Business First Bancshares Inc
NASDAQ:BFST
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Ladies and gentlemen, thank you for standing by. And welcome to the Business First Bancshares' Q2 2023 Earnings Conference Call. I would like to now turn the call over to Matt Sealy, Director of Corporate Strategy and FTNA. [Operator Instructions]
Matt Sealy, you may begin your conference.
Good afternoon and thank you all for joining. Earlier today, we issued our second quarter 2023 earnings press release, a copy of which is available on our website, along with the slide presentation that we will reference during today's call.
Please refer to Slide 3 of our presentation, which includes our 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 7 of our earnings press release that we filed with 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 Bancshares’ 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.
Okay, thanks, Matt. And thank you, everybody for joining us. I know it's a busy time and we appreciate you prioritizing this conversation. Last quarter I began by discussing our longer-term objectives to give some context to our near-term results. And while I won't take as much time to review the specific long term goals on this call, I do want to take a moment to remind us of what those general priorities are. Our management of risk through diversification as geographical, industry, product set, duration and revenue streams among others. Our number two achievement of greater efficiency and optionality through scaling. Number three, an increasing core profitability levels through a focus on capital allocation and management. Finally, a qualitative rather than quantitative goal to continue selective additions when available of key teammates with experience and talent to help us prepare for the opportunities that will present themselves as we gain success from the previous fully mentioned three more numerical priorities.
We've been through enough periods of uncertainty to know we have a responsibility to continue preparing for the future even in a time of caution. I'm pleased to congratulate our team on another quarter of progress in each of these areas. Our management of risks through diversification, we continue to diversify our asset exposure even in a time of lower growth. Our loan growth was again led by our Dallas region which generated over 50% of the net increase, with the runner up this quarter being our North Louisiana region, two very different regions, both of which we are gaining significant brand recognition within. On the type of loan front, growth was again led by increase C&I exposure, accounting for roughly two thirds of our increase balances. Also mentioned encouraging progress in diversifying revenue streams through some model, positive movement in our SBA line of business.
Last year, we had about $200,000 in income from SBA, and this year, we expect to average more than that number on a quarterly basis. So it's not yet the needle mover we eventually expect it will be but we do like the trajectory. On scale, we slowed down our growth to match the current economic and rate environments, it’s a reflection of the optionality our current size offers. This size, we should be able to operate it at solid levels of efficiency without relying on the significant levels of growth we booked over the past few years. So we have the opportunity to be increasingly selective, which will pay off in asset quality, loan pricing and capital usage. Our growth, while slowed is still healthy at about 8% annualized level that's manageable, fundable and capitalizable within the limits of our retained earnings. I'm excluding the impact from our serv debt redemption, we were capital accretive on all regulatory ratios. And if we were to back out the impact of AOCI, we would have been capital accretive on all of our capital ratios, including TCE levels.
We expect this to continue to be the case in future quarters as we remain selective on loan growth, likely in the 4% to 5% range. On earnings, we're very pleased with the results and while we aren't yet where we want to be, we have taken a significant step forward. We booked the 1.18 ROA, 14% ROE and $0.73 earnings per share. These are GAAP numbers. Three main drivers, our financial results were good NIM projection, good expense control and continued solid asset quality. Greg will dive deeper into these into each of these fronts in a few minutes.
Now, these GAAP results did include some net positive non-run rate income and expenses. But even backing out those items, our results would still have performed at solid levels producing non- GAAP results of 1.04 ROA, 12.4% ROE, and we $0.64 EPS. Couple points I want to note. First non-run rate does not mean accidental or not real, our additional income came primarily from investments we've made over the years and small business investment companies or SPICs, which returned at a higher level than normal this quarter, and through a decision to retire some holding company that early.
Second, what we believe is fundamentally change your earnings profile is that roughly 1.0 ROA over the past year or two would have been where we expected to land assuming everything went right. Now we view a 1.0 ROA as a baseline from which we have the opportunity to outperform when things fall our way has happened this quarter. That doesn't make us a high performer yet, but it's a concrete step in the right direction and in line with the goals we've been articulating for you over the past few quarters. Finally on the topic of people, while we do not believe we need to add significant numbers of producers at this time, as our most recent hires still have capacity to grow their individual books. We did add two impactful back office hires that are providing immediate impact. Zach Smith joined us Treasurer. Zach was one of the leaders in the Treasury Department at Bank OZK, a larger regional bank, and also has experienced with Comerica. We were also joined by a new Chief HR officer, Mike Pelletier. Mike was CHRO for IBERIABANK Iberia for many years prior to their merger with First Horizons. Both of these individuals, each of them has been with our [inaudible] banks as they have grown well through their experiences and relationships contributed materially to our journey, both navigating the current uncertain times, and in a time of opportunity that will surely follow.
I'm going to turn it over now to Greg and Matt to cover these results in detail. But I'd like to reiterate my thanks to our team. We've navigated a number of crises and perceived crises together, beginning with the great financial crisis, while we were a de novo bank, we've navigated not always perfectly, but always with one eye towards the immediate needs of our current customers, shareholders and regulatory partners, and one eye mindful for the long term opportunity we believe our franchise has before us. This quarter is another demonstration of our capacity on both fronts. That concludes my remarks and I'll turn it over to Greg for more detail on the financials.
Thank you, Jude. Good afternoon, everyone. I'll spend a few minutes just reviewing our Q2 highlights some of which is Jude already mentioned, including some balance sheet and income statement trends and will include some updated thoughts on our current outlook. Second quarter, core net income number was $17.7 million or $0.70 earnings per share. That equated to a 1.13% ROA and 13.50% ROE. That was really driven by strong noninterest income, lower loan loss provision expense, from our continued stable credit trends and the slightly lower loan growth. Slightly higher than expected loan discount accretion as Jude mentioned, these results were partially offset by slightly elevated noninterest expense during the quarter. Before I dive into more of the specifics on the quarter like to take a moment to call out a few items that might not be readily identifiable, but are important to for the context to consider. Our core noninterest income, as Jude mentioned, included $2.8 million in equity investment from SBIC revenue, which 2.6 or about was more than what we would expect it we had modeled about $200,000 for the core, record net interest expense included a $715,000 really one time bill from our core provider for some services that were rendered in the past. And that won't be reoccurring in the future.
Our loan loss provision $500,000 was really a consequence of the lower loan growth and really contain continued strength of our credit book. With all those adjustments, as Jude mentioned, I think it's important to consider really a baseline for what we look at going forward from an earnings standpoint. And that so called adjusted run rate for the quarter would have been $16.2 million or diluted EPS of $0.64, and ROA of 1.04 with ROE of 12.14%. That's very strong for us for the quarter. And we're really proud of those results. That was highlighted by a few things. We'll start with the balance sheet first and then work our way through some other income statement items. The loan growth for the quarter was 7.9% really highlighted by our Dallas Group with $55 million or 59% of that loan growth for the quarter. That loan growth from our Dallas Group remained our Texas exposure to 37% exposure rates for the portfolio as a whole. As far as loan type for the quarter C&I was a headline again for the second quarter, $69.9 million of that growth was in C&I loans with $67 million in C&D loans that actually migrated over, because of completion, in projects into owner occupied CRE and income producing CRE, with the other piece of the loan growth to actual growth in CRE for the quarter was $9.5 million for the quarter.
As far as deposits go, deposits increased about $208 million for the quarter, $211 million of that were brokered deposits. Really, there's some nuance and we're very proud of the fact that the work that our branches have done, the branch growth for the quarter was relatively flat with a little bit of extra story or a script around that. In the beginning of the quarter in April, the backup0 of our portfolio from deposit standpoint, being commercially focused, we experienced a little over $100 million in run out during April for tax related payments from clients. During the remainder of the quarter, branches did an excellent job of really in the production staff as a whole going out and really drawing net back to zero. And that's been a really important part of the nuance of the quarter. So we feel like those wins in the second half of the second quarter, it really started to show positive results. And we're seeing early results in the first month this quarter with that continued deposit generation profile. Noninterest bearing deposits as important topic right now, our portfolio sits at about 28% of the portfolio being in noninterest bearing deposits is down about 3%. We feel like that migrations started to wane in the recent months. So we are very optimistic about that we have been generating about $5 million to $7 million in new noninterest bearing deposits every month so far this year. So really, really still optimistic about that.
As far as capital goes Jude mentioned, capital increase not nicely in the second quarter from a bank level perspective with Tier 1 leverage and tier total risk base, increasing about 15 basis points and 13 basis points respectively. TCA, TCE to TA in total risk base had a consolidated level, both, this could decrease about 12 basis points. However, if you back out the AOCI swing which we had about $13.3 million in AOCI, negative swing this quarter that would have been an increase in TCE to TA ratio about 9 basis points for the quarter. Furthermore, if you think about it from a tangible book value perspective, looking at it, when you strip out its AOCI tangible book value xx AOCI, we had about 10% growth year-to-date in that, and about 13.56% for the quarter, and that tangible book value number tax 4AOCI would have been slightly above $20.
So really happy about that performance and creating the value for the shareholder. As far as margin goes, margin was down slightly five basis points. That is right in line with where we projected our expectation on pricing going forward really proud of the efforts of our production staff, the bank, the loans generated for the quarter are really coming, the average way yield is about 8.45% for the quarter, the majority of our loans now are being priced or renewals. And that renewal rate is slightly higher than that closer 8.80. And with average, our new production being at about 8.60, on average. For deposit pricing, I'll let Matt get into details on the betas here in a minute. We are really happy with our continued deposit generations, although, as everyone knows the cost of those deposits is very competitive in this market right now
Our total deposit beta cycle-to-date is about 36%. And we expect that to be closer to 40% by year end. And with that, really, I'll turn it over to Matt to really kind of cover the deposit betas in more detail right now.
sure. Thanks, Greg. So as Greg mentioned, total cycle-to-date, deposit beta is 36% during the quarter, interest beta cycle-to-date betas during the quarter were about 50%. We see those trending up about five percentage points each quarter. So ending the year at around 60% for Q4. And on taking a step back kind of thinking about total interest bearing liabilities. Those betas were 53%. So tracking pretty close to our interest bearing deposit betas and again, see those going up about five percentage points each quarter. So ending the year keep forward around 63%. And the quarterly snapshot betas, those were just a little bit above 100% for just Q2 interest bearing beta, and that snapshot. And I think that's relatively in line with some of the other releases, and peers that we've seen.
But thinking about things more on a cycle-to-date basis, I think 5% increase over the next few quarters is roughly what we'll see.
And with that, I'll turn it back over to Jude for any closing remarks before we take Q&A.
No, nothing that. I'm happy to jump into questions now. Thank you.
[Operator Instructions]
Your first question comes from the line of Michael Rose from Raymond James.
Hey, good morning, or good afternoon, guys. Thanks for taking my questions. Maybe we can just start on the beta commentary that you just kind of laid out. Thanks everyone for that. What does that assume in terms of where kind of NID mix stabilize, I think you guys are about 29% at the end of the second quarter, just trying to get a sense for where you think that stabilizes. And what the expectations are for kind of ex brokered growth, which is down a little bit this year. I know you guys have several initiatives in place. We just love some thoughts. Thanks.
Yes, I think that we'll see the noninterest bearing composition kind of bottomed out towards the end of the year. And we'd see that down another couple percentage points. Between now and yearend. So bottoming out around maybe 26% or so, just as percentage of the overall mix, our appetite for brokered, I think that will just continue to be kind of opportunistic, with the pricing mix between brokered and other borrowing sources. But there's still a little bit of room that we have, certainly to rely on brokered. And that said, and I can let Greg give a little bit more specifics around what we're seeing early on in the third quarter, but we're encouraged that, on just a excluding brokered basis deposits were flat during the second quarter. And one important thing to consider there is, we did have some municipality and tax funds that rolled out during the quarter. So when you strip out brokered, and you factor in the tax funds that had moved out, being effectively flat from Q1 was, in our eyes, a stabilization theme or trend that's starting to occur. I think we're nearing or turning a corner now, but maybe another quarter or two, a little bit further kind of decline in that mix of noninterest bearing. So I'd say it's conservatively maybe a 50:50 split in terms of funding between more wholesale and core deposits. But again, we're optimistic about some of the core funding generation that we've seen early on here in the third quarter, but I'll let Greg kind of hit on maybe some of the more wins and trends we're seeing on the core side of the funding base.
Hey, Michael, I think there's a little bit of nuance, I think, first of all, we have seen and do feel like in the industry, not only a specific within an industry, the outflow is starting to wane. The question for noninterest bearing depends on how many more rate increases, we see if we hold flat from here on out, we think maybe we might have seen as much of the movement that we've experienced, like I mentioned, we are consistently producing $5 million to $7 million in new deposit noninterest bearing generation per month. Now, we have had some recent wins that I expect that number in the first part, especially July and August to be higher than that. Put into context, the average cost, we've been generating in noninterest bearing a rate bearing accounts, deposit accounts open per month, about $100 million in new originations each month this year. And then most recently, weighted average is about 4.38. So as we continue to manage the balance sheet from a loan growth perspective, and weigh that against the cost of brokered, which today, for one year brokered is going to be in the 5.35 range. So we continue to be successful. And I think we will on the deposit generation front at that lower cost. It's materially different for us. We've seen some, like I said, some wins. So we expect that to continue to happen. But the brokered would be kind of plan B, obviously.
Very comprehensive question. And that gets into the follow up, which is, the core margin was down kind of, I think about five basis points, you said single digits. So, looks like that was good just kind of balancing, what you're expecting, in terms of deposit beta expectations NID mix. And what you're seeing on the loan repricing side? Is that a good kind of way to think about the quarter margin, down kind of mid-single digits when you put it all together? Am I missing something?
Yes, I would say about breakeven from where we are today, maybe with a basis point or two improvements would be what we're expect to going forward.
Yes, Michael, I'll give you a little bit more context around that. So the beta assumption that I've mentioned previously, that translates to roughly 35 basis point pickup in just interest bearing deposits in the third quarter. And when we look at our new and renewed loan yields coming on, like Greg had mentioned, in the 8.60 to 8.80 range, we've been executing pretty nicely on pulling through from a cycle-to-date loan beta perspective, holding it around 85%. We expect that to continue and pick up about 30 basis points in core loan yield expansion in the third quarter. So when we kind of net all of that, the funding side and the earning asset and loan repricing side, I think we feel pretty good that the margin should hold, core margin should hold flat here. Maybe a little bit too early to claim success. And we're turning the quarter to be accretive. But I think we feel really good that flat in Q3 is where we'll be.
That's very helpful. Maybe just, one follow-up question for me, just credit is exceptionally good. And, I say across the industry, we're seeing kind of, more signs of normalization, and definitely a pickup in kind of idiosyncratic one off credit that you guys are doing, really, really well. Anything that you're seeing kind of, on the horizon that you guys are worried about, or is it just the strengthened market and kind of, hopefully, we don't have a recession or anything like that, but just above some general thoughts. Thanks.
Yes, I don't think we've seen any evidence anywhere. Great thing to say. But this time last quarter and the quarter before, we're all sensitive to see what will happen. We haven't seen any degradation in our portfolio. And Phil or Jerry, if you want to add anything there that you're seeing, but I don't think any of us would say it would have an area that we would point to is showing signs of stress.
No, Jude. So I can add to that. I would agree. Like you said, it feels strange to say that out loud. But now right now, we feel very comfortable where we are. And like you said strengthened markets and the bankers. We do always stress credit for sure.
All right, guys. Thanks a lot.
Better not to have good roadmap for you on that front. But I guess I'm not that [inaudible].
Your next question comes from the line of Matt O’Neil from Stevens Inc.
Hey, thanks, guys. Good afternoon. On just following up on Michael's question around loan yields, and those renewals, I think you mentioned that there could be about 30 bps of low yield expansion core in the third quarter, should have a more color on that. The newer yield you think, are coming out on around 8.80? I think you said, what's the color on what yield those loans are rolling off at? Like, what's the differential? And then as you think about the loan maturities and renewals are coming up, is this a pretty steady level that you're going to see the next few quarters or could there be some time period where it's a higher number back? Thanks.
Yes, I think the loan the average weighted between new and renewed now fortunately for us, the loan growth is slowed down on purpose by us not been more strategic than it has been for the lack of pipeline. That renewable pace has been greater than the new loan. So we've been seeing renewables come through, like I mentioned about 8.80. With the new stuff being priced slightly less than that, for an average between the two about 8.60. Pickup, we're seeing on the renewals towards creating the expansion is in some cases as much as 1%. And that's a pretty steady stream of those renewals over the next three or four quarters, approaching probably $1 billion with a portfolio that will continue to do that. Now, as we get quarters into the future, maybe that is in 1% through 4%, 1% difference in the pricing. But some of them will be leaning toward that in the early parts of it because of the difference in the origination to maturity.
Yes, Matt, and I'll direct you to page 21 in the investor deck to kind of answer your question on where the loans are sitting now and the repricing opportunity. We've got over the next 12 months, about $2.2 billion that to reprice between fixed maturity in the next 12 months and floating rate. And those are sitting on the books at about a 7.67 weighted average yield. So when you think about the 8.60 to 8.80, new and renewed or guess renewed and new, that's about a 90 plus basis point pickup in those loans. So that translates to if you just apply that 90 basis point pickup in the actual renewal of that portfolio, which is about 45% of the book, you've got 20 plus million in annual revenue pick up there. So that's I hope that kind of draws the line or connects the dots between the 30 bps in the overall total portfolio pickup and the actual pickup and just the repricing opportunity.
That's perfect, Matt. Thanks for flagging that slide in there. I missed that initially. Perfect. And on the loan growth front. I think I heard you'd say, the back half the year between 4% to 5%. I assume is the annualized number for the back half, just want to confirm that. And then as far as the mix, you mentioned it was a C&I portion that led the way in 2Q, as you think about pipelines and pay downs. Is it going to be similar we saw in 2Q where it’s mostly C&I growth, whereas some of the construction projects are completed and they move on to a different category?
Yes, I would, first part is I didn't intend for that to be an annualized number. And then second part is that I would think that we would see a similar mix going forward. And not really just this quarter but the past couple quarters, we've had that mix as we've kind of downshifted construction production to recalibrate the portfolio. So we'll still see CRE as construction turns over or completes, associate CRE growth, but not at the rate of new production that we have seen historically, and we definitely are not doing as much construction, as we didn't have done in the past. So I would anticipate C&I would continue to be the most significant contributor to any kind of net increase.
Okay, thanks for that Jude. And then just lastly, I think the accretion levels were a little bit higher this quarter, any color on expected accretion in the next few quarters?
Yes. Matt, I would think we would expect, we're expecting similar levels of accretion in the next couple of quarters just by the pace of the deals that we have kind of working through the process right now.
Your next question comes from the line of Brett Rabatin from Hovde Group.
Hey, good afternoon, guys. Thanks for the question. I wanted to first ask, you talked about the brokered TDs and the market and your strength for gathering deposits. Some banks in your market area and in the southeast in general have indicated that maybe the landscape has gotten a little less competitive with one larger regional that was super aggressive with the deposit campaign during May in particular, have you guys seen that? maybe in some of your markets in Louisiana where maybe it's the competitive landscape is ebbed a little bit or just still seem as ferocious or everyone put it as it has been for the past few months.
Yes, I don't think we'd describe it as ferocious. I do think it's that at one point, but I think it has calmed down a little bit. I would say that some of our peers have raised, it bothers a little greater clip, but I think they also have been a little more willing to pay out a little bit. So we've tried to strike a balance between deposit growth and protecting them now. But I do think that, as we talked about, we're starting to see some signs of deposits coming in. And that's not because we've materially adjusted strategy we have on rate that we paid, it's because it is probably becoming a little bit lousier, but still tough, but not quite ferocious, I would say. But anybody else want to add to that.
I would say part of the added talent, and skill sets that you have been pull down and giving us better visibility into our how we manage our deposits on a great scale, kind of a really good look at the deposit portfolio as a whole. So I think it's allowed us better technology, allowed us to make really good decisions on deposit pricing. It's good to see.
Okay. That's helpful. And then I didn't if you gave it, I missed it. But the securities that are maturing here in the back half of the year, how much is that? And will that be partially a fund loan growth? Or how do you think about the balance sheet management?
Yes, Brett. As far as securities go, we think we've only purchased two securities this year, the portfolio is about 13.5% minus AOCI of assets right now. We haven't, as far as cash flows go or maturities go, we have about an average of about $131 million per year for the next three years in maturities that are scheduled pretty systematically out. So we're really from a balance sheet standpoint, we would expect to plough that back in and not really be very selective on securities, if and when we do purchase them to maybe extend some duration, strategically to pick up some good yield, now that the rates seem like they're getting toward the top, but outside of that, we expect to put that money as maturity back to work in the form of paying down debt or put it back into the loan portfolio.
The only thing that I'd add too is that during the quarter, we did take out a little bit more brokered had some, just some more cash on balance sheet. If we were about 5% cash to assets at the end of the second quarter, typically, we've been a little bit lower than that. But that was just kind of a re- mixing of liquidity, so we comfortable letting some of those securities run off and just remix into loans so their standard securities might come down just a little bit. But we've already got, more liquid interest bearing cash balances on the book.
Okay, that's helpful. And then if I could sneak in one last one, just around strategy, when you guys raise capital, in the fourth quarter, you're basically kind of a year ahead of your five year plan. And so Jude, I'm curious to hear if in this environment in terms of either interest rates or some uncertainty on the economy, if maybe you've changed what you want to accomplish, or if you're still kind of full steam ahead in Texas or what's changed, maybe relative to the environment last year?
Sure. So that's kind of why I started the call was kind of going over what our general priorities are, and talked about it last time a little bit too. But we were ahead of the game in terms of size, where we wanted to be size wise, which of course required use some of the capital that we raised last year, or led to that. Also ahead of the game in diversity, diversification by geography a little bit. Not ahead, really, as in the last year on earnings. So what we wanted to do this year, even pre- proceed crisis was to continue to grow, continue to diversify, but put more emphasis on earnings simply out of the three main categories than we have in the past. So I wouldn't say that we have changed our strategy, I'd say that we're going to take advantage of the fact that we're a little ahead of pace on the first two components so that we can prioritize little more on the third to make sure that we achieve all three. And I think this quarter is really good example of us pivoting in that way. So we slowed down the loan growth, which, but we're still able to continue to focus on growth in in the Dallas area. And that slowed loan growth ensured that we were capital accretive which is something I know when we raised capital in the fall, that was a question or when, that was a question was when would that enable us to be capital accretive? And I think we've probably felt like that was possible now. But there was some hesitancy to accept that, I suppose. But so I'm pleased that we were able to do it. And we do plan on continuing that mode of operation. So our growth will be governed by the retained earnings, its growth. But that still leaves us well within range of our targeted five year plan growth that we've outlined. So long winded way to say we haven't changed our goals, we're just managing the process by which we achieve them. But we still remain in our minds on target to accomplish all three in the direction that we want it to and should be able to do so within our current capital structure, supplemented by the retained earnings.
Your next question comes from the line of Kevin Fitzsimmons from D.A. Davidson.
Hey, good afternoon, everyone. Greg, I missed in your prepared remarks you were talking about like a core ex non run rate type piece of earnings per share. And I was wanting to, if that's what you said, if you could repeat it, and then also, how I should be looking or how we should be looking at a run rate going forward for core fee revenues and core expenses. Is it really or just we just kind of pulling out that additional civic revenue and pulling out that extra that processing charge, if you can kind of guide us on those fronts? Thanks.
Absolutely. Yes, I was talking about the way we've been thinking, our core, or published core net income 17, 7, $0.70 EPS, if you were going to take out those two items that we considered to be non-reoccurring, but not intentional, like you said, so one would be the EIC income of 2.6. And the other would be the core IT costs of $715,000. So if you did that, you would get an adjusted $16.291 million exactly. And that would equal a diluted EPS of $0.64.
Got it. Okay.
As far as the noninterest income run rate, I think $8.5 million is probably the way we want to think about that going forward. And noninterest expense, right about $39 million, or slightly higher than $39 million for the quarter.
And is it fair to say? I'm sorry, go ahead.
Oh, sorry. Yes, if you take the what we reported core noninterest expense of $39.6-ish about the $700,000 kind of one off data processing invoice that we received, and then just baking some just natural course of business expansion. Maybe mid $39 million number, good run rate going forward, which that reflects about a 5% annualized increase in expenses.
Great, that's what I was going to ask next. Thank you, Matt. And as far as the bond portfolio, you mentioned the cash flows, albeit some banks have had pulled the trigger or are evaluating doing a larger transaction to accelerate that opportunity to get proceeds out at higher rates or whichever alternative you want? Is that something even on the table for you all or is it more? Is that something we're in the near term that can put pressure on [inaudible] but you might want not to do. Thanks.
Yes, I think it's something we talk about. And then we run an analysis every quarter on, if we needed to execute on liquidating part of the portfolio immediately, we could do about $135 million of that overnight, but with less than a $3 million loss. But as far as, we feel like the AOCI is going to unwind fairly quickly. So, a strategy to your point that would put pressure on capital right now, now that we're going to do anything like that.
Well, not just for pressure on capital, but just a business decision, I think is the way I would describe it, we have a fairly short duration of our investment portfolio. And we're comfortable that our projections enable us to accomplish our goals without giving up money. And so we'll keep doing that unless for some reason, some changes. And we have to we do analyze it, though, and it certainly is on the table, we need to always look at options, but making the best business decision for us would indicate to me right now that that's not a necessary move.
Right. No, good point about the short duration. And then one last one for me. We've had a few deals announced here in recent days, one in the mid-Atlantic. Curious if, I know you all are still digesting the Houston deal. But as you look out, later stage of the cycle and exit in the cycle. Just curious are there conversations going on and new regions or new markets you might have your eye on in terms of looking to expand? Thanks.
Sure. we're always like your prior question is it something on the table? I think everything's most things are on the table. But certainly the equation has to make sense for us. And the equation is a little different today than it was a couple of years ago. One of the differences is that we are comfortable that we have a strong geography that we can build out. That doesn't mean we wouldn't look at other geographies over time. But we don't need to. I think given the markets that we're in, there's plenty of opportunity here. So the bar would be pretty high in terms of embarking upon an expansion of that geography after an M&A deal. Not saying that it couldn't happen. But it's not something that we're necessarily aggressively looking forward, I would guess that the more likely outcome would be expansion through are at some point when we're ready would be expansion through a team was down, or something incremental that nature, but there definitely are more conversations that were either a part of our hearing that they're happening, but I don't know if that necessarily makes it more likely to happen. A lot of things have to fall in place. We've developed the organic capacity to be able to grow without M&A. So M&A needs to really fit our needs. And the financial equation needs to work for us. And hopefully our partner as well. And that's kind of the goal was to get a win-win. But the hurdle is the bar is a little higher than it might have been earlier on just because we do have, that's what I've started my comments with about the one of the values of scale is the optionality. It gives you on future growth. And so like we're in a good spot to be able to partner with who we really want to and not necessarily seeking growth for growth's sake and/or new markets for new market sake.
I just think over the long run, there's plenty of, there are plenty of other markets across the Southeast that we want to be in. But it's, there's no rush, is the way that I would put it. We have a team that's positioned to be around for a long time, and we need to take things, opportunities when they make a lot of sense for us. That's where we are today.
Yes, and a good point about the lift up because that's really what you've accomplished in Dallas Fort Worth. Right. Correct. That was just all organic lift down strategy.
That's right. And New Orleans, we've had really good success with team lift up, as well. That's right.
Your next question comes from the line of Feddie Strickland from Janney Montgomery Scott.
Hey, good afternoon, everybody. Just given all the repricing opportunity that you've talked off the on the one side and, we got potential for a Fed pause maybe this year, could we see the margin start to rise in 2024, just given the amount of, where you're putting on loans at new rates and the amount of turnover you've got coming online?
I think it's not beyond comprehension to think that might happen. But we certainly want to be conservative and how we think about it, just given the challenges and the environment. We have definitely still had some work to do and some fighting to do. But while we're projecting kind of a neutral NIM for the rest of the year, I think we do believe that there could be some opportunities for expansion next year, even without a rate decrease. Greg, do you want to speak more?
I agree. I think the wildcard in that is the deposit liability side. And from a competitive standpoint, that would be my only caveat, I think we're doing a good job to manage the top end. And our production staff is really focused on C&I account type accounts, which are noninterest bearing deposit accounts with Treasury built in there, really that's the highest incentive brought up. So that's the biggest focus. But really, the interest bearing size, and the speed at which those rates continue to go up is where that's really going to play.
Yes, I would say that, we kind of like you said, the core margin flat for the foreseeable future is where we're comfortable. Right now, conservatively, but I would say that there's probably more upside. Not significantly, but there's probably more upside in that than there is more downside. If that make sense.
No, that's very fair. I get it. And it's hard to predict exactly what the Fed’s going to do what's going to happen in 2024. And it's one of the earlier callers mentioned, you never know what competitors are going to do either. One other piece. Forgive me, if I missed this earlier, but has the loan growth guidance really changed? I mean, should we have sort of upper single digit annualized growth rate for the next couple quarters? Is that reasonable? Should it be lower higher, just trying to figure out where we should peg growth going forward?
I think we'll continue to kind of downshift a little bit. So I mean, I would say more on the 4% to 6% annualized range, as opposed to upper single digits. A lot of advantages to this environment growing at that rate, including capital appreciation and benefits that it provides to the margin being able to not have to fund that last dollar with highest cost funding. So we feel like we'll benefit the most economically, with a kind of 4% - 6% annualized rate. Maybe we are behind just a little less demand. Last quarter, I would say that most of the slowdown in growth in a quarter for that slowdown, was our decision for the most part. But I would say that we would expect the second half of the year. And we're starting to hear that a little more maybe it's closer to 50:50 decisioning versus demand or and might even flip into more demand based deceleration of growth from what we're hearing anyway. Obviously, due to the increasing interest rates.
Got it. Just one final one for me. Jude, it sounds I think I heard you earlier say you feel like a 1% ROA is kind of a base from here from what you think you can achieve? Do you think that that's I guess, just to clarify, do you think a 1% ROA is achievable for the year? And then it's if you take out the uncertainty provision, do you feel like a 1.50 PPNR ROA that you'd love to get pegged at 1.58 this quarter? Just wondering what your thoughts are on that overall profitability?
Yes, I do feel like a quarter 1% ROA is achievable for the year. My guys now are crunching the numbers really quick to see a bunch of other questions. I don't usually think in terms of that ratio, but yes, I do believe that we have evolved enough that we've kind of shifted from, as Matt put it earlier, the upside risk versus downside risk. We've gone from downside risk of one being turning against other I think there's more upside opportunity to be one. Yes, we do have variability within the different quarters, the different seasons, and the first quarter tends to be lower. But I do expect it will be 1% at least for the year and then build upon that next year, a great job. Does that, got the answers to the other question?
Yes, so the 1.50, you quoted there as a pretax pre-provision ROA, that's exactly in line with if we had the 1% or just over 1% core for the year. That translates to exactly 1.50.
Your final question comes from the line of Graham Dick from Piper Sandler.
Hey, good evening, guys. I just wanted to circle back to one of Kevin's questions on M&A. I k now you said that, it's a pretty high bar right now, and would have to be attractive on a lot of fronts. But I guess, as you look out a few quarters, maybe a calmer environment, multiples return, what criteria achieves that bar for you? What makes a deal look good and something you would really consider financially? And then I guess also, like, strategically?
Okay, well, I'll start with probably an answer you don't want because it's not necessarily quantifiable or better than a model that I do, I shouldn't say that, you might still want it. But it's not as easy to model visit. From my experience and we've done a number of mergers now. I think the first thing that I look for is a good partner, right? We want to make sure that our culture is, cultures match, it doesn't mean our business models have to match. But our culture's need to match, the winning spirit, and a good person at the top and the exec team has value that they can add. So the first thing that I personally look forward would be how does that cultural fit, work and we've been blessed with our deals too, so we've done thus far to be able to partner with good people. And for every deal that we've done, we've grown the footprint that we inherited, and that was because we were able to bring some larger balance sheet strength to a team that already had capability. So we'll continue to look for that. As I've kind of talked about before, I think our first priority would be end market, something that brings some density to one of our markets and which would imply also kind of lower operational risk. Ideally, that's lower loan to deposit ratio, which helps with liquidity questions. Now, I would say anything. I would say our sweet spots, probably $0.5 billion to $1.5 billion I think in the market $1.5 billion makes a lot of sense. I think we, the model that we used in Houston, where we did about a $0.5 billion works well for a new market, should we choose to do that that's kind of big enough that you have something real. But it's also not so big, that it's a bet to franchise on a movement in a new market when that time comes.
As far as the financial metrics, clearly, we want to have a limited as possible payback period. For something that's really strong. And when times were normalized, I think we would look 2.5, 3 year payback is kind of the outsize. That would just be in kind of a special case of that workforce. But today's environment, if something did happen to happen, price wise, I would expect it to be something closer to a year in terms of payback. So I think once things normalize a little bit, you can obviously consider expanding that out how we build that. But again, since we don't have to do M&A, we probably will be a bit conservative on that.
The question everybody wants to know about dilution. And, these things all kind of balance each other out. And so the payback period is really more important than the dilution necessarily, but, yes, obviously, at a normal time, we want to keep that probably in the 3% to 5% range, but that all depends also on the size of the bank. So if it's $0.5 billion bank is going to be a mass facility that's going to be easier to have a lower dilution than if it's $1.5 billion opportunity. So that's been our historic kind of markers. Not necessarily good or bad pricing, but more just how big is the bank, relative to our current balance sheet. One other metric might I be missing out on that, Greg.
I think you covered it.
Yes, so most important thing to me is, is does it have the chance, a, culture, b, do we have an opportunity to be accretive from an earnings standpoint on a per share basis in a reasonable period of time? And ideally, within the first six months, I would hope that we could, or at least ideally, within the first six months of enacting the changes that lead to the cost savings, they get you the earnings accretion so.
Thank you, Graham. Thanks, everybody for your coverage.
That concludes our questions. I would like to now turn the call over to Jude Melville for closing remarks.
Very well, just to reiterate, really proud of our team's efforts, and I wouldn't even say this quarter is in banking, it doesn't move that quickly. Right. You have some action that you have to deal with in the current environment. But the real, most important moments occur over a period of time and kind of transition in our strategy and achievements from our longer term goals is something that we've been working on for quite some time, and will continue to work on and this was a good quarter of progress towards attainment of those goals and look forward to get more done next quarter. Thank you, all. That concludes our remarks. Thanks.