Q3 2022 Business First Bancshares Inc Earnings Call
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Thank you for standing by and welcome to the business first <unk> Bancshares Q3, 2022 earnings call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session. If you'd like to ask a question. During this time simply press star followed by the number one on your telephone keep.
Pat if you'd like to withdraw your question again press the star one. Thank you. It's now my pleasure to turn the conference over to Matthew C. U E. S. P. P director of corporate strategy and F. T N a Mr. Seely. Please go ahead.
Thank you Jack and thank you all for joining US yesterday afternoon, we issued our third quarter of 2022 earnings press release, a copy of which is available on our website along with the slide presentation that we will refer to.
During today's call. Please refer to slide three of our presentation, which includes our safe Harbor statements regarding forward looking statements and non-GAAP financial measure.
Joining by phone. Please note the slide presentation is available on our website at www dot be one day Dot Com. Please also note our safe Harbor statements are available on page eight of our earnings press release that we filed with the SEC yesterday.
All comments made during today's call are subject to the safe Harbor statements in our slide presentation and earnings release.
I'm joined this afternoon by business first Bankshares, President and CEO , Jim Melville, and Chief Financial Officer, Greg Robinson.
Presentation will be happy to address any questions. You may have I'll now call turn the call region.
Okay. Thanks, Matt and welcome everybody excited to be here for our first public call. We're also joined by Philipp Guertin, who is our chief banking officer.
Okay. So I'll give you a quick overview I'm, assuming that some of you may not be that familiar with our story.
And what will go into our Q&A session for today I'd be one bank 16 year old Bank in Louisiana.
Quarter in Louisiana, but also a presence in Texas.
So in small businesses as our primary.
Clientele, where the where.
We're the number one bank headquartered in Louisiana as measured by the Louisiana deposits.
We have about a third of our assets in Dallas and Houston.
We also have about $6 billion under management and then all right.
Called Ssw.
Couple of years ago, we started on a five year plan on our most recent five year plan and at three major components. One is growth we were about $3 7 million.
Five years ago, we wanted to be about $7 5 billion.
The second component of the five year plan was.
Asset diversity, so while we were a little under 10% outside of the state of Louisiana by the end of the five year plan, we wanted to be.
About 50% and then finally.
Earnings we were under ROA under one ROA.
By the end of the five years, one of the top at 1.25 ongoing.
Ongoing run rate for ROA and pleased to report that we're ahead of schedule on all three all three legs of our of our five year plan.
It provides growth finished the quarter at about five we finished the quarter at about $5 8 billion in assets.
From a diversity standpoint, we're up to about 34% of our assets.
In Texas and the earnings standpoint, we're at $1 15, our way so pleased with the progress.
Specifically, the third quarter really highlighted.
Pay off a number of investments that we've made over the past few years, including M&A and <unk>.
De novo and organic growth.
We finished we finished the third quarter with record profit.
It's also our seventh quarter in a row with over 20% annualized growth.
<unk>.
We're actually at 30% for the second quarter in a row of umbrella.
About 60% of that loan growth has been in the Dallas and Houston.
Areas.
Most importantly, we also finished the quarter.
But.
Asset quality.
What I'm really excited about is that these investments are beginning to pay off but we felt like yourself.
Lots of capacity to continue.
On the journey that we embarked upon a couple of years ago in.
Part of that is that we hired about 25 anchors over the past.
Six quarters in and believe that although their production has certainly kicked in it will have.
We have room to go there and even outside the production offers officers, we've been able to add quite a bit of talent to our staff and excited about the people portion of our of our listed assets.
Proud to announce that this year, we again one.
Banker magazine in American banker magazines are one of the best places to work.
For our institution, so excited about that I'm not going to go into great detail in the intro calls are the answer portion of the call.
Partly because with our capital raise a couple of weeks ago, we had a chance to talk to many of you and put our information out there.
So I really would.
We opened turning it over now to Q&A for anybody that.
It has any questions.
Hello.
At this time, if you'd like to ask a question. Please press star one on your telephone keypad will pause for a moment to compile the Q&A roster again that is star one on your telephone keypad.
Thank you.
Matt Olney with Stephens Your line is open.
Hey, guys how are you.
Good Matt.
Thanks for calling in.
Yeah, well thanks for doing this public call I think this will service all well appreciate that.
You mentioned the success you've hired you'd had a on the new hires recently I think you quoted 25 bankers over the last six quarters and we're now seeing this pay off of last few quarters in terms of revenue I'm curious where are we in this recruiting cycle and are you continuing to recruit at the same.
Level at this point.
In other words could we see another 25 bankers over the next six quarters or could this pace slow from what we've seen more recently thanks.
Good question, Yes, no we don't expect to see the same level of recruitment that over the next six quarters.
Where we have hired two bankers this past quarter and I think two or three bankers a quarter is probably a good run rate for us over the over the next year and a half or so.
We feel like we.
I want to let our.
Our men and women that we hired.
I have a little room to work in and want to make sure. We're also not getting ahead of ourselves in terms of operational capabilities and of course with.
With <unk>.
Certain measure of uncertainty.
And they are for next year.
I want to make sure that we are.
Growing prudently so.
We'll continue to add win when we find good teammates.
But not out of the pace at which we've done over the past year and a half or so.
And then just following up on that you're thinking about geography, I think over the last two years, it's been mostly DFW in New Orleans should we expect a similar type of geographic mix in the next two years.
For hiring.
Yes, yes.
Yes.
Yes.
It would probably be more Dallas and Houston.
But we certainly will fill out when we have good bankers that are in our Louisiana footprint as well.
Eileen's footprint was up about a third of the hiring that we did over the past.
So we feel really good about the quality of the game there and.
Most likely.
We will continue to add bankers in the Dallas and new scenarios as you know.
We consummated our M&A.
Texas citizens earlier this year.
We converted over the summer.
Very pleased with their growth in the third quarter, they added about $40 million in models.
Which exceeded our expectation.
As we get more establish there and are our brand becomes more well known and we think we will have other opportunities to add some bankers there.
Okay. Thanks for that and then I guess on the expense side, we have seen expenses ramp over the last few quarters you mentioned.
The Texas citizens deal, that's now a numbers and some of the new new bankers.
Any guidepost, you you'd point us towards for the fourth quarter or as we look towards 2023 for operating expenses.
I'll, let Greg Greg.
Hey.
Matt Thanks, Good question.
We think the $37 million.
Quarterly run rate is pretty good right now.
Going forward in Q4 that will probably be about $1 million.
$250000 higher just for some seasonal.
Expenses drove some accruals and that sort of thing.
The $37 million from their analysis seems to be a good run rate.
Okay. Thanks for that Greg and then I guess, the last topic I want to dig in on is going to be on deposit betas.
Interest bearing deposit beta I'm getting maybe the mid <unk> in the third quarter.
Most of your peers are talking about increasing our higher deposit betas as you move into the fourth quarter just from increased competition.
I'm curious what your expectations are from you guys as far as deposit betas from here. Thanks.
Good question Matt.
We.
One of the things before we talk about beta to think that we're kind of proud of us.
Started out the year.
31% noninterest bearing <unk>.
Almost 30%, 36% at the end of the quarter. So when you apply that to the overall beta it makes sense that are closer to 20.
And so we do think it's going to trend higher.
Probably to 30, all in as we move forward, maybe it may be slightly higher than that.
Okay. Thanks, guys appreciate your help.
Great. Thank you. Thank you.
Freddie Strickland with Janney Your line is open.
Okay.
Hey, good afternoon everybody.
You bet.
Thanks.
Just looking at slide nine on the flip side on the deck and it looks like you've been able to raise even more deposits than loans in Houston.
Does the contribution on the deposit side start to rise in Dallas over time to something similar to Houston or is the strategy in Dallas more to deploy deposits from some of the Louisiana region, just given the competition market.
Well I would say its a mixture of both I mean, its certainly part of our game plan is to take full advantage of the diversified footprint that we have and we wouldn't have been able to grow.
But where we our loan lives in Dallas without the contribution of <unk>.
Some of our more established deposit.
British areas.
Including southwest, Louisiana, and the <unk> region.
We certainly want to continue to focus on growing deposits in Louisiana and put them to work out wherever that makes sense, but I also would say that our Dallas.
But credit is maturing and we would expect that.
<unk>.
Contribute to that effort as well, we just opened our fourth spot there and so we feel like we have a pretty good.
Establish foothold I will say that.
Ed.
I'm very pleased with our deposit mix that we have grown and balance.
$270 ish million.
Got.
60% is noninterest bearing so.
While they are not self funding certainly make a contribution in that kind of speaks to the business orientation in the larger markets and our.
Our focus on.
Our treasury.
Personnel as well as as well as lenders so.
I would say that I'm pleased with.
The deposit growth in the Dallas area, but certainly we hope that.
To not only continue but as we get increasingly established there.
We are able to diversify the mix of deposits and balance.
Got it that's helpful.
Just one more for me I was wondering if you could just talk a little bit more.
Ssw, what kind of opportunity you see to grow that business.
However, if you could remind us how it in a.
Place with the core bank.
Sure so.
Or pages that Greg.
It's on page 11 page 11 of the deck gives an overview of ssw. So a couple of things one is dead.
We have been very successful growing as they joined our team.
Up by about 70%.
And assets under management and that's after taking into account the drop in the market. So they have grown.
Nicely since it became part of the game for the synergies seem to be working well now.
The bulk of that is <unk> as you know.
Made up of clients of other financial institutions.
So.
We have a couple of opportunities one is we've been working on developing a network of financial institutions that we serve now Andrew Ssw that but also through our <unk> group, our <unk> group.
Telus loan participations and average deposits for us from.
Other financial institutions, and there are about 300 million patient.
Each of those categories.
So ssw provides.
And additional network for us to tap into and that works both ways. We're also able to them.
Is there a big group to recommend.
Financial institutions to Ssw's up so we certainly hope to continue to grow that as a source of deposits and other sources of risk mitigation with our loan exposure.
The other opportunity that we have with ssw's to grow them.
Our presence and we because we've been so busy there growing the financial institutions group really haven't tapped into yet.
The ability to use that capability across our footprint with our with our other bias in their businesses and their and their executive team to the next.
<unk>.
Q3, or four years, I think we'll see a more balanced mix between the retail and the financial institution group in <unk>.
And the retail business is higher margin.
So we'll look forward.
So being able to work that into our earnings.
So early in the game this year, and a half and but but very excited about.
The serviceability and contributed not only to noninterest income.
The bank side, but also continuing to grow that network of banks are up to about 100 banks that we serve in some way whether that be.
If you were advising them on their portfolios or loans or deposits.
We also.
Earlier this year, we did a preferred equity raise.
As you know we were able to do that in house and about half of the participants actually came from our bank network. So there is some other.
Kind of ancillary benefits.
We've had we've enjoyed through the affiliation.
Got it that's very helpful. Thanks, so much and I'll step back in the queue.
Kevin Fitzsimmons with D. A Davidson your line is open.
Hey, good afternoon, everyone.
Hey, Kevin.
Just wondering.
With the <unk>.
The substantial.
Loan growth, we saw it pretty.
Pretty quickly, we got the loan or deposit ratio up.
So almost 97% just wondering.
And that's got two components, obviously loans I would assume <unk> that we're not going to be at a 30% clip.
<unk>.
Sustainably going forward.
And then it's probably struggle just.
Industry wide to keep deposits.
<unk>.
But just wondering how youre looking at that ratio. What you think is normalized where do you want to see it go. Thanks.
Sure I'll start and I'll, let I'll let.
Hey, Greg gave some detail but.
I think you're right.
Tung realistic to assume that we would continue to grow at 30% annualized and we're looking at it.
15 ish kind of mid teens growth for the.
The rest of the year, and then probably into 2023, which gives us a little better shot at catching up with deposit growth.
We are kind of seasonal when it comes to our deposit base. So.
The fourth and first quarters tend to be our best deposit gathering.
Quarter. So so we're optimistic about that from us.
<unk> ended the year impact to our longer deposit ratio and we've actually already started the quarter off positively and been able to pay down some of the borrowings and switching to deposits. So we're pleased with the growth we think we can.
Can be kind of.
High single digits for growth on the deposit side.
This quarter and beginning of next year, so still a little bit of gap to make up but we also have.
<unk>.
Relatively low exposure to the wholesale deposits and this volume, which we can we can use to help us.
Filling the gaps while we while we continue to work on our deposit gathering capability I will say that debt.
We've been pleased overall with the growth in noninterest bearing deposits.
From our.
From our banking centers and from our commercial clients.
And some of that is obscured by the fact that we've had such strong loan growth.
Got it.
We've also but more of an emphasis over the past.
Couple of months in particular on.
On revamping some of our deposit incentive programs.
And just.
Kind of a tender of our production.
Conversations that we're having so.
We have a history of achieving what we set out to achieve and.
A little more focus on that side of the balance sheet up until confidence.
That there will be a successful in terms of your specific question I think both of them.
So nine ACN 90, 192, it's probably more where we want to moderate.
On a regular basis.
Greg do you want to add detail to that Kevin.
It looks likes like Judy mentioned for Q4, we're looking at about 15% annualized which would be about 170 million savings.
Through this part of the quarter were virtually right on pace for that and.
Also on the deposit front, we're seeing some early signs in the quarter were having some successes with deposit gathering.
So far so I think.
At a high single digit deposit growth in the fourth quarter then.
Of course, our municipalities.
It should come in in the fourth quarter.
First part of the first quarter somewhere in the $200 million to $250 million range and then we will also have the <unk>.
A large part of our AG book.
In the fourth quarter, the phase down about $80 million that should start to cash.
<unk> balance sheet for a while so.
Twin the revamping of the incentive plan and those seasonal things we think.
I have some liquidity options going forward.
Okay, great. Thank you.
Just wondering.
On the margin front, if you could help us how to think of that.
Trajectory going forward.
Any help.
Help you could provide if you happen to have handy, maybe the September margin or <unk>.
Range, you might expect from fourth quarter.
You got a lot of banks are talking about.
They are being.
Additional expansion, but not at the pace seen in third quarter and then.
Kind of.
Plateauing at some point in.
In 2023, and the first half spend.
Fighting to keep it stable thereafter, just any kind of color or outlook on that front. Thanks.
Yes.
Good question Kevin.
As you remember from our release we.
Had about five basis points influenced our margin at quarter end from the nonaccrual that we collected first quarter first quarter.
So the margin in the fourth quarter, we expect.
We closed out the quarter with us.
Sure.
Weighted average yield on new loans at about <unk> 10.
So we think that that's going to improve.
We're around 50, 50 to 60 basis points in the fourth quarter, which with our <unk>.
Seasonality in the deposit front, which a lot of those municipals that will start coming it'll be interest bearing along with the five basis points that we're not going to we're not going to get that was a one time, so we should be.
Hold steady on the margin slightly declined in the fourth quarter and then looking out from there.
In 2023.
Should start to pick up.
Six to eight basis points clip per quarter after that.
And Kevin to answer your question about the September month, and then it was around $3 83 core and Thats based on an actual date capitalization basis.
Okay, and just get that plus six to eight basis points per quarter.
Quarter, and 23 is that just more of the ongoing repricing of the loan book, but then holding the line on deposit pricing from there is that how to look at it yes.
Yes, that's exactly right. We'll start continue we'll keep repricing the loan book and that should be the driver of that.
Great. Thanks, everyone.
Thank you.
Brett Robinson with Xavi Group your line is open.
Hey, good afternoon, everyone.
Breath here from a breath.
Wanted to.
I wanted to talk about the loan portfolio from a repricing perspective and.
On Slide 17, you do a great job and so we're laying out the.
Takes versus floating.
The portfolio and of the 65.
65% better fixed Sri and you've got 13% of those mature within the next 12 months, what would be the remainder of that fixed rate portfolio, what would be the duration maybe on that portfolio.
Aside from that 13%.
Any visibility on when the rest of that fixed rate book.
Rices.
Yes.
Good question.
We have about an average life of our portfolio, it's about 48 months.
Total so that fixed book has gone up.
Kind of track upon that so we really experienced about a quarter of the fixed rate portfolio that re prices every year.
Traditionally see.
Give you a little more context.
You had a quarter to date.
Based on our loan yield.
We're about between 65, 70%.
I think Q4, thats going to be about 75%.
And so it should track like that going forward.
Okay.
We're a little shorter duration and maybe I would've thought.
On that takes place.
Okay, and then wanted to ask I think relative to some peers your growth is going to continue to.
Two.
Maybe staying at a higher level.
And some of the industry and I wanted to stay here.
Or do you think.
Half of the growth next year, but Mike.
I know you haven't given guidance on that and maybe this is tough to answer but.
If you think about the next year or so is the growth next year do you think it'll be a majority in Texas or can you give us any color on how you think about the loan growth outlook, and if Texas kind of drives that more so than the Louisiana.
Yes, well we've been in the past two or three quarters, we've been at about 65%, 60% 70 kind of.
One is in the range of the other end.
In terms of.
Production in Texas versus Louisiana.
We believe that our overall growth rate.
Well.
We were slow to mid teen level I would expect that those percentages would still be.
About that I would assume that.
Ed.
Fixed data two thirds, 60% to two thirds of the loan growth, we probably continue to come from from.
From Houston and Dallas.
We think it's important to note is not as Texas in general.
Those two.
Primary in major markets.
If we are able to add a bank or two.
Quarter end most of those come from those two markets.
Certainly possible that that could that could that percentage could go up a little bit.
We do think that there is some some disruption out there in the market.
Certainly plenty in Houston and Dallas.
But also with the Iberia first horizon TD.
Bank traded closing.
It sounds like sooner rather than later.
Might provide some opportunities for us to pick up a handful of.
Experienced quality commercial bankers in south, Louisiana as well so.
And regardless of the bankers I think there'll be opportunities for clients in our home market. So.
So I'm not as down about the opportunity and in Louisiana.
So thanks Bill.
Majority of the growth in the loan book will come from from Dallas and Houston.
Probably I think thats two thirds, that's probably a pretty good.
70% is probably a pretty good estimate.
Okay.
It continues okay.
That's great color Jim.
And then just lastly for me just wanted to you on slide 23, So we got to I guess I would call. It the time dynamic.
On slide with the industry niche.
So my question.
Past two years hotels hospitality retail.
Are there any segments that maybe youre trying to deemphasize or youre not interested in growing construction of Sir.
The thing that you guys are steering away from this environment.
Yes, I wouldn't we're kind of anchor clients and so and we're pretty balanced in our exposures and have had a good track record even through the.
Pandemic is not losing a lot of money in those areas. So here's an area per se.
Stepping out of.
As you know over the years.
We the work too.
Decrease our percentage exposure of the portfolio and energy.
We've continue to add good clients where.
We've had the opportunity, but we're down to four 2%.
I would expect that that would continue to.
Trend downward over the next couple of years into 2% to 3% range.
Again, not not turning down business, but but.
But I think the other areas of our portfolio will probably grow faster.
I will say for CND.
In the third quarter, even though we had the 30% annualized loan growth.
Our actual dollars of exposure to CND.
I actually went down a little bit so.
And I think thats it.
That's not.
I'm not going to be an area of growth for us necessarily in Monsanto continue to go down in terms of actual dollars but.
But if you had to pick another sector that we want it and maybe have a lower percent of the portfolio as a whole the pricing.
<unk>.
I will I will as I always do point out, though with CND and lot of that is in doubt.
And we think that.
Even even if a recession occurs next year that debt.
Reasons as that market has been strong in Dallas.
Okay could continuing as we think about the main driver being in migration.
We certainly haven't heard any.
Any slowdown and migration rate.
From our bankers that are on the ground.
I think you could probably make the argument that the country is.
It's in recession that might even make.
Dallas is a more attractive place for certain people debate.
We can feel good about where most of our exposure is either in dollars or.
So long long term clients.
Louisiana as well so.
Feel pretty good about sandy, but we also want to make sure that as we continue to grow and grow in a balanced way.
Greg if anything our affiliate you have anything you want to add to that.
Nothing.
Okay.
Okay, Great that's fantastic color I appreciate that.
Yes.
Again, if you'd like to ask a question. Please press star one on your telephone keypad, we have a follow up from Matt Olney with Stephens. Your line is open.
Sure.
Yes, thanks for taking the follow up question.
I said, the only real pushback I had heard from investors following the capital raise a few weeks ago was.
Questioning did the bank raise enough capital.
Especially given the strong loan growth pipelines that you're.
That youre seeing so just wanted to give you a chance to respond to that.
How did you arrive at how much capital to raise in.
It seems like Youre getting closer to accretive capital just curious kind of how how close you think here or at this point. Thanks.
Yes. Thanks.
The balance when you raise capital, particularly in this environment.
At the pricing that the markets currently add so we wanted to make sure that while we.
Enhanced our capital position, we didn't do so in a way that it was.
Detrimental to the current shareholders. So we felt like Gpus.
Given the $50 million that we raised.
Added to the $72 million that we raised through the preferred equity.
About a month before that we felt like increasing our capital base.
Roughly 30% makes.
Makes sense for us.
<unk>.
If you take the additional capital and we take our projected earnings over the next couple of years.
We feel like it gets us through our five year plan and.
Barring some outsized opportunity here or or M&A opportunity.
At which point, we will discuss SaaS at that time, but but.
We do feel like we are on the.
On the verge of being able to accrete capital with our increased earnings and are.
Slightly slower growth rate next year so.
I think in the second quarter right now we have models that began creating capital so.
<unk> plan.
They like that.
An appropriate amount of capital for us to raise it at the time, given where the market is.
Yes.
Yes, Matt and one other thing that I'll add to that.
When we raised the preferred.
Last quarter we.
We did not push $20 million of that down to the banks. When you look at the discrepancy between bank level capital at Holdco to consolidated capital is as important to remember that we kind of left some dry powder at the holdco.
These services Holdco obligations over the next.
Six to 12 months or so so.
That's just something to keep in mind as you think about our capital position going forward.
Yes, okay.
Thanks, guys.
Alright, thank you.
I'll now turn the call back over to the management team for final remarks.
Okay, well, we appreciate your attention and interest and from a happy to answer follow up questions down. The road. If you don't want to contact us directly.
So the macro of the capital raise that they wanted to be sure to thank.
Thanks, everyone on the line that participated in that.
Either through their roles with analysts or investment bankers or as equity investors.
Look forward to.
Getting a good return on it.
Excited about what the next few quarters will bring.
Thank you all and have a good afternoon.
This.
Today's conference call. We thank you for your participation you may now disconnect.
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