Q1 2025 Business First Bancshares Inc Earnings Call
[music].
Hello.
Thank you for standing by.
Speaker Change: Like to welcome everyone to be one bank business first Bancshares Q1, 2025 earnings conference call.
Matt: I'd now like to turn the call over to Matt.
Matt: Vice President director of corporate strategy and F. P. N E, which is you need the floor is yours.
Matt: Good afternoon, and thank you all for joining earlier today, we issued our first quarter 2025 earnings press release, a copy of which is available on our website along with the slide presentation that we'll reference during today's call. Please reference slide three of our presentation, which includes our safe Harbor statements regarding forward looking statements and the use of non-GAAP financial measures.
Matt: Joining by phone. Please note the slide presentation is available on our website at Www Dot <unk> Dot Com. Please also note our safe Harbor statements are available on page seven of our earnings press release that was filed with the SEC today.
Matt: All comments made during today's call are subject to the safe Harbor statements in our slide presentation and earnings release.
Matt: I'm joined this afternoon by business first Bancshares, Chairman and CEO, Jim Melville, Chief Financial Officer, Greg Robinson, Chief Banking Officer, Jordan, and President it'd be one bank Jerry back to queue.
Matt: After the presentation, we'll be happy to address any questions you may have and with that I'll turn the call over to Eugene.
Eugene: Great Great. Thanks, Matt and good afternoon to everybody and thank you for spending the time with US today, we know you have choices to make and we appreciate your prioritizing our company.
Eugene: At a high level, we were quite pleased with the first quarter's results most of which exceeded expectations. One of our guiding principles are centered around striving for continuous incremental improvement and we were able to demonstrate that concept in action on a number of fronts.
Eugene: Profitability continues to be consistent with core ROA core exceeding 1%.
Eugene: Our officers are doing a good job of selectively holding the line on loan yields with weighted average new and renewed yields of 771% during the first quarter. While overall cost of funding continued its downward trend leading the core net interest margin expansion of eight basis points for the linked quarter.
Eugene: We benefited from a continued build in capital levels with our TCE now exceeding 8%, while our consolidated <unk> ratio exceeds 13%.
Eugene: There were some positive movement in our a OCI exposure the bulk of the capital Bill came through retained earnings.
Eugene: I'm, especially proud of our continued focus on expense management with another quarter of better than better than expected expense trends.
Eugene: Continuing to execute on material Iot and infrastructure investments in the efficiency ratio is continuing to move in the right direction a trend we expect to continue.
Eugene: Noninterest revenues contributing meaningfully to our bottom line profitability with another quarter of strong swap fees and SBA loan gains on sales as we can.
Eugene: Well its contributions from various spic's investments being the main drivers of continued growth in aggregate noninterest income.
Eugene: As a reminder, we closed the acquisition of <unk> Bank in Dallas, Texas on October one of last year to date. The integration has proceeded as expected with conversion set for September of this year.
We're very pleased with the cultural fit of the former equity and the most important component of any successful acquisition.
Eugene: Returning to our theme of incremental improvement and expense control I'd like to direct you to page 14 in the IP.
Eugene: Those are current branch network, which we remain focused on optimizing it.
Eugene: Is it part of that ongoing process on April 4th we closed the sale of our Kaplan, Louisiana branch, which included the sale of approximately $51 million in deposits had a deposit premium of 8%.
Eugene: I just wanted to discuss balance sheet growth and credit as well, even though they weren't on surface level was positive as some of our other trends we did experience modest negative credit migration during the quarter, primarily due to two C&I relationships I'll, let Greg provide more detail on these in his report. However, we continue to feel good about the credit quality of the broader portfolio.
Eugene: Given his metrics continued to normalize.
Eugene: The balance sheet contracted during the quarter with loans effectively flat on a linked quarter basis, while deposits decreased 53 8 million.
Eugene: On one side of the equation, we continue to be biased towards net interest margin over volume the stance, we believe to be prudent in today's uncertain environment.
Eugene: And I'm proud of our maintaining our profitability levels without relying on loan growth.
Eugene: I'll say, we feel good about our pipeline in the second quarter.
Eugene: It's worth, noting the paydowns and payoffs were materially higher during quarter, one than we typically experience primarily due to a handful of larger construction loans resolving.
Eugene: On the deposit side recall that last quarter, we experienced a large net influx of core deposits due to the seasonality around public and municipal funding.
Eugene: Some level of run off was expected to occur during the first quarter and if you were to look at Q1 'twenty five in Q4 dollars 24 on a combined basis total organic deposits, excluding <unk> would have increased $144 million or five 1% annualized from September 32024.
Eugene: All in all it was a healthy foundational quarter to start the year I don't know that we've had the opportunity to operate in any extended period of uncertainty over the course of our tenure as a public company, which began in 2018.
Speaker Change: Yeah, we've consistently found a way to not only navigate the challenges of our industry.
Speaker Change: The challenges our industry and country face, but have continued to grow and strengthen our franchise throughout these challenging times.
Speaker Change: We entered the second quarter, better reserved better capitalized more diversified and credit exposure and revenue sources and more experienced than anytime in recent memory.
Speaker Change: I'm confident that our team is prepared to continue not only navigating but building improving and indeed thriving as 2025 unfolds.
Greg: You again for your time and with that I'll turn it over to Greg.
Greg: Thank you Jeanne and good afternoon, everyone. Jim mentioned in his remarks, the first quarter marked a strong start to the year I'll spend a few minutes reviewing our results and discuss our updated outlook before we open up to Q&A.
Greg: First quarter GAAP net income and EPS available to common shareholders was $19 2 million at 65 cents.
Greg: And included $155000 gain on former bank premises $630000 gain on extinguishment of sub debt and.
Greg: 677.
Greg: $79000 acquisition related expense.
Greg: And also a 216000 core conversion related expense.
Greg: Excluding these noncore items non-GAAP core net income and EPS available to common shareholders was $19 3 million and 65.
Greg: From our perspective first quarter results were highlighted by good expense management strong fee income and solid margin expansion.
Greg: Total loans held for investment remained relatively flat on a linked quarter basis down just 480000 as paydowns and payoffs were elevated during the first quarter.
Greg: Specifically total scheduled and non scheduled payoffs paydowns totaled 500, approximately 500 million, which match total new and renewed loan production of $500 million as well during the quarter.
Greg: Real estate construction loans decreased $36 $8 million from the linked quarter compared to an increase of $49 $8 million from the linked quarter in real estate.
Greg: Residential loans, largely due to conversion of multifamily construction to permanent financing.
Based on unpaid principal balances, Texas based loans remained flat at approximately 41% of the overall loan portfolio as of March 31.
Greg: Total deposits decreased $53 2 million, mostly due to net decreases in noninterest bearing deposits of $48 7 million on a linked quarter basis. The net decline was primarily driven by customer withdrawals as opposed to full account closures I think it's noteworthy that while net deposit balances declined from the.
Greg: The fourth quarter, we did manage to generate approximately $380 million from new deposit account relationships.
Greg: So I think that it's worth noting that the decline in deposits during the fourth quarter was not completely unexpected recall the prior quarter benefited from seasonally strong deposit inflows, which we did expect would rollout to some extent during the first quarter.
Speaker Change: Lastly on the topic of deposits on April 4th 2025, as Jude mentioned, we completed the sale of our South Louisiana branch to a local community Bank total branch deposits loans in fixed assets net of depreciation were $51 2 million to $3 million at $1 $4 million, respectively and were included within the with.
Greg: The consolidated balance sheet as of March 31, the.
Greg: The negotiated deposit premium of 8% was recognized in conjunction with the closing of the transaction on April 4th.
Greg: We also managed to modestly delever the balance sheet during quarter, one by repaying approximately $39 million of short term <unk> advances and $7 million of subordinated debt.
Greg: Lastly, I'd also like to call out our linked quarter increase in contingent liquidity of approximately $600 million.
Greg: Our GAAP reported first quarter net interest margin expanded seven basis points from the linked quarter from $3 61 to 36, 8%, while non-GAAP core net interest margin, excluding purchase accounting accretion increased eight basis points during the quarter from $3 56 to $3 64.
Both GAAP and core margin for the first quarter continued to expand due to improved funding cost and disciplined pricing on new loan production, which Jim mentioned previously.
Greg: I think it's worth noting that our total down cycle to date interest bearing deposit beta for the first quarter was 54% assuming no rate cuts until the second half of 2025, we would expect deposit costs to remain relatively flat in the near term, but we will be affected by our ability to retain and attract lower cost funding.
Greg: Noninterest bearing deposits.
Greg: First quarter funding costs benefited from a full quarter impact of the federal Reserve's November and December rate cuts. We are pleased with our ability to manage down our deposit rates total interest bearing deposits costs declined 18 basis points from the linked quarter.
Greg: Highlighted by.
Greg: 26 basis points quarter over quarter.
Greg: Reduction in overall money market deposits and 17 basis points reduction in overall cost of time deposits.
Greg: Notably the weighted average total cost of deposits for the first quarter was $2 six 9% down 12 basis points from the linked quarter.
Greg: March weighted average cost of total deposits came in at 266% showing improvement.
While further improvements in funding costs are subject to the fed's interest rate decisions. We remain encouraged by this trajectory.
Greg: I'd like to make a note of a few key takeaways to slide 21 in our investor presentation.
Greg: We continue to see 45% to 55% overall deposit betas is achievable I would also like to point out the.
Greg: Our overall core CD balance retention rate was 83% during March.
Greg: Impressive statistics reflects our team's continued focus on maintaining and retaining core deposit relationships. As you will also see on slide 22, we have approximately $2 7 billion in floating rate loans at approximately seven 6%, 7% weighted average, but also have approximately $570 million in fixed rate loan.
Greg: Maturing over the next 12 months at a weighted average of six 6%, which we would expect to reprice in the mid to high 7% range.
Greg: Lastly, I would add is our expectations for loan discount accretion to average approximately 750 to 800000 per quarter going forward.
Greg: Moving on to the income statement GAAP noninterest expense was $50 6 million and included $679000 of acquisition related expense and 216000 in conversion related expense core noninterest expense for the quarter of $49 7 million increase in increased.
Greg: Approximately 700000 linked quarter, primarily due to the partial merit impact as well.
Greg: CA in bonus accrual resets we.
Greg: We expect a continued increase in core expenses in upcoming upcoming quarters, mostly due to the full quarter impact of our Q1 merit salary increase as well as continued investments in it infrastructure.
Greg: The current consensus outlook for core expenses in the low $50 million range per quarter is reasonable I would however, like to remind folks that the given given the late 2025 conversion a low code. We don't expect to have any material cost savings on that transaction until later in the year.
Greg: First quarter, GAAP and core noninterest income was $13 2 million and $12 $4 million, respectively. GAAP results did include $155000 gain on a former bank premises sale $630000 gain on extinguishment of sub debt mentioned previously.
Greg: Noninterest income results for the first quarter did come in slightly better than we had expected and were driven by strong Sps fee income and SBA loan production and sales.
Greg: Due to the unusually high contributions from equity investments income and SBA in quarter. One we would expect a slightly lower run rate in the near term over the long run we do continue to expect that upper trend as we've mentioned on calls in the past in our core noninterest income, although theres trajectory may be bumpy from quarter to quarter.
Lastly, I'd like to provide some context.
Greg: Credit migration that you had mentioned earlier.
Greg: During the first quarter NPA has increased 27 basis points from.
Greg: Four 2% in Q4 to six 9% in Q1 with the increase driven by driven by two C&I relationships totaling $8 4 million.
Greg: Annualized net charge offs decreased.
Greg: Zero four basis points from 11 basis points in Q4 to seven basis points in Q1.
Greg: Due to the due to the deterioration in two relationships during the quarter, we have elected to reserve $2 $3 million against the credits one of those credits is fully reserved in the other credit is about 25% reserved. We believe these were isolated issues and do not expect any of any broad based decline.
Greg: Further credit quality across the portfolio.
Greg: With that that concludes my prepared remarks, I will hand, the call back over to Jude for anything you'd like to add before open it up to Q&A.
Jude: That's great. Thanks, Greg I don't I don't really have anything to add before we before we hit the questions before to hearing from you all and thanks again for being with us.
Jude: Thank you ready to open it up to Q&A.
Jude: Yes.
Jude: Alright. Thank you as a reminder, if you'd like to ask question. Please press star and the number one on your telephone keypad again that is star and the number one on your telephone keypad.
Speaker Change: And our first question comes from the line of Matt Olney from Stephens.
Jude: Your line is open.
Jude: Hey.
Speaker Change: Thanks, Good afternoon, I'll start on the loan side I think the alone.
Speaker Change: Balances as you mentioned were flat because the higher payoffs during the quarter.
Speaker Change: But based on that commentary it sounds like the pipelines are healthy, but also we have to layer in some macro uncertainty so would just love to hear your.
Speaker Change: On internal expectations for loan growth for <unk> in the back half of the year.
Speaker Change: Hey, Matt Thanks for calling in place for the question.
Speaker Change: Yes, I think for going forward, we expect loan growth, we're happy with the pipeline, we expect to continue our low to mid single digit forecast quarter over quarter.
Speaker Change: That'll settle.
Speaker Change: Ill, probably put us somewhere in the lower single digits by year end because of the flat first quarter, but we feel we feel good about the pipeline still.
Speaker Change: Contain continue our our strategy of growing within our retained earnings.
Speaker Change: Okay I appreciate that Greg and then on the on the core margin sudden another quarter of really strong improvement there.
Speaker Change: Based on what you see today would love to hear any updated thoughts around the core margin and how that could progress throughout the year.
Speaker Change: Yes, I think we expect to continue to grind out some improvements on margin probably more in the low low single.
Speaker Change: Digit basis points here going forward.
Speaker Change: I don't think we're going to expect to achieve the eight basis points expansion.
Speaker Change: In the future quarters, just because of the interest rate.
Speaker Change: Uncertainty going forward and some some real deposit pressure, we're seeing in the market. So.
Speaker Change: That's kind of the way we feel about it.
Speaker Change: And just to clarify Greg that low single digits margin expansion that was kind of a quarterly assumption over the next few quarters is that is that fair.
Greg: Correct, Yes, Thats correct Matt.
Speaker Change: Okay perfect.
Speaker Change: And then just lastly for me on the on the fee side another really.
Nice quarter.
Speaker Change: SBA sales were really strong it sounds like you want you think that the quarterly fee progression has slowed a little bit.
Speaker Change: In the near term.
Speaker Change: I want to make sure I understand kind of the puts and takes around that.
Speaker Change: Yeah, I think I think what's reasonable to expect is that it's going to be from 11 to 12.
Speaker Change: On a quarterly basis going forward as compared to the 24 GAAP number this quarter.
Speaker Change: Think about.
Speaker Change: SBS seed income that was about 700000 little more than that for this quarter.
Speaker Change: They're hard to predict when.
Speaker Change: When they'll come come in and.
Speaker Change: Obviously, the SBA and the swap income that we're building is.
Speaker Change: Somewhat lumpy, but we're pleased with the scale that we're seeing.
Speaker Change: Feel really good about that.
Speaker Change: So we have been developing.
Speaker Change: On this front over the past year in particular.
Speaker Change: We did yes.
Speaker Change: Partnering with Waterstone last spring with the SBA loan service provider.
Speaker Change: Anytime you bring somebody in it takes a little while to make sure that we are talking the same language.
Speaker Change: Good morning in the right direction, but.
Speaker Change: But but the direction directional improvement over the past five quarters of spend.
Speaker Change: Pretty significant and then not.
Speaker Change: I would now like quantitative.
Speaker Change: Qualitatively or reduce our bankers who are much more comfortable talking about the product and.
Speaker Change: And navigating.
Speaker Change: Systems.
Speaker Change: On the right way, so, but do you think the first quarter was.
Speaker Change: So is the outperformance from the SBA perspective.
Speaker Change: But we do think we've reached a level just slightly below that that we can scale as kind of a new base for us which is exciting.
Speaker Change: Same is true on the swap income.
Speaker Change: Fourth quarter was outperformance there in first quarter was probably more typical.
Speaker Change: So between the two so those two being our biggest drivers we feel.
Speaker Change: So optimistic about the ability to continue to improve that incrementally over the course of the year.
Speaker Change: Yeah.
Speaker Change: Well definitely a nice start to the year.
Speaker Change: I'll step back thank you guys.
Speaker Change: Thanks, Matt Thanks, Matt.
Matt: Thank you.
Speaker Change: Our next question comes from the line of Michael Rose Raymond James.
Speaker Change: Line is open.
Michael Rose: Hey, good afternoon, guys how are you.
Michael: Hey, good Michael.
Speaker Change: Ed Thanks for taking my questions.
Speaker Change: So I think if I heard you right the branch sale.
Speaker Change: Thank you cant came with about $51 million in deposits. So that would render kind of deposit growth kind of flat can you just talk about.
Speaker Change: Any moving pieces on.
Speaker Change: The acquired balances this quarter versus <unk> versus core I think you did that for loans. If you set it for deposits I missed that and maybe.
Speaker Change: Some of the expectations as we think about the next couple of quarters for deposit growth.
Michael Rose: Yes, Yes, Michael will.
Michael Rose: Give us a second full the actual organic so what we were referencing as Rajeev mentioned in his comments was.
Michael Rose: B.
Michael Rose: While the organic deposit growth would have been over the trailing two quarters annualized just simply saying if you think about the influx that we had at year end from the municipalities and public funds.
Michael Rose: If you were looking at it on a kind of a two quarter basis, because that rolls in and then we'll roll out. Some so we did provide the.
Michael Rose: <unk> quarter annualized organic piece for the deposit side don't have that at our fingertips on the loan side, but that was the rationale is to just simply say if you look at it on the trailing two quarters simply because of that large influx at the end of the year. We did expect that runoff thats why we thought it was important to provide that context. So.
Speaker Change: I mean, if we can we can try to find what.
Michael Rose: What the organic piece would be over the trailing two quarters I think.
Speaker Change: Thank you.
Speaker Change: I think the other part of your question Michael was about the capital and so on just to clarify that.
Speaker Change: Done at the beginning of April so that would not have been reflected in the deposit movement in the first quarter.
Speaker Change: We were just kind of previewing.
Speaker Change: That movement, which will help which will make it more likely that were flattish in the second quarter.
Speaker Change: We made that decision to focus on the operational expense control and we were able to do so partnering with a local community bank.
Speaker Change: We were proud to be able to help them and did so at a good deposit premium. So it's really a win win but that was for the second quarter not not not for the first quarter.
Speaker Change: Okay. So if I missed that.
Speaker Change: No no no you're filing because if you so if.
Speaker Change: Do you think about second quarter, that's $50 million that were kind of starting off in the hole in a sense on deposit side. So to your point Q2 might be a little more muted just simply for that fact alone.
Speaker Change: Got it very helpful.
Speaker Change: Maybe just separately on <unk> on slide 31, just the similar.
Some of the commercial real estate stuff it looks like the special mentioned category has increased fairly meaningfully I would assume some of that is related to the deal maybe but just any color there and what you're seeing thanks.
Speaker Change: That's a great question. The two credits that I've mentioned are our C&I credits. They are not commercial real estate, but it's a good question and it allowed me to put some context around this.
Speaker Change: The watch list from the special pass the special mentioned.
If you think about.
Speaker Change: As a percentage of create loans commercial real estate loans. The watch list is only about 6% of all Cree loans and.
Speaker Change: The about 57% of that group are special mentioned or what we call pass watch which could be.
Speaker Change: Downgraded our risk rating system based on <unk>.
Speaker Change: Horizon interest with the interest rate environment since origination, which would put some stress on debt service coverage. So that would be an example of that.
Speaker Change: Perfect.
Speaker Change: And maybe just finally for me.
Speaker Change: Nice moving intangible equity I know you guys are going to be building capital.
Speaker Change: Pretty nicely here once all the cost saves are realized.
Speaker Change: Any thoughts on capital return at this point I E a buyback.
Speaker Change: Just would love some thoughts just given where your stock is trading and many banks stocks for that matter, but you're seeing more banks lean into buybacks at this point. Thanks.
Speaker Change: Yes.
Speaker Change: Well, we certainly are always thinking about it as an option.
Speaker Change: I think we probably have a little more capital to build to go before it would make sense as we prepare for.
Speaker Change: For both opportunities and challenges over the next year.
Speaker Change: Year and a half.
Speaker Change: I think we.
Speaker Change: We're on good pace to exceed our expectations in terms of capital build for the year with a good strong start.
Speaker Change: But I think we still have a ways to go before it so.
Speaker Change: Realistic.
Speaker Change:
Speaker Change: A lever to pull now of course things could worsen and maybe the opportunity becomes greater and we always need to be.
Speaker Change: Open to analyzing the business case for a different capital allocation decisions, but.
Speaker Change: But for now I wouldn't expect that we're quite where we want to pay from a capital build standpoint, yes, I mean, we.
Speaker Change: <unk> started to do the work on that but to <unk> point I think we're not quite there we're not quite there from a capital standpoint, but.
Speaker Change: Yes.
Speaker Change: Since an opportunity and the dilution and the earn back makes sense, we'll have the analytics done and be ready to move with it.
Speaker Change: Makes sense. Thanks for taking all my questions I'll step back. Thank you.
Speaker Change: Thank you.
Speaker Change: Thank you.
Speaker Change: Our next question comes from the line of.
Speaker Change: That is chicken.
Speaker Change: Great.
Speaker Change: Your line is open.
Speaker Change: Hey, good afternoon guys.
Speaker Change: Okay.
Speaker Change: Just asking is there any areas in the loan portfolio that youre, taking a little closer look at maybe deemphasizing new growth.
Speaker Change: Just in terms of blown or collateral type or the thoughts just keep your credit expectations or even rate.
Speaker Change: Yes, I don't know if there is a particular area that we're looking to down scope.
Speaker Change: Significantly we have been working in particular in the past.
Speaker Change: Couple of years on making sure that.
Speaker Change: Our CND exposure was back within bounds that we felt comfortable with going forward. We were although we have a good track record of.
Speaker Change: A return.
Speaker Change: Sure.
Speaker Change: The C&D portfolio, we were about 120% 18 months ago ish and.
Speaker Change: Around 70% now, which we probably continue one we will probably want to continue down trending a little bit, but certainly not with the same kind of urgency that we.
Speaker Change: We displayed over the past 18 months.
Speaker Change: So we have a more diversified portfolio than we've ever had and that's the type of loans and geography.
Speaker Change: And we like that and want to continue to pick up opportunities, where we can find them.
Speaker Change: So there is a particular area that word.
Speaker Change: Sure.
Speaker Change: Anxious to downshift in but we want to continue to stay balanced and bank continue to look for opportunities, where we find them and.
Speaker Change: Get better get better what we're doing.
Speaker Change: Part of we have a pretty high relative to a lot of community banks, we have.
Speaker Change: Greater exposure in C&I World, which is we think a positive overall given the more relationship orientation that C&I loans tend to bring them in but that also implies.
Speaker Change: So smaller average exposures and provide an.
Speaker Change: Assumes more more execution demand.
Speaker Change: Not only for underwriting, but for our pro forming over time with C&I and so we'll continue to make sure. We're building our systems internally to continue to be able to hold them and I think our opportunity is more is more around getting better at it.
Speaker Change: And then.
Speaker Change: Then moving away from it given all the investments that we've made over the past really that.
Speaker Change: Decade can move in that direction.
Speaker Change: We also we spent the first half of our career.
Speaker Change:
Speaker Change: At least perception and from a perception standpoint, being overexposed to energy and we're down below 2% now and it's really really a non factor there in terms of being overly concentrated.
Speaker Change: Which means that.
Speaker Change: That's another area that we can just take it on a case by case basis, when we say energy, we still don't mean.
Speaker Change: Production based loans were not doing reserve based loans or exploration, we're doing C&I loans for typically for a moment box.
Speaker Change: And our local communities.
Speaker Change: I'm excited about the.
Speaker Change: While we're proud of.
Speaker Change: The vast improvement we have made we were at 20%.
Speaker Change: Six seven years ago and to be less than 2%.
Speaker Change: It gives us more flexibility on that front to serve our federal clients.
Speaker Change: Better worse.
Speaker Change: I appreciate that and just one more from me just I know you have a relatively new acquisition to digest here.
Speaker Change: As we think out longer term are there any markets in Louisiana you are not in.
Speaker Change: That you'd want to be in longer term or would you consider looking to the east at some point.
Speaker Change: <unk> team lift out or acquisition or is it just louisiana and taxes for the foreseeable future.
Speaker Change: Okay.
Speaker Change: Overtime, we will be open to the idea of team lift outs, but for now we think we have plenty of opportunity adjacent in Louisiana and Texas.
Speaker Change: And we are already in the largest markets in Louisiana.
Speaker Change: Not to say that it will take there arent.
Speaker Change: A couple of our handful of markets that we'd like to bandwidth.
Speaker Change: Anywhere in Louisiana would be a bit of a tailwind for us which means a lower risk opportunity until we would be open to that if it was the right team or the right M&A partner.
Speaker Change: But almost anywhere in Louisiana again would be would be either fill in or a building on our existing leadership structure in.
Speaker Change: Texas, obviously is.
Our open we're in we're primarily in Dallas and Houston.
Speaker Change: All else being equal the chances are we're going to continue to fill in our current footprint.
Speaker Change: Ed.
Speaker Change: Have.
Speaker Change: <unk> been successful recruiting some folks from larger banks.
Speaker Change: Those folks know folks in.
Speaker Change: <unk>.
Speaker Change: There are opportunities to do team lift outs from time to time, we'll look at those but.
Speaker Change: Number one priority right now is growing within our current footprint.
Speaker Change: Okay.
Speaker Change: Understood that makes sense. Thanks for taking my questions I'll step back.
Speaker Change: Thanks sure.
Speaker Change: Okay.
Speaker Change: Okay.
Speaker Change: Thank you.
Speaker Change: Our next question comes from the line of Chris <unk>.
Speaker Change: Jamie.
Speaker Change: Our journey sorry, the line is open.
Speaker Change: Thanks, very much wanted to drill down on on Dallas, Fort worth market, and Jude or others, what's the opportunity to grow organically their deposits.
Speaker Change: You are stable with Oakwood and perhaps the conversion will put you to the next chapter, but just curious on sort of new accounts, there and if thats a market that will sort of get tighter in terms of your loan to deposit relationship.
Speaker Change: Certainly the intent.
Speaker Change: We have 11 branches now between our organically developed ones and the <unk> acquisition, we haven't and we will do in September we will do the conversion and I think thats.
Speaker Change: That makes it more likely that we'll be able to put an increased sales focus on the deposit growth.
Speaker Change: And Dallas at that point, so I think more I think getting through our own internal conversion and then the <unk>.
Speaker Change: <unk> conversion is probably up.
Speaker Change: A.
Speaker Change: Okay.
Speaker Change: A couple of steps that we need to enact successful they really position us to grow the deposit base, there, but we have enough of a franchise.
Speaker Change: Mass in Dallas now that I would expect that over the next couple of years, we would.
Speaker Change: We would seek to.
Speaker Change: To narrow that gap and but I would point out.
Speaker Change: The gap really isn't.
Speaker Change: At <unk>, we've been able to grow organically in the area, we have focused more on our <unk>.
Speaker Change: Commercial clients, there as opposed to retail and so we have a higher percentage of noninterest bearing accounts.
Speaker Change: Allison, we do in other markets and so from a quality of from a cost quality and cost perspective, we like our deposit franchise that we've been building in Dallas and Oakwood was commercially focused and so has the same kind of dynamic. So we would we would see to continue that.
Speaker Change: I would also say that I think one of the strategies that we've tried to enact over time is to have a diversified enough footprint between the.
Speaker Change: Urban markets in more rural markets.
Speaker Change: That we can have each of the kind of two halves of our franchise support each other.
Speaker Change: So it is certainly not the end of the world deposit base to come primarily from some of the slower growth markets.
Speaker Change: Our biggest deposit contributor over the past couple of years has been our style.
Speaker Change: Southwest Louisiana.
Speaker Change: Market, which has just been stellar in terms of its deposit growth and that really has helped fund that gap and maybe all of that gap.
Speaker Change: And I think those I think are multiple markets working in concert as related goal with that said, yes, I do think we have the opportunity now that we have a more built out branch network.
Speaker Change: Due to drive more deposit growth in Dallas, and we're really at a point in Dallas, where I don't anticipate.
Speaker Change: Needing to add a significant number of additional branches we have.
Speaker Change: We have an <unk>.
Speaker Change: Office in Westlake now that has opened at LPL.
Speaker Change: So over time I'm sure, we will make that into a full service branch.
Speaker Change: But they are really only a couple of other spots in the market that we need to be and until we have the coverage and so most of our infrastructure investment I think has been made.
Speaker Change: Now, it's more a matter of making sure that we're just we're just working to production lines to two.
Speaker Change: To be successful.
Speaker Change: Be successful in a more of an organic.
Speaker Change: Value, adding wind.
Speaker Change: Got it that's great. Thank you for that that background and then just I guess appointed Greg made about new loan growth earlier in the call is the high seven is a good number to use for both.
Speaker Change: C&I and CRE or are there are some nuances there when you kind of look at the.
Speaker Change: Type of loan production.
Speaker Change: Yes, I think the.
Speaker Change: Probably the reality is with C&I.
Speaker Change: We'd be closer to seven CRE is going to be higher up.
Speaker Change: Up in the higher <unk>.
Speaker Change: Just based on the structures that we're putting together both the C&I stuff is tends to be.
Speaker Change: Variable price.
Speaker Change: The.
Speaker Change: CRE is a little bit longer durations, but thats the way.
Speaker Change: You can think about it.
Speaker Change: Yes, one of our one of our opportunities as Gerry speaks about often in fact, if you want to mention that we.
Speaker Change: We have room in our balance sheet now to to to do CRE and C&I, even but we wanted to be sure that we're getting paid appropriately for locking up to those.
Speaker Change: Those dollars soon or do you want to answer that.
Judy: Thank you Judy that was going to mention that.
Speaker Change: It's nice to see some loans.
Speaker Change: Some really good work going on within the teams to differentiate between the types of <unk>.
Speaker Change: Clients, who have got so that we can.
Speaker Change: Eddie maybe aren't a little higher yield on the commercial real estate non owner occupied stuff and be able to compete even harder.
Speaker Change: They're really high quality C&I. So we felt like it was important to put some you've.
Speaker Change: You've seen over the last couple of years, we will invest in certain technologies and we're trying to put tools in our bankers hands. So they know how to compete hard for.
Speaker Change: So the best clients out there and get paid inside that commercial real estate industry, where we think there is some yield to be to be to be gathered.
The board of that part of our algorithm for pricing now with respect with investments in some of the investments that we've made.
Speaker Change: With the C&I, it's always we've always known theoretically to C&I brings with a deposit opportunities, which allow you to be a little.
Speaker Change: More aggressive on the loan yields because of the overall relationship profitability and now we're able to actually see that real time.
And thats, helping us price rationally based on the overall relationship.
Speaker Change: And not just the not just the type of loan in isolation is good context around each of those decisions.
Speaker Change: Understood great. Thank you both I appreciate that's great background.
Speaker Change: Thank you.
Speaker Change: Our next question comes from the line of da.
Speaker Change: Davidson.
Your line is open.
Speaker Change: Hey, good afternoon on your.
Speaker Change: NIM expectations of kind of like a grind higher.
Speaker Change: Can you talk about the sensitivity to if we have a rate cut.
Speaker Change: Spaced out rate cut just kind of your thoughts on in reaction to a rate cut.
Speaker Change: Meanwhile, thanks, Thanks for the question.
Speaker Change: I think we think about.
Speaker Change: 25 basis.
Speaker Change: Rate cut downward.
Speaker Change: We would most likely pick up a basis point or two on top of that already expected.
Speaker Change: Low single digits improvement.
Speaker Change: Yeah.
Speaker Change: Okay. That's helpful.
Speaker Change: And you talked about the March deposit costs, hitting a little bit below current levels and.
Speaker Change: And the average level.
Speaker Change: And the margin analysis.
Speaker Change: And theyre being kind of not too much more deposit cost cuts to come is that the right way to think about it without rate cuts.
Speaker Change: I think I think that's right.
Speaker Change: We're seeing not only with the.
Speaker Change: The success, we've had moving the pricing of the portfolio since the November December codes.
Speaker Change: The.
Speaker Change: Liquidity in the space from a competitive standpoint, it looks like we're starting to see a few more offers of some higher rate competitive deposit offerings out there. So.
Speaker Change: We think it's going to be.
Speaker Change: Pretty tough from here on out.
Speaker Change: And the current rate environment.
Speaker Change: Maybe just a little bit a little bit of context, there I think that Greg mentioned, the total deposit with total weighted average deposit cost for for just March was $2 66.
Speaker Change: That compares to the full quarter of $2 69, and then on the interest rate just isolated interest bearing weighted average deposit cost for March $3 31 versus full quarter of $3 35.
Speaker Change: Okay.
Speaker Change: Helpful.
Speaker Change: Or is.
Speaker Change: Is that EBIT impacting like CD renewals are some of those strong offers on CD renewals or is that still an area that you are repricing down.
Speaker Change: No well I think I think there is a little bit of both so there's there's pull through three pricing on the CD book, which we have been.
Speaker Change: At about 83% success rate on that.
Speaker Change: CD repricing, but you do have to deal with the one off.
It's competitive.
Speaker Change: Pricing so we've seen some some 460 <unk> out there in the CD space. So it's out there and it's real.
Speaker Change: Yes.
Speaker Change: Okay.
Speaker Change: Yes.
Speaker Change: Switching over to kind of loan growth I understand the pipelines are really strong.
Speaker Change: Is there any.
Speaker Change: Still shooting for that kind of low single digits to mid single digit quarterly pace.
Speaker Change: How is that being impacted by by sentiment and kind of where it could hit the high end of that pain.
Or would it take.
Speaker Change: Is it sentiment and that could drive to low end of that page just kind of thoughts on the upside risk and the downside risks.
Speaker Change: Well I think the.
For us the reality is we typically in Q2 and Q3 C that we have historically those have been our higher growth quarters.
Speaker Change: So I would say if there is a likelihood of being on the upper side. It would be there in those quarters and then down.
Speaker Change: The likelihood would be down in the fourth quarter. So the lower end of that single digits.
Speaker Change: It's landing probably because of the first part of the year was flat more.
Speaker Change: In the mid to low single digits annualize for 25.
Speaker Change: I think also I would just add you've got those are those are our kind of internal patterns of development as a bank, but you've also got a lot of exogenous stuff happening in the environment and and.
Speaker Change: And that May end up being an even bigger.
Speaker Change: Terminal of whether we're at the low end or high end of whatever range you might want to I want to put on there I think.
Speaker Change: I think as.
Speaker Change: As far as where we ended up with tariffs and we'll probably end up undefined spot, but I think the pace at which we get to the end will matter and the longer we have uncertainty I think.
Speaker Change: Potentially a couple more quarters towards the end of at the lower ends of the range. If we're being realistic, but I think if we can get some.
Speaker Change: And certainty and some clarification on where we go from here then.
Speaker Change: Income there is still a lot of potential.
Speaker Change: Momentum in the economy, and then our particularly in our markets.
Speaker Change: Could end up being a banner year, if we can get back to business.
I'd also mentioned that a way to control growth as our correspondent Division we've had.
Speaker Change: And selling loans and with with Paydowns more neutral growth for us.
Speaker Change: There is pent up demand for selling ones as well. So that's an option we always want to consider as we.
Speaker Change: When we get them.
Speaker Change: I'll add one more thing from a from a sensitivity to your question earlier, what would be kind of what might move a little bit. The one nice thing about our pipeline is at a pretty good balance on the C&I and commercial real estate. So the.
Speaker Change: C&I tends to have some fluctuating loan balances on lines of credit et cetera are based on the needs of that of that client. So I'd say, that's one of the things we'll be watching the utilization on these new clients that are really great wins for us.
Speaker Change: But we're going to have to get used to some of their patterns. There are current borrowings.
Speaker Change: Good luck.
Speaker Change: Okay, that's really helpful.
Speaker Change: It seemed that.
Speaker Change: In some of the discussion we've been talking on the loan yields has stayed pretty steady so.
Speaker Change: The competition on the loan side on the pricing side Hasnt gotten.
Speaker Change: As you rationalize a couple of offers on that.
Speaker Change: Alright.
Speaker Change: I think that's fair, that's a fair way to describe it.
Speaker Change: Deposits.
Our system remains.
Speaker Change: Really heightening the.
Speaker Change: I think I think everyone's in similar boat therefore that online on the credit side, we're not being pushed as much as I would say, we see a little bit of downward pressure.
That's why we've talked earlier about making sure where we're really getting an appropriate return on anything we're doing.
Speaker Change: The very top clients, probably are pushing a little more than than we have been like how you phrased. It as irrational we are definitely seeing some someone else I'm just trying to be disciplined.
Speaker Change: Okay.
Speaker Change: I appreciate this to add thanks for the commentary.
Speaker Change: Thank you <unk>.
Speaker Change: Thank you.
Speaker Change: Your next question comes back from the line of Matt Olney.
Speaker Change: Stevens.
Speaker Change: Line is open.
Speaker Change: Yeah, Hey, guys just a few follow ups here on the on the credit front.
Speaker Change: Those two non accruals that you mentioned I think totaling around $8 million I think you mentioned you've got that specific reserve on them just any more color on these on these loans kind of what what drove the downgrade any color on the collateral and how quickly do you suspect to see Youll see resolution on these two.
Speaker Change: <unk>.
Speaker Change: Yeah, well one of them is.
Speaker Change: As the SBA loan that.
Speaker Change: It is fully reserved for our exposure in that one because it's SBA could could potentially be a <unk>.
Speaker Change: Longer unwound from for resolution on that one.
Speaker Change: The other one is the C&I loan that the collaterals receivables. So we're currently in the process of evaluating.
Speaker Change: That position not only internally, but also with an external.
Speaker Change: The firm that we hired to do some evaluation.
Speaker Change: And.
Speaker Change: That one.
Speaker Change: The resolution is going to take a little bit to play out as the customer seems to be willing to work with us right now so.
Speaker Change: We will hope for the best on island.
Speaker Change: Okay I appreciate that Greg and then just lastly.
Speaker Change: On the M&A front I know Judy you made some brief commentary earlier, but just just would love some more general M&A commentary.
Speaker Change: I would assume the more recent M&A conversations have slowed but from where you sit jude.
Speaker Change: What are your current expectations for industry consolidation within your within your footprint.
Okay.
Speaker Change: Sure, Yes, I think.
Speaker Change: Certainly within the past month, I think the situation has changed enough that.
Speaker Change: There is some pausing of conversations and.
Speaker Change: And just a little wait and see and my comments about the range of loan growth being impacted by a certain day around tariffs and things happening in the economy I think apply to.
Speaker Change: Obviously, a part of the stock market as well and.
Speaker Change: One of the primary drivers of M&A activity is where stock prices are right. So.
Speaker Change: Until we get a little uncertainty there in the little forward momentum I think we're probably a little bit slower I think the overall.
Speaker Change: Demographic.
Speaker Change: <unk>.
Speaker Change: Circumstances that we've been describing for the past couple of years are only.
Speaker Change: Either.
Speaker Change: Staying the same or accelerating in terms of.
Speaker Change: CEO is getting older and Tom.
Speaker Change: Finding different cost pressures to be.
Speaker Change: Abating over time.
Speaker Change: Even with the change in regulatory structure I don't see a lot of the costs.
Speaker Change: Way in the near term.
Speaker Change: See people getting younger so I think it will continue to be opportunities.
Speaker Change: And.
Speaker Change: We're in a good position right now because we've got a good track record of partnering in and I think we've developed.
Speaker Change: A pretty good brand for being a good partner through acquisitions and but we also are at a point at which we don't have to do an acquisition in.
Speaker Change: Okay. That's a good spot to base it will be.
Speaker Change: Prepared as the opportunities come up.
Speaker Change: And certainly I.
Speaker Change: We will continue to talk to a good deal, although we want to partner with but but.
Speaker Change: Also have tried to build this in such a way that we didn't have to do anything and if it takes a little while longer for things to to speed up that's okay, too, but I do think all the rationale that was in place to lead to increased M&A.
Speaker Change: Over the next year or two years or are generally still in place and they're just a little bit of hey, let's let's just wait and see how that shakes out for the next few months.
Speaker Change: As far as our ability to do another acquisition I, certainly I think from an operational standpoint.
Speaker Change: We're capable and.
Speaker Change: And.
Speaker Change: Wouldn't be prepared to do it at the rates.
Speaker Change: And the right partner.
Speaker Change: Presents itself.
Speaker Change: Okay.
Speaker Change: Yeah, Okay, alright that makes sense. Thanks for your time I appreciate it.
Speaker Change: Alright, thank you.
Speaker Change: Thank you.
Speaker Change: Seeing as there are no more questions in the queue that concludes our question and answer session. I will now turn the call back over to Mr. Melville for closing remarks.
Speaker Change: Yes, just a couple of clarifications I know, Matt wants to clarify something for Michael Roses question, I believe and I want to just add onto it.
Speaker Change: Matt on your question.
Speaker Change: I said this earlier, but I want to kind of reiterate it from an M&A perspective.
Speaker Change: I do think for us.
Speaker Change: Most likely our M&A course is staying within our current footprint.
Speaker Change: And making sure that.
Speaker Change: We continue to build depth in our markets.
Speaker Change: There's plenty of opportunity in Louisiana and Texas.
Speaker Change: Not to say that one day about in the future we might go east, but it's not up it's not a priority at this time and.
Speaker Change: We built out.
Speaker Change: Both the footprint that we think we can grow and Dodge such one off when it would be I'm not haven't always been clear about that and so I wanted to be clear about that today than I think.
Speaker Change: I think Matt you had something you want to add.
Speaker Change: Yes, Michael So we pulled the organic loan growth figures kind of comparable figures for that organic deposit.
Speaker Change: Figure that we gave you earlier, so excluding oakwood acquired loans organic loans from $930 24 through $3 31, a 25 would have been $62 million net.
Speaker Change: That would have been two 4% annualized so that's kind of the comparable figures just on deposits.
Todd: Hello, Todd.
Okay, great well, thanks, Pat them with that.
Todd: I'll wrap this up but its I appreciate everybody's time and I appreciate our teams efforts to start the year off rice and <unk>.
Todd: Proud of our results.
Todd: Look forward to seeing how we navigate the rest of the year every year, thus far in my career has been.
Todd: Hard to predict other than we know there'll be something and.
Todd: I feel like we're in as good a shape as we've ever been in terms of tackling whatever there was some things are in.
Todd: And that's a good place to be so I appreciate your attention and good luck to everybody else in the analyst for finishing up your calls over the over the rest of the earning season.
Todd: Okay.
Todd: Okay.
Ladies and gentlemen that concludes today's call. Thank you all for joining you may now disconnect.
Todd: Okay.
Speaker Change: Go ahead.
Todd: [music].
Todd: Okay.
Todd: Okay.
Todd: [music].