Business First Bancshares, Inc. Stock

Ladies and gentlemen, thank you for standing by. My name is Demi, and I'll be your conference operator today. At this time, I would like to welcome everyone to the Business First Bancshares Third Quarter 2026 Earnings Call. [Operator Instructions] I would now like to turn the conference over to Matt Sealy, Senior Vice President, Director of Corporate Strategy and FP&A. You may begin.

Thank you. Good morning, and thank you all for joining. Earlier today, we issued our third quarter 2026 earnings press release, a copy of which is available on our website, along with the slide presentation that we will reference during today's call. Please refer to Slide 3 of our presentation, which includes our safe harbor statements regarding forward-looking statements and the use of non-GAAP financial measures. For those of you joining by phone, please note the slide presentation is available on our website at www.b1bank.com. Please also note our safe harbor statements are available on Page 6 of our earnings press release that was filed with the SEC today.

All comments made during today's call are subject to the safe harbor statements on our slide presentation and earnings release. I'm joined this morning by Business First Bancshares Chairman and CEO, Jude Melville; Chief Financial Officer, Greg Robertson; and President of B1 Bank, Jerry Vascocu. After the presentation, we'll be happy to address any questions you may have. And with that, I'll turn the call over to you, Jude.

Okay. Thanks, Matt. Good morning, everyone, and thank you for joining us. Monday morning has come with plenty of competing priority. We know that, and we appreciate you spending part of yours with us. When we spoke in July, we told you we expected a stronger second half, loan growth picking up, deposits rebounding and continued progress on margin. I'm pleased to say the third quarter delivered on each of those. I describe it as simply a quarter in which good execution turned into good results. Loans grew a little over 7% annualized, led by the Houston pipeline we talked about last quarter and deposits grew at a similar pace, which gave us the opportunity to pay down higher cost brokered funding and borrowings.

Margin expanded another 12 basis points on a core basis and expenses stayed in check. Added up, these incremental improvements produced our strongest core profitability in several years. And with our shares trading below what we believe the Business First franchise is worth, we continue buying back stock while still growing tangible book value. The one area where progress came slightly slower than we hoped is credit. Non-performing loans moved down only modestly this quarter, primarily due to timing of already in motion. We expect to show further progress on nonperforming loans in the fourth quarter. One thing worth noting is that while we had an uptick in NCOs, these are primarily loans previously discussed in this forum, the bulk of which were already fully specifically reserved for as we work on resolution over the course of the year.

Just as important, though less visible in the numbers, we completed the Progressive Bank conversion in August. Conversions are rarely as easy as they look from the outside. And I want to thank our North Louisiana clients and teammates, both in North Louisiana and throughout the company for making this one as smooth as any I can remember. It positions us to hit the ground running in a region where investment activity continues to build. Looking ahead, the set of opportunities across our footprint is as broad as I've ever seen it. North Louisiana is now home to not only Meta's largest data center, but also in the Northwest corner of the state, Amazon's roughly $20 billion commitment. The opportunities in Houston and Dallas speak for themselves.

Southwest Louisiana keeps delivering steady growth, something we expect to continue with SpaceX's $100 billion investment gets underway. We were pleased to add a 6-person lift out of a commercial team in Tyler, Northeast Texas largest city, giving us the opportunity to begin filling in the I-20 portion of our footprint between Dallas and Shreveport. Finally, our financial services group now serving more than 200 banks with the addition of [ American Planning Corp ], is growing revenue at better than 20% annualized. Our job is to pursue these opportunities with the same discipline at this point. And if we can do that, we expect to see continued improvement in core profitability, not over the rest of the year, but into 2027. Again, thank you for your time and attention. And with that, I'll now turn it over to Greg.

Thank you, Jude, and good morning, everyone. As always, I'll spend a few minutes reviewing our results and we'll discuss our updated outlook before we open up to Q&A. Third quarter GAAP net income and EPS available to common shareholders was $23.2 million and $0.71 per share and included $3.5 million in merger-related expense and $21,000 loss on sale of securities. Excluding these non-core items, non-GAAP core net income and EPS available to common holders was $26 million and $0.79 per share. From our perspective, third quarter results marked another quarter of strong financial performance, generating a 1.17% core ROAA and a core efficiency ratio of 61.1% quarter. Core pretax pre-provision earnings for the third quarter was $36.3 million and exceeded our expectations.

Our third quarter earnings results were highlighted by better-than-expected margin expansion, balanced loan and deposit growth and disciplined expense control. The third quarter benefited from recognizing substantially all cost saves from a Progressive acquisition and a full quarter impact of the loan sale of lower-yielding loans. The strong financial results allowed us to remain active repurchasing our common shares during the quarter. On our balance sheet, total loans held for investment increased $21.4 million or 7.2% annualized on a linked-quarter basis, led by our Houston, Texas and Southwest Louisiana markets. Based on unpaid principal balance, Texas loans were unchanged from the prior quarter at 35% of our portfolio.

Total deposits increased $141.2 million or 7.7% annualized, driven by $119.1 million increase in interest-bearing deposits and $22.1 million increase in noninterest-bearing deposits. The increase in interest-bearing deposits was largely attributable to $180.1 million in commercial money market accounts, partially offset by the decision to pay down roughly $66 million in higher cost broker deposits during the quarter. During the quarter, we also managed to repay $108 million in FHLB borrowings, bringing our total FHLB balances to $334.2 million. Looking ahead to Q4, we do see some opportunity to further reduce borrowings and broker deposits. Lastly, I think it's worth mentioning the slight increase in tangible book value per share, which increased approximately 1.7% annualized during the linked quarter.

While this is not a significant increase on an absolute percentage basis, we feel positive movement in tangible book value per share while being active in our buyback plan and while interest rate pressure, AOCI is certainly a noteworthy highlight of the quarter. Moving on to the margin. Our GAAP reported third quarter net interest margin increased 13 basis points linked quarter to 3.86%, while the non-GAAP core net interest margin, excluding purchase accounting accretion, increased 12 basis points from 3.68% to 3.80% for the quarter ended September 30. The margin performance during the third quarter was driven by improvement in loan yields and slight decrease in funding costs due to the previously mentioned reduction in broker deposits and reduction in FHLB balances. The margin also benefited from a full quarter impact of the Progressive loan sale, which occurred in late Q2 of this year.

Loan discount accretion during the third quarter was roughly $1.2 million was driven by higher-than-expected early paydowns. However, going forward, we expect loan accretion to average about $500,000 for the next few quarters. On a linked quarter basis, cost of total deposits decreased 2 basis points, while total loan yields increased 10 basis points. Core loan yields, excluding loan discount accretion for the third quarter was 6.66%, up 9 basis points from the prior quarter. Total cost of deposits for the month ended September 2026 was 2.25%, which was relatively consistent for the Q3 '26 full quarter weighted average. We are pleased with our continued ability to hold line on new loan yields during the quarter with a weighted average of new and renewed loan yields of 6.99% for the third quarter and 7.13% for the month of September.

I'd like to make a note of a few takeaways to Slide 19 in our investor presentation. We continue to see 45% to 55% overall deposit betas achievable regarding any future rate changes. I'd also like to point out overall core CD balance retention rate was 77% during Q3. This impressive statistic reflects our team's continued focus on maintaining and retaining core deposit relationships. Our baseline assumption is that interest rates remain flat for the remainder of 2026 other than the recent September increase in Fed funds. We would expect additional rate hikes to slightly benefit our net interest margin and net interest income in the near term. On the income statement, GAAP noninterest expense was $60.5 million and excluded $3.5 million in nonrecurring acquisition conversion-related expense, which included $1.23 million in lease termination expense.

Core non-interest expense for the third quarter was $56.9 million, down $1.4 million from the prior quarter. This was below our expectations for the quarter and was driven by an acceleration in recognizing cost saves from the Progressive acquisition. Recall, we completed Progressive's core conversion in mid-August of this year. Third quarter GAAP and core noninterest income was $12.5 million. GAAP results did include $21,000 loss on sale of securities. Non-interest income results for the third quarter were slightly below our expectations, primarily due to the lower-than-expected SBIC revenue and swap fee revenue. As we have mentioned in the past, some of our noninterest revenue business can be lumpy from quarter-to-quarter, but over the immediate and longer term, we do expect a steady build in overall contribution.

Lastly, in credit quality, I'd like to mention the modest improvement in credit quality during the quarter, highlighted by our 30-day or more past due ratio of 0.48%, holding stable over the last 3 quarters. The ratio of nonperforming loans compared to loans held for investment decreased 2 basis points to 1.24% at September 30, while the ratio of nonperforming assets compared to total assets decreased 1 basis point to 1.22% compared to the linked quarter. I'd like to mention the increase in charge-offs during the third quarter was attributable to a single previously identified and fully reserved commercial relationship. This credit cleanup is consistent with our previous conversations, and we expect continued resolution as we move forward over the next few quarters. That concludes my prepared remarks. I'll hand the call back over to you, Jude, for anything additionally before opening up to Q&A.

Thanks, Greg. I would just summarize by saying we've been, I think, fairly transparent and consistent in the things that we've been speaking about to you over the past few quarters and match up with the things that we've been working on as a bank and not that complicated, healthy growth, discipline on the expense side, making sure that we execute on acquisitions and then making sure that we're thinking through our capital allocation decisions. I think what we saw in the third quarter was those elements of incremental improvement coming together to produce good results. And we look forward to continuing to focus on those kind of broad principles as we navigate the opportunities and inevitable challenges that we'll have over the next few quarters. We look forward to it. And with that, I will turn it over for any questions anybody might have.

[Operator Instructions] Our first question comes from the line of Matt Olney with Stephens Inc.

I want to start on the loan growth front, good to see some strong trends this quarter. It sounds like Houston was a big driver. Any more color on the pipelines from here? And then I guess the second part, you mentioned the lift out of a team in Tyler. I would love to hear about expectations that you have for this team.

Sure. I'll start us off, Greg. We do see the Houston pipeline that we've been building beginning to turn into actual on the books production, which is exciting. And we I believe that will continue. And one thing we're especially pleased with is that whenever you recruit bankers over, often they have a period of non-solicitation and a number of the members of our expanded team are operating under that and have been able to produce even with those constrictions. So we'll look forward to when we pass the year mark and be able to broaden the universe of their calling efforts. We're very pleased with the progress there and anticipate that will continue. Also saw good moderate loan growth in parts of Louisiana. Southwest Louisiana and the capital region are doing well and North Louisiana as well. We saw some positive movement.

One interesting thing that we're seeing, I talked a fair amount last quarter about the Meta development in Northeast Louisiana, where we now have a significant presence. We've been there for a number of years, but of course, we've added on to with our Progressive acquisition. And one interesting thing about that is we're actually seeing an uptick in loan production in other parts of our footprint related to the Meta investment. So when you think about who is actually moving materials and being involved in the construction, quite a bit of it we're seeing is coming from South Louisiana. Some of the uptick in fundings in Baton Rouge and Lake Charles and Lafayette have come from companies already prepared and active serving in the Meta area. So it's been nice to see the kind of network effect of our footprint being the only community bank in Louisiana that is truly Louisiana wide in terms of our footprint. We're seeing benefit in multiple areas, which we would expect to continue. So I know Greg can talk a little more about that in terms of details, if you want to, Greg.

Yes, Matt, we think going forward in Q4, we feel like the mid- to upper single-digit growth with the pipeline that we're seeing, as Jude mentioned, continued build out of Houston, is what we're expecting to see more in line with kind of a replication of the performance in Q3. I would -- I think one of the things that we're seeing, and this is kind of moving away from loan growth, but I think it's a result of loan growth is that you probably noticed risk-based capital had a slight decline. I think that the impact of some of the unfunded commitments for these types of business Jude was referring to with some of our better clients that unfunded commitment portion does drag on capital a little bit. So that is short term, and we feel like we'll be accreting capital with the loan growth relative to those relationships going forward. We feel good about the pipeline, for sure.

Matt, I know your second question was on Tyler, which we're excited about at the beginning of the year in our Board planning process. We've discussed areas of our footprint that we would be most excited about filling in. I guess is the right word. It's a new venture, but also squarely within our current footprint. And Tyler was top of that list. We feel like there's really a good growth story in East Texas and Tyler is kind of the jewel of East Texas in that regard. And so when you think about it being not only what we could do in Tyler, but as a window to the rest of East Texas, partial Longview, those other growth areas along I-20, we're excited about the long-term opportunities that we have there.

We -- the team that we partnered with came out of a community bank there at Tyler and feel like they'll be able to hit the ground running and make a material difference for us, not only in the long term, but over the next year as they work to transition their book to ours. We have a good history not only being able to move business, but because of the size of our balance sheet relative to most community banks in the area, we can actually allow them to do more with their current clients. So we're excited about the opportunity to enable those bankers to better serve their clients and look forward to seeing what they can do.

Okay. All right. Well, I appreciate the color, Jude and Greg, on that front. And if I switch over to core margin, I'm curious also on expectations there. I mean the 3.80% margin we're at now is the highest we've seen in a while. So congrats on that. Would just love to appreciate expectations on the core margin from here. And it sounds like you're not expecting any rate changes in the near term at least, but would love to kind of appreciate your outlook if you sensitize that based off higher rates from here.

Yes. We expect the margin to expand in Q4. I'll put a little bit of context to that. The 25 basis point rate hike that we saw in September with our balance sheet being slightly asset sensitive, 53% of our loan book is variable price. So we did get some benefit. All of those have repriced by now. As a result of that, it would lead you to believe that we should see some margin expansion. I will say that with a caveat, as we move through Q4, what we're seeing is some competitive rate pressure on the deposit side. For example, there are some specials we're seeing out there in our -- pretty much across the markets that are very nearing 1-year broker borrowings rates. So we're going to keep an eye on that.

Our bankers have been doing an excellent job of recruiting new relationships and managing funding costs, but it is something to stay aware of. That with our build that we seasonally get in Q4 from municipalities. That should -- that does have an impact on the liability side from a cost standpoint. So we're going to keep an eye on that. I think we feel like margin expansion in the fourth quarter is very achievable, but we'll have to continue to manage the liability side of it.

We started really talking publicly about a year ago about margin being our priority over growth. And we think we can do both, but we will continue to focus and prioritize on incrementally improving that margin as we can. And this level of growth on the loan side and particularly when it's match funded, feels like a pretty healthy natural rate. And so we can continue to have this moderate healthy growth and maintain a little bit of incremental improvement on the margin each quarter. I think we'll all be very pleased with the results.

Next question comes from the line of Feddie Strickland with Hovde Group.

Just wanted to ask a couple of questions here on fees. There's a $500,000, I think, step down in the other fees line versus both last quarter and last year. Was there any one item driving that?

I would say -- not necessarily. I think it's just seasonally as we continue to work through different types of client bases, I think that's just the movement that you would expect to see. No major setback from a total standpoint. I think on the noninterest income side, I think the thing that we felt like that really underperformed expectations, as we mentioned, was the SBIC and the timing of the income from those investments sometimes is a little bit tricky and then also the swap revenue that we've seen quarter-over-quarter. I think the yield curve has a little bit to do with that and also some timing of some deals that are coming through the pipeline, we expect to see that start to trend back up though.

I think we've been able to talk a few times about one of the -- the good side of this part of the business is that it's generally non-spread based, right? So it's a diversifier, but the challenge sometimes is that the earnings can be a little bit lumpy quarter-to-quarter and really have to take a step back and look at the overall longer-term trends. And we still remain on pace to improve revenues 20% and bottom line earnings, 20% year-over-year, which would be, I think, the third year that we've done that. And we assume -- we anticipate that, that trend will continue. This might be a little up and down as we get there, but that's the nature of that type of business and it's a good thing. So we -- I think we'll revert to the mean a little bit in the fourth quarter and should see a little -- again, not a major uptick, but maybe a little bit back to the norm in the fourth quarter in that line item.

One driver, Feddie, in that group is it's not always predictable to control the revenue coming off of it. As Jude mentioned, it's kind of lumpy. But one thing we're proud of is while growing the business, I think our -- the banks that we serve now that make up part of that revenue stream are over 200 banks. So as we continue to grow add relationships with banks, we would hope that, that would continue to offset some of the lumpiness...

Yes. Same thing that as we grew our core bank in the early days, particularly in the business bank, the individual client exposure could be fairly lumpy. And rather than try to run off some of those bigger clients, we actually grew into them so that the lumpiness became more diversified and a large enough group that changes in individual client relationships mitigated through the number of client relationships. And to Greg's point, we're building a large number of banks in which we have a relationship and the larger we can get that group then the less lumpy individual transactions will appear. So good opportunity for us to keep working on as we continue to grow that part of the bank.

That's great. And just on that same topic, I mean, is there any potential impact I should think about if we do see rate increases and higher long-end yields, I mean how does that impact SSW and the FIG group? I mean I get lower gain on sale and swaps most likely. But just curious how SSW and the FIG group in particular, might see changes with where the yield curve is.

I think we have to keep an eye and pay attention to SSW, their RIA. So assets under management matters. So AOCI negatively impacts that. But they -- historically, if you look back at their earnings since our partnership with them, they've not only added banks to offset some of this like we were talking about previously, but also if you compare their performance versus the industry, the impact to AOCI was significantly less than the industry. So we feel good about the way they manage that portfolio. And it will be impacted to your point, but I think they are doing the things not only on a day-to-day basis, but also by adding additional banks to offset the income impact as well.

I think it's a really good point and not to get too weedy, but SSW, who, as you know, worked with us for I think 17 years before we officially partnered with them. SSW guides their clients in the construction of their investment portfolios to focus more on cash flow than on yield. And one of the things that, that has done has meant that the duration risk as rates increase has been lower than it has been for non-SSW peer banks. So I think from proving out their worth to potential clients, we actually have a good story to tell there. And as rates move, I think that story will be only more apparent and visible and be a great proof point to potential clients that we offer value in a way that's different from just a normal brokerage type arrangement.

The other thing about managing for cash flow versus just yield is that it means that as rates rise, and they'll have the opportunity to reinvest that cash flow faster than some other banks that aren't following that same philosophy. And so again, that should be an opportunity to serve our client banks at an even higher level, which should ultimately benefit them in terms of being able to grow the client base. So in banking, whether it's the SSW part of the world or the core bank, it's not really rate movements that get you. It's how quickly the rates move that get you. And so right now, it feels as if it's going to be a fairly measured rate of increase, which I think is something that we can all manage through much less painfully than the March Madness days and times in which they had to move rates a lot quicker in order to get them what they thought need to be done. So we don't view it as a negative. We view it as an opportunity.

Yes. And FIG, I think another point -- data point outside of SSW relationship with a lot of these banks, our FIG group manages slightly over $300 million in deposits from other banks as well. So that's part of our balance sheet and the funding cost on that is between 75 and 90 basis points below what a 1-year FHLB and broker would be today. So it's on the higher price, but it's also relative to other funding types cheaper and help solidify those relationships with multiple products.

Next question comes from the line of Michael Rose with Raymond James.

Greg, I just wanted to start on expenses. I think you said that essentially all of the Progressive cost saves have been realized through the third quarter. Obviously, this quarter's results were better than expected. Just how should we think about the growth rate from here, starting point for the fourth quarter? And then as you continue to invest in bankers infrastructure and technology as we move into next year, how should we at least initially think about a base rate of expense growth for you guys?

It's a great question. I think what we expect in the fourth quarter would be about $57 million is the base case, starting there and then low single-digit organic growth rate going forward over the next year. I think what we expect is to grow maybe not as aggressively as we did with our Houston team lift out in numbers, but we want to continue to fill in organically bankers in our markets to deepen those relationships that we have in our existing markets, and that would be Texas and Louisiana.

Okay. That's helpful. And then I wanted to go back to Matt's question on the margin. I think I heard that the new and renewed loan production was at 7.13% in the month of September. I think you guys said that you don't have any more rate hikes built in, but the forward curve certainly does. I know you guys are rate sensitive. I guess the real question is, is there opportunity for you to kind of continue to lag deposit cost increases? And should we kind of contemplate at least some additional margin expansion in the -- at least in the earlier part of next year?

Yes. The lag is the key. That's a great point. I think what we think is all things being equal, as long as rates are measured, we think low to mid-single-digit margin expansion quarterly, depending on that lag is probably achievable and reasonable first in the fourth quarter and then depending on what -- how many moves happen going forward.

Next question comes from the line of Gary Tenner with D.A. Davidson.

Just wanted to follow up on Greg, your comment about the September loan yields. Just curious if you're seeing any kind of pressure on demand or transactions as it relates to the higher rate environment.

We're pleased with the demand we're seeing in the pipeline we're seeing. And I think the rate environment is a component of it, but what we're experiencing is with new bankers and new teammates, their pipeline and moving that business hasn't really shown any decay due to the 25 basis point rate move. So we're excited about it. And more recently, saw loan committees with multiple new deals presented with all rates around the 7% mark, which we were very happy with that. So we feel good about the pipeline, the rate so far, the rate environment doesn't look like it's decayed any of the work our bankers have been doing to move those relationships over.

And then in terms of the deposit beta that you had noted that's in your deck, I assume that's sort of based on the existing deposit base. But if you're able to further reduce the broker deposit amount, the overall cost of deposits should increase at a pace below the beta that you're targeting. Is that the right way to think about it? Or is that inclusive of changes in the mix?

No, that's the right way to think about it.

Next question comes from the line of Christopher Marinac with Brean Capital.

I wanted to ask about Dallas. And is Dallas deemphasized? Or what would be the outlook for there? Again, I appreciate all the success in Houston that you've called out this quarter and last quarter, too.

Yes. No, not deemphasized, but we hired a new market leader there about 2 months ago, and he's jumping in and beginning to make his mark. And we did have -- if you look at our asset quality upticks that we had earlier in the year, they were -- I would say the bulk of them came from the Dallas area. And again, not a huge number when you think about the amount of growth that we've been able to put on the books over the past 7, 8 years. But we certainly have an opportunity to kind of hit the reset button a little bit on some of those relationships, and that's why it's been a little flatter as of late.

But in terms of the potential and opportunity going forward, we're as excited about Dallas as we've ever been. Maybe we don't talk about it quite as much because it's kind of a given just be in Dallas and we've been talking more about some of the newer opportunities within our footprint, but Dallas remains -- actually our largest individual market. And as we continue to add bankers there, we anticipate really good things from Dallas as well. So as we talk about our overall growth goals, those include performing well in Dallas over the next few quarters as well.

Great. I appreciate it. And then just a follow-up on sort of the announcement by SpaceX to do big development in South Louisiana. What does that mean from your standpoint, both for commercial and also residential activity?

Yes. Well, much like the Meta investment, maybe even on a bigger scale, it's a tremendous opportunity for Louisiana and therefore, a tremendous opportunity for us given our footprint. And we were already excited about the opportunities in Lafayette area, the Acadiana area, even without SpaceX, I think they've done a nice job of diversifying their industry exposure over time. And so if you were to ask me 6 months ago, what area of Louisiana was most excited about. Of course, we would talk about North Louisiana with the data centers, but I would have also put Lafayette there as an area that we want to continue to invest in and take advantage of the growth opportunities there. So that's only been magnified now that SpaceX has made their announcement.

It's really hard to quantify a $100 billion investment in an area that hasn't seen a lot of that type of investment over the years. And so it's difficult to say with any specificity what that means other than it's going to be really good for the economy, and that should impact both commercial opportunities and residential opportunities over time. And when you think about our prioritization of new branches within Louisiana, that's most likely to be our #1 priority to make sure that we capture our fair share of the benefits. I think there's still some things to figure out in terms of specifically where the activity will take place. I don't mean the actual spaceport for itself, but when you think about roads being constructed, for example, to access the facilities and where the executives that are working there will be living.

There's still a little bit of work to be done in terms of planning. So I think it's something that we'll probably see a little -- on the commercial side, we'll probably see the benefit sooner. There are already companies at work. And the infrastructure from a commercial standpoint is already in place. And I don't mean the physical space for it, but I mean the companies that can support the work to build out the infrastructure are already active and in place. So I would expect that we see more commercial uplift in the near term. But then over the long term, there should be a lot of residential impact as well as some of the pieces of the puzzle are fit in. But $100 billion is a lot of money, a lot of investment. And when they're successful, I doubt that, that will be the last investment.

You're already seeing some of the other areas of the state where we have data centers and things of that nature are expanding their investment and it wouldn't surprise me if SpaceX ends up in the same way. So a little hard to quantify exactly what the benefits will be, but they're going to be significant. They'll be large and they'll be meaningful. And then it's going to be an operating plan. One of the concerns about the data center investments that has been raised has been what happens after construction in terms of the actual jobs created. And not that worried about with the data centers because the investments are so large that the construction periods are -- I think I saw the Meta construction just on the current investment is not scheduled to be complete until 2031.

So we still have a number of years to go there. But when you think about the spaceport for SpaceX. That's an ongoing operation that will employ individuals for a long time to come. And we'll have other ancillary industry developments as vendors and other experts choose to co-locate in the area. So I think that's one that will be meaningful for a long period of time, and we feel like we're well placed to be an active participant in that development. Really, I don't remember in my lifetime, and I'm lifelong Louisiana resident, 52. And I don't remember a time in which there was as much excitement about the economic opportunity here in Louisiana.

There are no further questions at this time. That concludes the question-and-answer session. I will now turn the call back over to Jude Melville for closing comments.

I just want to mention that I appreciate the North Louisiana integration process that we just went through, and it speaks -- the smoothness of it speaks to the teammates that we inherited and to our own team in terms of their proactive and positive jumping into the opportunity. And while the Progressive teammates have been teammates since the beginning of the year when we formally closed the acquisition, it's exciting to share a name and share processes and truly operate as a team. So again, I want to thank them for the positivity, which they jumped in. I also want to reiterate my appreciation for the Tyler team that took the risk to come and join us and look forward to supporting them. I'll get to see some of them tomorrow in fact, and look forward to that.

And I would say the things that just in closing, the things that we've been working on, again, are working. And it's nice to have some optionality. When you think about our focused on growing tangible book. I know on a percentage basis, as Greg said, we didn't grow significantly, but it was positive. And we would have actually grown significantly more, I think, over 14% tangible book if we -- if it hadn't had the AOCI impact and if we hadn't done share buybacks. So it's nice to have that optionality when you think about the difference in our balance sheet and our P&L today versus a year ago, you can kind of summarize it in saying that we've built in more optionality, whether that be from a healthier funding base, diversification of earning assets or profitability leading to a situation that we are growing capital faster than we're deploying it, even though we're deploying it at a healthy rate.

So I love that optionality and plan on continuing to maximize that opportunity in the coming quarters and years. It really was a little bit of a boring quarter in some ways, if you think about it, and it's exciting to be boring in a way a bank. And so we like that. And I want to continue that. And I appreciate everybody's time and everybody's efforts over time that have led us to the spot and excited about continuing. We look forward to visiting with you again. Matt, you had something you wanted to?

I might have one more, it looks like someone's got a follow-up question here. I want to see if we could get them in, if possible. Feddie, I don't know if that was you is what it looked like it might be. I want to make sure we get all questions addressed.

Operator, could you potentially open up Strickland's line of the group... Feddie Strickland with Hovde Group. Late follow-up here. I'm not sure if you can hear me. But just wanted to ask about credit. It seems like there's still credit improvement on the horizon here, maybe some it just took a little longer to get to the finish line than you expected. How should we think about the workouts and overall level of NPAs in the next couple of quarters?

Yes. Thanks, Feddie. We still expect to reduce NPAs in the fourth quarter. I think they'll continue to work as resolutions happen in that type of business, sometimes they're delayed as you work through the process. We feel pretty confident that some of those delays in the third quarter will pull through into the fourth quarter, and you'll start seeing reductions upwards of $15 million in the fourth quarter in those. And then that will continue to move throughout the first half of next year. Maybe not at that cliff, but they'll continue to move down with our target range of having that NPL percentage of loans being 50 basis points or less.

Yes. I think one thing that we talk about that impacts performance, and we feel like the fourth quarter, Jude's always about since the beginning of the year, our ROA performance, third quarter was evidence of the kind of plan pulling forward. NPAs are a part of that as you start putting those assets back online. We do expect we have a glide path to get in the fourth quarter to that 1.25% goal that we've talked about all year. I think it's -- each component, whether it be margin, loan growth, deposit funding, the cost of that funding has to fall in line kind of like they did in the third quarter. But I think if those components continue to play out, I think we'll be pleased with fourth quarter results and have a way to get to that 1.25% as well. Nonperforming assets as a part of that.

Yes. I think everything is we've. Go ahead.

Sorry, just 1.25% ROA. Is that?

Yes. That's it.

Got it.

Yes. And again, as we've said earlier in the year, that means we have to be able to perform on all cylinders and things have to work out. But right now, we believe we can do that and certainly plan on continuing the upward trajectory from our 1.17% in the third quarter, where exactly we end up, we'll have to see. But we do know that it will be significantly better from a long-term structural profitability standpoint, wherever it ends up than we began the year, which was -- really should be our goal every year, right? All right. Well, with that, I won't subject you all to a repeat of my closing statement. And -- but I do want to thank everybody for being with us and for following and happy to answer any follow-up questions offline should you have any. Thank you all again. Have a good week.

This concludes today's conference call. Thank you all for joining, and you may now disconnect.

Ladies and gentlemen, thank you for standing by. My name is Desiree, and I will be your conference operator today. At this time, I would like to welcome everyone to the Business First Bancshares second quarter 2026 earnings call. [Operator Instructions]

I would now like to turn the call over to Mr. Matt Sealy, Senior Vice President, Director, Corporate Strategy and FP&A. You may begin.

Good afternoon. Thank you all for joining. Earlier today, we issued our second quarter 2026 earnings press release, a copy of which is available on our website along with the slide presentation that we will reference during today's call. Please refer to slide 3 of our presentation, which includes our safe harbor statements regarding forward-looking statements and the use of non-GAAP financial measures. For those of you joining by phone, please note that 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 with the SEC today. All comments made during today's call are subject to the safe harbor statements in our slide presentation and earnings release.

I'm joined this afternoon by Business First Bancshares Chairman and CEO, 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. And with that, I'll turn the call over to you, Jude.

Okay, thanks, Matt. Good afternoon, and thank you all for joining us today. b1BANK had an encouragingly solid second quarter, one that met or exceeded the progress we've been articulating for you over the past few quarters and one that positions us well for a strong second half of 2026. As an example, we returned to our normalized rate of loan production, driving a healthy increase in net interest income. In addition to the production in the second quarter, which came in a relatively balanced way across our footprint, we built a significant pipeline, particularly in the Houston area that we expect will translate into sustained growth for the remainder of the year.

Margin expanded by 8 basis points during the quarter, driven partly by disciplined loan and deposit pricing. We also executed a relatively sizable loan sale that we believe will create additional margin opportunity as we redeploy those proceeds into higher-earning assets over the next two quarters. Our team made meaningful progress on the credit front, reducing non-performing loans by about 30% in line with the progress we forecasted at the beginning of the quarter. And we anticipate continued improvement on that front over the remainder of the year.

Revenue from our Financial Services Group is running roughly 20% ahead of last year's pace at the halfway mark of the year. Near the end of the quarter, we added a new partner and product, Jeff Fair with American Planning Corp., which provides CFO-type consulting services to community banks within our footprint. I say new, but Jeff is actually a 20-year collaborator with us, which gives us great confidence in partnering to offer his services under the SFW umbrella, bringing the number of banks we serve through our Financial Services Group platform to over 200.

If there was a headline disappointment in the quarterly numbers, it was in two areas. First, deposits. I'd point out, however, that a quarter of the decline was purposeful, reflecting our paydown of higher-cost brokered deposits. Our non-interest-bearing accounts were positive for the quarter, leading to a slight decrease in overall deposit costs, and the movement was largely seasonal, something we see every second quarter, with deposits already beginning to move back in materially over the course of July.

Second, expenses ran a little higher than normal, but there's important detail beneath the headline worth exploring. The costs we expect to be recurring, including salaries and related expenses, were flat, with the increase tied to upfront marketing spend and elevated legal fees connected to the resolution of a large non-performing credit. Two costs that while core, we don't expect to see again at this scale in the third quarter. I'm to add the least now, as I'm sure we'll cover this in more detail during Greg's portion of the call, but I wanted you to know that all in all, the quarter was a positive step towards increased profitability through earning asset growth, expense control, and continued asset quality improvement over the course of the year.

Finally, wrapping up my list of positive developments this quarter, we remain on track for a successful conversion of our Progressive Bank partnership on August 10th. On that subject, I'd like to mention something that I don't know that we've highlighted directly in this forum before. We tend to get more questions about and therefore talk more about our investments in Dallas and Houston, and they certainly warrant the attention. I'd like to point out that there are also significant and positive things happening in Louisiana right now, creating incredible tailwinds for that part of our footprint.

The state has attracted roughly $150 billion in announced capital investments over the past 18 months, anchored by Meta's data center project in Richland Parish, which the company expanded just last week to 5 gigawatts of capacity and more than $50 billion in total investment, up from its initial $28 billion commitment, making it one of the largest data center developments in the world. The expansion is expected to support roughly 7,500 construction jobs and about 1,000 permanent operations positions. Meta also announced more than $1 billion in related infrastructure investment for roads, water, and wastewater systems, along with a new energy agreement with Entergy Louisiana, projected to save customers more than $2 billion over 20 years.

The state's seeing a broader wave of activity in AI, data infrastructure, and advanced manufacturing that's driving construction activity, job creation, and demand for commercial banking services across our markets. We view this sustained investment as a meaningful long-term positive for the communities we serve and for our growth opportunity as a bank. Particularly since the largest of these investments sits in the heart of northeast Louisiana, where we are combining the Progressive footprint with our legacy locations, we will have the largest branch network of any community bank in the area.

We will continue to invest in the region, including just this morning, concluding an agreement to serve as the official banking partner for the University of Louisiana Monroe's athletic department. So congratulations to our team for a solid quarter. We look forward to maximizing the investments we've made to continue building this franchise on behalf of our shareholders, our employees, our regulatory partners, and the communities we serve.

With that, I'll turn it over to Greg to walk through the financial results in more detail and look forward to your questions.

Thank you, Jude, and good afternoon, everyone. As always, I'll spend a few minutes reviewing our results and discuss our updated outlook before we open up for Q&A. Second quarter GAAP net income and EPS available to common shareholders was $22.8 million and $0.70 and included a $1.2 million merger-related expense, $545,000 gain on extinguishment of debt, and a $6,000 loss on the sale of securities. Excluding these non-core items, non-GAAP core net income and EPS available to common shareholders was $23.3 million and $0.71 per share.

From our perspective, second quarter results marked another quarter of strong financial performance, generating a 1.05% core ROAA and a core efficiency ratio of 63.9% for the quarter. Our second quarter earnings results were highlighted by better-than-expected margin expansion, improved credit metrics, the resolutions on previously identified troubled loans, and building capital levels from disciplined balance sheet management. Also during the quarter, we completed the fully self-managed private placement of $85 million of 6.5% fixed-to-floating rate subordinated debt notes due in 2036.

Total loans held for investment decreased $24.8 million, or 1.5% annualized on a linked-quarter basis. Excluding the Progressive loan sale mentioned and a resolution of certain non-performing loans during Q2, total loans held for investment increased to $96.4 million or 5.8% annualized. Based on unpaid principal balances, Texas-based loans were unchanged from the prior quarter at 35%. Total deposits decreased $229.4 million as a $237.9 million decrease in interest-bearing deposits was slightly offset by an $8.5 million increase in non-interest-bearing deposits.

The decrease in interest-bearing deposits was largely driven by approximately $72 million in commercial money market accounts and $63 million in brokered deposits. On the funding side of the balance sheet, the total FHLB borrowings increased to $181.7 million from the prior quarter in anticipation of upcoming loan fundings. Lastly, on April 2nd, we completed the issuance of the $85 million previously mentioned subordinated debt with partial use of proceeds utilization to redeem our $52 million issuance that became callable.

The net impact from the capital raise was 50 basis points to the Q2 2026 consolidated total risk-based capital measure. Our GAAP-reported second quarter net interest margin increased 8 basis points linked-quarter to 3.73%, while the non-GAAP core net interest margin, excluding any purchase accounting accretion, increased 8 basis points as well from 3.60% to 3.68% for the quarter ended June 30th. The margin performance during the second quarter was driven by improvement in loan yields and securities and continued reduction in deposit costs.

It is worth mentioning that the second quarter GAAP and core margin did not experience any interest income reversal, which did weigh on the first quarter margin. Recall, the prior quarter, core and GAAP net interest margin included about 6 basis points drag from the interest income reversal on increased NPLs. Loan discount accretion during the second quarter of $1 million was relatively in line with expectations and directionally what we can expect the next couple of quarters. On a linked-quarter basis, cost of deposits decreased 7 basis points, while total loan yields increased 3 basis points.

Core loan yields, excluding loan discount accretion for the second quarter, was 6.58%, up 4 basis points from the prior quarter. Total cost of deposits for the month ended June 2026 was 2.26%, which was consistent for the Q2 full quarter weighted average rate. We're pleased with our ability to hold the line on the loan yields during the quarter with a weighted average new and renewed loan yield of 7.21% for the second quarter. I'd like to make a note of a few takeaways to slide 19 of our investor presentation.

We continue to see 45% to 55% overall deposit beta as achievable regarding any future rate cuts. I would also like to point out overall CD -- core CD deposit retention rate was 83% during Q2. This impressive statistic reflects our team's continued focus on maintaining and retaining core deposit relationships. Our baseline assumption is that we don't receive any further interest rate cuts during 2026. We have worked hard to manage our balance sheet in a relatively neutral position, and we believe we can achieve modest margin improvement in a slightly down or slightly up rate environment.

Moving on to the income statement, GAAP non-interest expense was $59.5 million and included $1.2 million in acquisition-related expense. Core non-interest expense for the second quarter was $58.4 million, up $3.1 million from the prior quarter. This was slightly higher than our expectation for the quarter and mostly due to elevated marketing and advertising spend. Recall during the prior quarter, our marketing and advertising spend was lower than expected, so when we consider the entire first half of the year, we could consider overall core marketing expenses to be in line with expectations.

Going forward, we do expect expenses to be lower as we recognize cost savings in the fourth quarter from the Progressive acquisition. As a reminder, the core conversion for Progressive is scheduled for mid-August. Second quarter GAAP and core non-interest income was $14 million and $13.4 million respectively. GAAP results did include a $6,000 loss on sale of securities and a $545,000 gain on extinguishment of debt. Core non-interest income results for the second quarter were relatively consistent with our expectations, primarily due to slower swap fee revenue.

As we have mentioned in the past, some of our non-interest revenue business can be lumpy from quarter to quarter, but overall in the intermediate and long term, we do expect a steady build and overall contribution. Lastly, I'd like to highlight the improvement in credit quality that we saw during the second quarter. The ratio of non-performing loans compared to loans held for investment decreased 27 basis points to 1.26% at June 30th, while the ratio of non-performing assets compared to total assets decreased 15 basis points to 1.23% in the linked-quarter.

This was largely driven by a resolution of certain previously identified CRE and commercial business relationships during the second quarter. We are pleased with the improvement and progress in credit resolution during the quarter, and we expect -- as we expect to continue improvement over the next couple of quarters.

That concludes my prepared remarks, and I'll hand the call back over to you, Jude, for anything you'd like to add before opening up the Q&A.

Thanks, Greg. I think we're ready to move to Q&A. Thank you.

[Operator Instructions] Our first question comes from the line of Matt Olney with Stephens.

I want to ask more about the balance sheet repositioning that you guys disclosed. It seems like this will give you some excess liquidity that you want to redeploy to the back half of the year. Just any more color on how you expect this to play out and what this means for margin and average earning assets and interest income the back half of the year?

Good question. Thanks, Matt. First of all, the transaction happened in just the last few days of the quarter. We had started at the closing of the Progressive transaction story, trying to run analytics on this and finally came to an agreement. So really no impact other than the assets being lower at the end of the quarter on a point-in-time basis, but going forward, we expect to pick up about 4 basis points go-forward impact to the margin in the quarter. And that's just at a very minimal, just applying that liquidity to the borrowings or anything like that. So I think that's a reasonable expectation.

And Greg, just to follow up there, given the timing of the loan sales, should we anticipate average earning assets would move lower in the near term, so a little bit of drag on the NII?

I don't think so. I think we should have had a replacement for that in Q3 with asset growth with the loan pipeline. I don't know that there would be a material impact to it.

We continue to expect, you know, with the building pipeline, a high single-digit increase, annualized increase in both the third and fourth quarters. So we would anticipate putting that liquidity to work, ballpark, you could say half in the third quarter and half in the fourth quarter. But no, we don't expect to -- clearly, we ended the quarter with the loan growth being hidden somewhat by the sale, but we expect, based on our pipeline, to be able to put that to work pretty quickly.

The other part of that, Matt, is we had about a $21 million reduction in non-performing loans, but actually we resolved about $35 million during the quarter. So $31 million of that paydown and about $4 million of that ballpark moved to OREO. So those two things combined should give us a little bit of margin expansion, but also we have the ability with the pipeline that we're seeing to put those to work pretty quickly.

Okay. And then I guess switching gears to the funding side, I think Jude mentioned part of the deposit decline in 2Q was strategic and part of it was seasonal. Just want to dig more into that. I would assume borrowings this quarter that went up just had a more favorable cost than some of the brokered deposits. Any more color there and expectations for the back half of the year on deposits?

Yes, I'll touch on each of it. And I think they're kind of independent from each other. So the deposit outflow, $237 million in interest-bearing outflow. Majority of that was from municipals and commercial money market accounts. $77 million specifically to commercial money market accounts. Good news is we've seen a lot of that so far this quarter come back in. So we feel like that is pretty seasonal, actually, Matt. We had a smaller balance sheet a year ago, but that same on a percentage basis, the same outflow year-over-year.

So the brokered that we paid down, slightly over $60 million in brokered, that was weighted average above 4%. So we just thought that was the right thing to do that and had the cash on balance sheet to do it. I think the borrowings is more forward-looking in price relative to the pipeline build, I think, and gives us a little bit of optionality as we go forward.

I think, Matt, just a little more color on the -- excuse me one second, just a little more color on the seasonality. You know, we do have -- we have historically been a business-oriented bank, so we just tend to have a lot more seasonality around tax payments and then also we have a number of long-term relationships with municipalities and governmental authorities, not only with b1, but some of our predecessor institutions that we've partnered with through acquisition, and they tend to reach a low point in the second quarter as well and then began building back up. So it's mainly due to the composition of some of our larger clients that seasonality occurs. And as Greg said, on a proportional basis, this year was essentially the same from an impact standpoint as last year and the year before that and really the general movement that we've seen for a good 10 years now.

Our next question comes from the line of Feddie Strickland with Hovde Group.

Greg, I just wanted to go back to your comments on expenses. I understand the cost saves in the fourth quarter from the systems conversion with Progressive. But in the third quarter, are you saying we'll see the advertising line and maybe some of these professional legal fees drop down maybe closer to what you had in the first quarter, or how should I think about, I guess, the expense cadence going into the third quarter here?

Yes. I would say the directional way to see it is slightly down in the third quarter, closer to 58 in the third quarter, and then closer to 57 in the fourth quarter is the way we think.

Okay, got it. And just wanted to ask to switching to the capital side. I mean, it looks like share repurchases picked up some of this quarter. And with Progressive behind you at this point, is that something we could see more of over the next couple of quarters or was that maybe a little bit more opportunistic?

Yes, I think -- we think at the price we're at, as long as it stays above $120, that's kind of where we started doing the math on the value based on our other capital opportunities. I think the other two capital opportunities we have, obviously one would be our organic growth opportunities with our Houston team that we recently hired and just the other loan pipeline opportunities we have would be the first capital use primary. And then the second thing we have in the near term is the callable event of our preferred stock next year in September. So we have the ability to pay that down in part or whole next September. So I think that would be another useful opportunity for the capital. So those are kind of in the order we've been thinking about it right now.

Matt can probably give you a little bit of a projection for where we expect to end the year capital ratio-wise?

Yes, capital wise consolidated total risk-based in just under 14%, around 13.9%. And on CET1, just under 10.6%, probably on a consolidated basis to end the year. TCE, likely to reach about 9%, and that's assuming mid-8-ish percent annualized loan growth next couple quarters, kind of steady balance sheet growth, and like Greg mentioned earlier, continued margin expansion.

We'll enter '27 with as much capital optionality as we've had in a number of years. Combined position of relative capital strength compared to hitting its low. I guess, in '22, it probably went very low. But -- so looking forward to reinvesting that, primarily in organic growth, as Greg mentioned. But it would be nice to be able to have some savings projected through the refi of the preferred equity near the end of the year as well.

So, Feddie, we'll continue to have our plan in place to look and be opportunistic with repurchases. We did 176,000 shares, about $4.8 million in the second quarter. So if the opportunity arises, we'll be ready for that as well.

Feddie, congratulations on your second baby, by the way.

It's number one, but I appreciate it.

Next question comes from the line of Gary Tenner with D.A. Davidson.

I wanted to ask on the deposits. You talked about the seasonality in the outflows of some of commercial money market that's come back in this quarter. With that money coming back in, which I assume is coming in a little bit higher than kind of the average cost was in the quarter. Does that put any pressure on deposit costs, or are there other levers to pull within the deposit portfolio to continue to push costs down?

Gary, there's two components to that. So we were up in non-interest-bearing about $8 million quarter over quarter, and we continue to see that build. So we've had some early success in the quarter with that. So that gives us a little bit of pricing optionality as well. And then I think the second part that I've been surprised about is the inflows we've seen have been coming back in pretty much matching the average rate for Q2. So, we hadn't really experienced any lift yet, but it's early. So, we're optimistic about that.

Got it. I mean, just as it relates to the CD book, the weighted average rate, 3.30% in the quarter, is there room to push that down, or are we now sort of at stasis on the funding side without any Fed action?

No, we've got some opportunities with both brokered and organic CDs in the third and the fourth quarter to reprice those down, so we'll hopefully, if rates stay where they are, we may be able to take advantage of that.

Okay. And I may have missed it if you noted it in your prepared remarks, but in terms of the swap fees and the decline there quarter over quarter, can you just talk about the dynamics around that?

Yes, I think we had -- I think the dynamics about naturally was we had a really good second quarter, in those fees, swap fees for the second quarter. So they were down, but probably closer to in line with the forecast for the year. And I think we've already got some indications of some pretty good wins in the third quarter. So I think we'll see that come back up closer to Q2 levels.

Really good, really strong first quarter.

Yes, strong first quarter fees.

And they were down, but they really were in line with our expectations. I think also, it's a relatively nascent business, so these newer businesses are -- can be lumpy. And just a couple happening or not happening quarter over quarter can make a difference to the top lines, but it's still material. So as we mature it, as has happened with all of our lines of business over the years, we'll be able to de-lumpify it. I'm not sure that's a word, but we'll be able to hopefully kind of smooth it out a little bit. But it's still young enough that just a couple deals do make a difference in that given quarter. Same with our SBA business and really our Financial Services Group as a whole, which is still a fairly new entrepreneurial endeavor.

Our next question comes from the line of Christopher Marinac with Brean Capital.

Just want to dig a little bit further into criticized asset trends and kind of what you were seeing there and maybe how that may look a few quarters out.

Yes, Chris, we feel -- we're happy with the resolution we got in the third quarter -- in the second quarter that I mentioned. Now, you know, as we look out into Q3, I think seeing that, we ended at an $80 million point for Q2. We're working toward possibly a 10% to 20% resolution, and we think that's achievable in Q3 in NPLs and then also reduction in OREO possibly 10% to 15% of that as well. So we feel like that's achievable in Q3. We think that, that will continue to maybe slightly down from there in Q4, but we think that it's achievable to end the year closer to $50 million or slightly below. And then that, historically for us, that has been an area that's been pretty normal, say $40 to $50 million in NPLs.

The good news from a credit front are two things, I think, that have kind of, when you start pulling the curtain back a little more is past dues for us for the first quarter and the second quarter continue to be more in line with our historical expectations below 50 basis points, or one-half of 1%. I think the other thing is if you look at our watch list, specifically what we call 45 and 50 credits, those are the ones that we start watching that haven't made it to non-performer yet or classified.

At the end of the year, that was about $450 million. That's down to about $330 million at the end of June. So those two things, from a forward-looking perspective, along with we haven't seen any major build in NPLs, give us kind of an outlook on the future that we think we've gotten past the little lumpy period that we had with those few problem credits we talked about, probably for three or four quarters, and then started resolving last quarter.

Great. That's really helpful, Greg. And does any of this give you relief on the allowance going forward, or would you just assume kind of grow into what you have at this moment?

I think our plan is to try to grow into what we have. We're pretty flat quarter-over-quarter. As the improvement with some of the classified, criticized loans move out, I think it gives us the opportunity just to continue to bolster the good books within the pool. We continue our plan to try to reserve 1.20x all new loan growth because we feel like we'd like to continue to grow it.

Next question comes from the line of Michael Rose with Raymond James.

Most have been asked and answered, but Jude, you spent some time in the prepared remarks talking about the Meta investment and Louisiana in general. Can you size what that kind of means for you guys from an opportunity perspective? I assume you're not making loans to Meta or doing data center loans or things like that. But what does that really mean in the context of the ability to grow both loans and maybe some of the fee products? We'd just love some color there.

Yes, no, you're right. In fact, we had a good discussion in our board meeting today about that. We're certainly not camping out next door expecting to bank the data center itself, but when you have an entity that large, there are an awful lot of vendors, service providers that need to operate there on a regular basis. And so that would be our initial opportunity to bank small businesses that are building work for the data center. And even after the construction period, there will be maintenance and there will be materials needed, there will be transportation requirements and things of that nature. And so what we're finding is that not only is there opportunity specifically in that geography, but the investment is so large that they're needing to bring in vendors from contiguous geographies. And so we've actually seen that some of our client base in Baton Rouge and Lafayette and Lake Charles and even Houston are actually generating work related directly to the data center development in the Rayville area.

So it's really -- so that's one thing I would say. The second thing I would say is that what we anticipate happening is the dollars that are being spent there will trickle throughout the community and will show up in a more dispersed way than just the company that's investing there and just the companies doing business there. A good example is recently, the Richland Parish School System gave each of their teachers a $50,000 bonus for last year's work. So the tax implications of the -- and that's what's made possible because of taxes surrounding the data center investment. And so there will be opportunities for reinvestment by the municipalities and the other governmental entities in the region that will ultimately benefit a wider array of citizens.

And we now, although we began with a very limited branch, we are focused primarily on small businesses over time, but we've grown to be the largest Louisiana-headquartered bank as measured by Louisiana assets. So number clients in Louisiana and number of locations. So as the positive economic impact trickles down to communities throughout Louisiana, we feel like we're as well-placed as any entity to take advantage of that general economic positive turn. So it's really not anything that's magic, per se, about banking the data center itself. And by the way, there are other data centers under work, underway in other parts of the state, including where we are, including Bossier Parish.

But we don't anticipate all of a sudden doing major macro loan deals with the data centers themselves, but as the economic inputs trickle down, we believe, again, that we're well-placed to do traditional community banking across our footprint, and we'll be -- as long as we put in the effort and put in the work and treat the clients right, then we should be a prime beneficiary of that trickle-down effect.

Really appreciate it. Oh, go ahead, sorry.

Well, I was going to say it's exciting not just for the data center itself, but for the wider potential effects that will take a little while to play out. That's not a third quarter thing, right? I mean, there is activity there. There's work there. We are seeing some loan demand increase because of the businesses that we think are doing business here. But I think the longer-term effects are what is really exciting about the opportunity both for us and for the citizens of Louisiana.

Very helpful commentary. Maybe just one follow-up on top of that. Just as we kind of think about the second half of the year, you mentioned the loan growth pipeline, redeploying the loan sale proceeds. You obviously talked about credit continuing to get better. You got the cost saves from Progressive coming. And then you just talked about Meta in Louisiana and all that stuff. What do you think investors are kind of underappreciating most about the story at this point? And maybe where do you see potential upside to where expectations currently are? I know it's kind of a long, maybe tough question, but maybe just a couple points would be, I think, helpful because it seems like there's a fair amount of tailwinds here.

Well, I think a couple things. One is that I think that historically, investors and analysts have not appreciated, I shouldn't say appreciated, they haven't turned to Louisiana for growth. Louisiana has historically been a stable place and a couple of periods where we were too concentrated and then that showed up in a couple of energy crises. But I think that over time, investors really haven't spent a lot of time looking at or thinking about Louisiana, particularly relative to the more exciting headline news from our neighbor to the west. And so if you just compare the two over the past 10, 15 years, it's pretty clear why investors would spend more time thinking about Dallas and Houston, which is good for us as well. But it means that Louisiana, I think, just hadn't gotten a lot of attention.

So I don't know that it's -- my first point would be I don't know that it's -- they haven't -- what are they missing? I think it's just that they're only now beginning to realize that they should look harder at Louisiana than they might have over the past 10, 15 years when the news wasn't as growthy as it potentially is now. And then second of all, I would say some of the news is recent. The increase in the investment in Meta that I just mentioned literally happened in the last 10 days. I think Sunday night last was the kind of pre-announcement and they announced it on Monday. So it really isn't realistic to expect that investors would pick up on that quickly.

And then I think some of the news, the data center in Bossier, for example, and the one near St. Francisville, which is north of Baton Rouge. I mean, that's -- I just think it's all a bit new, and I think as a country we're still figuring out exactly what data center development's going to look like, right, and what the actual impact is going to be. One reason that I feel comfortable that it's going to be extremely positive here is that we haven't had those significant growth opportunities. So relatively basis, we have more room to grow than some other places do.

And so whatever the development is, whether it's a quarter of what it sounds like it's going to be or whether it's 50% or whether it's 100%, it's going to be significant. And I think unless you've already been paying attention here, it might be hard to kind of put that in the proper context. So I think it's moving quickly. I think that there are still some unknowns nationally about the economic flow and transfer and the trickle-down effect. And so we'll all have to kind of learn that together. But I do believe, given our starting point in Louisiana, that it's hard to imagine that it won't be a net very positive outcome.

And our next question comes from the line of Matt Olney with Stephens.

A few follow-ups here. On the credit front, Greg, you mentioned some more resolutions the back half of the year. Any color as far as anticipated charge-offs from these resolutions?

Yes, I would say what we would expect of -- it's hard to say back to historical, because our historical charge-offs were very low, almost nothing. I think high single digits would be something we expect on an annualized basis in a normal quarter, in these next two quarters possibly. And then we kind of go from there. And if we have something that pops up and we have to take more of a loss, it might look more like what this quarter did. We think we're working them close to where they're not going to be any significant losses, but we're in the risk business, so it's hard to say no losses, Matt.

Understood. Understood. And then, market disruption in your marketplace. I know we've talked a lot about this over the last year and you've had some nice wins, nice announcements from some new hires. Didn't know if there was any other announcements or updates to any more benefits of market disruption?

Well, we were able to add two or three members to the team in Houston in the second quarter. And so we feel like for now we want to kind of -- we consider that our team and we want to begin producing and making sure that that's clicking the way that it should. But I do anticipate, as we have success, that there will be other opportunities to add to that team. I know our market leader there, as regular, is called upon regularly by folks that are interested in talking. And again, I think we're kind of where we want to be for the short run, but I do think over the long run, our biggest opportunity and it's one of the biggest reasons that I mentioned earlier and Greg mentioned the primary use for our capital in the upcoming quarters is likely to be organic because we do believe there is continued opportunity around that disruption and I don't see that tailing off in the near term.

So we're having a few conversations in Dallas. We're not quite as aggressive in Dallas as we are in Houston. It's because of the relative size of our franchise. And each, we feel like Houston is -- we made that investment in Texas Citizens a few years ago, and we want to be sure that we invest properly to -- in that market, but we do still need to be tempered in our salary expectations. And we've made commitments to you all and to ourselves about our increased structural profitability. So we want to be sure that we follow through on those even while we're taking advantage of the opportunities. But we do see continued opportunities on the disruption front. And if you think about the banks that have our range of size and capability, there aren't very many of us in Louisiana and Texas, and in particular in Dallas and Houston.

So we see that not only disruption as a possibility in terms of employees coming over, but also in terms of types and sizes of businesses that are for a bank that is a community bank in attitude, but is a larger bank in terms of capabilities. So we're most excited about the potentials for our franchise, given that disruption, which we think will continue to be an opportunity. I started rambling a little bit. I think I answered your question. Did I answer your question, Matt?

Jude, you answered it and then some, so appreciate all the great color.

Well, I answered your follow-on question.

Well, just one last one from me here. We've talked a lot about the ROAA goal, the 1.25% exiting the year in the fourth quarter, and we'd love to hear any more commentary about that with respect to this quarter, especially the balance sheet repositioning. I would think that would be supportive of the ROAA given the lower yielding nature of those loans that were sold. But anyway, I'd just love any commentary from that.

Yes, well, that's kind of what I generally was starting off with in my prepared remarks, just about this being a good step along the plan that we've been articulating for you all over the past few quarters and our intention to increase our structural profitability, even as we have growth. And we feel like we are on plan. And it doesn't mean that it's a slam dunk and doesn't mean that it's automatic that we'll be able to get to the 1.25% ROAA. But we still believe if we perform and execute and things go our way that, that is a credible opportunity for us to kind of reset our profitable -- our structural profitability, and that's the goal for the rest of the year. Even if we were to not quite get there, we've still made material improvement and still plan to continue to have that focus next year as well and we'll continue working on it. That's our primary goal.

And yes, I think to get there, it is going to require that this pipeline comes to fruition to a certain extent. And I think it also requires some margin expansion, which, to your point, the restructuring is a significant boost to those efforts, as well as the loan growth. And then it requires continued discipline on expenses and we've had really flat salary costs over the past four quarters essentially and anticipate that continuing over the next couple certainly and our team has been improving its ability to be productive. So we're significantly larger than we were a year and a half ago, two years ago, and have a very similar number of people at the bank, and I'm proud of that. It's a part of our daily conversation. How can we help our employees be the most they can be, which helps us be the most we can be from a production and profitability standpoint.

So yes, that's still our target, and we do need to execute, and things need to go our way, but we feel like that's a realistic path that we're focused on achieving.

A little bit of a stretch when we laid it out last year, but if you don't stretch yourself and you don't get anywhere. So we're excited about that. And I do think that it's time for us to produce at that level of profitability as a franchise. We're 20 years old. We've had to go through the different list of things that we've accomplished. The list is pretty long and we checked a lot of boxes in terms of our ability to grow, in terms of our ability to do M&A, in terms of our ability to see through asset quality challenges, our ability to see through loan concentrations that have evolved over the years. And then, as with all banks that are our age, to see through a number of macro crises that have occurred even while we've grown to $9 billion.

So we're very proud of all that. But that only really matters at the end of the day if we then end up providing the right return to shareholders. And that means turning these investments into consistent profitability, which is our goal. And I think we're well on our way towards doing that.

I want to mention just on the same subject, we did get a written-in question about dividends and our intentions there and so we did declare a dividend that we announced in the press release and we've now -- and it was a consistent dividend with where we were last quarter, and we've now, I believe, seven years in a row, once we started paying a dividend, we have increased it seven years in a row and we'd still like for that to be our goal. We feel like we have 50% of our shareholders are retail investors that have partnered with us and stuck with us through these acquisitions and the dividend's important to them as it is to us. And so we'll continue the dividend path and the goal would be to incrementally increase on an annual basis, so not on a quarterly basis, but on an annual basis.

And so I wanted to take an opportunity since we were talking about that, and we've historically kind of targeted about 20% of earnings and so that's roughly where we are now and as our earnings power appreciates, then there's no reason to think that to some degree our opportunity to reward shareholders with dividends would track that increased shareholder profitability, as has the ability to buy back shares, which again, we've only this year begun to strike opportunistically on that front. And that's the result of our earnings leading to increases in capital, which gives us that optionality. So we assume that, that opportunity will continue as well as we're focused on building tangible book value and, again, that structural earnings increase profile. Thanks for letting me answer that other question with your question, Matt.

That concludes the question and answer session. I would now like to turn the call back over to Jude Melville for closing remarks.

Well, thank you. I appreciate, again, all of you all joining. I think I had a pretty good opportunity to articulate the things that are important to us and that we're working on, that what we see as opportunities, all of which should turn into accumulating tangible book value and providing a good return on everybody's investment. I would like to take just a final moment to wish our team good luck in August. We'll do the conversion as both Greg and I mentioned. And although we've had experience now and have done it successfully a number of times, it's still a stressful and critical weekend preparing for that and I want to thank and wish the best of luck to not only the former Progressive employees that are now b1BANK employees, but also our ops teams and everyone that's involved in that process.

Our first acquisition that we did a long time ago now, I guess about 11 years ago, we learned a lot of lessons, and so we worked hard to invest in that process. And I'm really proud of that side of the bank in terms of their ability to execute. And we anticipate, particularly based on the positivity with which the Progressive teams have tackled the opportunity, probably as positive as any partners that we've had from that perspective. And we're confident that we'll succeed on the conversion weekend and then be ready to go in terms of helping provide capital to the communities that we're honored to serve in North Louisiana and of course across our footprint. So thank you all very much and hope everybody has a good end of the week.

Ladies and gentlemen, that concludes today's call. Thank you all for joining. You may now disconnect.

Hello, and welcome to the Annual Meeting of Shareholders of Business First Bancshares, Inc. Please note that today's meeting is being recorded. During the meeting, we will have a Q&A session. [Operator Instructions] It is now my pleasure to turn today's meeting over to Jude Melville, Chairman of the Board. Mr. Melville, the floor is yours.

Good morning, ladies and gentlemen, and welcome to the 2026 Annual Meeting of Shareholders of Business First Bancshares. I'm Jude Melville, Chairman of the Board of Business First Bancshares, and I will act as Chairman of this meeting. Being able to hear from our shareholders is important to us. Although our shareholders who are attending virtually will not be able to speak verbally during the meeting today, you have 2 ways to ask questions or make statements. First, when you registered to participate in a virtual meeting, you were given an opportunity to submit a question writing. If any questions were submitted to the extent appropriate, we'll read them aloud to them later in the meeting. Second, you can submit a question writing during this meeting through the Q&A function on the virtual meeting website. We will also use the Q&A function to receive seconds to motions to the extent not received in person in the boardroom. As with the questions submitted during the registration process, we will read and respond to appropriate questions later in the meeting. A couple of other housekeeping announcements.

First, there are several documents that you may want to access during the meeting. When you registered, you should have received a copy of the agenda and rules of conduct for today's meeting. The company's proxy statement and annual report are located on your screen now, and you can click on each document to access it.

We ask that in fairness to all shareholders attending this meeting, you honor the rules of conduct. Please take a moment to familiarize yourself with the rules. In accordance with the notice of this meeting that was previously delivered to all of our shareholders, I hereby call this meeting to order. There are 3 items of business on this morning's agenda: number one, to elect 16 directors to serve on the Board of Directors of the company until the company's 2027 Annual Meeting of Shareholders or until their successors are duly elected and qualified; two, to approve on a nonbinding advisory basis, the compensation of the company's NEOs say-on-pay proposal; and number three, to ratify the appointment of Forvis Mazars LLP as the independent registered public accounting firm of the company for the year ending December 31, 2026.

Before we proceed with the formal business of this meeting, I'd like to make a few introductions. First, I would like to introduce to you the directors of our holding company and bank in addition to me, all of whom have joined this meeting today, either virtually or in person. As I mentioned earlier, I'm Jude Melville, I'm Chairman, President and Chief Executive Officer of our holding company and Chairman and Chief Executive Officer of B1 Bank.

Also joining us are George W. Cummings III; Ricky D. Day; John P. Ducrest, Mark Philip Folse; William G. Hall, J. Vernon Johnson; Rolfe Hood McCollister Jr.; Patrick E. Mockler; David A. Montgomery Jr.; Arthur J. Price, Aimee Quirk, Alejandro Sanchez, Zeenat Sidi, Keith A. Tillage; Steven G. White; Next, I'd like to introduce the bank's executive officers who are attending this meeting. Greg Robertson, Executive Vice President and Chief Financial Officer; Jerome Vascocu, Executive Vice President and President; Philip Jordan, Executive Vice President and Chief Banking Officer; Keith Mansfield, Executive Vice President and Chief Operations Officer; Kathryn Manning, Executive Vice President and Chief Risk Officer; Warren McDonald, Executive Vice President and Chief Credit Officer; Saundra Strong, Executive Vice President, General Counsel and Corporate Secretary Chad Carter, Executive Vice President, Correspondent Banking; Heather Roemer, Executive Vice President and Chief Administrative Officer. We appreciate the hard work and dedication of all of our directors and employees.

Finally, I would like to also introduce our guests that have been invited to attend today's meeting. Matthew Cannon and Stephen Cory with Forvis Mazars, LLP, our independent auditors; and Tammie Marshall for Computershare Trust Company, our transfer agent. Following the formal part of this meeting, there will be a question-and-answer session. We will now proceed with the formal business of this meeting. Saundra Strong will act as Secretary of this meeting, and I will announce the tabulation of the -- or excuse me, she will announce the tabulation of the votes. Saundra Strong and Tammie Marshall of Computershare have been appointed and agreed to serve as vote inspectors for this meeting and will conduct the formal tabulation of the votes.

All persons who are shareholders of record as of March 27, 2026, the record date for this meeting, are entitled to vote at this meeting. Ms. Strong, as Secretary of this meeting, please report on the notice of this meeting and the affidavits of mailing.

Mr. Chairman, I present to the meeting the following documents. The first is a certified list of the shareholders of the company as of the close of business on the record date. The second is an affidavit as to the mailing on or about April 8, 2026, the first a notice of this meeting; and second, a notice of Internet availability of proxy materials.

I'm pleased to report that at least a majority of the outstanding shares of Business First Bancshares common stock are represented either in person or by proxy at this meeting. And accordingly, a quorum is present, and we are authorized to proceed with the business of this meeting.

Thank you, Saundra. Please file these materials with the minutes of the meeting. Secretary has reported the existence of a quorum at this meeting. Accordingly, we will proceed with the formal business. I now declare the polls open for voting at this 2026 Annual Meeting of Shareholders. If you wish to vote at the meeting and have not yet done so, you should do so now. If you have previously submitted a proxy, then your vote has already been recorded, and you do not need to vote during this meeting unless you wish to change your vote. Polls will remain open until immediately after any discussion on today's proposals. First item on the agenda for this meeting is the election of 16 individuals to serve as directors of Business First Bancshares. I now call on Saundra Strong, company's General Counsel and Secretary of this meeting to identify the proposal.

Mr. Chairman, I present to the meeting the following proposal, which is described in the proxy statement dated April 8, 2026, and is presented at this meeting by the Board of Directors. The proposal is to elect the following 16 nominees to serve as directors of Business First Bancshares with terms expiring at the 2027 Annual Meeting of Shareholders. George W. Cummings III; Ricky D. Day, John P. Ducrest, Mark P. Folse, William G. Hall, J. Vernon Johnson; Rolfe Hood McCollister Jr.; David R. Melville, III; Patrick E. Mockler, David A. Montgomery, Jr.; Arthur J. Price, Aimee Quirk, Alejandro Sanchez, Zeenat Sidi, Keith A. Tillage and Steven G. White.

Our Board of Directors has recommended that these individuals be elected as directors of Business First Bancshares. Is there a motion?

Moved.

Do I hear a second? Is there any discussion on the proposal? There being no other nominations properly made in accordance with our bylaws, I declare the nominations closed. Is there any discussion on the proposal? Okay. Thank you. There being no further discussion or no discussion, I now call on Saundra Strong to identify the second proposal.

Mr. Chairman, I present to the meeting the following proposal, which is described in the proxy statement dated April 8, 2026, and is presented at this meeting by the Board of Directors. The proposal is to approve on a nonbinding advisory basis, the compensation for the company's named executive officers or NEOs...

Our Board of Directors has recommended the approval on a nonbinding advisory basis of the compensation of the company's NEOs. Is there a motion?

Moved.

Do I hear a second? Is there any discussion on the proposal? Thank you. There being no discussion, I now call on Saundra Strong to identify the third proposal.

Mr. Chairman, I present to the meeting the following proposal, which is described in the proxy statement dated April 8, 2026, and is presented at this meeting by the Board of Directors. The proposal is to ratify the appointment of Forvis Mazars LLP as the auditor of...

Company for the year ending December 31, 2026. The Board has recommended that the appointment be ratified by our shareholders at this meeting. Do I hear a motion that the appointment of Forvis Mazars LLP be ratified by the shareholders?

I moved.

Is there any discussion on the proposal? There being no discussion, we will now proceed with voting on the proposals. Will Secretary please identify the voting required on the proposals.

Mr. Chairman, with respect to the proposal to elect directors, our directors will be elected by a majority vote. Therefore, each of the 16 nominees, they will be elected to our Board of Directors if they receive at least a majority of the votes cast either in person or by proxy at this meeting.

The proposal to approve on a nonbinding advisory basis, the compensation of the company's NEOs will be adopted if votes cast in favor of the proposal exceeds the votes cast against the proposal. The ratification of Forvis Mazars LLP as our independent auditor for the year ending December 31, 2026, requires the approval of at least a majority of the votes cast either in person or by proxy at this meeting.

Unless there are any questions regarding the voting procedures, we will close the polls shortly. So if you wish to vote and have not done so, now is the time to vote either in person or through the virtual website meeting. If you previously voted and do not wish to change your vote, you do not need to vote at this meeting.

If you've not yet voted, now is your last chance to vote in person or by using the voting function on the virtual meeting website. If there are any questions regarding the voting procedures, please use the Q&A function to ask them now. There being no further discussion of the proposals, we will now close the polls. Please vote now if you've not already voted. Unless we receive a request through the Q&A function of the virtual meeting website to extend the period for casting ballots within the next 30 seconds, we will close the voting polls. Now I'll pause for 30 seconds.

[Voting]

I now declare the polls closed. I'll now ask that our vote inspectors complete the tabulation of the votes.

Madam Secretary, have the vote inspectors completed the tabulation of voting?

Mr. Chairman, based on the voting of shareholder proxies received prior to the meeting, plus the vote inspectors tabulation of proxies and ballots voted at this meeting in person, I'm pleased to report the following results. The 16 individuals nominated to serve as directors of Business First Bancshares, Inc. have been duly elected. The compensation for the company's NEOs have duly approved on a nonbinding advisory basis and the proposal to ratify the appointment of Forvis Mazars, LLP as our auditor for 2026 has been duly approved. Official voting results will be posted in a current report on Form 8-K to be filed with the SEC within 4 days following this meeting.

Thank you. Following the conclusion of the business portion of this meeting, we'll provide an opportunity for a question-and-answer session. I'm aware of no other business that should be brought before this meeting. I hereby move that we adjourn the meeting.

Is there a second?

Second

I'd like to thank all of you for attending the 2026 Annual Meeting of Shareholders. I'd also like to express my appreciation to all the shareholders who submitted their proxies but were not able to attend the meeting. The directors, officers and employees of Business First Bancshares appreciate the loyalty and confidence of all of our shareholders. Business portion of this meeting is hereby adjourned. Heather, do we have any questions on the portal? I'd like to open the floor for anybody in person to ask any questions. Okay. This concludes the 2026 Annual Meeting of Shareholders. Thank you all for your participation this morning.

Thank you.

This concludes the meeting. You may now disconnect.

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. [Operator Instructions] 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 3 of our presentation, which includes our safe harbor statements regarding forward-looking statements and the use of non-GAAP financial measures. For those of you joining by phone, please note the slide presentation is available on our website at www.b1bank.com. Please also note our safe harbor statements are available on Page 6 of our earnings press release that was filed with the SEC today.

All comments made during today's call are subject to the safe harbor statements 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. 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 you 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 3 years and making a number of nonacquisitive 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 1. In balance sheet terms, the acquisition adds over $700 million in assets and 9 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 Northeast 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 of any financial institution, large or small. The morale among our former Progressive teammates is high, and the working partnership is off to a smooth 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 7 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 then First Horizons, serving in leadership capacities across South Louisiana and for the past 5 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 are 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 noninterest 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 super majority 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 noninterest income, primarily through the Financial Services group and in particular, the work providing interest rate swaps and SBA loan gains on sale. As you know, we've been working in the past 3 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 crossed the 5-year mark and 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 anticipated 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 our 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 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 noncore 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 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 1 of this year and added $774 million in total assets and 9 new locations. From a 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 to $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 driven primarily 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 noninterest-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 is 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 24 basis points from the prior quarter.

Total cost of deposits for the month ended 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 the line on 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 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 noninterest expense was $57.5 million and included $2.2 million in acquisition-related expense. Core noninterest 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 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.

First quarter GAAP and core noninterest 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 noninterest 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 nonaccruals 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.

Yes. Thanks. I think we will go ahead and open up to Q&A now.

[Operator Instructions] Our first question comes from the line of Feddie Strickland with Hovde Group.

Just wanted to start on credit. I 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. And can you just help us understand kind of the full opportunity set maybe here and how much we could maybe see NPAs come down by year-end, assuming no further migration?

Yes. Thanks, Feddie. 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 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.

So Q2, we think about 30% of the current NPA list will go through to resolution. So as we move past that, we would see it kind of breaking up into third 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-end.

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. Was that the Houston medical facility? Or which credits contributed to the higher NPAs?

We had about $25 million increase this quarter, which were mostly attributable to we have a relationship with one client. It's about $16 million of 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 2, 3 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 FHLB in the broker this quarter, but you also issued the sub debt. Should we expect the margin to -- I guess, the GAAP margin to still directionally move higher in the second quarter? Or is more flat your expectation?

No. We think we're going to -- we think low to mid-single-digit margin expansion as we move forward. 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 quarter, spread was relatively flat quarter-over-quarter. And we think with the increase in loan volumes, we should get a little bit of pickup.

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

Just want to follow up on the credit discussion. I think, Greg, you mentioned expectations of some resolution in the next few quarters. That's great to hear. Any thoughts as far as loss recognition, 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.

Yes. So far, 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 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. We feel like that the stuff that we've been talking about is kind of in the list, and we'll just move forward with hopefully no change from that.

Okay. 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?

Yes. 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. Some of them, we just made the decision, whether it rate or credit to move away from relationships. 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 in the Houston markets.

Yes. I think it's not a small thing that we've really dramatically downshifted our exposure to construction. And so we're not -- we don't have the same large dollar construction projects coming up as we 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. We want to have a diversified portfolio and minimize our concentrations.

And then I would also say that Greg mentioned our loan yields staying pretty flat quarter-over-quarter, which 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.

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

Just wanted to kind of dig back on to the expenses as we move from here. So on the one hand, obviously, this quarter on a core basis, good expense control. But 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 how should we expect those expenses to -- from a timing and magnitude perspective to layer in? And then as you kind of think about the layering in of the cost saves from Progressive, understanding that the systems conversion will happen late in the quarter. Just trying to frame out the expense outlook over the next few quarters.

Yes. 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, 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.

We still remain confident in our projections on the cost saves around the Progressive acquisition, achieving most of them in the fourth quarter. Craig, I think out of the $21 million Progressive run rate, we expect to achieve about $11 million -- that's on an annualized basis on cost. So certainly, still anticipate recognizing the benefits of that -- those efficiencies, primarily in the fourth quarter.

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

Yes. 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 piece of it was less credit still the same. So we felt like from a total dilutive standpoint for us, I think it 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. So we feel really good about the way everything kind of shook out now.

So it will be less accretion going forward the trade-off is that we had less dilution than we modeled. So it's a good thing, Yes. 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 going to now, we've grown tangible book value at about 16% annualized rate.

So we remain focused on growing tangible book value, and we've done so during that period. We've consummated 2 acquisitions and grown assets by about $2 billion. And so the news on the accretion front versus tangible book value dilution on the Progressive deal is good. And then we look forward to continuing in future quarters to grow tangible book of ours. And so we're pleased with that result.

Michael, will be about $1 million going forward for accretion per quarter.

Yes. heard that. And maybe if I could just sneak one last in on the -- just as it relates to the tangible book value growth and the focus there. The buybacks this quarter were a little bit higher than I think I was looking for. How should we balance that now with 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 recoup and build tangible book value and capital?

Yes. I think it's a balance between the 2, the market -- if we feel the market is undervaluing our work, then we do have the -- we've now built our capital levels and our book value to a level that we can take advantage of that perceived discrepancy. And so we 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.

So I think our average TPV multiple of the buybacks was about 119. And so 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 going to -- we don't have mandatory buybacks and 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.

[Operator Instructions] Our next question comes from the line of Gary Tenner with D.A. Davidson.

I want to ask about your -- I 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. And I'm just wondering how much of that is -- 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 in payoffs just as construction projects are maturing? Or maybe just walk us through kind of how you're looking at the next couple of quarters from a net growth perspective?

Yes, 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 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% to 8% or 5% to 6% range loan growth on an annualized basis.

I'll just add, this is -- 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 and lower growth in the third quarter, but then we had a -- I don't want to say a record fourth quarter loan growth, but it was a strong quarter, fourth quarter. And if you balance the 2, it ended up being kind of at this about 6% range.

And we had more paydowns in the third quarter than we did in the fourth quarter. And I would anticipate that same effect helping us from a net loan growth over the remainder of the year. Greg is right that there will be a point at which those larger dollar construction projects don't -- aren't material in terms of their continued impact on the portfolio.

And then again, we've hired, I think, to date, about 11 new producers and more production-oriented staff, and we'll continue to look for talent as we see the opportunity. So -- 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, but really the third and fourth quarters 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 where is your appetite and comfort level with that?

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

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

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 in this quarter. I went back to my notes last quarter, and it looks like there was that interest reversal that impacted the margin by about $1 million in the fourth quarter from that Houston that we discussed. Was there any kind of interest reversal again this quarter with the uptick of nonaccruals? Yes, I'll just leave it there.

Yes. Yes, you're right. There was some noise. I think when you think about relative to the nonaccruals, there was about $1.2 million in interest reversal. That was probably attributable to 6 or 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.

Kind of as we go forward, I think we'll start inching back toward reclaiming some of that as an earning asset. But as I mentioned, I think earlier, 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 twists and turns sometimes of a conflict resolution of some of these credits, it's a little bit unpredictable. But we see some opportunity on the horizon with that for sure.

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

Ladies and gentlemen, thank you for standing by. My name is Desiree, and I will be your conference operator today. At this time, I would like to welcome everyone to the Business First Bancshares Q4 2025 Earnings Call. [Operator Instructions]. I would now like to turn the conference over to Matt Sealy. You may begin.

Good afternoon, and thank you all for joining. Earlier today, we issued our fourth quarter 2025 earnings press release, a copy of which is available on our website, along with the slide presentation that we will reference during today's call. Please refer to Slide 3 of our presentation, which includes our safe harbor statements regarding forward-looking statements and the use of non-GAAP financial measures.

For those of you joining by phone, please note the slide presentation is available on our website at www.b1bank.com. Please also note our safe harbor statements are available on Page 6 of our earnings press release that was filed with the SEC today. All comments made during today's call are subject to the safe harbor statements in our slide presentation and earnings release. I'm joined this afternoon by Business First Bancshares Chairman and CEO, 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. And with that, I'll turn the call over to you, Jude.

Okay. Thanks, Matt. Good afternoon, everybody. We thank you all for being with us today. I'd like to begin our conversation with a brief high-level review of the work our team accomplished in 2025, which turned out to be, in my opinion, one of the most meaningful and positive years our franchise has experienced. I'll start with a few of the nonfinancial highlights.

While they don't contribute much to the short-term modeling that this call invariably centers around, they are what enables future opportunity and therefore, representative of the most important work that we do. Over the course of '25, we conducted 2 major core conversions and implemented a number of software platforms designed to prepare us for managing at this and future scale. We continue to develop multiple internal divisions focused on preventing and mitigating fraud, internal loan review audit and various CRM capabilities, contributing to both our ability to operate safely and maintenance of a positive regulatory relationship. We continued our practice of incrementally evolving our footprint, closing 3 banking centers and opening one.

We made big strides developing our correspondent banking initiative into a significant part of the bank, contributing meaningful noninterest income, growing the client base to over 175 community banks. We announced and then at the turn of the year, closed the acquisition of Progressive Bank in North Louisiana. We -- and this may sound out a place on the call such as this, but we learned some lessons by working through credit issues for the first time in a number of years, things that will ultimately make us better providers and managers of credit in the future.

And for the fifth year in a row, we are one of the winners of the American Banker's Best Banks to Work for award voted on by employees and therefore, one of my favorite awards to win. These nonfinancial accomplishments are important, and I'm proud of them, but they, of course, aren't alone sufficient. 2025 was also a year of accomplishment from a balance sheet perspective. Over the past 12 months, we bolstered our capital ratios with tangible common equity increasing by 90 basis points and consolidated CET1 capital increasing 50 basis points year-over-year. We grew tangible book value 17.3%. We have as balanced a balance sheet as we have ever had with limited concentrations in any lending category and significant geographic diversification.

We grew loans and deposits in tandem, particularly in the fourth quarter as we got through some of the bigger nonfinancial projects and return with more focus to production. We began purchasing shares back for the first time in almost 6 years and positioned ourselves to have that tool as a viable option in the future. We increased our common stock dividend for the seventh year in a row. Now we recognize that all this nonfinancial and balance sheet activity needs to lead up to something else, something tangible. And over the course of 2025, we delivered strong P&L improvement beyond what we or the analysts forecasted. We grew ROAA beyond our stated 1% goal to a 1.06% core ROAA for the year and a 1.16% core ROAA in the fourth quarter. We delivered a 14% increase in EPS over the course of the year and in the fourth quarter, a 20% year-over-year improvement.

We grew our full year core margin beyond our stated goals of 3.5% to 3.63%, and we held noninterest expense growth relatively flat while growing revenue, generating positive operating leverage, posting a sub-60% efficiency ratio in the fourth quarter. In sum, we are turning the investments we've made over the past few years into momentum, which leads me to believe that even though 2025 was a pivotal year for b1, 2026 will be even more fruitful. With our major systems implementations behind us, we will focus more on optimizing the systems, which will lead to greater efficiencies. With a healthy footprint in place, we will focus less on expanding it and more on deepening it.

By the way, over the past few weeks, we are pleased to begin to take advantage of some of the disruption in the Houston market by recruiting Jon Heine, formerly at Veritex to be our new market leader, and he's already been able to add a couple of impressive rank bankers to the foundational team we have in place. Finally, we will focus less in 2026 on embarking upon new major projects and more on daily execution. We have a good team. We're in good markets, and we're focused on the right things: sustainable ROAA, tangible book value accretion, EPS enhancement, noninterest revenue giving us greater revenue optionality and noninterest expense discipline leading to continued efficiency ratio improvement. It's an exciting time, and we look forward to discussing it further over the course of the call. I thank you all again for your attention, and I'll turn it over to Greg.

Thank you, Jude, and good afternoon, everyone. As always, I'll spend a few minutes reviewing our results, and then we'll discuss our updated outlook before we open up to Q&A. Fourth quarter GAAP net income and EPS available to common shareholders was $21 million and $0.71 per share and included $2.2 million in merger and core conversion-related expense, $995,000 loss on former bank premises and $35,000 gain on sale of securities. Excluding these noncore items and non-GAAP core net income and EPS available to common shareholders was $23.5 million and $0.79 per share.

From our perspective, fourth quarter results marked another quarter of strong financial performance, generating, as Jude mentioned, a 1.16% core ROAA with our core efficiency ratio falling to 59.7% for the quarter. A notable impact during the fourth quarter included continuing meaningful contribution from our correspondent banking group. Also, as Jude mentioned, we added several new slides to our earnings presentation. I'll start on Slide 24, a new overview slide from our loan portfolio. Total loans held for investment increased $168.4 million or 11.1% annualized on a linked-quarter basis. The higher-than-expected loan growth was driven by an overall improved demand and a slowing in paydown and payoffs.

Specifically, new and renewed loan production of approximately $500 million during the fourth quarter compares to slower scheduled and nonscheduled paydowns and payoffs of $332 million. Recall in the previous quarter, we experienced a slight decrease in net loan production, which was a result of $395 million in paydowns and payoffs, only offset by $368 million new and renewed loan production during the third quarter. On a linked quarter basis, owner-occupied CRE loans increased $76 million or 28% annualized, while nonowner-occupied CRE loans increased $77 million or 23.9% annualized. Based on unpaid principal balances, Texas-based loans slightly -- declined slightly from 39% as of December 31, 2025.

We expect that percentage of the Texas loans to further decline with the closing of the Progressive Bank to approximately 36% in the first quarter. Moving back to Slide 16. Total deposits increased $191.7 million, mostly due to net increase in interest-bearing deposits of $236.2 million on a linked-quarter basis, somewhat offset by a net decrease in noninterest-bearing deposits of $44.5 million from the prior quarter. The increase in interest-bearing deposits was largely driven by approximately $105 million in public funds and $60.8 million in commercial money market accounts.

We do expect somewhat of an outflow of the public funds markets during the first quarter, consistently with prior year's Q1 seasonality. Moving to the margin. Our GAAP reported fourth quarter net interest margin increased 3 basis points linked quarter to 3.71%, while the non-GAAP core net interest margin, excluding purchase accounting accretion, increased 1 basis point from 3.63% to 3.64% for the quarter ended in December. The margin performance during the quarter was driven by elevated loan discount accretion due to a single large acquired loan paying off sooner than we expected. Loan discount accretion during the quarter was elevated at $1.4 million, including the addition of Progressive, we expect quarterly accretion in 2026 of approximately $1.8 million. On a linked quarter basis, cost of total deposits decreased 15 basis points, while total loan yields decreased 13 basis points.

Core loan yields, excluding loan discount accretion for the fourth quarter was 6.78% down 15 basis points from the prior quarter. The total cost of deposits for the month ended December was 2.44%, which compared to the weighted average of the fourth quarter of 2.51%. 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 6.97% for the fourth quarter. However, with the interest rate cuts we experienced during the fourth quarter, we did start seeing some pressure from overall loan pricing. I'd like to take a moment to explain some of the movement in the margin during the fourth quarter.

We recognized $1 million of interest income reversal for a nonaccrual loan. This translated to about 5 basis points in the fourth quarter net interest margin. That is to say we had -- had we not recognized this accrual reversal, our Q4 margin would have been 5 basis points higher. It is of note until we find resolution on that credit that was primarily responsible for the income adjustment, we would expect this somewhat of a drag to remain. We are pleased with our ability to manage funding costs for the quarter with the weighted average rate of all new interest-bearing deposit accounts during December of 3.51%, down from September's weighted average rate of new interest-bearing deposit accounts of 3.66%. I'd like to make a note of a few takeaways on Slide 22 in our investor deck as we continue to see 45% to 55% of overall deposit betas achievable regarding any future rate cuts.

I would also like to point out, overall core CD balance retention rate was about 83% during the fourth quarter. That statistic reflects our team's continued focus on maintaining and retaining 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 to a relatively neutral position, and we believe we can achieve modest margin improvement in a slightly down rate environment. Lastly, on the topic of net interest margin, I'd like to mention a new slide we created and added to the quarterly slide presentation. Slide 20 is a combination of 2 prior slides and shows our GAAP and core net interest margin in the context of the volatility in the Fed funds rate since 2020. We're proud of our ability over the years to maintain the margin with a relatively tight range. This slide also shows our ability to hold the line on overall loan yields in a declining rate environment while managing funding costs downward.

Moving on to the income statement. GAAP noninterest expense was $52.4 million and included $1.4 million acquisition-related expense and $796,000 conversion-related expense. Core net interest expense for the fourth quarter of $50.2 million was up slightly from the prior quarter, but we do expect an increase in Q1 -- in the Q1 core expense base, primarily due to the closing of the Progressive acquisition and timing of various first quarter annual expense resets. As a reminder, we should begin to recognize the impact of Progressive cost saves post conversion, which should occur in the third quarter of this year. Fourth quarter GAAP and core noninterest income was about $12.2 million and $13.2 million, respectively. GAAP results did include a $35,000 gain on sale of securities and a $995,000 loss on former bank premises.

Core noninterest income results for the fourth quarter were better than we expected, primarily due to swap fee revenue, which was about $1 million higher than expected. Also included in core noninterest income was $312,000 gain on OREO. We expect near-term quarterly noninterest income to be in the mid- to high $13 million range, which includes approximately $1 million quarterly contribution from the Progressive Bank acquisition closed on January 1.

Lastly, I'd like to provide some context to the credit migration during the fourth quarter. Total loans past due 30 days or more, excluding nonaccruals as a percentage of total loans held for investment increased from 27 basis points to 64% at December 31. The ratio of nonperforming loans compared to loans held for investment increased 42 basis points to 1.24% at December 31, while the ratio of nonperforming assets compared to total assets increased 26 basis points to 1.09% compared to the linked quarter. The increases in the nonperforming loans and assets ratio over the linked quarter were largely attributable to the deterioration of a single $25.8 million commercial real estate relationship. With that, that will conclude my prepared remarks, and I'll hand it back over to Jude so he can wrap up the conversation.

Okay. Thanks, Greg. I just want to take one moment to welcome our new Progressive -- former Progressive Bank shareholders and employees as well if you're listening, excited about that partnership. And I feel like everything that we've worked on thus far is ahead of schedule in terms of -- from our getting the approvals that we needed to get to close it to all the social integration work that we've already done and enjoyed over the past couple of weeks being able to spend time with a number of the employees and the former Board members. And just really excited about incorporating that into our already existing strong North Louisiana franchise. It's an important part of our footprint, important part of the state and look forward to continuing to make a significant contribution to the economy and our role as a community bank in that area.

So with that, I'd be happy to turn it over to the answer -- question-and-answer period and do our best to answer any questions you might have.

[Operator Instructions]. Our first question comes from the line of Matt Olney with Stephens.

I want to start on the loan growth front. It sounds like the paydowns that have been a challenge over the last few quarters weren't as much of a challenge this quarter. Any more color you can add to that as far as the fourth quarter growth and then the outlook for organic loan growth from here?

I think, Matt, this is Greg. You're right. I think we did have a great quarter. I think some of that was just a little bit of pent-up demand that we've been working on for a while. So the bankers did a good job of landing it. And then just a little bit of downshift in the payoffs that we've seen kind of created that really great quarter. As far as going forward, we still feel very comfortable with the mid-single-digit loan growth throughout the balance of 2026.

And Greg, just to follow up on that comment. Does the mid-single digits, does that imply a more balanced view of the paydowns that have kind of ebbed and flowed throughout '25? Or any commentary kind of what that assumes with the paydowns?

Yes, that's a more balanced view would be a good way of putting it. If you think about -- we're kind of coming out of the -- if you roll back the clock to the quarters where we were producing extremely high loan growth, double-digit to almost 20% annualized loan growth quarters, 2, 3 years ago, I think we're unwinding out of that. And so having a more reasonable loan growth expectation might be a little bit easier to achieve without the headwinds from the payoffs.

Okay. That's helpful...

Matt, just a little more color on the loan growth in the fourth quarter. It was nice to see that it was kind of led by Southwest Louisiana and North Louisiana. We worked hard to build a footprint that's diversified. And you think about that first from a credit perspective, but you also want to think about diversification from a production standpoint. And it's interesting to track that over time and I certainly want to give those areas they're due for contributing so much to the strong quarter on the production side.

And Texas is an important investment for us and will continue to be. And we're hovering around 40% of our exposure there, which is a good healthy number. But that doesn't mean that there aren't a lot of good things happening in Louisiana as well. And a lot of investments up and down the Mississippi River and Meta making the major investment up in North Louisiana. And so it's nice to see some of that paying off in terms of increased demand, and we look forward to a balanced production throughout our footprint over the next couple of years.

Okay. Great. And then I guess shifting over to the credit side. Any more details you can disclose behind that relationship that went to nonperforming? What drove the downgrade? It looks like a pretty decent sized loan. Where does that loan rank among your large relationships you have with the bank? And then, Jude, I think you mentioned in the prepared remarks, there were some lessons learned when it comes to credits. I didn't know if that was speaking to this specific credit or just more broadly, if you could just expand on that.

Yes. Matt, the credit that we identified was this commercial real estate medical facility in the Houston area. And we've been really -- we've been dealing with it for the balance of the year. Got real close to resolution on it. We feel like we've marked it down to where the loss from here on out would be immaterial at this point. But we just have moved that forward. And I don't know that there's anything more to say about it than that. We've just been working with it for a while and thought we had a real resolution in hand, and it kind of kept dragging on. So we decided to do the prudent thing and move it over.

And where does that rank size-wise?

Size-wise, I would say that's one of our larger, if not one of the largest single commercial real estate exposures.

Yes. I think it's the largest single that's for which we hold the exposure on our books. As you know, we try to actively participate exposures, particularly when they get to the $20 million, $25 million level and certainly at this level -- at anything above this level. So yes, it's one of the larger ones. And if you think about lessons learned or things to continue to work with, I do think the biggest lesson in banking is just concentration risk and exposure risk. You can do everything right, and there's going to be something that happens to certain credits.

And if you look at banks that have failed or just been in serious trouble over the past 15 years, generally it comes down to a relatively small number of outsized credits. And so one of the reasons that our metrics have moved around a little bit more than we would like have been more volatile is because the loans that we've had something happen on have been slightly bigger. And so not necessarily representative of the entire portfolio. It just feels worse when it hits the different stages of the life cycle of a credit that you're working through.

So I think a reinforcement of the idea that we want to -- even as we continue to grow, we want to keep our individual loan exposures to manageable levels. And then we also want to make sure that on our concentrations from an industry perspective or a geography perspective that we don't get too over reliant upon any one particular type of loan. I think -- and these are just generic. We've been -- we've had a long period here where we haven't had to really run many credit issues through any kind of process. And so just as we kind of remember how to do that, if you will, there kind of be lessons learned about how aggressive you are when you see warning signs and how you do from a monitoring standpoint along the way and not so much with this particular credit as much as just -- those are just general things that I think whatever stumbles we've had credit-wise over the past 12, 15 months will benefit us as we continue to make credit decisions along the way and continue to refine our processes as we continue to get bigger.

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

Jude, you mentioned in the prepared remarks that the focus this year is going to be more so on daily execution versus any sort of major projects. I don't want to put any words in your mouth, but I might take that to mean or someone might take that to mean that maybe additional M&A opportunities may not be in the cards. Obviously, you've been fairly acquisitive here lately, but just wanted to get a better sense of kind of what that comment means.

And maybe if you can remind us on some of the projects that you've recently completed and maybe just what that daily execution would mean. I know there's a lot in there, but hopefully, you can provide some context.

Yes, sure. I appreciate you asking that, actually. We had a busy year, busy number of years. But in particular, this year, in addition to consummating -- or integrating an acquisition in Dallas and then consummating an acquisition in North Louisiana, we also did a lot of process improvement internally. And although we've talked about on these calls a few times the number of projects that we took on that are technology related. So we -- not only did we convert another bank, Oakwood over the course of the year, we actually converted ourselves to a new platform, a new core platform, which was a 2-year project and involved pretty much everybody in the bank. So it's a big deal.

And we also had 3 or 4 others, 5 or 6 in total implementations, which does take a certain amount of bandwidth and takes a certain amount of energy. And there are things that we felt like we needed to do to be able to manage and run more effectively at $9 billion in size over 2 states and a significant geography versus what we could manage and run when we knew everybody, follow our -- all the employees and most of the clients that the exec team had the relationships with.

As you scale, you need better processes. And so we -- and you want better visibility into numbers and managing by those things, including pricing software as we're thinking about credit exposure, thinking in a more sophisticated way about what kind of profitability that incremental client adds to the bank's overall profitability is something that we're better at than we were before because of some of these implementations. So what I meant in my comments was don't really -- although we'll always be incrementally upgrading and incrementally adding, we don't have any implementations that in the aggregate will be as substantial as we had last year, and we'll focus more this year on making sure that we're maximizing the output from the implementation process last year.

So it's one thing to do it. It's another to then use it in an optimal manner. And so we want to focus on making sure that we're actually making better decisions because of the data that we have. We want to make sure that we're providing better client service because of the systems that we've invested in. And we want to make sure that our employees' efficiency and happiness around doing their job is enhanced. And that, we believe, involves taking a little bit of a breath and just making sure that we're maximizing the investments we've already made. On the M&A front, we're not prioritizing seeking another M&A alternative now. We've made a number of really what we believe to be really good investments and partners throughout the years.

And we're beginning to see -- we believe we have the opportunity now to demonstrate why those good partners not only give us greater opportunity over time and diversify our risk, but also have been good financial partners leading to increased profitability. And sometimes the only way you can really demonstrate that is to pause the M&A for a second and kind of let the good things percolate and catch up with you. So we saw significant improvement in ROAA over the course of 2024 -- or excuse me, 2025. And I shared with you last time that we intended to -- we intend to be over 1.2% ROAA last half of this year, 2026. And so that's become more of a focus for us than seeking to expand.

We want to deepen the relationships that we have, which will, in turn, lead to greater profitability, which leads to greater tangible book value, which should lead to an enhanced share price. And that gives you more optionality for M&A down the road. And so that's kind of -- we're kind of at that point where we believe we've made a number of investments over the years, and we want to be able to demonstrate what we know, which is that they were good investments that we've done well, and we want to be able to prove that out a little bit through increased financial performance before we take on other initiatives.

So we're going to execute. We're going to work on the investments that we've made, and we're going to be good bankers day-to-day, and that will translate into increased profitability that will be sustainable, and that will give us more optionality to embark upon future projects down the road.

Appreciate the comprehensive answer. Maybe just following up on one of those aspects on the capital front. It was good to see the buyback announcement you guys execute on it. How should we think about that going forward? You guys are trading at about 1.2x tangible. The earn-back on the buyback is, I would characterize as fairly attractive. Capital is really going to start to appear once the deals are fully integrated and the cost saves realized. Should we think about you guys, at least in the near term, is kind of a regular way buyer, just given where you are? Or just trying to frame up the capital discussion.

That's a great question. And obviously, something we're talking about at the Board level, and we'll continue to talk about. We were able to buy back about 150,000 shares in the fourth quarter and what proved to be attractive prices, $24.70 kind of range. And those were more in the 110% to 115% ROAA range or tangible book value multiple range. So I think we certainly -- I would certainly agree with your characterization of 120 still being a reasonable and even cheap price. And over the course of the year, we'll -- we have more optionality on what we do with capital than we did last year.

And last year, we had more than we had the year before because we've been building up those capital levels. So we will definitely continue to look for opportunities on a quarterly basis. I don't see us just setting it and letting it go and saying we're going to buyback this number of shares no matter what. We do want to be want to pick and choose when the right moments are. But certainly, I would think over the long run, anything below 120 would be an attractive price.

One thing I'd add, Mike is that when you think about Q1, we're going to take a little bit of a step back in tangible book on a per share basis with Progressive closing. So it would be, I guess, an effective kind of slightly higher multiple right now than just 120. There's something we're thinking about when we evaluate buybacks.

Perfect. Got it. At the outset, they said keep it to. I have 2 follow-up questions, so I'm going to use that one. Just as we kind of think about hiring from here and the opportunity set, just given some of the dislocation you mentioned Jon Heine was hired as new Houston market President. Can you just frame up what you see as kind of the opportunity to hire? I think we've heard mixed messages from some banks are being fairly aggressive. Some are saying like take a wait-and-see approach. Just wanted to see how we should think about the opportunity set for you guys. Is it just more opportunistic making kind of a full court press here?

Yes. I think the answer actually is probably similar to the answer I just gave you on stock buybacks, right? I think it's kind of -- we're prepared to hire and would like to hire if they're the right people. We don't feel any need to hit our -- in order to hit our profitability targets and our growth targets, we don't necessarily have to hire to do that.

But we do know that there are good people out there and they're living in a more disruptive world than they were a year ago. And we know that we also are a different bank than we were a year or 2 years and 3 years ago in terms of our capabilities, which also means in terms of our attractiveness as an employer. So we want to continue to have conversations. I would expect that we will add another 2 or 3 in Houston over the next couple of months as we've got some conversations and we'd like to bring those to fruition.

And beyond that, it will really be on a kind of case-by-case basis. We don't have to hire every banker in the world to do what we want to do in terms of financial performance. We just need to hire the right bankers. And so we'll focus on evaluating that on a case-by-case basis as the opportunities arise. But I do think there will be opportunities, and we will be thoughtful about. One reason we can afford to be a little less aggressive on M&A is that we believe that in our footprint, organic growth is going to be possible. And part of that is growing with our current staff, but part of that is incrementally adding some additional team members, teammates. And so for the near future, we believe that's a more likely and profitable use of our capital than M&A.

Next question comes from the line of Feddie Strickland with Hovde Group.

Just wanted to start on the DDAs. I understand the public flows have an impact here, but I do still think they're down a little bit year-over-year. Can you talk through maybe what the opportunity might be to kind of grow those on a year-over-year basis, trying to account for some of the seasonality in those public funds flows?

Yes. I think good question. I think what we still see some migration from some of those noninterest-bearing accounts to interest-bearing. So not a huge piece of that business is actually account we're losing accounts. I think it's more of a migration. That has slowed over the course of 2025. With the addition of our Progressive Bank partnership, they have a nice amount of their deposit base is noninterest-bearing. So we should get some lift from that in the first quarter.

We still have plans to continue to focus on elevating deposit gathering through treasury and noninterest-bearing sources. So it's something that we are looking at in '26 as a big part of our plan of operation, but there has been some movement.

Got it. That's really helpful. And just wanted to step back into the fees. I appreciate the guidance there. But obviously, the star of the show was the swap fees and you saw brokerage commission fees, I think, up a little bit as well. What's kind of the level of opportunity in each of those areas and I guess, contributions from SSW and the FIG group as well?

Yes. We see opportunity in 2026 for that to continue to expand. I think it's going to be like we've kind of really messaged for the last few quarters that it will be a bumpy upward sloping trajectory, though, just like this last quarter was with the swap fees being outsized. I think the -- what we're excited about is the continued integration of our SBA group, Waterstone out of the Houston area. There's some opportunity we feel like in that to continue to grow, not only with our bankers becoming more comfortable with SBA production, just the rate environment with SBA lending becoming economically more stable with a lower rate environment.

So we're excited about that. I think you -- also, we think the SSW Group and the brokerage piece of our business, so to speak, we do continue to see it scaling. We've been investing over the last few years in more talent in that area, and I think we'll continue to invest. So we do look at upside for that. So I think noninterest income as a whole, we feel like that will be in the mid- to upper $13 million per quarter with the addition of the Progressive Group. So we're comfortable understanding that it may be rocky going upward, but I think the trajectory is still -- we're excited about the upward slope.

And one more if I could squeeze it in, just on the loan growth and the growth in general coming from Southwest and Southeast Louisiana. Jude, I think you touched on that a little bit earlier on. But just curious, I mean, is it going to be a more balanced pace of growth you feel like going forward that it's going to be sort of evenly balanced between Southern Louisiana and the Texas markets? Or is it just going to kind of differ from quarter-to-quarter depending on what's in the pipeline? I'm just curious whether that's a deliberate part of the strategy or that's just kind of how it shook out this quarter.

Well, the deliberate part of the strategy was building the footprint that we knew that not every market had to hit every moment in order to move forward. And delivering -- building a footprint that didn't rely upon one market to carry load all the time. I do think just based on demographics and differentials between economies that there's more upward growth opportunity in Dallas and Houston. That's just -- they're just faster-growing cities, and we have enough of a footprint in both that we'll be able to take advantage of that.

But we've got good core consistent growth in most of the Louisiana markets. So that in a quarter in which one of our larger markets slowed down a little bit for whatever reason that is, Dallas was slower this quarter then we'll have our more consistent markets across Louisiana there to give us some more predictability as we try to forecast out from a balance sheet perspective over time. So yes, I guess the answer to your question is, did we specifically say we need to grow Southwest Louisiana and North Louisiana faster in the fourth quarter than the other markets? No. But we did specifically try to build a constructive footprint in which we could have different parts of the footprint experiencing greater success at different times, which hopefully, over time, leads to a good consistent moderate growth pace for the bank as a whole.

Feddie, I think if you think about 2025 as a whole, we had both North Louisiana and Southwest Louisiana grow over $100 million in loans and deposits each and we're excited about Southwest Louisiana now is over $2 billion in deposits, which is a large part of our deposit base and an important part of that. North Louisiana with that kind of growth as well, $100 million in deposits. They are now over $1 billion or approaching $1 billion in deposits with the addition of our Progressive partners, that will be approaching $2 billion. So we're excited about those areas. And...

As I said, in the Southwest Louisiana, Dallas comparison is an intriguing one because one of the thesis behind the construction of our footprint was that not only with different areas produced differently at different times, but that we could be a little more thoughtful about funding generation versus loan generation depending upon what type of market -- so as Greg mentioned, the Southwest Louisiana has been able to be more aggressive on deposits over the past 2 or 3 years, partly because we knew we had growth in the Dallas loan environment.

And so Dallas is actually our largest market as measured by loan volume. And in Southwest Louisiana, it might be our largest market based on deposit volume, and they've both been able to be slightly more aggressive because the other supports the other. So it's a symbiotic relationship. And I know a lot of banks over time have talked about the rural versus the urban mix of their footprint and trying to get the best of both worlds. And I think we have some real-world examples of where that's working, which is again, I think bodes well for the future.

Yes. I'd like to add one thing when it really...

This is Jerry, by the way.

Yes. Jerry -- by here, Feddie. Just an important part of this is I want to call out, a lot of this growth is coming from adding new clients. It's not just legacy client base. It's tenured, strong bankers in our footprint, new bankers, bringing in new clients is accounting for quite a bit of that growth, which is really nice to see in these markets that we've got such strength with them.

Yes. And Feddie, this is Phil. I'll just add also, obviously, we're excited with the addition of Jon and the horsepower that he's going to bring in the Houston market. But in North Louisiana, where we're excited, the Progressive addition and the opportunity, as Jude talked about in '26, deepening our existing relationships, Progressive being able to deepen those relationships with a bigger balance sheet.

Next question comes from the line of Gary Tenner with D.A. Davidson.

So my questions have largely been answered, but I wanted to just ask about the swap business again. As you think about that business, if and when we get to more of a steady-state rate environment, how do you see that business kind of trending in that sort of environment?

Yes. I think one of the things that the rate environment could provide some challenges. But I think as we continue to scale and understand our philosophy around pricing and fixed rate loan pricing with long duration we would like to and I think our bankers are becoming accustomed to taking some of that -- those rate bets off the table with longer duration deals.

So I think as we continue to integrate that process, and it's a very new process within our bank being only a little over a year old. But I think as we integrate that process with our bankers and our new bankers, and they understand that we would like to manage that rate risk on longer maturity fixed rate loans through the swap vehicle, I think that gives us even in a rate environment that may be more challenging than what it has been, more opportunity.

Yes. So that's a good point. It's not just about the economic opportunity for the fee generation. It's also an opportunity to offer the client more options even while we put ourselves in a better place to manage our interest rate risk. We -- it's -- one reason we added that chart that Matt described earlier, I believe, maybe it was [ Craig ], described earlier, the chart showing the pretty consistent NIM over time was we don't believe that we should be taking significant interest rate risk, and we manage not only the bank's entire balance sheet, but our investment portfolio, in particular, we manage it for cash flow as consistent predictable cash flow as opposed to yield.

And I think we've had good results, not trying to guess on rates. And so this enables us to give the client what they might want in terms of longer-term predictability of rates, but still enables us to have more flexibility in the construction of our ALCO posture. I would also say, although certainly, the lower rates mean that maybe less swap activity, more SBA activity. The other dynamic for us is that we don't just do these things for ourselves, for our own clients, but we also do them for other banks.

And so with the swap product, we are just now -- I think just yesterday, in fact, we closed one for one of our first ones for the client of another bank, another institution in our community bank network. Over the end of last year, we actually closed a couple of swaps for other banks, not for their clients, but for their own balance sheets. And so as we are able to discuss with and educate our banker partners on the opportunities to provide more optionality to their clients, I would think that we would continue to see success growing the volume of swaps, even if it ends up faster rate of growth off our balance sheet as opposed to with our direct clients.

Our next question.

I was going to say real quick on the correspondent banking. I think our biggest opportunity, we have about a little over 175, 180 clients. And -- but with most of them, we just do probably just one thing for the vast majority. And so part of our biggest opportunity there that we've been working on is having more of a unified sales approach so that we can actually increase the share of wallet, if you will, and have multiple -- provide multiple opportunities. So most of the folks that we've done SBA with, we haven't done swaps with and vice versa or the other products that we offer.

Our largest one actually and our original one was through our affiliate SSW, who manages other banks' investment portfolios. We have $6 billion to $7 billion in assets under management. And being able to cross-sell the different products that we've been working on adding to our tool set, I think, is the biggest opportunity that we have regardless of the demographic or economic changes in the environment.

And our next question comes from the line of Christopher Marinac with Janney Montgomery Scott.

I want to go back to the reserve. What should be the reserve ratio over time? Just looking at kind of annualized losses this quarter, last quarter and just thinking at the 3.5, 4-year average life, should the reserve be higher over time even if we included the discount that you have on the deck?

Yes. I think that's a great question, Chris. I think what we talk about internally is continuing to move that reserve to 1% or higher. I think the charge-offs that we had in this quarter took it down a few basis points. But I think internally, we're reserving at a rate of 120% on every new loan we make. So over time, we would like that to be above 1%.

I think that's our intentions as well. And especially when you add the credit marks in there, I think we're currently all in about 106 like we show in the deck, and that will continue to move up with the closing of the Progressive transaction.

Got it. And should annualized losses be somewhere kind of in the mid-teens or 20%? Or do you have a thought about that?

Yes. We would think those would be somewhere in the lower teens to mid-teens next year. I think 10 to 12 basis points of annualized losses is what we're kind of thinking. We ended up the year at about 19 basis points. And so we've kind of -- as we work through some of those NPLs, we've identified paths to move those off with minimal to no loss. So it's just a matter of time unwinding some of those.

We took some losses on them last year and have some specific reserves as well.

There can be a bit of a drag in terms of the actual recoveries. So gross, to Greg's point, is maybe in the mid-teens at kind of lower to low double digits annualized.

Chris, I think the days of us operating in the 4 to 5 basis points of charge-offs. That's going to be tough going forward. I think it's just for the industry as a whole.

Great. And the last question just has to do with kind of efficiency goals over time. If you look at expenses to assets, you've made a little bit of progress in the last year. Obviously, you've got integrating with Progressive. But just in the big picture, do you think we'll see more leverage going through the platform this next 12 to 18 months?

Yes. I think our plan is to continue to improve operating leverage. I think as we -- as Jude mentioned, we're moving toward being able to have a run rate of fourth quarter of 120 run rate. I think if that's achieved, then I think that thing gets close to 60% on an annualized basis. And then you'll probably start seeing on a monthly basis into the 50s post integration of Progressive here and there as we continue to prove -- improve performance and earnings throughout the balance of the second half of the year. As we get into '27, we would expect that our goal is to have that into the 50s. And I think there's -- once you kind of achieve those third quarter, fourth quarter '26 ROAA targets that we've been talking about, then there's a pretty natural glide path into the 50s. And I think that we feel like it's very achievable.

That concludes the question-and-answer session. I would like to turn the call back over to Jude Melville for closing remarks.

Okay. Well, thanks again, everybody, for joining us. I realize you have choices to make on your time and your attention, and I appreciate you spending this hour with us. Very pleased with the quarter and how we ended the year, and it matched up well with our expectations of building momentum over the course of the year and look forward to seeing that momentum continue in 2026. So thank you all again, and hope you have a great end of the week.

Ladies and gentlemen, that concludes today's call. Thank you all for joining in. You may now disconnect.

Hello, and thank you for standing by. My name is Mark, and I will be your conference operator today. At this time, I would like to welcome everyone to Business First Bancshares Q3 2025 Earnings Call. [Operator Instructions]

I would now like to turn the call over to Matt Sealy. You may begin.

Thank you. Good afternoon, and thank you all for joining. Earlier today, we issued our third quarter 2025 earnings press release. A copy of which is available on our website, along with the slide presentation that we will reference during today's call. Please refer to Slide 3 of our presentation, which includes our safe harbor statements regarding forward-looking statements and the use of non-GAAP financial measures.

For those of you joining by phone, please note the slide presentation is available on our website at www.b1bank.com. Please also note our safe harbor statements are available on Page 7 of our earnings press release that was filed with the SEC today. All comments made during today's call are subject to the safe harbor statements in our slide presentation and earnings release.

I'm joined this afternoon by Business First Bancshares' Chairman and CEO, 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 might have.

And with that, I'll turn the call over to you, Jude.

Okay. Thanks, Matt, and good afternoon, and thank you all for being with us today. It was another solid working day quarter for our company. Greg will follow my remarks with specific numbers that I know you're eager to dive into, but I'd like to use my time to highlight three themes on which we are focused.

First, we continue to show incremental quality earnings improvement. And importantly, that improvement has been driven in large part by our strong expense control. To be specific, 3 quarters of essentially flat core noninterest expenses. We've made significant investment over the past few years in our effort to reach a meaningful asset size, distributed over what we consider to be an attractive footprint. And having done so, have been pivoting our focus to the generation of operating leverage and expect it to remain there.

As a result, our aggregate earnings, our capital ratios, our tangible book value levels and our efficiency ratio all showed material improvement over the quarter and year-to-date, trends we expect to continue.

Second, our team has executed magnificently on the operational challenges we committed to this year, converting our entire core bank at the end of the second quarter to a new processor. And following quickly behind that, converting Oakwood Bank to the new system at the end of the third quarter. Although this aspect of performance doesn't easily fit into an earnings model, it's critical to our ongoing performance as an institution, preparing to be better as we get bigger, creates value that unfortunately may only be recognized over time, but I want to be sure to congratulate our team now on job excellently done.

In addition to system-wide efficiencies, operational excellence is also what allows us to feel confident that we can reap the financial potential associated with our two current M&A initiatives. We expect to see much more of the all-in economic benefit from the Oakwood transaction achieved by the first quarter of 2026.

We also remain on pace to close the Progressive Bank transaction early in the first quarter and scheduled to convert that asset in August, enabling us to fully incorporate both institutions and demonstrate unified post-integration financials in full for the fourth quarter of '26. We are focused on execution as we optimize the partnerships and opportunities on our plate.

Third, we have included a new chart in our deck on Page 15, illustrating the momentum we are experiencing in revenue generation from our young correspondent banking unit. We have about 175 banks that we partner with in some form and expect to generate over $17 million in revenue this year, leading to the unit contributing roughly $5 million towards our combined net income over the course of the year.

We're only getting started on this front and believe the investments we've made towards this initiative will lead to even more capital-efficient earnings production as we grow operating leverage within the unit, much as we're beginning to see the efficiency benefit of scale across our entire bank.

So our job for the next few quarters is relatively straightforward and clear, remain committed to effective expense control, fully execute on our recent acquisitions, maintain our historically stable and relatively strong net interest margin as we grow within our retained capital, and continue the progress we've been building -- as we've been building an alternate source of noninterest income through the building of our correspondent banking unit.

As we execute on these priorities, we're confident the combined effect will create the steady profitability and tangible book value increases over the course of 2026 in both aggregate and per share basis with visibility into our roughly 1.2% core ROAA run rate by the end of the fourth quarter. It's an exciting time, and we look forward to answering any questions you might have.

With that, I'll turn it over to Greg.

Thank you, Jude, and good afternoon, everyone. As always, I'll spend a few minutes reviewing our results, and we'll discuss our updated outlook before we open up to Q&A.

Third quarter GAAP net income and EPS available to common shareholders was $21.5 million and $0.73 per share, and included $1.6 million merger in core conversion-related expense, $2.0 million employee retention tax credit and a $77,000 gain on sale of securities. Excluding these noncore items, non-GAAP core net income and EPS available to common shareholders was $21.2 million and $0.72.

From our perspective, third quarter results marked another solid quarter of consistent profitability, generating a 1.06% core ROAA with our core efficiency ratio falling to 60.45% for the quarter.

From a corporate perspective, we were active during the quarter with a successful core conversion of the Oakwood bank systems, which occurred at the end of September. Additionally, in conjunction with our announcing our third quarter results, we announced an increase in our quarterly common stock dividend by $0.01.

Starting on the balance sheet. Total loans held for investment declined $26.6 million or 1.7% annualized on a linked-quarter basis. Scheduled and nonscheduled paydowns and payoffs accelerated somewhat during the third quarter totaling $479 million, while new loan production was $452 million during the quarter.

On a linked-quarter basis, residential 1-4 family and C&D loans increased $47.6 million and $38.6 million, respectively. This was offset by total CRE loans decreasing $71.1 million, while total C&I loans declined $40.2 million from the second quarter of 2025. Based on unpaid principal balances, Texas-based loans remained flat at approximately 40% of the overall portfolio as of September 30, 2025.

Total deposits increased $87.2 million, mostly due to a net increase in interest-bearing deposits of $131.4 million on a linked-quarter basis, somewhat offset by a net decrease in noninterest-bearing deposits of $44.15 million from the prior quarter. The net decrease in noninterest-bearing balances was not unexpected. As you might recall, at the end of the prior quarter, we experienced a large $60 million influx related to a single noninterest-bearing account relationship. This was a temporary deposit, which was expected to withdraw in early Q3. This withdrawal did, in fact, occur, which pressured overall growth during the third quarter.

I think it's worth mentioning, in spite of the Q3 outflow, net growth in noninterest-bearing deposits since March 31, 2025, was $58.2 million, this represents approximately 9% annualized growth in noninterest-bearing deposits. As of the end of the third quarter of 2025, noninterest-bearing deposits represent 21.0% of total deposits compared to the 20.3% at the end of Q1.

Lastly, on the funding side of the balance sheet, FHLB borrowings decreased $125.5 million from the prior quarter, which was a deliberate decision to reduce those excess borrowings.

Moving over to the margin. Our GAAP reported third quarter net interest margin remained unchanged, linked quarter, at 3.68%, while the non-GAAP core net interest margin, excluding purchase accounting accretion, declined 1 basis point from 3.64% to 3.63% for the quarter ended September 30. The margin performance during the third quarter was driven by lower net loan growth during the third quarter and the influx of interest-bearing deposits, coupled with the outflow of the noninterest-bearing deposits mentioned before.

Loan discount accretion during the quarter was slightly elevated at $1.1 million, which we expect to drop back into the $800,000 to $900,000 range going forward.

On a linked-quarter basis, cost of total deposits increased 3 basis points, while total loan yields increased 5 basis points. Core loan yields, excluding loan discount accretion for the third quarter, was 6.94%. Total cost of deposits for the month ended September 2025 was 2.65%, which compared to the weighted average of the third quarter at 2.67%.

We are pleased with our ability to hold the line in new loan yields during the quarter with a weighted average of new and renewed loan yield at 7.46% for the third quarter. We are equally pleased with our ability to manage funding costs for the quarter with the weighted average rate on all new accounts during September of 3.32%, down from June's weighted average rate on new accounts at 3.34%.

I'd like to make a note of a few takeaways to Slide 23 in our investor presentation. We continue to see the 45% to 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 at 83% during September. These impressive statistics reflects our team's continued focus on maintaining and retaining core deposit relationships.

As you will see on Slide 24 (sic) [ Slide 23 ] in our presentation, we have approximately $3 billion in floating rate loans at approximately 7.33% weighted average rate, but also have approximately $646 million in fixed rate loans maturing over the next 12 months at a weighted average of 6.30%, which we would expect to reprice in the mid- to low 7% range.

Lastly, on the topic of net interest margin, I'd like to mention a new slide we created and added to the quarterly slide presentation on Page 22 (sic) [ Page 21 ] of our investor presentation. It includes a longer-term look at our GAAP and core net interest margin in the context of the volatility of the Fed funds rate since 2020. We're proud of our ability over the years to maintain the margin with a relatively tight range with the core margin peaking at 3.99% at the end of 2020 and bottoming out at 3.27% in the beginning of 2024.

Moving on to the income statement. GAAP noninterest expense was $48.9 million and included $1.16 million acquisition-related expense and $439,000 in conversion-related expense and $2 million in employee retention tax benefit, which ran through payroll taxes and employee salaries.

Core noninterest expense for the third quarter of $49.3 million was down slightly from the prior quarter. We do expect this to increase modestly in Q4 just primarily due to the timing of various investments hitting in Q4. We do expect to recognize partial quarter impact of the Oakwood cost saves during the current quarter.

Third quarter GAAP and core noninterest income was $11.7 million and $11.6 million, respectively. GAAP results did include $77,000 gain on the sale of securities, noninterest income results for the third quarter were relatively in line with our expectations. And over the long run, we continue to expect to build on our trend in core noninterest income, although the trajectory may be bumpy as we've mentioned, from quarter-to-quarter.

Lastly, I'd like to provide some context of the credit migration from the second quarter. Total loans past due 30 days or more, excluding nonaccruals, as a percentage of total loans held for investment decreased from 0.89% to 0.27%, roughly $38 million at September 30, 2025. The ratio of nonperforming loans compared to loans held for investment decreased 15 basis points from 0.82% in September -- to 0.82% on September 30. While the ratio of nonperforming assets compared to total assets slightly increased 7 basis points to 0.83% compared to the linked quarter. The increase in the nonperforming assets ratio over the linked quarter was attributable to the transfer of some nonaccrual loans to other real estate owned.

And that includes my prepared remarks for today. I'll hand it back over to you, Jude, for anything you'd like to add before opening up to Q&A.

I think, I'm good. We'll go and answer your questions. I will mention real quick that Greg mentioned the $0.01 dividend increase, and I will mention that we started paying a dividend in 2015. So this marks our ninth year in a row of increasing the dividend, we're proud of and we still have a very strong retail shareholder base, about 50-50 retail versus institutional and with a diverse set of interests and reasons for being partners with us. And I know the steady increase of that dividend over the years has been important, and we remain committed to trying to keep doing that. So excited about that news and wanted to be sure we highlighted that.

So with that, I'm certainly ready to answer any questions that we might have in the queue.

[Operator Instructions] And your first question comes from the line of Matt Olney with Stephens Inc.

I want to ask about expectations around the core margin for the fourth quarter in light of the recent September Fed cut and your expectations of any impact from additional Fed cuts that we could see as well in coming weeks?

And then on deposit cost side, Greg, you disclosed the September interest-bearing deposit costs. I appreciate that. It sounds like there's some good momentum there. Just any other general commentary you can share with us within your marketplace with respect to deposit pricing competition?

I'll answer your first question first on the margin. We expect to pick up a couple of bps in the fourth quarter in margin for that to expand again. And primarily because of the momentum on the deposit side, but we also think that the loan growth will come back and normalize.

I think it's worth pointing out, I mentioned in the remarks that the paydowns were about $479 million against originations of $452 million for the quarter. So the origination for the third quarter was very strong. And really, that was about an elevated payoff-paydown quarter of about $100 million more from the previous 2 quarters. So we feel like that with the normalization of loan growth and our management of deposit cost, we feel like we'll have a little margin expansion.

We're seeing deposit cost is still competitive in the markets in all of the markets we're in. So I would think we'll continue to have to be nimble and be aware of the competition set out there. We do a pretty deep dive on evaluating competition in our markets every week. So we'll continue that.

Okay. I appreciate that, Greg. And then on loan growth, it sounds like, like you just mentioned, you think loan growth will rebound in the fourth quarter. Are you seeing some evidence of this in the first few weeks of the fourth quarter? Just trying to appreciate kind of what you're seeing that gives you the conviction.

Yes. I think a little bit of both. I think as I mentioned, we had a pretty steady clip of originations that slightly built over the years. I think Page 25 on our investor presentation kind of highlights that. But we had a little bit of early -- some early success in the quarter that lead us to believe we'll be back to the low to mid-single-digit loan growth in the fourth quarter.

We also had some success with unfunded line commitments in the third quarter that wouldn't have shown up in our net numbers. And we will see -- we'll have the opportunity to see some of that come to fruition in the fourth quarter.

And your next question comes from the line of Feddie Strickland with Hovde Group.

I just wanted to touch back on the noninterest income piece again real quick. It sounds like you've still got some momentum there from the various businesses. It sounds like it's still going to grow, but Greg, I think you said it will be a little bumpy. As we think about the fourth quarter, do you think that you can kind of grow it quarter-over-quarter? And it sounds like you definitely think you can grow it year-over-year in 2026, considering you also have the deal in there as well, right?

Yes. I'll take you back to Slide 15 in our presentation, kind of to give you a little bit more insight into that. But specifically on the fourth quarter, we feel like the momentum is building with a little bit of caveat. The government shutdown greatly impacts the ability to sell the guaranteed portion of SBA loans. So there could be some influence on our performance in the fourth quarter with that. Now outside of that, we feel comfortable that our performance will continue to grow in those other areas. But I just want to note that.

So because of that, might be more realistic to think that, that noninterest income quarter-over-quarter may be flat. We're approaching -- quickly approaching the midway point of the quarter and the government still hasn't resolved their issues.

Which still gives us an annual number that's over 20% above last year and no reason to think at this point that we wouldn't be able to achieve a similar level of accelerated growth over the course of next year. It's just a little harder to predict on a quarter-by-quarter basis than the spread businesses.

Understood. That makes sense. And then just shifting gears more strategically. Now you have Oakwood behind you, Progressive on the horizon, do you still anticipate doing additional M&A near term in the next 12 to however many months? Or do you really feel like organic growth and integrating these as maybe a little bit more of the priority?

And a follow-on to that is, is there the opportunity to maybe do share repurchases down the road if the stock price doesn't pick up as much?

Yes. So that was essentially the point that I was attempting to make in my opening comments that I feel like we have a pretty exciting path, just executing on what we already have on the table and making sure that we're focused on not only following through on the acquisitions, but also our organic opportunities, which I think are only growing as others do M&A. In a number of our markets, particularly Dallas, there's been a lot of M&A. And I think that provides an opportunity for us from a recruitment standpoint and from a just production standpoint. So we want to -- I think our priority will be to let that play out.

I'm not saying never would we consider just a perfect acquisition that gets us some core deposits in market, low risk, but we're not aggressively looking for anything. We're not even looking for anything. So we'll see what opportunities just come to our door, but we believe we have great opportunities in front of us just to do what it is that we do and to keep seeking operating leverage and to make sure that we're more focused on profitability than we are on growth just for growth's sake. So that will be our priority for the next -- for the foreseeable future. We like our footprint. We want to be deeper in our footprint, and we want to be more productive in our footprint.

As far as capital allocation decisions go, we are pleased that we've been able to increase our capital ratios at a pretty good clip over the past year, really a couple of years. And if you think about the last time that we raised capital back in 2022, we have since then put on -- by the time we finish with the Progressive acquisition, we will have put on a little over $2 billion worth of assets, and we'll actually have higher capital ratios than we did at the end of that last capital raise. So we feel good about the accretion of capital that we've been able to prioritize, and that ultimately gives us more optionality on how to deploy that capital, more freedom to consider options, including potentially buybacks.

So I do think that we are entering a period in which we could contemplate that over the next few years, and that's certainly been one of our goals as an organization to get our capital levels back up to a spot at which we have maximum optionality and that ought to be one of the options. So I would say we are open to considering that as we continue to think about organic growth within the construct of our retained earnings, which should lead to further capital accretion over the next few quarters.

And the thing that also makes it attractive is it makes that worthwhile thinking about is that we feel like we are trading at a very attractive price. And one of the things that you have to consider when it comes to M&A is pricing, right? And when you think about M&A opportunities at certain prices versus the price that we find ourselves trading at, I like where we are. And that's certainly -- I shouldn't say I like where we are. I like the attractiveness of the price if I'm considering buybacks over time. And so that certainly heightens the need to give that some serious consideration over the coming quarters.

And your next question comes from the line of Christopher Marinac with Janney Montgomery Scott.

Greg and Jude and team, I just wanted to ask a little bit more about kind of pricing new loans and from your standpoint, as interest rates fall in months ahead, can you still get pricing for risk? Do you have to look at that differently as we move along?

Yes. I think, we have a pricing model we stick to that values our risk-adjusted capital. And so pricing for risk is part of the equation. So I think as rates continue to move, we'll have to be competitive, and we'll have to understand pricing relative to the type of credits we want. So that's logical that, that's going to move down from the, let's just say, the mid-7s, where we are today, into the lower 7s to high 6s as the rate environment moves and the competition set moves as well.

And have you had any, I guess, feedback from your customers just in recent weeks? Are they feeling more bullish about the next few quarters? Or is there more caution, I mean perhaps just a little bit of a temperature check, comparing now with earlier in the year.

Yes. I would say that the feedback we're getting from our markets is the customers, I think, with interest rates moving downward, it gives them a little bit of hope. I don't know that they're bullish would be quite the word, but maybe more optimistic with the lower rate environment or the prospects of rates continuing to fall.

Yes, they remain active. I mean, we see a lot of forward planning from the client base as they forecast their own interest rate environment.

And your next question comes from the line of Michael Rose with Raymond James.

Just wanted to touch on expenses. Core expenses flat, really good expense control this quarter. I believe last quarter, you guys had talked about kind of somewhere in the low 50s. So just trying to better appreciate the delta there.

And then more broadly, if you can discuss hiring plans, it seems like a lot of banks are out there trying to hire lenders. Just wanted to see if there's been any shift in your strategy at this point and how that could maybe translate into an early read on expenses for next year.

Yes. I would say in the first part of the question, Michael. We just -- for the -- as Jude mentioned in his comments or opening remarks, I think this year, we really made a concerted effort as a company to really evaluate our expense base. And the largest part of that in this business is personnel.

And so just being thoughtful about those positions, I think, is something we've done all year. And I think the third quarter was really just a continuation of that of being mindful in when we talk about employees and roles and efficiency in those roles. I think the fourth quarter will be slightly increase. The fourth quarter is typically noisy anyway. But I do think that we'll continue to look at investments in ways to continue to bolster production.

I will say as far as '26 goes with the disruption in the markets, mainly in Texas, I think it would be easy to understand that if the opportunity presented itself, we would want to hire good bankers.

Yes. And I think having discipline along the way, does two things. One, it means that hopefully, we don't ever reach a point where we have to think of expenses as being on the edge of the cliff. And if we can kind of make good decisions along the way, whether it be not hiring as much or just automatically replacing people or it means thinking about the life cycle of branches, we've shown a pretty good record of closing branches over time even outside the time frame of an acquisition, if we can keep doing that, then we don't have to make drastic cuts.

But also on the flip side, it gives us the opportunity to be poised to be able to take advantage of opportunities, as Greg alluded to, when they show up. And we have had a lot of disruption and particularly in the Texas markets where we now have a solid footprint and foundation. Dallas is actually our largest market. And so we feel that we'll get our fair shot at opportunities in some of the aftermath of M&A that's taken place there.

And so we'll be ready for that, but it won't be -- because we're exercising discipline along the way, and we'll continue to do that. And those kind of decisions won't be kind of [ at the ] year decisions, so to speak, normal taking care of business type investments. But we certainly want to position ourselves to take advantage of the organic opportunities that will be out there in the next few years, and we think they are.

Michael, one other thing that I'd add, as you know, there's a bit of a correlation just between the balance sheet dynamics and the kind of the overall expense investments. And I think we were expecting a little bit more of a balance sheet growth during the third quarter that didn't quite come through on a net basis.

So part of that kind of speaks to the -- to just a lower overall expense build in the third quarter. And then the other thing is I think that we started seeing a little bit more in the way of the Oakwood cost saves coming through. So a combination of those things helped in expenses being flat, down just very slightly in the third quarter.

And then there's, lastly, a little bit of timing in certain IT investments that just didn't necessarily hit in the third quarter, which could come around in the fourth quarter.

Really appreciate all that color, really frames it out. Maybe just a follow-up. It did look like some of the paydown activity did happen in Dallas and Houston, if I look at the -- one of the beginning slides versus last quarter. Obviously, loan production was up a little bit Q-on-Q, about 4.5%. But any sort of competitive dynamics there that maybe drove those paydowns just being [indiscernible] or just trying to get more color on this quarter's paydowns.

I think, Michael, the biggest driver of the paydowns in the quarter or a big portion of the paydowns, it also had a corollary to past dues at the end of the second quarter, was a fairly large relationship that was past due that we commented on last time we talked. That did effectively pay down during the quarter. So that was an outsized example of things like that. But I don't know that...

And we had a couple of strong C&I relationships that -- the company was sold to another company. So I don't think -- I wouldn't say that we've lost much in either of those markets or any of our markets through competitive pressures. I think it's been more of the kind of natural life cycle of the good credits, you often want them to pay off eventually because that means they've been successful, and the bad credits you want to pay off because it means we don't have to deal with it anymore. So it's more of that than it was than any kind of material competitive posture, I would say.

And your next question comes from the line of -- again, with Matt Olney with Stephens Inc.

Greg, I think it was your comment around the SBA sales that could potentially slow in the fourth quarter, should this government shutdown be extended. I'm looking at that slide deck, and it looks like the SBA sales has been around just over $3 million so far this year. So call it, $1 million per quarter. Is that the right way to think about the risk under the scenario of government shutdown for most of the quarter?

And then if that's the case, help us appreciate, is it -- does this just delay the SBA sales, so it's more of a delayed income into the first quarter? Or is that not the right way to think about that?

No, you're exactly right. That just delays the income stream into -- potentially into the first quarter. Those are loans that are closed that are really waiting to be sold. So it just delays the revenue opportunity.

And Matt, we've got a pretty good pipeline of loans that can't get approved until they open back up, right? So there's some kind of demand for sure.

And then one other thing to point out on the slide, that $3.3 million is annualized through 9 months, through the 3 quarters. So it's a little bit -- it's not exactly $1 million per quarter. That's just the annualized figure.

Okay. I see that now. Okay. And then also, I just want to ask about Progressive Bank. Any updates on recent trends you're seeing or hearing there? And then just update on the M&A application process and expectations of deal closing.

Yes. I think all positive, and they've been doing what they said they would do in terms of continuing to incrementally improve profitability over the course of the year, in line with their budgets and our projections. And so I feel very good about that. We feel really good about the people interaction. We've had the opportunity to spend a lot of time with them and I'm more excited today than we were originally, and that's all going well.

They did achieve a positive shareholder vote last week. So that's one of the hurdles that you have to get over to get a deal. So we were excited about the positive reception [ afforded ] the opportunity by the shareholders of Progressive and excited about the trust in the management team and Board's judgment. So it's a big step.

We're in the process of having our regulatory application reviewed and feel really good about that and confident about the positive outcome there in the next few weeks as well. So we feel like we're still on pace to close early January as we've been projecting. So excited about that. Okay. Thanks, Matt.

We also -- I think I mentioned in my opening remarks, that we have a conversion date of August for the Progressive bank. So as we think about projecting out the economic benefits, that might be valuable information to you as well.

There is no further questions at this time. I will now turn the call back over to Jude Melville for closing remarks. Jude?

Okay. We appreciate all the questions, and we appreciate everybody's time. As I started off by saying it's just a good solid kind of grinded out quarter. And a lot of ways, those are the ones that you're proudest of and most excited about. We're taking care of business on a daily basis. And love to see the -- one of our core values is built around incremental improvement. And so we certainly are doing that and look to continue that and believe we have a clear track to significantly increase profitability over the next few quarters as we capitalize and optimize some of the opportunities that we have in front of us.

So thanks again to all of you, and thanks to all of our partners. Look forward to seeing you and talking to you in a few months.

This concludes today's call. You may now disconnect.