Business First Bancshares, Inc. (NASDAQ:BFST) has reported its first-quarter earnings for 2024, noting a challenging profitability landscape with core return on average assets (ROAA) at 0.77%, core return on average equity (ROAE) at 8.9%, and core earnings per share (EPS) at $0.50.
Despite the lower profitability due to margin pressure and expense timing, the company has indicated positive growth in loans and deposits, particularly in commercial and industrial (C&I) relationships and Texas operations.
The acquisition of Waterstone and the announcement of acquiring Oakwood Bank in Dallas were significant strategic moves for the company, aimed at enhancing non-interest income and overall profitability.
Key Takeaways
- Business First Bancshares reported a core ROAA of 0.77%, core ROAE of 8.9%, and core EPS of $0.50 for Q1 2024.
- Lower profitability was attributed to margin pressure and expense timing.
- Loans and deposits experienced growth, notably in C&I relationships and Texas.
- The company completed the acquisition of Waterstone and announced the acquisition of Oakwood Bank.
- A modest revenue increase of 2% to 2.5%, 3% each quarter is expected for the remainder of the year.
Company Outlook
- Business First Bancshares anticipates improvements in profitability throughout the year.
- The company's strategy includes increasing non-interest income and pursuing accretive growth.
Bearish Highlights
- First-quarter profitability was impacted by margin pressure and the timing of expenses.
- Non-performing loans saw a slight uptick, although no loss given default exposure was reported.
Bullish Highlights
- Strong growth in the C&I and residential real estate loan portfolios.
- Deposit production exceeded expectations, with a significant increase in total deposits.
- The Louisiana franchise is expected to contribute positively to the funding basis and potentially increase the margin.
Misses
- Core profitability metrics fell short of more robust figures, reflecting the current margin pressures.
Q&A Highlights
- The company discussed the importance of cultural alignment and shared vision for the success of the Oakwood Bank acquisition.
- Business First Bancshares is focused on retaining talent and integrating the cultures of merged entities.
- The goal is to reach a net interest margin (NIM) of 350 basis points (excluding accretion) by the middle of the next year.
- In a "higher for longer, one or two cuts" environment, the margin is expected to increase by 10 to 20 basis points by year's end.
Business First Bancshares has expressed confidence in its ability to navigate the current economic environment and improve its financial performance. The acquisitions of Waterstone and Oakwood Bank are central to the company's strategy for growth and increased profitability.
With a modest increase in revenue expected and a focus on cultural integration and talent retention, the company is positioning itself for a stronger performance in the upcoming quarters. The management team concluded the earnings call with a positive outlook, emphasizing their commitment to producing returns and welcoming the new members and shareholders from Oakwood Bank into their corporate family.
InvestingPro Insights
Business First Bancshares, Inc. (BFST) continues to navigate a complex financial landscape, as reflected in their first-quarter earnings for 2024. To provide a deeper understanding of the company's financial health and future prospects, here are some insights based on real-time data from InvestingPro and InvestingPro Tips:
InvestingPro Data highlights that BFST has a market capitalization of $523.47 million, with a P/E ratio standing at 7.95, which is slightly above the adjusted P/E ratio for the last twelve months as of Q1 2024 at 8.06.
The company's revenue growth over the last twelve months was 7.76%, indicating a steady increase in income. However, the dividend yield as of the beginning of 2024 was 2.71%, which, coupled with a consistent history of dividend growth, may appeal to income-focused investors.
An InvestingPro Tip worth noting is that BFST has raised its dividend for six consecutive years, suggesting a commitment to returning value to shareholders. This is especially relevant for investors looking for steady income streams in their portfolio. Moreover, despite analysts predicting the company will be profitable this year, there are concerns as three analysts have revised their earnings downwards for the upcoming period, which could impact investor expectations.
For investors seeking more comprehensive analysis and additional InvestingPro Tips, there are currently six more tips available on the InvestingPro platform for BFST at https://www.investing.com/pro/BFST. These tips provide valuable insights into the company's financial performance and future outlook.
To access these insights and more, readers can use the coupon code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription, adding further value to their investment research process.
Full transcript - Business First Bancshares Inc (BFST) Q1 2024:
Operator: Thank you for standing by. My name is Mandeep, and I'll be your conference operator today. At this time, I would like to welcome everyone to the Business First Bancshares Q1 2024 Earnings Call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there'll be a question-and-answer session. [Operator Instructions]. Thank you. I will now turn the conference over to Matt Sealey, SVP, Director of Corporate Strategy and FP&A. You may begin.
Matthew Sealy: Thank you. Good afternoon, everyone, and thank you all for joining. Earlier today, we issued our first quarter 2024 earnings press release, a copy of which is available on our website along with the slide presentation that we will reference to on today's call. Please refer to Slide three of our presentation, which includes the safe harbor statements regarding forward-looking statements and the use of non-GAAP financial measures. For 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 at the SEC today. 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’s President and CEO, Jude Melville, Chief Financial Officer, Greg Robertson; Chief Banking Officer, Philip Jordan; and Chief Administrative Officer, 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.
Jude Melville: Great, thanks Matt, and thanks everyone for making us a priority this afternoon. We know you have a lot on your plate. We appreciate your interest. We have a lot to discuss today and want to leave time for questions, so I'll jump right in. To begin, we were disappointed by the headline profitability for the quarter. First quarter of the year tends to be our softest, but it was a little softer than normal this year because of greater than anticipated margin pressure and some expense timing. Core ROAA is 0.77%. Core ROAE is 8.9%, and core EPS is $0.50. Greg will provide more detailed specifics. The big picture I would say there wasn't one single quarter moving event that occurred. It was more an accumulation of small impacts. We've been fortunate in that many quarters a number of small things have added up to outperformance. Sometimes the opposite occurs, and that was the case here. We've already taken a number of steps to remedy these relatively small things and anticipate a relative flattening of both margin and expenses over the remainder of the year, leading to improved profitability, which remains a priority. Margin movement in particular was positive in March, which leads us to believe some of these adjustments are working. Again, I'll ask Greg to get into further detail in a bit, but first I will take a moment to survey a few of the things that I consider most important about the quarter, not all of which will be reflected in the short-term results. First, the significant part of the margin miss was due to outside success and raising liquidity. As you know, we've been working in particular over the past seven or eight quarters to transition from a company whose priority was loan growth to one that is more balanced and robust than its production expectations. We grew loans by approximately 8% annualized, a healthy rate of growth, and that growth was led by C&I relationships and growth in relationships in Texas. By comparison, we grew deposits by an annualized rate of 24%. The positive sign that the work we've undertaken to shift our purchases is undoubtedly taking hold. While we grew M&A accounts significantly, we also stemmed the tide for the first time in seven quarters of outflow of non-interest bearing accounts, remaining essentially flat, and experiencing an uptick the last half of the quarter. Funded accounts show compositions of the deposit base, and we're pleased with improvement in the mix of funding sources. In present circumstances, if we're going to miss, my preference is to miss by gathering too much liquidity rather than too little, particularly given some of the opportunities we have on the horizon to continue putting those funds to work, and the fact that these deposits are relational. We conducted successful funding campaigns over the quarter, but the upside surprise is primarily the result of increases within existing accounts as we continue to grow with our clients. Second, another of our priorities in coming years and quarters is to increase non-interest income. This quarter, we were able to consummate the acquisition of Waterstone, a loan service provider of SBA products. This partnership gives us more internal capability for generation of SBA opportunities, who are already beginning to see an uptick in the pipeline for SBA eligible credits. Waterstone also serves other banks, and we look forward to incorporating their work into our nascent correspondent banking function, along with investment portfolio management, loan participation in deposit collections, and an internal swap desk. We shifted some management positions around to be certain we're given the opportunity proper attention, and look forward to seeing this portion of our revenue stream grow over the coming quarters. The acquisition had an unprojected impact this quarter on tangible capital and earnings, and we're excited about that investment. Finally, we're pleased to announce the acquisition of Oakwood Bank in Dallas, Texas. There's an in-market transaction of approximately $830 million in assets, and a similar culture and client focus. We believe the partnership to be a very logical next step in the continued development of our now meaningful presence in the North Texas market, bringing our total credit exposure in Texas to 44% of our loan book, and 31% of our deposit base. More important than the immediate impact, we believe the positions as well for accelerated future growth in one of America's strongest markets, both through physical presence, and through the addition of substantial talent, bolstering our commercial banking leadership in the market. This acquisition fits in squarely with the longer-term plans we've discussed with you on previous calls. Efficiency through scale, risk mitigation through diversity of the portfolio, and increased profitability through accretive growth. I'm honored that the Oakwood team would agree to partner with us and would note the terms of the deal, leave our teams and our shareholders in linked arm alignment as we work together to continue development of our potential-filled franchise. It was a meaningful and positive quarter for B1 Bank, and I thank our team for all the effort they went into it. With that, I'll turn it over to Greg for further details for our Q&A period.
Greg Robertson: Thank you, Jude, and good afternoon, everyone. I'll spend just a few minutes reviewing our Q1 highlights, including some of the balance sheet and income statement trends, and we'll also discuss our updated thoughts on the current outlook. On slide 17 of our investor presentation, the first quarter GAAP net income and EPS available to common shareholders was $12.2 million and $0.48 per share, and included $715,000 of pre-tax acquisition-related expense and $50,000 of pre-tax gain on a former bank premises and equipment. Excluding these non-core items, non-GAAP core net income and EPS available to common shareholders was $12.8 million and $0.50 per share. As Jude mentioned, these results were softer than anticipated due to continued margin pressures and an elevated non-interest expense. I'll start on the margin, as there are several items to unpack here. Our reported core net interest margin of 3.27% was down 11 basis points from the linked quarter, primarily due to three factors. Strong deposit production within our money market deposit product, which weighed on the margin from both a volume and a rate perspective. As we have mentioned in the past, we have been working to establish the balance sheet in a more great neutral position by attracting a high volume of non-maturity deposit accounts. Our goal has been to work the loan to deposit ratio closer to the low to mid 90% range, but admittedly we did not anticipate getting there as quickly as we did. The combination of higher volume and the current market rate environment weighed on the NIM. First quarter total core loan yields continued to increase on a linked quarter basis. Results were driven by Q1, new and renewed loan yields of 8.50%, which fell short of our expectations at about 8.65%. We also benefited from a large municipality credit during the quarter, which came with a tax component and a $26 million in low cost deposits. The headline rate was about 7% on the relationship, which we were comfortable with, given the deposit side of the relationship that did pressure overall Q1 loan yields. I'd like to point out some trends that throughout the first quarter on the margin that should be helpful in understanding where we've been and where we think we're going. Our core net interest margin was down the first two months of the quarter by 14 basis points. Then in March, we actually picked up three basis points to end the quarter down 11. This was partially due to the fact that the overall total new deposit costs have been declining each month since December, which appears to have had more of an impact in the later part of the first quarter. We also benefited late in the quarter from an inflow of non-interest bearing deposit relationships, the quarterly impact of which was more muted during the quarter. Dovetailing off this last point, I think it's important that early in the first quarter, we experienced impactful outflows of non-interest bearing funding starting off like that, behind the curve was a challenge from a margin perspective. That said, we certainly are encouraged to see some solid traction in lower cost and non-interest bearing account wins during the first part of the second quarter. We are pleased with the early Q2 relationship gathering efforts that continue on the funding side and we continue to see upside to the overall funding base and composition in the near term. The intermediate long-term, we aim to operate around a 350 or 350 basis point core NIM, which we view as realistic and sustainable in a higher for longer rate environment. Moving to the income statement, non-interest expense was elevated during the first quarter due to the Waterstone acquisition, which contributed to about $500,000 in additional expense during the first quarter. Additionally, we had a million dollars of incremental bonus related items during the quarter. And I would say, it was more related to the ending point of the fourth quarter being down and the first quarter being up to more normalized levels. We also had a few IT related expenses in the quarter that we've been mentioning on calls that we have agreed to certain IT enhancements, and we brought those online sooner than anticipated. We view the core non-interest expense figure of $41.8 million as relatively good run rate going forward, and we would expect a modest increase from 2% to 2.5%, 3% each quarter for the remainder of the year. First quarter GAAP non-interest income was about $9.4 million with core non-interest income of $9.3 million, which exclude the small gain on former bank premises and a loss on the sale of security. Well, this is a fairly clean run rate going forward. There were several areas that came in lower than we expected, and therefore anticipate Q2 revenue from our fee income business segments to contribute in a more meaningful way going forward. Now, if I could direct you to slide 19 on our investor presentation, pass-through loans did increase during the first quarter primarily due to one credit. That credit was about a $10 million exposure that we seem to today have resolved, so that would push those pass-through loans back to a more normalized $10 million a quarter in removal of that credit. Non-performing loans did tick up slightly, and they were really attributable to two loans that we have. Both of those relationships were reviewed, and we don't see any loss given default exposure in those relationships. The overall credit book remains, still remains very stable, with no outlier, with no movement, systemic movements other than those two outlier credit instances that I gave. Moving on to the balance sheet, total loan sale for investment increased to $96.1 million, or 7.7% annualized during the quarter. Loan growth was largely attributable to the net growth in the C&I portfolio of $68 million, and then the residential real estate portfolio of $34.6 million somewhat offset by a $7.8 million reduction in the C&D portfolio. Proud of our team's continued focus on the drive and production through the key commercial relationship wins. DFW region accounted for 44% of the net loan growth for the quarter, while our Southwest Louisiana region produced about 29% of that loan growth, and Capital region produced 14% of the loan growth in Q1. Texas-based loans, as Jude mentioned earlier, represent approximately 37% of our balance sheet today of the overall portfolios at the end of the quarter. Deposit production exceeded our expectations during the first quarter, with total deposits increasing $324 million from the prior quarter, representing almost 25% annualized loan growth of deposit growth. Non-interest-bearing deposits remained relatively stable both in terms of balances and in percentage of total deposits. We're pleased with the composition of our non-interest-bearing deposits and have held us at 23.2%, which compares to the prior quarter of 24.8%, and our prior outlook to hold in a low 20% range, while still early in the second quarter we encouraged by the level of core low-cost deposit gathering we've experienced in the first month of the quarter. Overall, we remain highly encouraged and optimistic in the prospects ahead. That concludes my prepared remarks. I'll hand it back over to Jude to wrap up.
Jude Melville: Good. Well, thanks, Greg. I think with that, we'll just jump to Q&A. We have a lot of movement in the quarter, and of course, we just announced the acquisition. I know people maybe haven't had time yet to digest it, but I look forward to answering any questions on that front as well.
Operator: Thank you. We will now begin the question and answer session. [Operator Instructions] And our first question comes from Matthew Olney with Stephens. Please go ahead.
Matthew Olney: Hey, guys. Good afternoon.
Jude Melville: Hey, Matt.
Greg Robertson: Hey, Matt.
Matthew Olney: Start on the margin. It sounds like the margin this quarter was pretty volatile. Greg, I think you mentioned the first two months it was down and it stabilized in March. Can you provide what that March margin was? And do you think that's a good starting point for the second quarter? Any other considerations we should have more near-term on the margin?
Greg Robertson: Yes, I think -- let me go into a little detail about how we kind of arrived there, and then I'll follow up with the answer to your question ultimately. What we experienced, I noted this a little bit in the comments. We experienced the outflow of non-interest bearing in the beginning of the quarter, about $50 million, and that's what impacted the averages for the quarter, for the margin. During the remainder of the quarter, we were very successful in gathering non-interest bearing to almost bring that %50 million back to zero. So, showing the non-interest bearing piece of that being flat was in our eyes a really big deal and a win for us. And Jude mentioned the types of accounts we're gathering or relationship accounts, so to get that money market that we were offering with a certain rate, you have to have an operational non-interest bearing account that went with it, so I think that's important. The second thing, from a deposit standpoint, our average deposit rate for those money markets in December for the new dollars coming in the door were about 5.17, and in March, they were 4.24. So, moving those rates down on the new dollars coming in the door, we had shown some signs of that as well as to continue to gather the non-interest bearing, I think really weighed on what we feel like the margin was three basis points up in March to end up where we were 14 down through February, three basis points up through March, only being 11 down, ending at 3.27.
Matthew Olney: Okay. That's helpful, Greg. And then I guess along with that, you mentioned the liquidity build in the first quarter was more than you expected. Curious what the expectations are from here, from the liquidity aspect, whether that's a loan-to-deposit ratio or however you think about that?
Greg Robertson: Yes, I would expect -- our expectations are to continue with that high single-digit loan growth, you know, 6% to 8%, and to be able to fund that through deposit growth. Now, we don't expect to have 24% annualized deposit growth going forward. We do want to hold loan-to-deposit ratio in that 93-ish range for the balance of the year.
Matthew Olney: Okay, got it. That's helpful, Greg. And then, I guess switching over to expenses, I think the messaging was the core $41.8 million number in 1Q is a good kind of launching point. I think you said sequentially from here, 2% to 3% increase each quarter. Did I capture that right? I think for the year that gets me set up between 172 and 174, if I heard that correctly?
Greg Robertson: That's about right. Yes, we think that is -- you are right.
Matthew Olney: Okay. And then, just lastly for me on the acquisition, congratulations on the deal. I know you guys have been in Dallas for a number of years. We just appreciate any kind of comparison as far as the customer base. How does the customer base in Dallas for Oakwood compare to business-first customer base, any kind of overlap at all, and just in general, any kind of comparison? Thanks.
Greg Robertson: Yes. I think one of the attractions of the deal was the similarity of the following efforts and of the client makeup. We do have a handful of shared clients already, but for the most part, they're not their clients, but they are shared client types. A lot of the production staff for Oakwood came from regional or sorry, larger banks and they tend to do deals similar in style and form to us. I think we'll have the opportunity with the expanded balance sheet to help them do more of what they do and don't anticipate a lot of culture shock when it comes to the production side of the house. I'm excited about them fitting in there. They also, with their production staff coming from larger banks, we also look forward to benefiting from the leadership and depth that they can help us provide to that of our current bankers. So we're excited. I think it's a really good fit in terms of client base and in terms of bankers.
Jude Melville: Hey, Matt, circling back to your question on the expense base, I want to make sure I heard you right. What you were implying, I think I heard a low 160, 162, 160, or do you say 170?
Matthew Olney: I thought it was 172 to 174. I thought is what I heard.
Greg Robertson: Yes. Yes, I thought I heard you say 170 or 162, 163.
Jude Melville: So Matt, we do think that from integration standpoint that this is right down our alley and there'll be a lot of good cultural overlap. As you mentioned, we've been in the market for a while. We have about $1.8-ish billion, $1.9 billion in loans outstanding, and so we feel like we had a really good perspective through the due diligence process. And I'll like Greg talk a little bit about the diligence efforts and the all-encompassing nature of that process.
Greg Robertson: Yes, Matt, we were able to, as an investor deck shows, very, very deep penetration and reviewing their loan book came away with it, feeling very comfortable about not only the quality of the portfolio, but also as Jude mentioned, it feels a lot like a business first early days where there's not a lot of clients, but a really great quality of clients. So came away with feeling really good about not only the level of talent they had, but also the quality of the portfolio and how it would map over to our bank, not only from a credit standpoint, but also from the margin and all of those things that we get to do when we come down.
Jude Melville: I would say in addition to our specific diligence, they just have a good track record of a Roy Sally's [ph] career in particular of being credit focused and really terms of prioritization, I think well aligned there.
Matthew Olney: Okay, guys. Thanks for taking my questions.
Jude Melville: Thanks, Matt.
Operator: Our next question comes from the line of Michael Rose with Raymond James. Please go ahead.
Michael Rose: Hey, good morning afternoon, guys. How are you?
Greg Robertson: Hey, Michael. Thanks for calling in.
Michael Rose: Yes, maybe we could just start on the increase in pass-throughs. If I look at page 28 of the slides, it looks like it was in the all other categories. So just wanted to get some color on the on the increase there, the migration? Thanks.
Jude Melville: All right. Thank you. Yes, Michael, are you there?
Michael Rose: Yes.
Jude Melville: Okay. All right. Yes, as I mentioned on the call, I think the main thing that made pass-throughst go up is we had one commercial real estate loan that had some issues with some guarantors, and we've resolved that loan. So we feel real good about. Other than that, pass-throughs seem to be very normalized. That would have been 10 million in pass-throughs or just slightly less than that for the quarter.
Michael Rose: Okay. Yes. Sorry if I missed that. And then maybe just on the on the deal, I was looking at Oakwood and it looks like they were going to go through an MOE, I think in '22 and broke apart, I think because of CRA issues. Can you address that? And then maybe just holistically, what drove you to this bank out of all the other options in and around the state of Texas? I know you mentioned some of it had to do with looking like business first in the earlier days, all this stuff mentioned in relation to math question, but we just like some color there? Thanks.
Jude Melville: Sure. I think in terms of our ability of the partnership, being an in market transition that we felt like we could understand, certainly was attractive. The size also is kind of the ideal size. It's a size that is meaningful, but not a best of form kind of kind of acquisition, which is in line with our last acquisition a couple years ago in Houston. And then I would also say just we've known the management of the team for a number of years and they still feel very comfortable that they had the right spirit in terms of the partnership. And if you look at the deal, the economics of the deal, we're very well aligned. And it's clearly a situation in which they chose to invest in us and believe in the opportunities of the partnership versus an upfront cash out, which in terms of lining up reasons you do in acquisition, the intent and the value structure of the management and forward is number one that leads to the right culture and we believe they have the right culture. So being an in market deal that we felt was low in terms of integration risk, being the right size, having the right culture. We felt that all fit well, both with our ability to conduct the transaction successfully. And in terms of federation of our strategic plan that we've outlined here on call, but we've had for a number of years a goal to increase to 7.5-ish size, like that's a really good, but kind of sweet spot size wise and this accomplishes that with the consummation of the transaction. We also have had a goal to approach 50% in terms of our credit risk being outside of Louisiana. And so this material moves us in that direction. If you're going to be well, there's much to be desired across Texas. Dallas certainly is I think many people would consider the strongest of the markets in Texas and one of the strongest in the country. So all of us being equal, certainly that was an attractive place for us to make the investment and doing so with the right partnership structure also was a unique opportunity to make this kind of move in the environment which for operating, which stocks across the board are down. I want to address the rationale for the break up of the potential MOE experience. Certainly we weren't a part of that, but CRA is an issue that we want to be sure that we were comfortable with prior to taking regulatory approval. And so we've had the chance as a part of our diligence process to identify and understand the investments that they've made over the past couple years. And they've been significant, including opening branch in southern Dallas. And we feel like they've been doing the right things. And we have strong record as well as CRA success and commitment. And so we feel comfortable that we're together, but they're independently on the right track from a CRA perspective. And together we feel like we'll be a good candidate for approval to the regulatory process.
Michael Rose: Okay, that's great color, Jude. I appreciate it. Maybe just last for me. It looks like the deal is going to close in the fourth quarter. Slide, I guess it's 16, you know, implies some earnings accretion in 2024. So I assume that it would close sometime earlier in the quarter. Is that fair? And then just I guess, separately, this is going to put you kind of closer to, you know, $8.5 billion, and just wanted to see where you were. And what you need to do is you get prepared to cross $10 billion, so this will definitely move you closer. Thanks.
Jude Melville: Sure. Well, I think it puts us closer to 7.5. But nonetheless, the point is the same. And we're certainly cognizant of the investments needed and the challenges that we'll need to prepare to take on as we approach $10 billion, whether you start from 7.5 or 8.5, it's just something we're already working on. You've witnessed a number of hires that we've made over the past couple of years. So I think folks that have had experience going over that $10 billion mark. And, and that's kind of step one. We believe the people and having that experience complement the organic work that we've done over our now 18 year history. We think it's the first step in preparation for that. We've also begun investing heavily and making heavily and making sure that we have the right IT infrastructure in place. So as we detailed a little bit on our last call, that means that has meant that in this year, we wanted to invest in some technology that we think better prepares us on the production side in terms of making sure that we're doing the right things, but also data flow so that we can be prepared to answer the regulatory questions that are involved. So that was in the works already. This acquisition gives us some scale to help frankly to afford some of those investments that we're making. So we're trying to make those investments prior to getting to the $10 billion mark so that we retain optionality when we do get there and then we'll be well prepared for it. So I think this actually helps us prepare and we feel like we're doing the right things to be ready to hit that $10 billion mark without having to stand still for a while as we kind of catch up with ourselves. We're actively aware of that actually and actively investing in being prepared. What was the first part of your question?
Michael Rose: Income accretion?
Jude Melville: Oh, you wanted to speak on that?
Michael Rose: Just to expect to close the deal, I meant to say $7.5 billion. I'm sorry about that. It looks like that you could close earlier in the fourth quarter, just given that you expect some secretion in 2024. Is that fair?
Greg Robertson: Yes, as you know, there's some part of that, it's outside of our control, but having this would be our sixth acquisition as a team. So I feel like we have a pretty good handle on the process and on the logistics part and our hope is that we could in fact close early in the fourth quarter.
Jude Melville: We think so and Michael, in the investor deck kind of lays it out. We expect the call phase to start being integrated probably in the middle half of 2025 post conversion kind of holding to that same timeline. Hopefully it would happen sooner, but that's when we'll start getting the income accretion.
Greg Robertson: From a regulatory perspective, we feel like this is right down the middle of the fairway and you identified the CRA being an issue. That is one that occasionally trips up deals that are even right down the middle of the fairway, but we have a good handle on that and all the other elements of the deal are ones that would lead us to believe that our regulatory partners would feel comfort with the addition.
Michael Rose: Great. Thanks for taking all my questions.
Greg Robertson: Sure. Thank you.
Operator: Our next question comes from a line of Feddie Strickland with Janney. Please go ahead.
Feddie Strickland: Hey, good afternoon, everybody.
Greg Robertson: Hey Feddie.
Feddie Strickland: With this transaction, I think I see in the deck it puts you at 44% pro forma taxes on loans. Do you think given the current trajectory, you could potentially exceed 50% of loans in taxes by mid to late '25, just with this transaction and all the loan growth?
Greg Robertson: Yes, I think that's not an unlikely scenario. This obviously moves the needle in terms of about 50% of the way from where we are today to there and around half of our growth is coming from Texas markets. This partnership with the bankers of Oakwood should give us the ability to increase that number over time. So I don't think it's unrealistic to assume that we would be nearing if not there by the end of next year.
Feddie Strickland: Got you. And then I noticed Oakwood's portfolio is a little heavier on C&I than the legacy of Business First portfolio. I apologize if I missed to be said this earlier, but was that part of the consideration here? Just some more diversification on credit or was it just more having a stronger footprint in Dallas proper?
Greg Robertson: It was a mixture of things, but certainly the makeup of the portfolio and being announced as an exposure to C&I was an attraction to us. If you think about growth in our loan book over the past couple of years, it's been kind of a return to a C&I focus. And we've really pride of our team for decreasing our exposure relative to capital of C&I. It's the area over the past two years pretty substantially in C&I. We've gone from 120-ish percent in May 119 down to 90-ish maybe just below 90%. So we've been able to return to our way of thinking in terms of business banking sector and this partnership celebrate that process. So yes, that was the makeup of their balance sheet, the makeup of their client base, the makeup of the capabilities of their banker teams were being C&I focus to something that is attracted to us.
Feddie Strickland: Understood. One last modeling clarification question. There's been a couple of questions on the margin already here, but Greg, did I hear you correctly that it's a 327 core margin excretion today, but you see that going up to 350? It's not going to go to 350 next quarter, right? Or is that kind of a longer term goal?
Greg Robertson: Yes, that's a longer term operational goal. I think in reality, you know, when you think about this deal and in the context of the deal, then being achieving that goal by the first to the middle part of next year is probably pretty reasonable. I think that, you know, one thing intriguing about the bank is that we have we have similar loan and deposit costs and yields on there. They're a little higher than us on the loan side, but not order of magnitude higher. So we're very comfortable that they're getting paid for what they do. And then they have a little higher deposit cost. So we think we have the opportunity with our more expanded branch network to be able to continue to put to work this thesis of gathering funding and other markets and put them to work in balance. And then while we do have -- this does help us achieve more balance than we've ever had, not only on the loan side, but the deposit side moving to about 31% of our combined franchises on a pro forma basis, deposit make up being in Texas. We think that the Louisiana franchise will continue to be able to add positively to the funding basis, which should enable us to bring their deposit costs more in line with ours, which should give us an opportunity for a very increased margin through the acquisition as well as through our own internal efforts.
Feddie Strickland: Thanks for the color. That was helpful and congrats on the deal guys.
Greg Robertson: Thank you.
Operator: [Operator Instructions] Our next question comes from a line of Manuel Navas with D.A. Davidson. Please go ahead.
Manuel Navas: Hey, good afternoon.
Greg Robertson: Good afternoon. Thank you for being here.
Manuel Navas: I want to touch on NIM, kind of a different piece of that of the pace to build to 350. If you get there by middle of next year, that's going to have help from accretion, and you had a comment that 350 is with a higher for longer perspective. Where could you get if we kept rates unchanged, where could the NIM reach by the end of the year? And if we do have a couple of rate cuts, where would it fall to? Just kind of looking for the variability of that outlook?
Greg Robertson: Yes, we've worked real hard in the last probably nine to 12 months on making the balance sheet more neutral. So we feel like in a higher for longer, one or two cuts environment, margin should be packed pretty much and we purposely try to move it in that direction. So I think stand alone by the end of the year, we would expect that to be able to pick up somewhere from 10 to 20 basis points. And when I meant 350, that was x accretion as well.
Manuel Navas: That's helpful. Okay. Shifting over to the transaction you announced today, there's a couple places where you talk about the retention agreements and being able to keep the talent. Can you just talk about the thought process in that and how you've been able to feel confident that you're really bringing this team over to work for you for a good amount of time? Just kind of go through that piece of it with the key producers at Oakwood?
Jude Melville: Sure. Well, we've, you know, part of our diligence process is really feeling our relationships and making sure that we have cultural alignment on our decision making processes and that includes the production leadership. And regardless of how the diligence on the [indiscernible] I wouldn't really mean anything if we didn't feel good about the diligence on the personalities and the people involved. And, you know, it's not just us feeling good about them. It's also them feeling good about us and the way that we make decisions and the prioritizations that we have. And so, we certainly spent quite a bit of time with their team, not only their senior leadership and board, but their actual production officers and feel like we've really hit upon a group that will fit in day one. And it is important to have retention agreements post acquisition for initial period of getting to know each other, but ultimately our ability to maintain the talent and over the long run we'll come down to them feeling like they can do what they do within our system. And so, we have both a good feeling about this group. But then we also have a track record, you know, if you think about the five acquisitions that we've done, you know, we've lost maybe two or three producers at the most that we didn't choose to help transition. So, we have a good record of integration, production talent. And part of that is when you partner with banks that are smaller than you, then that you feel good about their culture and you feel good about their desire to win, then we really can offer their producers quite a bit in terms of a bigger balance sheet to work with and a more expanded product set as well. And, you know, winners want to win. And we think we think we're able to offer them a chance to continue to do that at perhaps an even bigger scale than they have previously. They also have the ability to -- as our folks do, to participate in equity upside over time. And so, I feel like we're well aligned there as well. And so, I don't mean to talk. I know it's easy to talk about the formal contracts, but success in the acquisition world is really about the software side and the job and the integration of the cultural aspects of the bank. And I feel like we're good at prioritizing that as we've shown across prior acquisitions. And then I feel specifically really good about the shared vision that we have with this team and with the leadership of the bank as well. It's been a comfortable feeling from day one. And again, not to be too soft about it, but those soft things do matter. And so, we feel confident that will be a good place for their team to continue to grow and be all they can be, and that that ultimately will feed to their desire to remain a part of our team over time.
Manuel Navas: I really appreciate it. Thank you.
Operator: That concludes our Q&A session. I will now turn the conference back over to Jude Melville for closing remarks.
Jude Melville: Okay, good. Well, I appreciate everybody spending time with us. It was a bit of a noisy quarter and we believe that we're doing the right things from a managerial aspect to address those noise and feel as confident about our ability to produce returns over the year, over the course of the year as we did this time last quarter. And we'll continue to work hard to make that happen. We'll just take a moment just to welcome the team and the board and the shareholders of the Oakwood Bank. They built a solid franchise and one that we're excited about partnering with and believe that together we can all achieve as much as we hope to achieve. We're excited about the cultural alignment that we've found with this deal. So thank you to them, and we welcome them. And thank you to our team for all their results, but also being the kind of bank that people want to partner with. I'm proud of it and look forward to taking some more steps forward this year. Thank you.
Operator: This concludes today's conference call. You may now disconnect.
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