Q3 2024 Business First Bancshares Inc Earnings Call
Good day everyone and welcome to the business first bank shares Q3 2020 for earnings call. Just a reminder that today's call is being recorded. At this time I would like to hand things over to Mr. Matt Sealy, Senior Vice President, Director of Corporate Strategy and FPN Day. Please go ahead sir.
Matt Sealy: Good afternoon and thank you for all the joining. Earlier today we issued our third quarter of 2024 earnings press release, Topys which is available on our website along with the slide presentation that we'll refer to during the day's call.
Matt Sealy: Please refer to slide three of our presentation which includes our safe harbor statements regarding forward-looking statements and these non-gap financial measures. For those of you who want to buy phone, please note that slide presentation is available on our website at www.beonebank.com.
Matt 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 and our slide presentation and earnings release.
Speaker Change: I'm joined this afternoon by Business First Bank Chair, Chairman, President and CEO of Jude Melville, Chief Financial Officer Greg Robertson, Chief Banking Officer Philip Jordan and President of B1 Bank Jerry Vasquez.
Speaker Change: and after the presentation we'll be happy to address any questions you may have. And with that, I'll tell the attorney to call over to you, Jude.
Jude Melville: Okay, thanks, Matt and good afternoon, everybody. To begin, I want to be sure to say thank you to everyone currently on the call or listening to it or re-read and transcripts at some point in the future. We know you have choices to make and we appreciate your making us apply already today.
Jude Melville: I can be relatively grief as the quarter was straightforward and generally positive.
Jude Melville: Primary theme I'd like to highlight is the improvement in operating leverage achieved through a combination of continued expansion of our net interest margin and expense control. For expenses were down about a million dollars length quarter even while we continue to make the technological investments that we detailed in previous quarterly calls.
Jude Melville: Our core margin expanded 12 basis points linked quarter to 3.46%, driven by roughly flat deposit costs and a 1 basis point linked quarter paired with increased aggregate portfolio loan yields as new and renewed loans pricing held steady at 8.46%.
Jude Melville: Secondary theme I'd like to highlight is the continued diversification of revenue from the investments we've made over the past couple years and sources of non-interest income including SSW, our asset management company, Waterstone, our SBA loan service provider, our FIG group, and our NASA and Internal Swaps desk.
Jude Melville: A new chart on page 15 explains the primary sources of that increased income and while we expect the components of that income to shift quarter to quarter, we're pleased that the aggregate impact is incrementally positive to income and has been consistently over the course of 2024.
Jude Melville: Third, we demonstrated discipline in the management of our balance sheet, again growing deposits at a rate faster than loans, also growing risk assets appropriately in line with retained earnings, leading to increased capital levels and tangible book value growth, even outside the impact of positive AOCI movement.
Jude Melville: We believe we've positioned the loan and deposit portfolios favorably considering the current rate outlook and anticipate continued incremental improvement in our NIM due to this positioning and the hard on the ground work of our banking teams.
Jude Melville: Finally, on a broader topic of adding value to the franchise beyond just the numbers, we were pleased to successfully close the Oakwood transaction on October 1st, bringing the percentage of our asset exposure in the Dallas and Houston markets to the mid-40s as a percentage of the overall loan book.
Jude Melville: Thank you to the Oakwood team for their positivity and their energy and thank you also to our regulatory partners for reviewing the merger in a professional and timely manner.
Jude Melville: He also recently announced a promotion to Jerry Baskerville to the position of president of the bank while I remain chair and CEO. Jerry's made an impact serving with us for a couple of years already and had an extensive career with growing regional banks before joining our team.
Jude Melville: We believe we'll have many opportunities before us in the coming years and want to be sure that we are positioning our internal operations To continue their coordinated performance even while we expand interaction with our external constituencies
Jude Melville: This will be especially important as we move closer to the $10 billion asset level, a transition that we want to be certain we approach proactively.
Speaker Change: With that, I again thank you for calling in and I'd like to close by congratulating our team and our loyal clients on another successful quarter. I'll now turn the call over to Greg for further detail.
Greg Robertson: Thank you, Jude, and good afternoon, everyone. The third quarter gap in net income and EPS available to common shareholders was $16.5 million and 65 cents per share and included a $13,000 pre-tax loss on sale of securities.
Greg Robertson: $319,000 pre-tax acquisition related expense and a $511,000 pre-tax conversion related expense. Excluding this excluding this non-core item non-GAAP core net income and EPS available to common shareholders was $17.2 billion.
Speaker Change: As you mentioned while expenses did come in lower than we had expected, we feel like Q3 represents an overall solid run rate going forward. I'll start on the balance sheet before moving to the margin and then conclude with the income statement.
Speaker Change: Total loans held for investment increased by 57.3 million or 4.4% annualized during the third quarter. I should note our production pipeline remains very strong as we sold approximately $30 million in loans to participating banks during the third quarter.
Speaker Change: Long growth from late quarter was largely attributable to net growth in the commercial real estate portfolio of $58.2 million, $16.9 million.
Speaker Change: and that's growth in the C&D portfolio.
Speaker Change: Production was led by our Northeast Louisiana region and our New Orleans region, which accounted for approximately three-quarters of net loan growth from a length of quarter.
Speaker Change: Based on unpaid principal balances, Texas-based loans represent approximately 35% of the overall portfolio as of September 30th.
Speaker Change: And as Jude mentioned, as we expect Oakwood to contribute $690 million in net loans, bringing the total Texas loan balances to approximately 42%.
Speaker Change: Total deposits increased $77.3 million, or 5.5% annualized quarter over quarter. During the quarter, ended September 30th, interest-bearing accounts drove the increase with $196.5 million in growth.
Speaker Change: offset by $119 million in reduction in non-interest bearing accounts compared to the late quarter. The reduction in the non-interest bearing accounts is isolated to seven clients.
Speaker Change: with Production-Related Accounts that make up approximately $75 million in deposits. In spite of that, new production remains strong with approximately $25 million in new deposits generated during the quarter.
Speaker Change: The increase in interest bearing was largely attributable to a $161 million increase in our money market accounts. The weighted average money market portfolio rate declined by 35 basis points in the late quarter from 4.22% to 3.87%.
Speaker Change: Total non-interest bearing deposits represent 21.1% of total deposits as of September 30th.
Speaker Change: and down from 23.5% link order remains in line with our expectations at the beginning of the year to end the year of 2024 in the low 20% range.
Speaker Change: Our gap of 43rd quarter net interest margin of 3.51% benefited from $705,000 in discount loan accretion, which was in line with our consensus expectations.
Speaker Change: Third quarter quarter NEM excluding accretion of 3.46 came in higher than we expected. The 12 basis point length quarter expansion in the quarter NEM benefited from continued strong new and renewed loan yield.
Speaker Change: like loan yields repricing tailwinds and moderated funding pressures. A little context there, our weighted average new and renewed loan yields for the third quarter was approximately 8.46%, with a spot rate at the end of September at 8.49%.
Speaker Change: While quarter-over-quarter total deposits decline one basis point, with the September cut in interest rates, we do expect deposit costs to continue to decline in the near term, but will be affected by our ability to retain and attract lower-cost funding and non-interest-bearing deposit accounts.
Speaker Change: This is a good opportunity to direct your attention to a new slide we created in our earnings presentation. Please reference the slide on page 21 for a summary of our deposit beta assumptions in an easing interest rate environment. We expect overall total deposit betas to be in the 45 to 55 percent range.
Speaker Change: which should translate into low single-digit expansion in the core NEM, assuming a static balance sheet.
Speaker Change: There could be additional upside for margin expansion should we assume some normal organic growth.
Speaker Change: We feel like this new beta slide is a good complement to the following slide on page 22, which depicts the repricing opportunities within the loan portfolio. As you'll see on page 22, we have approximately $2 billion in floating rate loans at approximately 8.15% weighted average.
Speaker Change: But we also have approximately 500 million in fixed rate loans maturing over the next 12 months at a weighted average of 6.28 percent, which we would expect to reprice in the low 8 percent range. Thank you.
Speaker Change: Last thing I want to add
Speaker Change: is just the impact of the addition of the Oakwood balance sheet, which we have a full quarter impact during the fourth quarter.
Speaker Change: We continue to expect Oakwood to be a couple of basis points accretive to our overall poor margin. We also expect loan discount accretion to average at approximately the $700,000 to $800,000.
Speaker Change: recorder range going forward, including Oakwood edition.
Speaker Change: Moving on to the income statement, our gap non-interest expense was $42.4 million and included $319,000 in acquisition related expense and $511,000 in conversion related expense.
Speaker Change: Third quarter gap in core non-interest income was $10.8 million, but gap did include a $13,000 loss of sale on securities. Non-interest income results for the third quarter did come in slightly better than we had expected and was driven by our contribution from our newly formed customer slot business, which generated approximately $900,000 in revenue during the quarter.
Speaker Change: with UQ3.
Speaker Change: of Core Non-Interest Income as a good run rate going forward and expect our non-interest income to continue to trend with an upward trajectory that will be bumpy as our investments continue to season.
Speaker Change: As Jude mentioned, we did add a new non-interest income slide on page 15 in our earnings presentation that summarizes those investments and provides additional color.
Speaker Change: Lastly, while the addition of Oakwood will be additive to the overall non-interest income, that increase will be modest in the near term as they get used to our product offerings.
Speaker Change: That concludes my remarks for today and I'll hand it back over to you.
Speaker Change: Thanks, Greg. Again, just a good, solid work-a-day quarter, and we're pleased with the incremental improvement, and I think we're positioned well to continue that over the coming quarters. So with that, I'll
Speaker Change: for any questions that we might have and look forward to the conversation.
Speaker Change: And everyone, if you have a question today, please press star one on your telephone keypad.
Speaker Change: We'll take our first question from Michael Rhodes, Raymond James.
Michael Rhodes: Good afternoon, everyone. Thanks for taking my questions.
Michael Rhodes: Nice expansion on the margin good to see The deposit costs come down. I think as I recall last quarter you guys had a bunch of
Michael Rhodes: broker CDs that are expected to mature by the by the end of the year I think it was 450 million last quarter just wanted to see
Michael Rhodes: How much of a tailwind is there, and I think you had previously talked about
Michael Rhodes: The the core margin reaching kind of a, you know, around 350 by the end of the 2nd quarter. Just wanted to see if there were any updates and then just embedded in that. It seems like the accretion might be a little bit lower. Do you have the amount of expected accretion?
Speaker Change: Yes, yeah, I'll start off answering the first part.
Speaker Change: As far as the CD books and the maturities go, that was what we had last time we talked to you. We were isolating on about $400 million in retail CD renewals in the near term. We have been pulling through with a
Speaker Change: with a fairly solid above 50% retention rate on that CD book and repricing so we feel pretty confident there are some tailwinds and we do feel like that that would be instrumental in helping us
Speaker Change: She's at 350 margin by the second quarter like we spoke of.
Speaker Change: of the
Speaker Change: Hey, Michael, I'll jump in, kind of give you a little bit of color in terms of the 350 target in the second quarter. I think you're referring to the second quarter.
Speaker Change: of 25 core margin run rate. So we're, you know, obviously a little bit ahead of schedule is what it would appear service level. There's a couple things that I would call out that I'm not sure how much could be sustained within that core margin currently.
Speaker Change: So within our business manager factoring product set that we have, there's
Speaker Change: There's about seven ish basis points within the core margin attributed to that business line
Speaker Change: and really no direct balances on balance sheet balances associated with that interest income that we have.
Speaker Change: There's a couple of larger clients that are currently reflected in that number.
Speaker Change: and the past quarter or so, we've
Speaker Change: I've been uncertain if they're going to stick around, and fortunately they have.
Speaker Change: That is a bit of a wild card.
Speaker Change: while we are currently ahead of schedule to hit that 350 core margin.
Speaker Change: by Q2 of next year. I would just caveat it with that, those couple clients that account for a few basis points, maybe about three basis points of that seven related to those folks. Now that is also pre-Oakwood, so if you layer into Oakwood, there are another couple basis points accretive.
Speaker Change: So I'd say all in all, still very confident that we can hit that core margin run rate by Q2 of next year and potentially a little bit sooner, but that's
Speaker Change: Kind of the context
Speaker Change: around that piece of it. And then lastly, on the, kind of to Greg's point about the CD repricing and maturing, we do have
Speaker Change: on our new slide 21 in the presentation, the last bullet point which depicts the upcoming maturities within the CD portfolio in Q4 and Q1 to the tune of about 300 million. So we'll try to keep updating that and rolling that forward so you can see kind of the context going forward in the next couple quarters.
Speaker Change: And Michael, your last question in regards to the increasing gain with the Oakwood closing.
Speaker Change: From the time we announced the transaction, the interest rate environment has changed, so we're in the process of finalizing the marks and the accretion and all that on that. So, a little bit too early to tell on that, but we're still working on that.
Speaker Change: It will be added to the Tower Act. It will be wrote in on that.
Speaker Change: But $700,000 to $800,000 a quarter with Oakwood is what you're still expecting is, I think, what I heard.
Speaker Change: Yes, that's right. Okay, perfect. Sorry for the three part question in the first question. Just as one follow up, you know, saw the.
Speaker Change: The provision came in a little bit lower than I was expecting, but looking at slide 31, I did notice that the special mention was up and NNPLs did go up a little bit as well. Can you just give some context there, anything to worry about?
Speaker Change: and just any general overall thoughts on credit. Thanks.
Speaker Change: I will say I'll start with MPLs. So the increase in MPLs is really attributable to one loan that's SBA guaranteed loan that we should have resolution with that within the next month or so.
Speaker Change: So, I think what we're seeing within the credit book is just the impacts of normalized credit performance with, for example, the past two loans, the increase in that.
Speaker Change: Two of the three loans that make up most of the increase
Speaker Change: We should have some resolution on those as well. So still seeing some wild things. I think the, as far as the.
Speaker Change: The watch list goes, that is an impact or direct reflection of the interest rate environment.
Speaker Change: probably majority of the movement with that, but I think it's
Speaker Change: It would be foolish not to say that we're in a more normal credit environment, so we're seeing no major degradation in the credit portfolio, just one-off examples here and there.
Speaker Change: Very helpful. Thanks for taking my questions.
Speaker Change: Next up is Matt Olney, Stephen Zink.
Matt Olney: Hey, thanks for taking the question guys. I want to ask about loan growth. A little bit slower than what we've seen at the bank more recently, but still quite a bit above what we've seen from peers over the last week or two. We'd love to kind of hear what your borrowers are saying, specifically the C&I borrowers. Looks like utilization rates moved down a little bit. We'd love to hear just kind of what you're hearing from your customers.
Matt Olney: being understanding the impacts to capital with growth and profitability. So I think that's right in line. And as I mentioned, you know, we did sell $30 million worth of loans in the quarter to participating banks in our network. So
Speaker Change: We still feel like the pipeline's strong and in a good place, but I'll let these guys talk a little more about that.
Speaker Change: Yeah, I would say I don't know that there's necessarily an outlier from that perspective too in customer feedback. I think this is kind of a timing for us. We don't see it. It's just kind of normal on a year-over-year basis as far as how our clients are utilizing
Speaker Change: some core customers that are really kind of having a successful season. It's been nice to see that this over the last couple of, particularly the last few months. It's
Speaker Change: manifesting some additional good core worth.
Speaker Change: Okay, great. Thanks for all the commentary on the loan growth and
Speaker Change: I guess going over to the fee side, another nice quote on the fees, I think it was the swap fees that maybe drove the...
Speaker Change: prepared remarks, you don't expect any kind of step back in their term. You think you can continue to grow it from this run rate that we saw in the third quarter. Is that right?
Speaker Change: That's right. And if you think about our production in that non-interest income in the second quarter, that was really driven by a $1.9 million outlier fee from USDA gain on sale.
Speaker Change: For us, the...
Speaker Change: to really build from there shows the continued investment.
Speaker Change: in those different business lives that we've been.
Speaker Change: and we're highlighting in the slide deck this quarter. We do think it'll be bumpy like you said, but we do expect it to continue to incrementally grow over time.
Speaker Change: I was going to add, it was a good question. One of the things I think we've been most pleased about, particularly with the SWOT businesses, is it's become more granular. We've got a good rhythm with that product and applying it to the right clients, good clients. If you look at the...
Speaker Change: The slide that breaks out the swap some detail there. It's 20 trades in the quarter So I think what we've been most pleased about it is not as lumpy in the third quarter And we can kind of see it leveling out over time in a good way with it with a good gradual ramp Good response from our from our bankers and our clients
Speaker Change: I think I would I would also add just that you don't expect for swaps to necessarily be the leader Every quarter, you know, one of the reasons that we've chosen to invest in multiple sources of revenue is that we know that
Speaker Change: That can be a little more volatile than our traditional spread income.
Speaker Change: We wanted to be sure we had three or four sources, and I think today we're probably feeling like in the fourth quarter, the SBA income probably the stronger pipeline than the swap income. Not that the swaps won't continue to accrue, but we wanted to be sure that we had multiple sources.
Speaker Change: sources of revenue, so that as we experience some fluctuation in the individual components, the overall aggregate results should be incrementally positive.
Speaker Change: Thank you. Thank you.
Speaker Change: Okay, great. Alright, I'll step back. Thanks for the commentary, guys.
Matt Olney: Thanks Matt.
Speaker Change: The next question comes from Fetty Strickland of the group.
Speaker Change: Good afternoon, everybody.
Fetty Strickland: You just wanted to ask, you know, as you integrate Oakwood, how should we think about the expense growth, you know, kind of later in 25? Are there any major initiatives? I mean, I know you maybe have some costs here and there or there in the year, but anything major we should look out for or, you know, is kind of past.
Fetty Strickland: Years pre-murder, I think.
Fetty Strickland: piece of history to look at for that.
Speaker Change: I would say past year's pre-merger is a good indicator of how we think about it. I think the overarching...
Speaker Change: We want to grow loans in the mid-single-digit range next year.
Speaker Change: Keeping that expense base in line with that asset growth is really what we're thinking about from an overall strategy standpoint. And do remember, it's worth noting that because of the later in the year core conversion with them,
Speaker Change: that we're not pulling through a lot of cost saves in 2025 those those will be showing toward the end 25.6
Speaker Change: I've got one thing that I'd add.
Speaker Change: Thank you. Bye-bye.
Speaker Change: and Greg hit on this in his prepared remarks.
Speaker Change: All in Oakwood in the fourth quarter, kind of a good launching point going into 2025, is kind of the current consensus number out there.
Speaker Change: which I believe is right at 50-ish million all in, and that includes fully loaded, impacted Oakwood. That's kind of a good launching point.
Speaker Change: Gotcha. And then you said the cost savings are probably later in the year, you wouldn't see as many of those initially, right?
Speaker Change: We're probably not going to send any of those to the Q4 of next year and then pull it through into 26.
Speaker Change: Okay, that's helpful. Which is what our expectation was when we structured the deal, as we modeled.
Speaker Change: It's not a delay, it's just a sequence of events with our own internal work, including a full conversion of the Legacy B-1 prior to doing the OPLU conversion.
Speaker Change: Understood. And then just one more question for me is just, you know, kind of similar on Oakwood a little bit, but how do you think about either geographic expansion or just growth going forward? I mean, does M&A remain a part of the playbook in the medium term here? Would you look at doing teen lift-outs or do you just still feel like there's a good bit of runway with the current footprint in terms of, I guess, low hanging fruit for additional longer positive growth?
Speaker Change: Yeah I think as always we want to be prepared to take advantage of opportunity when it presents itself and we believe that we can be successful on multiple fronts. I would say that our
Speaker Change: Current priority remains organic growth and making sure that we're
Speaker Change: We're maximizing the team that we have, and we do have a really good track record of enabling teams that we've partnered with to grow beyond where they were before we partnered with them. And so that, you know, certainly will be the.
Speaker Change: The first priority would be in our current footprint, continuing to gain operating leverage.
Speaker Change: Now certainly team list outs are a great way to grow and we've done that successfully and we'll continue to look for some.
Speaker Change: opportunities and we feel prepared to take on M&A should the right partner show. I would say from a footprint standpoint, number one priority is our current footprint, number two priority is filling in some of the gaps in our current footprint.
Speaker Change: South of Houston is a possible area that might be fertile.
Speaker Change: and we still have plenty of room to grow in Louisiana as well as we continue to build our core franchise.
Speaker Change: secondarily I would say there's you know we over time will look for opportunities most likely to be but you know that that's if we think about our footprint and what we wanted to look like
Speaker Change: five, seven, ten years from now, I would imagine more widespread and the pace or the order of how we do that will be determined by who we can partner with and our location choices have always been about the bankers.
Speaker Change: more than the specific geography and so we'll continue to do that but we do think we have plenty of money to take race over in our current footprint and that'll be our, whether that's through organic growth or through partnership, that'll be our priority for the near term.
Speaker Change: Mike mentioned to you that we had a couple of bankers retire in our Houston footprint and we're back to the lows with two new bankers, so yeah, for that addition. We're excited about that and again,
Speaker Change: Perfect. Appreciate the color. I'll step back into the queue. Thanks for taking my question.
Speaker Change: I think it is worth pointing out that, and Greg mentioned this before, but our two biggest growth areas this quarter were North Louisiana and New Orleans.
Speaker Change: We're excited about Dallas and Houston, and those are things that tend to get the headlines, but we also
Speaker Change: They're really good about our competitive posture within our cold Louisiana franchise.
Speaker Change: and with each with each quarter and each year that passes I think I think we build credibility and we build brand power and we
Speaker Change: accumulate additional talent. And so while Texas certainly is a key part of our future, we believe we have plenty of opportunities throughout our footprint, and I think third quarter was a really good example of
Speaker Change: of the different constituent elements of our footprint working together to serve the greater whole. And you can paint a picture over 24 and 23.
Speaker Change: which some of our southwest Louisiana portion of our footprint, for example, provided the most deposit growth. So one of the things that we've tried to do over time is say that we have an opportunity to combine the best of both worlds, which is
Speaker Change: at the more kind of community banker-ish, slightly rural locations that we might have in our Louisiana footprint with the
Speaker Change: with the slightly more commercial Metro banking than we might do in other areas, and I think
Speaker Change: When you really kind of parse out the results over the course of this year, we've had good evolution of leadership from throughout the footprint and we're excited about opportunities across the spectrum.
Speaker Change: And we'll take our next question today from Manuel Nava, D.A. Davidson.
Manuel Nava: Hey, good afternoon. The low single-digit core NIM expansion under the 50 basis point reduction, that's only so far. What's the future?
Manuel Nava: rate cut improvement. And is that slide only on the balance sheet as of 3Q? Can you just kind of talk through some of the assumptions behind that slide?
Speaker Change: yeah that that would be on a static balance sheet as a three cube and then that would be an assumption for every 50 basis points that would be what we would realize
Speaker Change: Yeah, and a little bit more color than Manuel.
Speaker Change: and kind of additive expansion on top of our current trajectory assuming flat rates. So, you know, we've got a scenario where if rates were not cut, we would still see some expansion and lift. So that couple basis point pickup is not
Speaker Change: off of the
Speaker Change: current Q3 figure or current Q3 ending figure, there's already some inherent expansion in there in just a flat rate environment. So that's really the additive expansion on top of already some modest expansion over the next 12 months.
Speaker Change: So that's not a, you know, three-month outlook.
Speaker Change: Expansion from the recent cut plus ordinary course of business expansion from growth and margin improvement.
Speaker Change: I think the last time we talked, we talked about the work we had done to restructure the liability side of the balance sheet. And I think this really paints a picture and shows the work that we've put in to become more neutral.
Speaker Change: and position the balance sheet where we can be reactive to interest rate movements. This is just a snapshot that shows indication of what that work is proves out to give us a little bit of lift to be able to do.
Speaker Change: So, if that low single digit, let's say, is 2 to 3 basis points, and the forward curve contemplates another 150 basis points cut in fed funds by middle of next year, is this saying almost like another 6 basis points improvement in core NIM under these assumptions?
Speaker Change: I think that would be reasonable to expect. Okay, and then you add in, layer in the Oakwood Core NIM improvement, Oakwood Purchase Accounting Accretion on top of that, so there's a couple other pieces as well.
Speaker Change: Yes, I think the NEM improvement from Oakwood is correct. I think the accretion lift on Oakwood, we're still trying to find a lot of numbers on that, but I think there will be slightly some lifts on that.
Speaker Change: Sure, sure. Hey, so the money markets...
Speaker Change: step down.
Speaker Change: pretty nicely this quarter. They're expected to have pretty strong betas through the cycle.
Speaker Change: You're about a month
Speaker Change: Since the Fed cut rates, how is
Speaker Change: the acceptance of those cuts progressed.
Speaker Change: from your customer. Not a lot of volatility in that account you know we've had slight growth since the Fed cuts no no no run out so we feel pretty good about the decision we made so far.
Speaker Change: That's great to hear. Any other updates on Oakwood now that it's closed? It seems like there's a little bit more loan growth there. Did they use up some of the cash? You were going to have about $100 million in cash deployed pretty quickly.
Speaker Change: They kind of just walked me through any of that.
Speaker Change: I'll give you an update. They did have the loan growth since the deal was announced. And so their loan-to-deposit ratio did tick higher.
Speaker Change: We'll continue to evaluate opportunities from their funding base as we move it to ours. They have a little more of a structured time deposit funding base that has renewal opportunities coming up, so we'll deal with that on a one-off basis and hopefully be able to see some improvement in that.
Speaker Change: But everything's going as planned, for sure.
Speaker Change: Okay, I appreciate the update. I'll step back into the queue. Thank you, guys. Thank you.
Speaker Change: And a reminder, it's star one to ask a question. We'll go to Christopher Maranath, Jannie Montgomery Scott.
Christopher Maranath: Hey, good afternoon. Thanks for hosting us. I wanted to ask about the lower interest rates and the impact on credit upgrades in future quarters. Is that possible, and what would that look like?
Speaker Change: It's a good question. We're in the process right now of
Speaker Change: kind of going through at a pretty granular level our risk ratings across the portfolio and we do feel like there are some opportunities to
Speaker Change: to see some benefits, some improvements, some risk ratings, so we're looking at it across the board, across the portfolio and applying that factor and going about it in a pretty disciplined fashion. It's been a good phase.
Speaker Change: Most of our increase in the watch list has been due to
Speaker Change: higher debt service requirements based on rising interest rates. So we would expect that...
Speaker Change: with
Speaker Change: You know, just make good decisions. You require documentation and updated financials and, you know, all those things, which take a little time. But I do think we expect that the...
Speaker Change: that the changing rate environment should be a net positive for to counter some of the watchlist growth that we've experienced over the past couple quarters in particular.
Speaker Change: And Jude, is there any kind of I guess separation between watch list that is CRE related versus pure C&I? Would the C&I have its own separate behavior these next few quarters?
Greg Robertson: I think there is a pretty good distinction, this is Greg, Chris, there is a pretty good distinction between, on the makeup of the watch list, I would say it's probably 60% CRE, 40% CNI.
Greg Robertson: something in that range. I think I think the overarching fact kind of play out what you said it's about 90% of that watch list
Greg Robertson: His paying is agreed, but does have financial performance impacted if you're looking at ratio from a ratio standpoint So and that's prior to the rate cut. So we feel like that it will naturally probably help help those customers
Speaker Change: As far as having the granularity on the performance in each group, we can probably get you some of that data, but we don't have it right now.
Speaker Change: and the New York Times. I'm David Melville. Thanks for watching.
Speaker Change: and Matthew Sealy.
Speaker Change: No problem, that's helpful. And then this last question just goes back to the beta slide on number 21. Would you see that mix changing if we think prospectively 12-18 months or should we think of Business First as kind of the same mix in this environment?
Speaker Change: I would say you know we worked real hard over the last 12-18 months to move the mix into this position to give us a little more balanced or neutral balance so I would say going out in the future say for some you know dramatic change from an M&A standpoint and I don't think you know that's realistic that this would be what we could expect.
Speaker Change: Yeah, I'd say that beta range is probably a good assumption to use, not just in the recent 50-base point cut we got, but foreseeable future, any rates we might get in the future in the near term.
Speaker Change: Got it. Thank you, Matt. Thank you, Greg. Appreciate it.
Chris: Thanks Chris.
Speaker Change: And at this time, there are no further questions.
Speaker Change: I apologize, I'll hand it back to Jude Melville.
Jude Melville: Alright, I'm ready. Thank you and I appreciate everybody's participation and questions.
Jude Melville: You know, it's just, it's been an unexpected and eventful couple years, and I'm just really proud of the work that we've done.
Jude Melville: position ourselves coming out of this cycle to maximize
Jude Melville: 2025 and 2026 and beyond and really proud of just community banking in general. You know, there were an awful lot of dark clouds hanging over the industry in general over the past couple years and I think we're going to find that community banks in particular have exceeded expectations and are well prepared to continue to play a critical role in our country's future in the coming quarters and years and we're proud to be a part of it. Thank you for your interest and I look forward to
Jude Melville: to next quarter being our first quarter with our Oakwood teammates numbers incorporated in ours and and I look forward to seeing what we can do together. Thank you.
Speaker Change: Once again everyone, that does conclude today's conference. We would like to thank you all for your participation. You may now disconnect.