Q1 2024 Business First Bancshares Inc Earnings Call

[laughter].

Mandeep: Thank you for standing by. My name is Mandeep, and I'll be your conference operator. At this time, I'd like to welcome everyone to the Business First, Fan Chairs Q1 2024 Earnings. All lines will be placed on mute to prevent any background noise. After the speaker remarks, there will be a question and answer. If you'd like to ask a question during this time, simply press star followed by the number one on your telephone keypad. If you'd like to withdraw your question, please press star one again. Thank you. I would now like to turn the conference over to Matt Sealy, SVP, Director of Corporate Strategy and FP&A. You may begin.

Juan: Thank you for standing by my name is Juan deep and I'll be your conference operator today at this time I'd like to welcome everyone to the business first.

Juan: Shares Q1, 'twenty 'twenty four earnings call.

Speaker Change: All lines will be placed on mute to prevent any background noise. After the speakers' remarks, there'll be a question answer session.

Juan: If you like to ask a question. During this time simply press star followed by the number one on your telephone keypad, if you'd like to withdraw your question. Please press star one again. Thank you I would now like to turn the conference over to Matt Sealy SVP director of corporate strategy and F. T. N. A you may begin.

Matthew Michael Sealy: Thank you. Good afternoon, and thank you all for joining us. Earlier today, we issued our first quarter 2024 earnings press release, a copy of which is available on our website along with a slide presentation that we'll reference on today's call. Please refer to slide 3 of our presentation, which includes the safe harbor statements regarding forward-looking statements and the use of non-GAAP financial measures. For those of you joining by phone, please note the slide presentation is available on our website at www.b1bank.com.

Matthew Michael Sealy: Thank you good afternoon, and thank you all for joining earlier today, we issued our first quarter 2024 earnings press release, a copy of which is available on our website along with the slide presentation that we'll reference on today's call.

Matthew Michael Sealy: 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 for those of you joining by phone. Please note. The slide presentation is available on our website at www dot be one bank dot com.

Matthew Michael Sealy: Please also note our Safe Harbor Statements are available on page 7 of our earnings press release that was filed with the SEC today. 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 Bank Shares President and CEO Jude Melville, Chief Financial Officer Greg Robertson, Chief Banking Officer Philip Jordan, and Chief Administrative Officer Jerry Vascocu. After the presentation, we'll be happy to address any questions you may have. And with that, I'll turn the call over to you, Jude.

Matthew Michael Sealy: Please also note our safe Harbor statements are available on page seven of our earnings press release that was filed with the SEC today. All comments made during today's call are subject to the safe Harbor statements in our slide presentation and earnings release.

Speaker Change: I'm joined this afternoon by business first Bankshares, President and CEO, Judy Melville, Chief Financial Officer, Greg Robinson, Chief Banking Officer, Philip Jordan, and Chief administrative officer, Jerry Basket Q. After the presentation, we'll be happy to address any questions. You may have and with that I'll turn the call over to you Jade.

David R. Melville: Thanks Matt and thanks everyone for making us a priority this afternoon. We have a lot to discuss today. Again, we were disappointed by the headline. The end of the year tends to be our softest, but it was a little softer than normal this year because of greater than. (inaudible) R.O.A.E.

Jade: Great. Thanks, Matt and thanks, everyone for making this a priority. This afternoon. We noted on your plate. We appreciate your interest.

David R. Melville: We have lots to discuss today and want to leave time for questions. So I'll jump right in.

David R. Melville: To begin we were disappointed by the headline profitability for the quarter first quarter, a year tends to be our softest, but it was a little softer than normal this year because of a greater than anticipated margin pressure and some expense topic.

David R. Melville: For Aro <unk> is <unk>, 77% core R. O AE is eight 9% core EPS.

David R. Melville: is 8.9%, and Core EPS is 50 cents. Greg will provide more detailed specifics, but in the big picture, I would say there wasn't one single quarter-moving event that occurred; it was more an accumulation of small impacts. We've been fortunate in that many quarters; a number of small things have added up to outperformance. Sometimes the opposite occurs, and that was the case here. We've already taken a number of steps to remedy these relatively small things and anticipate a relative flattening of both margin and expenses over the remainder of the year, leading to improved profitability, which remains a priority.

David R. Melville: <unk>.

David R. Melville: Greg will provide more detailed specifics, but big picture I would say there wasn't one single quarter moving event that occurred.

David R. Melville: It was more of an accumulation of small index, we've been fortunate in that many quarters, a number of small things that added up to outperformance.

David R. Melville: The opposite occurs and that was the case here you've already taken a number of steps to remedy these relatively small banks and anticipate a relative tightening of both margin and expenses over the remainder of the year, leading to improved profitability, which remains a priority.

David R. Melville: Margin movement in particular was positive in March, which leads us to believe some of the adjustments are working. Again, I'll ask Greg to get into further detail in a bit, but first, I will take a moment to survey a few of the things that I consider most important about the quarter, all of which will be reflected in the short-term results. First, a significant part of the margin miss was due to outside success in raising liquidity.

David R. Melville: Margin movement in particular, it was positive in March which leads us to believe some of the adjustments you're working.

Speaker Change: Again, I'll ask Greg to get into further detail on a bed, but first of all I will take a moment to survey a few of the things that I consider most important about the quarter not all of which will be reflected in the short term results.

Greg: First is significant part of the margin Miss was due to outsized success in raising liquidity as you know we've been working in particular over the past seven or eight quarters to transition from a company, whose priority was loan growth one that is more balanced and robust finished production expectations.

David R. Melville: As you know, we've been working in particular over the past seven or eight quarters to transition from a company whose priority was loan growth to one that is more balanced and robust in its production expectations. The Greer loans, by approximately 8% annualized, a healthy rate of growth, and that growth was led by CNR relationships and growth in relationships in Texas. By comparison, we grew to positives by an annual odds rate of 24%, a positive sign that the work we've undertaken to shift our focus is undoubtedly taking hold.

Greg: We grew loans by approximately 8% annualized to healthy rate of growth and that growth was led by C&I relationships and growth in relationships in Texas by <unk>.

Greg: Parison, we grew deposits by an annualized rate of 24%.

Greg: Positive sign that the work we've undertaken to shift our focus is undoubtedly taking hold.

David R. Melville: While we grew MMA accounts significantly, we also stemmed the tide for the first time in seven quarters of outflow of non-interest-bearing accounts, remaining essentially flat, and experiencing an uptick the last half of the quarter. The quantity count shows the composition of the deposit base, and we're pleased with the improvement in the mix of funding sources. In present circumstances, if we're going to miss, my preference is to miss by gathering too much at a point in time rather than too little, particularly given some of the opportunities we have on the horizon to continue putting those funds to work and the fact that these deposits are relational.

Greg: While we grew eminent and then they account significantly we also stemmed the tide for the first time in seven quarters.

Greg: Flow of noninterest bearing accounts remaining essentially flat and experiencing an uptick the last half of the quarter.

David R. Melville: Wanted accounts. So this composition of the deposit base and were pleased with improvement in the mix of funding sources.

David R. Melville: The present circumstances, if we're going to Miss my preference is to miss by gathering too much liquidity, rather than too little particularly given some of the opportunities. We have on the horizon to continue putting those funds to work and the fact that these deposits are relational.

David R. Melville: We conducted successful funding campaigns over the quarter, but the upside surprises were primarily the result of increases within existing accounts as we continue to grow with our clients. Second, another of our priorities in the coming years and quarters is to increase non-interest income. This quarter, we were able to consummate the acquisition of Waterstone, a loan service provider of SBA products. This partnership gives us more internal capability for the generation of SBA opportunities. We're already beginning to see an uptick in the pipeline for SBA-eligible credit.

David R. Melville: We conducted successful funding campaigns over the quarter, but the upside surprise was primarily the result of increases within existing accounts as we continue to grow with our clients.

David R. Melville: Second another of our priorities in coming years and quarters. This increase noninterest income this.

David R. Melville: This quarter, we were able to consummate the acquisition of Waterstone alone service provider of SBA products.

David R. Melville: Partnership gives us more internal capability for generation of SBA opportunities, we're already beginning to see an uptick in the pipeline for SBA eligible credits.

David R. Melville: Waterstone also serves other banks, and we look forward to incorporating their work into our nascent correspondent banking function, along with investment portfolio management, loan participation, deposit collections, and an internal swaps desk. We've shifted some management positions around to be certain we're given the opportunity of proper attention.

David R. Melville: Karen also serves other banks and we look forward to incorporating their work and to our nation correspondent banking function.

David R. Melville: With investment portfolio management loan participation in deposit collections and an internal swaps desk.

David R. Melville: We have shifted some management positions around to be certain number given the opportunity proper attention and look forward to seeing this portion of our revenue stream grow over the coming quarters.

David R. Melville: I look forward to seeing this portion of our revenue stream grow over the coming quarters. The acquisition had an unprojected impact this quarter on tangible capital and earnings, and we're excited about that investment. Finally, we're pleased to announce the acquisition of Oakwood Bank in Dallas, Texas. As an in-market transaction of approximately $830 million in assets and of similar culture and client focus, we believe the partnership to be a very logical next step in the continued development of our now meaningful presence in the North Texas market, bringing our total credit exposure in Texas to 44% of our loan book and 31% of our deposit base.

David R. Melville: The acquisition had an unprotected impact this quarter on tangible capital and earnings and we're excited about that investment.

David R. Melville: Finally, we're pleased to announce the acquisition of opioid bank in Dallas, Texas, as an end market transaction of approximately $830 million in assets and a similar culture and client focus we believe the partnership to be a very logical next step in the continued development of our now a meaningful presence in the north Texas market, bringing our total credit exposure in text.

David R. Melville: As to 44% of our loan book and <unk>.

David R. Melville: 31% of our deposit base.

David R. Melville: More important than the immediate impact we believe it positions us well for accelerated future growth in one of America's strongest markets. Both your physical presence and through the addition of substantial talent bolstering our commercial banking leadership in the market.

David R. Melville: More important than the immediate impact, we believe it positions us well for accelerated future growth in one of America's strongest markets, both through a physical presence and through the addition of substantial talent, bolstering our commercial banking leadership in the market. This acquisition fits in squarely with the longer-term plans we've discussed with you on previous calls. Efficiency through scale, risk mitigation through diversity of the portfolio, and increased profitability through accretive growth. I'm honored that the Oakwood team would agree to partner with us and would note the terms of the deal, leaving our teams and our shareholders in linked arm alignment as we work together to continue the development of our potential-filled franchise.

David R. Melville: This acquisition fits and squarely with the longer term plans. We have discussed with you on previous calls efficiency through scale risk mitigation through diversity of the portfolio and increased profitability through accretive growth.

David R. Melville: I'm honored that the Ocwen team would agree to partner with us and with no determined for the deal.

David R. Melville: Our teams and our shareholders and linked arm alignment as we work together to continue development of our potential fill a franchise.

David R. Melville: It was a meaningful and positive quarter for being one bank.

David R. Melville: Thank our team for all the effort that went into it.

David R. Melville: I'll turn it over to Greg for further details for a Q&A period.

Greg: Thank you Judy and good afternoon, everyone I'll spend just a few minutes reviewing our Q1 highlights including some of the balance sheet and income statement trends and we will also discuss our updated thoughts on the current outlook on slide 17 of our Investor presentation in the first quarter GAAP net income and EPS available to common shareholders was $12 2 million.

David R. Melville: It was a meaningful and positive quarter for B-1 Bank, and I thank our team for all the effort that went into it. With that, I'll turn it over to Greg for further details during our Q&A period.

David R. Melville: And 48, a share and included 715000 of pretax acquisition related expense and 50000, a pre tax gain on a former bank premises and equipment.

Gregory Robertson: Thank you, Jude, and good afternoon, everyone. I'll spend just a few minutes reviewing our Q1 highlights, including some of the balance sheet and income statement trends. And we'll also discuss our updated thoughts on the current outlook. On slide 17 of our investor presentation, the first quarter gap net income and EPS available to common shareholders was $12.2 million and 48 cents a share, and included $715,000 of pre-tax acquisition-related expense and $50,000 of pre-tax gain on the former bank premises and equipment.

Greg: <unk> these noncore items.

Greg: non-GAAP core net income and EPS available to common shareholders was $12 8 million and <unk> 50 per share as Jude mentioned these results were softer than anticipated due to continued margin pressures and an elevated noninterest expense.

Greg: I'll start on the margin.

Greg: As there are several items to unpack here our reported core net interest net interest margin of three 7% was down 11 basis points from the linked quarter, primarily due to three factors.

Gregory Robertson: Excluding these non-core items, non-GAAP core net income and EPS available to com shareholders was $12.8 million and $0.50 per share. As Jude mentioned, these results were softer than anticipated due to continued margin pressures and an elevated non-interest expense. I'll start on the margin, as there are several items to unpack here.

Greg: <unk> deposit production within our money market deposit product, which weighed on the margin from both a volume and a rate perspective as we have mentioned in the past we have been working to establish the balance sheet and the more rate neutral position by attracting a high volume of non maturity deposit accounts. Our goal has been to work along the deposit ratio closer to them.

Greg: Low to mid 90% range, but admittedly, we did not anticipate getting there as quickly as we did the.

Gregory Robertson: Our reported core net interest margin of 3.27% was down 11 basis points from the linked quarter, primarily due to three factors. As we have mentioned in the past, we have been working to establish the balance sheet in a more rate-neutral position by attracting a high volume of non-maturity deposit accounts. Our goal has been to achieve a loan-to-deposit ratio closer to the low to mid-90% range, but admittedly, we did not anticipate getting there as quickly as we did. The combination of higher volume and the current market rate environment weighed on the NEM.

Gregory Robertson: The combination of higher volume and the current market rate environment weighed on the NIM.

David R. Melville: First quarter total core loan yields continued to increase on a linked quarter basis results were driven by Q1, new and renewed loan yield of eight 5%, which fell short of our expectations at about age 65.

David R. Melville: We also benefited from a large.

David R. Melville: Salary credits during the quarter, which came with the tax component and a $26 million in low cost deposits. The headline rate was about 7% on a relationship which we were comfortable with given the deposit side of the relationship that did pressure overall Q1 loan yields.

David R. Melville: I'd like to point out some trends that.

Gregory Robertson: Throughout the first quarter on the margin that would should be helpful. In understanding where we've been and where we think were going on.

Gregory Robertson: First quarter total core loan yields continued to increase on a linked quarter basis. Results were driven by Q1 new and renewed loan yields of 8.50%, which fell short of our expectations at about 865. We also benefited from a large municipality credit during the quarter, which came with a tax component and $26 million in low-cost deposits.

David R. Melville: Our core net interest margin was down the first two months of the quarter by 14 basis points. Then in March we actually picked up three basis points to end the quarter down 11. This was partially due to the fact that the overall total new deposit costs had been declining each month since December which appears to have had more of an impact in the later part of the first quarter.

David R. Melville: <unk>.

Gregory Robertson: The headline rate was about 7% on the relationship, which we were comfortable with given the deposit side of the relationship, but that did pressure overall Q1 loan yields. I'd like to point out some trends that, throughout the first quarter, on the margin, should be helpful in understanding where we've been and where we think we're going. Our core net interest margin was down by 14 basis points in the first two months of the quarter. Then, in March, we actually picked up three basis points to end the quarter down 11.

Gregory Robertson: We also benefited late in the quarter from an inflow of noninterest bearing deposit relationships the quarterly impact of which was more muted during the quarter Dovetailing off this last point I think it's important.

Gregory Robertson: Early in the first quarter, we experienced impactful outflows of noninterest bearing.

David R. Melville: Noninterest bearing funding so starting off like like that behind the curve was a challenge from a margin perspective.

David R. Melville: That said, we certainly are encouraged to see some solid trends track.

David R. Melville: Traction in lower cost of noninterest bearing account wins during the first part of the second quarter. We are pleased with the early Q2 relationship gathering efforts that continue on the funding side and we continue to see upside to the overall funding base and composition in the near term.

Gregory Robertson: This was partially due to the fact that overall total new deposit costs have been declining each month since December, which appears to have had more of an impact in the latter part of the first quarter. We also benefited late in the quarter from an inflow of non-interest-bearing deposit relationships, the quarterly impact of which was more muted during the quarter. Dovetailing off this last point, I think it's important to point out that early in the first quarter, we experienced impactful outflows of non-interest-bearing deposits. Non-interest-bearing funding.

David R. Melville: The intermediate long term, we aim to two operated around a three five or 350 basis point core NIM, which we view as realistic and sustainable and are higher for longer rate environment.

David R. Melville: Moving to the income statement.

David R. Melville: Noninterest expense was elevated during the first quarter due to the waterstone acquisition, which contributed to about 500000 additional expense during the first quarter.

David R. Melville: Additionally, we had $1 million of incremental bonus related items during the quarter and I would say it was more related to the ending point of the fourth quarter being down in the first quarter being up to more normalized levels.

Gregory Robertson: So starting off like that behind the curve was a challenge from a margin perspective. That said, we certainly are encouraged to see some solid trend traction in lower cost and non-interest-bearing account wins during the first part of the second quarter. We are pleased with the early Q2 relationship gathering efforts that continue on the funding side, and we continue to see upside to the overall funding base and composition in the near term. In the intermediate and long term, we aim to operate around a 3.50 or 350 basis point core NIM, which we view as realistic and sustainable in a higher for longer rate environment.

David R. Melville: We also had some a few it related expenses in the quarter that we have been mentioning on calls that.

David R. Melville: We have agreed to certain <unk>.

David R. Melville: Enhancements and we brought those online sooner than anticipated.

David R. Melville: We view the core noninterest expense figure of $41 $8 billion is relatively good run rate going forward and we would expect a modest increase from 2% to 253% each quarter for the remainder of the year.

David R. Melville: First quarter GAAP non interest income was about $9 4 million with core noninterest income of $9 3 million, which include exclude a small gain on former bank premises and a loss on the sale of the security.

Gregory Robertson: Moving to the income statement, non-interest expense was elevated during the first quarter due to the Waterstone acquisition, which contributed to about $500,000 in additional expense during the first quarter. Additionally, we had $1 million of incremental bonus-related items during the quarter, and I would say it was more related to the ending point of the fourth quarter being down and the first quarter being up to more normalized levels. We also had a few IT-related expenses in the quarter that we've been mentioning on calls, where we have agreed to certain IT enhancements, and we brought those online sooner than anticipated.

David R. Melville: This is a fairly clean run rate going forward. There were several areas that came in lower than we expected and therefore anticipate Q2 revenue from our fee income business segments to contribute in a more meaningful way going forward.

David R. Melville: If I could direct you to slide 19 of our Investor presentation past due loans did increase during the first quarter primarily due.

Gregory Robertson: Two.

David R. Melville: One credit that credit.

David R. Melville: It was about a $10 million exposure that we seem to.

Gregory Robertson: Today have resolved.

David R. Melville: That would push those past due loans back to a more normalized $10 million at quarter end with removal of that credit.

Gregory Robertson: We view the Core 1 Non-Interest Expense figure of $41.8 million as a relatively good run rate going forward, and we would expect a modest increase from 2 to 2.5 to 3% each quarter for the remainder of the year. First Quarter Gap Non-Interest Income was about $9.4 million, with Core Non-Interest Income of $9.3 million, which excludes a small gain on former bank premises and a loss on the sale of a security.

Gregory Robertson: Non performing loans.

David R. Melville: Tick up slightly and they were really attributable to two loans that we have.

David R. Melville: Both of those relationships are reviewed and we don't see a loss given default exposure in those relationships. They overall credit book remains still remains.

Gregory Robertson: Stable with no outlier with no.

Gregory Robertson: Movement systemic movements other than those two outlier credit instances that I gave.

David R. Melville: Moving on to the balance sheet total loans held for investment increased $96 1 million or seven 7% annualized during the quarter loan growth was largely attributable to the net growth in our C&I portfolio of $68 million and then the residential real estate portfolio of 30, $34 6 million.

Gregory Robertson: While this is a fairly clean run rate going forward, there were several areas that came in lower than we expected and therefore, we anticipate Q2 revenue from our fee income business segments to contribute in a more meaningful way going forward. Now, if I could direct you to slide 19 of our investor presentation, capacity loans did increase during the first quarter primarily due to one credit. That credit was about a $10 million exposure that we seem to have resolved today.

Gregory Robertson: Some somewhat offset by a $7 8 million reduction in C&D portfolio.

David R. Melville: Proud of our team's continued focus on the drive oil production through the key commercial relationship wins DFW region accounted for 44% of the net loan growth for the quarter, while our southwest Louisiana region produced about 29% of that growth loan growth and capital region produced 14%.

Gregory Robertson: So that would push those past due loans back to a more normalized $10 million at quarter end with the removal of that credit. Non-performing loans did pick up slightly, and they were really attributable to two loans that we have. Both of those relationships were reviewed, and we don't see a loss given the default exposure in those relationships.

Gregory Robertson: Growth in Q1, Texas based loans as Steve mentioned early earlier represent approximately 37% of our balance sheet today.

David R. Melville: Of the overall portfolio at the end of the quarter.

Gregory Robertson: Deposit production exceeded our expectations during the first quarter with total deposits increasing at $324 million from the prior quarter, representing almost 25% annualized loan growth deposit growth.

Gregory Robertson: The overall credit book remains, still remains very stable with no outliers, with no Movement, systemic movements other than those two outlier credit instances that I gave. Moving on to the balance sheet, total loans held for investment increased to $96.1 million or 7.7% annualized during the quarter. Loan growth was largely attributable to the net growth in the C&I portfolio of $68 million and in the residential real estate portfolio of $34.6 million, although somewhat offset by $7.8 million in the C&D portfolio.

David R. Melville: Just bearing deposits remained relatively stable both in terms of balances and in <unk>.

Gregory Robertson: Total deposits were pleased with the composition of our noninterest bearing deposits and have held at 23, 2%, which compares to the prior quarter of 24 eight in our prior outlook to hold the hold in a low 20% range, while still early in the second quarter. We are encouraged by the level of core low cost deposit gathering we've.

Gregory Robertson: <unk> in the first month of the quarter.

David R. Melville: Overall, we remain highly encouraged and optimistic and the prospects of it.

Gregory Robertson: Out of our team's continued focus on driving and producing through key commercial relationship wins, DFW Region accounted for 44% of the net loan growth for the quarter, while our Southwest Louisiana Region produced about 29% of that loan growth, and Capital Region produced 14% of the loan growth in Q1. Texas-based loans, as Jude mentioned earlier, represent approximately 37% of our balance sheet today and 37% of the overall portfolio at the end of the quarter.

Speaker Change: And that concludes my prepared remarks, I'll hand, it back over to you to wrap up.

Speaker Change: Well, thanks, Greg I think with that we'll just jump to Q&A, we are out of a lot of movement in the quarter and.

Speaker Change: Of course, we just announced the acquisition I know, maybe you Havent had time to digest, it but look forward to answering any questions on that front as well.

Speaker Change: Thank you we will now begin the question and answer session have you dialed in and would like to ask a question. Please press star one on your telephone keypad to raise your hand and joined the queue if you'd like to withdraw your question simply press Star one again.

Gregory Robertson: Deposit production exceeded our expectations during the first quarter, with total deposits increasing $324 million from the prior quarter, representing almost 25% annualized loan growth or deposit growth. Non-interest-bearing deposits remain relatively stable both in terms of balances and in percentage of total deposits. We're pleased with the composition of our non-interest bearing deposits and have held them at 23.2 percent, which compares to the prior quarter of 24.8 and our prior outlook to hold in a low 20 percent range.

Speaker Change: We are called upon to ask your question and our listening via loud speaker on your device. Please pickup your handset and ensured that your phone is not on mute when asking your question.

Speaker Change: Again press star one to join the queue.

Gregory Robertson: Okay.

Gregory Robertson: And our first question comes from Matt Olney with Stephens. Please go ahead.

Gregory Robertson: Yeah.

Matthew Covington Olney: Hey, guys good afternoon.

Matthew Covington Olney: Hey, Matt Hey, Matt.

Speaker Change: Yes.

Gregory Robertson: Start on the margin it sounds like they were the margin this quarter was pretty pretty volatile Greg I think you mentioned.

Speaker Change: The first two months it was down and then it stabilized.

Gregory Robertson: While still early in the second quarter, we're encouraged by the level of core low-cost deposit gathering we've experienced in the first month of the quarter. Overall, we remain highly encouraged and optimistic about the prospects of HIT. And that concludes my prepared remarks. I'll hand it back over to you to wrap up.

Speaker Change: In March.

Matthew Michael Sealy: Can you provide what that March margin was and do you think that's a good starting point.

Greg Robertson: For the second quarter any other considerations, we should have more more near term on the margin.

Speaker Change: Yes, I think.

Speaker Change: Let me, let me go into a little detail about how we kind of arrive there.

David R. Melville: Good. Well, thanks, Greg. I think with that, we'll just jump to Q&A. We have a lot of movement in the quarter, and of course, we just announced the acquisition, and I know people maybe haven't had time yet to digest it, but I look forward to answering any questions on that front as well.

Speaker Change: And then.

Speaker Change: I'll follow up with the answer to your question.

Speaker Change: Ultimately.

David R. Melville: What we experienced noted this a little bit on the comments that we experienced.

David R. Melville: Outflow of noninterest bearing and the beginning of the quarter or about $50 million.

David R. Melville: And that's what impacted the averages for the quarter for the margin.

Operator: Thank you. We will now begin the question and answer session. If you've dialed in and would like to ask a question, please press star 1 on your telephone keypad to raise your hand and join the queue. If you'd like to withdraw your question, simply press star 1 again. If you are called upon to ask your question and are listening via loudspeaker on your device, please pick up your handset and ensure that your phone is not on mute when asking your question. Again, press star 1 to join the queue. And our first question comes from Matt Olney with Stevens. Please go ahead.

David R. Melville: During the remainder of the quarter, we were very successful in gathering noninterest bearing to almost bring that $50 million back to zero. So.

Matthew Covington Olney: Showing the the noninterest bearing piece of that being flat was a really big deal and a win for us and Judy mentioned those the.

Matthew Covington Olney: Types of accounts, we're gathering our relationships accounts, so to get that money market that were all we were offering with a certain rate you have to have an operational noninterest bearing account that went with it. So I think thats important the second thing from a deposit standpoint.

Matthew Covington Olney: Our average deposit rate for those money markets in December for the new dollars coming in the door were about $5 107.

Matthew Covington Olney: Hey guys, good afternoon. Amen. Amen.

Matthew Covington Olney: And in March they were $4 two four.

unknown: Um, start on the margin. It sounds like there were the margin this quarter was pretty, pretty volatile. Greg, I think you mentioned the first two months it was down and then stabilized in March. Can you provide what that March margin was? And do you think that's a good starting point for the second quarter? Any other considerations? We should have more near-term on the margin. Yeah, I think.

Speaker Change: <unk> moving those rates down on the new new dollars coming in the door.

unknown: Shell has shown some signs of that as well as to continue to gather the noninterest bearing I think really really weighed on what we feel like the margin was three basis points up in March.

Greg: To end up where we were 14 down through February three basis points up through March only being 11 down and and at $3 27.

Gregory Robertson: Yeah, I think, um, let me, let me go into a little detail about how we kind of arrived there, and then I'll, I'll follow up with the answer to your question. Ultimately, you know, what we experienced, I noted this a little bit in the comments that we experienced the, uh, outflow of non-interest-bearing funds in the beginning of the quarter, about 50 million, you know, and that's what impacted the averages for the quarter for the margin.

Gregory Robertson: Okay.

Speaker Change: Okay. That's that's helpful. Greg and then I guess, along with that you mentioned the liquidity build in the first quarter was more than you expected I'm curious what the expectations are from here.

Gregory Robertson: From the liquidity aspect, whether that's a loan to deposit ratio or however, you think about that.

Speaker Change: Yes, I would expect our expectations are to continue.

Gregory Robertson: During the remainder of the quarter, we were very successful in gathering non-interest bearing cash to almost bring that $50 million back to zero. So, showing the non-interest bearing piece of that being flat was, in our eyes, a really big deal and a win for us. And Judith mentioned the types of accounts we're gathering, or relationship accounts. So, to get that money market that we were offering at a certain rate, you have to have an operational non-interest-bearing account that went with it. So, I think that's important.

Gregory Robertson: With that high single digit loan growth.

Gregory Robertson: 6% to 8%.

Gregory Robertson: And to be able to fund that through deposit growth now we don't we don't expect to have 24% annualized deposit growth going forward, we do on a whole loan to deposit ratio in that 93% ish range for the balance of the year.

Gregory Robertson: Okay.

Speaker Change: Got it that's helpful. Greg and then I guess switching over to <unk>.

Gregory Robertson: Expenses.

Speaker Change: I think the messaging was the core of $41 $8 million number.

Gregory Robertson: <unk> is a good kind of launching point.

Gregory Robertson: The second thing, from a deposit standpoint, our average deposit rate for those money markets in December, for the new dollars coming in the door, was about 5.17. And in March, it was 4.24. So moving those rates down on the new dollars coming in the door, we have shown some signs of that, as well as continuing to gather the non-interest bearing, I think, really weighed on what we feel like the margin was three basis points up in March to end up where we were, you know, 14 down through February, three basis points up through March, only being 11 down at 3.27.

Gregory Robertson: You said sequentially from here.

Speaker Change: 2% to 3% increased each quarter did I capture that Ryan I think for the year that give me somewhere between $1 72, and $1 74, if I heard that correctly.

Gregory Robertson: That's about right, yes, we think that that is youre right all of ours.

Gregory Robertson: Okay.

Speaker Change: And then just lastly from me on the acquisition.

Speaker Change: Congratulations on the on the deal.

Gregory Robertson: I know you guys had been in Dallas for a number of years.

Gregory Robertson: Okay, that's helpful, Greg. And then I guess along with that, you mentioned the liquidity build in the first quarter was more than you expected. Curious what the expectations are from here from the liquidity aspect, whether that's a loan to deposit ratio or whatever you think about that.

Gregory Robertson: Would just appreciate any kind of comparison as far as.

Gregory Robertson: The customer base.

Gregory Robertson: How does the customer base and Dallas for Oakwood compare to business first customer base any kind of overlap at all and just in general any kind of comparisons.

Gregory Robertson: Yeah, I would expect, our expectations are to continue with that high single-digit loan growth, you know, six to eight percent, and to be able to fund that through deposit growth. Now, we don't expect to have 24% annualized deposit growth going forward. We do want to hold the loan to deposit ratio in that 93-ish range for the balance of the year.

Speaker Change: Yes, I think.

Gregory Robertson: One of the attractions of the deal is a similarity.

Gregory Robertson: Following efforts.

Gregory Robertson: Combined makeup we do have a handful of share clients already but for the most part it's they're not fair clients, but they are shared client types.

Gregory Robertson: Yes.

Gregory Robertson: The production staff for Oakwood.

Gregory Robertson: Came from.

Gregory Robertson: Regional or larger banks and they tend to do deals similar in style and form to US I think we will have the opportunity with the expanded balance sheet to help them do more of what they do it.

Gregory Robertson: Okay, I got it. That's helpful, Greg.

Gregory Robertson: And then, I guess switching over to expenses. I think the messaging was the core $41.8 million number in one queue is a good kind of launching point. I think you said sequentially from here, two to 3% increase each quarter. Did I capture that right? I think for the year, that gives me somewhere between 172 and 174, if I heard that correctly. That's about right.

Speaker Change: Don't anticipate.

Gregory Robertson: On a culture shock when it comes to the production side of the house.

Speaker Change: Got it about and fitting in there they also.

Gregory Robertson: With their production staff coming from.

Gregory Robertson: Larger banks.

Gregory Robertson: We also look forward to.

Gregory Robertson: Benefiting from the leadership and depth that they can help us provide.

Gregory Robertson: That's about right. Yeah, we think that that is your right.

Gregory Robertson: Add to that of our current.

Matthew Covington Olney: And then, just lastly for me on the acquisition. Congratulations on the on the deal.

Gregory Robertson: Bankers. So we're excited I think it's a really good fit in terms of client base and in terms of.

Matthew Covington Olney: I know you guys have been in Dallas for a number of years. We would appreciate any kind of comparison as far as the customer base is concerned. How does the customer base in Dallas for Oakwood compare to the business first customer base? Any kind of overlap at all? And just in general, any kind of comparison? Thanks.

Matthew Covington Olney: Bankers.

Speaker Change: Hey, Matt.

Speaker Change: Circling back to your question on the expense base I want to make sure I heard you right where you were.

Matthew Covington Olney: What you were implying I think I heard you.

Speaker Change: A low $1 60, 160 to 160 or do you say 170.

David R. Melville: Yeah, I think one of the attractions of the deal was the similarity of the following efforts and the client makeup. We do have a handful of shared clients already, but for the most part, it's not their clients, but they are shared client types.

Speaker Change: I thought it was $1 72 to $1 74, how does that what I heard.

Speaker Change: Yes, yes, I thought I heard you say, one 170 or 160 to 163.

Speaker Change: So now we do think that from.

Speaker Change: From an integration standpoint.

Gregory Robertson: The production staff for Oakwood came from regional or larger banks, and they tend to do deals similar in style and form to us. I think we'll have the opportunity with the expanded balance sheet to help them do more of what they do, and I don't anticipate a lot of culture shock when it comes to the production side of the house. I'm excited about them fitting in there. They also, with their production staff coming from larger banks, we also look forward to benefiting from the leadership and depth that they can help us provide to that of our current bankers. So we're excited. I think it's a really good fit in terms of the client base and in terms of bankers.

Speaker Change: Right down our alley, and there'll be a lot of good cultural overlap as you as you mentioned, we've been in the market for a while.

Gregory Robertson: We have about $1 eight ish billion, one 9 billion.

Gregory Robertson: And loans outstanding and.

Gregory Robertson: So we feel like we have.

Gregory Robertson: Really good perspective.

Gregory Robertson: Due diligence process and I'll, let Greg talk a little bit about about the diligence efforts and.

Gregory Robertson: <unk>.

Gregory Robertson: All encompassing nature of that process.

Gregory Robertson: Matt we were able to.

Gregory Robertson: In our Investor day shows very very deep penetration in reviewing their loan book.

Gregory Robertson: Hey Matt, circling back to your question on the expense base, I want to make sure I heard you right. Were you, what you were implying? I think I heard a low $160, $162, $160. Or did you say $160?

Gregory Robertson: Came away with a feeling very comfortable about not only the.

Gregory Robertson: The quality of the portfolio, but also the <unk>.

Matt: You had mentioned it.

Matt: Feels a lot like business first early days, where there is.

Speaker Change: Not a lot of clients.

Matthew Covington Olney: Okay. Okay. Okay. Okay. Okay. Okay. Okay. Okay. Okay. Okay. Okay. Okay. Okay. Okay. Okay. Okay.

Speaker Change: Really great quality of clients so.

Matthew Covington Olney: Came away feeling really good about not only their.

Matthew Covington Olney: The level of talent that had but also the quality of the portfolio and how it will map over to.

Matthew Covington Olney: Our bank not only from a credit standpoint, but also from.

Gregory Robertson: I thought it was 172 to 174. That's what I heard. Yes, yeah, I thought I heard you say 170 or 162, 162.

Matthew Covington Olney: The margin in all of those things that we get it to do when we come out of the franchise.

Gregory Robertson: I would say in addition to our specific <unk>.

Gregory Robertson: Thanks have a good track record.

Gregory Robertson: <unk> career in particular.

David R. Melville: So Matt, we do think that from an integration standpoint that this is right down our alley and there'll be a lot of good cultural overlap. As you mentioned, we've been in the market for a while. We have about $1.8 billion, $1.9 billion in loans outstanding.

Gregory Robertson: Credit focused and.

David R. Melville: In terms of prioritization.

David R. Melville: All lines there.

Speaker Change: Okay, guys. Thanks for taking my questions.

Speaker Change: Thank you Matt.

David R. Melville: Our next question comes from the line of Michael Rose with Raymond James. Please go ahead.

Gregory Robertson: So I feel like we had a, I'll let Greg talk a little bit about the diligence efforts and the all-encompassing nature of that process. Yeah, Matt, we were able to, as our investor deck shows, do very deep penetration in reviewing the loan book, and came away with it feeling very comfortable about not only the quality of the portfolio but also, as you mentioned, it feels a lot like Business First's early days where there are not a lot of clients but a really great quality of clients.

Greg: Hey, good afternoon, guys how are you.

Greg: Hey, Michael Thanks for calling in.

Speaker Change: Yes, maybe we could just start on the increase in past dues. If I look at page 28 of the slides it looks like it was in the all other category. So just wanted to get some color on the on the increase there that migration.

Greg: Alright, thank you.

Gregory Robertson: So, I came away with feeling really good about not only the level of talent they had but also the quality of the portfolio and how it would map over to our bank. Not only from a credit standpoint, but also from the margin and all of those things that we have to do when we come in. I would say, in addition to our specific goals, they have a good track record, in Roy Salley's career, in particular, of being credit focused and really, in terms of prioritization, I think well aligned there.

Gregory Robertson: Yes.

Gregory Robertson: Okay.

Speaker Change: Michael are you there.

Gregory Robertson: Yes.

Speaker Change: Okay Alright.

Speaker Change: Yes, as I mentioned on the call I think that.

Gregory Robertson: The main thing that made past dues go up as we had one.

Gregory Robertson: One commercial real estate loan that had.

Gregory Robertson: Some issues with some guarantors.

Gregory Robertson: We we've resolved that long.

Gregory Robertson: So we feel real good about.

Gregory Robertson: Other than that past do seem to be very normalized that would've been $10 million in past dues are just slightly less than that for the quarter.

Speaker Change: Okay, Yes, sorry, if I, if I missed that.

unknown: Okay, guys, thanks for taking my questions.

Gregory Robertson: And then maybe just on the on the deal I was looking at at Oakwood and it looks like they are.

Operator: Our next question comes from the line of Michael Rose with Raymond James. Please go ahead.

Michael Edward Rose: Hey, good morning or good afternoon, guys. How are you?

Michael Edward Rose: We're going to go through it.

Michael Edward Rose: <unk> Mo.

unknown: Thanks for calling in. Yeah, maybe we could just start on the increase in past dues. If I look at page 28 of the slide,

Michael Edward Rose: And 'twenty, two and broke apart I think because of CRA issues can you just address that and then.

Michael Edward Rose: Maybe just holistically what drove you to this bank.

Michael Edward Rose: Yeah, maybe we could just start on the increase in past dues. If I look at page 28 of the slides, it looks like it was in all other categories, so just wanted to get some color on the increase there, the migration. Thanks.

Michael Edward Rose: Out of all the other options.

Michael Edward Rose: In and around the state of Texas, I know you mentioned some of it has to do with.

Michael Edward Rose: Looking like business first in the earlier days all the stuff.

Michael Edward Rose: And in relation to Matt's question, but would just like some some color there. Thanks.

Gregory Robertson: Yeah, the, the Michael, are you there? Yes. Okay, all right.

Gregory Robertson: Sure Ross I think in terms of our ability of the partnership.

Gregory Robertson: Yeah, as I mentioned on the call, I think the main thing that made past dues go up is we had one commercial real estate loan that had some issues with some guarantors, and we've resolved that loan, so we feel really good about that. Other than that, past dues seem to be very normalized. That would have been 10 million in past dues or just slightly less than that for the quarter.

Gregory Robertson: <unk>.

Speaker Change: And market transition that we felt like we can understand.

Gregory Robertson: Turnover was attractive the Si.

Gregory Robertson: This also is kind of the ideal size.

Gregory Robertson: That is meaningful but not that's R. R.

Gregory Robertson: On acquisition is in line with our last acquisition a couple of years ago.

Gregory Robertson: And Houston and then I would also say we've known the management of the team for a number of years and.

Michael Edward Rose: Okay, yeah, sorry if I missed that. And then maybe just on the deal, I was looking at Oakwood, and it looks like they're going to go through an MOE, I think in 22, and it broke apart, I think, because of CRA issues. Can you just address that, and then, you know, maybe just holistically, you know, what drove you to this bank? You know, out of all the other options in and around the state of Texas. I know you mentioned some of it had to do with, you know, looking like a business first in the earlier days, all the stuff you mentioned in relation to Matt's question, but we just like some color there. Thanks.

Michael Edward Rose: We still feel very comfortable that day.

Michael Edward Rose: <unk> had the right spirit in terms of the partnership and if you look at the deal.

Michael Edward Rose: The economics of the deal.

Michael Edward Rose: Very well aligned.

Michael Edward Rose: Clearly.

Michael Edward Rose: Situation in which they chose to invest in us.

Michael Edward Rose: And believe in the opportunities of the partnership versus an upfront cash out Michelle which.

Michael Edward Rose: In terms of.

Michael Edward Rose: Lining up reasons, you do an acquisition.

Michael Edward Rose: The intent and the value structure of the management and board is number one.

Michael Edward Rose: That leads to.

Michael Edward Rose: Right culture, and we believe they have the right culture, so being an end market deal that we felt was low in terms of integration risk.

Michael Edward Rose: Being the right size, having the right culture.

Michael Edward Rose: We felt that that also well both with our ability to.

David R. Melville: Sure, I think in terms of our ability to the partnership, being an in-market transition that we felt like we could understand, certainly was attractive. The size also is kind of the ideal size; it's a size that is meaningful, but not a bet-to-farm kind of acquisition, which is in line with our last acquisition a couple years ago. I would also say that we have known the management of the team for a number of years, and it felt very comfortable that they had the right spirit in terms of the partnership. If you look at the deal, the economics of the deal, we are very well aligned, and it is clearly a situation in which they chose to invest in us and believed in the opportunities of the partnership versus an upfront cash out, in terms of lining up reasons to do an acquisition And we believe they have the right culture.

David R. Melville: To conduct transactions successfully.

David R. Melville: And in terms of the Federation of R. R.

David R. Melville: Our strategic plan that we've outlined here on the call that we've had for a number of years ago too.

David R. Melville: Increased too.

David R. Melville: Seven five ish is it like that.

David R. Melville: It's a really good fit.

David R. Melville: Sweet spot size wise in this accomplished is at with the consummation of the transaction. We also have had a goal.

David R. Melville: To approach, 50% in terms of our credit risk being outside of Louisiana, and so this materially moves us in that direction, if youre going to be.

David R. Melville: Should we desire across Texas.

David R. Melville: Dallas, certainly as I think many people would consider the strongest go to market.

David R. Melville: One of the strongest in the country. So.

David R. Melville: All else being equal certainly that was an attractive place for us to to make the investment.

David R. Melville: In doing so with the right partnership structure also.

David R. Melville: So being an end market deal that we felt was low in terms of integration risk. Being the right size, having the right culture, we felt that that all fit well, both with our ability to conduct the transaction successfully, and in terms of furtheration of our strategic plan that we've outlined here on the call that we've had for a number of years ago to increase to seven and a half-ish size, we feel like that's a really good kind of sweet spot size-wise, and this accomplishes that with the consummation of the transaction.

David R. Melville: With a unique opportunity to two.

David R. Melville: To make this kind of move in an environment in which we're operating in which Dr.

David R. Melville: Stocks across the board are down.

David R. Melville: One address.

David R. Melville: The rationale for the breakout of the potential MLP experienced certainly we werent a part of that but.

David R. Melville: CRA is an issue that we wanted to be sure that we were comfortable with prior to seeking regulatory approval and so we've had the chance is that part of our diligence process too.

David R. Melville: We also have had a goal to approach 50% in terms of our credit risk being outside of Louisiana, and so this materially moves us in that direction. If you're going to be, well, there's much to be desired across Texas. Dallas certainly is, I think, many people would consider the strongest of the markets in Texas and one of the strongest in the country, so all of us being equal, certainly that was an attractive place for us to make the investment, and doing so with the right partnership structure also was a unique opportunity to make this kind of move in the environment in which we're operating, in which stocks across the board are down.

David R. Melville: To identify and understand.

David R. Melville: The investments that they've made over the past couple of years and they've been significant including opening.

David R. Melville: Ranch in southern Dallas and.

David R. Melville: And we feel like they've been doing the right things and we have strong records as well as CRA success and commitment and down and so we feel comfortable that we're together.

David R. Melville: But they are independently on the right track from a CRA perspective.

David R. Melville: And together, we feel like we'll be out.

David R. Melville: We will be a good candidate for approval to the regulatory process.

Speaker Change: Okay. That's great color I appreciate it maybe just last for me.

David R. Melville: It looks like the deal is going to close in the fourth quarter.

David R. Melville: Slide I guess, it's <unk>.

David R. Melville: 16 implies some earnings accretion in 2024 sites in that.

David R. Melville: I won't address the rationale for the breakup of the potential MOE experience. Certainly, we weren't a part of that, but CRA is an issue that we wanted to be sure that we were comfortable with prior to taking regulatory approval, and so we've had the chance as a part of our diligence process to identify and understand the investments that they've made over the past couple years, and they've been significant, including opening a branch in southern Dallas, and we feel like they've been doing the right things, and we have a strong record as well of CRA success and commitment, and so we feel comfortable that we're together, that they're independently on the right track from a CRA perspective, and together we feel like we'll be a good candidate for approval to the regulatory process.

David R. Melville: It would close sometime earlier in the quarter.

David R. Melville: Is that fair and then just.

David R. Melville: Just I guess separately this is going to put you kind of closer to.

David R. Melville: $8 5 billion and just wanted to see where you were.

David R. Melville: And what you what you need to do as you get prepared to cross.

David R. Melville: $10 billion this will definitely will be closer.

Speaker Change: Sure well I think it puts us closer to seven five but nonetheless, the point is the same and we're certainly cognizant of.

David R. Melville: Of the.

David R. Melville: Investments needed in the challenges.

David R. Melville: It will need co.

David R. Melville: To prepare to take on as we approach $10 billion, whether you start from seven 5% eight assets is something we're already working on.

David R. Melville: <unk>.

David R. Melville: Witness a number of hires that we've made over the past couple of years so adding.

David R. Melville: Folks that have had experience growing over that $10 billion Mark.

Michael Edward Rose: Okay, that's a great color, Jude. I appreciate it.

David R. Melville: And that's kind of step one we lead with people and having that experience complement the organic work that we've done over over are now 18 year history.

Michael Edward Rose: Maybe just last for me. It looks like the deal is going to close in the fourth quarter, slide 16, I guess. 16, you know, implies some earnings accretion in 2024. So I assume that it would close sometime earlier in the quarter. Is that fair?

Michael Edward Rose: We think it's the first step in preparation for that we are also good.

Michael Edward Rose: On.

Michael Edward Rose: Investing heavily in making heavily in making sure that we have the right.

Michael Edward Rose: It infrastructure in place so.

Michael Edward Rose: And then separately, this is going to put you, you know, kind of closer to, you know, eight and a half billion. And I just wanted to see where you were and what you need to do as you get prepared to cross, you know, 10 billion. This will definitely move you closer.

Michael Edward Rose: We detailed a little bit on our last call that means that has meant that in this year.

Michael Edward Rose: We wanted to invest invest in some technology that we think better prepares us on the production side in terms of making sure that we're doing the right things, but also data flow. So that we can be prepared to answer the regulatory question center that are involved so that was in the works already this.

David R. Melville: Sure. Well, I think it puts us closer to 7.5, but nonetheless, the point is the same, and we're certainly cognizant of the investments needed and the challenges that we'll need to prepare to take on as we approach $10 billion, whether you start from 7.5 or 8.5. It's something we're already working on. You've witnessed a number of hires that we've made over the past couple of years, so I think folks that have had experience going over that $10 billion mark. That's kind of step one. We lead the people, and having that experience complement the organic work that we've done over our now 18-year history is, we think, the first step in preparation for that.

David R. Melville: Acquisition.

David R. Melville: It gives us some scale to help.

David R. Melville: To help frankly to afford some of those investments that we're making so we're trying to make those investments.

David R. Melville: Prior to getting to a $10 billion remarks.

David R. Melville: We retain optionality.

David R. Melville: To get there and we will be.

David R. Melville: Well prepared for it so.

David R. Melville: I think this actually helps us prepare.

David R. Melville: And.

David R. Melville: We feel like we're doing the right things to be ready to hit that $10 billion, mark without without having to stand still for a while as we kind of catch up with ourselves.

David R. Melville: We are actively aware of that actually actively investing and being prepared what was the first part of your question.

David R. Melville: We've also begun investing heavily and making sure that we have the right IT infrastructure in place. So, as we detailed a little bit on our last call, that means that this year, we wanted to invest in some technology that we think better prepares us on the production side in terms of making sure that we're doing the right things, but also data flow, so that we can be prepared to answer the regulatory questions that are involved. So, that was already in the works.

David R. Melville: Income accretion of the deal.

David R. Melville: So just do you expect to close the Dan I meant to say $7 5 billion sorry about that.

David R. Melville: It looks like the deal could close earlier in the fourth quarter, just given that you expect some accretion.

David R. Melville: In 2024 is that fair.

David R. Melville: As you know there is some some part of that is outside of our control, but having this will be our sixth act.

David R. Melville: Acquisition team so.

David R. Melville: This acquisition gives us some scale to help, frankly, to afford some of those investments that we're making. So, we're trying to make those investments prior to getting to the $10 billion mark so that we retain optionality when we do get there, and we'll be well prepared for it.

David R. Melville: We have a pretty good handle on the process and on the.

David R. Melville: The logistics required it and our hope is that we could we could in fact closed early in the fourth quarter you have to close delayed, but we think so Michael.

David R. Melville: The investor deck kind of lays it out we expect the.

David R. Melville: The cost saves assort and integrated probably in the middle half of 2025 post conversion.

David R. Melville: And we feel like we're doing the right things to be ready to hit that $10 billion mark without having to stand still for a while as we kind of catch up with ourselves. We're actively aware of that and actively investing and being prepared. What was the first part of your question? Income accretion. Oh, you want to?

David R. Melville: Kind of holding to that same timeline, hopefully, we think that hopefully it would happen sooner, but that's when we'll start getting the income accretion.

David R. Melville: From a regulatory perspective, we feel like this is right down the middle of the fairway and you identified the CRA being an issue.

David R. Melville: That is one that.

Michael Edward Rose: Yeah. Yeah. So just do you expect to close the deal? And I meant to say $7.5 billion. I'm sorry about that.

David R. Melville: Occasionally tricks up.

Michael Edward Rose: Ddos area right on metal fairway, but.

Michael Edward Rose: We have a good handle on that and all.

David R. Melville: I think it looks like the deal could close earlier in the fourth quarter, just given that you expect some decreased accretion in 2024. Is that fair? Yeah, as you know, we have some part of that is outside of our control. But having this would be our sixth, we have a pretty good handle on the process and on the logistics required, and our hope is that we could in fact close early in the fourth quarter, as opposed to late. We think so, and Michael, and the investor deck kind of lays it out, we expect the call phase to start being integrated probably in the middle half of 2025, post-conversion.

Michael Edward Rose: All the other elements of the deal are ones that would lead us to believe that.

David R. Melville: Our regulatory partners.

David R. Melville: Feel comfort with.

David R. Melville: Additionally.

Speaker Change: Great. Thanks for taking all my questions.

Speaker Change: Sure. Thank you.

David R. Melville: Our next question comes from the line of Freddie Strickland with Janney. Please go ahead.

Speaker Change: Hey, good afternoon everybody.

Speaker Change: Thanks, Eric.

David R. Melville: With this transaction I think I see in the deck. It puts you at 44% pro forma taxes on loans do you think given the current trajectory you could potentially exceed 50% of origin access by mid to late 'twenty five just with this transaction and all the loan growth.

David R. Melville: From a regulatory perspective, we feel like this is right down the fairway. And you identified the CRA as an issue, and that is one that occasionally trips up deals that are even right down the fairway. But I feel like we have a good handle on that, and all the other elements of the deal are ones that would lead us to believe that our regulatory partners would feel comfortable with the addition.

Speaker Change: Yes, I think thats not an unlikely scenario.

David R. Melville: This obviously it moves the needle in terms of about 50% away from where we are today to there.

Michael Edward Rose: Great, thanks for taking all my questions.

David R. Melville: <unk>.

David R. Melville:

David R. Melville: Around half of our growth is coming from Texas markets, So and this.

Operator: Our next question comes from the line of Freddie Strickland with Janney. Please go ahead.

Feddie Justin Strickland: Hey, good afternoon, everybody. Thanks, Feddie. With this transaction, I think I see in the deck, it puts you at 44% pro forma taxes on loans. Do you think, given the current trajectory, you could potentially exceed 50% of loans in Texas by, you know, mid to late twenty-five, just with this transaction and all the loan growth?

Feddie Justin Strickland: Partnership with the bankers have Oakwood should give us the ability to increase that number over time. So so so I don't think it's.

Speaker Change: Unrealistic to assume that we would be nearing if not there by the end of next year.

Feddie Justin Strickland: Gotcha, and then I notice oakland's portfolios, a little heavier in the C&I and the legacy business first portfolio and I apologize. If you said this earlier, but was that part of the consideration here.

David R. Melville: Yeah, I think that's not an unlikely scenario. You know, we This obviously moves the needle in terms of about 50% of the way from where we are today to there, and around half of our growth is coming from Texas markets. So we do we end this Partnership with the bankers of Oakwood should give us the ability to increase that number over time. So, so, so I don't think it's unrealistic to assume that we would be nearing, if not there, by the end of next year.

David R. Melville: Just some more diversification on credit or was it just more having a stronger footprint in Dallas proper.

David R. Melville: It is a mixture of things, but certainly the makeup of the portfolio.

David R. Melville: And being.

David R. Melville: An outsized.

David R. Melville: Exposure to C&I was an attraction to us if you think about the growth in our loan book over the past couple of years has been.

Feddie Justin Strickland: And then I noticed Oakwood's portfolio is a little heavier on C&I as a legacy business first portfolio. I apologize if I missed this earlier, but was that part of the consideration here? Just some more diversification on credit, or was it just more having a stronger footprint in Dallas proper?

David R. Melville: Kind of a return to the C&I focus and we've really proud of our team for decreasing our.

Feddie Justin Strickland: Our exposure relative to capital of C&D and CRE over the past few years pretty substantially in San Diego.

Feddie Justin Strickland: And from 120 ish percent compared 119.

David R. Melville: It was a mixture of things, but certainly, the makeup of the portfolio and being an outsized exposure to C&I was an attraction to us. If you think about the growth in our loan book over the past couple of years, it's been a kind of return to a C&I focus. And we're really proud of our team for decreasing our exposure relative to capital in C&D and CRE over the past two years pretty substantially.

Feddie Justin Strickland: Down to 90 ish, maybe below just below 90%, so we've been able to.

David R. Melville: Well in terms of business banking.

David R. Melville: Sector in this.

David R. Melville: Partnership.

David R. Melville: To accelerate that process. So yes that was in there.

David R. Melville: Makeup of their balance sheets and makeup of their client base.

David R. Melville: The capabilities of their banker team.

David R. Melville: Teams are.

David R. Melville: In C&D, we've gone from 120-ish percent in May 2019 down to 90-ish, just below 90%. So we've been able to return to our roots as well in terms of the business banking sector, and this partnership will accelerate that process. So yes, that was the makeup of their balance sheet, the makeup of their client base, the makeup of the capabilities of their banker teams, being C&I focused is something that is attractive to us.

David R. Melville: We're being C&I focus.

David R. Melville: It's attractive to us.

David R. Melville: Understood.

David R. Melville: Last modeling clarification question.

David R. Melville: A couple questions on the margin already here, but.

Speaker Change: Greg did I hear you correctly.

David R. Melville: The 327 core margin ex accretion today, but do you see that going up to 350, but it's not going to go to $3 50 next quarter right or is that does that kind of a longer term goal.

Feddie Justin Strickland: Okay. One last modeling clarification question. There's been a couple questions on the margin already here. But Greg, did I hear you correctly that, you know, it's a 327 core margin excretion today, but you see that going up to 350, and it's not going to go to 350 next quarter, right? Or is that, is that kind of a longer term goal?

Greg: Yes, that's the longer term operational goal I think in reality when you think about this deal and in the context of the deal.

Greg: Being achieving that goal by the first or the middle part of next year is probably pretty reasonable.

Feddie Justin Strickland: I think that one thing and drinking about the bankers that we have we have.

Feddie Justin Strickland: Similar loan and deposit costs and yields.

Gregory Robertson: Yeah, that's a longer-term operational goal. I think, in reality, when you think about this deal in the context of the deal, then achieving that goal by the first or middle part of next year is probably pretty reasonable.

Gregory Robertson: They're a little higher than us on the loan side, but not.

Gregory Robertson: But order of magnitude higher so we're very comfortable there.

Gregory Robertson: Getting paid for what they do.

Gregory Robertson: And then they have a little higher deposit costs. So we think we have the opportunity with our more expanded.

Gregory Robertson: Branch network to be able to continue to put to work a thesis.

Gregory Robertson: I think that, you know, one thing intriguing about the bank is that we have, we have similar loan and deposit costs and yields; they're, they're a little higher than us on the loan side, but not We're very comfortable that they're getting paid for what they do, and then they have a little higher deposit costs. So we think we have the opportunity, with our more expanded branch network, to be able to continue to put this thesis of gathering funding and other markets and putting them to work in balance.

Gregory Robertson: Gathering funding in other markets and putting them to work in Dallas and model.

Gregory Robertson: We do have this does help us achieve more balanced than we've ever had not only on the loan side, but the deposit side.

Gregory Robertson: Moving to about 31% of our combined franchises.

Gregory Robertson: On a pro forma basis deposit makeup being in Texas.

Gregory Robertson: Think that Louisiana franchise will continue to.

Gregory Robertson: Be able to add positively as a funding basis, which should be awarded which should enable us to bring their deposit cost more in line with ours, which should give us an opportunity for <unk>.

Gregory Robertson: And while this does help us achieve more balance than we've ever had, not only on the loan side but the deposit side, moving to about 31% of our combined franchises on a pro forma basis, with deposit makeup being in Texas. We think that the Louisiana franchise will continue to be able to add positively to the funding basis, which should enable us to bring their deposit costs more in line with ours, which should give us an opportunity for increased margin through the acquisition as well as through our own internal efforts.

Gregory Robertson: Our increase margin.

Gregory Robertson: Through the acquisition as well as through our own internal efforts.

Speaker Change: Thanks for the color that was helpful.

Speaker Change: Congrats on the deal.

Speaker Change: Got it.

Speaker Change: Thank you.

Gregory Robertson: Again, if you'd like to ask a question press Star then the number one on your telephone keypad.

Manual Nevada: Our next question comes from the line of manual Nevada.

Feddie Justin Strickland: Thanks for the call. That was helpful. And congrats on the deals to the deal guy. Thank you.

Speaker Change: With D. A Davidson. Please go ahead.

Speaker Change: Hey, good afternoon.

Speaker Change: Good afternoon, Thank you for being here.

Operator: Again, if you'd like to ask a question, press star then the number one on your telephone keypad. Our next question comes from the line of Manuel Navas, with D. A. Davidson. Please go ahead.

Speaker Change: I wanted to touch on the NIM.

Manuel Navas: One of them.

Manuel Navas: A different.

Manuel Navas: Piece of that of the pace to build to $3 50.

Manuel Navas: Good afternoon. Thank you for being here.

Manuel Navas: I want to touch on NIMS, a kind of different piece of that, the pace to build to 350. If you get there by the middle of next year, that's going to have help from accretion. And you had a comment that 350 is higher for a longer perspective.

Manuel Navas: Did you get there by middle of next year, that's going to have.

Manuel Navas: Had help from accretion and you had a comment that.

Manuel Navas: Alright.

Manuel Navas: $3 50 is with a higher for longer perspective.

Manuel Navas: Where could you get if we kept rates unchanged where could the NIM reached by the end of the year.

Manuel Navas: If we kept rates unchanged, where could NIM reach by the end of the year? And if we did have a couple rate cuts, where would it fall to? I'm kind of looking for the variability of that outlook.

Manuel Navas: And if we do have a couple of rate cuts where would it fall to.

Manuel Navas: Just kind of looking for the variability of that outlook.

Gregory Robertson: Yeah, we've worked real hard in the last... Probably nine to 12 months on making the balance sheet more neutral. So we feel like in a high or prolonged or one or two cut environment, we should have, margins should be. So I think standalone, by the end of the year, we would expect that to be able to pick up somewhere from 10 to 20 basis points.

Speaker Change: Yes, we are.

Manuel Navas: Worked real hard in the last.

Gregory Robertson: Probably nine to 12 months on making the balance sheet more neutral.

Gregory Robertson: So we feel like.

Gregory Robertson: Higher prolonged.

Gregory Robertson: One or two cut environment.

Gregory Robertson: We should margins should be.

Gregory Robertson: Okay.

Gregory Robertson: <unk> pretty much.

Gregory Robertson: And we purposely tried to move it in that direction.

Gregory Robertson: I think stand alone by the end of the year, we would expect that to be able to pick up.

Gregory Robertson: And when I meant 350, that was x accretion as well. So that's helpful. Okay.

Gregory Robertson: Somewhere from 10% to 20 basis points and what Im when I've met 350 that was ex accretion.

Gregory Robertson: As well.

Speaker Change: No that's helpful. Okay.

Manuel Navas: That's helpful. Okay, shifting over to the transaction you announced today. There are a couple of places where you talk about retention agreements and being able to keep the talent. Can you just talk about the thought process behind that and how you've been able to feel confident that you're really bringing this team over to work for you for a good amount of time? Just kind of go through that piece of it with the key producers at Oakwood.

Manuel Navas: Is.

Manuel Navas: Shifting over to the to the transaction you announced today.

Manuel Navas: There is a couple of places when you talk about the retention agreements and being able to.

Manuel Navas: Keep the talent.

Manuel Navas: Can you just talk about the thought process in that and how.

Manuel Navas: <unk> been able to.

Manuel Navas: To feel confident that youre really bringing this team over to work for us a good amount of time.

Manuel Navas: Just kind of go through that piece of it with the key producers at Oakwood.

David R. Melville: Sure, well, part of our diligence process is really feeling out our relationships and making sure that we have cultural alignment in our decision-making processes, and that includes the production leadership. And then, you know, we are relative to how the diligence on that wouldn't really mean anything if we didn't feel good about the diligence on the personalities and the people involved.

Manuel Navas: Sure.

Manuel Navas: Part of our diligence process is related.

David R. Melville: Fueling our relationships and making sure that we have.

David R. Melville: Cultural alignment on our.

David R. Melville: Decision, making processes.

David R. Melville: <unk>.

David R. Melville: Production leadership.

David R. Melville: Regardless of how the diligence on their books.

David R. Melville: But I mean anything if we didn't feel good about the.

David R. Melville: Diligence on the <unk>.

David R. Melville: And, and, you know, it's not just us feeling good about them. It's also them feeling good about us, and the way that we make decisions and the priorities that we have. And so we certainly spent quite a bit of time with their team.

David R. Melville: Personalities and the people involved in and it's not just us feeling good about them. It's also them feeling good about us.

David R. Melville: The way, we make decisions and prioritization that we have and so we certainly spent quite a bit of time with their team.

David R. Melville: Not only their senior leadership and board, but their actual production officers and I feel like we've really hit upon a group that will fit in day one. And, you know, it is important to have retention agreements post acquisition for the initial period of getting to know each other, but ultimately, our ability to maintain the talent and, over the long run, will come down to them feeling like they can do what they want within our system.

David R. Melville: Not only they're there.

David R. Melville: Senior leadership and board, but their actual production officers.

David R. Melville: And feel like we have.

David R. Melville: No.

David R. Melville: So they hit upon a group that will fit in day, one and.

David R. Melville: It is important to have.

David R. Melville: Retention agreements post acquisition for initial period.

David R. Melville: Of getting to know each other but ultimately our ability to maintain the talent and over the long run will come down to them.

David R. Melville: Feeling like they can do within our system and so on.

David R. Melville: And so we have both a good feeling about this group, but then we also have a track record. If you think about the five acquisitions that we've done, we've lost maybe two or three producers at the most that we didn't choose to help transition. So we have a good record of, [inaudible] When you partner with banks that are smaller than you, and you feel good about their culture and you feel good about their desire to win, then we can offer their producers quite a bit in terms of a bigger balance sheet to work with and a more expanded product set as well.

David R. Melville: We have both a good feeling about.

David R. Melville: About this group, but then we also have a track record if you think about the five acquisitions that we've done.

David R. Melville: We've lost maybe two years or three producers have amongst Ed.

David R. Melville: So.

David R. Melville: Transition, we have a good record.

David R. Melville: Integration of key talent.

David R. Melville: And part of that.

David R. Melville: When you partner with banks that are.

David R. Melville: Tomorrow. Then you then that you feel good about their culture and you feel good about their desire to win.

David R. Melville: And then we really can offer their producers quite a bit in terms of a bigger balance sheet to work with an a and a more expanded product set as well.

David R. Melville: Winners want to win, and we think we're able to offer them a chance to continue to do that at perhaps an even bigger scale than they have previously. They also have the ability to, as our folks do, to participate in equity upside over time, and so I feel like we're well aligned there as well, and so I don't mean to be too soft. I know it's easy to... I don't want to talk about the formal contracts, but success in the acquisition world is really about the software side of things, the integration of the of the of the cultural aspects of the bank and I feel like there's a feel like a we're we're we are good at prioritizing that as we've shown across prior acquisitions and then I feel specifically really good about about the shared vision that we have with this team and and with the leadership of the bank as well it's been a it's been a comfortable feeling from day one and again not to not to be too soft about it but the soft things do matter and so we feel confident that we'll be a good place for for their team to continue to grow and and be all they can be and that that ultimately will be to their desire to to remain a part of our team over time. I really

David R. Melville: Winter is going to win and we think we.

David R. Melville: We think we're able to offer them the chance to continue to do that.

David R. Melville: Perhaps an even bigger scale.

David R. Melville: As previously they also have the ability to us.

David R. Melville: Our folks to those who participated and equity upside over time, and so I feel like we're well aligned there.

David R. Melville: As well so.

David R. Melville: I don't mean to sell.

David R. Melville: I know it's easy to.

David R. Melville: About the formal contracts, but success in the acquisition World.

David R. Melville: <unk>.

David R. Melville: The software side of it.

David R. Melville: And the integration of the of the.

David R. Melville: The cultural aspects of the bank and the like there so.

David R. Melville: We feel like we are good at prioritizing that as we've shown brush prior acquisitions, and then I feel specifically really good about.

David R. Melville: About the shared vision.

David R. Melville: That we have with <unk>.

David R. Melville: And with the leadership of the bank as well it's been a.

David R. Melville: It's been.

David R. Melville: Comfortable feeling from day, one and.

David R. Melville: Again not to.

David R. Melville: The two soft about it but those things do matter and down.

David R. Melville: So we feel confident there will be a good place for for their team to <unk>.

David R. Melville: Continue to grow and be all they can be and that ultimately was Asia.

David R. Melville: Their desire to remain a part of our team over time.

Manuel Navas: I really appreciate it. Thank you.

Speaker Change: I really appreciate it thank you.

David R. Melville: That concludes our Q&A session. I will now turn the conference back over to Jude Melville for closing remarks.

Manuel Navas: Okay.

Manuel Navas: Okay.

David R. Melville: That concludes our Q&A session I will now turn the conference back over to Jude Melville for closing remarks.

David R. Melville: Well, I appreciate everybody spending time with us. You know, it was a noisy quarter, and we believe that we're doing the right things from a managerial aspect to address that noise and feel as confident about our ability to produce good returns over the year, over the course of the year, as we did this time last quarter. And we'll continue to work hard to make that happen. I just want to take a moment to welcome the team, the board, and the shareholders of Oakwood Bank.

David R. Melville: Okay, great well I appreciate everybody spending time with us.

David R. Melville: Yes.

David R. Melville: Noisy quarter, and we believe that we're doing the right things from a managerial aspect to address those.

David R. Melville: And Phil as confident about our ability to produce good returns over the year over the course of the year as we did.

David R. Melville: This time last quarter, and we will continue.

David R. Melville: To work hard too.

David R. Melville: To make that happen.

David R. Melville: We just take a moment to welcome the <unk>.

David R. Melville: Team.

David R. Melville: And the board and shareholders of available bank debt, both the solid franchise and one that we're.

David R. Melville: They built a solid franchise and one that we're excited about partnering with and believe that together we can all achieve as much as we hope to achieve or are excited about. Thank you to our team for not only the results but also being the kind of bank that good people want to partner with. I'm proud of it and look forward to taking some more steps forward this year.

David R. Melville: We're excited about partnering with them and believe that together we can.

David R. Melville: We can offer.

David R. Melville: Achieve as much as we hoped to achieve are excited about.

David R. Melville: Cultural alignment that we found with this deal. So thank you to them and we will come down and thank you to our team for.

David R. Melville: As a result, but also being the kind of banked that people.

David R. Melville: People want to partner with I am proud of it.

David R. Melville: Look forward to.

David R. Melville: So more SaaS for this year. Thank you.

Operator: This concludes today's conference call. You may now disconnect.

Speaker Change: This concludes today's conference call you may now disconnect.

Operator: [music].

Operator: Okay.

Speaker Change: Thank you.

Operator: Okay.

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Operator: Okay.

Operator: Sure.

Operator: Okay.

Speaker Change: Thank you.

Operator: [music].

Operator: Okay.

Operator: [music].

Operator: Okay.

Operator: Yes.

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