Home Bancorp Q1 2025 Earnings Call Transcript

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April 22, 2025

Key Takeaways

  • Home Bancorp reported first quarter net income of $11 million, or $1.37 per share, marking a 13% increase from Q4 and a 20% gain year-over-year, with net interest margin expanding to 3.91% and return on assets rising to 1.29%.
  • Loans grew by $29.1 million in Q1 (about 4% annualized) while deposits climbed at a 7% annualized rate, driven by a 27% increase in noninterest-bearing deposits and targeted CD offerings to fund loan growth.
  • Credit metrics remained solid with net charge-offs under one basis point annualized, though nonperforming assets rose to 0.62% of total assets due to two downgraded relationships that the bank expects to resolve without material losses.
  • Funding costs declined 15 basis points in Q1—largely from a 33 basis-point reduction in CD costs—and management expects net interest margin to continue expanding through loan repricing and rising asset yields even if the Fed holds rates.
  • The bank repurchased 297,000 shares through mid-April at an average price of $43.82 and authorized a new 400,000-share buyback plan, citing confidence that intrinsic value exceeds recent market prices.
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Earnings Conference Call
Home Bancorp Q1 2025
00:00 / 00:00

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Operator

Greetings, ladies and gentlemen, and welcome to the Home Bancorp's first quarter 2025 earnings conference call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. 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
David Kirkley
CFO at Home Bancorp

Thank you, Anna. Good morning and welcome to Home Bank's first 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 and investor presentation in our SEC filings. Now I'll hand it over to John to make a few comments about the first quarter. John?

John Bordelon
John Bordelon
Chairman, President and CEO at Home Bancorp

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. 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. 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%. 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. 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
John Bordelon
Chairman, President and CEO at Home Bancorp

There have been a lot of headlines recently concerning the economy and tariffs that may change the direction of the economy quickly, but for now, we're sticking with our guidance of 4%-6% loan growth in 2025. Deposits increased 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 core deposits. Non-interest-bearing deposits increased $21.9 million, which equated to 27% of total deposits at the end of the quarter. CDs also increased, and we've had good success using our CD product to attract and retain customer deposits since the end of the pandemic. 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
John Bordelon
Chairman, President and CEO at Home Bancorp

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 will drive even more business. 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. The entire executive team recently completed visits to every branch in every market where we had the opportunity to talk to employees and customers. Each market would then host a Cajun-style crawfish boil with the executives serving the employees. These boils included delicious crawfish with all the fixings, music, games, raffles, and camaraderie with all of our employees.

John Bordelon
John Bordelon
Chairman, President and CEO at Home Bancorp

These visits have long been a tradition at Home Bank, where we believe in the concept of servant leadership. 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. The time in 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 that the executive team would spend this quality time with all our employees. As I've said for the last few quarters, and despite the recent headlines and volatility in the market, we feel very good about Home Bank's outlook and our ability to continue to outperform.

John Bordelon
John Bordelon
Chairman, President and CEO at Home Bancorp

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. We continue to focus on customer service, expanding relationships with new and existing customers, and maintaining our solid credit culture. This focus helped us to maintain strong performance through COVID and the rapid increase in rates. We remain confident in our outlook and think that the NIM and earnings will continue to expand in 2025, even without any rate cuts. With that, I'll turn it back over to David, our Chief Financial Officer.

David Kirkley
David Kirkley
CFO at Home Bancorp

Thanks, John. Slide 5 in our investor presentation has a summary of the last six quarters and shows how strong Home Bank's recent performance has been. 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 ROA that bottomed out at 97 basis points but quickly recovered and is now 1.29%. 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 first quarter. Core return on average tangible common equity has always been above 10% and was 14.3% in the first quarter. Our focus on expenses has helped us maintain a core efficiency ratio between 60% and 65%, which declined to 60% in Q1.

David Kirkley
David Kirkley
CFO at Home Bancorp

As John said, we think that we can continue to deliver improving performance from here even without any Fed rate cuts. Net interest income was stable at $31.7 million in the first quarter compared to $31.6 million in the fourth quarter. We expect it to increase from here due to continued loan growth, increasing asset yield, and moderating funding costs. We expect loans to grow at 4%-6% annually and asset yields to continue to increase as new originations drive average loan yields higher and lower yielding securities mature. New loan originations in Q1 had a blended contractual rate of 7.4% compared to the 6.43% yield on our existing portfolio. Slide 14 provides additional details on cash flows from our loan and investment securities portfolio. Almost half of our investment portfolio is projected to be paid off over the next three years with a roll-off yield of 2.68%.

David Kirkley
David Kirkley
CFO at Home Bancorp

Slide 15 and 16 of our investor presentation provide some additional detail on credit, which remains very strong. We had $32,000 in net charge-offs in the quarter, which was less than one basis point annualized after recording just four basis points of net charge-offs in 2024. First quarter non-performing assets increased $5.9 million to $21.5 million, or 62 basis points of total assets. This increase was primarily due to the downgrade of two relationships that were previously categorized as substandard. 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. Total criticized loans at quarter end were $37.2 million, or 1.36% of loans, up slightly from 1.35% in the fourth quarter. Our allowance for loan loss ratio was stable from the fourth quarter at 1.21%.

David Kirkley
David Kirkley
CFO at Home Bancorp

Cost of interest-bearing deposits declined 15 basis points in Q1, driven largely by a 33 basis point reduction in the cost of CDs. Over the past two quarters, we lowered the cost of CDs by 59 basis points as we shortened the duration of our portfolio. While we've had good success reducing costs and retaining customer deposits, absent further rate cuts, we expect the pace of rate reductions to moderate in the coming quarters. With 62% of our CD portfolio maturing in the next six months, we have the ability to adjust quickly to market conditions. Non-maturity interest-bearing deposits make up 46% of total deposits and cost 1.68% in Q1, down 5 basis points quarter over quarter. Non-interest-bearing deposits, a strength of our balance sheet, increased $22 million in Q1 and comprised 27% of total deposits.

David Kirkley
David Kirkley
CFO at Home Bancorp

As a result of our deposit mix and pricing strategy, the cost of total deposits in Q1 was 1.85%. Slide 21 provides our funding betas. 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 peaked at only 2.78%, which has been lower than our peers. Yield on earning assets increased 2 basis points in Q1 due to a $59 million increase in average loans. Loan yields have been stable the last three quarters at 6.43% despite the 100 basis points of rate cuts by the Fed. Our loan portfolio 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 NIM.

David Kirkley
David Kirkley
CFO at Home Bancorp

Slide 22 of the presentation has some additional details on noninterest income and expenses. First quarter noninterest income was $4 million, an increase of $400,000 compared to the prior quarter. We recognize the gain of $310,000 in Q1 on the sale of SBA loans, a 100% increase from the prior quarter. We expect noninterest income to be between $3.6 million-$3.8 million over the next two quarters. Noninterest 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. The decline in compensation was related to seasonality and payroll cycles. We still expect noninterest expenses to increase by 3.5% in 2025 as raises come into effect starting in Q2 and technology-related expenses increase. Noninterest expense is expected to be between $22.5 million-$23 million per quarter for the remainder of the year.

David Kirkley
David Kirkley
CFO at Home Bancorp

We took advantage of recent share price volatility to repurchase 297,000 shares through April 17 at an average price of $43.82 per share. We have about 14,500 shares remaining in our existing buyback plan, and yesterday, our board approved a new 400,000 share repurchase plan. We plan to remain active as the volatility continues as we are confident that our intrinsic value is well above recent market prices. 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 a 7.7% annualized growth rate, while growing tangible book value per share adjusted for AOCI at a rate of 9.3%. Over that same period, we also increased annual EPS at an 8.9% growth rate.

David Kirkley
David Kirkley
CFO at Home Bancorp

We've increased our dividends per share by 21% and repurchased 16% of our shares, 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. With that, operator, please open the line for Q&A.

Operator

We will now begin the question and answer session. To ask a question, you may press star, then one on your touch-tone phone. If you are using a speakerphone, please take off 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.

Joe Yanchunis
Joe Yanchunis
Senior Equity Research Associate at Raymond James

Good morning.

John Bordelon
John Bordelon
Chairman, President and CEO at Home Bancorp

Morning, Joe.

David Kirkley
David Kirkley
CFO at Home Bancorp

Morning, Joe.

Joe Yanchunis
Joe Yanchunis
Senior Equity Research Associate at Raymond James

If something could touch a bit more on the go-forward margin expectation after the improvement in the first quarter. Can you share what the NIM was for the month of March and how you expect the NIM to behave with a 25 basis point rate cut?

John Bordelon
John Bordelon
Chairman, President and CEO at Home Bancorp

All right. 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 the second quarter of our deposit costs. Basically, the CDs are pricing those pretty high to be able to stay up with our funding needs. I don't see as much drop in the margin from the deposit side in the second quarter as we've 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 20 basis points out of the 25?

David Kirkley
David Kirkley
CFO at Home Bancorp

25.

John Bordelon
John Bordelon
Chairman, President and CEO at Home Bancorp

18 to 20 basis points out of the 25. Where we're going to continue to grow the NIM would be on the loan side as we continue to reprice, while lower rates than what we saw in 2024, still higher than what we have in the portfolio today. That is going to be the driving force throughout the rest of the year.

David Kirkley
David Kirkley
CFO at Home Bancorp

Yeah, Joe, we have the opportunity to reprice a good bit of loan and investment securities cash flow. As we mentioned, new loan originations are coming in around a contractual rate of around 7.4%. We still see a couple of basis points uptick per quarter in contractual loan yields given no rate cuts. I think, as John said, you're not going to see as much contraction in liability costs, but you're going to see growth in earning asset yields. To answer your second question about March, March NIM was about 3.95%. Oh, sorry, the third part of your question, a 25 basis point rate reduction. We've seen what happened to our loan yields. I forgot which slide it is. We have a chart with our loan yields being stable at 6.43%. That is in part due to a little bit lower concentration of adjustable rate loans.

David Kirkley
David Kirkley
CFO at Home Bancorp

Whenever there's a 25 basis point rate cut, that's about a 3 basis point decline in loan yields, which is really offset by new loan originations. You also see we have about $135 million on average with overnight advances from the FHLB, which reprice automatically. We also have a very short concentration of CD portfolio, the duration of our CDs, which we have the ability to reprice very quickly as well as we've seen the last couple of quarters. Even in a 25 basis point rate cut, I would anticipate stable to slightly increasing NIM.

Joe Yanchunis
Joe Yanchunis
Senior Equity Research Associate at Raymond James

That was very thorough. I appreciate it. Kind of switching over to credit, can you discuss the two loan relationships that moved to non-accrual in the quarter? What sectors, what geographies were they in? I also understand there's a lot of unknowns at the moment with respect to the potential tariffs and trade war. It would be helpful to get a sense for what parts of the book you're paying a little closer attention to.

Joe Yanchunis
Joe Yanchunis
Senior Equity Research Associate at Raymond James

Yeah, so these.

Joe Yanchunis
Joe Yanchunis
Senior Equity Research Associate at Raymond James

From outside exposures.

John Bordelon
John Bordelon
Chairman, President and CEO at Home Bancorp

These credits have been problematic for some time. One of the credits is in Mississippi, and it is basically a development of condominiums to be sold. They sold three condominiums in the early part of 2024 and have not really sold any since then. The peak time to sell those is right now, spring and summer. We are giving them until, I think, the end of May, and we will reevaluate to see what is going on. We may start foreclosure, may ask for a deed on the property, whatever. We believe there is equity in the property, but we also believe that the owner is asking too high a price for the property. 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.

John Bordelon
John Bordelon
Chairman, President and CEO at Home Bancorp

The other credit was, it's a hotel that's undergoing renovations in the Houston market. The promises are there that we're going to redo all the rooms and obviously have a higher occupancy once that happens. We've asked them for a paydown based upon the cash flow that they've had the last six months, and they're wanting to take the other route of putting their money into the building to make sure that they can increase revenue and make full payment to it. We'll see how that goes. The property is in a relatively good location, so we would, I think, do well, especially if oil and gas comes back to the Texas area. This hotel would do very well should that happen.

Joe Yanchunis
Joe Yanchunis
Senior Equity Research Associate at Raymond James

All right. Thank you for taking my questions.

John Bordelon
John Bordelon
Chairman, President and CEO at Home Bancorp

Thank you, Joe.

Operator

Thank you. Again, if you have a question, please press star, then one. Second question comes from Chris Marinac of Janney Montgomery.

Chris Marinac
Janney Montgomery at Director of Research

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 you've got a longer book. I think it was seven and a half years disclosed for that. I just was curious on kind of what you've seen on any maturities that have happened recently.

John Bordelon
John Bordelon
Chairman, President and CEO at Home Bancorp

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 what a lot of people maybe have in bigger cities or the high rises and things of that nature. We have two of those in Baton Rouge, but one's a condo high rise, and the other's 100% occupied by Louisiana government. Our office portfolio has performed extremely well, as shown on page 11 of our presentation. Really don't have any criticized assets in there.

Chris Marinac
Janney Montgomery at Director of Research

Great. Thank you for that additional background. You mentioned about the higher CD pricing. Just to clarify, is that going to change this quarter? I'm just trying to take the pricing out from the Fed decision, whether they do or don't cut. I mean, will you still keep those rates somewhat elevated?

David Kirkley
David Kirkley
CFO at Home Bancorp

I think they're going to remain a little bit elevated, but below our overnight funding costs. We have the opportunity to reduce marginally our rates, we believe, but they will most likely remain slightly elevated, and cost of CDs will come down incrementally over the next quarter, but not very materially.

Chris Marinac
Janney Montgomery at Director of Research

Okay. In general, do you plan to see the loan-to-deposit ratio come down over time? I mean, 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.

John Bordelon
John Bordelon
Chairman, President and CEO at Home Bancorp

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. I think the general population thinks that rates were 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 we keep waiting for a slower loan demand and really haven't seen it. The question of the loan-to-deposit ratio, I think, is going to stay tight until such time as we see a lower loan demand in our area. We're working very hard to attract core deposits, and expansion in our Houston market is going to help us with that.

Chris Marinac
Janney Montgomery at Director of Research

Perfect. Thank you both. I appreciate it.

John Bordelon
John Bordelon
Chairman, President and CEO at Home Bancorp

You too.

Operator

Next question will come from Stephen Scouten of Piper Sandler.

Stephen Scouten
Stephen Scouten
Managing Director and Senior Research Analyst at Piper Sandler

Good morning, guys.

John Bordelon
John Bordelon
Chairman, President and CEO at Home Bancorp

Morning.

Stephen Scouten
Stephen Scouten
Managing Director and Senior Research Analyst at Piper Sandler

Curious, can you give us a lot of history of loans? I think you did say that you.

John Bordelon
John Bordelon
Chairman, President and CEO at Home Bancorp

Can you break it up? We can't quite hear you.

Stephen Scouten
Stephen Scouten
Managing Director and Senior Research Analyst at Piper Sandler

Can you hear me better now?

John Bordelon
John Bordelon
Chairman, President and CEO at Home Bancorp

Yes.

Stephen Scouten
Stephen Scouten
Managing Director and Senior Research Analyst at Piper Sandler

Okay. Can you help me reconcile what looks like asset sensitivity with what in practice sounds like maybe liability sensitivity on rate cuts?

David Kirkley
David Kirkley
CFO at Home Bancorp

Yeah. I think one of the issues that we're having is an interpretation of changes in interest sensitivity. If you look at our slide deck, it shows that we are slightly asset sensitive. Really, 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 and down slightly, almost 2%, but still a rising NIM from where we are today. I just want to clarify that point that we still see NIM increasing from where we are today, even in a 100 basis point rate environment. Our loan portfolio, which is 41% variable, about almost 60% of those loans are adjustable daily, with some of the other loans being more annual repricing. That impacts the sensitivity a little bit.

David Kirkley
David Kirkley
CFO at Home Bancorp

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. We don't have as much room to come down as quickly as some of our other peers. All those things combined help explain the difference between our asset sensitivity position.

Stephen Scouten
Stephen Scouten
Managing Director and Senior Research Analyst at Piper Sandler

Okay. Very helpful. Thanks, David. I guess following up on that slide 21 and all the data you provided, 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 to that last point, because we're at lower rates, maybe do we not see the same improvement on the way back down maybe that we saw on the way up?

David Kirkley
David Kirkley
CFO at Home Bancorp

I think it's going to play out over time, and I think it would catch up over time. As we talked about on our last slide, our loan-to-deposit ratio is a little bit tighter than we'd like it to be. It is going to be a little bit slower, but I have no reason to believe that it wouldn't fall into the average of around 35%-40%, excuse me.

Stephen Scouten
Stephen Scouten
Managing Director and Senior Research Analyst at Piper Sandler

Okay. Great. Then.

John Bordelon
John Bordelon
Chairman, President and CEO at Home Bancorp

Oh, we're losing it again.

Stephen Scouten
Stephen Scouten
Managing Director and Senior Research Analyst at Piper Sandler

How aggressive do you think you'll be around the share repurchase?

John Bordelon
John Bordelon
Chairman, President and CEO at Home Bancorp

Probably not as aggressive as we've been in the first quarter here, but when there's opportunity, especially when our stock price drops down to $42, $43, just above annual book value, it's a no-brainer. I think marginally, if our stock price continues to go up, that percentage of repurchases will come down significantly. 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. Given the opportunity, we're going to be in the market. Hopefully, our share price increases, and we'll be less in the market.

Stephen Scouten
Stephen Scouten
Managing Director and Senior Research Analyst at Piper Sandler

I agree. I like it. Thanks for the time, and tell us.

John Bordelon
John Bordelon
Chairman, President and CEO at Home Bancorp

Thank you. Appreciate it.

Operator

Again, if you have a question, please press star, then one. I think there are no more questions, so this concludes our question and answer session. I would like to turn the conference over to John for any closing remarks.

John Bordelon
John Bordelon
Chairman, President and CEO at Home Bancorp

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.

Operator

The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.

Executives
Analysts
    • Joe Yanchunis
      Senior Equity Research Associate at Raymond James
    • Stephen Scouten
      Managing Director and Senior Research Analyst at Piper Sandler
    • Chris Marinac
      Janney Montgomery at Director of Research
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