Business First Bancshares Q1 2025 Earnings Call Transcript

Quartr
Provided by Quartr
April 24, 2025

There are 10 speakers on the call.

Operator

Hello, and thank you for standing by. I would like to welcome everyone to B1 Bank Business First Bancshares Q1 twenty twenty five Earnings Conference Call. I would now like to turn the call over to Matt Seeley, Senior Vice President, Director of Corporate Strategy and FP and A. Mr. Seeley, floor is yours.

Speaker 1

Good afternoon, and thank you all for joining. Earlier today, we issued our first quarter twenty twenty five 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. Those of you joining by phone, please note the slide presentation is available on our website at www.b1bank.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.

Speaker 1

All comments made during today's call are subject to the Safe Harbor statements in our slide presentation and earnings release. I'm joined this afternoon by Business First Bancshares' Chairman and CEO, Jude Melville Chief Financial Officer, Greg Robertson Chief Banking Officer, Philip Jordan and President of B1 Bank, Jerry Bastikiew. After the presentation, we'll be happy to address any questions you may have. And with that, I'll turn the call over to you, Jude.

Speaker 2

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. At a high level, we were quite pleased with the first quarter's results, most of which exceeded expectations. One of our guiding principles is centered around striving for continual incremental improvement, We were able to demonstrate that concept in action on a number of fronts.

Speaker 2

Profitability continues to be consistent with core ROA exceeding 1%. Our officers are doing a good job of selectively holding the line on loan yields, with weighted average new and renewed yields of 7.71% during the first quarter, while overall cost of funding continued its downward trend, leading to core net interest margin expansion of eight basis points for the linked quarter. We benefited from a continued build in capital levels, with our TCE now exceeding 8%, while our consolidated TRBC ratio exceeds 13%. While there was positive movement in our AOCI exposure, the bulk of the capital build came through retained earnings. I'm especially proud of our continued focus on expense management, with another quarter of better than expected expense trends, while continuing to execute on material IT and infrastructure investments, leading to efficiency ratios continuing to move in the right direction, a trend we expect to continue.

Speaker 2

Non interest revenue is contributing meaningfully to bottom line profitability, with another quarter of strong swap fees and SBA loan gains on sales, as well as contributions from various SPIC investments being the main drivers of continued growth in aggregate noninterest income. As a reminder, we closed the acquisition of Oakwood Bank in Dallas, Texas on October first 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 Oakwood team, the most important component of any successful acquisition. Returning to our theme of incremental improvement and expense control, I'd like to direct you to page 14 in the IP, which shows our current branch network, which we remain focused on optimizing.

Speaker 2

As a part of that ongoing process, on April 4, we closed the sale of our Kaplan, Louisiana branch, which included the sale of approximately $51,000,000 in deposits at a deposit premium of 8%. I do want to discuss balance sheet growth and credit as well, even though they weren't on surface level as positive as some of our other trends. We did experience modest negative credit migration during the quarter, primarily due to two C and 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, even as metrics continue to normalize.

Speaker 2

The balance sheet contracted during the quarter with loans effectively flat on a linked quarter basis, while deposits decreased $53,000,000 On the loan side of the equation, we continue to be biased towards net interest margin over volume, a stance we believe to be prudent in today's uncertain environment, and I'm proud of our maintaining our profitability levels without relying on loan growth. So I will say we feel good about our pipeline in the second quarter. It's worth noting that pay downs and payoffs were materially higher during quarter one than we typically experience, primarily due to a handful of larger construction loans resolving. 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. Some level of runoff was expected to occur during the first quarter, and if you were to look at Q1 'twenty five and Q4 'twenty four on a combined basis, total organic deposits, excluding liquid, would have increased $144,000,000 or 5.1 percent annualized from 09/30/2024.

Speaker 2

All in all, 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 certainty over the course of our tenure as a public company, which began in 2018, and yet we've consistently found a way to not only navigate the challenges our industry and country have faced, but have continued to grow and strengthen our franchise throughout these challenging times. We entered the second quarter better reserved, better capitalized, more diversified in credit exposure and revenue sources, and more experienced than any time in recent memory. I'm confident that our team is prepared to continue not only navigating, but building, improving and indeed thriving as 2025 unfolds. I thank you again for your time.

Speaker 2

And with that, I'll turn it over to Greg.

Speaker 3

Thank you, Jude, and good afternoon, everyone. As Jude 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 and A. First quarter GAAP net income and EPS available to common shareholders was 19,200,000.0 and $65 and included $155,000 gain on former bank premises, dollars 630,000 gain on extinguishment of sub debt and a $679,000 acquisition related expense and also a $216,000 core conversion related expense. Excluding these non core items, non GAAP core net income and EPS available to common shareholders was $19,300,000 and $0.65 From our perspective, first quarter results were highlighted by good expense management, strong fee income and solid margin expansion.

Speaker 3

Total loans held for investment remained relatively flat on a linked quarter basis, down just $480,000 as paydowns and payoffs were elevated during the first quarter. Specifically, total scheduled and nonscheduled payoffspaydowns totaled approximately $500,000,000 which matched total new and renewed loan production of 500,000,000 as well during the quarter. Real estate construction loans decreased 36,800,000.0 from the linked quarter compared to an increase of 49,800,000.0 from the linked quarter of real estate 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. Total deposits decreased $53,200,000 mostly due to net decreases in non interest bearing deposits of $48,700,000 on a linked quarter basis.

Speaker 3

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 fourth quarter, we did manage to generate approximately $380,000,000 from new deposit account relationships. I also 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 roll out to some extent during the first quarter. Lastly, on the topic of deposits, on 04/04/2025, as Jude mentioned, we completed the sale of a South Louisiana branch to a local community bank.

Speaker 3

Total branch deposits, loans and fixed assets net of depreciation were $51,200,000 2 point 3 million dollars and $1,400,000 respectively, and were included within the consolidated balance sheet as of March 31. The negotiated deposit premium of 8% was recognized in conjunction with the closing of the transaction on April 4. We also managed to modestly delever the balance sheet during quarter one by repaying approximately $39,000,000 of short term FHLB advances and $7,000,000 of subordinated debt. Lastly, I'd also like to call out our linked quarter increase in contingent liquidity of approximately 600,000,000 Our GAAP reported first quarter net interest margin expanded seven basis points from the linked quarter from 3.61% to 3.68%, while non GAAP core net interest margin, 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 costs and disciplined pricing on new loan production, which Jude mentioned previously.

Speaker 3

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 twenty twenty five, we would expect deposit costs to remain relatively flat in the near term, but will be affected by our ability to retain and attract lower cost funding of non interest bearing deposits. 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 cost declined 18 basis points from the linked quarter, highlighted a '26 basis points quarter over quarter in reduction in overall money market deposits and 17 basis points reduction in overall cost of time deposits.

Speaker 3

Notably, the weighted average total cost of deposits for the first quarter was 2.69% down 12 basis points from the linked quarter. While March weighted average cost of total deposits came in at 2.66% showing improvement. While further improvements in funding costs are subject to the Fed's interest rate decisions, we remain encouraged by this trajectory. I would like to make a note of a few key takeaways to Slide 21 in our investor presentation. We continue to see 45% to 55% overall deposit betas as achievable.

Speaker 3

I would also like to point out that our overall core CD balance retention rate was 83% during March. That 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 $2,700,000,000 in floating rate loans at approximately 7.67% weighted average, but also have approximately $570,000,000 in fixed rate loans maturing over the next twelve months at a weighted average of 6.06%, which we would expect to reprice in the mid to high 7% range. Last thing I want to add is our expectations for loan discount accretion to average approximately seven and fifty thousand to $800,000 per quarter going forward. Moving on to the income statement.

Speaker 3

GAAP non interest expense was $50,600,000 included $679,000 of acquisition related expense and $216,000 in conversion related expense. Core non interest expense for the quarter of 49,700,000.0 increased approximately $700,000 linked quarter primarily due to the partial merit impact as well as FICA and bonus accrual resets. We expect a continued increase in core expenses in upcoming quarters, mostly due to the full quarter impact of our Q1 merit salary increase, as well as continued investments in IT and infrastructure. We think the current consensus outlook for core expenses in the low $50,000,000 range per quarter is reasonable. I would however like to remind folks that given the late twenty twenty five conversion of Oakwood, we don't expect to have any material cost savings on that transaction until later in the year.

Speaker 3

First quarter GAAP income was $13,200,000 and $12,400,000 respectively. GAAP results did include $155,000 gain on a former bank premises sale and $630,000 gain on an extinguishment of sub debt mentioned previously. Noninterest income results for the first quarter did come in slightly better than we had expected and were driven by strong SBIC income and SBA loan production and sales 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 an upward trend, as we've mentioned on calls in the past in our core non interest income, although their trajectory may be bumpy from quarter to quarter. Lastly, I'd like to provide some context to credit migration that Jude mentioned earlier.

Speaker 3

During the first quarter, NPAs increased 27 basis points from 0.42% in Q4 to 0.69 in Q1, with the increase driven by two C and I relationships totaling $8,400,000 Annualized net charge offs decreased from 0.04 basis points from 11 basis points in Q4 to seven basis points in Q1. Due to the deterioration in two relationships during the quarter, have elected to reserve $2,300,000 against the credits. One of those credits is fully reserved and the other credit is about 25% reserved. We believe these were isolated issues and do not expect any broad based decline in further credit quality across the portfolio. With that, that concludes my prepared remarks and I'll hand the call back over to Jude for anything you'd like to add before opening up to Q and A.

Speaker 2

That's great. Thanks, Greg. I don't really have anything to add before we hit the questions. Look forward to hearing from you all. Thanks again for being with us.

Operator

And our first question comes from the line of Matt Olney from Stephens. Your line is open.

Speaker 4

Hey, thanks. Good afternoon. I'll start on the loan side. I think the loan balances, as you mentioned, were flat because of the higher payoffs during the quarter. But based on that commentary, it sounds like the pipelines are healthy, but also we have to layer in some macro uncertainty.

Speaker 4

So we'd just love to hear your thoughts on internal expectations for loan growth for 2Q and the back half of the year?

Speaker 3

Hey, Matt. Thanks for calling in. Thanks for the question. Yeah, I think going forward, we expect loan growth. We're happy with the pipeline.

Speaker 3

We expect to continue our low to mid single digit forecast quarter over quarter. That'll probably put us somewhere in the lower single digits by year end because of the flat first quarter, but feel good about the pipeline and still continue our strategy of growing within our retained earnings.

Speaker 4

Okay. Appreciate that, Greg. And then on the core margins, another quarter of really strong improvement there. Based on what you see today, would love to hear any updated thoughts around the core margin and how

Speaker 2

that could progress throughout the year.

Speaker 3

Yes, I think we expect to continue to grind out some improvements on margin, probably more in the low single digit basis points here going forward. I don't think we're going to expect to achieve the eight basis points expansion in the future quarters just because of the interest rate uncertainty going forward and some real deposit pressure we're seeing in the market. So that's kind of where we feel about it.

Speaker 4

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 fair?

Speaker 3

Yes, that's correct Matt.

Speaker 4

Okay, perfect. And then just lastly for me on the fee side, another really nice quarter. I think SBA sales were really strong. It sounds like you think that the quarterly fee progression to slow a little bit in the near term. Just want to make sure I understand kind of the puts and takes around that.

Speaker 3

Yes, I think what's reasonable to expect is that's going to be from an 11.5 to 12 on a quarterly basis going forward as compared to the 12.4 GAAP number this quarter. If you think about we had a SBIC income that was about $700,000 a little more than that for this quarter. And those are hard to predict when they'll come in. And obviously the SBA and the swap income that we're building is somewhat lumpy, but we're pleased with the scale that we're seeing.

Speaker 2

We feel really good about the muscles that we've been developing on this front over the past year in particular. Partnered with Waterstone last spring, who was the SBA loan service provider, and anytime you bring somebody in it takes a little while to make sure that we all are talking the same language and pointing in the right direction, but the direction, directional improvement over the past five quarters has been pretty significant and then not only quantitative but qualitatively, our bankers are much more comfortable talking about the product and navigating the systems in the right way. So we do think the first quarter was outperformance from the SBA perspective, but we do think we've reached a level of just slightly below that that we could feel is kind of a new base for us, which is exciting. And I would say same is true on the swap income. Fourth quarter was outperformance there and first quarter was probably more typical.

Speaker 2

So between the two, we feel those two being our biggest drivers, we feel optimistic about the ability to continue to improve that incrementally over the course of the year.

Speaker 4

Yeah. Well, definitely a nice start to the year. I'll step back. Thank you, guys.

Speaker 3

Thanks, Matt. Thanks, Matt.

Operator

Thank you. Our next question comes from the line of Michael Rose from Raymond James. Your line is open.

Speaker 5

Hey, good afternoon guys. How are you?

Speaker 2

Hey, Good, Mike.

Speaker 5

Good. Thanks for taking my questions. So I think if I heard you right, branch sale, I think you came with about $51,000,000 in deposits. So that would render kind of deposit growth kind of flat. Can you just talk about any moving pieces on the acquired balances this quarter

Speaker 5

I think you did

Speaker 3

that for loans, if you set up

Speaker 5

for deposits, I missed it. And maybe some of the expectations as we think about the next couple of quarters for deposit growth. Thanks.

Speaker 1

Yes, Michael. We'll give us a second to pull the actual organic. So what we were referencing, Raju mentioned in his comments was what 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, if you were to look at it on kind of a two quarter basis because that rolls in and then we'll roll out some. So we did provide the two quarter annualized organic piece for the deposit side.

Speaker 1

Don't have that at our fingertips on the loan side, but that was the rationale was 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. That's why we thought it was important to provide that context. So give us a minute, we can try to find what the organic piece would be over the trailing two quarters.

Speaker 5

I think part

Speaker 2

of your question, Michael, was about the Kaplan sale. And just to clarify, that was done at the April, so that would not have been reflected in the deposit movement in the first quarter. We were just kind of previewing that movement, will make it more likely that we're flattish in the second quarter, because we made that decision to focus on the operational expense control. And we were able to do so partnering with a local community bank, that we were proud to be able to help them and did so at a good deposit premium. So it's really a win win.

Speaker 2

But that was for the second quarter, not for the first quarter.

Speaker 5

Got it. Sorry if I missed that.

Speaker 1

No, no, no. You're fine. Because if you so if you think about second quarter, that's $50,000,000 that we're 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 5

Got it. Very helpful. Maybe just separately on Slide 31, just some of the commercial real estate stuff. It looks like the special mention category has increased fairly meaningfully. Would assume some of that is related to the deal maybe, but just any color there and what you're seeing?

Speaker 5

Thanks.

Speaker 3

Yes, that's a great question. The credits that I've mentioned are C and I credits. They're not commercial real estate, it's a good question and it'll allow me to put some context around this, the watch list and the special mention. If you think about as a percentage of CRE loans, commercial real estate loans, the watch list is only about 6% of all CRE loans. And about 57% of that group are special mention or what we call pass watch, which could be downgrading our risk rating system based on the rise in interest with the interest rate environment since origination, which would put some stress on debt service coverage.

Speaker 3

So that would be an example of that.

Speaker 5

Perfect. And maybe just finally for me, nice move in tangible equity. I know you guys are going to be building capital pretty nicely here once all the cost saves are realized. Any thoughts on capital return at this point, I. E, a buyback?

Speaker 5

Just would love some thoughts just given where your stock is trading and many bank stocks for that matter, but you're seeing more banks lean into buybacks at this point. Thanks.

Speaker 2

Yeah, we certainly are always thinking about it as an option. I think we probably have a little more capital build to go before it would make sense just as we prepare for both opportunities and challenges over the next year, year and a half. I think we're on good pace to exceed our expectations in terms of capital build for the year with a good strong start, but I think we still have a ways to go before it, so a realistic lever to pull. Now of course, things could worsen and maybe the opportunity becomes greater, and we always need to be open to analyzing the business case for different capital allocation decisions. But for now, wouldn't expect that we're quite where we want to be from a capital build standpoint.

Speaker 3

Yeah, I mean, we've started to do the work on that, but to Jude's point, I think we're not quite there from a capital standpoint. But if it presents 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 5

Makes sense. Thanks for taking all my questions. I'll step back.

Speaker 2

Thanks, Mark. Thank you.

Operator

Thank you. Our next question comes from the line of Freddy from Hovde Group. Your line is open.

Speaker 6

Good afternoon, Hey,

Speaker 2

Freddie.

Speaker 7

Just to ask you, is

Speaker 6

there any areas in the loan portfolio that you're taking a little closer look at, maybe deemphasizing new growth just in terms of loan or collateral type with a thought to just future credit expectations or even rate?

Speaker 2

Yeah, don't know if there's a particular area that we're looking to down scope significantly. We have been working in particular the past couple years on making sure that our C and D exposure was back within bounds that we felt comfortable with going forward. Although we have a good track record of return on the C and D portfolio, we were about one hundred and twenty percent eighteen months ago ish, and down in the 70s now, which we probably continue we'll probably want to continue down trending a little bit, but certainly not with the same kind of urgency that we displayed over the past eighteen months. So we have a more diversified portfolio than we've ever had really, and that's type of loans and geography. And we like that and want to continue to pick up opportunities where we can find them.

Speaker 2

So I wouldn't say there's a particular area that we're anxious to downshift in, but we want to continue to stay balanced and continue to look for opportunities where we find them and get better at what we're doing. Have a pretty high relative to a lot of community banks, we have greater exposure in the C and I world, which is I think a positive overall, given the more relationship orientation that C and I loans tend to bring with them, but that also implies those smaller average exposures and assumes more execution demand, not only for underwriting, but for performing over time with the C and I. So we'll continue to make sure we're building our systems internally to continue

Speaker 8

to

Speaker 2

be able to hold them. I think our opportunity is more around getting better at it than moving away from it, given all the investments that we've made over the past decade to move in that direction. We spent the first half of our career, at least from a perception standpoint, being overexposed to energy. We're down below 2% now, and it's really a non factor there in terms of being overly concentrated, which means that it's another area that we can just take it on a case by case basis. When we say energy, we still don't mean production based loans, we're not doing reserve based loans or exploration, we're doing C and I loans typically for mom and pops in our local communities.

Speaker 2

We're proud of the vast improvement we've made, we were at a high of twenty percent six, seven years ago, and to be a little less than 2% really gives us more flexibility on that front to serve our better clients in better ways.

Speaker 6

Appreciate that, Gene. And just one more from me. Just I know you have a relatively new acquisition to digest here. But as we think out longer term, are there any markets in Louisiana you're not in that you'd want to be in longer term? Or would you consider looking to the East at some point, either through a team lift out or acquisition, or is it just Louisiana and Texas for the foreseeable future?

Speaker 2

Over time, we'll be open to the idea of team lift outs, for now we think we have plenty of opportunity to chase in Louisiana and Texas. And we are already in the largest markets in Louisiana. Not to say that there aren't a couple or handful of markets that we would like to be in, Anywhere in Louisiana would be a bit of a fill in for us, which means a lower risk opportunity, and so we would be open to that if it's the right team or the right M and A partner. But almost anywhere in Louisiana, again, either fill in or building on our existing leadership structure. Texas obviously is more open, primarily in Dallas and Houston, and all those being equal, the chances are we're going to continue to fill in our current footprint.

Speaker 2

With that said, we have been successful recruiting some folks from larger banks, and those folks know folks, And if there are opportunities to do team lift outs from time to time, we'll look at those. But number one priority right now is growing within our current footprint.

Operator

Understood. That makes sense.

Speaker 6

Thanks for taking my questions. I'll step back.

Speaker 2

Thanks, Peter.

Operator

Thank you. Our next question comes from the line of Christopher Marinac from Janney or Jenny, I'm sorry. The line is open.

Speaker 9

Thanks very much. Wanted to drill down on Dallas Fort Worth market and Jude or others. What's the opportunity to grow organically their deposits? I feel like you're 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 that's a market that will sort of get tighter in terms of your loan and deposit relationship.

Speaker 2

That's certainly the intent. We have 11 branches now between our organically developed ones and the Oakwood acquisition. Do in September, we'll do the conversion, and I think that makes it more likely that we'll be able to put an increased sales focus on the deposit growth in Dallas at that point. I think more, I think getting through our own internal conversion and then the Oakwood conversion is probably a couple steps that we need to enact successfully to really position us to grow the deposit base there. But we have enough of a franchise critical mass in Dallas now that I would expect that over the next couple of years we would seek to narrow that gap.

Speaker 2

But I would point out the gap really isn't that bad. We've been able to grow organically there. We have focused more on our commercial clients there as opposed to retail. And so we have a higher percentage of non interest bearing accounts in Dallas than we do in other markets. And so from a 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 dynamics.

Speaker 2

So we would seek to continue that. 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 urban markets and the more rural markets that we can have each of the kind of two halves of our franchise support each other. And so it's certainly not the end of the world for deposit base to come primarily from some of the slower growth markets. Our biggest deposit contributor over the past couple of years has been our Southwest Louisiana market, which has just been stellar in terms of its deposit growth. That really has helped fund that gap, maybe all of that gap in Dallas.

Speaker 2

I think our multiple working in concert is really the goal. With that said, yes, I do think we have the opportunity now that we have a more built out branch network to drive more deposit growth in Dallas. We're really at a point in Dallas where I don't anticipate needing to add a significant number of additional branches. We have an office in Westlake now that is open, an LPO, and so over time I'm sure we'll make that into a full service branch. But there are really only a couple of other spots in the market that we need to be in to feel like we have it covered.

Speaker 2

And so most of our infrastructure investment, I think, has been made. And now it's more a matter of making sure that we're just working the production lines to be successful be successful in a more of an organic value adding way.

Speaker 9

Got it. That's great. Thank you for that background. And then just, I guess, a point that Greg made about new loan growth earlier in the call. Is the high 7s a good number to use for both C and I and CRE?

Speaker 9

Or are there some nuances there when you kind of look at the type of loan production?

Speaker 3

Yes. I think probably the reality is with C and I, we'd be closer to seven, CRE is going to be higher, up in the higher sevens, just based on the structures we're putting together. Most of the C and I stuff tends to be variable price and CRE has a little bit longer duration. So that's the

Speaker 2

way you can think about it. Yeah, one of opportunities as Jerry speaks about often, in fact, want to mention it, we have room in our balance sheet now to do CRE and C and D even, but we want to be sure that we're getting paid appropriately for locking up those dollars. I don't know if you want

Speaker 7

mention I was Was going to mention that. It's nice to see some really good work going on within the teams to differentiate between the types of clients that we've got so that we maybe earn a little higher yield on the commercial real estate, but not on our occupied stuff and be able to compete even harder for really high quality C and I. So we felt like it was important to put some you've seen over the last couple of years, we've invested in certain technologies and we're trying to put tools in our bankers' hands so they know how to compete hard for the best clients out there and get paid inside that commercial real estate industry where we think there's some yield to

Speaker 2

be gathered. So looking forward to that. And part of our algorithm for pricing now, with some of the investments, some of the IT investments that we've made with the C and I, we've always known theoretically that the C and I brings with it deposit opportunities, which allow you to be a little more aggressive on the loan yields because of the overall relationship profitability, and now we're able to actually see that real time, and that's helping us price rationally based on the overall relationship, and not just the type of loan in isolation.

Speaker 7

Right, yeah, it's good context around each of those decisions.

Speaker 9

Yep, understood, great. Thank you both, I appreciate that, that's great background.

Operator

Thank you. Our next question comes from the line of Manuel Labas from D. A. Davidson. The line is open.

Speaker 8

Hey, good afternoon. On your NIM expectations of kind of like a grind higher, can you talk about its sensitivity to if we have a rate cut, a spaced out rate cut, just kind of your thoughts on NIM reaction to a rate cut?

Speaker 3

Manuel, thanks for the question. I think we think about 25 basis rate cut downward, we would most likely pick up a basis point or two on top of that already expected low single digits improvement.

Speaker 8

Okay, that's helpful. And you talked about the March deposit costs hitting a little bit below current levels and the average level for the margin analysis. And there being kind of not too much more deposit cost cuts to come. Is that the right way to think about it without rate I

Speaker 3

think that's right. What we're seeing not only with the success we've had moving the pricing of the portfolio since the November, December cuts is just the 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 we think it's going to be pretty tough from here on out in the current rate environment.

Speaker 1

Maybe just a little bit of context there. I think that Greg mentioned the total deposit total weighted average deposit cost for just March was $2.66 That compares to the full quarter of 2.69%. And then on the interest, just isolated interest bearing weighted average deposit cost for March '1 versus full quarter of threethirty '5 percent.

Speaker 8

Okay. That's helpful. Is that even impacting CD renewals? Are some of those strong offers on CD renewals? Or is that still an area that you're repricing down?

Speaker 3

No. Well, I think there's a little bit of both. So there's pull through repricing on the CD book, which we've been at about an 83% success rate on that CD repricing. But you do have to deal with the one off competitive pricing. So we've seen some four sixty's out there

Speaker 2

in that

Speaker 3

city. It's out there and it's real.

Speaker 8

Okay. over to kind of loan growth, I understand the pipelines are really strong. Is there and you're still shooting for that kind of low single digits to mid single digits quarterly pace. How is that being impacted by sentiment and kind of where could you hit the high end of that pace? And what would it take?

Speaker 8

Is it something that could drive to the low end of that pace? Just kind of thoughts on the upside risk and the downside risk.

Speaker 3

Well, think for us the reality is we typically in Q2 and Q3 see that as we have historically those have been our higher growth quarters. So I would think if there's a likelihood of being on the upper side, it would be there in those quarters and then down, the likelihood would be down in the fourth quarter to the lower end of that single digits, which landing probably because of the first part of the year was flat more in the mid to low single digits annualized for '25.

Speaker 2

I think also I would just add, those are kind of internal patterns of development as a bank, but you've also got a lot of exogenous stuff happening in the environment and that may end up being an even bigger determinant of whether we're at the low end or high end of whatever range you might want to put on there. Think as far as where we end up with tariffs, we'll probably end up in a fine spot, but I think the pace at which we get to the end will matter. And the longer we have uncertainty, think potentially a couple more quarters worth you end up at the lower ends of the range if we're being realistic. But I think if we can get some certainty and some clarification on where we go from here, I think there is still a lot of potential momentum in the economy and then our particularly in our markets and could end up being a banner year if we can just get back to business.

Speaker 3

I'd also mention that a way to control growth is our correspondent division. We had good luck selling loans and with

Speaker 2

the pay down of the more neutral growth for us, there's

Speaker 3

a pent up demand for selling loans as well. So that's an option we always want

Speaker 7

to consider, is good looks when we get them. Yes. I'll add one more thing from sensitivity to your question earlier, what would be kind of what might move a little bit. But one nice thing about our pipeline is it's a pretty good balance on the C and I and commercial real estate. So the C and I tends to have some fluctuating loan balances on lines of credit, etcetera, based on the needs of that client.

Speaker 7

So I'd say that's one of the things we'll be watching is utilization on these new clients that are really great wins for us. But we're going to have to get used to some of their patterns on their direct borrowing.

Speaker 3

They're good to watch.

Speaker 8

That's really helpful. It seemed that in some of the discussion we've been talking about the loan yields have stayed pretty steady. So the competition on the loan side, on the pricing side hasn't gotten as irrational as a couple offers on deposit side.

Speaker 7

I think that's fair. I mean that's a fair way to describe it. Deposits, competition remains really heightened. I think everyone's in the Mueller boat therefore that on credit side we're not being pushed as much. Would say we see a little bit of downward pressure.

Speaker 7

That's why we've talked earlier about making sure we're really getting an appropriate return on anything we're doing because the very top clients probably are pushing a little more than we have been.

Speaker 3

Yeah, like how you phrased it as irrational. We are definitely seeing someone else and just trying

Speaker 7

to be disciplined with that.

Speaker 8

Okay. I appreciate this. Thanks for the commentary.

Speaker 3

Thanks, Benoit. Sure.

Operator

You. Now our next question comes back from the line of Matt Olney from Stephens. Your line is open.

Speaker 4

Yes. Hi, guys. Just a few follow ups here. On the credit front, those two nonaccruals that you mentioned, I think, around $8,000,000 I think you mentioned you've got that specific reserve on them. Just any more color on these loans, kind of what drove the downgrade?

Speaker 4

Any color on the collateral? And how quickly do you suspect the CLC resolution on these two credits?

Speaker 3

Yeah. Well, one of them is a SBA loan that is fully reserved for our exposure. And that one, because it's SBA, could potentially be a longer unwind for resolution on that one. The other one is a C and I loan that the collateral is receivables. So we're currently in the process of evaluating that position, not only internally, but also with an external firm that we've hired to do some evaluation.

Speaker 3

And that one, the resolution is going to take a little bit to play out on it as the customer seems to be willing to work with us right now. So we'll hope for the best on that one.

Speaker 4

Okay. Appreciate that, Greg. And then just lastly, on the M and A front, I know, Jude, you made some brief commentary earlier, but just would love some more general M and A commentary. I would assume the more recent M and A conversations have slowed, but from where you sit, Jude, what are your current expectations for industry consolidation within your footprint?

Speaker 2

Sure, yeah, I think certainly within the past month, I think the situation has changed enough that there's some pausing of conversations and just a little wait and see in my comments about the range of loan growth being impacted by certainty around tariffs and things happening in the economy, I think apply to obviously apply to the stock market as well. And one of the primary drivers of M and A activity is where stock prices are. Until we get a little certainty there and a little forward momentum, think we're probably a little bit slowed. I think the overall demographic circumstances that we've been describing for the past couple of years are only either staying the same or accelerating in terms of CEOs getting older and finding different cost pressures to be not abating over time. I don't always see, even with the change in regulatory structure, don't see a lot of the costs going away in the near term, and I don't see people getting younger.

Speaker 2

I think there will continue to be opportunities. We're in a good position right now because we've got a good track record of partnering, and I think we've developed a pretty good brand for being a good partner through acquisitions, but we also are at a point at which we don't have to do an acquisition, and I think that's a good spot to be, so we'll be prepared as the opportunities come up, and certainly we'll continue to talk to good people that we want to partner with, we also have tried to build this in such a way that we don't have to do anything, and if it takes a little while longer for things to speed up, that's okay too. I do think all the rationale that was in place to lead to increased M and A over the next year or two years are generally still in place, and there's just a little bit of hey, let's just wait and see how this shakes out the next few months. As

Speaker 3

far

Speaker 2

as our ability to do another acquisition, I certainly think from an operational standpoint we are capable and could be prepared to do it at the right the right partner presents itself. Yeah. Okay. All right, Jude.

Speaker 4

That makes sense. Thanks for your time. Appreciate it.

Speaker 2

All right. Thank you.

Operator

You. 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 2

Yeah, just a couple of clarifications. I know Matt wants to clarify something for Michael Rose's question, believe, and I want to just add on to Madeline, your question, I said this earlier, but I want to kind of reiterate it from an M and A perspective. I do think for us, most likely our M and A course is staying within our current footprint and making sure we continue to build depth in our markets. There's plenty of opportunity in Louisiana and Texas. Not to say that one day about in the future we might go east, but it's not a priority at this time.

Speaker 2

And we've built a footprint that we think we can grow. And so I just want to be I haven't always been clear about that, and so I want to be clear about that today. Then I think, Matt, you had something you want to add to

Speaker 1

Michael's? Yeah, Michael. So we pulled the organic loan growth figures, kind of comparable figures for that organic deposit figure that we gave earlier. So excluding Oakwood acquired loans, organic loans from ninethirty of 'twenty four through threethirty one of 'twenty five would have been $62,000,000 net. That would have been 2.4% annualized.

Speaker 1

So that's kind of the comparable figures just on the deposit on the loan side.

Speaker 2

Okay, good. Well, thanks, Matt. And with that, I'll wrap this up. I just appreciate everybody's time and appreciate our team's efforts to start the year off right, and proud of our results, and look forward to seeing how we navigate the rest of the year. Every year thus far in my career has been hard to predict, other than we know that it will be something, and I feel like we're in as good a shape as we've ever been in terms of tackling whatever those some things are, and that's a good place to be.

Speaker 2

So appreciate your attention, and good luck to everybody else and the analysts for finishing up your calls over the rest of the earnings season.

Operator

Ladies and gentlemen, that concludes today's call. Thank you all for joining. You may now disconnect.

Powered by Quartr
Earnings Conference Call
Business First Bancshares Q1 2025
00:00 / 00:00