Q2 2023 Business First Bancshares Inc Earnings Call
Yes.
Ladies and gentlemen, thank you for standing by and welcome to the business first Bancshares Q2, 2023 call I would like to now turn the.
Call over to Matt Sealy director of corporate strategy and S. P. N a Matt. Please go ahead.
Good afternoon, and thank you all for joining earlier today, we issued our second quarter 2023 earnings press release, a copy of which is available on our website along with the slide presentation that we will reference during today's call.
Please refer to slide three of our presentation, which includes our safe Harbor statements regarding forward looking statements and the use of non-GAAP financial measures that will be joining by phone. Please note. The slide presentation is available on our website at www dot being one bank dot com.
He's also note our safe Harbor statements are available on page seven of our earnings press release that was filed with the SEC today.
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 , Judy Melville, Chief Financial Officer, Greg Robinson, Chief Banking Officer, Phillip Jordan, and Chief administrative officer, Jerry Basket.
After the presentation, we'll be happy to address any questions you may have.
With that I'll turn the call over to Eugene.
Okay. Thanks, Matt and thank you everybody for joining us.
Jon and I appreciate you're prioritizing this conversation.
Last quarter I begin by discussing our longer term objectives to give some context to our near term results.
Well it won't take as much time to review the specific long term goals from this call I do want to take a moment to remind us of what those general priorities are.
Management of risk through diversification as chip geographical industry product set duration revenue streams among others.
To achievement of greater efficiency and Optionality through scaling.
Number three an increase in core profitability levels through a focus on capital allocation and management.
Finally, a qualitative rather than a quantitative goal to continue selective additions when available with key teammates with the experience and talent to help us prepare for the opportunities that will present and present themselves as we gain success on the previous let me mention three more numerical priorities.
I've been through an up periods of uncertainty. They know we have a responsibility to continue preparing for the future even in the time of caution.
I'm pleased to congratulate our team on another quarter of progress in each of these areas.
Our management of risk through diversification, we continue to diversify our asset exposure even at a time of lower growth. Our loan growth was again led by our Dallas region was generated over 50% of the net increase.
Runner up this quarter being our north Louisiana region, two very different regions, both of which we.
We are gaining significant brand recognition with them.
Okay.
On the type of loan front growth was again led by increased C&I exposure accounting for roughly two thirds of our increased balances.
Also mentioned encouraging progress in diversifying revenue streams through some some oh positive movement in our SBA line of business.
Last year, we had about $200000 in income from SBA and this year, we expect to average more than that number on a quarterly basis. So it's not yet the needle mover, we eventually expect that it'll be.
But we do like the trajectory.
On a scale, we slowed down our growth to match the current economic and rate environments are a reflection of the optionality. Our current size offers.
So we should be able to operate at solid levels of efficiency without relying on significant levels of growth we booked over the past few years.
So we have the opportunity to be increasingly selective which will pay off in asset quality as loan pricing and capital usage.
Our growth was slowed as still healthy at about 8% annualized level, that's manageable fundable and capitalized level within the limits of our retained earnings.
Excluding the impact from our sub debt redemption, we were capital accretive on all regulatory ratios and if we were to back out the impact of a OCI, we would've been capital accretive on all of our capital ratios, including TCE levels.
We expect this to continue to be the case in future quarters, as we remain selective on loan growth likely in the 4% to 5% range.
On earnings we were very pleased with the results and while we aren't yet where we want to be we have taken a significant step forward.
We booked a 1.18 ROA of 14% Roe.
And 73 in earnings per share these are GAAP numbers.
Three main drivers of our financial results were good NIM protection, good expense control and continued solid asset quality.
Greg will dive deeper into these from into the each of these fronts in a few minutes.
Now these GAAP results that includes a net positive non run rate income and expenses, but even backing out those items. Our results would still have performed.
Levels, producing non-GAAP results of 1.040, a 12, 4% ROE 60 for TPS.
A couple of points I want to note first non run rate does not mean accidental or not real or additional income came primarily from the investments we've made over the years and small business investment companies or Spic's, which returned at a higher level than normal this quarter and through her decision to retire some holding company debt early.
Second what we believe what we believe is fundamentally changed in our earnings profile and set of roughly 1.0 ROA over the past year or two would have been where we expected to land assuming everything went right.
Now with you at one point of Huawei as a baseline from which we have the opportunity to outperform when things fall our way has happened this quarter.
It doesn't make us a high performer yet, but it is a concrete step in the right direction and in line with the goals we've been articulating for you over the past few quarters.
Finally on the topic of people, while we do not believe we need to add significant numbers of producers at this time as our most recent hires still have capacity to grow their individual books. We did add two impactful back office hires that are providing immediate impact.
Smith joined US as Treasurer as act was one of the leaders in the Treasury Department at Bank goes in K, a larger regional bank and also has experience with comerica we.
We're also joined by our New Chief HR Officer, Mike Pearl J.
Mike with Chr O for Iberiabank for many years prior to their merger with first horizons.
Both of these individuals each of whom has done with larger banks as they have grown well through their experiences and relationships contribute materially to our journey. Both navigating the current uncertain times and in a time of opportunity that will shortly follow.
I'm going to turn it over now to Greg and Matt to cover these results in detail.
I'd like to reiterate my thanks to our team.
We've navigated a number of crises and perceived crises together beginning with the great financial crisis, while we were a de Novo bank.
We've navigated not always perfectly, but always with one eye towards the immediate needs of our current customers shareholders and regulatory partners and one I'm mindful of the long term opportunity. We believe our franchise has before us with.
This quarter is another another demonstration of our capacity on both fronts that concludes my remarks, and I'll turn it over to Greg for more details on the financials. Thank you Judy and good afternoon, everyone I will spend a few minutes reviewing our Q2 highlights some of which is due to the already mentioned.
Including some balance sheet and income statement trends and we'll we'll include some updated thoughts on our current outlook second quarter.
Core net income number was $17 7 million or 70.
Earnings per share that equated to a $1 13, ROA and <unk>.
<unk> hundred 50 Roe.
That was really driven by strong noninterest income lower loan loss provision expense from our continued stable credit trends and slightly lower loan growth.
Slightly higher than expected loan discount accretion as Jude mentioned.
These results were partially offset by slightly elevated noninterest expense during the quarter before I dive into more of the specifics on the quarter I'd like to take a moment to call out a few items that might not be railroad readily identifiable but are important for the context consider.
Core noninterest income as Jude mentioned included $2 $8 million in equity investment from Este, SBS revenue, which two six or about was more than what we had expected we had modeled about 200.
For the quarter, our core noninterest expense included a 715000 really onetime deal from our core provider for some services that were rendered in the past and that won't be reoccurring in the future.
Our loan loss provision.
500000 was really a consequence of what.
Our loan growth in the container.
<unk> strength.
Strength of our critical.
With all of those adjustments as Jude mentioned I think it's important to consider weren't really a baseline for what we look at going forward from an earnings standpoint.
So call adjusted run.
Our run rate for the quarter would've been $16 2 million or diluted EPS of <unk> 64.
ROA of 104 with ROE of 12 point going forward.
That's very strong for us for the quarter and we're really proud of those results.
As highlighted by a few things will start with the balance sheet first and then work our way through some other income statement items.
Loan growth for the quarter was seven 9% really highlighted by our Dallas group with $55 million or 59% of that loan growth for the quarter.
That that loan growth from our Dallas Group remained our Texas exposure at a 37% exposure rates for the portfolio as a whole.
As far as long type for the quarter C&I was the headline again for the second quarter $69 9 million of that growth was in C&I loans.
With $67 million in.
C&I loans that actually migrated over.
Because of completion.
And projects into owner occupied CRE income.
Income producing CRE with the other piece of the loan growth through actual growth in CRE for the quarter was $9 5 million for.
For the quarter.
As far as deposits go.
<unk> increased about $208 million for the quarter.
$211 million of that or broker deposits.
Really there are some nuance and we're very proud of the fact that the work that our branches have done the branch growth for the quarter was relatively flat with a little bit of extra story or a descriptor around that.
In the beginning of the quarter in April the backup of our portfolio from a deposit standpoint being commercially focused we experienced a little over $100 million in run out during April for tax related payments.
Payments for clients.
During the remainder of the quarter branches did an excellent job, but really in the production staff as a whole going out and really drawing that back to zero and that's a really important part of the nuance of the quarter. So we feel like those.
Wins in the second half of the second quarter. It really started to show positive results and we're seeing early results from the first month of this quarter would that continued deposit generation profile noninterest bearing deposits is important topic right now our portfolio sits at about 28% of the port.
<unk> being in noninterest bearing deposits is down about 3%.
We feel like that that his migrate.
Migration is starting to wane.
In the recent months. So we are very optimistic about that we have been generating about $5 million to $7 million of Nu.
Noninterest bearing deposits every month, so far this year, so really really still optimistic about that as far as capital goes that Jude mentioned capital increased nicely in the second quarter from a bank level perspective, with tier one leverage and tier total risk base, increasing about 15 basis points and 13 basis points respectively.
TCA TCE to Ta and total risk base at the consolidated level, both decreased about 12 basis points. However, if you back out the Asa Aoc upswing, which we had about $13 3 million in a POC.
Negative swing this quarter that would have been an increase in TCE to ta ratio of about nine basis points for the quarter.
Furthermore, if you think about it from a tangible book value perspective looking at it when you.
Strip out ex Aoc, our tangible book value ex Aoc we.
We had about 10% growth year to date and that.
And about 13, 5%.
<unk> for.
For the quarter and that tangible book value number <unk> would've been slightly above $20. So really really happy about that performance and creating the value for the shareholder as far as the margin goes.
Margin was down slightly five basis points that.
That is right in line with where we projected.
Our.
Expectation on pricing going forward really proud of the efforts of our production staff the bank.
Maybe these loans generated for the quarter or really come into the average weighted yield is about 845%.
For the quarter.
The majority of our loans now that are being priced or renewals and that renewal rate is slightly higher than that closer to 80 and with the average for new production being at about <unk> 60 on average.
Or is deposit pricing I'll, let Matt get into details on the betas here here in a minute, we're really happy with.
With our continued deposit generations although.
As everyone knows the.
The cost of those deposits is very competitive in this market right now.
Our total deposit beta cycle to date is about 36% and we expect that to be closer to 40% by year end.
And with that I'll really turn it over to Matt to really kind of cover the.
The deposit betas in more detail right now.
Thanks, Greg.
As Greg mentioned total cycle to date deposit beta is 36% during the quarter interest beta cycle to date beta during the quarter.
About 50%, we see those trending up about five percentage points each quarter, so ending the year at around 60% for Q4.
Oh, I'm, taking a step back kind of thinking about total interest bearing.
Liabilities, those betas were 53%, so tracking pretty close to our interest bearing deposit betas and again see those going up about five percentage points each quarter, so ending the year Q4 at around 63%.
The quarterly snapshot betas those were.
We're just.
A little bit above 100%.
Or just Q2 interest bearing beta that snapshot and.
Yes, I think that.
That's relatively in line with what some of the other releases.
<unk> that we have.
But thinking about things more on a cycle to date basis <unk>, 5%.
Increase.
Over the next two quarters is roughly what we'll see.
And with that.
I'll turn it turn it back over to Jude for any closing remarks before we take Q&A.
And those are kind of up in that happy to jump into questions now. Thank you.
Your first question comes from the line of Michael Rose from Raymond James Your line is open.
Hey, good morning, or good afternoon, guys. Thanks for taking my questions.
Maybe we can just start on the beta commentary that you just kind of laid out. Thanks. Thanks, everyone for that what does that assume in terms of where kind of niv mixed.
Stabilized I think you guys had about 29% at the end of the second quarter, just trying to get a sense for where you think that stabilizes and what the expectations are for kind of ex brokered growth, which is down a little bit. This year. I know you guys have several initiatives in place, we just love some thoughts thanks.
Yes.
I think that we will see the noninterest bearing composition kind of bottom out towards the end of the year and see that down another couple of percentage points.
Between now and year end, so bottoming out around maybe 26% or so.
As a percentage of the overall mix our appetite for brokered I think that will just continue to be kind of opportunistic with.
The pricing mix between brokered and other borrowing sources, but there is still a little bit of room that we have certainly too.
To rely on brokered and that said and I can let Greg give a little bit more specifics around.
What we're seeing early on in the third quarter, but we're encouraged that.
Just excluding brokered basis deposits were flat during the second quarter and one important thing to consider there is.
We did have some municipality and tax funds that rolled out during the quarter. So when you strip out brokered and you factor in the <unk>.
Tax funds that had moved out being effectively flat from Q1.
In our eyes.
Our stabilization theme or trend that's starting to occur.
I think were nearing or turning a corner now but.
Maybe another quarter or two of a.
A little bit.
Further kind of decline in that mix of noninterest bearing.
So I'd say, it's conservatively, maybe a 50 50 split in terms of funding between more wholesale and core core deposits, but again, we're optimistic about some of the core funding generation that we have.
<unk> seen early on here in the third quarter, but I'll, let Greg kind of hit on maybe some of the.
More.
New wins and trends we're seeing on.
The core side of the funding base Hey, Michael.
I think I think there is a little bit of a nuance I think first of all.
We have seen and do feel like in the in the.
Industry, not only us specific within an industry. The outflow is starting to wane.
The question as far as noninterest bearing depends on.
How many more rate increases we see if we hold flat from here on out we think maybe.
I have seen as much of the movement that we experienced like I mentioned, we are consistently producing $5 million to $7 million in a new deposit noninterest bearing generation per month now.
We have had some recent wins that I expect that number.
And the first part, especially July and August to be higher than that.
Put into context, the average cost we've been generating in noninterest bearing.
Right bearing accounts deposit accounts opened per month about $100 million in new originations each months of this year and then most recent weighted average is about $4 38.
So as we continue to manage the balance sheet from a loan growth perspective.
And weigh that against the cost of brokered, which today for one year brokerage is going to be in the $535 range. So we continue to be successful.
And I think we will on the deposit generation front at that lower cost it is materially different for us.
We've seen some like I said some wins so we expect that to continue to happen, but the broker would be kind of plan b obviously.
Very comprehensive question that gets into the follow up which is.
The core margin was was down kind of I think about five basis points, you said single digits. So it looks like that was going to just kind of balancing.
You are expecting in terms of deposit beta expectations, Niv mix and what you're seeing on the loan repricing side is that a good kind of way to think about.
Quarter margin down kind of mid single digits. When you put it altogether am I missing something.
Yes, I would say I would say.
About breakeven from where we are today.
Maybe with a basis point or two improvement would be what we expect to go forward.
Yes, Michael I'll give you a little bit more.
Context around that so the beta assumption that I had mentioned previously that translates to.
Roughly 35 basis point pickup in just interest bearing deposits in the third quarter and when we look at our new and renewed loan yields coming on like Greg had mentioned in the 860 to 80 range.
We've been executing pretty nicely on point through from our cycle to date loan beta perspective, holding at around 85% expect that to continue and pick up.
About 30 basis points.
In court.
Core loan yield expansion in the third quarter. So when we kind of net all of that you know the.
The funding side, and the earning asset and loan repricing side.
I think we are.
Feel pretty good that the margins should hold core margins should hold flat here.
Maybe a little bit too early to.
<unk>.
Client success, and we're turning the quarter to be accretive, but I think we feel really good that flat in Q3 as is where we'll be.
That's very helpful. Maybe just.
One follow up question.
For me just credit is exceptionally good and I think across the industry, we're seeing kind of yes.
More signs of normalization and definitely a pickup in kind of idiosyncratic or one off credits that you guys are doing really really well.
Anything that youre seeing kind of.
On the horizon that you guys are worried about or is it just the strength of the markets.
And kind of hopefully we don't have a recession or anything like that but just would love some general thoughts. Thanks.
Yes, I don't think we've seen any evidence anywhere weird famous day, and just like last quarter and the quarter before our overall.
Sensitive to see what will happen.
We haven't seen any degradation in our portfolio.
Hmm.
Gerry if you want to add anything there that you are seeing.
I don't think any of US would say it would have an area that we would point to us.
Showing signs of stress.
No.
Sure I can add to that I would agree like you said it feels strange to say that out loud, but.
But no right now we feel very comfortable where we are in like you said the strength of the markets and the bankers.
Always stress credit for sure.
Alright, guys. Thanks, Alright that question and very nice to have.
Fair enough to have a good roadmap for you on that front, but I guess im not thats all it is.
That's good.
Okay. Thanks, guys I appreciate it.
Thanks, Michael.
Okay.
Your next question comes from the line of Matt Olney from Stephens, Inc.
Your line is on.
Hey, Thanks, guys good afternoon.
Hey, Matt Hey, Matt.
On just following up on Michael's question around loan yields and those renewals.
I think you mentioned that there could be about 30 bps of loan yield expansion core in the third quarter, just looking for more color on that.
The newer yield do you think are coming on right around eight <unk> I think you said.
What's the color on what yield those loans are rolling off at like what's the differential and then as you think about the loan maturities and renewals that are coming up is this a pretty steady level that youre going to see the next few quarters or could there be some time period, where it's a it's a higher number.
Yes, I think the loan the average.
Wade.
New and renewed now Fortunately for us.
Loan growth has slowed down.
<unk> by us not not.
Been more strategic than it has been for lack of pipeline.
That renewal pace has been greater than that nevertheless, we originated so.
We have been seeing renewals come through like I mentioned about 880, with new stuff being price slightly less than that for average between 2016.
Pick up we're seeing on the renewals.
Words, creating the expansion is.
In some cases as much as 1%.
And Thats, a pretty steady stream of those renewals over.
The next three or four quarters.
Approaching probably $1 billion in the portfolio that will continue to do that.
Now as we get.
Quarters into the future, maybe there isn't one for 1%.
The difference in the pricing but.
Some of them will be leaning towards that in the early parts of it because of the difference.
Origination to maturity.
Yes, Matt and ill direct you to page 21 in the investor deck to kind of answer your question on where the loans are sitting now in the repricing opportunity.
We've got over the next 12 months about $2 2 billion set to reprice between fixed maturity in the next 12 months and floating rate and those are sitting on the books at about 767 weighted average yield. So when you think about the 860 to 80, new and renewed rguest.
Rguest renewed or new.
That's about a 90 plus basis point pick up in those loans. So.
That translates to.
Maybe you just apply that 90 basis point pick up.
In the actual renewal of that portfolio, which is about 45% of the book <unk> got 2020 plus million dollars in annual revenue.
Pick up there so that's on that I hope that kind of draws.
Draws the line or connect the dots between the.
The 30 bps in the overall total portfolio pick up and.
The actual pickup in just the repricing opportunity.
Yeah, that's perfect. Thanks for flagging that.
Slide in there I missed that initially.
Perfect.
On the on the loan growth front.
I think I heard you say the back half of the year between Florida, 4% to 5% I assume that's an annualized number for the back half just want to confirm that and then as far as the mix.
And it was a C&I portion that led the way in <unk> as you think about pipelines and.
And pay downs.
Is it going to be similar to we saw in <unk>, where it's mostly C&I growth.
Whereas some of the construction projects are completed and they move off to a different category.
Yes.
First part is I didn't intend for that to be an annualized number.
And then second part is that with <unk>.
Think that we would see a similar mix going forward and that really is not just this quarter, but the past couple of quarters, we've had that mix as we've kind of downshifted.
Construction production.
To recalibrate the portfolio so well.
We will still see CRE as construction turns over or complete.
Associates CRE growth, but.
Not at the rate of new production that we have seen historically and we definitely are.
Not doing as much construction as we have done in the past so I would anticipate C&I would.
I would continue to be at the <unk>.
The most significant contributor to any kind of net increase.
Okay. Thanks for that June and then just lastly, I think the accretion levels were a little bit higher.
This quarter any color on expected accretion in the next few quarters.
Yeah, Matt.
I would think we would expect we are expecting similar levels of accretion in the next couple of quarters just by the pace of the deals that we have kind of working through through the.
The process right now.
Okay.
Okay.
That's all from me thanks, guys.
Alright, Thank you thanks, Matt.
Okay.
Your next question comes from the line of Brett Rabat and from <unk> Group.
Hey, good afternoon guys.
For the question.
Greater wanted to first ask you talked about the brokered Cds in the market and your strength of gathering deposits.
Some banks in your market area in the southeast in general have indicated that maybe the landscape has gotten a little less competitive with one larger regional that was super aggressive with a deposit campaign. During may in particular have you guys seen that maybe in some of your markets in Louisiana, where maybe it's the compare.
The landscape is has ebbed, a little bit or does it still seem as.
Ferocious or however, you want to put it as it has been for the past few months.
Okay.
Yes, I don't think we would describe it as ferocious I do think it's.
And at one point, but I think.
I think it has calmed down a little bit.
I would say.
Yes.
Some of our peers have raised deposits little greater clear, but I think they also have been a little more willing to pay up a little bit. So we are trying to strike a balance between deposit growth and protection protecting the NIM.
But I do think that.
As we talked about we have shipped we're starting to see some signs of deposits coming in and Thats not because we are materially adjusted.
Strategy, we have on rates that we pay because it is probably becoming a little bit a.
A little bit looser, but still.
But not quite ferocious I would say, but anybody want to add to that.
I would say part of the.
Okay added talent and skill sets that you pulled in and giving us better visibility into our how we manage our deposits I know Greg Scott.
And have a really good look at.
The deposit portfolio as a whole so I think it's allowed us better technology allowed us make really good decisions on deposit pricing.
Okay.
Okay. That's helpful.
And then I didn't if you gave it I missed it but the securities that are maturing here in the back half of the year.
How much is that and will that be partially to fund loan growth or how do you think about the balance sheet management.
Yes, Chris as far as Securities go we.
I think we've only purchased two securities. This year the portfolio is about 13, 5%.
Okay.
Assets right now.
We haven't.
<unk> cash flows go or maturities go we have about.
On an average of about $131 million.
Per year for the next three years and maturities that are scheduled pretty pretty systematically out.
So we're really from a balance sheet standpoint, we would expect to plow that back in.
And not really be very selective on <unk>.
Securities if and when we do purchase on to maybe extend some duration.
Strategically too to pick up some good yield now that rates seem like they are getting towards the top.
But outside of that we expect to put that money.
Those maturities back to work in the form of pain.
Paying down.
That are putting back into the loan portfolio.
Yes, the only thing that I'd add too is that during the quarter, we did take out a little bit more.
Brokered have some just some more cash on balance sheet. If we were about 5% cash to assets at the end of the second quarter typically we have been a little bit lower than that but that was just kind of a remixing of the liquidity. So.
Comfortable letting some of those securities runoff and just remix into loans. So the percentage of securities might come down just a little bit, but we've already got.
More liquid interest bearing cash balances on the boat.
Okay.
That's helpful and then if I could sneak in one last one just around strategy. When you guys raised capital in the fourth quarter you're basically.
Kind of a year ahead of your of your five year plan.
I'm curious to hear if this.
This environment in terms of either interest rates or some uncertainty on the economy. If maybe you've changed what you want to accomplish or if youre still kind of.
Full steam ahead in Texas, or what what's changed maybe relative to the environment.
Last year.
Sure so.
And that's kind of where I started the call with kind of going over what our what our general priorities are.
I talked about last time, a little bit too but.
We are ahead of the game in terms of size, where we wanted to be size wise.
Course required use of some of the capital that we raised last year or led to that.
Also ahead of the game and diversity diversification by geography, a little bit.
Not ahead really.
As of the end of last year on earnings.
So what we wanted to do this year, even pre perceived crisis was too.
We continue to grow continue to diversify but put more emphasis on earnings.
Out of the three main categories than we have in the past. So I wouldn't say that we have changed our strategy I would say that we're going to take advantage of the fact that we're a little ahead of pace.
On the first two components so that we can.
Prioritize a little more on the third to make sure that we achieve all three and I think this quarter is really good example of us pivoting in that way, so we slowed down the loan growth, which.
But we're still able to continued.
Focus on growth in the Dallas area.
And thats slowed loan growth.
Okay.
Sure that we were capital accretive, which is something I know when we raised capital in the fall that was question or winter that was the question was when.
That enabled us to be capital accretive.
We probably felt like that was possible now, but there was some hesitancy to accept that I suppose but.
I'm pleased that we were able to do it and.
We do plan on continuing that motive operation so our growth will be governed by.
Bye bye.
<unk> retained earnings growth.
But that still leaves us well within range of our targeted five year plan growth that we've outlined so.
Long winded way to say, we haven't changed our goals, we're just managing the process by which we achieve them both.
Still remain.
In our mind is on target to accomplish.
All three.
The direction that we wanted to and should be able to do so within our our current capital structure.
Supplemented by the retained earnings.
Okay.
That's really helpful. Thanks, so much for all the color.
Okay.
Alright, well thank you Brett.
Yes.
Your next question comes from the line of Kevin Fitzsimmons from D. A Davidson your.
Your line is live.
Hey, good afternoon, everyone.
Hey, Jude.
Greg I missed.
In your prepared remarks, you were.
Talking about like a core ex non run rate type piece of.
Earnings per share and I just wanted to.
That's what you said if you could repeat it amendments also.
I should be looking or how we should be looking at.
Our run rate going forward for you.
Core fee revenues in core expenses is it really just are we just kind of pulling out that additional.
Sure.
Revenue in pulling out that extra data processing charge, if you could kind of guide us on those fronts.
Absolutely.
Yes, I was talking about.
We have been thinking you know our core.
Published core.
Net income 17, 770 cents EPS, if you were going to take out those two items that we considered.
To be non non re occurring but not potential like Jude said one of them one would be the <unk> income of $2 six.
The other would be the.
Core <unk> cost.
715000, so if you did that you would get an adjusted $16 2 million.
$16 291 exactly.
And that would equal a diluted EPS of <unk> 64.
Got it okay.
Thanks, Laura.
The noninterest income run rate I think $8 five millions probably the the way we want to think about that going forward.
And noninterest expense.
Right about 39 are slightly higher than 39 million for the quarter.
And is it fair to say.
I'm sorry go ahead.
Oh, sorry, yes, if you take what we reported core noninterest expense of 39.6, each trip out the 700000 kind of one off data processing invoices that we received and then just bake in some just natural course of business.
Expansion.
Maybe maybe mid 30 nines.
Million dollar number.
As a good run rate going forward, which that reflects about a 5% annualized increase in expenses.
Great. That's what I was going to ask next thank you Matt.
And.
As far as the bond portfolio you mentioned the cash flows.
Some banks have pulled the trigger or are evaluating.
Doing well.
A larger transaction to accelerate that.
<unk>.
Net proceeds to out at higher rates or or whichever alternative. If you want is that something you've been on the table for you for Europe for you all or is it more.
Is that something where in the near term that can put pressure on capital, but you might want.
To do that.
I think it's something we talk about and then we run an analysis every quarter on if we needed to execute on liquidating part of the portfolio immediately we can do about $135 million of that overnight, but with less than a $3 million loss.
But as far as we feel like the OCI is going to unwind fairly fairly quickly.
<unk>.
Our strategy to your point.
Sure on capital right now.
To do anything like that.
Not just for pressure on capital budgets to business decision I think it's the way I would describe it.
The short duration of our investment portfolio and will.
We're comfortable that our projections enable us to accomplish our goals without.
Given up money.
So we'll keep doing that unless for some reason some changes.
We do annualize it.
And it certainly is on the table, we need to always look at options.
Making the best business decision for US would indicate to me right now that that's not a necessary move.
Right right good point about the short duration.
And then one last one for me we've had a few deals announced.
In recent days one in the mid Atlantic.
Curious.
I know you all are still digesting the Houston deal, but as you look out.
Later stage of the cycle and exited in the cycle.
Curious.
Are there conversations going on in new regions or new markets.
You might have your eye on.
Terms of in terms of looking to expand.
Sure.
We're always.
Prior question.
Something on the table I think everything's.
Most things are on the table, but but certainly the equation has to make sense for us and equations all different today than it was.
A couple of years ago, one of the differences is that we are comfortable that we have a strong geography that we can build out it doesn't mean, we wouldn't look at other geographies over time, but we don't need to.
I think given the markets that we're in.
Plenty of opportunity here, so the bar would be pretty high in terms of.
Embarking upon an expansion of that of that geography through an M&A deal.
I'm, not saying that it couldnt happen, but it's not something that were necessarily aggressively looking for and how we get to a more likely outcome would be extension through at some point when we are ready for peak.
Expansion through a team lift out.
Or something incremental of that nature, but.
There definitely are more conversations that were either a part of or hearing.
That they are happening, but I don't know that necessarily makes it more likely to happen.
Lot of things have to fall in place.
We have developed.
Organic capacity.
To be able to grow without M&A, so M&A needs to really fit our needs.
And the financial equation needs to work for us.
And hopefully our partner as well and that's kind of the goal is to get a win win but but but the hurdle is to borrowers a little higher than it.
It might have been earlier on just because we do have.
What I started my comments with about the wanted to.
Values of scale is the Optionality. It gives you on future growth and so we're in a good spot to be able to partner with who we really want to.
Not necessarily seeking.
Growth for growth's sake, or new markets for new market segment.
No.
Yes, I do think over the long run there is plenty of there are plenty of other markets across the southeast that we want to be yet, but it's getting.
No rush.
The way that I would put it.
Haven't seen that.
Positioned to be around for a long time, and we need to take things opt.
<unk> opportunities.
I think a lot of sense for us that's where we are today.
Yes, good point about the lift outs, because that's really what you've accomplished in Dallas Fort worth Alright, correct that was just all organic lift out strategy.
That's right in Newark, and New Orleans, we have had really good success the team lift out.
As well.
That's right that's right. Okay. Thanks, very much guys. Thank you.
Okay. Thank you.
Your next question comes from the line of steady Strickland from Janney Montgomery Scott Your line is live.
Hey, good afternoon.
Hey, Patrick good to hear from you.
Just.
Given all the repricing opportunity that you've talked about on the loan side, we've got the potential for a fed pause may be this year.
Could we see the margins start to rise in 2024, just given the amount of where youre, putting on loans at new rates.
Amount of turnover turnover, you've got someone online.
I think I think it's not beyond comprehension to think that that might happen.
Certainly I want to be.
Conservative in how we think about it just given the challenges in the environment.
We have definitely still have some work to do in some some planning to do but.
But while we are.
Projecting kind of a neutral NIM for the rest of the new gear.
We do believe that there could be some opportunities for expansion next year.
Even without a rate decrease.
You all want to speak more.
I agree I think.
The wildcard in that is.
So deposit liability side.
From a competitive standpoint that would be my caveat I think we're doing a good job to manage the top end and our and our production staff is really <unk>.
Focused on.
C&I account type of accounts, which are noninterest bearing deposit accounts with treasury.
Built in there.
Our highest incentives product so that's the biggest focus.
But really the interest bearing side and the speed at which those rates continue to go up.
With where that's really going to play.
Yes, I would say that yes kind.
Kind of like you said the core margin flat for the foreseeable futures, where we're comfortable.
Now conservatively, but I would say that there's probably more upside.
Not significantly, but there's probably more upside in that then there is more downside is that makes sense.
Yeah.
No that's very fair no I get.
It's hard to predict exactly what the fed's going to do what's going to happen in 2024.
It's one of the earlier callers mentioned and you never know what competitors are going to be a leader.
One other piece and forgive me if I missed this earlier, but.
As the loan growth guidance really changed I mean should we have.
Sort of the upper single digit annualized growth rate for the next couple of quarters is that reasonable should it be lower higher just trying to figure out where we should peg grew.
Growth going forward.
I think we'll continue to kind of down shift a little bit so I would say probably more on the 46%.
Annualized range as opposed to upper digit upper single digits.
There are a lot of advantages to.
In this environment is growing at that rate.
Including capital appreciation and.
Benefit that it provides to the margin being able to.
Not have to fund that last dollar with with highest cost funding. So.
We feel like will benefit the most economically with <unk>.
With a kind of 46%.
Annualized rate.
And we are beginning a little less demand last quarter I would say that.
Most of the slowdown in growth in the quarter for that slowdown was.
Our decision for the most part.
But I would say that we would expect the second half of the year.
We're starting to hear a little more.
Maybe it's closer to 50, 50, decisioning versus demand or it might even slip into more demand based.
Deceleration of loan growth.
What we are hearing anyway.
Obviously due to the increasing interest rates.
Okay.
Got it and just one final one for me Jim It sounds I think I heard you earlier say you feel like a 1% ROA is kind of ace.
From here from what you think you can achieve.
Do you think that Thats I guess.
Just to clarify do you think a 1% ROA is achievable for the year and then.
If you take out the uncertainty of our vision.
Do you feel like a 150 <unk>.
Well I think I think you have 158 this quarter just wondering what your thoughts are on that overall profitability.
Yes, I do feel like a core 1% ROA is achievable for the year.
My guys now are crunching the numbers real quick to say about your other question I don't usually think in terms of that.
That ratio, but I do believe that we have evolved enough that we've kind of shifted from from.
As Matt put it earlier, the upside risk versus downside risk we've gone from downside risk of one been turning into their I think theres more upside opportunity to be one that not.
We do have variability within the different quarters different seasons in the first quarter tends to be lower.
Do you expect it will be it.
And at least for the year.
Build on build upon that next year Greg.
The answer to the other question, yes, yes.
The 150, you quoted there.
Pre tax pre provision ROA, that's that's exactly in line with if we hit the.
1% or just over 1% core for the year that translates to exactly yet.
150.
Understood. Thanks, Matt that's helpful. Thanks for taking my questions guys.
Sure. Thank you Vivek.
Okay.
Your final question comes from the line of Graham <expletive> from Piper Sandler.
Your line is live.
Hey, good evening guys.
Okay.
I just wanted to circle back to one of Kevin's questions on M&A. I know you said there is a pretty high bar right now and we'd have to be attractive on a lot of fronts.
But I guess as you look out.
A few quarters, maybe a calmer environment multiples return why.
But what criteria achieves that that bar for you what what makes a deal look good and something you would really consider financially and then I guess also like.
Strategically.
Okay, well I'll start with <unk>.
Perfect answer you don't want because it's not it's not necessarily quantifiable or putting in our model but.
I do well I shouldn't say that you might still want it but it's not as easy.
<unk> is that from my experience and we've done a number of mergers now.
The first thing.
Look forward as a good partner right, we want to make sure there.
Our culture is.
Cultures mesh doesn't mean, our business models have to match that our cultures to mesh the winning spirit and a good person at the top and the exec team.
Has guided that they can add so the.
First thing I would personally look forward, how does that cultural fit work in.
And.
We've been blessed with with our deals too.
Done thus far to be able to.
Gardner with good people and for every deal that we've done we've grown the grown the footprint that we inherited and that was because.
We were able to bring some larger balance sheet strength to a team that already had capability so well.
We will continue to look for that.
Yes.
As I've talked about before I think our first priority would be end market.
And then that brings.
And density to one of our markets.
And which would imply also kind of lower operational risk.
Ideally that's.
Lower loan to deposit ratio, which hopes with.
Liquidity questions.
No I would say anything.
I would say our sweet spot is probably.
Half a billion dollars to 1 billion and a half I think in the market $1 billion.
Thanks Ross.
Thank you.
The model that we used in Houston, where we had about <unk> 5 billion.
How it works well for our new markets should we choose to do that that's got a big enough that you have something real.
But it's also not so big that it's about the franchise on a movement in a new market when that time.
When that time comes as.
As far as the financial metrics.
Yes.
Clearly we want to have.
Limited as possible payback period.
Sure.
And that's really strong and when times are normalized I think we would look.
253 year payback is kind of the outside.
Yes.
And I would just be in kind of a special case of that work for us, but today's environment. If something did happen to have been price wise I would expect it to be kind of closer to a year in terms of payback.
So thanks.
Let's say once things normalize a little bit economic savings.
Consider expanding that out powered for that but again since we don't have to do M&A, we probably will be a bit conservative on that the question everybody wants to know about dilution.
And.
These things are all kind of.
Balance each other out and so the payback period is really probably more important than the solution necessarily but obviously at a normal time, we want to keep that probably.
And the 3% to 5% range, but it all depends also on the size of the bank. So if it's $5 billion bank, it's going to be master cells, you, that's going to be easier to have a lower dilution benefits hub 1 billion half opportunity. So that's been our historic kind of marker is not necessarily a good or bad pricing, but more just how big is the bank products.
As to our current balance sheet.
One other metric might not be missing out on that or Greg.
Thank you quoted so.
Most important thing to me is.
Does it have a chance a culture b do.
Do we have an opportunity to be accretive from an earnings standpoint on a per share basis in a reasonable period of time.
And ideally.
Within the first six months I would I would hope that we could.
Or at least ideally within the first six months of.
And that given the changes that lead to the cost saves that gets you the earnings accretion so.
Okay, Great. That's helpful. All my other questions have been answered I appreciate it guys.
Alright, well. Thank you. Thanks, Thank you, Greg and thanks, everybody for your coverage.
Okay.
Yes.
Yes.
That concludes our questions I would like to now turn the call over to Jude Melville for closing remarks.
Okay, well just to reiterate really proud of our team's efforts and I wouldn't even say this quarter or this quarter.
And bank and it doesn't move that quickly right you have some some action that you have to deal with in the current environment, but the real most important moves occur over a period of time and the kind of.
And our strategy and achievement of some of our longer term goals is something that we've been working on for quite some time.
And we will continue to work on this.
This was a good quarter of progress towards attainment of those goals.
Forward to to get more down next quarter. Thank you.
Okay.
Yes.
Sure.
Yes.
That concludes our remarks.
So.