Business First Bancshares Inc (BFST) 2025 Q1 法說會逐字稿

Hello, and thank you for standing by i would like to welcome everyone to B1 Bank Business First Bank shares Q1 2025 earnings conference call. I would now like to turn the call over to Matt Sealy, a senior Vice President, director of corporate strategy, and FPNA. Mr. Sealy, the floor is yours.

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 harbour statements regarding. Forward-looking statements and the use of non-gap financial measures. For those of you joining by phone, please note the side 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. All comments made during today's call are subject to the Safe Harbor statements in our slide presentation and Earnie's release.

I'm joined this afternoon by Business First Bank Chairman and CEO Jude Melville, Chief Financial Officer Gregory Robertson, Chief Banking Officer Philip Jordan, and President of B1 Bank Jerry Vascocu. After the presentation, we'll be happy to address any questions you may have. And with that, I'll turn the call over to you Jude.

Great, thanks, Matt and good afternoon, everybody and thank you for spending the time with us today. We know you have choices to make, and we appreciate you 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 cantered around striving for continual incremental improvement, and we were able to demonstrate that concept and action on a number of fronts. Profitability continues to be consistent with core ROAA core 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 quarter, while overall cost of funding continued its downward trend, leading to core net interest margin expansion of eight basis points for the length 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 bill 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 the efficiency ratios continuing to move in the right direction, a trend we expect to continue. Non-interest revenue is contributing meaningfully to bottom line profitability with another quarter of strong swap fees and SBA loan gains on sales as we can, as well as contributions from various SBIC investments, being the main drivers of continued growth and aggregate non-interest 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. As a part of that ongoing process, on April fourth, we closed the sale of our cap Louisiana branch, which included the sale of approximately $51 million 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 CNI 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.

The balance sheet contracted during the quarter with loans effectively flat on a quarter basis, while deposits decreased $53 million. 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 paydowns and payoffs were materially higher during quat 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 2025 and Q4 2024 on a combined basis, total organic deposits excluding oak wood would have increased $144 million or 5.1% annualized from September 30th of 2024.

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 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 of our industry and the challenges our industry and country have faced but have continued to grow and strengthen our franchise throughout these challenging times. We enter 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 and with that, I'll turn it over to Gray.

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 we'll discuss our updated outlook before we open up to Q&A.

first quarter GAAP net income and EPS available to common shareholders was $19.2 million and $0.65 included $155,000 gain on former bank premises, $630,000 gain on extinguishing of the sub debt. And a $679,000 acquisition related expense. And also, a 216,000-core conversion related expense, excluding these non-core items, non-gap core net income, and EPS available to common shareholders was $19.3 million and $0.65. From our perspective, first quarter results were highlighted by good expense management, strong fee income, and solid margin expansion. Total loans held for investment remain relatively flat on a quarter basis, down just $480,000 as pay downs and payoffs were elevated during the first quarter. Specifically, total scheduled and non-scheduled payoffs, paydowns totalled 500, approximately $500 million which matched total new and renewed loan production of $500 million as well during the quarter. Real estate construction loans decreased $36.8 million from the late quarter compared to an increase of $49.8 million from the Link quarter in real estate residential loans, largely due to conversion of multi-family construction to permanent financing. Based on unpaid principal balances, Texas-based loans remain flat at approximately 41% of the overall loan portfolio as of March 31st.

Total deposits decreased $53.2 million mostly due to net decreases in non-interest-bearing deposits of $48.7 million on a late 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 fourth quarter, we did manage to generate approximately $380 million from new deposit account relationships. I also think that it's worth noting that the decline in deposits during the 4th quarter was not completely unexpected. Recall the prior quarter benefited from seasonally strong deposit inflows, which we did expect would roll out to the, to some extent during the 1st quarter.

Lastly, on the topic of deposits on April 4, 2025, as you mentioned, we completed the sale of a South Louisiana branch to a local community bank. Total branch deposits, loans, and fixed assets, net of depreciation of 51.2 million $2.3 million and $1.4 million respectively and were included within the consolidated balance sheet as of March 31st. The negotiated deposit premium of 8% was recognized in conjunction with the closing of the transaction on April 4th. We also managed to modestly deliver the balance sheet during quarter one by repaying approximately $39 million of short-term FHLB advances and $7 million of subordinated debt.

Lastly, I'd also like to call out our link quarter increase in contingent liquidity of approximately $600 million. Our GAAP reported first quarter net interest margin expanded 7 basis points from the late quarter from 361 to 3.68%, while non-gap core net interest margin, excluding purchase accounting accretion increased 8 basis points during the quarter from 356 to 364.Both GAAP and core margin for the first quarter continued to expand due to improved funding costs and discipline pricing on new loan production, which you mentioned previously. I think it's worth noting that our total down cycle to date interest bearing deposit data 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'll be affected by our ability to retain and attract lower cost funding and 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 costs declined 18 basis points from the late 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, notably, the weighted average total cost of deposits for the first quarter was 2.69%, down 12 basis points from the late 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 bait is achievable. I would also like to point out that Overall core CD balance retention rate was 83% during March. That impressive statistic reflects our team's continuing focus on maintaining and retaining core deposit relationships. As you also see on slide 22, we have approximately $2.7 billion in floating rate loans at approximately 7.67% weighted average but also have approximately $570 million in fixed rate loans maturing over the next 12 months at a weighted average of 6.26%, which we would expect to reprice in the mid to high 7% range. Last thing I want to add is our expectations for long discount accretion to average approximately 750,000 to 800,000 per quarter going forward.

Moving on to the income statement, GAAP non-interest expense was $50.6 million and included $679,000 of acquisition related expense and $216,000 in conversion related expense. Core non-interest expense for the quarter of $49.7 million in 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 the upcoming quarters, mostly due to the full quarter impact of our Q1 salary increase, as well as continued investments in IT and infrastructure. We think 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 given the late 2025 conversion of oakwood, we don't expect to have any material cost savings on that transaction till later in the year.

The first quarter GAAP in in core non-interest income was $13.2 million and $12.4 million respectively. GAAP results did include a $155,000 gain on a former bank premises sale and $630,000 gain on an extinguishment of sub debt mentioned previously. Non-interest 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 and 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 you'd mentioned earlier. During the first quarter, NPAs increased 27 basis points from 0.42% in Q4 to 0.69% in Q1, with the increase drive, driven by two CNI relationships totalling $8.4 million. Annualized net charge offs decrease 0.04 basis points from 11 basis points in Q4 to 7 basis points in Q1. 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 and the other credit is about 25% reserved. We believe these were isolated issues and do not expect any of any broad-based decline and further credit quality across the portfolio.

With that concludes my prepared marks and I'll hand the call back over to Jude for anything you'd like to add before opening up to Q&A.

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

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And our first question comes from the line Matthew Olney from Stephens Inc. The line's open.

Hey, thanks. Good afternoon. I, I'll start on the loan side. I think the loan balances you mentioned, were flat because 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. So, we just love to hear your thoughts on, internal expectations for loan growth for, two in the back half of the year.

Hey Matt, thanks for calling in. Thanks for the question. Yeah, I think for going forward we expect long growth. We're happy with the pipeline we expect to continue our low to mid-single digit, forecast, quarter over quarter, you know that'll, probably put us somewhere in the lower single digits by year end because of the flat first quarter, but we feel good about the pipeline and still. Contain, continue our strategy of growing within our retained earnings.

Okay, appreciate that, Greg and then on the on the core margins on 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 that could progress throughout the year.

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 8 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.

And just to clarify, Greg, that low single digit's margin expansion that was kind of a quarterly assumption over the next few quarters is that fair?

Yes, that's correct, man.

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

Yes, I think what's reasonable to expect is that it'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 then, 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.

I feel really good about the muscles that we've been developing on this front over the past year in particular, we did. We 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 talk the same language and point in the right direction, but the direction, the directional improvement over the past five quarters has been pretty significant and then, not only quantitative but qualitatively we're just our bankers are much more comfortable talking about the product and navigating the systems in the in the in the right ways. 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. I would say the same is true on the swath income. fourth quarter was outperformance there, and first quarter was probably more typical. 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.

Yes, well, definitely a nice start to the year, I'll step back thank you guys.

Thanks Matt.

Thank you.

Our next question comes from the line of Michael Rose from Raymond James. The line's open.

Hey good afternoon, guys how are you?

Very good, Michael.

Good, thanks for taking my questions. So, I think if I heard you right, the branch sale, I think you came with about $51 million 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 versus core I think you did that for loans if you set it for deposits. I missed it and maybe you know some of the expectations as we think about the next couple quarters, for deposit growth. Thanks.

Yes, Michael, we'll give us a second to pull the actual organic. So what we were referencing what Jude mentioned in his comments was what the 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 a 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. 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 trail in 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 trail in two quarters.

I think the other part of your question, Michael, was about the cap and sale and just to clarify that that was done at the beginning of April, so that would not have been reflected in the deposit movement in the first quarter we were just kind of previewing that movement, which will help, which 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 the local community bank. That we were proud to be able to help them and did so at a at a good deposit premium, so it's really a win-win but that was for the second quarter, not for the first quarter.

Got it. Okay.

Sorry if I missed that.

No, you, you're fine because if you, so if you think about second quarter, that's $50 million 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.

Got it. Very helpful. Maybe just separately on slide 31, just to, some of the commercial real estate stuff. It looks like the special mention category is increased, fairly meaningfully. I would assume some of that is related to the deal maybe, but just any colour there and you know what you're seeing. Thanks.

Yes, that's a great question. The credits that I mentioned are CNR credits, they're not commercial real estate, but it's a good question and it allowed me to put some context around this. The watch list and the special the special mention. If you think about, as a percentage of free loans, commercial real estate loans, the watch list is only about 6% of all pre 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. So that would be an example of that.

Perfect, and maybe just finally for me, nice move and 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, 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 leading the buybacks at this point. Thanks.

Yes, I don't, 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 and a half, and 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. Realistic lever to pool. Now, of course, things could worsen and maybe the opportunity becomes greater, and we always need to be open to analysing the business case for different capital allocation decisions. But for now, I wouldn't expect that we're quite where we want to be from a capital build standpoint.

Yes, i mean, we started to do the work on that. That's a huge point. I think we're not quite there from a capital standpoint, but. If it presents an opportunity in the dilution and the earn back makes sense, we'll have the analytics done and be ready to move with it.

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

Thank you.

Thank you. Our next question comes from the line of Feddie Strickland from Hovde Group. The line's open.

Hey, good afternoon, guys. Just to ask you, is 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?

Yes, I 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 of years on making sure that that our CND exposure was back within bounds that we felt comfortable with going forward. We were, although we have a good track record of return of on the CND portfolio, we were. About 120% 18 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 it's certainly not with the same kind of urgency that we that we displayed over the past 18 months. So we have a more diversified portfolio than we've ever had really and that's the type of phones and geography.

And we like that and want to continue to pick up opportunities where we can find them. 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, part of, we have a pretty high relative to a lot of community banks we have. Greater exposure in the CNI world, which is, I think, a positive overall given the more relationship orientation that CNI loans tend to bring them, but that also implies the smaller average exposures and provide and assumes more execution demand.

Not only for underwriting but for performing over time with CNI, 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 than moving away from it, given all the investments that we've made over the past decade to move in that direction.

We also, we spent the first half of our career, at least perception from a perception standpoint being overexposed to energy, and 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 CNI loans for typically for mom and pops and in our local communities and I'm excited about the We're proud of the vast improvement we've made. We were at a high of 20%, 67 years ago, and to be a little bit less than 2%, really gives us more flexibility on that front to serve our better clients, in better ways.

Appreciate that too 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 want to be in longer term, or would you consider looking to the east at some point, either through a team left out or acquisition or is it just Louisiana and Texas for the foreseeable future?

Over time, we'll be open to the idea of team lift outs, but 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 that there aren't a couple or a 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 was the right team or the right M&A partner, but almost anywhere in Louisiana again would be either fill in or building on our existing leadership structure and, Texas obviously is more open. We're in, we're primarily in Dallas and in Houston and all of us being equal, the chances are we're going to continue to fill in our current footprint. But that said, we have been successful recruiting some folks from larger banks and those folks know books 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.

Understood. That makes sense. Thanks for taking my questions. I'll step back.

Thanks.

Thank you.

Our next question comes from the line of Christopher [Mach] from Jenny.

Or Jenny, I'm sorry, the line's open.

Thanks very much. I wanted to drill down on Dallas Fort Worth Market, in June 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 you know if that's a market that will sort of get tighter in terms of your loan and deposit relationship.

Oh, that's certainly the intent, we have 11 branches now between our organically developed ones and the oak wood acquisition. We haven't, we'll do in September, we'll do the conversion, and I think that's 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. So, I think more, I think getting through our own internal conversion and then the Oakwood conversion is probably a.

A couple of steps that we need to enact successfully or 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 GAAP and, but I would point out the GAAP 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 and then we do in other markets. And so, from a quality of or 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 dynamics, 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 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 South-Southwest Louisiana, market, which has just been stellar in terms of its deposit growth, and that really has helped fund that GAAP and maybe all of that GAAP in Dallas, and I think those, I think our multiple markets 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 do to drive more deposit growth in Dallas and we're really at a point in Dallas where I don't anticipate needing to add a significant number of additional branches, we have a an office in Westlake now that is opened 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. 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 and be successful in a more of an organic value adding way.

Got it. That's great. Thank you for that 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 CNI and CRE, or there are some nuances there when your kind of, look at the type of loan production?

Yes, I think the probably the reality is with CNI, to be closer to seven. CRE is going to be higher up in the higher seven, just based on the structures we're putting together, most of the CNI stuff tends to be, variable price, and, the CRE has a little bit longer duration so that that's the way you think about it.

Yes, one of our, one of our opportunities as Jerry speaks about often, in fact if you want to mention it, I mean, we do, we have room in our balance sheet now to do CRE, and CND even, but we want to be sure that we're, getting paid appropriately for locking up the, those dollars. So, if you want to.

I was, I thank you, Julie. I 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 can, maybe earn a little higher yield on the commercial real estate, the nonowner occupied stuff. And be able to compete even harder for really high quality CNI. So we felt like it was important to put some, you, 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 be gathered.

To that, yeah, and part of our algorithm for pricing now, some of the investments and some of the IT investments that we've made. With the CNI, it's always, we've always known theoretically that the CNI brings with the deposit opportunities which allow you to be a little more aggressive on the loan yields because of the overall relationship profitability. 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 not just the type of loan in isolation. Yeah, it's.

Good context around each of those decisions.

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

Thank you.

Our next question comes from the line of Manuel Navas from DA Davidson.

The lines open.

Hey, good afternoon. On your, name 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. Then reaction to a rate cut.

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

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

I think that's right, we're what we're seeing not only with the success we've had moving the pricing of the portfolio since the November December cuts it's just the liquidity in the space from a competitive standpoint. It looks like we're starting to see a few more offers. 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.

Ma, just a little bit of context there. I think that Greg mentioned the total deposit, total weighted average deposit cost for just March was 266 that compares to the full quarter of 269. And then on the interest, but just isolated interest bearing weighted average deposit cost for March 331 versus full quarter of 335.

Okay, that, that's helpful. Yeah, are, is that even impacting like CD renewals? Are some of those strong offers on CD renewals or is that, that's still an area that you're repricing down?

No, well, I think there's a little bit of both, so there's, pull through free pricing 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 comp competitive pricing, so we've seen some 4 60s out there in that city, so it's out there and it's real.

Okay. .

Switching over to kind of low growth, I understand the pipelines are really strong. I 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 to, is the sentiment and I could drive to the low end of that pace? Just kind of thoughts on the upside risk and the downside risk.

Well, I think the, for us, the reality is we typically in Q2 and Q3, see that is it we 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 4th quarter to the lower end of that single digit, which landing probably because of the first part of the year was flat, more, in the mid to low single digits annualized for 25.

I think also I just said, you've got 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 you know that may end up being an even bigger determinant of whether we're at a low end or a high end of whatever range you might want to might want to put on there, I 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, I think, potentially a couple more quarters where 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, then I think there is still a lot of potential momentum in the economy and particularly in our markets and could end up being a banner year if we can just get back to business.

I'd also mention that a way to control growth is our correspondent division. We’ve had good luck selling loans and with. With pay down is more neutral growth for us, there's a demand for selling loans as well. So that's an option we always want to consider with good looks when we get them.

Yeah, I'll add one more thing from a sensitivity to your question earlier, what would be kind of what might move a little bit. But one nice thing about our pipeline is that there's a pretty good balance on the CNI in commercial real estate. So, the CNI tends to have some fluctuating loan balances on lines of credit, etc. 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 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 so we're good to watch.

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

I think that's fair. I mean, that's a fair way to describe it, deposits. The competition remains really heightened and i think everyone's in the boat, therefore that on the credit side, we're not being pushed as much. It's, we, I would say we see a little bit of downward pressure, that's why we've, we 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. Yeah.

I like how you phrased it as irrational we are definitely seeing someone else and just trying to be disciplined.

Okay, I appreciate this. Thanks for the commentary.

Thanks very much.

Thank you. Now our next question comes back from the line of Matthew Olney from Stephens.

The line is open.

Yeah, hey guys, just a few follow ups here on the credit front, those two non-accruals that you mentioned, I think totalling around $8 million I think you mentioned you've got that specific reserve on them. Just any more colour on these loans kind of what drove the downgrade, any colour on the collateral and how quickly do you do you suspect to see you'll see resolution on these two credits?

Yeah, well, one of them is a is a SBA loan that is fully reserved for our exposure and that one because it's SBH could potentially be a longer unwind from for resolution on that one. the other one is a CNI loan that the collaterals receivables, so we're currently in the process of evaluating, that position not only internally but also with the external firm that we've hired to do some evaluation. 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.

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

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 and my comments about the range of loan growth being impacted by certainty around tariffs and things happening in the economy, I think apply to apply to the stock market as well, and one of the primary drivers of M&A activity is where stock prices are, right? So, we get a little certainty there and a little forward momentum. I 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 A CEOs getting older and finding different cost pressures to be, not abating over time and I don't always, even with the change in regulatory structure, I don't see a lot of the costs going away in the near term, and I don't see people getting younger, so I think there'll continue to be opportunities and, 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 and. 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, but we also have tried to build this in such a way that that we didn't, don't have to do anything and if it takes a little while longer for things to speed up, that's okay too, but. I do think all the rationale that was in place to lead to increased M&A over the next year, two years are generally still in place and there's just a little bit of hey, let's just wait and see what how this shakes out the next few months. We, as far as our ability to do another acquisition, I certainly think from an operational standpoint we are capable and, I could be prepared to do it at the right partner presents itself.

Yeah, okay, alright, Jude, that makes sense, thanks for your time appreciate it.

Alright, thank you.

Thank you. Seeing as there are no more questions in the queue, that includes our question and answer session. I will now turn the call back over to Mr. Melville for closing remarks.

Yeah, just a couple of clarifications. I know Matt wants to clarify something for, Michael Rose's question, I believe, and I want to just add on to, Matt only your question. I said this earlier, but I want to kind of reiterate it, from an M&A perspective. I do think for us, most likely our M&A course is staying within our current footprint and making sure that we continue to build depth in our markets and plenty of opportunity in Louisiana and Texas and not to say that one day in the future we might go east, but it's not a priority at this time, and we built, we've built a footprint that we think we can grow and so I just want to want to be, I'm not, I haven't always been clear about that, and so I want to be clear about that today. And then I think I think Matt, you had something you want to add to.

Yes, 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 930 of 24 through 331 of 25 would have been $62 million net. That would have been 2.4% annualized. So that's kind of the comparable figures just on the deposit on the loan side.

Okay, good. Well, thanks, Matt 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 there 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 things are and that's a good place to be. So I appreciate your attention and good luck to everybody else and the analysts for finishing up your calls over the rest of the season.

Ladies and gentlemen, that includes today's call. Thank you all for joining.