Thank you, Anna. Good morning and welcome to Home Bancorp'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.

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

Thanks, David. Good morning, everyone.

Thank you for joining the 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 will 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. 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, 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 90-92 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 one 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 some of the loans are refinanced elsewhere, businesses are sold, or some loans are moved to real estate owned, and eventually the asset is sold. We anticipate that 14 loans with balances of approximately one-third 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 six 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 few 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. 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 we 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%.

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. We believe future repricing opportunities will provide room for additional NIM expansion.

Deposit growth continues to be a key strength. As shown on slide 18, total deposits increased to $3.1 billion, with core deposit growth of $46.6 million during the quarter, more than offsetting a modest decline in certificates of deposit.

Non-interest-bearing demand deposits increased $5.1 million during the quarter and continued 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 maturing CDs at lower rates.

While we've been pleased with our success in driving down deposit costs 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.

Non-performing 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 non-performing loans into OREO.

Total non-performing 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 stood at $34 million, or 1.22% of total loans. 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 an almost $10 million 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 non-interest income and expenses. Non-interest income totaled $3.9 million in the second quarter, up $181,000 from the first quarter.

We continue to expect quarterly non-interest income to be in the range of $3.8 million to $4.1 million. Non-interest 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 a $1.3 million increase in compensation and benefits expense and a $331,000 increase in foreclosed asset expense.

Given elevated expenses working through foreclosed assets, we expect non-interest expenses will be in a range of $24 million-$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 remain 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.

Question-and-Answer Session

Good morning.

Good morning, Joe.

Hey, Joe.

Thanks for taking my questions. I was hoping to start with the NIM.

The margin's expanded, 18 basis points over the past couple quarters, well above that 410 to 415 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 of 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%. That still leaves the room for repricing opportunities.

I think after Q4 and into Q1 of 2027, I think that's when you'll see some moderation.

Shifting over to loans. Loan growth really accelerated nicely this quarter.

How much of that improvement reflected stronger customer demand versus seasonality or lower payoff activity? On the last quarter call, you mentioned your pipeline had increased by about $30 million sequentially.

Can you provide an update on where the pipeline stands today and how you're viewing the conversion of those into funded loans in the back half?

Yeah. I think through most of 2025 we did have some payoffs, especially in third quarter of 2025, and that happened also in first quarter.

We're seeing less payoffs in second quarter. That's just a seasonal thing that we 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. Our pipeline, I think, remains consistent.

While not robust, it remains consistent; 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.

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

Yeah, it's really the back half.

All right. One more from me here.

Capital remains a pretty clear strength. 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 it has definitely been much quieter. We have our ears open and are ready to go.

We have a lot of dry powder to utilize, we're looking for that right partner.

All right, perfect. Well, thanks for taking my questions, gentlemen.

Thank you, Joe.

Thanks, Joe.

Hey, good morning, everyone. 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, how would you think about capital uses beyond M&A? Because obviously your excess capital continues to build quarterly based on really strong profitability.

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?

Yeah, 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.

We still anticipate that the primary use is in that. I'll turn it over to David as far as dividends or buybacks.

We've been selective in buybacks based on the stock price. Our stock price has had a nice run over the last couple of quarters.

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.

We're really looking at keeping the dry powder for M&A. Also, we have our sub-debt, which is callable in 2027, which could potentially be an option given the M&A landscape.

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

Our coupon rate is 5.75%.

Okay. In terms of Fed rate hikes, can you remind us what you think if the Fed were to hike?

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?

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 two to three basis points, and then we adjust our deposit prices.

You have probably a quarter of, let's call it a decline when deposit rates increase. Like I said, we have a good cash flow coming due.

I think we'll be able to sustain as well as improve NIM with a rate hike.

Let me just add to that. 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? What that could do is hurt NIMs on all banks because the deposit customers may be seeking a little bit higher yield.

I'm more concerned about what happens with our deposits than with our loans, really, because we won't be pricing loans at a better rate today. Deposits, because so many banks are at a very high loan-to-deposit ratio, they're paying up significantly.

A rise in interest rates could cause a little bit of a run on the deposit side. We'll have to be competitive in that arena.

I think that's a good point. 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? Where are you seeing pressure?

Is it more on rate, deposit rate, structure of loans? Where's the tension points from a competitive environment perspective?

I could see that in both loan and deposit. Texas is probably more competitive than Louisiana, where 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 four or five banks in the Texas market that were paying back up close to 4%. I think in the first quarter, we had two or three banks in Texas that were at four and a quarter, so way above the market.

Competing against those has been a little bit of a challenge. I still think we're going to have banks across all of our footprint that periodically are going to need more liquidity and are going to raise the rates.

Yeah, very good point. Great color, appreciate it.

Congrats on a great quarter.

Thanks, Stephen.

Hey, good morning. Just wanted to ask one, appreciate the overall guide.

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 for the next couple of quarters?

Yeah. It is surprising a little bit that construction is continuing to head down.

When rates were higher, it slowed down for sure. 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. Yes, I think we're doing well in other categories, trying to diversify our risk as much as we can in the loan portfolio.

You'll continue to see growth in other areas than just plain CRE.

Got it.

We've done a good job over the last probably four quarters of reducing our non-owner occupied CRE and increasing our owner occupied. That was a goal of ours starting about two and a half years ago, it's really paying off.

Got it. Appreciate that, John.

Just switching gears on the expense side, again, appreciate the guide there. I think you mentioned some of the expenses, working through some of these credits, foreclosure expenses, what have you, are keeping that a little elevated in the second half of the year.

As we get into early 2027, 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?

Yeah, I'll touch 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. I think we're getting that back down to a more normalized run rate going into Q3 and into Q4.

You'll see a little bit of help from that. I think once we work through the OREO expenses, depending on the pipeline of how that shapes up, you'll see a little bit more normalized rate of our expense base.

Got it. Just last question from me, real quick.

It seems like you've got pretty good loan and deposit pipeline. Do you expect, once the loan-to-deposit ratio stays around that 90%-92% range that you've been targeting, do you see anything that would cause you to kind of jump above or below that the next couple of quarters?

No. On the deposit side, we tried to lower our rates a little bit in the first quarter, and we lost about $60 million of CDs and such.

We have not moved from there. We still are down for the year about $60 million in CDs.

Holding our CDs intact, I think, is important to maintaining the growth. 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.

That's a big strategy for us for the remaining part of this year and going into next year.

That's helpful. Thank you.

Back in queue.

Thank you. Have a good day.

Hey, good morning. Thanks for hosting the call.

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?

Yeah. We're not anticipating any major changes, Chris.

We've got a strong crew, executive team. Our chief banking officer has a really good crew.

We haven't had much in terms of turnover. We're just looking to add good bankers when they're available, but no major plans for additions at this time.

All right. Very well.

Thank you.

We did just add one new RM in the Baton Rouge market, which is our slowest developing market, so hopefully that will help.

Got it. All right.

Thank you both for that. Then just to go back on the criticized trends and other comments related to that you've already made, is there anything else in the pipeline or any other trends you see 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 that's 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. 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.

Finally, for our non-performing assets, we're expecting through payoffs, upgrades, and sales of other real estate owned, approximately $7 million of improvement there. Overall, between now and the end of the year and many happening throughout the next five months, we should exceed about $30 million of improvement in special assets.

Good. Thank you, Darren.

That's very helpful. I appreciate it.

Thanks again for hosting the call this morning.

Thank you for the question, Chris.

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.

Appreciate your interest in Home Bancorp. Have a great day.