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 Bank Shares 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 1 on your telephone keypad. And if you would like to withdraw your question, press star 1 again. I would now like to turn the conference over to Matt Seeley, Director of Corporate Strategy. Please go ahead.

Good morning. 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 6 of our earnings press release that was filed at 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 Bank Chair's CEO and Chairman Jude Melville, Chief Financial Officer Greg Robertson, Chief Banking Officer Philip Jordan, and President of B1 Bank Jerry Vaskakue. 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.

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 assets in 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 Metadata Center project in North East 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 John Heine, our new market president, in Houston, former market president from Veritex Bank. To date, John 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 Marmon to lead our corporate banking activities in Texas. Ben was a long-time banker for Iberia and in First Horizons, serving in leadership capacities across South Louisiana and for the past five years as president of the FHN Financials 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 agensic 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 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 the genetic AI, we remain 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 earning 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 The potential of this effect was put to test in the first quarter as loan volumes were lower than anticipated, due primarily to heighten 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 in, 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 reiterate 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, and 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 the Q&A. First quarter GAP net income and EPS available to common shareholders was $22.2 million and $68,000 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 $24,073 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 and correspondent banking group that Jude mentioned. Also during the quarter, we completed the acquisition of North Louisiana-based Progressive Bank, which closed on January 1st. of this year and added $774 million in total assets in nine new locations. From a balance sheet perspective, total loans held for investment increased $494.8 million, or 32% annualized on a linkholder basis. Excluding the acquired progressive loans, total loans held for investment declined at $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 link 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 driven primarily by an overall increase in loan paydowns payouts. Specifically, total paydowns and payouts 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 payouts during the quarter were lower at just to $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 link quarter basis. Lastly, on the funding side of the balance sheet, we took advantage of the improved liquidity position from software. Software overall net loan growth and repaid FHLB balances and broker deposits. Total FHLB borrowings decreased $170.4 million in broker deposits, were reduced by 112.5 million from the link quarter. Moving on to the margin, our GAAP-reported first quarter net interest margin decreased six basis points link quarter to 3.65%, while the non-GAAP core net interest margin, excluding purchase accounting accretion, decreased four basis points from 364 to 360 for the quarter ended March 31st. 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 is primarily caused by the lower actual rate marks from the progressive. 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 of the first quarter was 2.34%. We are pleased with our ability to hold line and 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 a few takeaways on slide 19 in our investor presentation. we continue to see 45% to 55% overall deposit base 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 upgraded 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 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 the 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. The quarter gap in 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 passed due 30 days or more, excluding nonaccruals, as a percentage of total loans held for investment decreased from .64 to .42 on March 31st. The ratio of non-performing 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 non-performing assets compared to total assets increased 29 basis points to 138 compared to the last 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 will 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 Fetty Strickland with the Hovey 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 be resolved over the next couple quarters. And 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, Fetty. Good question. So 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 the process through moving them is sometimes precarious and moves at different speeds. So Q2, we think about 30% of the current NPA list will go through to a resolution. So as we move past that, we would see it kind of breaking up into thirds as we go through the rest of the year. So 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.

Got it. And then the increase this quarter, I apologize, I cut out for a second when you were mentioning this in your opening comments, but 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. And just one quick follow-up on the margin. I saw you paid down the FHLD and the broker this quarter, but you also issued the sub-debt. Should we expect the margin to, I guess, the gap margin to still directionally move higher in the second quarter, or is 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. But we do think that just the core margin should tick up 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, Josefak.

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

Hey, thanks. Good morning. Just want to follow up on the credit discussion. I think, Greg, you mentioned expectations and some resolutions of 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 charge-offs being a little bit higher in the near term.

Yeah, so far, Matt, that'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 kind of incremental as we move on. 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. I feel like that's kind of in the list.

Thank you for clarifying that. And then going back to the loan balances, Greg, I think you mentioned some higher paydowns this quarter. Any more color on those paydowns, 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 paydowns 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 22-23 years, 22-23. Some of those projects came to end. And some of them, we just made the decision whether at rate or credit to move away from a relationship. So it's kind of a mixed bag. But I think that's the general guidance is it's more commercial stuff probably in the Dallas first than the Houston markets.

Yeah, I think it's not a small thing that we've dramatically downshifted our exposure to construction. have the same large dollar construction projects funding up as some of these older construction projects come off the books. And so there's not a replacement there for that particular type of credit, which we feel comfortable with, the diversified portfolio and minimize our concentrations. And then I would also say that Greg mentioned our loan yields staying pretty flat quarter over border, which, you know, we certainly are prioritizing the need to get paid for what we do over just loan growth. And so I would echo his thoughts about that was part of the rationale there, but just from a competitive standpoint, seem to be disciplined on pricing, which I think is the right choice to make.

Yep. Well, I appreciate the color.

That's all from me. Thank you. Thanks, Matt. Our next question comes from the live 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. So on the one hand, obviously, this quarter on a core basis, you know, good expense control. But, you know, I think, Jude, in the press release, you talked about some additional hires by the end of the quarter. And then in your prepared comments. I think you mentioned even a few more. I assume you're continuing to hire. So, you know, how should we expect those expenses to, you know, from a timing and magnitude perspective to layer in? And then if you kind of think about the layering in of the cost stage from Progressive, understanding that the systems conversion will happen late in the quarter, just trying to frame out the expense, you know, outlook over the next few quarters. Thanks.

Yeah, 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, teammates, you know, some of the cost saves will be offset by that. We would see that trickle up into the upper 50s as we move through the end of the year.

But we still remain confident in our projections on the cost saves around the progressive acquisition, achieving most of them in the fourth quarter. Greg, I think out of a $21 million progressive run rate, we expect to achieve about $11 million on an annualized basis. So, analyzing the benefits of those efficiencies, primarily in the fourth quarter.

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

I think it was just mainly that when we announced the yield curve was a lot different by the time we closed. So the interest rate mark piece of it is still the same for us, I think.

Less accretion going forward, but the tradeoff is that we had less dilution. The fact that we last – yeah, so I did want to mention real quick, since we're talking about tangible book value, we last raised capital in October of 22. And beginning with the end of 22, running to now at about 16% annualized rate so we remain focused on growing tangible book value and we've done so during that period we've we've consummated two acquisitions and grown assets by about two billion dollars and so the news on the on the creation front versus tangible book value dilution on the progressive deal is good. And then we look forward to continuing to grow tangible book value with that result.

Michael, we'll be about a million dollars.

Yep, heard that. And maybe if I could just sneak one last thing on the, 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, 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 kind of recruit and build tangible book value and capital? Thanks.

I think it's a balance between the two. It's the market. If we feel the market's undervaluing for work, 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, and so we felt like in the first quarter than we might have guessed at the beginning of the quarter. I think our average TBV multiple of the buybacks was about 119. And so we felt an undervaluation relative to the worth of the franchise, and we'll continue to look for opportunities there. We don't have mandatory buybacks and I'm not going to do it just for the sake of doing it. But 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. And 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.

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

I just wanted to ask about your commentary around loan growth. I think you're kind of sticking to the mid-scale digit growth outlook at this point. And I'm just wondering how much of that is, you know, kind of what's the balance between that projection on the production versus payoff perspective? Do you have a lot more visibility into kind of a reduction of payoffs just as construction projects are, you know, maturing? Or, you know, maybe just walk us through kind of 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 22 and 23 deals in those years, As we move through the year, we should see payoffs slightly reduced. 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% to 8% or 5% to 6% range loan growth.

You know, I'll just add, you know, things aren't always smooth lines, and you'll remember in the third quarter of last year, if I remember correctly, that we had elevated paydowns in the quarter, but then we had, say, a record. It was a strong quarter. If you balance it, too, it ended up being kind of at this about 6% range. Those larger dollar construction projects, their continued impact on the portfolio. And then, you know, again, we've hired, I think, to date, about 11. You know, we'll continue to look for talent as we see the opportunity. And 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 being reflective of that additional strength.

Got it. Appreciate that. And 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 bouncing the highest single digits to the 10% range as a long-go-forward basis. would need our next question comes from the line of matt only with steven please go ahead hey thanks taking the follow-up guys just want to go back to the net interest margin and i'm trying to appreciate if there's any more noise in that margin uh in this quarter i went back to my notes last quarter and looked like there was that uh interest reversal that impacted the margin by about a million dollars in fourth quarter uh from that houston loan that we discussed Was there any kind of interest reversal, again, this quarter with the uptick of nonaccruals? Yeah, I'll just leave it there.

Yeah, you're right. There was some noise. I think when you think about relative to the nonaccruals, there was about a million, too, in interest reversal. That was probably attributable to six or seven basis points, in fact, on the margin. that was due to the movement of about 25 million dollars in lungs to NPL during the quarter and the reversal. You know, kind of as we go forward, I think inching back toward reclaiming some of that as an earning asset, but the timing of how that comes 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 twist and turn sometimes of conflict resolution with some of these credits, it's a little bit unpredictable. But we see some opportunity on the horizon with that, for sure.

Okay, that's all from me.

Thank you. And 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 I 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. So appreciate our team for all their effort. And again, appreciate your attention this morning. Feel free to reach out if you want to talk in 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.