Earnings Call Transcript
Business First Bancshares, Inc. (BFST)
Earnings Call Transcript - BFST Q1 2023
Operator, Operator
Good afternoon. My name is Christy, and I will be your conference operator today. I want to welcome everyone to the Business First Bancshares' Q1 2023 Earnings Conference Call. Matt Sealy, you may begin your conference.
Matt Sealy, Conference Host
Thank you, Christy. Good afternoon, and thank you all for joining. Earlier today, we issued our first quarter 2023 earnings press release, a copy of which is available on our website, along with the slide presentation that we will refer to during today's call. Please refer to Slide 3 of our presentation, which includes our safe harbor statements regarding forward-looking statements and the use of non-GAAP financial measures. For those of you joining by phone, please note the slide presentation is available on our website at www.b1bank.com. Please also note our safe harbor statements are available on Page 7 of our earnings press release that we filed earlier today with the SEC. 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.
Jude Melville, CEO
Okay. Thanks, Matt, and thanks, everybody, for joining us. We recognize it takes energy, effort, and commitment, particularly as we near the end of a busy earnings season. And we appreciate the opportunity to provide color to our story. Before we get into the details of the quarter and thoughts about future projections, I'd like to take just a second to zoom out to a big picture perspective. Ultimately, we're not working to put up a number for a quarter or two. We're working to build a sustainable franchise that produces value for our multiple constituents over time. We've made a number of investments over the past few years with ascension in mind, and I want to give you an update on where we are relative to our longer-term goals, particularly on the significant progress we've made over the past year. We've been working towards three primary objectives: first, diversification of risk; second, growth to a meaningful size; and third, increasing our earnings power. On diversification of risk, we've primarily chosen to accomplish this through geographic expansion into Texas, not a retreat from Louisiana, where we're still the largest domicile bank as measured by deposits, but an expansion into Texas. We've had significant success in organic development of the Dallas market, growing to almost $1.3 billion in loans, which makes it our largest single metro area by exposure and nearly $300 million in deposits over four locations. We're for real in the country's most vibrant market at a greater scale than we imagined five years ago. Additionally, over the past year, we successfully integrated our Houston acquisition into a meaningful part of our team, growing the acquired asset base, securing and integrating the team, while achieving our projected cost savings along the way. With the two markets combined, our Texas exposure is now 37% of our credit book ahead of our timeline. As we've all been reminded over the past few weeks, though risk is not just asset-based; it's also found in the makeup of our liabilities. With that in mind, I'd point out the work we've done on a new slide in our deck, Slide #9, in which we detail our liquidity profile, low uninsured levels, high granularity of accounts, and no measurable slippage over the recent volatile times. This is our longer-term strategy of combining growth of credit in the west with stability of deposits in the east, and it's working. Second, meaningful size; all of the current pressures point towards the importance of scale. It's likely that even more scale will be required to maintain efficiencies to offset the cost of managing higher levels of liquidity. Slide 10 demonstrates that our approach toward achievement of scale is a combination of organic and acquired assets. We're sometimes labeled a roll-up story, but that's really a function perhaps of our not telling our story clearly enough. Hopefully, this slide will help with that. We do look to partner with certain institutions when the time is right for both parties. But those efforts are complementary to our organic efforts, not a replacement for them. You'll see on Slide 10 that our annualized deposit CAGR since 2015 is 26%, a large number, but our unacquired growth has been 16%, also a very healthy number. More to the point of the current period, you'll see that the number of accounts we've grown is heavily weighted towards smaller accounts at a ratio of nearly 50 to 1. When we set out on our most recent 5-year plan, we aim to double in size to $7.4 billion in assets; at $6.2 billion at the end of this quarter, we're ahead of schedule, and we've done it in what we believe to be the right way. Finally, profitability; our first quarter is traditionally our least profitable quarter, so there's been a light and expected step back in profitability relative to the fourth quarter of 2022, but year-over-year, we've increased tangible book value. We've increased pre-provision pretax income considerably and we've increased EPS even while adding shares to the Texas Citizens Acquisition and the capital raised in the fall. We expect to be capital accretive next quarter. Now that we've achieved a footprint of enough size and geographic diversity, we can be certain of our staying power. We expect to prioritize increasing our returns relative to capital over the coming quarters and years. In big picture, I'd argue we've accomplished a tremendous amount of franchise building over the past year and years, and I want to make sure our team knows how proud I am of those efforts beginning to come to fruition. With that said, I'll focus briefly on quarterly highlights before turning it over to Greg for more detail and questions. First quarter non-GAAP net income and EPS were $13.8 million and $0.55, respectively, both better than expected. These results were driven by good expense management, some green shoots in noninterest income, including development of our SBA offerings, continued loan growth, and higher loan discount accretion than expected from previous acquisitions. Our lenders have done a good job of charging for new loans, with current new loan yields topping 8%. We've been impacted by the dramatic shift in posture towards deposits the market has experienced over the past few weeks as with most banks, offsetting some of the gains by increased deposit and borrowings costs. Our margin, while down for the quarter, is still up year-over-year and has historically been quite consistent in this range. Two last things of note. One, implementation of CECL causes us to recognize differently the asset quality of acquired impaired loans. So our reported asset quality level, while still excellent, appears to have degraded slightly. It's a function of accounting rules and a non-practical change in risk. If anything, our underlying asset quality, measured apples-to-apples pre-CECL versus post-CECL, has improved quarter-over-quarter, as Greg will explain in more detail. Secondly, one final new slide, #27, speaks to our commercial real estate construction and development, and in particular, our office exposure and granularity. We feel good about the geographic diversity of our exposure as well as the manageable pace of renewals that we'll face over the next two years. We will be happy to address that in greater detail, should there be questions. Again, thanks much for your time, and now I'll turn it over to Greg.
Greg Robertson, CFO
Thank you, Jude. Good afternoon, everyone. I'll spend a few minutes on the financial highlights for quarterly results and provide some updates around our outlook. As Jude mentioned, Q1 of '23 was highlighted by solid core expense management and improving core net interest income. We're happy to provide some more color in the Q&A on our outlook and around expenses and fee income as well. We feel like Q1 '23's core results are in a good run rate for the next couple of quarters. We should see our core expenses flat to up a little bit from the Q1 base, and noninterest income flat to down a little bit. A strong core earnings during the quarter were somewhat offset by funding pressures driving our 21% compression in our core net interest margin on a linked-quarter basis. I'd like to go into detail on Slide 20 in our presentation, which you will see our Q1 GAAP net interest margin of 3.75% included 2.9% in loan accretion, which was about $1.7 million higher than we expected and was due to some payoffs and the final CECL adjustments for the quarter once we adopted. Our updated outlook assumes accretion would drop back in line with our normalized levels of about $1.4 million in Q2 and thereafter. While headline margins do appear negative during the quarter, I do want to highlight some of the more positive aspects of the margin during the quarter. As Jude had mentioned earlier, we are proud of our efforts reflected in our newly originated loans, with the weighted average beta on those new loan yields at 85% during the first quarter, up from 74% in Q4 of '22. Q1 loan yields experienced a steady decline throughout the quarter, and we ended March with a weighted average yield on new loans of $812 million, up nicely from December of '22 as a new yield of $762 million. Getting a little more granularity, which is important for us in the coming quarters, a weighted average rate of $820 million on our renewals in Q1 of 2023 as well. While funding betas did increase during the quarter, Q1 interest-bearing deposit betas of 73% appears to be in line or slightly better than public peer-banks with assets less than $10 billion. Core net interest margin remained relatively stable throughout the quarter. March core net interest margin was 3.54%, which was in line with the Q1 overall core net interest margin. We expect some modest compression in Q2 core net interest margin, down single digits in terms of basis points before stabilizing. We think that in the second half of '23, the core net interest margin will inflect and increase slightly. It's important for me to cover, and I'll cover it in a little more detail on another slide. But our other borrowings increased due to utilization of the new bank term funding program, which allowed us to lock in a lower funding cost on these balances. We were able to position ourselves on a day where the funding had dropped down to 4.38%, which allowed us to pick up 62 basis points annualized net savings on the $310 million that we converted to that fund program. Turning back to the income statement, Q1 loan loss provision was slightly elevated due to the resolution of an impaired loan acquired in March of '23, which resulted in a charge-off of $1.9 million. I think it's worth us moving to Slide 19 for me to walk through our credit quality performance. We will be able to elaborate a little more on the adoption of our CECL conversion during the first quarter, which increased the allowance for credit losses and unfunded commitments, resulting in about $1 million pretax decrease in shareholders' equity. As Jude mentioned earlier, the optics around some of those credit metrics appeared skewed. But when comparing to the prior quarter, from the adoption of CECL, they really were quite nice. The improvement was quite nice. I think I'll stop here and walk everyone through that conversion of CECL and how it impacted past dues, NPLs, and charge-offs on Page 19 of the slide. If you look at our past dues for the quarter, they were $10.4 million or 22% for the quarter. Upon conversion of CECL, the uniqueness for us is these acquired previously acquired credits where we have credit marks against those credits. Under the old loan loss reserve model, they did not appear in our past dues. Our NPLs are in the charge-offs, and now they do with the seasonal conversion. To put that in perspective, if you're comparing apples-to-apples from Q4 to Q1, the $10.4 million, if you remove the purchase impaired credits from that number, would really be $4.2 million. So those pure past dues would be down from the previous quarter. Same impact applied when you walk forward to the nonperforming loans for the quarter, that $17.1 million was really impacted by about $9.5 million in purchase acquired credits. So the actual nonperforming total would be $7.6 million in nonperforming loans, down from the previous quarter at $11.4 million when comparing quarter-over-quarter under the same metrics. The same principle applies to charge-offs. We had an acquired loan that we settled in the quarter that had a significant reserve against it, actually a net positive for us from an income standpoint, and that was $0.04 of the $0.05 in charge-offs for the quarter. Charge-offs again are at an all-time low, which I thought was worth walking everyone through to discuss credit quality in the same vein as we talk about the conversion from CECL. Now the adoption of CECL for us, we feel like going forward, our loan loss reserve should be at about 1% going forward from here on out with our normalized loan volume. We can move to Slide 23. I think that we'll do a good job of talking about the balance sheet. Moving to the balance sheet, the linked quarter growth, $197 million in loans or $17.3 million in annualized loan growth was driven by strong C&I loan demand, which was headlined by our Houston market. $85 million of that growth for the quarter was in C&I, which we're very proud of. This represents about 43% of the first quarter of loan growth. C&I was a significant contributor during the quarter. While we feel like those deposits have posed a challenge, we feel like the C&I growth will put us in a position where these commercial relationships should materialize into additional deposits going forward. Our revised outlook on loans assumes that loan growth continues to slow gradually through the year with a target around 10% at year-end loan growth for the year. Deposits remained relatively stable for the quarter. Jude had mentioned Slide 11 earlier. I think that does a really good job of describing our deposit and liquidity going forward. We think talking about the initial liquidity and core deposits is important; core deposits represent about 88.3% of our total deposits. As mentioned earlier, we utilized $310 million of the bank term funding program availability strategically to reduce the cost of borrowing funds. We don't view that as an additional source of secondary liquidity. We use that to manage the rate difference between that and FHLB. One thing of note is that at the end of the quarter, we were successful in converting additional loan pledging that was unutilized at FHLB to the Fed discount window, creating about $950 million in additional secondary sources of liquidity that now puts us just over $2.7 million in additional sources of secondary liquidity. Rounding out capital remained stable during the quarter; TPD was down just 4 basis points from Q4. On a year-over-year basis, TPD ratio increased about 17 basis points. With lower loan growth forecasted throughout the year, we expect capital levels to steadily build for the remainder of the year, which would be in line with our projections, as I mentioned earlier. With that, I will hand the call back over to you, Jude, for anything you would like to add.
Jude Melville, CEO
I think I said what I wanted to say. We'll be happy to answer any questions that anyone might want to ask.
Thomas Wendler, Analyst
I just wanted to go back to deposits. Your new slide, Slide 9, you have listed that you have $90.5 million in average monthly deposit generation over the past 12 months. Can you just give us an idea of how that figure is trending throughout Q1?
Jude Melville, CEO
Yes, it's a great question, Thomas. We're very excited about that. Actually, in Q1, it's trended up to slightly over $100 million. For example, in March, the noninterest-bearing open was about $22 million over 700 accounts, just in noninterest-bearing with slightly over $100 million in interest-bearing accounts in the same month.
Thomas Wendler, Analyst
Then just sticking with deposits, the FIG deposit base decreased $29 million last quarter. Can you give us any color there?
Greg Robertson, CFO
Yes. So our FIG group has deposits from about 50 banks across the region and varying sizes in the middle of a volatile time. I won't say crisis because for most of us, it wasn't actually a crisis. But during the volatile time, there was some kind of pullback on the big deposit base, which is understandable as banks kind of move their money home. But we've seen since then some significant amounts of that gap come back to the bank as we pass through that volatile time, and we certainly haven't seen any more decline. Typically, our FIG group, in conjunction with our SSW Group, serves banks in multiple ways. We were pleased to find that banks we have multiple relationships with deposits and participations or investment advice; we didn't see any movement in that liquidity. What we experienced was really some accounts where we just had some banks that were parking it there temporarily or not maintaining the full relationship. So it kind of proves out the model in terms of our wanting to have multiple touch points with those banks that we service, and will be a positive. The money that we temporarily lost was about 15%, I believe, of the FIG base, but the FIG base itself is about $150 million out of our $4.6 billion to $4.8 billion deposit base. While we hope to grow it over time, I realize we'll have to manage it differently than other forms of liquidity. Today, it's really not large enough to have moved our needle negatively during that time.
Jude Melville, CEO
Yes. Thomas, it's about 2.87% of our deposit base right now at quarter end.
Thomas Wendler, Analyst
I appreciate all the color there. And if I could just squeeze in one more. We saw a bit more SBA activity in Q1 '23. Can you just give me an idea of your plans around the SBA moving forward?
Greg Robertson, CFO
Sure. We picked up some SBA capability with our Texas Citizens acquisition, and we had certainly been planning to be more aggressive in that area prior to the acquisition. However, the acquisition gave us a little bit of wind in our sails, and so we've seen this as the first quarter where we saw an uptick in the number of closings, and our pipeline is filling up. We expect to have similar results over the course of the year and hopefully a little bit improving. We have a good partnership with a loan service provider for the SBA that ensures we're doing it right. That's the key with SBA; it's only valuable if you're doing it right. We spend time making sure we handle the back office side of it, and have the infrastructure in place, emphasizing it in our markets.
Jude Melville, CEO
I would just say we started focusing on it really in the first quarter last year and took most of last year to work through the kinks. So the first quarter is a good indication this year of where we hope to take it, but we're pleased with the result.
Greg Robertson, CFO
We must be mindful that higher rates typically yield lower premium. So even with a higher volume, that won't necessarily translate into higher income in the short run. However, this is part of our franchise building over time as a bank that services businesses; we believe this is an important tool in our arsenal.
Jude Melville, CEO
One of our initiatives over time is certainly a focus on developing various sources of noninterest income. Part of the rationale for our acquisition of SSW was to create wealth management as a source of income, investment management for other financial institutions as an additional revenue stream. SBA is the next most logical combination for us, given our focus on small businesses. All three are areas that we think can move the needle over the long run for us. As we seek to transition from being profitable to highly profitable, I think that noninterest component is a key part of that. It's still early days on all three initiatives, but we like the direction we're heading.
Kevin Fitzsimmons, Analyst
I was trying to follow what you were saying about margins. It seems you mentioned that March was stable in terms of core margins for the full quarter. However, you anticipate some pressure on margins in the second quarter due to funding costs. Did I understand that correctly?
Jude Melville, CEO
No, you're exactly right. Given where we are today, I think we'll continue to fight some headwinds on the cost side from the deposit standpoint. We do re-price our loan pricing software every week. So that's allowed us, as I mentioned, to keep the top line loan yield relatively aligned, but we're battling the deposit pressure everyone else is facing. So we expect slightly compressed margins in Q2 and then we think the pace of renewals we typically experience in Q3 and Q4 will help some expansion in the later quarters.
Kevin Fitzsimmons, Analyst
And the comment about slowing loan growth, it's not surprising. I'm just curious about the drivers in terms of maybe what kind of proportion is coming from the economy slowing and therefore, demand and pipelines falling versus you all tightening up on potentially more expensive loans and concerns about credit. Is it how much is deliberate versus the market?
Jude Melville, CEO
I would say more deliberate than the market today. We have a lot of great relationships, and even if we weren't sourcing loans from new clients, just our current clients still have robust activity. We are trying to be disciplined on a couple of fronts. One is the obvious: the increased cost of deposits incrementally. We want to ensure that we're making it worth using liquidity for that growth. We spend a lot more time thinking about the profitability of those loan opportunities versus the volume, given the liquidity concerns. Secondly, as I explained in my introduction, we feel like we've reached a different level in terms of our maturity as a company, and we have most of the pieces in place, so we need to grow appropriately. A lot of that needs to be determined by capital allocation versus just growth for growth's sake. We're more cognizant or determined to ensure that we're growing within our retained earnings and that we're accretive from a capital perspective. We've enjoyed shareholders' trust funding our investments, and we feel we've done well establishing our footprint. Now that we're there, our priority is to begin ensuring that profitability gets higher priority than growth. So part of that is slowing down loan growth to right-fit our capital base. Over the long run, about 10% loan growth is a healthy target for this year and future years. We need to be consistent while building capital at a higher return on equity, and we think we'll all be pleased with that outcome. That's a long way of saying that it's a more deterministic approach to capital allocation versus a big run-up in demand. Demand is actually increasing in some areas due to the tightening of credit in the system, which makes us even more conscious of our choices in allocating loans.
Greg Robertson, CFO
It's not easy when you've spent years building a ship moving in one direction; it's not as easy to turn the ship. We've been working on this for a while. Seventeen percent annualized loan growth in the first quarter sounds like a large number, but not compared to the 20% the quarter before or the 25% the quarter before that. It will take us a couple more quarters to get down to where we want to be. We're probably advertising current clients and ensuring we're adding the right relationships for the long run.
Kevin Fitzsimmons, Analyst
And that 10% loan growth figure is not a full-year growth number. That’s more like by the end of the year, maybe by the fourth quarter, you're growing loans that much.
Jude Melville, CEO
No, we hope to be a little bit less than that in the fourth quarter just to catch up this year with our growth. Our goal is to be more in the 10% range, plus or minus a few points. We can do that given our pipeline and the maturities of the current book.
Kevin Fitzsimmons, Analyst
I understand you mentioned it's a small aspect, but the FIG group is also a minor component when discussing deposits. It might not have a significant impact. However, I recall you mentioning in June that the FIG Group was beneficial for you in terms of loans, as it allowed you to distribute some loans instead of keeping everything on your balance sheet. Are there banks that have a lot of deposits and are seeking loans? Will that be beneficial?
Jude Melville, CEO
Yes, absolutely. Our original focus on the FIG group was a little more about deposits, but it's evolved to serve as a safety valve on the credit side. As our clients succeed, we can grow with them without taking on all the risk on our balance sheet. For new clients, we can become more appealing to deposit-rich banks.
Jerry Vascocu, Chief Administrative Officer
Thank you, Jude. An interesting comment about the teamwork in the FIG Group and the markets. We're building relationships with a prospect database of potential contacts, defining the universe that FIT Group interacts with. The team is working well, partnering with the SSW guys, and we have a new go-forward business plan for the year to work directly with our market teams on the loan participation side.
Jude Melville, CEO
We have been able to maintain a portfolio of purchased participations up to about $350 million; this has been extremely helpful in servicing clients. Over time, we expect to benefit from a not insignificant servicing arrangement for maintaining those loans. The FIG group will ultimately benefit our growth.
Feddie Strickland, Analyst
I just want to clarify that the bank term funding program was more of an opportunistic move when rates were low relative to some FHLB you already had. Now that it's more or less in line, you'd probably tap FHLB before going back to bank term funding. Is that right?
Jude Melville, CEO
Yes, that's right, Feddie. We had availability, and we were watching the rates. On those particular days, there was about a 62 basis point spread between FHLB, so we decided to take action. But you're correct; rates have gotten a lot tighter with FHLB. We still have availability with the bank term fund right now that we can access because of that.
Feddie Strickland, Analyst
That makes sense. I mean, lower rate, why not? I asked a similar question last quarter, and I'm going to ask it again. Do you feel there's still some low-hanging fruit in terms of branch network optimization, or is that been more or less baked in at this point? Just curious what you're seeing there.
Jude Melville, CEO
No, we actively think about our branch network. In fact, the slide shows the migration over time of our branch network. We continue to analyze opportunities. Sometimes it involves cutting back, but sometimes it's repositioning branches for better growth potential. We've done a good job not just having fewer branches, but also relocating them. There's still opportunities to increase the deposit base from that system. We'll continue rationalizing, including relocating some locations in Houston. I don't think there’s a wholesale opportunity of 10% or 15%, but we'll look for incremental opportunities. We've also been experimental with ITMs and, hopefully, will see a regulatory transition that makes using ITMs easier. We're always thinking about it and believe there are opportunities to evolve and maximize our branch network.
Michael Rose, Analyst
Most of my questions have been asked and answered. However, I wanted to gain some color on the credit that was charged off this quarter and the uptick in nonaccrual loans. I'm trying to get a sense of credit in general. The CECL adoption helped the reserve a bit, but can you share general thoughts on credit, too?
Jude Melville, CEO
Yes. Thanks, Michael. That's a great question. The charge-off this quarter was for a previously marked credit in the TCB acquisition last year. We decided to resolve that, which resulted in a net gain of about $250,000. Due to the CECL adoption, four basis points; so the five basis points in charge-offs on Page 19 are really attributable to that credit specifically. Charge-offs remain low. The same applies to past dues and NPLs. The CECL adoption, because we have been acquisitive, leaves us with credit marks from our last four acquisitions that mainly contribute to the $17.1 million NPL that's showing there. If you normalize that to pre-CECL adoption, it is really $7.6 million, indicating NPLs screening down about $4 million quarter-over-quarter. We believe the credit book is in great shape and performing nicely.
Michael Rose, Analyst
Any changes in criticized and classified?
Jude Melville, CEO
No, nothing material.
Michael Rose, Analyst
I wanted to touch on SSW, AUM continues to grow. The market was up a bit in the first quarter, but now down. I wanted any thoughts on efforts to continue building that business?
Jude Melville, CEO
Yes. Jerry, I'll let you answer that as part of your SSW plans.
Jerry Vascocu, Chief Administrative Officer
That group is very active in developing new relationships and expanding existing ones. I assure you there's high energy in developing. They're adding banks this quarter and expanding relationships. They're even dipping into the loan participation side of these apps. This team is proactive, and I think you will continue to see growth in that business.
Jude Melville, CEO
We are excited about their energy and reception. When we did the transaction, concerns arose about being part of a bank affecting their client base, but that's not the case. Their client base has significantly increased since we partnered. We see growth opportunities, both geographically and in the number of banks. We're enthusiastic about the quality advice being provided. SSW's approach differs from banks that have struggled; we focus on cash flow return versus yield chasing. This should provide good talking points and trust angles for us moving forward. We believe in diversifying our revenue streams, and while I'm not going into specifics today, I think we'll have opportunities to add other services and products.
Michael Rose, Analyst
Did you provide updated expectations for cumulative deposit beta and NIB mix? What is the current NIB mix?
Jude Melville, CEO
I don't think we mentioned it specifically, but Matt will answer that now.
Matt Sealy, Conference Host
Sure, Michael. As for deposit composition going forward, we expect noninterest-bearing to be down a bit, somewhere around 1% to 1.5%, just a total mix of the composition by year-end, remaining relatively stable. For betas, in Q1 we had interest-bearing, and I'll speak about interest-bearing betas. Total interest-bearing during the first quarter was 73%, which obviously is an increase from the fourth quarter. For our outlook, we will shift the conversation to be more cycle to date due to the uncertainties about size. It looks like it will be a flat Fed funds balance for the year, which means we're still experiencing an increase in funding costs. On a cycle-to-date basis during Q1, we had 45% cycle to date interest-bearing deposit betas. That likely creeps up about five percentage points each quarter to finish the year in the high 60% range. If you apply that to a flat or some forward curve outlook, that would represent our beta assumptions for interest-bearing deposits. As for total funding, expect similar progressions for interest-bearing liability betas. We were at a 50% total interest-bearing liability beta in Q1 cycle to date; that will likely increase five basis points each quarter for the rest of the year.
Brett Rabatin, Analyst
I wanted to go back to expenses and ensure I understood the guidance. If I heard Greg correctly, guidance was for expenses to decrease linked quarter in Q2. After that, it sounded like expense growth might be moderate or minimal over the next year, excluding any opportunities. Is that right? Can I get clarity on that path?
Greg Robertson, CFO
Yes, Brett. We're seeing expenses being flat to slightly up in Q2, primarily due to the full quarter impact of March salary increases. We expect to not see material expense increases afterward; it'll remain flat for the balance of the year.
Jude Melville, CEO
Typically, seasonality impacts our expense base in the fourth quarter, year-end catch-ups. On a core basis, yes, flat thereafter, but seasonality likely in Q4.
Brett Rabatin, Analyst
Regarding classified criticized decrease linked quarter; what drove that 40 basis point watch list decrease?
Greg Robertson, CFO
Yes, it includes some credits leaving the bank. The credit we settled with a mark against it was probably the big driver in that.
Brett Rabatin, Analyst
I appreciate Slide 21, showing the repricing opportunity on loans. For the fixed-rate loans, which is like 56% with a weighted average rate of 4.7, any idea what piece is here for 1 to 2 years? What might a good duration be on loans longer than 1 year?
Greg Robertson, CFO
Our portfolio turns over about 4.8 years on total. The fixed-rate piece is about that as well. Specifically, those fixed rates of 8.8% mature in less than a year. The balance evenly scatters out over about a five-year horizon.
Jude Melville, CEO
Brett, I look forward to seeing what your title will be here. You're quite the creative titler of your reports.
Graham Dick, Analyst
I appreciate all the color you provided. Most of my questions have been asked and answered. However, I wanted to circle back to deposits. We've mentioned this quarter being a stronger growth quarter for you. What did you see in March in terms of customer interactions?
Greg Robertson, CFO
In March, we saw normal seasonal deposits come in, primarily from municipalities. This year, the same amount flowed in and out during the quarter instead of hanging around as in past years. The flow of deposits during a volatile time involved some pullback for most banks. We monitor that carefully, but new account openings continue to outpace account closings, indicating growth in originations. The trends have remained high, and we've opened about 700 accounts for around $22 million in noninterest-bearing deposits in Q1.
Jude Melville, CEO
We also still want to manage below the 100% loan-to-deposit ratio. However, it got harder due to the quarter. We'll work through as bankers do to achieve that. It will involve incremental changes to deposit-gathering incentive plans, and slowing down loan growth will be part of getting our deposits right-sized with responsible cost for deposits to fund that growth. We'll recalibrate to a lower loan-to-deposit ratio than historically while finding ways to manage the outflows to match inflows.
Graham Dick, Analyst
That's really helpful. Greg, I'd just like to know the rates on interest-bearing deposits at quarter-end compared to last quarter. I'm looking for a blended average.
Greg Robertson, CFO
We posted interest-bearing at the end of the quarter was 3.89%, which was up from about 3.40% at the end of December.
Jude Melville, CEO
Regarding client interactions during the volatile period, we came through feeling confident in our relationships. We never felt concern about the health of our bank, and while we received questions, they were generally more about how we were doing. We were aligned with what you heard in the national media, and that is probably common across community banks, including us.
Graham Dick, Analyst
That's really helpful, guys. Greg, just one last thing, on that deposit spot rate. Is it a CD rate or are you looking for the blended average?
Greg Robertson, CFO
That reflects the weighted average rate for our interest-bearing deposits opened in March.
Jude Melville, CEO
This concludes the Business First Bancshares Q1 2023 Earnings Conference Call. You may now disconnect.