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Gregory Robertson

Thank you and good afternoon, everyone. The third quarter, GAAP net income and EPS available to common shareholders was $16.5 million and $0.065 per share and included a $13,000 pre-tax loss on sale of securities. $319,000 pre-tax acquisition related expense and a $511,000 pre-tax conversion related expense including this, excluding this non-core item.
Non-GAAP, coordinate income and EPS available to common shareholders was $17.2 billion and $0.068 per share, as you've mentioned, while expenses did come in lower than we had expected. We feel like Q3 represents an overall solid run rate going forward. I'll start on the balance sheet for moving to the margin and then conclude with the income total loans held for investment increased by $57.3 million or 4.4% annualized during the third quarter.
I should note our production pipeline remains very strong as we sold approximately $30 million in loans to participating banks during the third quarter, loan growth from late quarter was largely attributable to net growth in the commercial real estate portfolio of $58.2 million, $16.9 million net growth in the CD portfolio production was led by North Louisiana region and our New Orleans region which accounted for approximately three quarters of net loan growth from a length based on unpaid principal balances.
Texas based loans represent approximately 35% of the overall portfolio as of September 30. And as Jude mentioned, as we expect Oakwood to contribute $690 million in net loans. Bringing the total Texas loan balances to approximately 42% total deposits increased $77.3 million or 5.5% annualized quarter over quarter during the quarter ended September 30, interest bearing accounts drove the increase with $196.5 million in growth offset by $119 million in reduction in non-interest bearing accounts compared to the linked quarter.
The reduction in the non-interest bearing accounts is isolated to seven clients with production related accounts that make up approximately $75 million in deposits. In spite of that new, in spite of that new production remains strong with approximately $25 million in new deposits generated during the quarter. The increase in interest bearing was largely attributable to $161 million increase in our money market accounts. The weighted average money market portfolio rate declined by 35 basis points in the link quarter from 4.22% to 3.87%.
Total non-interest bearing deposits represent 21.1% of total deposits as of September 30, and down from 23.5% linked quarter but remains in line with our expectations at the beginning of the year to end the year of 2024 in the low 20% range. Our GAAP for the third quarter net interest margin of 3.51% benefited from $705,000 in discount loan accretion, which was in line with our consensus expectations.
Third quarter core [nim] excluding accretion of 3.46% came in higher than we expected the 12 basis points link quarter expansion of the quarter and for continued strong new and renewed loan yield like loan yields, repricing tailwinds and moderated funding pressures a little context there. Our weighted average new and renewed loan yields for the third quarter was approximately 3.46% with a spot rate at the end of September at 8.49% quarter over quarter, total deposits declined 1 basis point. With the September cut in interest rates. We do expect deposit costs continue to decline in the near term but will be affected by our ability to retain and attract lower cost funding and non-interest bearing deposit accounts.
This is a good opportunity to direct your attention to a new slide we created in our earnings presentation. Please reference slide on page 21 for a summary of our deposit data assumptions in an easing interest rate environment. We expect overall total deposit basis to be in the 45% to 55% range which should translate into low single digit expansion in the core. Now assuming a static balance sheet, there could be additional upside for margin expansion. Should we assume some normal organic growth?
We feel like this new beta slide is a good complement to the following slide on page 22 which depicts the re-pricing opportunities within the loan portfolio. As you'll see on page 22, we have approximately $2 billion in floating rate loans at approximately 8.15% weighted average. But we also have approximately $500 million in fixed rate loans maturing over the next 12 months at a weighted average of 6.28% which we would expect to reprice in the low 8% range.
Last thing I would add is just the impact of the addition of the Oakwood balance sheet, which we have a full quarter impact during the fourth quarter. We continue to expect Oakwood to be a couple of basis points accreted to our overall core margins and we also expect loan discount accretion to average approximately $700,000 to $800,000 quarter range going forward including Oakwood addition.
Moving on to the income statement, our GAAP non-interest expense was $42.4 million and included $319,000 in acquisition related expense and $511,000 in conversion related expense, core net interest expense. For the third quarter, $41.6 million declined approximately $1.1 million link quarter and benefited from timing of salaries, salary rules and certain investments not hitting during the quarter.
We would expect this to reverse trend somewhat during the fourth quarter. And with the full impact of Oakwood, we view the current consensus estimate for the non-interest expense of approximately $50 million to be a fair estimate and a good run rate there.
Third quarter, GAAP in core non-interest income was $10.8 million but GAAP did include a $13,000 loss of sale on securities non-interest income results for the third quarter. Did come in slightly better than we had expected and was driven our contribution from our newly formed customer swap business which generated approximately $900,000 in revenue during the quarter review.
Q3 of core non-interest in interest income is a good run rate going forward and expect our non-interest income to continue to trend with an upward trajectory that would be bumpy as our investments continue to see. As you mentioned. We did add a new non-interest income slide on page 15 in our earnings presentation that summarizes those investments and provides additional color.
Lastly, while the addition of Oakwood will be additive to the overall non-interest income that increase will be modest in the near term as they get used to our product offering that concludes my remarks for today and I'll hand it back over to you.

Jude Melville

That's correct. Again, just a good solid work a day quarter and we're pleased with the we position well to continue that over the coming quarters.
So with that, I'll bye look for any questions that we might have and I look forward to the conversation

Question and Answer Session

Operator

(Operator Instructions)
Michael Rose, Raymond James.

Michael Rose

Hey, good afternoon, everyone. Thanks for taking my questions. Nice expansion on the margin and good to see the deposit costs come down. I think, as I recall last quarter, you guys had a bunch of brokered CDs that are expected to mature by the end of the year. I think it was $450 million last quarter just wanted to see how much of a tailwind is there.
And I think you had previously talked about the core margin reaching kind of a, you know, around [350] by the end of the second quarter, just wanted to see if there were any updates and then just embedded in that it seems like the accretion might be a little bit lower. Do you have the amount of expected accretion that you expect to realize from Oakwood? What the addition would be to the kind of [$9 million] that was remaining at the end of the third quarter? Thanks.

Gregory Robertson

Yeah. I'll start out faster in the first part of the as far as the CD books and the maturities go. That was what we had. Last time we talked to you, we had, we're isolating on about $400 million in retail CD renewals in the near term. We have been pulling through with a fairly solid above 50% retention rate on that CD book and re-pricing. So we feel pretty confident there are some tailwinds, and we do feel like that that would be instrumental in helping us to that [350] margins by the second quarter, like you spoke of. That's the --

Matt Sealy

Hey Michael, I'll jump in and kind of give you a little bit of color in terms of the [350] target in the second quarter. I think you're referring to the second quarter of '25 core margin run rate. So we're, you know, obviously a little bit ahead of schedule is what would appear service level. There's a couple things that I would call out that I'm not sure how much could be sustained within that core margin currently.
So within our business manager factoring product set that we have, there's about 7-ish basis points within the core margin attributed to that business line and really no direct balances on balance sheet balances associated with that interest income that we have there. There's a couple of larger clients that are currently reflected in that number and the past quarter or so, we've been uncertain if they're going to stick around and unfortunately, they have that is a bit of a wild card.
So, while we are currently ahead of schedule to hit that [350] core margin by Q2 of next, next year, I would just caveat it with that. Those couple clients that account for a few basis points, maybe about three basis points of that seven related to those folks. Now that is also pre-Oakwood. So if you layer in Oakwood, there are another couple of basis points of creative.
So I'd say all in all, still very confident that we can hit that core margin, run rate by Q2 of next year and potentially a little bit sooner. But that's kind of the context around that piece of it. And then lastly on the kind of Greg's point about the CD repricing and maturing, we, do have on our new slide 21 in the presentation, the last bullet point which depicts the upcoming maturities within the CD portfolio in Q4 and Q1 to the tune of about $300 million. So we'll try to keep updating that and rolling that forward. So you can see kind of the context going forward in the next couple quarters.

Gregory Robertson

And Michael your last question in regards to the increasing game with the Oakwood closing, you know, we're from the time we announced the transaction, the interest rate environment has changed. So we're in the process of finalizing the marks and the creation and all that on that. So a little bit too early to tell on that, but we're still working on that. It will be additive but will be in

Michael Rose

But, but $700,000 to $800,000 a quarter with Oakwood, is what you're still expecting is I think what I heard.

Gregory Robertson

Yes, that's right.

Michael Rose

Okay, perfect. Sorry for the three part question in the first question just as one follow up, you know, saw the you know, the provision came in a little bit lower than I was expecting. But looking at slide 31 I did notice that the special mention you know, was up and MPLS did go up a little bit as well. Can you just give some context there anything to worry about? And just any general overall thoughts on credit? Thanks.

Gregory Robertson

I will say I'll start with MPLS. So the increase in MPL is really attributable to one loan. That's SBA guaranteed loan that we should have resolution with that within the next month or so. So that I think what we're seeing within the credit book is just the impacts of normalized credit performance with, for example, the past due loan, the increase in that two of the three loans that make up most of the increase, we should have some resolution on those as well.
So still seeing some one off things, I think that as far as the watch list goes, that is an impact or direct reflection of the interest rate environment probably the majority of the movement with that. But I think it's, it would be foolish not to say that they're, we're in a more normal credit environment. So we're seeing no major degradation in the credit portfolio. Just, one off examples here and there.

Michael Rose

Very helpful. Thanks for taking my questions

Operator

Matthew Olney, Stephens Inc.

Matthew Olney

Hey, thanks for taking the question guys. I want to ask about loan growth a little bit slower than what we've seen at the bank more recently, but still quite a bit above what we've seen from peers over the last week or two. Would love to kind of hear what your borrowers are saying. Specifically, the C&I borrowers looks like utilization rates move, move down a little bit. Would love to hear just kind of what you're hearing from your customers.

Gregory Robertson

I'll talk about the impact of the balance sheet and I'll let Philip or Jerry kind of [chime in] on what they're seeing with the customers. The 4.4% is kind of in line with what we've been talking about lately is in being, being understanding the impacts of capital with growth and profit. So I think that's right in line. And as I mentioned, you know, we did sell $30 million worth of loans in the quarter to participating banks in our network. So, we still feel like the pipeline is strong and in a good place, but I'll let you guys talk a little more about that.

Philip Jordan

Yeah. I would say, I don't know that there's necessarily an outlier from that perspective too. And customer feedback, I think this is kind of a timing for us. We don't see it. It's just kind of normal on a year, over year basis as far as how our clients are utilizing their lines. Also. It's a, it's one of the year where a lot of our loans are paying down. So we're seeing some of that. I don't.
Well, and I would offer to kind of my second year through the process. We are seeing some pretty nice growth and embedding there from some core customers that are really kind of having a successful season. It's been nice to see that this over the last couple of, particularly the last few months. It manifesting some additional good corporate.

Matthew Olney

Okay, great. Thanks for all the commentary on the loan growth and I guess going over to the fee side another nice quarter on the fees, I think it was a swap fees that maybe drove the strong trends this quarter. I think these can be a little volatile quarter to quarter, but it sounds like based off the prepared remarks, you don't expect any kind of step back in the air term. You think you can continue to grow it from this run rate that we saw in the third quarter. Is that right?

Gregory Robertson

That's right. And if you think about our production in that non-interest income in the, in the second quarter, that was really driven by a million dollars or $1.9 million and outlier fee from a USDA gain on sale. So, for us to really build from there, shows the continued investment in those different business lines that we've been and we're highlighting in the slide deck this quarter. We do think it'll be bumpy like you said, but we do expect it to continue to Inkerman like grow over time.

Philip Jordan

I was going to add It's, it was a good question. One of the things I think we've been most pleased about particularly with the swap business is it's become more granular. It's, we've got a good rhythm with that product and applying it to the right clients, good clients.
If you look at the slide that breaks out the swap some detail there, it's 20 trades in the quarter. So I think what, we've been most pleased about is it not as lumpy in the third quarter? And we can kind of see. It leveling out over time in a good way with a good gradual ramp, good response from our bankers and our clients.

Jude Melville

I think I would also add just that we don't expect for swaps to necessarily be the leader every quarter. You know, one of the reasons that we've chosen to invest in multiple sources of revenue is that we know that that can be a little more volatile than our traditional spread income.
So we wanted to be sure we had three or four sources and I think today we're probably feel like in the fourth quarter, the SBA income probably the stronger pipeline than swap income, Not that the swaps won't continue to agree, but we wanted to be sure that we had multiple sources of revenue so that as we experience some fluctuation in the individual components, the overall aggregate results should be incrementally.

Matthew Olney

Okay, great. All right, I'll step back. Thanks for the commentary guys.

Operator

Feddie Strickland, Hovde Group.

Feddie Strickland

Good afternoon, everybody. You just wanted to ask, you know, as you integrate over, what, how should we think about the expense growth? You know, kind of later in '25. Are there any major initiatives? I mean, I know you maybe have some cost save here and there earlier in the year but anything major we should look out for or you know, is kind of past yes, premerger. I could a piece of history to look at for that.

Gregory Robertson

I would say past year, pre-merger is a good indicator of how we think about it, I think the overarching, you know, we're going to grow, we want to grow loans in the mid single digit range next year. And so keeping expense that expense base in line with that asset growth is really what the, what we're thinking about from overall strategy standpoint. So, and do remember it's worth noting that because of the later in the year core conversion with them, that we're not pulling through a lot of call saves in 2025. Those, those will be showing towards the end of '25, '26.

Matt Sealy

But I said the one thing that I'd add, Greg, it hit on this in his prepared remarks, All in Oakwood in the fourth quarter, kind of a good launching point going into 2025 is kind of the current consensus number out there, which I believe is right at [50 million-ish] all in. And that includes fully loaded impact of Oakwood. That's kind of a good launching point.

Feddie Strickland

Got you. And, then you said the costs are probably later in the year, wouldn't see as many of those initially, right?

Gregory Robertson

We're probably not going to send those to the Q4 of next year and then pulling through into '26.

Feddie Strickland

Okay. That's helpful,

Jude Melville

Which is what our expectation was when we structured the deal as we model. So not a delay. It's just the sequence of events with our own internal work, including core conversion of the legacy deal prior to prior to doing the conversion.

Feddie Strickland

Understood. And then just one more question for me is just, you know, kind of still around Oakwood a little bit. But how do you think about either geographic expansion or just growth going forward? I mean, does M&A remain a part of the playbook in the medium term here? Would you look at doing team lift outs or do you just still feel like there's a good bit of one way with the current footprint in terms of I guess low hanging fruit for additional loan deposit growth.

Jude Melville

Yeah, I think as always, we want to be prepared to take advantage of opportunity when it presents itself and we believe that we could be successful on multiple fronts. I do, I would say that our current priority remains organic growth and making sure that we're, we're maximized in the team that we have and we do have a really good track record of enabling teams that we've partnered with to grow beyond where they were before we partnered with them.
And so that, you know, certainly will be the first priority would be in our current footprint, continuing to gain operating leverage. You know, certainly team lift outs are the, are a great way to grow and we've done that successfully and we'll continue to look for some opportunities and we prepared, we feel prepared to take on the M&A should the right partner.
So I would say from a footprint standpoint, number one priority is our current footprint. Number two, priority is filling in some of the gaps in our current footprint. You know, Dallas to Houston is a possible area that might be (inaudible) and we have still have plenty of room to grow in Louisiana as well as we continue to build our core franchise. Secondarily, I would say there's, you know, we over time, we'll look for opportunities most likely.
But you know, that's if we think about our footprint and what we want to look like 5, 7, 10 years from now, I would imagine more widespread and the pace or the order of how we do that will be determined by who we can partner with. And our location choices have always been about the bankers more than the specific geography. And so we'll continue to do that, but we do think we have plenty of funny to say grace over in our current footprint.

Feddie Strickland

And, that'll be our, whether that's through organic growth or through partnership, that'll be our priority for the near term.

Gregory Robertson

I mentioned to you that we had a couple of bankers retire in our Houston. I told so, yeah, for that addition we're excited about that. And again, an incremental addition to our current talent base.

Jude Melville

I think we will produce a positive earning results.

Feddie Strickland

Perfect. I appreciate the color. I'll step back in the queue. Thanks for taking my questions.

Jude Melville

Thanks be, you know, I think it is worth pointing out that and Greg mentioned this before. But you know, our, our two biggest growth areas this year or this quarter were North Louisiana and New Orleans. So I know we're excited about Dallas and Houston and those are things that tend to get the headlines. But we also, I feel really good about our competitive posture within our core Louisiana franchise.
And, with each quarter and each year that passes, I think we build credibility and we build grant power and we accumulate additional talent. And so, while Texas certainly is a key part of our future, we believe we have plenty of opportunities throughout our footprint and I think third quarter was a really good example of the different constituent elements of our footprint, work together to serve the greater whole and you can paint a picture over '24 and '23 which some of our Southwest Louisiana portion of our footprint, for example, provided the most deposit growth.
So, one of the things that we've tried to do over time is say that we have an opportunity to combine the best of both worlds, which is that the more kind of community bank rural locations that we might have in our Louisiana footprint with the slightly more commercial metro banking that we might do in other areas. And I think when you really kind of parse out the results over the course of this year, we've had good evolution of leadership from throughout the footprint and we're excited about opportunities across the spectrum.

Operator

Manuel Navas, D.A. Davidson.

Manuel Navas

Hey, good afternoon. The low single digit core expansion under the 50 basis points reduction. That's, only so far it, what's the future rate cut improvement? And, is that slide only on the balance sheet as of 3Q? Can you just kind of talk through some of the assumptions behind that slide?

Gregory Robertson

Yeah, that would be on a static balance sheet as a 3Q and then that would be an assumption for every 50 basis points. That would be what we would realize.

Matt Sealy

Yeah, and a little bit more color than Manuel. So that's the incremental and kind of additive expansion on top of our current trajectory assuming flat rates. So, you know, we've got a scenario where if rates were not cut, we would still see some expansion and lift. So that couple basis point pickup is not off of the current Q3 figure or current Q3 ending figure.
There's already some inherent expansion in there in just a flat rate environment. So that's really the additive expansion on top of already some modest expansion over the next 12 months. So that's not a, you know, three month outlook. Expansion from the recent cut plus ordinary course of business expansion from growth and margin improvement if that makes that makes sense.

Gregory Robertson

But it really, I think the last time we saw, we talked about the work we have done to restructure the liability side of the balance sheet. And I think this really paints a picture and shows the work that we put in to become more neutral and position the balance sheet where we can be reactive to interest rate movements. This is just a snapshot that shows indication of what that work is proves out to give us a little bit of work to be able to do.

Manuel Navas

So if that low single digits that say 2 basis points to 3 basis points, and we the forward curve contemplates another 150 basis points cut in fed and fed funds by middle of next year is just saying almost like a another 6 basis points improvement in core in under these assumptions.

Gregory Robertson

I think that'd be reasonable to expect.

Manuel Navas

Okay. And then you add in layer in the Oakwood core, name improvement Oakwood, purchase accounting accretion on top of that so that there's a couple other pieces as well.

Gregory Robertson

Yeah, I think the name from or from Oakwood is correct. I think the accretion lift on Oakwood, we're still trying to finalize the numbers on that, but I think there would be slightly some lifts on that.

Manuel Navas

Sure. Hey, so the money markets stepped down pretty nicely this quarter. They, they're expected to have pretty strong data through the cycle. You're about a month since the fed cut rates. How is the acceptance of those cuts progressed from your customers?

Gregory Robertson

Not a, lot of volatility in that account, you know, we've had slight growth since the fed cuts. No, runout. So we feel pretty good about the decision we made so far.

Manuel Navas

That's great. That's great to hear. Any other updates on Oakwood now that it's closed? It, seems like there's a little bit more loan growth there. Did they use up some of the cash because you were going to have about $100 million in cash deployed pretty quickly. It kind of just walk me through any of the --

Gregory Robertson

I'll give you an update. They did have loan growth since the deal was announced. And so their loan deposit ratio to tick higher. And so that's where some of the cash went and then we'll continue to evaluate opportunities from their funding base. As it, as we move it to ours, they have a little more of a structure time deposit funding base that has renewal opportunities coming up. So we'll deal with that on a one off basis and hopefully be able to see some improvement in that, but everything is going as planned for sure.

Manuel Navas

Okay. I appreciate the update. I'll step back into the queue. Thank you guys. Thank you

Operator

Christopher Marinac, Janney Montgomery Scott.

Christopher Marinac

Hey, good afternoon. Thanks for hosting us. Wanted to ask about the lower interest rates and the impact on credit upgrades in future quarters. Is that possible? And you know, what would that look like?

Philip Jordan

Yeah. It's a good question. We're in the process right now of kind of going through at a pretty granular level. Our risk ratings across the portfolio and we do feel like there's some opportunities to, to see some benefit and some improvements in risk rating. So we're looking at it across the board across the portfolio and applying that, that factor. And going about it in a pretty disciplined fashion. It's been a good, it's been a good phase.

Jude Melville

Most of our increase in the watchlist has been due to higher debt service requirements based on rising rates. So we would expect that the reverse would hold true to some degree. And, you know, it is a little bit of a question of timing and how quickly do the rights actually move and how does that feed into whatever stress clients might have been under previously.
And then also, you know, from our perspective, you know, just make good decisions and you require documentation and updated financials and you know, all those things would take a little time. But I do think we expect that the changing rate environment should be a net positive for to counter some of the watch list growth that we've experienced over the past couple quarters in particular.

Christopher Marinac

In June. Is there any kind of like a separation between watch list that is CRE related versus pure C&I with the C&I have its own separate behavior? These next few quarters.

Gregory Robertson

I think there is a pretty good distinct, this is Greg, Chris that there is a pretty good distinction between on the makeup of the watch list. I would say it's probably 60% CRE, 40% C&I something in that range, I think the overarching facts kind of play off what you said is about 90% of that watch list is paying as agreed but does have financial performance impacted if you're looking at a ratio standpoint.
So and that's prior to the rate cuts. So we feel like, that it will naturally probably help those customers. But as far as having the granularity on the performance in each group, we can get probably get you some of that data, but we don't have it right now.

Christopher Marinac

No, problem. That's helpful. And then just last question just goes back to the beta slide on number 21. Would you see that mix changing if we think prospectively 12, 18 months or should we think of business first is kind of the same mix in this environment?

Gregory Robertson

I would say, you know, we worked real hard over the last 12, 18 months to move the mix into this position to give us a little more balanced or neutral balance sheet. So I would say going out in the future, say for some, you know, dramatic change from an M&A standpoint and I don't think, you know, that's realistic that this would be what we could expect.

Matt Sealy

Yeah, I'd say that beta range is probably a good assumption to use, not just in the recent 50 basis points that we got, but foreseeable future. Any rates we might get in the future in the near term.

Christopher Marinac

Got it. Thank you, Matt. Thank you Greg. Appreciate it.

Gregory Robertson

Thanks Chris.

Operator

And at this time. There are no further questions. I apologize. I'll hand it back to Jude Melville.

Jude Melville

All right, I'm ready. Thank you. And I appreciate everybody's participation and questions. You know, it's just, it's been an unexpected and, and eventful couple of years and I'm just really proud of the work that we've done to position ourselves coming out of this cycle to maximize 2025 and 2026 and beyond. And really proud of this community banking in general, you know, there were an awful lot of dark clouds hanging over the industry in general over the past couple of years.
And I think we're going to find that community banks in particular have exceeded expectations and are well prepared to continue to play a critical role in our country's future in the coming quarters and years. And we're proud to be a part of it. Thank you for your interest and I look forward to next quarter being our first quarter with our Oakwood teammates numbers incorporated in ours and I look forward to seeing what we can do together. Thank you.

Operator

Once again, everyone that does conclude today's conference, we would like to thank you all for your participation. You may now disconnect.