipeline, but we've lost -- I don't remember the number, Dave, man in those 2 categories yes. So we anticipate that, that runoff maybe slows down a little bit, but -- and that will help us add balance in the second and third quarter, maybe even the fourth quarter, assuming the rate cuts. Rate cuts may even spur that on a little bit more on the oil side.

• Q: The pipeline increased about $30 million as of March compared to December. And what's the $30 million of what base, if you don't mind?

  A: To about $122 million.

• Q: While relatively small, it looks like SBA volume has ticked higher this year, while the average deal size has been cut in half. versus 2025. Can you talk about your SBA strategy and how it's evolved?

  A: Yes. It's been a very slow process. We've looked at a lot of C&I-type loans on the SBA side. A lot of the brokers are taking some of the [indiscernible] type loans. We haven't -- I don't think we've originated any [indiscernible] loans in the last couple of years. So it's been very tough either they don't fit our appetite or very competitive bidding and the prices are such that we're not in. But -- that's something that we're actually discussing our strategy for SBA. It's not going to be a big part of our portfolio. To be able to make it a big part of our portfolio, we would have to invest in a lot of lenders in that world. And we wanted to have that as a go-to but not necessarily drive for significant success.

• Q: Just wanted to touch on loans first. David, I think you mentioned a 40 basis point pickup on loan yields, kind of the stuff is renewing. But I was curious, what's the average rate on new production today?

  A: About 7%.

• Q: And then on the credit side, I was wondering if you could just walk through a little bit more of kind of maybe what's maybe in workout and maybe some changes that we could see later this year, just as you kind of work through the credit. So I appreciate that you've mentioned in the release that the losses should be immaterial, but just curious if we could maybe see a directional change in NPAs later this year.

  A: Well, I think the biggest issue that we've seen probably in the last 2 or 3 years is the time it's taking to run these special assets through the process. We had some that were working on in New Orleans that filed bankruptcy the day before the foreclosure. And so we're in year 2 of collections on that. Our oldest classified asset is trying to refinance outside and hopefully, that happens. But that's been a bad asset for 7 years. So the longevity of these and our ability to get them and work them seems to be the biggest problem because once we get them, we can work them whether we take a loss or we're able to recover our load is irrelevant. We want to work and get them out and get that money back working. And it's just been a very low process over the last couple of years and getting that done. So that's why we're having a little bit more accumulation. It's not like we had that much in the quarter, $3 million additional, but we didn't have $3 million of runoff. That's the problem.

• Q: And just another question on the deposit side. It was good to see solid DDA growth. Just curious, I know that's kind of tough in this environment with where you're sitting where they're at. But do you think there's an ability to continue to grow, [indiscernible] you see anything on the horizon that could lead that number to continue to climb higher?

  A: Yes. I think the biggest change for us has been attracting bankers that are more C&I-driven and so we're getting total relationships and some of those relationships come with very healthy deposits. And so as long as we continue to do that and for a long period of time, we were a CRE bank, and our focus changed about 4 years ago away from that to more of a C&I customer. And I think that's what you're seeing here is the influx of deposits, not necessarily big loan amounts.