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spk06: Thank you for standing by and welcome to the Business First Bank Shares Q3 2022 earnings call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you'd like to ask a question during this time, simply press star followed by the number one on your telephone keypad. If you'd like to withdraw your question, again, press the star one. Thank you. It is now my pleasure to turn the conference over to Matthew Seeley. SVP, Director of Corporate Strategy, and FP&A. Mr. Seeley, please go ahead.
spk08: Thank you, Jack, and thank you all for joining. Yesterday afternoon, we issued our third quarter 2022 earnings press release, a copy of which is available on our website, along with the slide presentation that we will refer to during today's call. Please refer to slide three of our presentation, which includes our safe harbor statements regarding forward-looking statements and needs of non-gas financial measures. Those of you joining by phone, please note the slide presentation is available on our website at www.v1bank.com. Please also note our Safe Harbor statements are available on page 8 of our earnings press release that we have filed with the SEC yesterday. 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 Bank Chair's President and CEO, Jude Melville, and Chief Financial Officer, Greg Robertson. After the presentation, we'll be happy to address any questions you may have. I'll now call, turn the call over to you. Okay, thanks, Matt, and welcome everybody.
spk10: Excited to be here for our first public call. We're also joined by Phillip Jordan, who is our Chief Banking Officer. I'll give you a quick overview. Some of you may not be that familiar with our story. We'll go into a Q&A session and look forward to that. B1 Bank, a 16-year-old bank in Louisiana. headquartered in Louisiana, but also a presence in Texas. We're focused on small businesses as our primary clientele. We're the number one bank headquartered in Louisiana as measured by Louisiana deposits. We have about a third of our assets in Dallas and Houston. We also have about $6 billion under management and an RIA called SSW. A couple years ago, we started on a five-year plan, our most recent five-year plan, and had three major components. One is growth. We were about $3.7 billion, and at the end of the five years, we wanted to be about $7.5 billion. The second component of the five-year plan was asset diversity. So we were a little under 10% outside of the state of Louisiana, and by the end of the five-year plan, we wanted to be about 50%. And then finally, earnings. We were under one ROA at the end of the five years. We want to be at 1.25 as an ongoing run rate for ROA. And it's reported that we're ahead of schedule on all three legs of our five-year plan. Growth-wise, we finished the quarter at about 5.8 billion in assets. From a diversity standpoint, we're up to about 34% of our assets in Texas. And the earnings standpoint, we're at a 115 ROA, so pleased with the progress. Specifically, the third quarter really highlighted payoff in the number of investments that we've made over the past few years, including M&A and de novo and organic growth. We finished the third quarter with record profit. It's also our seventh quarter in a row with over 20% annualized growth for loans. And we're actually at 30% for the second quarter in a row on loan growth. About 60% of that loan growth is in the Dallas and Houston areas. Most importantly, we also finished the quarter with solid asset quality. What I'm really excited about is that these investments are beginning to pay off, but we feel like you're still lots of capacity to continue on the journey that we embarked upon a couple years ago. And part of that is that we've hired about 25 anchors over the past six quarters and believe that although their production has certainly kicked in, they'll have room to go there. And even outside the production officers, we've been able to add quite a bit of talent to our staff and excited about the people portion of our of our list of assets and proud to announce that this year we again won Banker Magazine, American Banker Magazine, one of the best places to work for our institution. So excited about that. I'm not going to go into great detail in the intro call or the intro portion of the call, partly because with our capital raise a couple weeks ago, we had a chance to talk to many of you and put our information out there. So I really would be open to turning it over now to Q&A for anybody that has any questions.
spk06: At this time, if you'd like to ask a question, please press star 1 on your telephone keypad. We'll pause for a moment to compile the Q&A roster. Again, that is star 1 on your telephone keypad. Matt Olney with Stevens, your line is open.
spk04: Hey, guys, how are you?
spk02: Good, Matt. Good, Matt. Thanks for calling in.
spk04: Yeah, well, thanks for doing this public call. I think this will serve us all well. I appreciate that. Jude, you mentioned the success you've had on the new hires. Recently, I think you quoted 25 bankers over the last six quarters. and we're now seeing this payoff of the last few quarters in terms of revenue. I'm curious, where are we in this recruiting cycle, and are you continuing to recruit at the same level at this point? In other words, could we see another 25 bankers over the next six quarters, or could this pace slow from what we've seen more recently? Thanks.
spk10: Good question. We don't expect to see the same level of recruitment over the next six quarters. Where we've hired two bankers this past quarter and I think two or three bankers a quarter is probably a good run rate for us over the over the next year and a half or so we feel like we want to let our Men and women that we hired Have little room to work and and I want to make sure we're also not getting ahead of ourselves in terms of operational capabilities and and of course with With a certain measure of uncertainty in the air for next year, I want to make sure that we're growing prudently. So we'll continue to add when we find good teammates, but not at the pace at which we've gone over the past year and a half or so.
spk04: And then just following up on that, Jude, thinking about geography, I think over the last two years it's been mostly DFW and New Orleans. should we expect a similar type of geographic mix the next two years?
spk02: For hiring, you mean?
spk04: Yes, yes.
spk10: Yeah, I don't, you know, my assumption is it would probably be more Dallas and Houston, but we certainly will fill in when we have good bankers in our Louisiana footprint as well. Our New Orleans footprint was about a third of the hiring that we did over the past year and a half, so we feel really good about that. quality of the team there, and most likely will continue to add bankers in the Dallas and Houston areas. As you know, we consummated our M&A of Texas citizens earlier this year, and then we converted over the summer, and we're very pleased with their growth in the third quarter. They added about $40 million in loans, which exceeded our expectations, and As we get more established there and our brand becomes more well-known, we think we'll have other opportunities to add some bankers there.
spk04: Okay. Thanks for that. And then I guess on the expense side, we've seen expenses ramp over the last few quarters. You mentioned the Texas Citizens Deal. That's now in numbers and some of the new bankers. Any guideposts you'd point us towards for the fourth quarter or as we look towards 2023 for operating expenses?
spk09: Yeah, I'll let Greg weigh in on that. Hey, Matt. Thanks. Good question. We think the $37 million quarterly run rate is a pretty good rate, but now we think going forward in Q4 that it'll probably be about $1,250,000 higher than just for some seasonal expenses, true-ups and accruals and that sort of thing. But the $37 million point from there on out seems to be a good run rate.
spk04: Okay. Thanks for that, Greg. And then I guess the last topic I want to dig in on is going to be on deposit betas. I think you guys reported deposit beta, interest-bearing deposit beta. I'm getting maybe the mid-30s in the third quarter. I think most your peers are talking about increasing or higher deposit betas as you move into the fourth quarter just from increased competition. I'm curious what the expectations are from you guys as far as deposit betas from here. Thanks.
spk09: Good question, Matt. One of the things before we talk about the betas I think that we're kind of proud of is we started out the year at about 31% non-interest barrier. and we're almost 36% at the end of the quarter. So when you apply that to the overall beta, it makes that closer to 20. And so we do think it's going to trend higher, probably to 30 all in as we move forward, maybe slightly higher than that.
spk02: Okay. Thanks, guys, for your help. Thank you. Thank you.
spk06: Freddie Strickland with Jamie. Your line is open.
spk02: Hey, good afternoon, everybody. Hey, Freddie.
spk05: Just looking at slide nine on the footprint of the deck, it looks like you've been able to raise even more deposits than loans in Houston. Does the contribution on the deposit side start to rise in Dallas over time to something similar to Houston? Or is the strategy in Dallas more to deploy the deposits from some of the Louisiana regions, just given the competition in that market?
spk10: I'd say it's a mixture of both. I mean, certainly part of our game plan is to take full advantage of the diversified footprint that we have. And we wouldn't have been able to grow to where we are loan-wise in Dallas without the contribution of some of our more established deposit-rich areas. including southwest Louisiana and the Bayou region. So we certainly want to continue to focus on growing deposits in Louisiana and put them to work wherever that makes sense. But I also would say that our Dallas footprint is maturing and we would expect that they would contribute to that effort as well. We just opened our fourth spot there and so we thought we have a pretty good established foothold. I will say that I'm very pleased with our deposit mix that we have grown in Dallas. Of the 270-ish million that we've got, a good 60% is non-interest-bearing. So while they're not self-funding, they're certainly making a contribution. And that kind of speaks to the business orientation in the larger markets and our focus on our treasury personnel as well as as well as lenders. So I would say that I'm pleased with the deposit growth in the Dallas area, but certainly we hope to not only continue, but as we get increasingly established there, be able to diversify that mix of deposits in Dallas.
spk02: Got it. That's helpful.
spk05: Just one more for me. I was wondering if you could just talk a little bit more about SSW, what kind of opportunity you see to grow that business, and if you could remind us how it interplays with the core bank.
spk02: Sure. So what page is that, Greg?
spk10: That's on page 11. Page 11 of the ZEC gives an overview of SSW. So a couple of things. One is that we have been very successful growing it since they joined our team up by about 70%. in asset center management, and that's after taking into account the drop in the market. So they have grown nicely since they became part of the team, so the synergy seems to be working well. Now, the bulk of that, as you know, is made up of clients of other financial institutions. So I think we have a couple of opportunities. One is we've been working on developing a network of financial institutions that we serve not only through SSW, but also through our FIG group, our core bank FIG group who sells loan participations and gathers deposits for us from other financial institutions. And there are about 300 million in each of those categories. And so SSW provides an additional network for us to tap into. And that works both ways. to use our FIG group to recommend financial institutions to SSW. So we certainly hope to continue to grow that as a source of deposits and a source of risk mitigation with our loan exposure. The other opportunity that we have with SSW is to grow the retail presence. Because we've been so busy there growing the financial institutions group, we really haven't tapped into yet the ability to use that RIA capability across our footprint with our other clients and their businesses and their executive team. So the next two, three, four years, I think we'll see a more balanced mix between the retail and the financial institution group. And the retail business is higher margin. So we'll look forward to being able to work that into our earnings. Still early in the game, just a year and a half in, but very excited about SSW's ability to contribute not only to non-interest income on the bank side, but also continue to grow that network of banks for up to about 100 banks that we serve in some way, whether that be through advising them on their investment portfolios or through loans or through deposits.
spk02: We also...
spk10: Earlier this year, we did a preferred equity raise, and as you know, we were able to do that in-house, and about half of the participants actually came from our bank network. So there are some other kind of ancillary benefits that we've enjoyed through the affiliation.
spk02: Got it. That's very helpful. Thanks so much, and I'll step back in the queue.
spk06: Kevin Fitzsimmons with DA Davidson. Your line is open.
spk03: Hey, good afternoon, everyone.
spk02: Hey, Kevin. Hey, Kevin.
spk01: Just wondering, with the substantial loan growth we saw pretty quickly, we got the loaner deposit ratio up to almost 97%. Just wondering, and that's got two components, obviously, with loans. I would assume, Jude, that we're not going to be at a 30% clip, um, sustainably, um, going forward. And, and then it's probably a struggle just, you know, industry wide to keep deposits able, but, uh, just wondering how you're looking at that ratio, what you think is normalized, where you want to see it go. Thanks.
spk10: Sure. I'll start. I'll let, I'll let Greg give some, some detail, but, uh, I think you're right that it's unrealistic to assume that we would continue to grow at 30% annual loss. We're looking at more kind of 15-ish, kind of mid-teens growth for the rest of the year and then probably into 2023, which ought to give us a little better shot at catching up with deposit growth. We are kind of seasonal when it comes to our deposit base, so the fourth and first quarters tend to be our best deposit gathering quarters so we're optimistic about that from end of the year impact to our loan to deposit ratio and we've actually already started the quarter off positively and been able to pay down some of the borrowings and switching to deposits so we're pleased with the growth we think we can be kind of in the high single digits for growth on the deposit side this quarter and beginning of next year so still a little bit of gap to make up but we also have have relatively low exposure to wholesale deposits at this point, which we can use to help us fill in the gaps while we continue to work on our deposit gathering capability. I will say that we've been pleased overall with the growth in non-interest bearing deposits from our banking centers and from our commercial clients. And some of that's obscured by the fact that we've had such strong long growth. But we've also put more of an emphasis over the past couple months in particular on revamping some of our deposit incentive programs and just kind of tenor of our production conversations that we're having. So we have a history of achieving what we set out to achieve. a little more focus on that side of the balance sheet. I feel confident that that will be successful. In terms of your specific question, I think the low 90s, you know, 91, 92, it's probably more where we want to work on a regular basis. Greg, do you want to add detail to that?
spk09: Yeah, Kevin, it looks like, like Judith mentioned, for Q4, we're looking at about 15% annualized, which would be $570 million, it seems. through this part of the quarter. We're right on pace for that. And also on the deposit front, we're seeing some early signs in the quarter. We're having some successes with the deposit gathering so far. So I think, like Duke said, high single-digit deposit growth in the fourth quarter. And then, of course, our municipalities should come in in the fourth quarter, first part of the first quarter. somewhere in the $200 to $250 million range. And then we will also have a large part of our act look in the fourth quarter that pays down about $80 million that should turn to cash and down balance sheet for a while. So between the revamping of the incentive plan and those seasonal things, we think we'll have some liquidity options going forward.
spk03: Okay, great. Thank you.
spk01: Just wondering, you know, on the margin front, if you could help us how to think of the trajectory going forward, any help you could provide if you happen to have handy, maybe the September margin or a range you might expect for fourth quarter. I think a lot of banks are talking about there being additional expansion, but not at the pace being in third quarter and then kind of plateauing at some point in 2023 in the first half and fighting to keep it stable thereafter. Just any kind of color outlook on that front. Thanks.
spk09: Yes. Good question, Kevin. We, as you remember from our release, we had about five basis points influenced our margin a quarter in from the non-approval that we collected first part of the quarter. So the margin in the fourth quarter, we expect, we closed out the quarter with a weighted average yield on new loans at about 610. So we think that that's going to improve somewhere around 50 to 60 basis points in the fourth quarter, which with our seasonality in the deposit front, which a lot of those municipals that will start coming in will be interest-bearing along with the the five basis points that we're not going to get. That was a one-time. So we should be hold steady on the margins, slightly decline in the fourth quarter. And then looking out from there in 2023, we should start to pick up at that six to eight basis points clip per quarter after that.
spk02: And Kevin, to answer your question about the September month ending, It was around a 383 core, and that's based on an actual day count annualization basis.
spk01: Okay, and just that plus six to eight basis points per quarter in 23, is that just more the ongoing repricing of the loan book, but then holding the line on deposit pricing from there? Is that how to look at it?
spk09: Yeah, that's exactly right. We'll continue.
spk02: We'll keep repricing the loan book, and that should be the driver of that.
spk03: Great. Thanks, everyone.
spk06: Thank you. Brett Rabitin with Hubby Group. Your line is open.
spk07: Hey, good afternoon, everyone. Hey, Brett. Good to hear from you. Hey, Brett. Wanted to talk about the loan portfolio from a repricing perspective. And on slide 17, you do a great job as we're laying out the picks versus floating of the portfolio and of the 65% that are fixed rate and you've got 13% of those that mature within the next 12 months, what would be the remainder of that fixed rate portfolio? What would be the duration maybe on that portfolio aside from that 13% and any visibility on when the rest of that fixed rate book reprices?
spk09: Yes, Brett, it's a good question. We have about an average life of our portfolio. It's about 48 months total. So that fixed book is going to track upon that. So we really experience about a quarter of the fixed rate portfolio that reprices every year is what we traditionally see. To give you a little more context, had a quarter-to-date beta on the loan yield of about between 65% and 70%. We think Q4, that's going to be about 75%, and so it should track like that going forward.
spk02: Okay. That's a little shorter duration than maybe I would have thought on that fixed piece.
spk07: Okay. And then wanted to ask, you know, I think relative to some peers, your growth is going to continue to maybe stay at a higher level than some of the industry. And wanted just to hear, you know, do you think half of the growth next year might just, I know you haven't given guidance on that, and maybe this is tough to answer, but when we think about the next year or so, is the growth next year do you think it'll be a majority in Texas? Or can you give us any color on how you think about the loan growth outlook and if Texas kind of drives that more so than Louisiana?
spk10: Yeah, well, we've been the past two or three quarters, we've been at about 65%, 60 to 70, kind of one in the range of the other in terms of loan production in Texas versus Louisiana. Even though we believe that our overall growth rate will... slow to a mid-teen level, I would expect that those percentages would still be about that. So I would assume that 60% to two-thirds of the long-growth would probably continue to come from Houston and Dallas. And I do think it's important to notice not just Texas in general, it's those two primary and major markets. You know, if we are able to add a banker to a quarter and most of those come from those two markets, then certainly possible that that could that could that percentage could go up a little bit. You know, we do think that there is some some disruption out there in the market, not certainly in Houston and Dallas, but but also with the Iberia First Horizon TD bank trade closing. Sounds like sooner rather than later, and that might provide some opportunities for us to pick up a handful of experienced quality commercial bankers in south Louisiana as well. And regardless of the bankers, I think there'll be opportunity for clients in our home market. So I'm not down about the opportunity in Louisiana. But I still think the majority of the growth in the loan book will come from Dallas and Houston. Probably, I think that's two-thirds.
spk02: That's probably a pretty good 60 to 70%. That's probably a pretty good estimate.
spk07: Okay, so that continues. Okay, that's great coverage. And then just lastly for me, just wanted to, you know, you got on slide 23. You still got what I guess I would call the pandemic slide with the industries that, you know, have been somewhat questioned in the past two years, hotels, hospitality, retail. Um, are there any long segments that maybe you're trying to de-emphasize or if you're not interested in growing construction, is there anything that you guys are steering away from this environment?
spk10: Yeah, I wouldn't, you know, we're, we're trying to bank good clients and so, and we're pretty balanced in our exposures and have had a good track record even through the pandemic of not losing a lot of money in those areas. So I don't think there's an area per se that we're, that we're stepping out of. Um, As you know, over the years, we've worked to decrease our percentage exposure of the portfolio in energy. We've continued to add good clients where we've had the opportunity, but we're down to 4.2%. I would expect that that would continue to trend downward over the next couple of years into the 2% to 3% range. Again, not turning down business, But I think the other areas of our portfolio will probably grow faster. I will say for C&D, in the third quarter, even though we had the 30% annualized loan growth, our actual dollars of exposure to C&D actually went down a little bit. And I think that's not going to be an area of growth for us necessarily. I'm not saying it will continue to go down in terms of actual dollars. But if you had to pick another sector that we wanted to maybe have a lower percent of the portfolio as a whole, it would probably be C&D. I will, as always, do point out, though, with the C&D, a lot of that is in Dallas. And we think that even if a recession occurs next year, that the reasons that the market has been strong in Dallas could continue. If you think about the main driver being in migration, we certainly haven't heard of any slowdown in migration rate from our bankers that are on the ground. And I think you could probably make the argument that if the country is in recession, that it might even make Dallas a more attractive place for certain people to be. So we do feel good about where Most of our exposure is either in Dallas or some long, long-time clients in Louisiana as well. So I feel pretty good about the C&D, but we also want to make sure that as we continue to grow, we grow in a balanced way. Greg, do you have anything?
spk02: Or Phil, do you have anything you want to add to that? Nothing. Wilson? Okay, great. That's fantastic. I appreciate that. Good.
spk06: Again, if you'd like to ask a question, please press star 1 on your telephone keypad. We have a follow-up from Matt Olney with Stevens. Your line is open.
spk04: Yeah, thanks for taking the follow-up question. I'd say the only real pushback I heard from investors following the capital raise a few weeks ago was questioning did the bank raise enough capital, especially given the strong loan growth pipelines that you're that you're seeing, so just wanted to give you a chance to respond to that and how did you arrive at how much capital to raise and it seems like you're getting closer to accruing capital. Just curious how close you think you are at this point. Thanks.
spk10: Yeah, thanks. It's a balance when you raise capital, particularly in this environment and at the pricing that the market's currently at, so we wanted to make sure that while we enhanced our capital position, we didn't do so in a way that was detrimental to the current shareholders. So we felt like if you, given the $50 million that we raised, added to the $72 million that we raised to the preferred equity about a month before that, that we felt like increasing our capital base by roughly 30% made sense for us. If you take the additional capital and you take our projected earnings over the next couple years, we feel like it gets us through our five-year plan. And, you know, barring some outsized opportunity or M&A opportunity, at which point we'll just have to assess at that time. But we do feel like we are on the verge of being able to create capital with our increased earnings and our slightly slower growth rate next year. I think in the second quarter right now, we have models that began in creating capital. So Bob wrote his plan, and I feel like that's an appropriate amount of capital for us to raise at the time, given where the market is.
spk02: Yep. Yeah, Matt, and one other thing that I'll add to that.
spk08: When we raised the preferred last quarter, We did not push 20 million of that down to the bank. So when you look at the discrepancy between bank level capital and holdco consolidated capital I think it's important to remember that we kind of left some dry powder at the holdco to service those holdco obligations over the next six to 12 months or so. So it's just something to keep in mind as you think about our capital position going forward.
spk02: Yep. OK. Thanks guys. All right, thank you.
spk06: I'll now turn the call back over to the management team for final remarks.
spk10: Okay, well, we appreciate your attention and interest, and I'm certainly happy to answer follow-up questions down the road if you'll want to contact us directly. And since Matt brought up capital rates, I do want to be sure to thank everyone on the line that participated in that, either through their roles as analysts or investment bankers or as equity investors. Look forward to giving you a good return on it and excited about what the next few quarters will bring.
spk02: Thank you all and have a good afternoon.
spk06: This concludes today's conference call. We thank you for your participation. You may now disconnect.
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