Home Bancorp, Inc. Q2 FY2025 earnings call

• Net income totaled $11.3 million, a 3% increase from the prior quarter and 39% from a year ago. NIM is now above 4% at 4.04%, up 13 basis points from the prior quarter.
• Net interest income increased to $33.4 million in Q2 from $31.7 million in Q1, driven by NIM expansion and earning asset growth. Loan originations remained solid, but loan growth slowed due to higher paydowns in construction and CRE portfolios.
• Contractual rate on new loan originations was 7.44% in Q2, supporting NIM expansion as lower-yielding loans reprice. About half of the investment portfolio is projected to be paid off over the next 3 years with a roll-off yield of 2.56%.
• Net charge-offs for the quarter were $335,000, with year-to-date net charge-offs to loans at 3 basis points. Nonperforming assets increased due to loan relationship downgrades but collateral is sufficient.
• Noninterest income expected 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 and SBA receivables write-downs, offset by a provision reversal. Noninterest expense guidance is $22.5 million to $23 million per quarter for the rest of the year.
• Repurchased 147,000 shares at an average price of $43.72 earlier in the quarter, with about 391,000 shares remaining on the buyback plan. Tangible book value per share has grown at 8% annualized since 2019.

Net income for the second quarter was $11.3 million or $1.45 per share, up from prior quarters and a year ago. Net interest margin (NIM) expanded to 4.04% for the fifth consecutive quarter, with ROA increasing by 2 basis points to 1.31%. Loans grew by $17.3 million (3%) in the second quarter, though negatively impacted by slower commercial construction activity and paydowns of about $20 million. Deposits increased at an 11% annual rate, with noninterest-bearing deposits rising by $41.9 million and accounting for 27% of total deposits. Net charge-offs for the quarter were $335,000 related to smaller consumer and C&I loans. Nonperforming assets increased to $25.4 million (0.73% of total assets) due to the downgrade of 4 loan relationships.

• Loan growth guidance is 4% to 6%, but without rate cuts, expected to be at the lower end. Loan yields expected to continue ticking higher as new originations come in around 7.4%.
• Noninterest expense is expected to be between $22.5 million and $23 million per quarter for the remainder of the year.
• Anticipates margin and revenue growth as half of the investment portfolio is projected to be paid off over the next 3 years with a roll-off yield of 2.56%.

• Loan growth could be lower than expected if rate cuts do not occur as anticipated. Criticized loans increased, though sufficient collateral is believed to be in place, but resolution uncertainty exists. Impact of interest rate cuts on NIM, with potential slowdown in repricing in the near term but expected repricing opportunities later.

Q: On loan growth trends, can you give more color about existing loan pipelines and need for rate cuts to drive demand?

A: John Bordelon said there is demand waiting for lower rates, paydowns hurt growth rate, and growth hope is based on lower rates. David Kirkley said best case is steeper rate curve with 25-50 basis point cuts, still generating growing NIM albeit slower.

Q: For NII dollars perspective, how do you think about best case scenario from rate environment?

A: David Kirkley said best case is steeper rate curve with 25-50 basis point cuts, still generating growing NIM, John Bordelon added short-term CD portfolio turnover and loan repricing offsetting rate cut impacts.

Q: Houston franchise growth and branch footprint upgrade productivity?

A: John Bordelon said the pulled-out group is productive, full-service branch hopes to attract more deposits, especially commercial customers. Changed incentive plan to focus on core deposits, slowed non-owner-occupied CRE loan growth to reach loan-to-deposit ratio target.

Q: Any one-timers accelerating NIM expansion and NIM in June?

A: David Kirkley said no one-time adjustments impacted NIM, NIM in June was right at 4%.

Q: NIM yield expansion slowdown next quarter?

A: David Kirkley said there will be a slowdown in Q3 repricing but more opportunities in Q4 as fixed rate loans mature.

Q: M&A criteria?

A: John Bordelon said criteria include looking at $350 million to $1 billion size, with bulk of conversations in Texas but also Louisiana, and focusing on long-term fit for Home Bank and shareholders.