Business First Bancshares (NASDAQ:BFST) reported third-quarter financial results on Monday. The transcript from the company’s third-quarter earnings call has been provided below.
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Summary
Business First Bancshares reported a successful third quarter with 7% annualized loan growth and similar deposit growth, leading to a 12 basis point increase in core net interest margin.
The company completed the Progressive conversion, positioning them for growth in North Louisiana, and continued stock buybacks while increasing tangible book value.
Management is optimistic about future opportunities, particularly in Houston, Dallas, and Louisiana, driven by significant investments such as SpaceX’s $100 billion commitment.
Third quarter GAAP net income was $23.2 million or $0.71 per share, with core net income at $26.0 million or $0.79 per share, excluding non-core items.
The company expects continued improvement in core profitability and aims for a 1.25% return on average assets by the end of the year.
Full Transcript
Demi (Conference Operator)
Ladies and gentlemen, thank you for standing by. My name is Demi and I’ll be your conference operator today. At this time, I would like to welcome everyone to the Business First Bancshares third quarter 2026 earnings call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question-and-answer session. If you would like to ask a question during this time, simply press star followed by the number one on the telephone keypad.
If you would like to withdraw your question, press star one again. I would now like to turn the conference over to Matt Seeley, Senior Vice President, Director of Corporate Strategy and FP&A. You may begin.
Matt Seeley (Senior Vice President, Director of Corporate Strategy and FP&A)
Thank you. Good morning and thank you all for joining. Earlier today we issued our third quarter 2026 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 three 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 six 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 on our slide presentation and earnings release. I’m joined this morning by Business First Bancshares Chairman and CEO Jude Melville, Chief Financial Officer Greg Robertson, and President of b1BANK 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 Melville (Chairman and Chief Executive Officer)
Okay, thanks, Matt. Good morning everyone and thank you for joining us. Monday mornings come with plenty of competing priorities. We know that and we appreciate you spending part of yours with us. When we spoke in July, we told you we expected a stronger second half, loan growth picking up, deposits rebounding and continued progress on margin. I’m pleased to say the third quarter delivered on each of those. I describe it as simply a quarter in which good execution turned into good results. Loans grew a little over 7% annualized, led by the Houston pipeline we talked about last quarter, and deposits grew at a similar pace, which gave us the opportunity to pay down higher-cost brokered funding and borrowings.
Margin expanded another 12 basis points on a core basis and expenses stayed in check. Added up, these incremental improvements produced our strongest core profitability in several years and with our shares trading below what we believe the Business First franchise is worth, we continued buying back stock while still growing tangible book value. The one area where progress came slightly slower than we hoped is credit. Nonperforming loans moved down only modestly this quarter, primarily due to timing on already in motion. We expect to show further progress on nonperforming loans in the fourth quarter. One thing worth noting is that while we had an uptick in NCOs, these were primarily loans previously discussed in this forum, the bulk of which were already fully specifically reserved for as we worked on resolution over the course of the year.
Just as important, though less visible in the numbers, we completed the Progressive conversion in August. Conversions are rarely as easy as they look from the outside, and I want to thank our North Louisiana clients and teammates, both in North Louisiana and throughout the company, for making this one as smooth as any I can remember. It positions us to hit the ground running in a region where investment activity continues to build. Looking ahead, the set of opportunities across our footprint is as broad as I’ve ever seen it. North Louisiana is now home to not only Meta’s largest data center, but also in the northwest corner of the state, Amazon’s roughly $20 billion commitment. The opportunities in Houston and Dallas speak for themselves. Southwest Louisiana keeps delivering steady growth, something we expect to continue as SpaceX’s $100 billion investment gets underway.
We were pleased to add a six-person lift out of a commercial team in Tyler, Northeast Texas’ largest city, giving us the opportunity to begin filling in the I-20 portion of our footprint between Dallas and Shreveport. Finally, our Financial Services Group, now serving more than 200 banks with the addition of American Planning Corp., is growing revenue at better than 20% annualized. Our job is to pursue these opportunities with the same discipline that got us to this point, and if we can do that, we expect to see continued improvement in core profitability not only over the rest of the year, but into 2027. Again, thank you for your time and attention and with that I’ll now turn it over to Greg.
Greg Robertson (Chief Financial Officer)
Thank you, Jude, and good morning everyone. As always, I’ll spend a few minutes reviewing our results and we’ll discuss our updated outlook before we open up to Q&A. Third quarter GAAP net income and EPS available to common shareholders is $23.2 million, $0.71 per share, and included $3.5 million merger-related expense and $21,000 loss on sale of securities. Excluding these non-core items, non-GAAP core net income and EPS available to common holders was $26.0 million, $0.79 per share.
From our perspective, third quarter results marked another quarter of strong financial performance generating a 1.0% core ROAA and a core efficiency ratio of 61.1%. Core pre-tax pre-provision earnings for the third quarter was $36.3 million and exceeded our expectations. Our third quarter earnings results were highlighted by better-than-expected margin expansion, balanced loan and deposit growth, and disciplined expense control. The third quarter benefited from recognizing substantially all cost saves from the Progressive acquisition and a full-quarter impact of the loan sale of lower-yielding loans. The strong financial results allowed us to remain active repurchasing our common shares during the quarter.
On our balance sheet, total loans held for investment increased $21.4 million, or 7.2% annualized, on a linked-quarter basis, led by our Houston, Texas and Southwest Louisiana markets. Based on unpaid principal balances, Texas loans were unchanged from the prior quarter at 35% of our portfolio. Total deposits increased $141.2 million, or 7.7% annualized, driven by a $119.1 million increase in interest-bearing deposits and $22.1 million increase in noninterest-bearing deposits.
The increase in interest-bearing deposits was largely attributable to $180.1 million in commercial money market accounts, partially offset by the decision to pay down roughly $66 million in higher-cost broker deposits during the quarter. During the quarter we also managed to repay $108 million in FHLB borrowings, bringing our total FHLB balances to $334.2 million. Looking ahead to Q4, we do see some opportunity to further reduce borrowings and broker deposits.
Lastly, I think it’s worth mentioning the slight increase in tangible book value per share which increased approximately 1.7% annualized during the linked quarter. While this is not a significant increase on an absolute percentage basis, we feel positive movement in tangible book value per share while being active in our buyback plan and while interest-rate-pressured AOCI are a noteworthy highlight of the quarter. Moving on to the margin, our GAAP reported third quarter net interest margin increased 13 basis points linked quarter to 3.86%, while the non-GAAP core net interest margin, excluding purchase accounting accretion, increased 12 basis points from 3.68% to 3.80% for the quarter ended September 30th. The margin performance during the third quarter was driven by improvement in loan yields and slight decrease in funding costs due to the previously mentioned reduction in broker deposits and reduction in FHLB balances.
The margin also benefited from a full-quarter impact of the Progressive loan sale which occurred in late Q2 of this year. Loan discount accretion during the third quarter was roughly $1.2 million and was driven by higher-than-expected early paydowns. However, going forward we expect loan accretion to average about $500,000 for the next few quarters. On a linked-quarter basis, cost of total deposits decreased 2 basis points while total loan yields increased 10 basis points.
Core loan yields, excluding loan discount accretion, for the third quarter was 6.66%, up 9 basis points from the prior quarter. Total cost of deposits for the month ended September 2026 was 2.25%, which was relatively consistent with the Q3 2026 full-quarter weighted average. We are pleased with our continued ability to hold the line on new loan yields during the quarter, with a weighted average of new and renewed loan yield of 6.99% for the third quarter and 7.13% for the month of September.
I’d like to make a note of a few takeaways to slide 19 in our investor presentation. We continue to see 45% to 55% overall deposit betas achievable regarding any future rate changes. I’d also like to point out overall core CD balance retention rate was 77% during Q3. This impressive statistic reflects our team’s continued focus on maintaining and retaining core deposit relationships. Our baseline assumption is that interest rates remain flat for the remainder of 2026.
Other than the recent September increase in fed funds, we would expect additional rate hikes to slightly benefit our net interest margin and net interest income in the near term. On the income statement, GAAP noninterest expense was $60.5 million and excluded $3.5 million in nonrecurring acquisition conversion-related expense which included $1.23 million in lease termination expense. Core noninterest expense for the third quarter was $56.9 million, down $1.4 million from the prior quarter. This was below our expectation for the quarter and was driven by an acceleration in recognizing cost saves from the Progressive acquisition.
Recall we completed Progressive’s core conversion in mid-August of this year. Third quarter GAAP and core noninterest income was $12.5 million. GAAP results did include $21,000 loss on sale of securities. Noninterest income results for the third quarter were slightly below our expectations primarily due to the lower-than-expected SBIC revenue and swap fee revenue. As we have mentioned in the past, some of our noninterest revenue business can be lumpy from quarter to quarter, but over the immediate and longer term we do expect a steady build in overall contribution.
Lastly, in credit quality, I’d like to mention the modest improvement in credit quality during the quarter highlighted by our 30-day-or-more past due ratio, 0.48%, holding stable over the last three quarters. The ratio of nonperforming loans compared to loans held for investment decreased 2 basis points to 1.24% at September 30, while the ratio of nonperforming assets compared to total assets decreased 1 basis point to 1.22% compared to the linked quarter.
I’d like to mention the increase in charge-offs during the third quarter was attributable to a single, previously identified and fully reserved commercial relationship. This credit cleanup is consistent with our previous conversations and we expect continued resolution as we move forward over the next few quarters. That concludes my prepared remarks. I’ll hand the call back over to you, Jude, for anything additionally before opening up to Q&A.
Jude Melville (Chairman and Chief Executive Officer)
Thanks, Greg. You know, I would just summarize by saying we’ve been, I think, fairly transparent and consistent in the things that we’ve been speaking about to you over the past few quarters, which match up with the things that we’ve been working on as a bank and, you know, not that complicated: healthy growth, discipline on the expense side, making sure that we execute on acquisitions, and then making sure that we’re thinking through our capital allocation decisions.
And I think what we’re seeing, what we saw in the third quarter, was those elements of incremental improvement coming together to produce good results. And we look forward to continuing to focus on those kind of broad principles as we navigate the opportunities and inevitable challenges that we’ll have over the next few quarters. We look forward to it. And with that I will turn it over for any questions anybody might have.
Demi (Conference Operator)
Thank you. We will now begin the question-and-answer session. To ask a question, you will need to press star, then the number one on your telephone keypad. If you would like to withdraw your question, press star one again. We do request for today’s session that you please limit to one question and one follow-up. Thank you. Our first question comes from the line of Matt Olney with Stephens Inc. Your line is open.
Matt Olney (Analyst at Stephens Inc.)
Hey, thanks. Good morning, everybody. Want to start on the loan growth front. Good to see some strong trends this quarter. It sounds like Houston was a big driver. Any more color on the pipelines from here? And then I guess the second part, you mentioned the lift-out of a team in Tyler. Would love to hear about expectations that you have for this team. Thanks.
Jude Melville (Chairman and Chief Executive Officer)
Sure. I’ll start us off. Greg, we do see the Houston pipeline that we’ve been building beginning to turn into actual on-the-books production, which is exciting, and we believe that will continue. And one thing we’re especially pleased with is that whenever you recruit bankers over, often they have a period of non-solicitation, and a number of the members of our expanded team who are operating under that have been able to produce even with those constrictions.
So we’ll look forward to when we pass the year mark and be able to broaden the universe of their calling efforts, but very pleased with that and anticipate that will continue. Also saw good moderate loan growth in parts of Louisiana. Southwest Louisiana and the Capital Region are doing well, and North Louisiana as well. We saw some positive movement. One interesting thing that we’re seeing — I talked a fair amount last quarter about the Meta development in Northeast Louisiana where we now have a significant presence. We’ve been there for a number of years, but it of course was added onto with our Progressive acquisition.
And one interesting thing about that is we’re actually seeing an uptick in loan production in other parts of our footprint related to the Meta investment. So when you think about who is actually moving materials and being involved in the construction, quite a bit of it we’re seeing is coming from South Louisiana. Some of the uptick in fundings in Baton Rouge and Lake Charles and Lafayette have come from companies already prepared and actively serving in the Meta area.
So it’s been nice to see the network effect of our footprint. Being the only community bank in Louisiana that’s truly Louisiana-wide in terms of our footprint, we’re seeing benefit in multiple areas, which we would expect to continue. So I know Greg can talk a little more about that in terms of details if you want to. Greg.
Greg Robertson (Chief Financial Officer)
Yep. Yeah, Matt, we think going forward in Q4 we feel like the mid- to upper-single-digit growth with the pipeline that we’re seeing, as you mentioned, continued build-out of Houston is what we’re expecting to see — more in line with kind of a replication of the performance in Q3. I think one of the things that we’re seeing — and this is kind of moving away from loan growth, but I think it’s a result of loan growth — is that you probably noticed risk-based capital had a slight decline.
I think that the impact of some of the unfunded commitments for these types of business Jude was referring to with some better clients, that unfunded commitment portion does drag on capital a little bit. So that is short term, and we feel like we’ll be accreting capital with the loan growth relative to those relationships going forward. We feel good about the Firefly for sure.
Jude Melville (Chairman and Chief Executive Officer)
Matt, I know your second question was on Tyler, which we’re excited about. At the beginning of the year in our board planning process, we discussed areas of our footprint that we would be most excited about filling in, I guess is the right word. It’s a new venture, but it also is squarely within our current footprint, and Tyler was top of that list. We feel like there’s really a good growth story in East Texas, and Tyler is kind of the jewel of East Texas in that regard.
And so when you think about it being not only what we could do in Tyler, but as a window to the rest of East Texas — partial Longview, those other growth areas along I-20 — we’re excited about the long-term opportunities that we have there. The team that we partnered with came out of a community bank there in Tyler and we feel like they’ll be able to hit the ground running and make a material difference for us not only in the long term, but over the next year as they work to transition their book to ours. We have a good history not only being able to move business, but because of the size of our balance sheet relative to most community banks in the area, we can actually allow them to do more with their current clients.
So we’re excited about the opportunity to enable those bankers to better serve their clients and look forward to seeing what they can do.
Matt Olney (Analyst at Stephens Inc.)
Okay. All right. Well, I appreciate the color, Jude and Greg, on that front. And if I switch over to core margin, I’m curious also about expectations there. I mean, the 3.80% margin we’re at now is the highest we’ve seen in a while, so congrats on that. Would just love to appreciate expectations on the core margin from here. And it sounds like you’re not expecting any rate changes in the near term at least, but would love to kind of appreciate your outlook if you sensitize that based off higher rates from here.
Greg Robertson (Chief Financial Officer)
Yeah, we expect the margin to expand in Q4. I’d put a little bit of context to that. You know, the 25 basis point rate hike that we saw in September, with our balance sheet being slightly asset-sensitive — 53% of our loan book is variable price — so we did get some benefit. All of those have repriced by now as a result of that. It would lead you to believe that we should see some margin expansion. I will say that with a caveat. As we move through Q4, what we’re seeing is some competitive rate pressure on the deposit side.
For example, there are some specials we’re seeing out there pretty much across the markets that are very near one-year broker borrowing rates. So we’re going to keep an eye on that. Our bankers have been doing an excellent job of recruiting new relationships and managing funding costs. But it is something to stay aware of, that with our build that we seasonally get in Q4 from many municipalities — that does have an impact on the liability side from a cost standpoint.
So we’re going to keep an eye on that. I think we feel like margin expansion in the fourth quarter is very achievable, but we’ll have to continue to manage the liability side of it.
Jude Melville (Chairman and Chief Executive Officer)
You know, we started really talking publicly about a year ago about margin being our priority over growth, and we think we can do both. But we will continue to focus and prioritize on incrementally improving that margin as we can. And this level of growth on the loan side, and particularly when it’s match-funded, feels like a pretty healthy natural rate. And so if we can continue to have this moderate healthy growth and maintain a little bit of incremental improvement on the margin each quarter, I think we’ll all be very pleased with the results.
Matt Olney (Analyst at Stephens Inc.)
Okay, I appreciate the commentary and congrats on the results. I’ll step back.
Demi (Conference Operator)
Thank you. Thank you. Next question comes from the line of Betty Strickland with Hovde Group. Your line is open.
Betty Strickland (Analyst at Hovde Group)
Hey, good morning. Just wanted to ask a couple questions here on fees. It was a $500,000, I think, step down in the other fees line versus both last quarter and last year. Was there any one item driving that?
Greg Robertson (Chief Financial Officer)
I would say not necessarily. I think it’s just seasonally as we continue to work through different types of client bases. I think that’s just the movement — there’s movement that you would expect to see. No major step back from a total standpoint. I think on the noninterest income side, I think the thing that we felt like really underperformed expectations, as we mentioned, was the SBIC, and the timing of the income from those investments sometimes is a little bit tricky.
And then also the swap revenue that we’ve seen quarter over quarter — I think the yield curve has a little bit to do with that and also some timing of some deals that are coming through the pipeline. We expect to see that start to trend back up, though.
Jude Melville (Chairman and Chief Executive Officer)
I think we’ve been able to talk a few times about — one of the good sides of this part of the business is that it’s generally non-spread-based, so it’s a diversifier. But the challenge sometimes is that the earnings can be a little bit lumpy quarter to quarter, and you really have to take a step back and look at the overall longer-term trend. And we still remain on pace to improve revenues 20% and bottom-line earnings 20% year over year, which would be, I think, the third year that we’ve done that.
And we anticipate that that trend will continue. Just might be a little up and down as we get there, but that’s the nature of that type of business and a good thing. So we think we’ll revert to the mean a little bit in the fourth quarter and should see a little — again, not a major uptick, but maybe a little bit back to the norm in the fourth quarter.
Greg Robertson (Chief Financial Officer)
And that line item — one driver, Betty, in that group is it’s not always predictable to control the revenue coming off of it. As you mentioned, it’s kind of lumpy. But one thing we’re proud of is while growing the business, I think the banks that we serve now that make up part of that revenue stream are over 200 banks. So as we continue to grow and add relationships with banks, you would hope that that would continue to offset some of the lumpiness.
Jude Melville (Chairman and Chief Executive Officer)
Yeah, same thing that as we grew our core bank in the early days, particularly being a business bank, the individual client exposure could be fairly lumpy. And rather than try to run off some of those bigger clients, we actually grew into them so that the lumpiness became more diversified in a large enough group that changes in individual client relationships mitigated through the number of client relationships. And to Greg’s point, we’re building a large number of banks in which we have a relationship, and the larger we can get that group, the less lumpy individual transactions will appear.
So good opportunity for us to keep working on as we continue to grow that part of the bank. That’s great.
Greg Robertson (Chief Financial Officer)
And just on that same topic, I mean is there any potential impact I should think about if we do see rate increases and higher long end yields, how does that impact SSW in the fiber? I get a lower gain on sale and swaps most likely. But just curious how SSW group in particular might see changes with where the yield curve is. I think we have to keep an eye and pay attention to, you know, SSW, their RIA. So assets under management matter. So AOCI negatively impacts that.
But they historically, if you look back at their earnings since our partnership with them, they’ve not only added banks to offset some of this like we were talking about previously, but also if you compare their performance versus the industry, the impact to AOCI was significantly less than industry. So we feel good about the way they manage that portfolio and it will be impacted to your point. But I think they are doing the things not only on a day-to-day basis but also by adding, adding additional banks to offset the incoming impact as well.
Jude Melville (Chairman and Chief Executive Officer)
I think that’s a really good point and not to get too witty, but SSW, who as you know worked with us for 17 years before we officially partnered with them, SSW guides their clients in the construction of their investment portfolios to focus more on cash flow than on yield. And one of the things that that has done is meant that the duration risk as rates increase has been lower than it has been for non-SSW peer banks. So I think from proving out their worth to potential clients we actually have a good story to tell there.
And as rates move I think that story will be only more apparent and visible and be a great proof point to potential clients that we offer value in a way that’s different from just a normal brokerage type arrangement. The other thing about managing for cash flow versus just yield is that it means that as rates rise then they’ll have the opportunity to reinvest that cash flow faster than some other banks that aren’t following that same philosophy. And so again that should be an opportunity to serve our client banks at an even higher level which should ultimately benefit them in terms of being able to grow the client base.
So you know, in banking, whether it’s the SSW part of the world or the core bank, it’s not really rate movements that get you, it’s how quickly the rates move that gets you. And so right now it feels as if it’s going to be a fairly measured rate of increase which I think is something that we can all manage through much less painfully than the March Madness days and times at which they had to move rates a lot quicker in order to get done what they thought needed to be done.
So we don’t view it as a negative, we view it as an opportunity.
Greg Robertson (Chief Financial Officer)
I think another point, data point, you know, outside of the SSW relationship with a lot of these banks, our FIG group manages slightly over $300 million in deposits from other banks as well. So that’s a part of our balance sheet and you know, the funding cost on that is, you know, between 75 and 90 basis points below what a one-year FHLB and broker would be today. So it’s on the higher price but it’s also relative to other funding types, cheaper and helps solidify those relationships with multiple products.
Demi (Conference Operator)
Next question comes from the line of Michael Rose with Raymond James. Your line is open.
Michael Rose (Analyst at Raymond James)
Hey, good morning guys. Thanks for taking my questions, Greg. I just wanted to start on expenses. I think you said that essentially all of the progressive cost saves have been realized through the third quarter. Obviously this quarter’s results were better than expected. Just how should we think about the growth rate from here, starting point for the fourth quarter, and then as you continue to invest in bankers, infrastructure and technology as we move into next year, how should we at least initially think about a base rate of expense growth for you guys?
Greg Robertson (Chief Financial Officer)
It’s a great question. I think what we expect in the fourth quarter would be about 57 as the base case starting there and then low single-digit organic growth rate going forward over the next year. I think what we expect is to grow maybe not as aggressively as we did with our Houston team lift-out in numbers, but we want to continue to fill in organically bankers in our markets to deepen those relationships that we have in our existing markets. And that’d be Texas and Louisiana.
Michael Rose (Analyst at Raymond James)
Okay, that’s helpful. And then I wanted to go back to Matt’s question on the margin. I think I heard that the new and renewed loan production was at 713 in the month of September. I think you guys said that you don’t have any more rate hikes built in, but the forward curve certainly does. I know you guys are rate sensitive. I guess the real question is, is there opportunity for you to kind of continue to lag deposit cost increases and should we kind of contemplate at least some additional margin expansion at least in the earlier part of next year?
Greg Robertson (Chief Financial Officer)
Yeah, the lag is the key. That’s a great point. I think what we think is all things being equal as long as rates are measured. We think low- to mid-single-digit margin expansion quarterly, depending on that lag, is probably achievable and reasonable first in the fourth quarter and then depending on how many moves happen going forward.
Michael Rose (Analyst at Raymond James)
All right, that’s helpful. I’ll step back.
Greg Robertson (Chief Financial Officer)
Thanks, guys. Thanks.
Demi (Conference Operator)
Next question comes from the line of Gary Tenor with DA Davidson. Your line is open.
Gary Tenor (Analyst at D.A. Davidson)
Thanks. Good morning. Just wanted to follow up on, Greg, your comment about the September loan yields. Just curious if you’re seeing any kind of pressure on demand or transactions as it relates to the higher rate environment.
Greg Robertson (Chief Financial Officer)
We’re pleased with the demand we’re seeing and the pipeline we’re seeing. And I think the rate environment is a component of it. But what we’re experiencing is with new bankers and new teammates, their pipeline and moving. That business hasn’t really shown any decay due to the 25 basis point rate move. So we’re excited about it. More recently saw loan committees with multiple new deals presented with all rates around the 7% mark, which we were very happy with that.
So we feel good about the pipeline. The rate, so far, the rate environment doesn’t look like it’s decayed any of the work our bankers have been doing to move those relationships over.
Gary Tenor (Analyst at D.A. Davidson)
Thank you for that. And then in terms of the deposit beta that you had noted, that’s in your deck, I assume that’s sort of based on the existing deposit base, but if you’re able to further reduce the broker deposit amount, the overall cost of deposits should increase at a pace below the beta that you’re targeting. Is that the right way to think about it or is that inclusive of changes in the mix? Great, thank you.
Greg Robertson (Chief Financial Officer)
No, that’s the right way to think about it.
Demi (Conference Operator)
Next question comes from the line of Christopher Marinac with Brin Capital. Your line is open.
Christopher Marinac (Analyst at Brin Capital)
Hey, good morning. Wanted to ask about Dallas and is Dallas de-emphasized or what would be the outlook for there? Again, appreciate all the success in Houston that you’ve called out this quarter and last quarter too.
Jude Melville (Chairman and Chief Executive Officer)
Yes. No, not de-emphasized. We hired a new market leader there about two months ago and he’s jumping in and beginning to make his mark. And you know, we did have, if you look at our asset quality upticks that we had earlier in the year, they were, I would say the bulk of them came from the Dallas area and again, not a huge number when you think about the amount of growth that we’ve been able to put on the books over the past seven, eight years. But we certainly have an opportunity to kind of hit the reset button a little bit on some of those relationships and that’s why it’s been a little flatter as of late.
But in terms of the potential and opportunity going forward, we’re as excited about Dallas as we have ever been. Maybe we don’t talk about it quite as much because it’s kind of a given just being Dallas. And we’ve been talking more about some of the newer opportunities within our footprint, but Dallas remains, it’s actually our largest individual market and as we continue to add bankers there, we anticipate really good things from Dallas as well.
So as we talk about our overall growth goals, those include performing well in Dallas over the next few quarters as well.
Christopher Marinac (Analyst at Brin Capital)
Great. Thank you for that, I appreciate it. And then just a follow up on sort of the announcement by SpaceX to do big development in south Louisiana. What does that mean from your standpoint, both for commercial as also residential activity?
Jude Melville (Chairman and Chief Executive Officer)
Yeah, well, much like the Meta investment, maybe even on a bigger scale, it’s tremendous opportunity for Louisiana and therefore a tremendous opportunity for us, given our footprint. And we were already excited about the opportunities in Lafayette area, the Acadiana area. Even without SpaceX, I think they’ve done a nice job of diversifying their industry exposure over time. And so if you were to ask me six months ago what area of Louisiana was I’m most excited about, of course we would talk about North Louisiana with the data centers, but I would have also put Lafayette there as an area that we want to continue to invest in and take advantage of the growth opportunities there. So that’s only been magnified now that SpaceX has made their announcement. It’s really hard to quantify $100 billion investment in an area that hasn’t seen a lot of that type of investment over the years.
And so it’s difficult to say with any specificity what that means, other than it’s going to be really good for the economy. And that should impact both commercial opportunities and residential opportunities over time. When you think about our prioritization of new branches within Louisiana, that’s most likely to be our number one priority to make sure that we capture our fair share of the benefits. I think there’s still some things to figure out in terms of specifically where the activity will take place. I don’t mean the actual spaceport itself, but when you think about roads being constructed, for example, to access the facilities and where the executives that are working there will be living, there’s still a little bit of work to be done in terms of planning. So I think it’s something that we’ll probably see a little on the commercial side.
We’ll probably see the benefit sooner. There are already companies at work, and the infrastructure from a commercial standpoint is already in place. And I don’t mean the physical space for it, but I mean the companies that can support the work to, to build out the infrastructure already active and in place. So I would expect we’d see more commercial uplift in the near term. But then over the long term, there should be a lot of residential impact as well, as some of the pieces of the puzzle fit in.
But $100 billion is a lot of money, a lot of investment, and when they’re successful, I doubt that that will be the the last investment you’re already seeing some of the other areas of the state where we have data centers and things of that nature are expanding their investment and wouldn’t surprise me if SpaceX ends up in the same way. So a little hard to quantify exactly what the benefits will be, but they’re going to be significant, they’ll be large and they’ll be meaningful and then it’s going to be an operating plant. One of the concerns about the data center investments that has been raised has been what happens after construction in terms of the actual jobs created. Not that worried about with the data centers because the investments are so large that the construction periods are.
I think I saw the Meta construction just on the current investment is not scheduled to be complete until 2031, so still have a number of years to go there. But when you think about the spaceport with SpaceX, that’s an ongoing operation that will employ individuals for a long time to come, have other ancillary industry developments as vendors and other experts choose to co-locate in the area. So I think that’s one will be meaningful for a long period of time and we thought we’re well placed to, to be an active participant in that development.
Really. I don’t remember in my lifetime, and I’m a lifelong Louisiana resident, 52 and I don’t remember a time in which there was as much excitement about the economic opportunity here in Louisiana. Thank you.
Demi (Conference Operator)
There are no further questions at this time. That concludes the question and answer session. I will now turn the call back over to Jude Melville for closing comments.
Jude Melville (Chairman and Chief Executive Officer)
Just want to mention that, just want to mention that appreciate the North Louisiana integration process that we just went through. And you know, that speaks, the smoothness of it speaks to the teammates that we inherited and to our own team in terms of their proactive and positive jumping into the opportunity. And while other progressive teammates have been teammates since the beginning of the year when we formally closed the acquisition, it’s exciting to share a name and share processes and truly operate as a team.
So again I want to thank them for the positivity which they jumped in. I also want to reiterate my appreciation for the Tyler team that took the risk to come join us and look forward to supporting them. I’ll get to see some of them tomorrow in fact and look forward to that. And you know, I would say the things that this in closing, the things that we’ve been working on again are working. And it’s nice to have some optionality. You know, when you think about our focus on growing tangible book, you know, I know on a percentage basis, as Greg said, we didn’t grow significantly, but it was positive and we would have actually grown, I think over 14% tangible book if they hadn’t had the AOCI impact and if we hadn’t done share buyback.
So it’s nice to have that optionality. When you think about the difference in our balance sheet in our P and L today versus a year ago, you can kind of summarize it and saying that we’ve built in more optionality, whether that be from a healthier funding base, diversification of earning assets or profitability leading to a situation in that we are growing capital faster than we’re deploying it, even though we’re deploying it at a healthy rate. So I love that optionality and plan on continuing to maximize that opportunity in the coming quarters and years.
It really was a little bit of a boring quarter in some ways if you think about it. And it’s exciting to be boring in a way because we’re a bank. So we like that. I want to continue that and appreciate everybody’s time and everybody’s efforts over time that have led us to the spot and excited about continuing. Look forward to visiting with you again. Matt, you had something you wanted to.
Matt Seeley (Senior Vice President, Director of Corporate Strategy and FP&A)
Might have one more. It looks like. Looks like someone’s got a follow up question here. I want to see if we could get them in if possible. Betty, I don’t know if that was you is what it looked like it might be. I want to make sure we get all questions addressed. Operator, could you potentially open up Betty Strickland’s line with Hovde Group?
Demi (Conference Operator)
One moment, please. One moment, please. Okay. Betty Strickland with Hovde Group, your line is open. Please go ahead.
Betty Strickland (Analyst at Hovde Group)
The late follow up here. Not sure if you can hear me, but just wanted to ask about credit. It seems like there’s still credit improvement on the horizon here. Maybe some items just took a little longer to get to the finish line than you expected. Just how should we think about the workouts and overall level of NPAs the next couple quarters?
Greg Robertson (Chief Financial Officer)
Yeah, thanks. Thanks, Betty. You know, we still expect to reduce NPAs in the fourth quarter. I think they’ll continue to work. You know, as resolutions happen in that type of business, sometimes they’re delayed as you work through the process. We feel pretty confident that some of those delays in the third quarter will pull through into the fourth quarter and you’ll start seeing reductions, you know, upwards of $15 million in the fourth quarter in those.
And then that’ll continue to move throughout the first half of next year. Maybe not at that cliff, but they’ll continue to move down with our target range of having that NPA percentage of loans being 50 basis points or less.
Betty Strickland (Analyst at Hovde Group)
That was it.
Greg Robertson (Chief Financial Officer)
Thank you so much. Yeah, I think one thing, you know, that we talk about that impacts performance and we feel like the fourth quarter, Jude’s always about, since the beginning of the year, our ROA performance third quarter was evidence of the Kenneth plan going forward. NPAs are a part of that. As you start putting those assets back online, we do expect, you know, we have a glide path to get in the fourth quarter to that 125 goal that we’ve talked about all year.
I think it’s, you know, each component, whether it be margin, loan growth, deposit funding, the cost of that funding, you know, has to fall in line kind of like they did in the third quarter. But I think if they, those components continue to play out, I think we’ll be pleased with fourth quarter results and have a way to get to that .125 as well. Nonperforming assets as a part of that.
Jude Melville (Chairman and Chief Executive Officer)
Yeah, I think everything is. Go ahead.
Betty Strickland (Analyst at Hovde Group)
Sorry, just 125 ROA. Is that.
Greg Robertson (Chief Financial Officer)
Yeah, that’s it.
Jude Melville (Chairman and Chief Executive Officer)
Yeah. And again, as we’ve said earlier in the year, you know, that means we have to be able to perform on all cylinders and things have to work out. But right now we believe we can do that and certainly plan on continuing the upward trajectory from our 117 in the third quarter. Where exactly we end up, we’ll have to see. But we do know that it’ll be significantly better from a long term structural profitability standpoint, wherever it ends up. Then we began the year which was really should be our goal every year.
Right. All right, well, with that I won’t subject you all to a repeat of my closing statement, but do want to thank everybody for being with us and for following and happy to answer any follow up questions offline, should you have any. Thank you all again. Have a good week.
Demi (Conference Operator)
This concludes today’s conference call. Thank you all for joining and you may now disconnect.
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