Q4 2024 Business First Bancshares Inc Earnings Call
Ladies and gentlemen, thank you for standing by.
Krista: My name is Krista and I will be your conference operator today.
Krista: At this time, I would like to welcome everyone to Business First Bankshare's fourth quarter 2024 earnings conference call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session.
Krista: If you would like to ask a question during this time, simply press star followed by the number one on your telephone keypad. And if you'd like to withdraw that question, again, press star one.
Krista: I would now like to turn the conference over to Matt Sealy, Senior Vice President, Director of Corporate Strategy and FP&A. Matt, you may begin.
Matt Sealy: Thank you. Good morning and thank you all for joining. Earlier today we issued our fourth quarter 2024 earnings press release, a copy of which is available on our website along with the slide presentation that we will reference during today's call.
Matt Sealy: Please also note our safe harbor statements are available on page 7 of our earnings press release that was filed with the FCC today. All comments made during today's call are subject to the safe harbor statements in our slide presentation and earnings release.
Matt Sealy: I'm joined this afternoon by Business First Bank Shares CEO and President Jude Melville, Chief Financial Officer Greg Robertson, Chief Banking Officer Philip Durden, and President of B1 Bank Jerry Vazquez. After the presentation, we'll be happy to address any questions you may have. With that, I'll turn the call over to you, Jude.
Thank you. Bye bye. Bye bye.
Matt Sealy: Thanks Matt. Good afternoon everybody. I'd like to begin by saying thank you to everyone listening in today or reading the transcripts at some future date. We know you have choices to make when it comes to allocating your attention and we appreciate your prioritizing our company.
Matt Sealy: 2024 was a significant year for us, one in which we not only made but numerically demonstrated material progress towards goals that we've articulated in this forum over past quarters.
Matt Sealy: and the fourth quarter was a particularly nice capstone to our efforts over the course of the year.
Matt Sealy: Over 2024, we grew our client base while exercising disciplined loan and deposit pricing, generating another quarter of double-digit basis point expansion of our net interest margin.
Matt Sealy: which topped off a nearly 30 basis point expansion since our trough in the first quarter, helping us to achieve a sustainable over three and a half percent core NEM sooner than expected.
Matt Sealy: We continued our focus on expense management, leading to greater structural profitability, even while continuing to invest in key technology platforms and adding seasoned employees as we prepare internally for a responsible approach towards $10 billion in assets over the next few years.
Matt Sealy: We funded our portfolio of increasingly diversified loans with even stronger core deposit growth.
Matt Sealy: Improving the mix of both sides of the balance sheet, reducing CRE and C&D concentrations markedly, while also maintaining strong asset quality, increasing our loan loss reserve to 0.98%, not including our remaining loan discount from previous acquisitions.
Matt Sealy: Even while we diversify by type of credit asset, we also continue to diversify geographically, with over 40% of our exposure now in the Dallas and Houston markets.
Okay.
Matt Sealy: We demonstrated traction in our various non-interest income revenue sources, including building up the infrastructure of our correspondent banking function.
Matt Sealy: serving over a hundred bank clients, growing income from SBA and interest rate swap provisioning.
Matt Sealy: In addition to normal organic operations, over the course of the year we successfully took advantage of opportunities to complete two mergers, one whole bank acquisition of Oakwood Bank in Dallas, and one non-bank transaction, an SBA loan service provider out of Houston.
Matt Sealy: In both cases, we're either on track or ahead of forecasts on earnings impact, employee and client retention, earn-back periods, and minimization of tangible book value dilution.
Matt Sealy: We accomplish both these acquisitions without the need of additional capital and finish the year with a higher TCE ratio, higher TBV per share, higher Tier 1 leverage ratio, and a stable total risk-based capital ratio.
Matt Sealy: It was a solid, constructive quarter and a solid, constructive year, and I congratulate our team for all the work that went into it.
Matt Sealy: What I'd like to emphasize in closing is that while this was a solid year, it was not a unique year in terms of our priorities, which will continue to be our points of emphasis into 2025 and beyond.
Healthy, diversified growth within our capacity for capital generation.
a focus on liquidity and capital accretion.
Matt Sealy: continued focus on developing a growing set of robustly served clients.
Matt Sealy: In preparation through investments, prioritization of regulatory relationships, reputation, and balance sheet structuring, so that we may continue seizing opportunities as they present themselves, as we're confident they will.
With that I'll turn it back over to you Matt.
Greg, I'll turn it over to you.
Greg Robertson: I'll give you the floor, yield the floor to you to kind of go over.
Greg Robertson: Thanks Matt, thanks Jude, and good afternoon everyone. As Jude mentioned in his remarks, the 4th quarter marked a strong end to a productive year. I'll spend a few minutes reviewing our results and we'll discuss our updated outlook before we open up for Q&A.
Greg Robertson: $463,000 core conversion related expense, and a $21,000 gain on sales securities. Excluding these non-core items, non-GAAP core net income and EPS available to common holders was $19.5 million and 66 cents.
Greg Robertson: From our perspective, fourth quarter results were highlighted by solid core margin expansion, discipline expense management, continued execution on non-interest revenue business segments, and disciplined balance sheet programs.
Thank you. Bye.
Total Loans Held for Investment Increase
761.3 million or 58 percent.
Greg Robertson: annualized during the fourth quarter. Excluding acquired Oakwood loans during the quarter, organic growth was 62.8 million or 4.8 percent annualized.
Greg Robertson: Loan growth from the linked quarter was largely attributable to net growth in the C&I portfolio of $54.3 million and $20.8 million in the residential 1-4 family portfolio, while construction loans declined by $31.9 million linked quarter.
Greg Robertson: Organic production was led by our southwest Louisiana and greater New Orleans region, which accounted for all of the net loan growth to the link quarter.
Greg Robertson: Based on unpaid principal balances, Texas-based loans represent approximately 41% of the overall loan portfolio as of December 31, 2024.
Total deposits increased $870.4 million, or 61.4% annualized quarter-over-quarter.
Greg Robertson: Excluding acquired deposits from Oakwood, organic deposit growth for the quarter was 156.8 million, or 11.1% annualized. Organic deposit growth for the quarter was highlighted by increases in money market deposits of 51.8 million.
Greg Robertson: and $33.3 million net growth in non-interest bearing deposits with the remainder of the growth being attributed to the bank's seasonal inflow of municipality deposits.
Greg Robertson: Fourth quarter funding costs benefited from a full quarter impact of the Federal Reserve's September rate cut and partial quarter impact of the November and December rate cuts.
Greg Robertson: We are pleased with our ability to manage down our deposit rates while still generating positive deposit growth and lowering our loan-to-deposit ratio.
Greg Robertson: Total interest bearing deposit costs declined by 29 basis points from the link quarter, highlighted by 44 basis point quarter over quarter reduction in overall cost of now accounts, and a 41 basis point reduction in the overall cost of money market accounts.
Greg Robertson: Notably, the weighted average total cost of deposits for the fourth quarter was 2.81%, down 13 basis points from the late quarter, while the December weighted average cost of total deposits was 2.68%.
Greg Robertson: We are encouraged this trajectory will bode well for us as we enter the new year.
Greg Robertson: But remain in line with our expectations at the end of 2024, to end 2024 in the low 20% range. We think the composition of non-interest bearing deposits should hold relatively constant in the low 20% range for the foreseeable future.
Greg Robertson: Our GAAP reported fourth quarter net interest margin expanded ten basis points linked quarter from 351 to 361 while the non-GAAP core net interest margin excluding purchase accounting
Greg Robertson: accretion also increased 10 basis points during the quarter from 3.46 to 3.56 percent
Greg Robertson: fourth quarter net interest income and net interest margin reflect the first full quarter impact both with balance sheet.
Greg Robertson: Both GAAP and CORE margin for the quarter expanded more than we expected due to the improved funding costs previously mentioned and disciplined pricing on new loan production.
Greg Robertson: I think it's worth noting that our overall deposit beta for the fourth quarter, reflecting just the September rate cut, was 51%.
Greg Robertson: Considering full quarter impact of the late Q4 rate cuts, we would expect deposit costs to continue to decline in the near term, but will be affected by our ability to retain and attract lower cost deposits and non-interest bearing deposits.
to 290% during December, up from 83% in September.
Greg Robertson: This impressive statistic reflects our team's continued focus on maintaining and retaining core deposit relationships.
Greg Robertson: As you'll also see on slide 22, we have approximately 2.5 billion floating rate loans.
at approximately 7.75 weighted.
Greg Robertson: 7.75 percent weighted average rate, but also have approximately 600 million fixed rate, 600 million in fixed rate loans maturing over the next 12 months at a weighted average rate of 6.43 percent.
Greg Robertson: which we would expect to reprice in the mid 7% range. Last thing I would add in our expectations for loan discount accretions to average approximately $700,000 to $800,000 per quarter moving forward.
Greg Robertson: Moving on to the income statement, GAAP non-interest expense was $49.6 million and included $168,000 of acquisition-related expense and $463,000.
Greg Robertson: Conversion-related expense. Core non-interest expense for the fourth quarter of $48.9 million increased to approximately $7.3 million linked quarter due to the full impact of Oakwood's expense base and some seasonality around year-end.
Greg Robertson: We would expect continued increase in our core expenses in the first quarter due to further seasonality around year-end.
Greg Robertson: We also think that the current consensus outlook for core expenses in the low $50 million per quarter range is reasonable. I would like, however, like to remind folks that given the late 2025 conversion of our Oakwood franchise, we do not expect material cost savings during the year.
Greg Robertson: For quarter gap and core non-interest income was $11.9 million and $11.8 million respectively. Gap results did include $21,000 gain on sales securities. Non-interest income results for the third quarter did come in slightly better than we expected and was driven by...
Greg Robertson: and a contribution from our newly formed customer swap business line which generated approximately 1.3 million in revenue during the quarter.
Greg Robertson: The fourth quarter did benefit from a one-off Foley death benefit of $300,000 as well.
Greg Robertson: We do view Q3 core non-interest income as a good run rate going forward, as well as Q4. Expect our non-interest income to continue to trend with an upward trajectory that will be bumpy, as we've mentioned before.
Greg Robertson: That concludes my prepared remarks and I'll hand it back over to you.
Greg Robertson: We're prepared to take questions now. It's been a good, solid year that we're proud of.
We're as excited about 2025 as we've ever been.
Speaker Change: Thank you. We will now begin the question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad to raise your hand and join the queue. And if you would like to withdraw that question, again, press star 1.
Speaker Change: Your first question comes from the line of Matt Olney with Stevens. Please go ahead.
Hey, thanks. Good afternoon, guys.
OK. Thanks.
Speaker Change: I'll start on the margin, really good momentum on that core margin in the fourth quarter results both on reported and core.
Speaker Change: Based on that commentary that Greg provided around deposit cost, competition, and loan yield, it feels like this momentum can continue at least the first few quarters of 2025. We'd love to hear any additional thoughts you have around the margin next few quarters.
Speaker Change: Yeah, I think, Matt, thanks for the question. I think you're right. I think we'll, our plan is to continue to grind out.
Speaker Change: low to mid single digit margin expansion throughout the year, maybe a little more in the beginning of the year because we probably hadn't, as I mentioned,
Speaker Change: gotten the full impacts of the last rate cut, but that's the plan. You know, the key obviously is to continue to track.
Speaker Change: and grow deposits organically. If we can do that like we've been and full rate, long rates steady, we should see some continued expansion.
Thank you.
Okay.
Speaker Change: And then, I guess also looking for any kind of commentary you have around loan yields, loan pricing, just the competition out there. I would think at some point this year, we'll see some other banks get more aggressive on some of their loan pricing. Is that something you're seeing yet, any signs of that thus far?
I'll talk about...
Speaker Change: kind of what we've seen so far, and maybe I'll let Phillip or Jerry make a comment about what they're seeing with the pipeline. You know, we are weighted average.
Speaker Change: for production new and renewed for the fourth quarter was about $758,000.
Speaker Change: So, still holding in line nicely where we think we should be.
Speaker Change: I would expect you're right. The challenge will be the competition. Some of our competition may...
Speaker Change: decide to get more aggressive, and we'll have to deal with that on a one-off basis. I don't think that changes our focus on, you know, growing relationships and making sure the whole relationship is priced the right way.
but I'll let Jerry fill it.
Jerry Vazquez: Yeah, I would say, Matt, obviously it's always a very competitive environment, and now is no different, but I do think that we have been pretty consistent over the year. We have some new software as far as our pricing capabilities where we're able to, as Greg said,
Jerry Vazquez: take into consideration the entire relationship. So those with, you know, significant deposit relationships, etc., we're able to be very competitive and retain those relationships. So our bankers do a good job of filling the line.
Speaker Change: I would just add, you know, I think this year was a good illustration of our willingness to exercise discipline when it comes to trade-offs between growth and margin.
Speaker Change: and we certainly will continue growing and plan to continue growing and want to grow.
Speaker Change: but we also recognize that over the long term we'll create more value by maintaining pricing discipline even while we grow even if it's at a more moderate pace so you know it's not just what will the market give us it's also how we will now allocate our capital and I think
Speaker Change: I think we are more prepared than ever both in terms of our mindset and in terms of our data availability given the technological advances that we've made to be able to think through those choices and so we certainly will continue to grow.
Speaker Change: plan on being a larger organization in the future but we want to do it the right way and I think this year has been a good transition for us mindset wise and we look to continue to think through those trade-offs.
Yeah.
Okay.
Speaker Change: And then just lastly for me, I guess, on the fee income side.
Speaker Change: We just saw some really strong growth throughout the year from a
Speaker Change: You know several different sources. I think you mentioned this past quarter. It was a customer swap
Speaker Change: Greg, in your commentary, I think you said that the third quarter run rate is the best quarter to kind of consider for our forecast. Did I hear that right? And then any general commentary about what drivers you expect, what different groups and teams you expect to drive that fee income growth in 2025?
Speaker Change: Matt, I think what we could expect is that I may have said Q3, but I think it's Q3 and the bill, the Q4.
11.8 million in Q4 is what we
Speaker Change: produced and I think that's a good run rate to think about how we're going to go forward I think somewhere.
Thank you.
Speaker Change: You're going to see from 40 to 50 million per year end to 25.
You know
Speaker Change: As we've mentioned, it might be bumpy getting there because there's going to be different.
contributors along the way as those build businesses.
Speaker Change: to kind of build out and continue to round out, but I think ending the year between 40 and 50, maybe closer to 50 is probably what the non-interest income target would be.
Speaker Change: Yeah, you know, the important thing for us here is what we're trying to do is build an infrastructure that provides multiple opportunities for that growth.
Speaker Change: No one product set or no one function has to consistently outperform, but we can kind of work together on how we get to where we want to go.
Speaker Change: The SBA platform and the swaps are a good example of maybe even different reactions to interest rate movements. You know, as rates come down a little more and are more stable, maybe the SBA has more of an opportunity to pick up, whereas...
Speaker Change: in a higher rate environment, that begins to limit some of your SBA opportunities.
Speaker Change: Perhaps the swap opportunities aren't as great in a more comfortable interest rate environment for everybody. So hopefully
Speaker Change: Hopefully we're adding enough different components to our non-interest income that in any given quarter, we'll see a continued increase. But as Greg said, it's harder to predict than interest rate margins. And so I might see a little volatility, but we feel really...
Speaker Change: are bullish on our opportunity when it comes to non-interest income over the course of 2025.
Speaker Change: Yeah, I would add one thing. I think our markets and our bankers up there have really gathered a really good command of
Speaker Change: The shifting rate environment and a little more, you know, normalized yield curve creates new and different opportunities. So, I think it's nice to have the tools we've got.
Speaker Change: via SBA swaps, you know, kind of driving some opportunities for clients. So, it's been nice to watch the strategy.
Speaker Change: kind of take hold as we prepare for a normalized rate environment.
Speaker Change: And, you know, on a similar vein, with thinking about our bankers that are out there, I think this was a good year in terms of confidence building in the product set. So these are new tools, and not new to the industry, but...
Speaker Change: But a focus on them is new to us, and that's really been a six, eight-quarter journey.
Speaker Change: And so I think by the end of 2024, we begin to see bankers think about it more often and begin to recognize that there are incentive opportunities.
Speaker Change: and there are ways that we can serve clients more robustly than they might have thought two or three years ago. So I'm...
Jerry Vazquez: you know partly it's the yield curve does make a difference as Jerry pointed out but I think also our our institutional knowledge and our institutional competence will lead to more business in 2025 regardless.
yeah
Jerry Vazquez: Okay guys, I appreciate the commentary and congrats on the year. I'll step back.
Speaker Change: Your next question comes from the line of Michael Rose with Raymond James, please go ahead.
Michael Rose: Hey, good afternoon everyone. Thanks for taking my questions. Just wanted to get a little more color on this quarter's C&I growth. It was really strong in an organic basis. Just trying to understand if, you know, that was more kind of line-driven or, you know, just customer growth.
Speaker Change: And then if you can kind of, you know, shape up the pipelines for us and maybe, Jude, if you can just discuss kind of competition within the different regions and, you know, if there's any hiring plans as we kind of contemplate a 2025 long growth outlook. Thanks.
Speaker Change: Yeah, I would say Greg mentioned that we had some success in our Southwest and New Orleans markets.
Actually, I'd pay.
Speaker Change: The volume is a little low if I heard the first part of your question correctly.
Speaker Change: I would say that it was a little bit of both. We had some deepening of some existing relationships on C&I, but I picked up some new customers, but definitely up.
Speaker Change: focus on that as we transition down, shift it more on the C&D. I'm sorry, I'm going to have to get a larger focus on that C&I, but some really good wins in the fourth quarter.
Speaker Change: and I would just say that I don't know that our CNI has decreased as much as
Speaker Change: It appears so on a relative basis. Right, so what we talked about.
Speaker Change: Let's say six quarters ago was downshifting growth a little bit, but we felt like most of the downshifting would come through less of a focus on construction and CRE.
Speaker Change: And we felt like the C&I core business that we have would continue to perform. And that's really kind of what we've seen is that that's been the case. So not necessarily an outlier quarter, I think the whole year has been pretty representative of the fact that C&I has
Speaker Change: has been relatively stable in terms of its production, but because of the shift in focus, it's taken a lot. Really, the pole position that we've always wanted it to, you know, when you think about being a business bank.
Speaker Change: I think it's important that you have a robust set of offerings and not just do the real estate, although we of course feel very comfortable doing the real estate as well, but I'm so excited about that and see that as a priority.
continued opportunity for us you know always we have
Speaker Change: We have tried to focus on CNI so that we could get the benefits of a more robust deposit relationship and so part of our success.
Speaker Change: and the deposit generation this year, in particular in the fourth quarter, has been
Speaker Change: focus on seeing our relationships, not for the types of loans, but for the holistic banking relationship. And we still see, we think we are a little bit differentiated from other community banks in our ability to...
Speaker Change: conduct that type of business. And not just to do it, but to do it right. We have internal auditing capabilities that we've invested in over the years. And we recognize that it has a different risk profile and just want to be sure that we're
Speaker Change: That we're not doing it just for the sake of doing it, but doing it because because we're good at it
Speaker Change: I think that's a little bit of a little bit of a little bit of a mode again because most community banks are making those same investments
I can remember
Michael Rose: It seems like every three or four years, we all talk about doing C&I lending, but it doesn't really change in general. But we have chosen to make some investments as things have been made, and I think that's paying off. Michael, I will say that one other detail that kind of highlights your question is at the end of...
Michael Rose: concentrated in C&D as a percentage of capital and in real time we finished the fourth quarter at about 78 percent. So that that decline in the C&D bullet cannon and the the total CRE number from 275 to 254 over that same time frame
Michael Rose: actually kind of highlights what you were saying is that I don't know that our focus is any different. It's just when you're unwinding
Michael Rose: the C&D book specifically, as we noted in the quarter as well. This is not the first quarter that that's happened, and that's my design as well.
Michael Rose: I would say also, Michael, the second part of your question about hiring, we don't have ambitious hiring goals this year. We feel like we have capacity internally. We'll continue to add.
Michael Rose: bankers when we think they're a good cultural fit and we'll continue to have those conversations, but we believe that our growth opportunities exist within our current.
Michael Rose: a set of bankers with some incremental additions over the course of the year. But there was a point maybe three years ago where we were growing 25, 30 bankers a year.
Michael Rose: We feel like we've achieved a certain level of platform from which we're able to
Michael Rose: to grow more by adding support staff and making sure that our processes and procedures are adapting as we grow. And so we think we have more institutional capability to grow without necessarily going on a hiring spree in order to do so.
Michael Rose: But with that said, we're always looking for good partners and certainly we'll continue to add that we'll do so when it's right and not just because we need to grow.
Michael Rose: Yeah, I'll just stop there. No, I think you can still count on that.
Michael Rose: Again, it's one thing to be able to produce the loans, but it's also, it's another thing to think about how that relates to your capital structure, how it relates to your organic core deposit growth. And we want to make sure that we maintain balance.
between all three components. So that's still our
Our intention for the year.
Speaker Change: Okay great, and then maybe just one quick final one for me just on the cost savings related to the deal. Any changes and expectations there or is it all kind of status quo?
Speaker Change: It's all status quo. We won't, we're doing our core conversion in May and then we won't convert them till September.
Speaker Change: So we're not modeling in any cost saves, material cost saves for 2025 from the Oakwood acquisition. That should set us up for 26 to pull through what we had advertised at announcement.
Thank you.
Great. I'll step back. Thanks for taking my questions.
Thanks, Mike.
Speaker Change: Your next question comes from the line of Setti Strickland with Hovde Group. Please go ahead.
Setti Strickland: Hey, good afternoon. I just wanted to start on the borrowings. I saw you reduce borrowings by about $10.3 billion this quarter. Can you just talk about how you think about those going forward and whether there's any major upcoming maturities that you could potentially pay down or kind of how you want to use borrowings and wholesale funding in general over the course of the next year or so?
Setti Strickland: Yeah, I think there's some opportunities with, I'll start with borrowings and kind of transition from there to other wholesale funding. I think
Setti Strickland: We think there's an opportunity, and a caveat to this is that it would...
Setti Strickland: As long as we continue to have success growing deposits organically like we have over the last year
Setti Strickland: I think that's going to present itself an opportunity to pay down about $50 million of FHLB maturities this coming year, which would be a fairly significant improvement to margin if we execute on that.
Setti Strickland: I think, you know, with broker deposits, we see the same opportunity over the course of 2024, maybe not with
as much pickup from the expense side of those deposits.
restructured those a little bit differently where there's maturities.
come and do every quarter.
Um
Setti Strickland: opportunity in both FHLB and broker deposits to reprice. I think that that's all caveated on what the current rate environment if it continues to stay like it is and if we continue to be successful. I think if we are then you'll see us.
Setti Strickland: do what we did in the fourth quarters, pay down those as the opportunity presents itself.
Speaker Change: Got it. Thanks for that. And just curious, I appreciate all the detail on the deck on the loans coming up for renewal, but as these come up for renewal, do you have a sense, kind of broadly speaking, for how much you've been keeping of the loans coming up for renewal versus kind of what's either rolled off, gone elsewhere? Just trying to get a sense for how much repricing opportunity there is and how much stays with the bank.
Speaker Change: I think it's a good question. You know, we experienced about 200 million dollars in loan maturities or renewals in the quarter, in the fourth quarter. I think that was higher than the other three quarters in the year, so
Speaker Change: I would say what we've done is done a good job of the relationships that
Speaker Change: We want to keep within the quarter. We've done a good job of doing that.
Speaker Change: I think in reality, to pin down an exact number of the $600 million that we would expect to renew would be kind of tough because the market changes.
Speaker Change: day-to-day almost, but we think we have a good shot at it and you know with the weighted average.
even from where we are, the pickup would be nice.
Speaker Change: I know that's not a real direct answer, but that's a tough one to answer.
No, fair enough. I guess I'll just...
Sorry, man.
Speaker Change: Well, I was going to say, you know, part of the point of the repricing opportunity is not just repricing loans that stay, it's also
the opportunity to re-price with new loans.
Speaker Change: It's really where is that funding going? Is the funding going to maintain older relationships at a new price? Or is the funding going to new relationships at a new price? And the new price is the important part. You know, certainly it's better to keep a relationship than not.
Speaker Change: What we want to be sure we try to do is continue to have that discipline on the margin. Yeah, and Fadi, when I think about it from my seat, to bring Jude's point home,
Speaker Change: I'm thinking about it. If we say we're going to grow 5% or 6% or whatever the number is in loans next year, I'm thinking about the net and the repricing of new and renewed.
Speaker Change: The challenge for our bankers is just to make sure that we get to the number. Sometimes that's...
many different ways of how we get to the number.
Speaker Change: you know another way to think about that repricing opportunity the reason we originally started looking at it was thinking through
Speaker Change: are we facing cliff, like what would it, were we facing
Speaker Change: in a particular quarter so much repricing and then with tension with rates being higher than they were when the loans were originally built where there'd be asset quality problems and
Speaker Change: It's been interesting to see that that has not been the case, that any bumps that we've had over the course of the year were really due to just normal banking credit risk as opposed to interest rate risk, and so that's the real good news there is that we've...
and working our way through that portfolio, whether it's...
Speaker Change: maintaining the relationship and repricing it or encouraging those clients to find a home somewhere else.
Speaker Change: I think from a credit perspective and the health of the portfolio, it's been a big positive. And then, you know, secondarily almost, you have the opportunity to reprice at a higher level for income. But really, the reason we began tracking it was more just to think about the credit exposure.
Speaker Change: One other way we also think about, you know, we're not just thinking about repricing loans. We're thinking about the other side of the balance sheet as well on the liability side. So looking at
Speaker Change: time deposit maturities coming, you know, in the next 90 days or 120 days. I mean, that's a that's a material number that almost matches the fixed rate loans that reprice as well. So there's opportunity on that side. So it's
Speaker Change: You know, it's the net of the two is kind of the way we think about it, and we come out with a better relationship at a better price.
Speaker Change: with an existing one. Sometimes we do and sometimes we go to try and maybe use the capital for a new relationship as well.
Speaker Change: Petty, one thing that I'd add is just to put the context of betas
Speaker Change: relative to the rising rate environment beta on our new loan yields. So, the rising rate environment when rates were moving up, we were at around an 85% beta on new and renewed loan yields. That's holding true, roughly.
on New and Renewed Loan Yields.
and kind of this declining rate environment.
Speaker Change: So, and then to put that a little bit more into context, we're getting closer to 100% betas on new offering rates on our interest bearing deposit account.
Speaker Change: So there's still that little spread baked into just the asset liability side of this.
Speaker Change: loans that are repricing were being quantified much easier on the yield side.
Speaker Change: from the beta perspective, but the dollar perspective I'd say we're
Speaker Change: close to a hundred percent kind of pull through and renewal on the dollars.
Speaker Change: Got it. Thanks to the color guys. Just one last quick one, just curious. I saw a greater share of the loans came from Louisiana portion of the footprint rather than Texas.
Speaker Change: this quarter, ex-Oakwood, you know, should we, what should we expect sort of going forward in terms of where loans are coming from the footprint? I guess is the pipeline maybe a little heavier Louisiana than it was before? Just was kind of curious on that.
Speaker Change: I think each quarter you're going to see a little different mix and we have a we have a history that's one of the reasons to have diversified geography is that not only from a credit perspective but also from a source of production perspective and each
Speaker Change: We're still a size where regions having different outcomes affects our overall in different ways And you know I do think the downshifting or downshifting of the focus on construction over the past few quarters
Speaker Change: logically impacts Dallas more because they had more construction than Louisiana for obvious reasons in terms of growth.
Speaker Change: and development and so it's not a surprise that there might be some rebalancing there in terms of our
Speaker Change: you then we shouldn't see as much negative impact to the downshifting away from construction but we're always going to rotate I hope we do and we're continuing to invest in Louisiana even as even as we invest in Texas
Speaker Change: and one at long robust shifting areas of growth. Do you want to add anything? Yeah, I was just going to say that the volume that we talk about is a net growth rate. So to Jude's point, those large C&D loans are paying off. We're making new loans in Dallas. It's just replaced by greater.
great and then the second part is
Speaker Change: with Acquisition. They have a great book that we'll build on as well. When you think about it, the amount of production that it takes to offset natural amortization that occurs in that book because of that significant growth over the years.
Speaker Change: There remains a lot of activity, a lot of production now, just to keep a little bit of moderate growth going.
Speaker Change: Yeah, and I think one thing we want to be sure that we do, and maybe we can provide more information on this in the future, but I think it's...
Speaker Change: We want to remain focused on the granularity of the relationship and even as we get bigger in terms of our aggregate asset size.
We don't want our individual credit.
Speaker Change: perspective to be in linear relationship with that overall balance sheet growth. We want to we want to try to continue to
Speaker Change: to serve in our sweet spot, and that means slightly smaller loans, which hopefully would be more profitable and long-term healthier from a credit perspective. But it does mean that you've got to do more of them to replace the same dollar amount, right?
Speaker Change: But one advantage of C&I is that they tend to be more profitable over time than construction given the totality of the relationship and we're excited about that. But we'll continue to try to de-risk even as we grow.
Got it. Thanks for the call, guys. I'll step back.
Thanks, Betty. Thanks, Betty.
Speaker Change: Again, if you'd like to ask a question, please press star 1 on your telephone keypad. Your next question comes from the line of Emanuel Anavas with DA Davidson. Please go ahead.
Good afternoon.
Good afternoon. Thanks for calling in.
Speaker Change: I appreciate the quarterly NIM guidance of low single digits to mid single digits per quarter growth.
What type of a rate environment is behind that assumption?
Speaker Change: I'm sorry, I didn't hear the last part of that. Could you repeat? What rate assumptions have you made in terms of further decreases in the bed fund rate?
Speaker Change: Yeah, so we're forecasting a flat rate environment. We think the work we've done on our balance sheet becoming more neutral, that's the most conservative way to approach it.
What would be the...
Speaker Change: What would be the impact if there were more cuts? How would that shift that kind of projection? We should approve a basis point or two if there were for every cut going forward.
Okay.
If I take your, if we stay flat,
Speaker Change: And you got, let's say, three basis points per quarter. Could you get to 375, minimum, in fourth quarter of 25?
Speaker Change: I think that's that would be optimistic. I think I think anywhere from the 365 to 375 range would would probably be somewhere
Speaker Change: In this environment, it's going to depend on how successful we are in attracting deposits.
Speaker Change: as well as pricing loans the right way. I think the...
Speaker Change: The yield curve movement that we've had lately, especially on the longer end, is going to make it challenging.
Speaker Change: I'll give you a little bit more color. I think a 374 by the end of the year isn't...
Speaker Change: completely out of the realm of possibility. One thing that I would remind you about is our business manager factory
Speaker Change: like business that we have where those fees are, they run through the margin, but they don't come with an actual balance that weighs against the earning asset base. Those, I think we mentioned last quarter, were a little elevated depending on how some of those clients.
Speaker Change: kind of progress over the course of the year that could influence that core margin.
Speaker Change: more so than you might think simply because of the fact that it was no actual earning assets that Weigh down on the on the actual margin calculation, but for the 370 is not completely out of the realm of possibility
Speaker Change: And then the broker deposit and FHLB borrowing opportunity, is that assumed to happen or is that if you get the excess deposit growth, you pay those? I would say if you get the excess deposit growth, it would look a lot like what we did in the third and fourth quarter where we were able to pay those down.
And if not, you know the...
They would reprice, but...
Speaker Change: You wouldn't get the full benefit of the difference in the repricing from an organic deposit standpoint.
Speaker Change: Okay, so that's not necessarily a core MIM guidance, but it is a potential
Thank you
Speaker Change: Correct. Yeah, it's an opportunity. Yeah. Got it. Got it. Just was trying to see what's in and what isn't. And I like that opportunity. It's a very nice one.
Speaker Change: You're stepping over to net charge-offs, they stepped up a bit just this quarter. Any thoughts on how net charge-offs or provisions should extend across the next year? Is it just kind of a...
Speaker Change: are modest blip and will normalize back down. What are your kind of thoughts on progression across the next year?
Speaker Change: Yeah, I would say the fourth quarter for us was a little higher. I think it's a cleanup quarter for a few credits that we had outstanding in a settlement of one. I would call those kind of outliers.
I think what we're expecting is
Speaker Change: to just continue to plot along like we have been in the past quarters. No material decline in the book at all. We are big enough, though, that we will have an occasional one-off, and I always try to caveat this conversation with that, that things are going to happen.
Speaker Change: We're not seeing any systemic issues, and we're not seeing any any blanket degradation, but certainly our special assets team is
Speaker Change: is on the case and active and working through situations and did over the course of 2024 successfully and anticipate continuing that, but, but we need to stay vigilant because there will be one off events, but.
Speaker Change: I would absolutely agree with Greg that from a whole portfolio point of view.
Speaker Change: to vote as confident in 2025 as we did in 2024.
Speaker Change: Hey, Manuel, one thing circling back to the margin, I realize that we failed to mention the accretion outlook, and so in 2025 it's going to be, we see around $800,000 a quarter, a little over $3 million for the full year, which compares to a little over $4 million for 2024.
Speaker Change: What was it in 24? I'm sorry, I didn't hear that. It was a little over 4 million, not quite 4.5 million.
324. Okay.
Speaker Change: I appreciate this. I appreciate all the commentary. Just the last thing on the credit, these are really low levels but the reserve did step up a bit. Are we likely to kind of stay at that level for now?
Speaker Change: We're going to reserve it at 120 of every new lawn produced, so we think that that will at least stay at that level, maybe slightly improve, you know, it takes
Speaker Change: to move at one percentage point at our size, it takes...
Speaker Change: $800,000 more dollars to the model so almost a million more so I think it's pretty big needle mover to get it to move up but I think we're gonna try
Speaker Change: We were really pleased, though, with the return to normality, essentially, of our overall loan loss provision being almost one there. It's been a while because of our inquisitive history.
Speaker Change: It's been a while since we've been kind of at one or at fear because, as you all know, we had the loan loss provision and then we had credit marks associated with the acquired assets that don't show up in the provision, they're off balance sheet. So we've always tried to.
Speaker Change: to make the math clear for everybody and show what the effect of loan loss reserve was, but which is about 20 basis points today more than the loan loss revision is.
Speaker Change: We finally found something positive in the CESOL accounting rules, and that meant that with the OCOID transaction, we were able to actually move the reserve over to the reserve, and so we'll benefit from a little normalization there, which I'm excited about.
Speaker Change: But definitely want to kind of stay in that range, if not slightly above over the coming year.
I appreciate the commentary.
Thank you.
Speaker Change: We have no further questions at this time. I will now turn the call back over to Jude Melville for closing remarks.
Jude Melville: Okay, good. Well, thanks everybody again for participating and thanks to our team for a great year. I think just in closing, you know, we spend so much time...
Jude Melville: particularly on this call thinking about the metrics and numbers and they are certain models and they're certainly very important but I do like when I can to point out that first and foremost we're still a relationship business and if I think about the
Jude Melville: The work that we did in 2024 and the good things that we accomplished, a lot of it really has to do with the building of relationships, you know, whether that be
Jude Melville: a core set of investors that we didn't know before or our analyst relationships that we've enjoyed growing over time or our regulatory relationships or our
Jude Melville: our employees. We have over 800 now which is a lot compared to the 200 or so that we had four or five years ago and to be able to manage through that and
Jude Melville: feel really good about the culture that's developing here. That's all about the relationships and that all those relationships lead to relationships with clients and we have more than we've ever had.
Jude Melville: and so if I'm thinking about things we're proud of in 2024 and things that we're excited about in 2025, it really comes down to deepening and expanding those relationships.
Speaker Change: We appreciate you all being a key component of that. So thank you for your time. Ladies and gentlemen, this does conclude today's conference call. Thank you for your participation and you may now disconnect.