Business First Bancshares Inc
NASDAQ:BFST
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Earnings Call Analysis
Summary
Q3-2023
The company's balance sheet remained healthy with loans for investment growing by 1.7% annualized, below the expected but aligned with strategy targeting around 7-8% annualized growth. Loan yields were solid at 8.6%. Deposits rose by $176 million, buoyed by new and renewed non-interest-bearing accounts amounting to $43 million. Despite a decrease in borrowings by $152 million, capital increased, with TCE to TA up 3 basis points and total risk-based capital up 22 basis points. GAAP net interest margin was 3.61%, with a slight contraction in core net interest margin from 3.49% to 3.46%, due to liquidity excess. Margins are expected to remain flat or decline slightly in Q4. Deposit betas, indicating the sensitivity to interest rate changes, increased slightly more than anticipated. The company anticipates a 4% increase in deposit betas for Q4, slowing from previous rates of 5-6%. Loan yield betas remained stable at approximately 85%. The company's strategy includes replacing some Federal Home Loan Bank borrowings with deposits, aiming to improve margins while facing a continuous battle for deposits industry-wide.
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Hello, and welcome to Business First Bancshares Q3, 2023 Earnings Call. [Operator Instructions] After the speaker's remarks, there will be a question-and-answer session. [Operator Instructions]I will now turn the conference over to Matt Sealy, Senior Vice President and Director of Corporate Strategy and FP&A. Please go ahead.
Good afternoon, and thank you all for joining. Earlier today, we issued our third 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 disclosures 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 was filed with the SEC today. All comments made during today's call are subject to the Safe Harbor statements in our slide presentation and 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.
All right. Thanks, Matt, and thanks, everybody, for joining us. I know it's a busy time and we certainly appreciate you prioritizing this conversation. During the third quarter, we continued to deliver solid fundamental shareholder-oriented operating performance, generating a core ROAA of 1.1% by exercising discipline around expenses and maintaining good margin stability even as we grew organic deposits. Included in our core operating results for several non-run rate items, which I'll let Greg expand on his section. However, even adjusting for these items, we still pay our run rate EPS, ROAA and efficiency ratio at $0.67, 1.03% and 62.4%, respectively.Our third quarter was highlighted by balance sheet management, which yielded another quarter of solid capital accretion, strong deposit generation, margin stability, expense management and continued healthy credit quality trends. all of which put us in a position to be able to increase our dividend by $0.02 per share for the quarter, something we've been able to do for 5 years in a row now.I'd like to highlight a couple of specific accomplishments. First, we've been particularly focused over the past few quarters on managing growth within our capital structure. And I'm pleased to report that our results are again accretive to tangible -- or excuse me, to TRBCE to TCE and TBVPS even factoring in headwinds of additional AOCI. And not counting the impact of AOCI, we grew tangible book value per share $0.67, an annualized rate of 20%. We slowed loan growth during the quarter to 1.7% annualized, which reflects some slowing demand and continued selectiveness in our part as well as unusually high paydowns and payoffs. We do still expect full-year 2023 loan growth of 7% to 8%.I'm most pleased to report growth in deposits of $176 million, about 14% annualized in the quarter and we accomplished this without causing material damage to our margin. Core NIM was down 3 basis points, but that factors in a gain of $455,000 on recovery from a previous charge-off and the decision to hold an additional $150 million in excess liquidity at the cost of 6 basis points to the margin. Factoring out those 2 elements, our core margin would have been flat even while we demonstrated a continuing improvement in our loan-to-deposit ratio.Asset quality continued to improve in the third quarter with nonperforming loans as a percent of total loans declining to 0.33%, down from 0.36% in quarter 2. The improvement was largely attributed to the resolution of 2 nonaccrual loans through current period charge-offs of $2.4 million. Both loans were previously assessed for credit losses and fully reserved. I'd like to point out a few branch movements as we continue on our ongoing efforts to optimize our footprint.During the quarter, we opened our fifth Dallas-Fort Worth location with a new full-service location in McKinney, Texas. I was there recently for the ribbon-cutting and our team is very excited about the opportunities as we expand further into North Texas. With locations in McKinney and Frisco, we are present in 2 of the 3 fastest-growing communities in Texas. We also turned our LPO in Ruston, Louisiana, another fast-growing community into a branch and moved a branch to a more growth-oriented part of Monroe, Louisiana. Finally, we also sold our Leesville, Louisiana location, recognized a $932,000 gain on sale attributed to the divestiture.I'll note we have added a couple of new slides to our deck that I think would be worth your focus and enhanced a couple of others, particularly around our successful M&A track record, loan repricing opportunities and composition of our CRE and office portfolios. One I want to particularly point you towards is found on Page 9, which speaks to the consistent improvements we've made in various earnings-focused metrics over the past 5 years. EPS has increased by 81%, net income by 292%, while core efficiency has improved by 571 basis points.Importantly, we show tangible book value per share after adjusting for AOCI, growing by 33%, even while we have made the investments necessary to grow overall asset size by a factor of 3 over that time period through acquisitions, team lift outs and strong organic growth. This growth has required investment and those investments are paying off. We haven't yet -- we aren't yet where we plan to be, but we're clearly headed in the right direction.That concludes my big picture remarks. Thank you so much for your time. And I'll now turn it over to Greg for his commentary on the quarter and then look forward to opening the call up to Q&A.
Thank you, Jude. Good afternoon, everyone. I'd like to spend just a few minutes reviewing our Q3 highlights, including some balance sheet and income statement trends and also discuss our updated thoughts on the current outlook.Third quarter non-GAAP core net income and EPS available to common shareholders, $17.96 million and $0.71 a share. It came in better than we expected and was driven really by number one, expense management, two, lower loan loss expense and continued stable credit [ terms ] and slightly lower loan growth, as Jude mentioned, a stable net interest margin and slightly better-than-expected loan discount accretion. Before I dive into the more of the specifics of the quarter, I'd like to take a moment to call out a few of the items that might not be readily identifiable, but are really important to put context into the quarter.Third quarter GAAP net income and EPS available to common shareholders was $19.1 million, $0.76 a share and benefited from 2 fee income-related items that Jude mentioned earlier; the $932,000 gain on the sale of our Leesville location and as a side note, that location, we sold those deposits for 7% deposit premium; and also the $517,000 gain on extinguishment of the Texas Citizen sub-debt that we acquired in that acquisition.Excluding these items, our core noninterest income was $8.4 million and this $8.4 million figure is a fairly clean run rate figure for the quarter. And we see that as a stable figure for a run rate for '24. A little bit of the explanation of that is that run rate for '24 is stable because we experienced in '23 some one-off, one-time income items for that, that we don't feel like that will be repeatable in '24, but we do feel like noninterest income will grow throughout the balance of the year to make that stabilized.Third quarter GAAP noninterest expense was $38.6 million and included just $2,000 of merger-related expense. However, included in this $38.6 million was a figure of about $500,000 in MasterCard rebate, which we don't expect to reoccur going forward. The third quarter noninterest expense also benefited from $200,000 unusually low in FDIC assessment and $200,000 unusually low other noninterest rate -- interest expense items. The Q3 run rate for noninterest expense figure is closer to $39.5 million, as we expect the FDIC assessment and the $200,000 lower expense item to kind of normalize going forward.As far as '24, we feel like the noninterest expense will experience a mid- to high single-digit run rate going forward for the base case for the balance of '24. Spread income also continued to grow and be strong in the performance in which we attributed to the loan discount accretion of $2.4 million, coming in at $500,000 higher than expected and as well as the decision to hold a little more balance sheet liquidity that Jude mentioned earlier boosted our net interest income. I'll provide more color on these dynamics a little bit later in the discussion on the margin.On the surface, the optics of credit quality appeared mixed. But as Jude mentioned, we feel like that our credit quality is stable and improving with those 2 previously discussed charge-offs that we discussed in quarters prior to now that we're fully marked and we resolved them during this quarter. As far as the balance sheet, the balance sheet tends to remain healthy during the quarter and loans that were held for investment grew about 1.7% annualized, a little lower than expected, but also consistent with our strategy, our strategy of loan growth and as Jude mentioned, we feel like that will round out the year at about 7% to 8% in annualized loan growth.We are proud of the fact that our loan growth for the quarter was really headlined by a continued loan yield of 8.6% on new and renewed loans for the quarter, and that is helping us continue to hold the margin in place. Deposits increased, as Jude mentioned, $176 million. If we include the Leesville deposits that we sold in that branch, that number would be closer to $200 million in deposits and gross deposit growth for the quarter. The $157 million in the new deposits that we generated through a couple of different CD and money market specials during the quarter were very well received by the customers and our production staff did a really good job of pushing those through.During the quarter, another highlight is we were able to generate about $43 million in total new noninterest-bearing deposit accounts and that added to our $14.3 million a month average that we've been operating on for the last few months. We also managed to open $82 million in non-maturity deposits during the quarter at a weighted average, an offering rate of 4.25%. September numbers for operating rates for all non-maturity interest-bearing deposit accounts was 4.36%. Noninterest-bearing deposits remains a challenge, and we will continue to put our efforts into that area as we move forward into 2024. Our noninterest-bearing deposits ended the quarter at 27.2% of our total deposits.Capital increased nicely during the second quarter. As Jude mentioned, TCE to TA up 3 basis points and total risk-based capital up 22 basis points for the quarter with tangible book value of $0.16 ex-AOCI. Borrowings, as we mentioned earlier, decreased during the quarter, about $152 million and that was really as a result of our deposit gathering campaigns that allowed us to pay off all of our short-term overnight borrowings with FHLB, which we're currently priced in the 5.70% to 5.75% range.We also made the -- as Jude mentioned, the decision to hold the extra $150 million in liquidity on the balance sheet as we continue to take advantage of the BTFP funding program earlier in the year, drawing down $300 million of that fund early in quarter 1. That $150 million that we carry is really doing 2 things for us. It's continuing to hold liquidity levels in a range where we feel comfortable during this time and also preparing us to be able to pay off that maturity coming forward in next March.Q3 GAAP net interest margin was 3.61%. That included $2.4 million in loan discount accretion, which was about $500,000 higher than what we expected, but we expect that accretion to drop back closer to $1 million a quarter run rate. The Q3 core net interest margin, excluding the loan discount accretion, contracted 3 bps to 3.49% as Jude -- from 3.49% to 3.46%, as Jude mentioned earlier, as he was alluding to the adjustments for the quarter and also the 6 basis points drag that we experienced for holding that excess liquidity.Looking forward into Q4, we expect the margin to remain flat to slightly down maybe a single basis point due to modest continued liquidity build and continued funding pressures. A little color on the second point here. We have over $100 million in lower cost FHLB borrowings that mature in early in the quarter and we will work on refinancing a piece of it and paying down a piece of it. So that may negatively impact the margin as we go forward in the quarter. As I mentioned earlier, we are very proud of the production side of the bank with our continued loan yields coming in on new and renewed at an average of [ 1.60% ] and our deposit gathering that help us maintain our margins.And now to cover some of the betas from the quarter, I'm going to turn it over to Matt.
Sure. Thanks. So, funding betas did increase during the quarter as expected. Cycle-to-date total deposit beta and interest-bearing deposit beta was 41% and 56%, respectively, which was slightly ahead of what we had anticipated by about 1% and this is really a function of better-than-expected deposit growth during the quarter. Looking ahead to Q4, I'd expect the cycle-to-date deposit betas to increase roughly 4%, which is down slightly from the year-to-date quarterly beta increases of about 5% to 6%. So, still increasing but at a slower pace. On the loan side, we continue to hold cycle-to-date betas on new loan yields at about 85%. We are at 84% for Q3 and expect to maintain. This reflects a weighted average new loan origination yield of [ 8.55% ] during the quarter.And with that, I believe that concludes our prepared remarks, and I think we're ready to open up for Q&A.
Thank you. [Operator Instructions] Your first question comes from the line of Brett Rabatin -- I'm sorry. The first question comes from the line of Matt Olney with Stephens.
I want to talk more about the funding strategy over the next few quarters. You grew loans -- I'm sorry, you grew deposits quite a bit this quarter, replaced some of the FHLB. And it sounds like that's going to be the strategy again, these next few quarters along with replacing some other wholesale borrowings out there. Can you just talk more about deposit growth from here and kind of expectations to match the loan growth?
Thanks, Matt. We're continuing to run internal campaigns for deposits really relying on the production side of the bank to continue to generate deposit growth. As we mentioned earlier, the 14% we experienced this quarter was really, really good, and we're happy with that. Now, as you well know, across the industry right now, it's just deposits are still battle every day. So, it's something we're continuing to talk about and focus on. And if we experience the same successes going forward, then we'll really start to systematically start to unwind some of the higher costing liabilities, for example, like the FHLB. We've really tried to focus over the last year, so of really, segmenting those higher cost funding sources into buckets for lack of a better word, to where we can have optionality each quarter to try to unwind that and improve the margin. But that is reliant on us continuing to gather deposits.We will experience as we do seasonally at the end of the fourth quarter, the beginning of the first quarter, some municipality builds from a deposit standpoint. So, we do expect that to come in over the later part of the fourth quarter and the beginning of the first quarter that would give us more optionality on top of our typical deposit growth. One of the things that give us kind of hope is we really consistently not only gather deposits, but really gathered noninterest-bearing kind of in the face of the whole industry experience and runoff in the noninterest-bearing sector. So, experiencing good account opening both in numbers and in dollars, give us. I hope that -- continue to move that way.
And just to follow up on the outlook for the margin. I think, Greg, you mentioned flat to slightly down. I assume that was with respect to the core margin, excluding some of that accretion income. Is that fair?
Yes, that's fair, and that's all really a function of the deposit flow that we bring in. We've really been experiencing pretty stable on the top end loan yield side. Still have a good pipeline with good volume. I think one of the things that is worth noting is our loan growth this quarter was really kind of muted by an outsized quarter of payoffs. We had a little over $100 million in payoffs all for good reasons, projects wrapping up, our companies selling projects. So, if we didn't expect that and if we didn't have that, we still feel like our loan pipeline is in good shape and our growth would have been up around the 4% or 5% range, maybe this quarter. Without that, those yields, like I said, 8.50%, 8.60% coming in at that number. So, the big factor for the margin with the renewals that we have and what we see and forecast from a renewal strategy is really relying on what our deposit base grows and how their growth continues to grow.
And I guess if I think about that margin in the first half of next year, I know there's several puts and takes that we've discussed before. But I guess what you're saying also is the liquidity could build in anticipation of the payoffs of the bank term funding program. I think that you said was in early 2Q. Is that fair?
That's correct. And one of the things that we think that will help you is our slide on Page 21 of the deck that we put in there that really gives clarity into what we're going to see as far as fixed rate loan maturities coming forward in the next few quarters. So, we think with that, we should be slightly accretive in the margin next year because of that.
Your next question comes from the line of Brett Rabatin with Hovde Group.
I wanted to start off on the A&D book and just was curious if you were hoping to get the concentration below 100% and just how you kind of think about that piece of the portfolio going forward, where you see demand and appetite from your perspective?
I'm guessing you're referring to the C&D, the construction and development book?
Yes.
Yes. We think it is trending exactly where we thought it would going trending down below 100%. We don't see -- we really haven't been originating any new C&D loans. So, if you think back about at our production last year in Q2 and Q3 of last year, really, we're kind of at the experiencing right now the peak of the funding because each of those loans is a 12- to 18-month cycle. So, we're getting to a point where we're a year out on some of them getting towards the kind of wrap-up phase of those where they will be transitioning out of the bank or into owner occupied or income producing. So, we don't expect that to be back up over 100%. We think it's going to -- it's trending down and going to be right there in that space for a while.
We're not eradicating C&D from our portfolio, we just felt like we're a little bit unbalanced a couple of quarters ago and felt like we needed to right-size that a little bit. So, we definitely want to stay below 100% and it looks like we're -- from our maternal projections, we're on pace to do that and stay there. A lot of our outsized growth last year, a portion of it was C&D. And if we slow down the C&D, we have -- we should be able to look forward to just a pretty healthy normalized loan portfolio growth over the course of '24.
Brett, and I'll give you a little bit of color, data point that we included on Slide 26, we've got about $298 million C&D maturing over the next 12 months. Of that $700 million total portfolio, just under $300 million maturing. Obviously, a lot of that is going to come back on the balance sheet to remain on the balance sheet. But I think that's a bullet point that kind of talks to some of those loans rolling off at some point over the next 12 months.
And then speaking of Slide 26, I'm just sitting looking at it and you got those 3 charts to bottom, the C&D by geography, owner occupied and income producing. And there's 42%, and a little over half on the owner occupied CRE that are in all other geographies. Can you talk about those pieces? Are they still in Texas and Louisiana, but just not in one of the primary markets? Or what can you give guidance or give color on around?
Yes, yes, absolutely. So, the other geography label there, that's not to be construed as outside of our core geographies, our core footprint. All of that's within Texas and Louisiana. And it's simply -- we picked the top 10 geographies by loan balances or by outstanding balances. And then the kind of catch-all the other would be just everything else within our existing footprint. We don't have anything outside of our kind of core Louisiana Texas footprint. But the reason that we have those geographies listed above is it simply force ranking the top 10 geographies by loan balance. So, everything within our footprint.
Just think of it, Brett, as outside the listed [Technical Difficulty] every other market that we serve and bank today.
It just speaks to the diversification, the geographic locations, where we believe in diversity of geography, and I think that number shows how well spread out we are over our footprint.
And then just one last one for me. On the funding side, I missed the number that you gave for the DDA growth, the gross DDA growth that you had, but you're obviously being able to keep DDA balances relatively healthy versus maybe some others that have had more downside to that number. Are you -- one is -- what was that number? And then secondly, you kind of think there's mix shift change still from here? Or do you kind of feel like you can grow the DDA to kind of keep the concentration levels the same?
Yes. The number was $43 million in total new noninterest-bearing deposits gross for the quarter and the second number I gave to that was that, that number helped us have an average of about $14 million per month so far year-to-date. And I do agree with your statement that has allowed us to keep that noninterest-bearing, like a lot of our peers have experienced that noninterest-bearing just declining even further. So, we're paying a little bit of offense by playing defense on that.
And then, Jude, any comment on the outlook for that? Do you think you continue to keep that flat? Or what's your thought on funding composition from here?
Yes, I think we -- that was Greg talking, but I think we finished the quarter if I remember at about 27% of noninterest bearing. And I think we anticipate maybe losing 1% or 2 by the end of the year, which is in line with what we've said last quarter and a quarter before, but we believe we'll finish up the year around 25% noninterest bearing, maybe 26% and we're not -- it's a focus of ours. And as Greg mentioned, we are opening a lot of new accounts and with the new branches that we've opened, I think that gives us an opportunity to call on new clients and so our goal would be to kind of remain about that 25% over time, if not improving it.
Our next question comes from the line of Graham Dick with Piper Sandler.
So, I just wanted to just go back to the loan growth front and apologies if I missed this, but I heard there's a lot of payoffs this quarter. You're still in some pretty good markets, dollars seems to be growing pretty substantially still. How are you guys thinking about loan growth going into 2024? Is it going to be a pretty steady 7%, 8% kind of like what you're looking at this year? Or do you think there will be a step down maybe as the rate environment continues to work its way through borrowers' appetite for new credit?
No. We think we'll return to kind of 7%, 8% range for next year. Our pipeline and connectivity is still strong. We purposely chosen to manage capital and manage margin, which has meant that we've done fewer loans than we could. And as we continue to work on earnings and growing within those earnings, that gives us more room for growth in loan book. And -- but it's not -- hasn't been a question of the managers dropping off cliff.There is some slowdown in demand, but we also have been selected, but we feel confident that we can -- again, we'll have to have a little uptick in the fourth quarter to equal our 7% to 8% projection for the year and uptick would be, I think, in the 5%, 6% range, maybe 4% to 5% range. But then we feel well positioned to be able to kind of maintain that 7%, 8% over the course of the year. And again, to Greg's point, we would have been at that 4%, 5% without the unexpected payoffs. And I would emphasize the unexpected payoffs were all for good reasons. We just said developers that sold projects that came to fruition, which is how it's supposed to work. So, we're pleased about that.
And then you mentioned on capital building internally kind of you guys have managed through this year. How are you thinking about capital priorities right now when it comes to, I guess, a couple of options? First, being like organic growth. And then the second, maybe like a bond restructuring type transaction. We've seen a lot of that recently. And then, I guess, third, you did put in that new slide on M&A. So, just wondering what your thoughts are on that front as well. So, do you guys have a way you're thinking about capital allocation right now as it relates to those items?
Yes. I think #1 priority is funding organic growth at a good moderate but healthy pace, one that grows within our capital stack and within our retained earnings. We do analyze opportunities to restructure the investment portfolio from time to time and when that option seems to make sense, we'll take advantage of that. We haven't decided to pull the trigger, obviously, on that yet, but it doesn't mean that we're not open to it.And then on M&A, while it's not our priority in terms of how to spend capital, we do believe there will be opportunities for us to review and partnerships for us to consider and we're prepared to do that under the right circumstances, but don't feel like we need to do it. We'll just do it if it makes a lot of sense for our strategic plans. But #1 priority is funding the organic growth.
And then I guess the last one for me. Another I guess, sort of a big picture question, but it looks like the 1% ROA target is within reach this year. Is there anything you're looking at for next year or the year after? Any new sort of level you guys are targeting or new metric you guys are looking at achieving?
I think it's probably a little early. We're in the budgeting process, just kind of [ big on it ] and probably with the amount of uncertainty that's out there now, I think it would be a little bit too early to make any forecast of improvement there. I mean we're going to -- that's our goal. We want to keep managing that over a multiple year period. One reason we put in the chart about a 5-year improvement across all of the profitability metrics is that we want to show that we're committed to that being the key driver of how we make decisions over time. And so we'll continue to work. We do believe that over the long run, we'll move closer to that 1.15%, 1.20% ROA. But in the short run, it's a little hard to predict given all the moving parts. And again, we're just beginning the budgetary process.We feel like this year was a big step in terms of achieving that 1% kind of baseline and we'll continue to work to build from it from there. I didn't -- we didn't put the M&A chart in to necessarily signal that we were getting ready to do M&A. We did it just to show that over time, the M&A that we have done along with other decisions that we've made have led to improved performance. And I know from an institutional investor standpoint or from an analyst standpoint because we were quite active on the M&A front, I think there was some concern that maybe we were just doing deals to do deals and I'm being a little dramatic here. But we take it as a point of product that the deals that we have done have made us a stronger franchise. And so we felt like we had enough information now to do a little look back and prove out the case for our combined M&A and organic growth strategies and we'll continue to make capital decisions with those longer-term goals in mind.
Your next question comes from the line of Kevin Fitzsimmons with D.A. Davidson.
First, I just want to do a little housekeeping because I was trying to keep up with you as best I could, Greg, but I'm getting slower with my age here. But -- so what you said about the fee revenue base, you said $8.4 million is a clean run rate and good to use for going forward? Is that -- am I correct there with what you said?
Yes, that's correct. A little bit of nuance that I may not have conveyed, but we think that's probably a clean run rate for '24 because we had some one-off SBIC, for example, and there was unexpected revenue in '23 that really, we expect that noninterest income number to grow. But because we're going to back out that, for example, $2 million out of the run rate that we experienced in '23, holding that $8.4 million flat really is a growth number for us.
That's good clarity. And then on expenses, you made the point that $39.5 million is a better run rate, right? And they were -- and then in '24, more like mid- to high single-digit off of that. Is that -- and I know you went through a couple of nuances from expenses MasterCard, FDIC assessment.
Yes, Kevin that's right, that's the right thinking, the $39.5 million is kind of a launching point and then that percentages that I've mentioned is right.
And then -- it might -- maybe it's -- I don't know if you -- it's something you're just looking at right now, but given what's still a challenging revenue environment on the expense side, is there anything specific you guys are looking at? Or in terms of moves? Or is it more just an everyday battle on the expense side? How you're going to approach that?
Yes. I think as far as interest expense, yes, it's -- we're just working hard every day to try to gather those deposits from those expand customer relationships that ultimately help us win and reduce, like I've mentioned, our reliance on borrower-broker, those kind of things. And we think we've set up a balance sheet where we -- as we keep winning on the deposit side, we'll have the optionality to pay that all and help us on that overall space.
I think assuming your question was also though about noninterest expense. Yes, I think it's more of just a daily decision-making. There's not a part of our franchise that we feel like we need to cut off in order to save expenses and we feel like one reason I mentioned the branches earlier is that -- and we have a slide in the deck to speak to this, but I think we've done a good job of continuing to rationalize the network over time as opposed to allowing branches that we bought or acquired an M&A or become obsolete of our legacy branches as opposed to letting that kind of hang out there where we have to come back and do a 10% reduction. I think we've done a good job of every quarter analyzing our infrastructure and figuring out where we might, if not cut, maybe redeploy into more productive growth-oriented locations. So, we'll continue doing that real-time on a quarterly basis and that's kind of how we view hiring as well.One of the reasons that we've had that we've displayed good expense control this past quarter and the quarter before that is that we made some decisions about hiring or putting all hiring until we feel comfortable that the revenue would justify it. And so we'll continue on a quarterly basis to -- or actually on a real everyday basis to think hard about investments in infrastructure and in people. We did in 2022 -- 2021, we made quite a few hires of bankers. And we feel like there's still some capacity there in terms of portfolio and workload, particularly at this kind of slower loan growth rate. And as we've kind of transitioned over to focusing more on deposits as well. So, I feel like we've got a staff that is capable of continuing to incrementally build. And I think that's a good spot for us to be in right now versus embarking upon a particularly expensive growth options. So, expense control is something that we ought to be thinking about on a daily basis as opposed to ignoring until we have to, I guess. And that's the way we try to approach it.
And one last one quick one for me. On the subject of deposits you guys called out the financial institutions group for contributing. Just curious if that was more something deliberate you guys were pushing? Or was it more just the behavior of the client banks themselves in terms of giving deposits over to you guys?
No, I think our approach to see in general is we want to make sure that, that's a relationship with banks that also are looking at other pieces of our product offering. And for example, loan sales, customer relationships with our SSW Group. So, it's not -- we are looking for deposits, but I think it's not a deposit-cost strategy, we're looking for more of a relationship with all of those bank clients. That's about $200 million right now. So, it's still a fairly small part of our balance sheet.
The last question comes from the line of Feddie Strickland with Janney Montgomery Scott.
Just curious, as we look into 2024 and beyond, are there markets outside your footprint you'd be interested in expanding to if it's organic, more likely organic in the near-term and maybe longer-term M&A? Or do you feel like you have plenty of opportunity within the footprint you have now?
I don't really view it as a binary choice, I guess, is the way that I would say it. I mean I think our priority and our most immediate opportunity is certainly within our existing footprint and enough opportunity there to say grace over for many years if that's what we choose to do. I do think that as we gain momentum and as we gain brand recognition, one of the -- that's not just among client base, but it's also amongst potential teammates and employees that maybe attracted to a bank such as ours. And if we come across the right employees then we would be open to move into other geographies if it's the right fit.We've always -- while we have a general thrust to where we want to invest, we also have been very banker-specific in terms of the specific markets that we've -- it's been more about the banker than it has been in the location. For example, the McKinney operation that we just opened, although certainly on a numerical basis, when you think about the demographics, McKinney is a very attractive place to be. But we wouldn't have opened in McKinney if we didn't find a banker and a banking team that we felt were the right teammates in that market and that we trust it to help us grow our franchise.So, as we think about future geographies, I do think we'll look in other places in the Southeast over time, most likely the Southeast. But the order of preference will be determined by the quality of partnership that we feel we can put together. And so if that happens, that happens and if it doesn't, we feel like we can deploy capital constructively over time within our current footprint.
I would -- this is Philip. I would just add as far as the McKinney hire is concerned, we are very excited about that opportunity, but he's actually been on staff over a year in getting our [ Leesville ] office, immediately built up the portfolio. So, we did -- when we did open McKinney wasn't a cold assets, paid for itself.
And I get it. It's all about a finding the banker first. Just one last one for me. As we look forward in 2024, I appreciate talking about all the moving parts ROA, everything else. But do you think we could see efficiency ratio, core efficiency ratio below 60% potentially in the back half of '24?
Yes. I think that's what we're striving for. I think looking at that, as you well know, really the deposit gathering and deposit costs will be the key to that. But that is our goal. I think that's probably a fair enough way to answer that.
The final question comes from the line of Michael Rose for Raymond James.
Just a few quick ones. Greg, I was hoping you could kind of give a range or kind of quantify what the impact of the seasonal municipal deposits is and what we should expect?
Yes. That's -- we usually see $150 million to $200 million come in over the course of a quarter. That does impact the margin negatively because of the cost of those funds that come in, they're mostly interest-bearing. But I think the biggest part that we usually struggle with forecasting is tax money. So, it's all dependent on the speed of which it comes in, for example, last year, it came in very, very late the end of Q4 and balance of in Q1. It just really depends on when the taxpayers bring the tax payments in, but it's about $200 million in total.
And then it seems like loan growth is going to kind of reaccelerate here as we move into next year. You guys have done a good job on the deposit side. Now the loan-to-deposit ratio has gotten down in kind of the mid-90s. But it seems like maybe that's going to go up again. I assume the target is to kind of keep that sub-100%. Is that what we're thinking? And I know you talked about some of the cost stuff earlier, but is there anything more that you're looking at to grow some of the core funding?
Yes. I think definitely, we want to -- we'd like to stay below 100%. One of the reasons with the excess liquidity is to paying off the fund, but it's also -- just to make sure we have some lever room in terms of liquidity so that we can do that even if we have certain relationships that we feel may take advantage of. The governors on the loan growth though, will be capital, retained earnings, capitalizing that growth and then deposit generation. So, we would love to be able to generate deposits at a rate slightly greater than loans that may not hold true every single quarter.But over the course of the year, we feel like with our -- the focus and results that we've demonstrated this year and results, so it's one thing to have the deposit growth, but it's another to actually demonstrate internally that the more balanced approach to growth pays off in terms of higher earnings. And that's a positive thing for us to be able to demonstrate and we have demonstrated it over the course of the year. And as we talk internally, as we think about incentive programs, as we think about continuing to build upon the cultural aspect of placing importance on deposits, I don't see any reason that the improvements that we've demonstrated this year won't continue into the future.And we certainly, I've talked before about 3.5, 4 years ago -- 3 years ago, 3.5 years ago, we set a 5-year plan. And part of that was achieving a certain level of growth in asset size, which we felt was kind of a sweeter spot to be in. As we've come close to that now in our own pace to get there over within the 5-year plan, that means, as I've talked about in previous quarterly calls that it's a bit more of a focus on not growth, but on healthy profitable growth. And so that means that we're not going to -- we won't return to as high level of loan growth in the near future, focus on balance growth, which would imply that we want to maintain that below 100% loan-to-deposit ratio. And we certainly feel like the 8% -- 7%, 8% loan growth next year that we feel we could do needs to be accompanied by a similar level of deposit growth and that's our -- that's what we'll work to do.
And that dovetails into my final question. It just seems like putting together all the pieces, it looks like you guys should be able to eke out some positive operating leverage next year. Is that the way we should think about it?
That's the goal. I mean, I think that we've been -- we're doing that -- we've done that last couple of quarters and certainly want to continue to do that. So yes, I'll be -- at this point, we don't.
And Michael, one of the things your point about seasonality in the tax funds coming in and out, remind there's some seasonality in our expense base in Q4. I just want to be sure we highlight Q4 seasonally higher about $1 million, a little over $1 million on the expense side. So, I just wanted to make sure we didn't lose sight of that.
All right. Can we get --
Any more questions?
I think we've lost our narrator.
I'm here. I was just -- I'm here. I was just leaving more room for questions. [Operator Instructions] All right. It looks like there are no further questions at this time. I would like to turn the call over to Matt Sealy.
I think I'll kick it to Jude for any closing remarks that you might have.
Yes. Thanks, Matt. Well, I appreciate everybody's time today. We were very pleased with the quarter. I mean it's from a capital accretion to the earnings improvement to the focus on adding liquidity in an environment in which liquidity is hard to come by and doing so at fair prices that were damaging to our margins. I think we -- I think from an operating standpoint, we had a great operating quarter. And I think continuing to do that over time, will justify stock appreciation as the market normalizes at some point in which I know it seems like it's been a long time and it could potentially be a while. But at some point, banks will be in favor and we feel like we're positioning ourselves to be one of the higher flyers in that market. So, we'll keep grinding it operationally. We're proud of our team and appreciate the interest. Happy to have any follow-up calls that we need to have. Have a good night.
Thank you. This concludes today's conference call. You may now disconnect. Have a great evening.