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Business First Bancshares Inc
NASDAQ:BFST
Business First Bancshares Inc
NASDAQ:BFST
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Hello, and thank you for standing by. I would like to welcome everyone to Business First Bancshares Q1 2025 Earnings Conference Call.
I would now like to turn the call over to Matt Sealy, our Senior Vice President, Director of Corporate Strategy and FP&A. Mr. Sealy, the floor is yours.
Good afternoon, and thank you all for joining. Earlier today, we issued our first quarter 2025 earnings press release, a copy of which is available on our website, along with the slide presentation that we'll reference during today's call.
Please reference 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 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 Chairman and CEO, Jude Melville; Chief Financial Officer, Greg Robertson; Chief Banking Officer, Philip Jordan; and President of B1 Bank, Jerry Vastaku. 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.
Great. Thanks, Matt, and good afternoon to everybody, and thank you for spending the time with us today. We know you have choices to make, and we appreciate your prioritizing our company. At a high level, we were quite pleased with the first quarter's results, most of which exceeded expectations. One of our guiding principles is centered around striving for continual incremental improvement, and we were able to demonstrate that concept in action on a number of fronts.
Profitability continues to be consistent with core ROA or exceeding 1%. Our officers are doing a good job of selectively holding the line on loan yields with weighted average new and renewed yields of 7.71% during the fourth quarter, while overall cost of funding continued its downward trend, leading to core net interest margin expansion of 8 basis points for the linked quarter.
We benefited from a continued build in capital levels with our TCE now exceeding 8% while our consolidated TRBC ratio exceeds 13%. While there was a positive movement in our AOCI exposure, the bulk of the capital bill came through retained earnings. I'm especially proud of our continued focus on expense management with another quarter of better-than-expected expense trends. while continuing to execute on material IT and infrastructure investments, leading the efficiency ratios continuing to move in the right direction, the trend we expect to continue.
Noninterest revenue is contributing meaningfully to bottom line profitability with another quarter of strong swap fees and SBA loan gains on sales as we -- as well as contributions from various SBIC investments being the main drivers of continued growth in aggregate noninterest income.
As a reminder, we closed the acquisition of Oakwood Bank in Dallas, Texas on October 1 of last year. To date, the integration has proceeded as expected with conversion set for September of this year. We're very pleased with the cultural fit of the former Oakwood team, the most important component of any successful acquisition.
Returning to our theme of incremental improvement in expense control, I'd like to direct you to Page 14 in the IP, which shows our current branch network, which we remain focused on optimizing. As a part of that ongoing process on April 4, we closed the sale of our [indiscernible] Louisiana branch, which included the sale of approximately $51 million in deposits at a deposit premium of 8%.
I do want to discuss balance sheet growth and credit as well, even though they weren't on surface level was positive in some of our other trends. We did experience modest negative credit migration during the quarter, primarily due to 2 C&I relationships. I'll let Greg provide more detail on these in his report. However, we continue to feel good about the credit quality of the broader portfolio, even as metrics continue to normalize. The balance sheet contracted during the quarter with loans effectively flat on a linked quarter basis, while deposits decreased $53 million.
On the loan side of the equation, we continue to be biased towards net interest margin over volume, the stance we believe to be prudent in today's uncertain environment, and I'm proud of our maintaining our profitability levels without relying on loan growth. So I will say we feel good about our pipeline in the second quarter.
It's worth noting that paydowns and payoffs were materially higher during quarter 1 than we typically experienced, primarily due to a handful of larger construction loans resolving.
On the deposit side, recall that last quarter, we experienced a large net influx of core deposits due to the seasonality around public and municipal funding. Some level of runoff was expected to occur during the first quarter. And if you were to look at Q1 '25 and Q4 '24 on a combined basis, total organic deposits, excluding Oakwood, would have increased to $144 million or 5.1% annualized from September 30, 2024. All in all, it was a healthy foundational quarter to start the year.
I don't know that we've had the opportunity to operate in any extended period of certainty over the course of our tenure as a public company, which began in 2018. And yet, we've consistently found a way to not only navigate the challenges of our industry and the challenges our industry and country have faced, but have continued to grow and strengthen our franchise throughout these challenging times. We entered the second quarter a better reserved, better capitalized, more diversified in credit exposure and revenue sources and more experienced than any time in recent memory. I'm confident that our team is prepared to continue not only navigating but building, improving and indeed thriving as 2025 unfolds.
I thank you again for your time. And with that, I'll turn it over to Greg.
Thank you, Jude, and good afternoon, everyone. As Jude mentioned in his remarks, the first quarter marked a strong start to the year. I'll spend a few minutes reviewing our results and will discuss our updated outlook before we open up to Q&A. First quarter GAAP net income and EPS available to common shareholders was $19.2 million and $0.65, and included $155,000 gain on former bank premises, $630,000 gain on extinguishment of sub debt and a $679,000 acquisition-related expense and also a $216,000 core conversion-related expense. Excluding these noncore items, non-GAAP core net income and EPS available to common shareholders was $19.3 million and $0.65.
From our perspective, first quarter results were highlighted by good expense management, strong fee income and solid margin expansion. Total loans held for investment remain relatively flat on a linked-quarter basis, down just $480,000 as payout and payoffs were elevated during the first quarter. Specifically, total scheduled and nonscheduled payoffs and paydowns totaled approximately $500 million, which matched total new and renewed loan production of $500 million as well during the quarter.
Real estate construction loans decreased $36.8 million from the linked quarter compared to an increase of $49.8 million from the linked quarter of real estate, residential loans, largely due to conversion of multifamily construction to permanent financing. Based on unpaid principal balances, Texas-based loans remained flat at approximately 41% of the overall loan portfolio as of March 31.
Total deposits decreased $53.2 million, mostly due to net decreases and noninterest-bearing deposits of $48.7 million on a linked-quarter basis. The net decline was primarily driven by customer withdrawals as opposed to full account closures. I think it's noteworthy that while net deposit balances declined from the fourth quarter, we did manage to generate approximately $380 million from new deposit account relationships. I also think that it's worth noting that the decline in deposits during the fourth quarter was not completely unexpected.
Recall, the prior quarter benefited from seasonally strong deposit inflows and which we did expect would roll out to some extent during the first quarter.
Lastly, on the topic of deposits on April 4, 2025, as Jude mentioned, we completed the sale of a South Louisiana branch to a local community bank. Total branch deposits, loans and fixed assets net of depreciation were $51.2 million, $2.3 million and $1.4 million, respectively, and are included within the within the consolidated balance sheet as of March 31. The negotiated deposit premium of 8% was recognized in conjunction with the closing of the transaction on April 4. We also managed to modestly delever the balance sheet during quarter 1 by repaying approximately $39 million of short-term FHLB advances and $7 million of subordinated debt.
Lastly, I'd also like to call out our linked quarter increase in contingent liquidity of approximately $600 million. Our GAAP reported first quarter net interest margin expanded 7 basis points from the linked quarter from 3.61% to 3.68%, while non-GAAP core net interest margin, excluding purchase accounting accretion, increased 8 basis points during the quarter from $3.56 to $3.64 -- both GAAP and core margin for the first quarter continued to expand due to improved funding costs and disciplined pricing on new loan production, which Joe mentioned previously.
I think it's worth noting that our total down cycle to date, interest-bearing deposit beta for the first quarter was 54% assuming no rate cuts until the second half of 2025, we would expect deposit costs to remain relatively flat in the near term, but will be affected by our ability to retain and attract lower cost funding of noninterest-bearing deposits. First quarter funding costs benefited from a full quarter impact of the Federal Reserve's November and December rate cuts, we are pleased with our ability to manage down our deposit rates.
Total interest-bearing deposits cost declined 18 basis points from the linked quarter, highlighted a 26 basis points quarter-over-quarter and a reduction in overall money market deposits and 17 basis points reduction in overall cost of time deposits. Notably, the weighted average total cost of deposits for the first quarter was 2.69%, down 12 basis points from the linked quarter. While March weighted average cost of total deposits came in at 2.66% showing improvement. While further improvements in funding costs are subject to the Fed's interest rate decisions, we remain encouraged by this trajectory.
I would like to make a note of a few takeaways to Slide 21 in our investor presentation. We continue to see 45% to 55% overall deposit beta is achievable. I would also like to point out that our -- overall core CD balance retention rate was 83% during March. That impressive statistics reflects our team's continued focus on maintaining and retaining core deposit relationships. As you will also see on Slide 22, we have approximately $2.7 billion in floating rate loans at approximately 7.67% weighted average, but also have approximately $570 million fixed rate loans maturing over the next 12 months at a weighted average of 6.06%, which we would expect to reprice in the mid- to high 7% range.
Last thing I want to add is our expectations for loan discount accretion to average approximately $750,000 to $800,000 per quarter going forward. Moving on to the income statement. GAAP noninterest expense was $50.6 million included $679,000 of acquisition-related expense and $216,000 in conversion-related expense. Core noninterest expense for the quarter of $49.7 million, increased approximately $700,000 linked quarter, primarily due to the partial merit impact as well as the FICA and bonus accrual resets -- we expect a continued increase in core expenses in upcoming quarters, mostly due to the full quarter impact of our Q1 marisalary increase as well as continued investments in IT and infrastructure.
We think the current consensus outlook for core expenses in the low $50 million range per quarter is reasonable. I would, however, like to remind folks that given the late 2025 conversion of Oakwood, we don't expect to have any material cost savings on that transaction until later in the year. First quarter GAAP and core noninterest income was $13.2 million and $12.4 million, respectively. GAAP results did include $155,000 gain on a former bank premises sale and $630,000 gain on an extinguishment of sub debt mentioned previously.
Noninterest income results for the first quarter did come in slightly better than we had expected and were driven by strong SBIC income and SBA loan production and sales. due to the unusually high contributions from equity investments, income and SBA in quarter 1, we would expect a slightly lower run rate in the near term -- over the long run, we do continue to expect an upward trend, as we've mentioned on calls in the past and our core noninterest income, although their trajectory may be bumpy from quarter-to-quarter.
Lastly, I'd like to provide some context of the credit migration that Jude mentioned earlier. During the first quarter, NPAs increased 27 basis points from 0.42% in Q4 to 0.69% in Q1 with the increase driven by 2 C&I relationships totaling $8.4 million. Annualized net charge-offs decreased from 0.04 basis points from 11 basis points in Q4 to 7 basis points in Q1. Due to the deterioration in 2 relationships during the quarter, we have elected to reserve $2.3 million against the credits.
One of those credits is fully reserved and the other credit is about 25% reserved. We believe these were isolated issues and do not expect any broad-based decline in further credit quality across the portfolio.
With that, that concludes my prepared remarks, and I'll hand the call back over to Jude for anything you'd like to add before I open it up to Q&A.
That's great. Thanks, Greg. I don't have anything to add before we hit the questions. Look forward to hearing from you and thanks again for being with us.
[Operator Instructions] And our first question comes from the line of Matt Olney from Stephens.
I'll start on the loan side. I think the loan balances, as you mentioned, were flat because the higher payoffs during the quarter -- but based on that commentary, it sounds like the pipelines are healthy, but also we have to layer in some macro uncertainty. So would just love to hear your thoughts on internal expectations for loan growth for 2Q and the back half of the year?
Matt, thanks for calling in. Thanks for the question. Yes, I think for going forward, we expect loan growth. We're happy with the pipeline. We expect to continue our low to mid-single-digit forecast quarter-over-quarter. That will that will probably put us somewhere in the lower single digits by year-end because of the flat first quarter, but we feel good about the pipeline and still continue our strategy of growing within our retained earnings.
Okay. I appreciate that, Greg. And then on the on the core margins, another quarter of really strong improvement there. Based on what you see today, would love to hear any updated thoughts around the core margin and how that could progress throughout the year.
Yes. I think we expect to continue to grind out some improvements on margin probably more in the low single-digit basis points here going forward. I don't think we're going to expect to achieve the 8 basis point expansion in the future quarters just because of the interest rate uncertainty going forward. And some real deposit pressure we're seeing in the market. So that's kind of the way we feel about it.
And just to clarify, Greg, that low single-digit margin expansion, that was kind of a quarterly assumption over the next few quarters. Is that fair? .
Yes, that's correct, Matt.
Okay. Perfect. And then just lastly for me on the fee side and other really nice quarter. I think SBA sales were really strong. It sounds like you think that the quarterly fee progression is still a little bit in the near term. I just want to make sure I understand kind of the puts and takes around that.
Yes. I think what's reasonable to expect is that's going to be from an $11.5 million to $12 million on a quarterly basis going forward as compared to the 12.4% GAAP number this quarter. If you think about -- we had an SBIC income that was about $700,000, a little more than that for this quarter, and those are hard to predict when they'll come in. And obviously, the SBA and the swap income that we're building is somewhat lumpy, but we're pleased with the scale that we're seeing.
We feel really good about the muscles that we've been developing on this front over the past year, in particular. We did -- we partnered with Waterstone last spring, as the SBA loan service provider and anytime you bring somebody in, it takes a little while to make sure that we all are talking the same language and on in the right direction. But the directional improvement over the past 5 quarters has been pretty significant and then not only quantitative but qualitatively, we're just -- our bankers are much more comfortable talking about the product and navigating the systems in the right way.
So we do think the first quarter was outperformance from the SBA perspective. But we do think we've reached a level of just slightly below that, that we could feel as kind of a new base for us, which is exciting. And I would say same is true on the swap income.
Fourth quarter was outperformance there and first quarter was probably more typical. So between the 2, we feel those 2 being our biggest drivers, we feel optimistic about the ability to continue to improve that incrementally over the course of the year.
Yes. Well, definitely a nice start to the year. I'll step back.
Our next question comes from the line of Michael Rose from Raymond James.
So I think if I heard you right, the branch sale, I think you came with about $51 million in deposits. So that would render kind of deposit growth kind of flat. Can you just talk about any moving pieces on the acquired balances this quarter versus core. I think you did that for loans if you set up for deposits. I missed it.
And maybe some of the expectations as we think about the next couple of quarters for deposit growth.
Yes. Yes, Michael. We'll give us a second to pull the actual organic. So what we were referencing a Jude mentioned in his comments was on the organic deposit growth would have been over the trailing 2 quarters annualized. Just simply saying, if you think about the influx that we had at year-end from the municipalities and public funds, if you were to look at it on a kind of a 2-quarter basis because that rolls in and then we'll roll out some.
So we did provide the 2-quarter annualized organic piece for the deposit side. don't have that at our fingertips on the loan side. But that was -- the rationale was to just simply say, if you look at it on the trailing 2 quarters, simply because of that large influx at the end of the year, we did expect that runoff. That's why we thought it was important to provide that context. So give us a we can try to find what the organic piece would be over the trailing 2 quarters.
I think the other I think the other part of your question, Michael, was about the capital and sale and just to clarify that, that was done at the beginning of April. So that would not have been reflected in the deposit movement in the first quarter. We were just kind of previewing that movement, which will make it more likely that we're flattish in the second quarter because we made that decision to focus on the operational expense control and we're able to do so partnering with a local community bank that we were proud to be able to help them and did so at a good deposit premium. So it's really a win-win. But that was for the second quarter, not for the first quarter. .
If I missed that.
No, no, no, you're fine because if you -- so if you think about second quarter, that $50 million that were kind of started off in the hole in a sense on deposit side. So to your point, Q2 might be a little more muted just simply for that fact alone.
Got it. Very helpful. Maybe just separately on Slide 31, just the some of the commercial real estate stuff. It looks like the special mention category has increased fairly meaningfully. I would assume some of that is related to the deal maybe. But just any color there and what you're seeing.
That's a great question. The credits that I mentioned or C&I credits, they're not commercial real estate. But it's a good question, and it allow me to put some context around this -- the watch list and the special mention if you think about as a percentage of CRE loans, commercial real estate loans, the watch list is only about 6% of all pre loans.
And the -- about 57% of that group are special mention or what we call pass watch, which could be downgraded in our risk rating system based on the rise in the interest rate environment since origination, which would put some stress on debt service coverage. So that would be an example of that.
Perfect. And maybe just finally for me, nice move in intangible equity. I know you guys are going to be building capital pretty nicely here once all the cost saves are realized. Any thoughts on capital return at this point, i.e., buyback -- just would love some thoughts just given where your stock is trading and many bank stocks for that matter, but you're seeing more banks lean into buybacks at this point?
Yes. I don't -- we certainly are always thinking about it as an option. I think we probably have a little more capital build to go before it would make sense just as we prepare for both opportunities and challenges over the next year, 1.5 years. And I think we're on a good pace to exceed our expectations in terms of capital build for the year with a good strong start.
But I think we still have a ways to go before it. So a realistic lever to pull. Now of course, things could worsen and maybe the opportunity becomes greater and we always need to be open to analyzing the business case for different capital allocation decisions. But for now, I wouldn't expect that we're quite where we want to be from a capital build standpoint.
Yes. I mean, we've started to do the work on that to Jude's point, I think we're not quite there not quite there from a capital standpoint. But if it presents an opportunity in the dilution and the earn-back makes sense, we'll have the analytics done and be ready to move with.
Our next question comes from the line of Feddie Strickland from Hovde Group.
Just to ask you, is there any areas in the loan portfolio that you're taking a little closer look at, maybe deemphasizing new growth just in terms of loan or collateral type was a thought to just future credit expectations or even rate?
Yes. I don't know there's a particular area that we're looking to down scope significantly. We have been working, in particular, the past couple of years on making sure that our C&D exposure was back within bounds that we feel comfortable with going forward. We were -- although we have a good track record of return of -- on the C&D portfolio, we were about 120% 18 months ago-ish. And down in the 70s now, which we probably continue -- we probably want to continue down trending a little bit, but certainly not with the same kind of urgency that we that we displayed over the past 18 months.
So we have a more diversified portfolio than we've ever had, really, and that's the type of phones and geography. And we like that and want to continue to pick up opportunities where we can find them. So I wouldn't say there's a particular area that we're that we're anxious to downshift in, but we want to continue to stay balanced and continue to look for opportunities where we find them. And get better at what we're doing. Part of -- we have a pretty high -- relative to a lot of community banks.
We have greater exposure in the C&I world, which is, I think, a positive overall, given the more relationship orientation that C&I loans tend to bring them, but that also implies smaller average exposures and provide assumes more execution demand, not only for underwriting, but for performing over time with C&I. And so we'll continue to make sure we're building our systems internally to continue to be able to hold them.
And I think our opportunity is more around getting better at it then moving away from it, given all the investments that we've made over the past really a decade to move in that direction. We also -- we spent the first half of our career at least from a perception standpoint being overexposed to energy, and we're down below 2% down. It's really a nonfactor there in terms of being overly concentrated which means that that's another area that we can just take it on a case-by-case basis. When we say energy, we still don't mean production-based loans.
We're not doing reserve-based loans or exploration we're doing C&I loans for typically for mom-and-pops in our local communities. And I'm excited about the Well, we're proud of the vast improvement we've made. We were at a high of 20% 6, 7 years ago and to be a little bit less than 2%, really gives us more flexibility on that front to serve our better clients in better ways.
Appreciate that, Jude. And just 1 more for me. Just -- I know you have a relatively new acquisition to digest here, but as we think out longer term, are there any markets in Louisiana, you're not in that you want to be in longer term? Or would you consider looking to the east at some point -- either through a team lift out or acquisition? Or is it just Louisiana and Texas for the foreseeable future?
We -- over time, we'll be open to the IDF team lift out. But for now, we think we have plenty of opportunity case in Louisiana and Texas. And we are already in the largest markets in Louisiana, not to say that there aren't a couple or a handful of markets that we would like to be in anywhere in Louisiana would be a bit of a fill-in for us, which means lower risk opportunity.
And so we will be open to that if it was the right team or the right M&A partner. But almost anywhere in Louisiana, again, would be would be either fill in or building on our existing leadership structure and Texas obviously is more open. We're in -- we're primarily in Dallas and in Houston and all else being equal, the chances are we're going to continue to fill in our current footprint.
But that said, we have been successful in recruiting some folks from larger banks and those folks know folks and if there are opportunities to do team lift outs from time to time, we'll look at those. But #1 priority right now is growing within our current footprint.
Understood. That makes sense. I'll step back.
Our next question comes from the line of Christopher Marinac from Janney.
I wanted to drill down on Dallas-Fort Worth market in June or others what's the opportunity to grow organically their deposits? I feel like you're stable with Oakwood and perhaps the conversion will you to the next chapter. But just curious on sort of new accounts there and if that's a market that will sort of get tighter in terms of your loan to deposit relationship.
That's certainly the intent. We have 11 branches now between our organically developed ones and the Oakwood acquisition. We haven't -- we'll do in September, we'll do the conversion. And I think that's that makes it more likely that we'll be able to put an increased sales focus on the deposit growth in Dallas at that point.
So I think more -- I think getting to our own internal conversion and then the Oakwood conversion is probably a there's a couple of steps that we need to enact successfully or really position us to grow the deposit base there. But we have enough of a franchise critical mass in Dallas now that I would expect that over the next couple of years, we would seek to narrow that gap. And -- but I would point out the gap really isn't bad. We've been able to grow organically there. We have focused more on our commercial clients there as opposed to retail.
And so we have a higher percentage of noninterest-bearing accounts and tell us than we do in other markets. And so from a quality of -- or from a cost, quality and cost perspective, we like our deposit franchise that we've been building in Dallas and Oakwood was commercially focused and so has the same kind of dynamic. So we would seek to continue that. I would also say that I think one of the strategies that we've tried to enact over time is to have diversified enough footprint between the urban markets and the more rural markets that we can have each of the kind of 2 halves of our franchise support each other.
And -- so it's certainly not the end of the world for a deposit base to come primarily from some of the slower-growth markets. Our biggest deposit contributor over the past couple of years has been our Southwest Louisiana -- market, which has just been stellar in terms of its deposit growth. And that really has help fund that gap and maybe all of that gap in Dallas. And I think those -- I think our multiple markets working in concert is really the goal.
With that said, yes, I do think we have the opportunity now that we have a more built out branch network to do -- to drive more deposit growth in Dallas. And we're really at a point in Dallas where I don't anticipate needing to add a significant number of additional branches. We have an office in Westlake now that has opened an LPO -- and so over time, I'm sure we'll make that into a full-service branch. But there are really only a couple of other spots in the market that we need to be in to feel like we have the coverage. And so most of our infrastructure investment, I think, has been made -- and now it's more a matter of making sure that we're just working the production lines to be successful and be successful in a more of an organic value-adding win.
Got it. That's great. And then just I guess a point that Greg made about new loan growth earlier in the call. Is the high 7s is a good number to use for both C&I and CRE? Or are there are some nuances there when you kind of look at the type of loan production.
Yes. I think the -- probably the reality is with C&I, we'd be closer to 7%, CRE is going to be higher up in the higher 7s. Just based on the structures we're putting together. Most of the C&I stuff tends to be variable price and the CRE has a little bit longer duration. So that's the way you can think about it.
Yes, one of our opportunities, as Jerry speaks about [indiscernible] in fact, if you want to mention it. I mean we do -- we have room in our balance sheet now to do CRE and C&D even. But we want to be sure that we're getting paid appropriately for locking up those dollars. So I don't know if you want to.
Thanks, Jude. I was going to mention that. It's nice to see some really good work going on within the teams to differentiate between the types of clients that we've got so that we can maybe earn a little higher yield on the commercial real estate, they not owner-occupied stuff and be able to compete even harder for really high-quality C&I. So we felt like it was important to put -- so you've seen over the last couple of years, we've invested in certain technologies, and we're trying to put tools in our bankers' hands so they know how to compete hard for the best clients out there and get paid inside that commercial real estate industry where we think there's some yield to be to be gathered. So -- and look forward to that.
Yes, part of our algorithm for pricing now is some of the investments and some of the IT investments that we've made with the C&I, always we've always known theoretically that C&I brings with a deposit opportunities, which allow you to be a little more aggressive on the loan yields because of the overall relationship profitability. Now we're able to actually see that real time. And that's helping us price rationally based on the overall relationship and not just the type of loan in isolation.
Yes, it's a good context around each of those decisions.
Understood. Great. I appreciate that's great background.
Our next question comes from the line of Manuel Navas from D.A. Davidson.
On your NIM expectations of kind of like a grind higher -- can you talk about its sensitivity to -- if we have a rate cut -- a spaced out rate cut? Just kind of your thoughts on NIM reaction to a rate cut.
Manuel, thanks for the question. I think we think about 25 basis rate cut downward we would most likely pick up a basis point or 2 on top of that already expected low single digits improvement.
Okay. That's helpful. And you talked about the March deposit costs hitting a little bit below current levels and the average level for the margin analysis and they're being kind of not too much more deposit cost cuts to come. Is that the right way to think about it without rate cuts?
I think that's right. What we're seeing not only with the success we've had moving the pricing in the portfolio since the November December cuts is just the liquidity in the space from a competitive standpoint. It looks like we're starting to see a few more offers of some higher rate competitive deposit offerings out there. So we think it's going to be pretty tough from here on out in the current rate environment.
Maybe just a little bit of context there. I think that Greg mentioned the total deposit -- total weighted average deposit cost for just March was $2.66. That compares to the full quarter of $2.6 million. And then on the interest just isolated an interest-bearing weighted average deposit cost for March 3/31 versus full quarter of $335 million.
Okay. That's helpful. Is that even impacting like CD renewals? Are some of those strong offers on CD renewals? Or is that still an area that you're repricing down?
No. Well, I think there's a little bit of both. So there's pull through repricing of the CD book, which we've been at about an 83% success rate on that CD pricing, but you do have to deal with the one-off competitive pricing. So we've seen some 460s out there in that CD so that's out there and it's real.
Switching over to kind of loan growth. I understand the pipelines are really strong. Is there -- and you're still shooting for that kind of low single digits to mid-single digits quarterly pace -- how is that being impacted by sentiment and kind of where could you hit the high end of that pace? And what would it take -- is it something that something could drive to the low end of that pace? Just kind of thoughts on the upside risk and the downside risk?
Well, I think for us, the reality is we typically in Q2 and Q3 see that as historically, those have been our higher growth quarters. So I would think if there's a likelihood of being on the upper side, it would be there in those quarters and then down the likelihood would be down in the fourth quarter to the lower end of that single digits, with landing probably because of the first part of the year was flat, more in the mid- to low single digits annualized for $25 million.
I think also, I would just add, you got those are our kind of internal patterns of development as a bank, but you've also got a lot of exogenous stuff happening in the environment. And and that may end up being an even bigger determinant of whether we're at the low end or high end of whatever range you might want to put on there.
I think I think as far as where we end up with tariffs, we'll probably end up in a fine spa, but I think the pace at which we get to the end will matter. And the longer we have uncertainty, I think, potentially a couple more quarters where if you end up at the lower end of the range if we're being realistic. But I think if we can get some certainty and some clarification on where we go from here, then I think there is still a lot of potential momentum in the economy and our -- particularly in our markets. And could end up being a banner year if we can just get back to business.
I'd also mention that a way of control growth is our correspondent division. We've had good luck selling loans and with pay down a more neutral growth for us, there's a bit of demand for selling ones as well. So that's nothing we always want to consider as we look when we get them. .
Yes. I'll add 1 more thing. From a sensitivity to your question earlier, what would be kind of what might move a little bit. But 1 nice thing about our pipeline is that there's a pretty good balance on the C&I and commercial real estate. So -- the C&I tends to have some fluctuating loan balances on lines of credit, et cetera, based on the needs of that client. So I'd say that's one of the things we'll be watching the utilization on these new clients that are really great wins for us, but we're going to have to get used to some of their patterns on their direct or very good to watch.
Okay. That's really helpful. And it seems that in some of the discussion, I've been talking about the loan yields have stayed pretty steady. So the competition on the loan side on the pricing side hasn't gotten as irrational as a couple of offers on the deposit front.
I think that's fair. I mean, that's a fair way to describe it. Deposits with the conference system remains slightly heightened and I think everyone is in a similar boat therefore, that on the credit side, we're not being put as much. It's -- I would say we see a little bit of downward pressure. That's why we talked earlier about making sure we're really getting an appropriate return on anything we're doing because the very top clients probably are pushing a little more than we have been.
Yes. Like I phrase as irrational, we are definitely seeing some 1 off and just trying to be disciplined.
Now our next question comes back from the line of Matt Olney from Stephens.
Just a few follow-ups here. On the credit front, those 2 nonaccruals that you mentioned, I think, totaling around $8 million. I think you mentioned you've got that specific reserve on them. Just any more color on these loans, kind of what drove the downgrade? Any color on the collateral? And how quickly do you suspect to see you'll see resolution on these 2 credits?
Yes. Well, one of them is an SBA loan that is fully reserved for our exposure. And that 1 because it's SBA could potentially be a longer unwind for resolution on that one. The other 1 is a C&I loan that the collateral is receivables. So we're currently in the process of evaluating that position not only internally, but also with the external firm that we've hired to do some evaluation. And that 1 the resolution is going to take a little bit to play out on it as the customer seems to be willing to work with us right now. So we'll hope for the best on that one.
Okay. I appreciate that, Greg. And then just lastly, on the M&A front, I know Jude, you made some brief commentary earlier, but just -- just would love some more general M&A commentary. I would assume the more recent M&A conversations have slowed. But where usage you, what are your current expectations for industry consolidation within your footprint?
Sure. Yes. I think certainly, within the past month, I think the situation has changed enough that there's some pausing of conversations and -- and just a little wait and see in my comments about the range of loan growth being impacted by certainty around tariffs and things happening in the economy, I think, apply to obviously apply to the stock market as well.
And one of the primary drivers of M&A activity is where stock prices are, right? So so we get a little certainty there and a little forward momentum. I think we're probably a little bit slowed. I think the overall demographic circumstances that we've been describing for the past couple of years are only either staying the same or accelerating in terms of CEOs getting older and finding different cost pressures to be not abating over time. And -- and I was -- even with the change in regulatory structure, I don't see a lot of the costs going away in the near term, and they don't see people getting younger.
So I think there will continue to be opportunities in -- and we're in a good position right now because we've got a good track record of partnering. And I think we've developed a pretty good brand for being a good partner through acquisitions. And but we also are at a point in which we don't have to do an acquisition. And I think that's a good spot to be. So we'll be prepared as the opportunities come up.
And certainly, we'll continue to talk to good people that we want to partner with. But we also have tried to build this in such a way that we didn't -- don't have to do anything. And if it takes a little while longer for things to speed up, that's okay, too. But I do think all the rationale that was in place to lead to increased M&A over the next year or 2 years or are generally still in place. And there's just a little bit of, hey, let's just wait and see what -- how this shakes out in the next few months. We -- as far as our ability to do another acquisition, I certainly think from an operational standpoint, we are capable and hand on and could be prepared to do it at the right -- the right partner presents itself.
Okay. All right, Jude. That makes sense.
As there are no more questions in the queue. That concludes our question-and-answer session. I will now turn the call back over to Mr. Melville for closing remarks.
Just a couple of clarifications. I know Matt wants to clarify something for Michael Rose's question, I believe. And I want to just add on to Matt on your question I said this earlier, but I want to kind of reiterate it from an M&A perspective. I do think for us, most likely our M&A course is staying within our current footprint and making sure that we continue to build depth in our markets and plenty of opportunity in Louisiana and Texas.
And not to say that 1 day about in the future, we might go east, but it's not a priority at this time. And we've built a footprint that we think we can grow. And such want to be -- I'm not -- I haven't always been clear about that, and so I want to be clear about that today. And then I think -- think Matt, you had something you want to add to.
Yes, Michael. So we pulled the organic loan growth figures kind of comparable figures for that organic deposit figure that we gave earlier. So excluding Oakwood acquired loans, organic loans from 9/30 of '24 through 3/31 of '25 would have been $62 million net. That would have been 2.4% annualized. That's kind of the comparable figures just on the deposit on the loan side.
Okay. Good. Well, thanks, Matt. And with that, I'll wrap this up. I just appreciate everybody's time, and I appreciate our team's efforts to start the year off right and proud of our results and look forward to seeing how we navigate the rest of the year. Every year thus far in my career has been hard to predict other than we know that there will be something. And feel like we're in as good a shape as we've ever been in terms of tackling whatever those some things are. And that's a good place to be.
So I appreciate your attention and good luck to everybody else and the analysts for finishing up your calls over the rest of the earnings season.
Ladies and gentlemen, that concludes today's call. Thank you all for joining. You may now disconnect.