Release Date: July 25, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Business First Bancshares Inc (BFST, Financial) reported a healthy rebound in net interest margins.
- The company saw an appropriate amount of loan growth and an improvement in the composition of its deposit base.
- Capital levels increased relative to intangible book value, and asset quality remained consistent.
- The acquisition of Dallas-based Oakwood Bank is on track for completion in the fourth quarter, with positive expectations for integration.
- Core earnings benefited from about $1.7 million in loan discount accretion, exceeding market expectations.
Negative Points
- The $1.9 million gain from the sale of a USDA-guaranteed loan is not expected to be a regular occurrence.
- Non-interest expense increased by $900,000 or 2.1% from the prior quarter, driven by broader wage pressures.
- The company anticipates continued wage pressures, which may drive future increases in non-interest expenses.
- The special mention percentage in the CRE portfolio increased significantly from 2.4% to 7.5%, indicating potential risk.
- The company's assets under management (AUM) in SSW have been trending down, primarily due to clients restructuring their securities portfolios.
Q & A Highlights
Q: Could you provide more details around deposit costs and pricing pressure within your core markets?
A: Gregory Robertson, CFO: The deposit cost is really a two-fold answer for us. Success in the money market space has seen weighted average rates for new balances come down slightly over time. Additionally, the consistent gathering of non-interest bearing deposits has shown slight growth, which is a significant component of funding costs.
Q: Can you provide an update on the pending acquisition of Oakwood and its expected impact?
A: Jude Melville, CEO: Oakwood's results are similar to ours, showing improvement in many of the same ways. We are on pace for a fourth-quarter legal close, with integration from a computer system standpoint expected next year. Their financial performance remains on track with our initial forecast.
Q: What are your expectations for loan growth, particularly in the C&I and construction sectors?
A: Jude Melville, CEO: We have been transitioning our balance sheet to reduce concentration in construction and CRE while increasing C&I lending. This is a long-term strategy, and we expect to continue this mix shift, aiming for mid-to-high single-digit loan growth overall.
Q: How do you view the trajectory of loan sales and the impact of the Waterstone acquisition?
A: Jude Melville, CEO: The Waterstone partnership is just getting started, with significant traction in internal SBA generation. We expect incremental growth in loan sales, with more meaningful contributions by next year.
Q: Can you explain the recent trends in SSW's assets under management (AUM) and client base?
A: Jude Melville, CEO: SSW's AUM has trended down due to the fixed income nature of their business and the impact of AOCI on bank investment portfolios. However, the number of bank clients has remained stable, indicating that the business is still strong despite smaller client portfolios.
Q: What is your near-term outlook for net interest margin (NIM), considering loan discount accretion?
A: Gregory Robertson, CFO: We expect low to mid-single-digit basis point improvement in core NIM over the next few quarters, with loan yields remaining strong. The GAAP NIM will also see similar directional improvement, with loan discount accretion stabilizing around $700,000 per quarter.
Q: How do you see the potential impact of rate cuts on your NIM and loan growth?
A: Jude Melville, CEO: Our pipeline remains healthy, and we expect increased demand if rates go down. However, our growth pace will be guided by internal decisioning around capital allocation. We aim to grow within our retained earnings, focusing on serving the best relationships.
Q: Can you discuss the drivers behind the increase in CRE special mention loans?
A: Gregory Robertson, CFO: The increase is due to some credits experiencing cash flow issues in the current rate environment and our efforts to re-risk rate loans for more granularity. Despite this, we feel good about the overall portfolio quality.
Q: What are your expectations for non-interest expense growth in the coming quarters?
A: Gregory Robertson, CFO: We expect non-interest expense to grow by 2% to 3% over the next few quarters, driven by continued investment in personnel and seasonal bonus-related expenses. We aim to end the year with non-interest expense around $175 million.
Q: How are you managing the opportunity to reduce liability costs in a potential rate cut scenario?
A: Gregory Robertson, CFO: We have about $1 billion in money market accounts that we can control pricing on. Additionally, we have $66 million in brokered deposits and $450 million in customer CDs maturing this year, providing opportunities to improve funding costs in a rate cut environment.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
