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Good morning, and thank you for standing by. My name is John, and I will be your conference operator today. At this time, I would like to welcome everyone to the Business First Bancshares first quarter 2026 earnings call. All lines have been placed on mute to prevent any background noise. After the speaker's 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 your 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 Sealy, Director of Corporate Strategy. Please go ahead.

Thank you. Good morning, and thank you all for joining. Earlier today, we issued our first quarter 2026 earnings press release, a copy of which is available on our website, along with the slide presentation that we'll reference during today's call. Please 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 those safe harbor statements in our slide presentation and earnings release.

I'm joined this morning by Business First Bancshares' CEO and Chairman, Jude Melville, Chief Financial Officer, Greg Robertson, Chief Banking Officer, Philip Jordan, and President of b1BANK, Jerry Vascocu. After the presentation, we'll be happy to address any questions you may have. With that, I'll turn the call over to you, Jude.

Okay. Thanks, Matt. Good morning, and thank you for joining us today. We know there are plenty of things y'all could be doing on a Monday morning in a world environment as complex as the one in which we find ourselves, and we appreciate you choosing to spend this time with us. This was one of, if not the best, first quarters that we have had as a company. We continue to improve earnings, strengthen capital levels, and improve quality of our liquidity posture while consummating our second material acquisition in the past three years and making a number of non-acquisitive investments that will pay off over the course of the next few years. A highlight for the quarter was the addition of a substantial number of new teammates. As I just mentioned, we closed the Progressive transaction on January 1st.

In balance sheet terms, the acquisition adds over $700 million in assets and nine branches across North Louisiana, deepening our footprint in an area in which we were already a market leader. Asset quality of the acquired portfolio is stellar, as is the makeup of the expanded client base. On a very promising note, since we announced the acquisition, construction on the Meta Data Center project in Northlake, Louisiana, has accelerated and been expanded, and we expect tens of billions of dollars of private investment in a region in which we are as well situated to capture the benefits as any financial institution, large or small.

The morale among our former Progressive teammates is high, and the working partnership is off to as smooth a start as any acquisition that we've had the honor to participate in, which bodes well for our ability to operate as one team over the course of this year, even before conversion is executed. We also added a material number of bankers organically. In our last call, I mentioned the addition of Jon Heine, our new market President in Houston, former market President from Veritex Bank. To date, Jon has attracted an additional 11 teammates, including seven production officers, the majority of which are also former Veritex bankers. Also in Houston, we are honored to add Ben Marmande to lead our corporate banking activities in Texas.

Ben was a longtime banker for IBERIABANK and then First Horizon, serving in leadership capacities across South Louisiana and for the past five years as President of the FHN Financial's Houston market. These new partners have already begun building a pipeline of opportunities, and we anticipate them contributing meaningfully to our growth in the second half of the year as we seek to take advantage of M&A-led disruption in the Houston market. We announced and have begun a partnership with Covecta, a provider of agentic AI capabilities. I include this in my discussion on new teammates because over time, we anticipate this partnership leading to both our more efficiently leveraging the talent we have on board and to our minimizing hiring as we continue to grow.

We are beginning this effort focused on our consumer workflows, in which we have already identified over 300 policy rules for potential automation and anticipate expanding utilization of the partnership across broader use cases throughout the bank, including deposits and credit. This effort will take time to unfold, but we are more confident with each day that the potential is actionable and will prove to be meaningful. It's important to note that as we explore the potential of agentic AI, we remain focused on governance, validation, and human oversight so that as models, policies, and industry requirements change, we retain our ability to manage that evolution in a disciplined and controlled way. A very positive note for the quarter is that even as we grow the team, we remain focused on cost control, with non-interest expenses for the quarter lower than anticipated.

After accounting for the increased costs associated with the Progressive current run rate, our core expenses were essentially flat quarter-over-quarter, as well as in comparison to last year's first quarter. We do anticipate the cost of the new hires adding incrementally to our expense rate over the second quarter, but note that the supermajority of the hires were production-oriented, which should lead to further operating leverage improvements. As a key component of our positive earnings results, we are pleased to note the contribution of our non-interest income, primarily through the Financial Services Group, and in particular, their work providing interest rate swaps and SBA loan gains on sale.

As you know, we've been working the past three years on diversifying our revenue streams with investments in this arena, in part so that we might be able to continue to produce consistent earnings even in quarters in which our spread income was not as strong as we hoped. The potential of this effect was put to test in the first quarter as loan volumes were lower than anticipated, due primarily to heightened loan payoffs and paydowns. In addition to the contribution to current earnings, we utilized the Financial Services Group to successfully complete a fully self-managed private placement of subordinated debt, just after quarter end, raising $85 million within our cohort of correspondent banking relationships. Of the $85 million raised, we utilized $67 million to redeem existing sub-debt, some of which had crossed the five-year mark and had already lost about $10 million in capital treatment.

The successful debt raise is important in and of itself, but I'm most excited about the way in which we accomplished it, both utilizing and contributing to our growing network of community bank partners. In closing, we feel very positive about the first quarter on a number of fronts and anticipate it to be the start of a solid full year. We reiterated full-year loan guidance on loan growth based on our sooner-than-expected hiring of production officers, and we continue to forecast a 1.25 ROA end-of-year run rate. One of our guiding principles is belief in the compounding power of incremental improvement, and we see that principle in action in our first quarter results. Thank you again for being with us. With that, I'll turn it over to Greg.

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. First quarter GAAP net income and EPS available to common shareholders was $22.2 million and $0.68, and included $2.2 million merger-related expenses, $28,000 gain on former bank premises, and $80,000 gain on sale of securities. Excluding the non-core items, non-GAAP core net income and EPS available to common holders was $24 million and $0.73 per share. From our perspective, first-quarter results marked another quarter of strong financial performance, generating a 1.10% core ROAA and a core efficiency ratio of 62% for the quarter.

Our first quarter earnings results were highlighted by continued discipline on the expense side and a meaningful contribution from our financial services correspondent banking group that Jude mentioned. Also, during the quarter, we completed the acquisition of North Louisiana-based Progressive Bank, which closed on January 1 of this year and added $774 million in total assets and nine new locations. From the balance sheet perspective, total loans held for investment increased $494.8 million, or 32% annualized on a linked-quarter basis. Excluding the acquired Progressive loans, total loans held for investment declined $102.7 million, or 6.2% annualized. Excluding acquired Progressive loans, organic commercial and commercial real estate loans decreased $58.6 million and $23 million, respectively, compared to the linked quarter.

Texas-based loans ended the first quarter at 35% of total loans. This was anticipated due to the closing of the Progressive Bank transaction in early January. The lower-than-expected loan growth was primarily driven by an overall increase in loan paydowns and payoffs. Specifically, total paydowns and payoffs during the first quarter totaled $579 million, which compares to the total new and renewed loan production of $476 million during the quarter. If you recall, in the previous quarter, we experienced slightly higher new and renewed loan production at $500 million, while paydowns and payoffs during the quarter were lower at just $332 million. Total deposits increased $766.4 million due to increases in interest-bearing deposits and non-interest-bearing deposits of $513.3 million and $253 million, respectively.

The increase in interest-bearing deposits was largely driven by approximately $325 million in commercial money market accounts and $185 million in personal money market accounts. Excluding acquired Progressive deposits, organic deposit growth was $81.5 million or 4.4% annualized on a linked-quarter basis. Lastly, on the funding side of the balance sheet, we took advantage of the improved liquidity position from softer overall net loan growth and repaid FHLB balances and broker deposits. Total FHLB borrowings decreased $170.4 million, and broker deposits were reduced by $112.5 million from the linked quarter.

Moving on to the margin, our GAAP-reported first quarter net interest margin decreased 6 basis points linked quarter to 3.65%, while the non-GAAP core net interest margin, excluding purchase accounting accretion, decreased 4 basis points from 3.64% to 3.60% for the quarter ended March 31. A driver to the lower-than-expected margin performance during the quarter was loan discount accretion falling lower than expected at $1.1 million, which was primarily caused by the lower actual rate marks from the Progressive acquisition. We would expect quarterly loan discount accretion to be in the low $1 million range for the balance of 2026. On a linked-quarter basis, cost of deposits decreased 18 basis points, while total loan yields decreased 27 basis points.

Core loan yields, excluding loan discount accretion for the first quarter, were 6.54%, down to 24 basis points from the prior quarter. Total cost of deposits for the month end in March was 2.33%, which compared to the weighted average for the first quarter was 2.34%. We are pleased with our ability to hold the line in new loan yields during the quarter, with a weighted average new and renewed loan yield of 7.20% for the quarter. I would like to make a note of the few takeaways on slide 19 in our investor presentation. We continue to see 45%-55% overall deposit betas as achievable regarding any future rate cuts. I would also like to point out overall core CD balance retention rate was 81% during Q1.

This impressive statistic reflects on our team's continued focus on maintaining core deposit relationships. Our baseline assumption is that we do not receive any further rate cuts in 2026. We have worked hard to manage our balance sheet in a relatively neutral position and believe we can achieve modest margin improvement in a slightly down or up rate environment. Moving on to the income statement, GAAP non-interest expense was $57.5 million, and included $2.2 million in acquisition-related expense. Core non-interest expense for the first quarter was $55.2 million, up $5 million from the prior quarter, and included a full quarter impact of the Progressive expense base mentioned earlier.

Core expenses for the first quarter did come in lower than we expected, mostly due to the timing of certain investments and marketing spend not hitting in the quarter, which we do expect to recognize going forward. We also did recognize a small amount of Progressive cost saves during the quarter. As a reminder, we should recognize remaining potential cost saves post-conversion, which is scheduled for late third quarter this year. First quarter GAAP and core non-interest income was $14.1 million and $13.9 million, respectively. GAAP results did include $80,000 gain on sale of securities and a $28,000 gain on former bank premises. Core non-interest income results for the first quarter were slightly better than we expected, primarily due to continued strong swap fee revenue and gain on sale from SBA activity.

Lastly, I'd like to provide some context to the credit migration during the first quarter. Total loans past due 30 days or more, excluding non-accruals, as a percentage of total loans held for investment decreased from 0.64% to 0.42% at March 31. The ratio of nonperforming loans compared to loans held for investment increased 29 basis points to 1.53% at the end of the first quarter, while the ratio of nonperforming assets compared to total assets increased 29 basis points to 1.38% compared to the linked quarter. That concludes my prepared remarks. I'll hand the call back over to you, Matt, and we'll open it up for questions.

Yeah, thanks, guys. I think we'll go ahead and open up to Q&A now.

Thank you. Ladies and gentlemen, we will now begin the question-and-answer session. At this time, I would like to remind everyone, in order to ask a question, please press star followed by the number one on your telephone keypad. We kindly ask everyone to limit themselves to one question and one follow-up. Thank you. Our first question comes from the line of Feddie Strickland with Hovde Group. Please go ahead.

Hey, good morning, everybody. Just wanted to start on credit. Just wanted to ask, you mentioned in the release you expect the migration we saw this quarter to be resolved over the next couple of quarters. Can you just help us understand, kind of the full opportunity set, maybe here, of how much we could maybe see NPAs come down by year-end, assuming no further migration?

Yeah. Thanks, Feddie. Good question. We think in the near term, let's talk about just specifically what we think will happen in Q2 and then more so during the later parts of the year. I'll caveat all that by saying, you know, we've kind of been talking about some of these credits for almost a year now, and the process through moving them to resolution is sometimes precarious and moves at different speeds. Q2, we think about 30% of the current NPA list will go through to a resolution. As we move past that, we would see it kind of breaking up into thirds as we go through the rest of the year.

I think another pretty decent amount of it in the third quarter, and hopefully some resolution with maybe only a few pieces hanging over past year-end.

Got it. The increase this quarter, I apologize, I cut out for a second when you were mentioning this in your opening comments. Was that the Houston medical facility, or which credits contributed to the higher NPAs this quarter?

No. We had about a $25 million increase this quarter, which were mostly attributable to, we have a relationship with one client. It's about $16 million in exposure. Those are varying types of collateral, and the timing of that resolution on that, some of it could be imminent, some of it could last, you know, two, three quarters to resolve it. So that was the majority of the increase this quarter. The previously mentioned medical facility was already in the list.

Got it. Just one quick follow-up on the margin. Saw you paid down the FHLB and the brokered this quarter, but you also issued the sub-debt. You know, should we expect the margin to, I guess, the GAAP margin to still directionally move higher in the second quarter, or is it more flat, your expectation?

No, we think low- to mid-single-digit margin expansion as we move forward. You know, part of that will be reliant on moving some of those NPAs back into accruing assets as well, but that's a little trickier to forecast. We do think that just the core margin should tick up into low- to mid-single digits. If you look at the spread we had during the quarters, spread was relatively flat quarter-over-quarter, and we think with the increase in loan volume, we should get a little bit of pickup.

Great. Thanks. I'll step back.

Thank you.

Our next question comes from the line of Matt Olney with Stephens. Please go ahead.

Hey, thanks. Good morning. Just wanna follow up on the credit discussion. I think, Greg, you mentioned expectations of some resolutions in the next few quarters. That's great to hear. Any thoughts as far as loss recognition? You know, what kind of allowances do you have on some of these credits? Just trying to anticipate if we should anticipate the charge-offs being a little bit higher in the near term. Thanks.

Yes. Matt, it's a good question. So far, we are seeing reserves versus loss recognition going forward to remain pretty consistent with what the street has forecast for us from a loss standpoint. All of that is kinda incremental as we move along. But so far, what we're seeing, we feel like we'll be in line. If you look at the main driver that gives us a little comfort with that is moving past dues back down below 50 basis points. We feel like the stuff that we've been talking about is just kinda in the list, and we'll just move forward with hopefully no change from that.

Okay. Thank you for clarifying that. Going back to the loan balances, Greg, I think you mentioned some higher paydowns this quarter. Any more color on those pay downs, whether by loan type or by market or just any color as far as what you're hearing from your customers, given some of the volatility in the market right now?

Yeah. I think it was the majority of our pay downs were in the Texas franchise, and I think that's you could really draw a line back to some of our larger growth years, the 2022, 2023 years. 2022, 2023, some of those projects came to end. Some of them, we just made the decision whether a rate or credit to move away from a relationship. It's kind of a mixed bag. I think that's the general guidance is it's more commercial stuff probably in the Dallas-Fort and the Houston markets.

Yeah. I think it's not a small thing that we've really dramatically downshifted our exposure to construction. We don't have the same large dollar construction projects coming up as some of these older construction projects come off the books, not a replacement there for that particular type of credit, which we feel comfortable with. We wanna have a diversified portfolio and minimize our concentrations. Then I would also say that, you know, Greg mentioned our loan yields staying pretty flat quarter-over-quarter, which, you know, we certainly are prioritizing the need to get paid for what we do over just loan growth. I would echo his thoughts about that was part of the rationale there.

Just from a competitive standpoint, we seem to be disciplined on pricing, which I think is the right choice to make.

Yep. Okay. Well, I appreciate the color. That's all for me.

Thanks, Matt.

Our next question comes from the line of Michael Rose with Raymond James. Please go ahead.

Hey, good morning, guys. Thanks for taking my questions. Just wanted to kind of dig back onto the expenses as we move from here. On the one hand, obviously, this quarter on a core basis, you know, good expense control. You know, I think, Jude, in the press release, you talked about some additional hires by the end of the quarter. Then, in your prepared comments, I think you mentioned even a few more. I assume you're continuing to hire. You know, how should we expect those expenses to, you know, from a timing and magnitude perspective to layer in? Then, if you kind of think about the layering in of the cost saves from Progressive, understanding that the system's conversion will happen late in the quarter.

Just trying to frame out the expense, you know, outlook over the next few quarters. Thanks.

Yep. Thanks, Michael. I think in the near term, Q2, we would expect the mid to upper 50s, and then migrating slightly from there. I think the cost saves, if we continue to have success hiring teammates, you know, some of the cost saves will be offset by the hiring. But I think we would see that trickle up into the upper 50s as we move through the end of the year.

But we..

Okay.

We still remain confident in our projections on the cost savings around the Progressive acquisition, achieving most of them in the fourth quarter. Greg, I think out of the $21 million Progressive run rate, we expect to achieve about $11 million.

That's right.

On an annualized basis on cost. Certainly still anticipate recognizing the benefits of that, those efficiencies primarily in fourth quarter.

Perfect. Thanks for that, Jude. Maybe just following up on some of the initial and the final marks on the portfolio. Looks like the accretion is gonna be less, you know, kind of as we move forward. Can you just walk us through maybe some of the purchase accounting adjustments, you know, from initial to when it actually closed? Thanks.

Yeah. I think it was just mainly that when we announced, the yield curve was a lot different by the time we closed. The interest rate mark piece of it was less credit, still the same. We felt like, you know, from a total dilutive standpoint, for us, I think this is a little bit different, but I think it's all relative. We had forecasted about 44 basis points of tangible book value dilution, $0.44, and it ended up being ex-AOCI about $0.04. We feel really good about the way everything kind of shook out.

Yeah. It will be less accretion going forward, but the trade-off is that we had less dilution than we modeled. It's a good thing. Yeah. I'm proud of the fact that-

Yeah. Totally.

I did want to mention real quick, since we're talking about tangible book value. We last raised capital in October 2022. Beginning with the end of 2022, you know, running to now, we've grown tangible book value at about 16% annualized rate. We remain focused on growing tangible book value, and we've done so during that period. We've consummated two acquisitions and grown assets by about $2 billion. The news on the accretion front versus tangible book value dilution on the Progressive deal is good. We look forward to continuing to grow tangible book values of ours. We're pleased with that result.

Michael, we'll be about $1 million going forward for accretion per quarter.

Yep. Heard that. Maybe if I could just sneak one last in on just as it relates to the tangible book value growth and the focus there. The buybacks this quarter were, you know, a little bit higher than I think I was looking for. You know, how should we balance that now with, you know, a little bit higher starting, you know, capital just from the change in marks from the deal? Could we expect you guys to continue to be active with repurchases? Or is now a time to, you know, kind of recoup and build tangible book value and capital? Thanks.

I think it's a balance between the two. If we feel the market's undervaluing our worth, then we've now built our capital levels and our tangible book value to a level that we can take advantage of that perceived discrepancy. We've felt like, in the first quarter, we had probably a little more opportunity there than we might have guessed at the beginning of the quarter. I think our average TBV multiple of the buybacks was about 1.19. We felt like that was certainly an undervaluation relative to the worth of the franchise, and we'll continue to look for opportunities there. We're not gonna We don't have mandatory buybacks, and not gonna do it just for the sake of doing it. When we do see opportunities in that kind of sub-120 level, we do believe we're in a position to take advantage of it. That will be a higher priority than seeking out M&A opportunities in the near term.

All right. Perfect. I'll step back. Thanks for taking my questions.

Thank you.

Thank you.

Once again, if you would like to ask a question, please press star followed by one on your telephone keypad. Our next question comes from the line of Gary Tenner with D.A. Davidson. Please go ahead.

Thanks. Good morning.

Good morning.

Just want to ask about your commentary around loan growth. I think you're kind of sticking to the mid-single-digit growth outlook at this point. I'm just wondering how much of that is, you know, kind of what's the balance between that projection on a production versus payoff perspective? Do you have a lot more visibility into kind of reduction of payoffs, just as construction projects are, you know, maturing? Or, you know, maybe just walk us through, kinda, how you're looking at the next couple of quarters from a net growth perspective.

Yeah, I think from a net growth perspective, as we get further away from kind of the impacts of bringing on 2022 and 2023 deals in those years, as we move through the year, we should see payoffs slightly reduce. I think the way we're thinking about net loan growth as we go forward, with the addition of the new teammates, we're thinking about high single digits to 10% maybe in the second and third quarter, which would end up offsetting kind of the slow first quarter with the mid single digits, 6%-8% or 5%-6% range loan growth on an annualized basis.

You know, I'll just add here, this is, you know, things aren't always smooth lines. You'll remember in the third quarter of last year, if I remember correctly, that we had elevated pay downs and lower growth in the third quarter. Then we had I don't wanna say a record fourth quarter loan growth, but it was a strong quarter, fourth quarter. If you balance the two, it ended up being kind of at this about 6% range. We had more paydowns in the third quarter than we did the fourth quarter. I would anticipate that same effect helping us from a net loan growth over the remainder of the year.

Greg's right, that, there will be a point at which those larger dollar construction projects are material in terms of their continued impact on the portfolio. Then, you know, again, we've hired, I think to date, about 11 new producers and more production-oriented staff.

We'll continue to look for talent as we see the opportunity. None of their pipelines obviously have been manifested in terms of actual loan growth yet, and so we anticipate seeing some of that in the second quarter, but really the third and fourth quarters being reflective of that additional strength.

Got it. Appreciate that. Just on the construction segment topic, just for another second, where do you see that segment kind of bottoming out or stabilizing as a percentage of the overall portfolio? You're right over 10% right now. Where do you see that trending? Like, you know, where's your appetite and comfort level with that?

Yeah. I think we're getting close to the bottom now. I think you can see it bounce in the high single digits-10% range, kind of as on a go-forward basis would be kind of the comfort spot for me.

Got it. Thank you.

Thank you.

Our next question comes from the line of Matt Olney with Stephens. Please go ahead.

Hey, thanks for taking the follow-up, guys. Just wanna go back to the net interest margin, and I'm trying to appreciate if there's any more noise in that margin in this quarter. I went back to my notes last quarter, and it looked like there was that interest reversal that impacted the margin by about $1 million in the fourth quarter from that Houston loan that we discussed. Was there any kind of interest reversal again this quarter with the uptick of non-accruals? Yeah, I'll just leave it there.

Yep. Yeah, you're right. There was some noise. I think when you think about the relative to the non-accruals, there was about $1.2 million in interest reversal. That was probably attributable to 6-7 basis points impact on the margin. That was due to the movement of about $25 million in loans to NPL during the quarter and the reversal. You know, kind of as we go forward, I think we'll start inching back toward reclaiming some of that as an earning asset.

As I mentioned, I think earlier, the timing of how that comes involved back to an earning or converts back to an earning asset is a little bit tricky because we're still having to resolve these in real time, and the twists and turns sometimes of a conflict resolution with some of these credits, it's a little bit unpredictable. We see some opportunity on the horizon with that, for sure.

Okay. Okay, that's all for me. Thank you.

Okay.

Thank you. At this time, we have no further questions. That concludes our Q&A session. I will now turn the call back over to Jude Melville for closing remarks.

Okay. Well, again, I appreciate everybody being with us and the questions and the attention and energy that you're giving to our cause. You know, we again feel very positive about the first quarter and not only the performance in the first quarter, but also some of the investments and additions that we've made in the first quarter, which will lead to even more positive results in the future. We like our footprint. We like our people and just look forward to turning the wheels over the course of the year and showing some of that incremental progress, which will lead to increased ROA and ultimately tangible book value. We just keep doing what we do. Appreciate our team for all their effort, and again, appreciate your attention this morning.

Feel free to reach out if you wanna talk any more detail about anything. Thank you all. Have a good week.

This concludes today's conference call. You may now disconnect your lines at this time. Thank you for your participation, and have a pleasant day.