Good morning, ladies and gentlemen, and welcome to the Home Bancorp Second Quarter 2024 Earnings Conference Call. All participants will be in listen-only mode. [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. Mr. Kirkley, please go ahead.

Thank you, Kenneth. Good morning, and welcome to Home Bank's second quarter 2024 earnings call. Our earnings release and investor presentation are available on our website. I 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?

Thanks, David. Good morning and thank you for joining Home Bank's 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. We reported second quarter net income of 8.1 million or $1.02 per share. And most importantly, a slight improvement in our net interest margin, which appears to have stabilized. The NIM came in at 3.66%, which was 2 basis points higher than the first quarter. We're cautiously optimistic that continued steady increases in asset yields and establishing in our cost of funds will continue to support net interest income growth and improving margins even without any Fed rate cuts. We added $39.7 million of loans in the second quarter with growth in all sectors except for construction and land loans, which declined slightly. Given the strong loan growth we had in the first half of the year, we're still anticipating that 2024 loan growth will be between 4% and 6%. The duration of higher rates appears to now be negatively impacting the loan pipeline, but we're optimistic that the forecasted rate cuts occur, we could see loan demand pick back up. Deposits, including demand deposits, were stable from the last quarter after very strong growth in the fourth and first quarters. We're pleased to see $12.6 million of core deposit growth in our Houston market as our teams there brought over the operating accounts with a number of new clients. We relocated another one of our Houston branches and continue to look for opportunities to improve our coverage of the markets we serve by adding brick-and-mortar and talent. Despite all the negative headlines, we here at Home Bank are actually seeing improvements in credit. In the past few months, we have had…

Thanks, John. Net interest income totaled 29.4 million in Q2, up 492,000 from the previous quarter. Loan growth continued at a 6% annualized pace during the quarter with new loans coming in at a rate of 8.25% compared to the 6.28% we earned on our total loan portfolio in Q2. Deposits were essentially flat quarter-over-quarter, which increased our loan-to-deposit ratio to 97.7%. The pace of deposit migration has definitely slowed and non-interest-bearing deposits actually increased by 4.3 million in the second quarter. We did experience declines in interest-bearing checking accounts and savings accounts, which were down about $25 million combined. This outflow was offset by an increase in money market and CD balances of $21 million. The outflows that we did see mostly occurred in April, coinciding with taxes. The impact of the slowing deposit migration can be seen in the slower increases in the rates we are paying on our interest-bearing deposits, which increased by 17 basis points in the second quarter after having increased by 28 basis points in the first quarter, 40 basis points in the fourth quarter and 54 basis points in the third quarter of last year. Pages 11 and 12 of our investor presentation provide some additional detail on credit, which John has already covered. Non-performing loans did decrease by $3.5 million in the second quarter to $16.8 million or 0.63% of total loans. Provision expense for the quarter were $1.3 million, up $1.1 million from the prior quarter. Our allowance for loan loss ratio increased 1 basis point to 1.21% in the second quarter. There were no changes in our qualitative factors during the quarter, and we feel confident in our reserve levels. We did have $510,000 or 8 basis points annualized and net charge-offs in the second quarter. These charge-offs were very…

Thank you. We will now begin the question-and-answer session. [Operator Instructions] The first question comes from Feddie Strickland with Hovde Group. Please go ahead.

You touched on this in your opening comments a little bit. I was just wondering if you can talk through a little bit more of the non-interest-bearing deposits, obviously, a positive to see those grow. Is that really just success on the C&I side in Houston, or was that more footprint-wide?

Well, I think what we're referring to there was mostly in Houston. We pulled out a team at the beginning of the year from another bank. And a lot of the efforts that happened in Houston came from that team. They're in a loan production office in the northwest section of Houston. And they've done a very good job of attracting new customers and our focus has been on the deposit side. So they've attracted some that are loan and deposit and some of that are just deposit. So that was what we were highlighting there was the success of that new team.

We've also seen some growth in the DDA space and [indiscernible] as that market has been focused more heavily on the C&I business as well.

And along the same lines, I mean, as we think about the type of loan growth you are looking for going forward. It sounds like you are focused on bringing in more C&I just given that it's more likely to come with deposits, correct?

Absolutely.

Got it. And one last question for me. Just on share repurchases. I mean, do you think we'll see that potentially slow down a little bit if the share price kind of keeps moving upwards here, or do you think that you'll still have some level of repurchases going forward? And just keep in mind some dry powder?

We would probably slow it down at the elevated or at the higher prices that we've experienced over the last week and keep the dry powder.

[Operator Instructions] The next question comes from Joe Yanchunis with Raymond James. Please go ahead, sir.

So with the NIM expansion appearing to occur a little bit ahead of schedule. Can you provide some of the puts and takes on what will drive the NIM in the second half of the year?

So one of the driving factors is, of course, loan growth and loan repricing. You can see on our slide deck on Slide 16. We have been consistently raising our loan yield by about 10 basis points each quarter and still expect that to continue as we still have a weighted average rate of our loan portfolio of 6.28% compared to what we're bringing on loans at 8.25. So that's one component of it. Second component of it is, you are really seeing a slowdown in opportunities for deposits to reprice higher. There is still some deposit migration, but the vast majority of our CD portfolio has already repriced higher. We touched up on a little bit on the call when we said the CDs are already a little bit north of 5%, and our CD special rates are actually a little bit lower in some cases. So there's not as much repricing opportunities to occur on the CD and deposit space. So we think that the pace of loan yield increases is going to more than offset deposit cost increases.

Not to mention any movement by the Fed this year will contribute to the ability to [indiscernible] on the deposits or maintain these deposits at a little bit lower rate. So we feel very comfortable in the fact that our CD rates should stabilize or head downward based upon what the Fed does.

Understood. And we've heard some of your peers note some increased competition on deposits. Is that something you've experienced, and kind of how should we think about the near-term trajectory of deposit costs?

We haven't seen that much pressure. There are some one-offs here and there that we obviously take care of. But for the most part, most everyone in our market, I think there was one bank in the Houston market that was in the 5.25, 5.38 area. But for the most part, we have not had any problem attracting deposits.

Okay. And then, if I could just sneak in one more here. So asset quality metrics improved pretty nicely in the quarter, though you elected to increase your reserve ratio. Can you discuss what really drove this thought process? And secondly, perhaps it's too early to call, but if we get a couple of rate cuts and the economy doesn't deteriorate. Would it be fair to say that criticized and NPAs might have already peaked?

Let me take the CECL question first. We really didn't decide to increase our allowance. It's just a mixture of the mix change in our loan portfolio quarter-over-quarter, and the duration, perhaps of new loans, that's really it. We didn't change any qualitative factors. We didn't make any adjustments with regards to any industry-specific qualitative factors. So it's just a function really of our loan portfolio changing.

As it relates to the remainder of the year, I'm very optimistic that there could be a little bit of issues as far as credit, but we're not really seeing it in any one particular industry or just individually. We've had a couple of one-offs here and there that have gone bad. It had really nothing to do with the economy had more to do with the operators themselves. So we're feeling as though the economy is going to actually improve possibly in 2025 because of a lower rate environment.

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

Once again, thank you all for joining us today. I'm very excited about the position the bank has gotten to at this point and look forward to the rest of the year and speaking to many of you in the next day or so. Thank you very much for attending. Have a good day.

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