Home Bancorp, Inc. Stock

Good morning, ladies and gentlemen, and welcome to the Home Bancorp's Second Quarter 2026 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 and CEO, John Bordelon; President, Darren Guidry; and Chief Financial Officer, David Kirkley. Please go ahead, Mr. Kirkley.

Thank you, Ina. Good morning, and welcome to Home Bank's Second Quarter 2026 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?

Thanks, David. Good morning, everyone, 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.

Before I discuss our second quarter results, I want to take a moment to introduce Darren Guidry as Home Bank's new President. Darren has served as our Chief Risk Officer since 2022 and prior to that, Chief Credit Officer beginning in 2013 and Chief Lending Officer since he came to the bank in 1993. His deep knowledge of our business, our customers and our markets makes him exceptionally well suited for this expanded role.

By separating the CEO and President roles, we are creating a leadership structure designed to sustain our next phase of growth. As CEO, I'll remain focused on overall corporate strategy, capital planning and shareholder relations, while Darren will lead the day-to-day execution of our strategic priorities. He'll be working closely with our executive leadership team to drive performance across the organization while maintaining our strong discipline in credit quality, risk management and customer service. We are enthusiastic about this transition and confident it will serve our shareholders, employees and customers well for years to come.

Now turning to second quarter results. Yesterday afternoon, we reported second quarter net income of $11.6 million or $1.48 per diluted share. Earnings per share increased 2% from the first quarter and were up from $1.46 per share a year ago. Net interest margin expanded to 4.24% in the second quarter, and return on assets increased to 1.31%.

Net interest income increased to $35.8 million in the second quarter and was the highest quarterly net interest income in Home Bank's 118-year history. This continued net interest income growth and margin expansion was driven by higher yields on our earning asset portfolio and stable funding costs. Our cost of deposits was stable at 1.66% for the quarter, which is one of the lowest in our peer group and reflects the continued strength of our core deposit franchise.

Loans grew by $50.7 million in the second quarter or approximately 7% annualized, which was a nice recovery from the slight contraction we saw in the first quarter. Our Houston market continues to lead the way, growing at a 9% annualized rate year-to-date. The Tomball branch in Northwest Houston, which opened in the first quarter, is gaining momentum and building its customer base. We believe the pipeline we have been building will support continued mid-single-digit loan growth in the second half of the year, but predicting when our customers will make decisions about financing has become challenging.

Total deposits grew by $42.1 million or 6% annualized in the second quarter, which kept our loan-to-deposit ratio in the middle of its 90% to 92% target range. The quality and stability of our deposit base remains one of Home Bank's most important competitive advantages.

We continue to work our problem credits to resolution. There does not appear to be any specific industry-related stress, but more individual customers are struggling in this economy. Substandard loans increased during the quarter primarily due to 1 C&I loan to a manufacturing company, Which is paying as agreed and has a very strong guarantor.

We continue to work through our classified assets toward improvement as much of the -- as some of the loans are refinanced elsewhere, businesses are sold or some loans are moved to real estate owned and eventually, the asset's sold. We anticipate that 14 loans with balances of approximately 1/3 of our classified assets will be rectified and removed off the bank's balance sheet by year-end. Our net charge-offs remain extremely low at just 6 basis points annualized, and we remain confident that our conservative underwriting and proactive management of challenged loans will minimize any losses we ultimately incur.

Over the past 2 years, the financial transformation at Home Bank has been significant. Net interest margin has expanded approximately 58 basis points since the second quarter of 2024. Net interest income has increased by more than 7% year-over-year, and tangible book value per share has grown more than 13% from a year ago to $47.02. These improvements reflect the benefits of our disciplined balance sheet management, the strength of our core deposit franchise and the earning power of our loan portfolio. We believe we are well positioned to continue delivering strong, sustainable results.

With that, I'll turn it back over to David, our Chief Financial Officer.

Thanks, John. Please feel free to refer to the investor presentation we have provided as I discuss the company's second quarter financial performance.

Net interest income totaled $35.8 million in the second quarter, an increase of $1.3 million from the first quarter and a $2.5 million increase from a year ago. NIM expanded 8 basis points to 4.24% in the second quarter, driven by loan yields increasing 5 basis points to 6.46%, while our cost of interest-bearing liabilities remained flat at 2.38%.

Slide 14 details the repricing and maturity profile of our loan and investment portfolio. We continue to see opportunities to increase yields on maturing and repricing loans. Our investment portfolio, with a weighted average rate of 2.61% and significant cash flows expected over the next 3 years, also presents meaningful reinvestment opportunity at current yields that are substantially above the roll-off rate. Yield on earning assets increased 7 basis points quarter-over-quarter, and we believe future repricing opportunities will support room for additional NIM expansion.

Deposit growth continues to be a key strength. As shown on Slide 18, total deposits grew to $3.1 billion, with core deposit growth of $46.6 million during the quarter more than offsetting a modest decline in certificates of deposits. Noninterest-bearing demand deposits increased $5.1 million during the quarter and continue to represent 27% of total deposits.

The average cost of interest-bearing deposits declined to 2.28% in the second quarter, reflecting both the benefit of deposit mix improvement and the repricing of matured CDs at lower rates. While we've been pleased with our success in driving down deposit costs down by 37 basis points since the recent peak in Q3 of 2024, we don't expect further material declines.

Slides 15 and 16 provide additional detail on credit quality. Nonperforming loans declined during the quarter from $35.8 million to $26.4 million or from 1.31% to 95 basis points of total loans. This was primarily driven by the transfer of approximately $10 million of nonperforming loans into OREO. Total nonperforming assets were $39.2 million or 1.09% of total assets as foreclosed asset balances increased due to the foreclosure of multiple properties, with the largest being $2.6 million.

We provisioned $762,000 in the second quarter, down from $922,000 in the first quarter. The allowance for loan losses stand at $34 million or 1.22% of total loans, and we are comfortable with our reserve levels given the composition and risk profile of the portfolio.

Total criticized loans increased during the quarter to $95.8 million or 3.45% of total loans primarily due to the migration of 6 relationships into the special mention category and a $7.4 million increase in substandard loans. Substandard loans increased during the quarter primarily due to the downgrade of a $12.4 million C&I credit, which was partially offset by almost $10 million of transfer from substandard to OREO and paydowns. We are actively monitoring these credits and believe our proactive approach to credit management will continue to limit actual loss exposure.

Slide 22 provides detail on noninterest income and expenses. Noninterest income totaled $3.9 million in the second quarter, up $181,000 from the first quarter. We continue to expect quarterly noninterest income to be in the range of $3.8 million to $4.1 million.

Noninterest expense totaled $24.6 million in the second quarter, an increase of $1.6 million from the first quarter. The increase was primarily driven by compensation and benefit expense of $1.3 million and a $331,000 increase of foreclosed asset expense. Due to elevated expenses working through foreclosed assets, we expect noninterest expenses will be in the range of $24 million to $24.8 million over the next several quarters.

Slides 23 and 24 summarize our capital position and the progress of our capital management strategy. Tangible book value per share increased to $47.02, up from $46.04 in the first quarter and up more than 13% from a year ago. Since 2019, we have increased adjusted tangible book value per share at an annualized rate of approximately 9.7%, increased EPS at a more than 11% annualized rate and increased our quarterly dividend by almost 50%.

We have also repurchased approximately 17% of shares outstanding since 2019. Capital ratios remained strong with a Tier 1 leverage ratio of 12.1% and a total risk-based capital ratio of 15.6%. Lastly, we declared a quarterly cash dividend of $0.32 per share, an increase of $0.01 from last quarter.

With that, operator, please open the line for Q&A.

[Operator Instructions] And your first question comes from the line of Joe Yanchunis from Raymond James.

I was hoping to start with the NIM. So the margins expanded 18 bps over the past couple of quarters, well above that 4.10% to 4.15% range you had previously outlined. As we look ahead, when do you expect the benefit from fixed rate asset repricing to begin to moderate?

I think you're going to see a couple of basis points increase. I think in Q3 and a little bit into Q4, you're still having some lower-yielding loans roll off in a size and manner that we'll continue to see loan yields increase. In the second quarter, new loan originations came on at a little bit north of 6.6%. So that still leaves the room for repricing opportunities. I think after Q4 and into Q1 of '27, I think that's when you'll see some moderation.

Got it. That was very helpful. And then shifting over to loans. So loan growth really accelerated nicely this quarter. How much of that improvement reflected stronger customer demand versus seasonality or lower payoff activity?

And then also, on the last quarter call, you mentioned that your pipeline had increased by about $30 million sequentially. Can you provide an update on where the pipeline stands today and how you're thinking about conversion for those into funded loans in the back half?

Yes. I think through most of '25, we did have some payoffs, especially in third quarter of '25, and that happened also in first quarter. So we're seeing less payoffs in second quarter. And that's just a seasonal thing that we don't know. We do have some classified assets that Darren will talk about, but we anticipate some of those going away, which will hurt our overall loan growth.

But our pipeline, I think, remains consistent. While not robust, it remains consistent. And so we should be able to generate loan production. It's just a matter of how much of our loans are paid off because of them being bad assets moving somewhere else or whatever.

And is your guide for mid-single-digit growth in the back half of the year or for the full year?

Yes, it's really the back half.

All right. And then one more for me here. So capital remains a pretty clear strength, yet acquisition activity across the industry remains pretty subdued at the moment. Have your views on M&A opportunities changed over the past few months?

Not really. I agree that we're hearing a lot less noise than we heard in 2025. I'm not sure if that's because of potentially a rate increase by the Fed or what, but yes, it's definitely been much quieter. So we have our ears open and are ready to go and have a lot of dry powder to utilize. So we're looking for that right partner.

And your next question comes from the line of Stephen Scouten from Piper Sandler.

Maybe just following up on that line of questioning. If for whatever reason, M&A is not able to come across the finish line here, what would be kind of how you think about capital uses beyond M&A? Because obviously, your excess capital continues to build quarterly based on really strong profitability. So good problem to have, I guess, if we want to call it a problem, but just -- can you help us think about other uses for that capital as it builds?

Yes, I'll answer a little part, and then I'll turn it over to David. Surely, we've shown over our history as a public company that we have had periods where we've grown capital, and that was very handy for us to be able to utilize that capital in an M&A transaction. So we still anticipate that the primary use in that. Now I'll turn it over to David as far as dividends or buybacks.

So we've been selective in buybacks based off the stock price, and our stock price has had a nice run over the last couple of quarters. So we've really been out of the buyback space, but we'll always evaluate that. We increased our dividend $0.01, which, from a capital management standpoint, deploys a little bit, but it's not really impacting the ratios. So we're really looking -- keeping the dry powder for M&A. And also, we have our sub debt which is callable in 2027, which could potentially be an option given the M&A landscape.

Okay. And can you remind us what you're paying on that sub debt currently and kind of what that could potentially do maybe to your NIM as you've modeled some of that out?

Our coupon rate is 5.75%.

Okay. And in terms of Fed rate hikes, can you remind us what you think if the Fed were to hike? And in fairness, I'm not really a believer in that personally. But if they do hike, what could that do to the trajectory of your NIM from here?

Look, I think our balance sheet is very well positioned for rising rates. I think we've demonstrated when the Fed makes a move, we have a little bit of a blip with earning asset yields increasing 2 to 3 basis points, and then we adjust our deposit prices. So you have probably a quarter of, let's call it, a decline when deposit rates increase. But then like I said, we have a good cash flow coming due, so I think we'll be able to sustain as well as improve NIM with a rate hike.

I would just add to that, it depends on the shape of the yield curve. Is it staying in its current normal shape, or do we go back towards a little more inverted? So what that could do is hurt NIMs in all banks because the deposit customers may be seeking a little bit higher yield.

So I'm more concerned about what happens with our deposits than with our loans really because we are repricing loans at a better rate today. But deposits, because so many banks are at a very high loan-to-deposit ratio, they're paying up significantly. So a rise in interest rates could cause a little bit of a run on the deposit side. So we'll have to be competitive in that area.

Yes. I think that's a good point. And that's a big message we're hearing across the industry right now is just competitive dynamics. John, how would you say you feel like competition has been in your markets? And has it been relatively rational? Or where it isn't? Where are you seeing pressure? Is it more on rate, deposit rate, structure of loans? Where is the kind of tension points from a competitive environment perspective?

I think we've seen it in both loan and deposit, Texas is probably more competitive than Louisiana. We're seeing some -- not as much maybe the last month as it was first and second quarter, where loan rates were pretty low, but also deposit rates, there are 4 or 5 banks in the Texas market that were paying back up close to 4%.

I think in the first quarter, we had 2 or 3 banks in Texas that were at 4.25%, so way above the market. And so competing against those has been a little bit of a challenge. But I still think we're going to have banks across all of our footprint that periodically are going to need more liquidity and going to raise their rates.

And your next question comes from the line of Feddie Strickland from Hovde Group.

Just wanted to ask on loan growth. I appreciate the overall guide. But in terms of mix, it seems like you had pretty healthy CRE, C&I, multifamily growth in the quarter and a step down in construction. Should we expect more of the same in terms of the buckets of growth in the next couple of quarters?

Yes. It is surprising a little bit that construction is continuing to head down. When rates were higher, it slowed down for sure, but we're still seeing a little bit of reduction there. We've always been a very strong construction lender. So that is probably the biggest surprise in our balance sheet. But yes, I think we're doing well in other categories, trying to diversify our risk and as much as we can in the loan portfolio. So you'll continue to see growth in other areas than just plain CRE.

We've done a good job over the last -- I'm sorry. We've done a good job over the last probably 4 quarters of reducing our nonowner-occupied CRE and increasing our owner-occupied. So that was a goal of ours starting about 2.5 years ago, and it's really paying off.

Got it. Appreciate that, John. And just switching gears on the expense side. Again, I appreciate the guide there. I think you mentioned some of the expenses working through some of these credits, foreclosure expenses, what have you, or keeping that a little elevated in the second half of the year. But as we get into early '27 and as you work through a good bit of these existing NPAs, assuming nothing new comes up, could we maybe see expenses overall decline a little bit just as you work through some of those problem assets?

Yes, I'll touch up on it for a second. As we work through those, we're just going to have some elevated expenses on the OREO side. In Q2 and Q1, we've had a little bit of elevated fraud activity on our deposits. And I think we're getting that back down to a more normalized run rate going into Q3 and into Q4, so you'll see a little bit of help from that. But I think once we work through the OREO expenses, depending on the pipeline of how that shapes out, you'll see a little bit more normalized rate of our expense base.

Got it. And just last question for me, real quick. It seems like you've got pretty good loan and deposit pipelines, but do you expect loans to deposits kind of stays around that 90% to 92% range that you've been targeting? Do you see anything that would cause you to kind of jump above or below that in the next couple of quarters?

No. On the deposit side, we tried to lower our rates a little bit in first quarter, and we lost about $60 million of CDs and such. And we have not moved from there, we still are down for the year about $60 million in CDs. So holding our CDs intact, I think, is important to maintaining the growth. So a lot of our growth is coming in the core deposit sector, but we have to make sure that we don't lose our CDs to offset that. So that's a big strategy for us in the remaining part of this year and going into next year.

[Operator Instructions] And your next question comes from the line of Christopher Marinac from Brean Capital.

And just had a question for Darren. In his new role, do you see additional hires or maybe an acceleration of kind of lending hires as this next year plus unfolds?

Yes. We're not anticipating any major changes, Chris. We've just -- we've got a strong crew. Our executive team is strong. Our Chief Banking Officer has a really good crew. We haven't had much in terms of turnover. So we're just looking to add good bankers when they're available, but no major plans for additions at this time. We did just add 1 new RM in Baton Rouge market, which is our slowest developing market. So hopefully, that will help.

Got it. All right. And then just to go back on the criticized trends and other comments related to that, that you've already made. Is there anything else in the pipeline or any other trends you see kind of under the surface in terms of either risk ratings going back and getting upgraded or additional items that may pop up over time?

I can speak to what's in the watch list now. We've got -- as John and David mentioned earlier, our special assets group has been working on watch credits and has a significant number of resolutions in place. Specifically, we downgraded about $15 million this past quarter into special mention, but we have resolutions in place that should occur by the end of the year amounting to about $22 million. In fact, more than half of that should occur within this quarter.

Substandard credit resolutions, including our longest tenured classified loan, is set to be resolved by the end of the fourth quarter as well. We're really excited about that. Substandard resolutions should be a little more than $4 million through the end of the year.

And finally, our nonperforming assets, we're expecting through payoffs, upgrades and sales of other real estate owned, approximately $7 million of improvement there. So overall, between now and the end of the year and many happening throughout the next 5 months, we should exceed about $30 million of improvement in special assets.

Thank you. There are no further questions at this time. I would like to turn the conference back over to John for any closing remarks.

Once again, thank you very much for joining us today. We look forward to speaking with many of you in the coming days or weeks, and appreciate your interest in Home Bancorp. Have a great day.

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

Good morning, ladies and gentlemen, and welcome to the Home Bancorp's First Quarter 2026 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.

Thank you. Good morning, and welcome to Home Bank's First Quarter 2026 Earnings Call. Our earnings release and investor presentation are variable on our website [indiscernible] please refer to the disclaimer on 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 first quarter and outlook for 2026. John?

Thanks, David. Good morning, and thank you for joining our earnings call today. We appreciate your interest in Home Bancorp 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 $11.4 million or $1.46 per share -- sorry, $1.45 per share. Earnings per share were down $0.01 for the fourth quarter, but increased 6% from a year ago and represented a good start to the year. 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 also increased to [ 1.3% ] in the first quarter. This quarter, margin expansion was driven by a 22 basis point decline in our cost of funds, which contributed to a 25 basis point decline in our overall cost of funds. Loans declined by 1% in the first quarter as paydowns continued to outpace new production. We continue to see customers delay projects and transactions while they wait for additional clarity on interest rates.

Despite the low balances, we maintained pricing and structure discipline continue to generate new loan originations at attractive spreads and risk-adjusted returns. Our loan pipeline has improved in recent months, although the timing and pace of future loan growth remain difficult to predict, given continued market volatility and uncertainty around interest rates.

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 continue to represent 27% of our total deposits. As a result of our success on the deposit front, our loan-to-deposit ratio declined to approximately 90% and positioning us well for future growth.

The strength of our franchise is especially evident when you consider how we performed despite a challenging rate and economic environment. Over the past 2 years, diluted earnings per share have increased by more than 25%. Return on assets has improved by nearly 20%. Net interest margin has expanded by more than 50 basis points and our cost of deposits has declined by more than 100 basis points. We also continue to have success in Texas with loans that are growing to approximately 21% of our total portfolio compared to 15% when we entered the market through an acquisition in 2022.

The new Northwest Houston branch opened during the quarter and gives us full service presence in one of the fastest-growing areas in the market. The branch square footage allows for significant growth in the region and will help our well-established commercial team continue to build our franchise. Several organizations have already requested to utilize the branch meeting rooms for their companies. The combination of the branch, its location and our team of bankers should make the Tomball region very successful.

Credit remains manageable. Nonperforming assets increased during the quarter by $3.8 million primarily due to the downgrade of 3 relationships. However, we continue to believe losses of these credits will be immaterial given the collateral protection and guarantor support. Our net charge-offs remain extremely low at just 6 basis points annualized.

Finally, we're in the middle of our annual business to all markets and hosting our [indiscernible] crawfish boils, as we've done in previous years, executives [indiscernible] with all the fixing and refreshments, reflecting our culture of servant leadership that is such an important driver of our success. These gatherings are a great way to embrace that culture and generate enthusiasm. The time of the branches also gives management an opportunity to answer questions from frontline staff and meet customers both big and small.

With that, I'll turn it back over to David, our Chief Financial Officer.

Thanks, John. Please feel free to refer to the investor presentation we have provided, as I discuss the company's first quarter financial results. 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. This was the highest quarterly net interest income in Home Bank's history and was driven by both lower funding costs and materially improved balance sheet structure.

Slide 20 of the presentation has a 2-year history of the yields that drive net interest income and NIM. And you can see the progress we've made bringing funding costs down while keeping loan yields relatively stable. The cost of interest-bearing liabilities peaked in the third quarter of 2024 and has come down 64 basis points as we proactively reduced our exposure to higher cost funding. Over the same period, disciplined underwriting and loan portfolio comprised of 56% fixed rate loans have enabled us to maintain our loan yield within 12 basis points of the peak reached in the third quarter last year. And we're still making progress. In the first quarter, the average cost of interest-bearing deposits declined 22 basis points to 2.29%, while our overall cost of deposits declined by 16 basis points to 1.68%, which is less than half of the current Fed funds target rate.

During the quarter, we had strong deposit growth of $54 million or 7% annualized despite a $64 million reduction in CDs of which 70% were noncore CD customers. The decline in CD funding was offset by growth in lower-cost relationship-based nonmaturity deposits. Seasonal fluctuations in public deposits of $43 million contributed to the $118 million growth in non-maturity deposits during the quarter. We had solid growth in noninterest-bearing deposits which increased $37 million quarter-over-quarter and $75 million year-over-year and represent 27% of total deposits.

Finally, due to our success in growing core deposits, we were able to repay all of our more expensive FHLB advances which is a minor improvement of $3 million in quarter over quarter with a material improvement compared to the $175 million in advances we carried at year-end 2024. Given our lower cost of funds and the repricing opportunities in earning assets, we continue to readvance additional opportunity for NIM expansion.

Slide 14 details expected repricing opportunities from our loans and investments over time. We continue to see a positive spread of approximately 40 basis points on new loan originations versus pay downs. New investment yields were north of 4% in Q1 versus expected roll-off yield of 2.43% over the next 12 months.

Slide 15 and 16 of the presentation provides some additional detail on credit. Nonperforming loans increased $1.6 million to $35.8 million or 1.31% of total loans. This was primarily due to the downgrade of 3 relationships with the largest being $1.4 million, partially offset by the foreclosure of a $2.6 million property in Houston. We recorded a provision expense of $922,000 in the quarter compared to $480,000 in the fourth quarter. The increase was primarily due to changes in individual declared reserves associated with these downgraded credits. Our allowance for loan losses increased to $33.1 million or 1.23% of loans and we continue to feel very confident in our reserve levels.

Slide 22 of the presentation has some additional detail on noninterest income and expenses. Noninterest income decreased by $260,000 to $3.7 million, which was slightly below expectations due to lower other income and bank card fees. We continue to expect quarterly noninterest income to be in the range of $3.8 million to $4 million. Noninterest expense declined by $106,000 to $22.9 million and was in line with expectations. We continue to expect noninterest expense to increase modestly beginning in the second quarter as annual raises take effect and technology investments ramp up. For the remainder of 2026, we expect quarterly noninterest expenses to be between [ $23.3 million ] and $23.7 million.

Slides 23 and 24 summarized the impact our capital management strategy has had on Home Bank. Since 2019, we have increased adjusted tangible book value per share at an annualized rate of approximately 9.7%, increased EPS at more than 11% annualized rate. increased our quarterly dividend by more than 50% and repurchased approximately 17% of our shares. Tangible book value per share increased to $46.04 this quarter, up almost $5 or 15% from the first quarter of 2025.

And with that, operator, please open the line for some Q&A.

[Operator Instructions] And your first question comes from the line of Stephen Scouten from Piper Sandler.

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?

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.

I would just add that the deposit side probably will dictate the pace of the growth of that NIM. We know that we have loans repricing. But assuming rates stay where they are, I'm not sure exactly where deposit rates are going to have to go for us to sustain the level that we have today.

Yes, that makes sense. And then 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?

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.

Makes sense. Makes sense. Okay. And maybe just last thing for me. I'm curious, obviously, the stock has had a really nice run over the last 5 years or what have you, does that allow for any potential M&A conversations to pick up or escalate -- or conversely, if nothing is able to happen, do you at any point, start to think about partnering with a larger institution?

Absolutely. I think M&A will come a little more into focus. What we did look at over the last 3 years, more so were smaller transactions because we did not have the commodity to be able to utilize our stock. So I think with our stock price trading most of the 140 of tangible, we think we can do a deal this year. So potentially something a little more size than what we've been looking at for the last 3 years.

And your next question comes from the line of Joe Yanchunis from Raymond James.

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?

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.

I appreciate that. 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?

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.

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

Yes.

Got it. 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?

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.

Okay. I appreciate that. Then last one for me here.

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?

To about $122 million.

That's great, certainly from a percentage standpoint. And then last one for me. 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?

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.

[Operator Instructions] Your next question comes from the line of Feddie Strickland from Hovde.

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?

About 7%.

Okay. 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.

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.

Got it. 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?

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.

[Operator Instructions] This concludes our question-and-answer session. I would now like to turn the conference back over to Mr. John Bordelon for any closing remarks.

Thank you all for joining us today. We appreciate your questions and your concern for Home Bancorp. We look forward to speaking to many of you in the coming days and weeks, and hope everyone has a wonderful week. Thank you very much.

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

Good morning, ladies and gentlemen, and welcome to the Home Bancorp's Fourth Quarter 2025 Earnings Conference Call. [Operator Instructions] Please note that 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.

Thank you. Good morning, and welcome to Home Bank's Fourth 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 quarter and the year. John?

Thank you, David. Good morning, and thank you for joining our earnings call today. We appreciate your interest in Home Bank as we discuss our results, our expectations for the future and our approach to creating long-term shareholder value. We're proud of everything we accomplished in 2025 and believe we are well positioned to continue the outstanding performance you've come to the expect from Home Bank.

Yesterday afternoon, we reported fourth quarter net income of $11.4 million or $1.46 per share. For the full year 2025, net income was $46 million or $5.87 per share which is a record for Home Bank and 29% higher than our 2024 earnings per share. Fourth quarter net interest margin was 4.06% and the ROA was 1.29%, which was sharply higher than the fourth quarter of 2024, and that NIM was 3.82% and an ROA of 1.12. Loans grew by $38 million in the fourth quarter or 6% annualized as strong December originations exceeded still elevated payoffs and pay downs. Our pipeline is building and paydowns appear to be slowing, so we expect growth in 2026 to be in the mid-single digits.

While loan growth in 2025 was not up to our historical trends, Deposits grew by 7% or $192 million with strong growth in demand deposits and relatively low-cost money market accounts. As a result of our success attracting deposits, we were able to reduce our loan-to-deposit ratio to 92% in the fourth quarter from 98% a year ago. We intend to continue to focus on deposits, which will build franchise value and position us for increased profitability when we return to our historical rate of loan growth.

We continue to have success with our Texas franchise, which is now in its fourth year of operation. We now have 15 commercial bankers in 5 branches and 1 loan production office in the Houston market and expect to open a new full-service branch and close the loan production office in the first quarter. We expect the lending team we hired in late 2023 will be even more productive than they have been. Since entering the Texas market in 2022, loans have grown at a 15% annual rate and now represent 20% of our loan portfolio. Nonperforming loans increased in 2025, but our charge-offs remain very low, and we don't expect that to change due to our conservative underwriting standards and proactive credit management. As you can see on Slide 16, our net charge-offs have averaged about 6 basis points over the last 6 years.

We continue to perform at a level above our peer banks and expect this trend to continue. We are confident in Home Bank's future and our ability to meet our higher standards in all economic [ climates ].

With that, I'll turn it back over to David, our Chief Financial Officer.

Thanks, John. Slide 5 in our investor presentation has a summary of the last 6 quarters. As John mentioned, fourth quarter net income totaled $11.4 million, an 8% decrease from the prior quarter but a 21% increase from a year ago. The decline in net income was primarily due to an increase in provision expense related to loan growth during the quarter. Net interest income was stable when compared to third quarter, decreasing $58,000 while NIM decreased 4 basis points to 4.06%. Year-over-year, 2025 NIM increased 32 basis points to 4.03%, while ROA increased 25 basis points to 1.33%. Yield on loans decreased 9 basis points quarter-over-quarter due to repricing of variable rate loans after the three Fed rate cuts in September. The contractual rate on new loan originations during the quarter was 7%. Despite recent rate cuts, our yield on interest earning assets increased 14 basis points to 5.88% in 2025.

Slides 14 and 17 provide additional details on cash flows from our loan and investment securities portfolio that should support NIM expansion in 2026. Excluding floating rate loans repricing in the next 3 months, 41% of loans with a blended rate of 5.7% are expected to reprice or refinance over the next 3 years. Over that same time period, half of our investment portfolio is expected to mature with a roll-off yield of 2.56%, which is well below current available yields.

Slides 15 and 16 of our investor presentation provides some additional detail on credit. We had $165,000 in net charge-offs in the fourth quarter and $908,000 of net charge-offs in 2025 which was only 3 basis points of total loans and $128,000 less than 2024. Fourth quarter nonperforming assets increased $5.2 million to $36.1 million or 1.03% of total assets. The increase was primarily due to the downgrade of two relationships and partially offset by [ paydowns ]. The largest was a $4.1 million relationship with two separate townhome development loans in Houston. We feel that between the loan values on these properties and the guarantor strength, there will be no material losses on this relationship. We reported a $480,000 provision expense related to loan growth during the quarter, which was an increase of $709,000 from the prior quarter. We feel very confident in reserves as our allowance for loan loss ratio was stable from the third quarter at 1.21%.

Average deposits increased by $58 million in the fourth quarter and by $187 million or 7% in 2025. Average noninterest-bearing deposits, which represent 27% of total deposits increased by $3 million in the fourth quarter and $40 million in 2025. 2025's deposit growth helped us reduce more expensive FHLB advances by $173 million to just $3 million at the end of the fourth quarter. The cost of interest-bearing deposits decreased 6 basis points in the fourth quarter and decreased 15 basis points since the fourth quarter of 2024. Our overall cost of deposits in the fourth quarter was an attractive 1.84%, and we expect additional reductions in the first quarter as recent Fed rate cuts are reflected in our deposit pricing.

Slide 22 of the presentation has some additional details on noninterest income and expenses. Noninterest income was $4 million, which was slightly above fourth quarter expectations of $3.6 million to $3.8 million. Going forward, we expect noninterest income to increase to between $3.8 million and $4 million over the next several quarters. Noninterest expenses increased by $515,000 to $23 million and was in line with expectations. Noninterest expenses are expected to be between $22.5 million and $23 million in the first quarter and then increase to between $23.3 million and $23.7 million from there as annual raises take effect and new projects kick off.

Slides 23 and 24 summarized the impact our capital management strategy has had on Home Bank. Since 2019, we grew per share tangible book value adjusted for AOCI at a 9.6% annualized rate. Over that same time period, we also increased EPS at an 11.5% annualized growth rate. We've increased our quarterly dividend per share by 55% to $0.31 per share and repurchased 17% 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 Instructions] The first question comes from Feddie Strickland at Hovde Group.

I just wanted to start on the credit side. I hear you on the limited loss history here and the fact that charge-offs really haven't been that high the last couple of quarters or for a while here. But when do you think we might see a shift in the trajectory of the Class 5 and NPAs as you work through some of these credits?

Yes. It's [ harding ] a little bit that sometimes it takes a little bit longer, especially those credits in Louisiana and Mississippi. Texas products typically move a little bit faster, we're finding out a more closer date, there is usually about 60 days or less. So we are working through a lot of these. A couple of the newer ones we had were not on our radar and then they just kind of popped up a little bit. So we do believe that the two subdivision properties in Texas, we should be getting back out of foreclosure or they should be sold by February 3. We think there's a lot of equity still in that property, very good locations.

We had another facility in Texas that the tenant moved out and the landlord is looking to sell the property. He has some interested parties just hasn't gotten there yet. So he's actually waiting -- he filed some lawsuits to be able to get back rent that the tenants had, and we'll see about that. But the most part, it's a good facility that should not have trouble selling. But once again, it just takes a little bit of time.

So we had a lot of one-off circumstances. We don't see this as an economic-driven downturn. And we just see different scenarios where people are able to maintain the rental property or in the case of the two subdivisions, the person never started the development of those subdivisions.

One of the properties that John was talking about in February, that's about $5.5 million that once again, will either be paid off, refinanced out or will foreclose on and move to sell quickly.

Got it. So all I'll see -- what we can see NPAs come down about $5.5 million if nothing else comes on. Is that a fair assumption?

We hope so. We think the property is if we do take them back should be able to sell relatively quickly, it does take a little bit of time in Texas to get permits and things of that nature. That would be the only thing that would slow it up, we think.

Okay. And shifting gears to the loan pipeline, does the makeup look any meaningfully different from what's on the books today? Or I guess, in other words, do you expect any sort of longer-term shift in the portfolio? I know in the past, you talked about more C&I.

All of '25, we had some payoffs versus second quarter, they weren't as large as they were in the third quarter, but we did have payoffs and pay downs throughout our portfolio. So I think it's just maybe because of higher rates are people selling their businesses to profits and such and the loans get paid off, but we're not -- we didn't have much of that at all a little bit but not much in fourth quarter. We're thinking hopefully, we have less of that in 2026. So the loan growth is there if we don't have the payoffs.

And just a last question, just update on what you're hearing from customers throughout different parts of the footprint, how are things in New Orleans versus Houston? Just curious where you might see a little bit more versus a little bit less growth incrementally?

We're not hearing anything negative in any of our markets, especially with rates coming down, yield curve coming down a little bit. So I think it's probably leaning a little more towards the positive side. Obviously, the national scene is always a concern what happens with interest rates, what happens with the economy and such. But for the most part, we have not heard any negative comments.

The next question comes from Joe Yanchunis at Raymond James.

So I was hoping you could talk a little about the SBA business as we enter into 2026. Yes, as it currently stands, do you think the business will be a driver of growth? Or will it take some more investments to really grow the business?

That's a great question. We got into the SBA business after the Texan Bank acquisition, and we kind of have been slow to develop it. But as rates went up, the request were much smaller and few and far between. So we do anticipate that with the lower interest rates, that should pick up. I don't think we're low enough yet to where it's going to be tremendous, but it should be much better than it has been in the last two years.

Got it. And just a quick clarification. All my questions are great questions. So capital levels continue to build. You throttle down the buyback with current levels where the stock price is. Would you characterize M&A as one of the top capital deployment priorities? And if that's the case, can you talk about how the pace of conversations changed in recent months?

Well, a couple of important factors, I think, Dave and I have been speaking to people opportunities that have been out there for the last 3 years, of course, with the high interest rates and some of the balance sheet being a little upside down, it was not very attractive. The other important component there was we did not have a commodity that we felt we could use. So we looked at smaller deals that we could pay cash for. So now that our stock price is getting closer to a [ 140 ] of tangible or so, we feel as though we have the power to go out and maybe look for a little bit larger banks that we feel very comfortable with. So we're very optimistic about 2026 M&A.

And what would the larger deal look like just in terms of size or if you want to talk some geography as well?

Yes. I mean we're probably not looking at anything over $1.5 billion, I mean, half our size or less.

I appreciate that. And kind of last one for me here. In the back half of '25, you purchased nearly $20 million of securities. How should we think about the size of the bond portfolio as you move throughout '26?

I think it's going to be relatively in the same percentage of assets to 11% to 12%. We expect loan growth, we expect our balance sheet to increase a little bit. So I expect the investment portfolio to increase book basis -- excuse me, on a par basis by about $15 million to $20 million and then whatever happens on AOCI as it comes back.

The next question comes from Stephen Scouten at Piper Sandler.

I appreciate the time. I'm curious, John, I heard you say you feel pretty good about that team you have in Texas from 2023. Do you feel like there's opportunities with all the M&A we've seen in that environment to continue to add to that team? Or is there kind of plenty of capacity there now to grow at the pace you want to grow?

Well, we never lost anybody in the Texan acquisition, and we added about 3 other people to that. And then we did a pull out 2 years ago, I guess, it is now a 3-person team -- actually a 4-person team with 3 relationship managers. So that's the -- that's where we're building a new branch in Northwest Houston, and that's going to give them full branch capabilities. It's been very difficult as a loan production office for the last 2 years for them to grow as much, especially on the deposit side. So we're very excited about that team and hope to continue to grow in that market. Absolutely.

Okay. Got it. And then when you think about the kind of overall loan growth capacity for the franchise as we look at '26. Is kind of -- is mid-single digit the right way to think about it? Or do you have aspirations for more given what you're seeing in the Houston [indiscernible]?

I think the only thing that's going to push it past mid-single digits is potentially lower interest rates that may spur the economy a little bit more. I don't know if we're going to see that until maybe midyear or second half of the year, it's anybody's guess, right, where interest rates go. But it looks like the [indiscernible] is staying up a little bit. So potentially, it may be better in the second half of the year than the first half of the year. But I still think based upon the pipeline that we had in fourth quarter, I think first half of the year is still going to be mid-single digits.

Okay. Great. And then just maybe last thing for me. Kind of thinking about the trajectory of the NIM and David, I heard you obviously say you think there's some expansion opportunities there. I guess, kind of two parts to that. What do you think the scale of that potential upside could be? And then two, can you kind of help me reconcile the -- obviously, on page, was it, 21 of your presentation. What would show is kind of a liability sensitive -- I mean, excuse me, like an asset-sensitive appearance on the balance sheet versus what we've kind of seen in practice and kind of how I think about your balance sheet and the upside from lower rates?

Yes. So we had 3 rate cuts since mid-September. And so that impacts the loan portfolio immediately, and you saw that as a 9 basis point decline in loan yields. We have a very short deposit portfolio, but it does take a couple of months to realize the impact of rate cuts through CD repricing. Our NIM in December was 4.08% and that's reflective -- that's due to seeing our deposit cuts actually playing out on the income statement. And you're going to see more of that come through in Q1 as a lot of the CDs are repricing. So we took the impact of the rate cuts and that reduced our loan portfolio by 9 basis points. We've been originating in the 7% range, and we have roll off yields, a pretty healthy roll-off yield. So in the base case scenario, we see NIM ticking back up to 4.1% and 4.15% throughout the year. So that answers one of your questions, I believe.

As far as rate sensitivity goes, change in net interest income, you got to remember that this projection is based off of the next 12 months. It's not saying, "Oh, my NIM was 4.05% and then down 100 basis points, I'm going to lose 4.1% of my NIM. It's -- my NIM is projected to increase in the base case to 4.1%, 4.15% in the base case, not from the 4.04% we just -- I mean, 4.06% we just reported, it's a 4.1% or a live asset-sensitive bank from that base case. And so even if we go down 100 basis points in yields, we still think that our NIM is going to be relatively stable to what we just reported.

I think the biggest headwinds we have right now in regards to NIM or some outliers on the deposit side, throwing some really high CD rates out there. So we're having to compete a little bit for that. That hasn't been the issue. Pretty much a lot of banks were all in the same general vicinity rate-wise, but there are some outliers in the 4.25% range.

Generally, I guess this is kind of a shock scenario, but it sounds like you have a lag that's actually beneficial as those CDs repriced over time from each subsequent cut. So theoretically, it could impact the NIM negatively for the first 30 days, but then probably there's some strength after the fact as deposits reprice. Is that maybe the best way to think about it?

Yes. But I'm glad John did bring that up. We are seeing more -- a much wider range of deposit pricing in some of our markets than we had over the last, I guess, probably 1.5 years with the spread between the high and the average.

Yes. Makes sense. People have seeing loans out there that they want to fund up. So yes, I would imagine it all gets a little bit more competitive. But to your point, hopefully, that means we got better economic strength. So we shall see. I appreciate all the color.

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

Thank you. And once again, thank you all for joining us today, and we look forward to speaking to many of you in the coming days and weeks, and thank you for your interest in Home Bancorp. Have a great day.

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

Good morning, ladies and gentlemen, and welcome to the Home Bancorp's Third Quarter 2025 Earnings Conference Call. [Operator Instructions] Please note this call 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.

Thank you, Konstantin. Good morning, and welcome to Home Bank's Third 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 our investor presentation and our SEC filings.

Now I'll hand it over to John to make a few comments about the quarter. John?

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 third quarter net income of $12.4 million or $1.59 per share, up $0.14 per share from the second quarter and $0.41 from a year ago.

Net interest margin expanded for the sixth consecutive quarter to 4.10% and our return on assets increased by 10 basis points to 1.41%. Home Bank's efficiency ratio also improved in the third quarter and is now back down below 60%. We've been able to grow revenue significantly faster than expenses over the last couple of years with revenues increasing twice as fast as expenses.

Loans decreased by $58 million in the third quarter as we saw payoffs and paydowns that were $52 million higher than average paydowns over the last 6 quarters. This was driven by a number of long-term customers selling their businesses or property. I think it's worth mentioning that we're not losing them to other banks. 8 customers alone that sold their businesses or property in the third quarter made up $45 million of the decline. In almost every case, Home Bank remains these customers' primary banking relationship, which bodes well for the future, but challenges our near-term growth.

Customers are always waiting for lower rates before they move ahead with their projects that require financing. We have a lot of great conversations going on but the media coverage over the last 10 months has convinced many that big rate cuts are coming. So people are choosing to remain on the sidelines until there is more clarity on rates. While we are hopeful that we'd see 4% to 6% loan growth this year, we're now expecting more moderate growth of 1% to 2% in 2025.

We've always maintained loan structure discipline and have prioritized risk-adjusted returns over growth, and we don't intend to abandon our principles now. On a high note, deposits increased 9% annualized in the third quarter with good growth and relatively low-cost money market accounts. Thanks to a concerted effort and a focus on building franchise value, we've increased deposits by 17% in the last 9 quarters versus loans, which also grew a respectable 8%. Most of this increase has been in core deposits and includes good growth in Texas, which we entered back in 2022.

Our loan-to-deposit ratio is now 91%, which positions us well for when loan growth picks up. Nonperforming loans have increased in 2025, but our charge-offs remain very low. We don't expect for that to change due to low loan to values, 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 accelerated, and we continue to look for the right opportunity to leverage our acquisition experience. We are confident in Home Bank's future and our ability to meet our high standards. Our senior leadership team has 981 years of cumulative experience for an average of 26.6 years, and we have a track record of outperformance in all economic climates.

With that, I will turn it back over to David, our Chief Financial Officer.

Thanks, John. Slide 5 in our investor presentation has a summary of the last 6 quarters. Net income totaled $12.4 million, a 9% increase from the prior quarter and a 31% increase from a year ago. Net interest income increased $754,000 quarter-over-quarter as NIM increased 6 basis points to 4.10%. Yield on loans increased 3 basis points quarter-over-quarter as a contractual rate on new loan originations was 7.35%, 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, and we think we can continue to increase asset yields even if there are rate cuts. Excluding floating rate loans repricing in the next 3 months, 41% of loans with a blended rate of 5.7% are expected to reprice or refinance over the next 3 years. Over that same time period, half of our investment portfolio is projected to be paid off with a roll-off yield of 2.56%, which is well below current available yields of approximately 4%.

Slides 15 and 16 of our investor presentation provides some additional detail on credit. We had $376,000 in net charge-offs in the quarter related to smaller C&I loans. Year-to-date, our net charge-offs totaled $743,000, which is a very low 4 basis points to total loans and $58,000 less than our prior year. Third quarter nonperforming assets increased $5.5 million to $30.9 million or 88 basis points of total assets. The increase was primarily due to the downgrade of 5 relationships and partially offset by paydowns. The largest was a $5.1 million relationship with 2 separate land development loans in Houston.

We feel between the loan to value on these properties and the guarantor strength that there will be no material losses on this relationship. The second largest was a $1.2 million acquired CRE loan that was placed on nonaccrual status in September that was made current as of 9/30. Once again, we believe we are well collateralized on this loan as well as other loans classified as nonaccrual and/or substandard.

We had a negative $229,000 provision expense during the quarter as a result of loan balance declines, which was partially offset by a $376,000 of net charge-offs. We feel very confident in reserves as our allowance for loan loss ratio was stable from the second quarter at 1.21%. The cost of interest-bearing liabilities decreased 2 basis points to 2.69% as continued strong deposit growth allowed us to pay down more expensive short-term advances.

Interest-bearing deposit cost increased 5 basis points in Q3 due to changes in the deposit mix, where we will see decreases when we get some additional Fed rate cuts. The cost of CDs declined 1 basis point to 3.85%, even as balances increased $15 million during the quarter. We are keeping CD terms short with 77% of our CD portfolio maturing in the next 6 months and 97% within a year. So we will have the opportunity to react quickly when rates decline.

Noninterest-bearing deposits, which represent 27% of total deposits increased $5 million in Q3 and $69 million or 9.4% year-to-date. Our overall cost of deposits in Q3 was an attractive 1.88%. This was an increase of 4 basis points quarter-over-quarter, but once again, we were able to pay off FHLB advances and reduce our total cost of interest-bearing liabilities by 2 basis points. Short-term advances from the FHLB declined $75 million quarter-to-date and $137 million year-to-date.

Slide 22 of the presentation has some additional details on noninterest income and expenses. Third 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 several quarters. Noninterest expenses increased by $124,000 to $22.5 million and was in line with expectations. Noninterest expense is expected to be between $22.5 million and $23 million per quarter for the next 2 quarters.

Slides 23 and 24 summarize the impact our capital management strategy has had on Home Bank. Since 2019, we grew tangible book value per share adjusted for AOCI at a 9.5% annualized growth rate. Over the same period, we also increased EPS at 11.2% annualized growth rate. We increased our dividends per share by 36% and repurchased 17% of our shares outstanding 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 Instructions] Your first question comes from the line of Joe Yanchunis from Raymond James.

So I thought we could start with the NIM here. So how should we think about the NIM trajectory, particularly as we think about the board curve and your increased asset sensitivity? And at what point do you think the NIM peaks?

All right. So the increased asset sensitivity is more so due to the cash on hand on our balance sheet. So that's increasing the sensitivity as cash reprices daily. I would say as far as NIM, I think we have a great opportunity to keep NIM at least flat and grow a couple of basis points quarter-over-quarter. We have highlighted that we have a lot of loans within investment securities repricing, and we still think we have room to reprice upwards. And also with Fed rate cuts, we did lower some of our deposit rates. And we think we -- as the Fed continues to cut, we have the opportunity to lower deposit rates even further.

And that has the ability to offset the reduction in loan yield due to Fed rate cuts as adjustable rate loans reprice downward. So I think we're really well positioned to continue to keep NIM at least flat to increase a couple of basis points.

I appreciate that. And your updated 2025 loan growth guide implies a pretty big step-up in 4Q loan growth. What levels of payoffs and paydowns are implied in this guide? And how does the loan pipeline currently compare to recent history? Just to probably get a sense on the jumping off point as we get into 2026.

Sure. Third quarter was beginning of the decline of new loan originations. We see a little healthier portfolio coming forth in the fourth quarter. Maybe not all of that gets closed in the fourth quarter, but -- so it is a little healthier than what we had in third quarter originations. So those numbers were down probably about -- the exact amount, but probably about $30-something million in the quarter from prior quarters. So we do think we'll see some pick up. Hopefully, we can pick up all that $36 million and be more normalized in the fourth quarter. But I think definitely, if we get a couple more rate cuts, first quarter should be very strong.

[Operator Instructions] Your next question comes from the line of Feddie Strickland from Hovde Group.

I appreciate the commentary in the release that you don't expect losses on the credits that migrated to nonaccrual this quarter. You gave some more color on the call. So it sounds like we shouldn't necessarily see charge-offs from that. But I'm just curious, as you work through some of these credits, could we start to see the direction of nonperformers reverse and maybe start to see those come down some?

Yes. I think if you -- as we look at it, there's no, I guess, similarity in what's starting to have problems. It's just some one-offs here or there. We have one of our classified that called us this week and said they're going to be paying us off by the end of the month. So we would hope, but the worst part about NPAs is sometimes it takes them a little bit longer to fix themselves. What we're happy about is we're not seeing a lot of them going in the bankruptcy, which really takes anywhere a little bit faster in Texas, but slower in Louisiana in some cases up to a year to be able to move on that.

So we're working through them. One of our problem assets that we had from a couple of years ago, we finally are getting out of bankruptcy, and we'll be able to take those properties back and begin the process of selling them. So it's kind of a longer-term situation when you have the bankruptcies. But fortunately, most of ours are not in bankruptcy. So hopefully, they can either sell or upgrade their business and be able to start paying as agreed.

Appreciate that. And just shifting gears to deposits. Can you talk about the level of deposit competition you're seeing today versus maybe a quarter ago? And how are you thinking about deposit betas on the way down if we do get rate cuts?

So our deposit betas are going to be a little bit, I would say, less than peers. We will continue to see our deposit betas increase from where they are over time. And I think they're going to be a little bit less than peers is because we didn't raise our deposit rates as much as some of our competitors didn't have overall lower cost of funds to start off with. So that's going to give us less room to go down, but we still have room to adjust as yields come down.

As far as competition goes, I would say there are a couple, count on one hand, banks that are kind of out of the norm of our peer grouping. They pop up here and there. And I would say mostly in the Texas market, 1 or 2 banks in Louisiana have some outlying pricing. But overall, we're able to retain most customers, we are able to offer competitive rates, and I don't feel like the pricing is as fierce as it has been in the past.

I feel like banks are -- some of our competitors in the market, they are very quick to lower their deposit costs and looking to lower their liability cost, and that bodes well for us given our NIM position and our desire to continue to increase our liquidity.

Also adding to that with the 91% loan-to-deposit ratio, it should be a little bit easier for us to lower our deposit costs. We were -- when we were at 98%, we were very much kind of in the lead as far as the price of CDs and such. So I think a little bit of that pressure will be taken off.

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

Thank you. Once again, thank you all today for joining us. We look forward to speaking to you in many days and weeks ahead. Thank you for your interest in Home Bancorp. Have a great day.

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