BFST - Business First Bancshares, Inc.
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Q2 2026 Earnings Call
2026-07-23Operator: 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 26 earnings call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. If you would like to ask a question during this time, simply press star followed by the number 1 on your telephone keypad. If you would like to withdraw your question again, press the star 1. I would now like to turn the call over to Mr. Matthew Sealy, senior vice president, director, corporate strategy and FP and A. You may begin.
Matthew Sealy: Good afternoon. Thank you all for joining. Earlier today, we issued our second quarter 26 earnings press release. 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 statement 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 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 am joined this afternoon by Business First Bancshares' Chairman and CEO, Jude Melville; Financial Officer, Gregory Robertson; Chief Banking Officer, Philip Jordan; and President of B1 Bank, Jerry Vascocu. After the presentation, we will be happy to address any questions you may have. And with that, I will turn the call over to you, Jude.
David R. Melville: Okay. Thanks, Matthew. Good afternoon, and thank you all for joining us today. B1 Bank had an encouragingly solid second quarter, 1 that met or exceeded the progress we have been articulating for you over the past few quarters, and 1 that positions us well for a strong second half of 26. 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 2 quarters. Our team made meaningful progress on the credit front, reducing nonperforming 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 SSW 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 2 areas. First, deposits. I would point out that however, that a quarter of the decline was purposeful. Reflecting our pay down of higher cost broker 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 is important details beneath the headline worth exploring. The costs we expect to be recurring, including salaries and related expenses, were flat. With the increase tied up to excuse me, with the increase tied to upfront marketing spend, and elevated legal fees connected to the resolution of a large non performing credit. 2 costs that, while core, we do not expect to see again at this scale in the third quarter. I am sure we will cover this in more detail during Gregory's portion of the call, but 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 10. On that subject, I would like to mention something that I do not know that we have 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 would 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 in more than $50 billion in total investment. Up from its initial $28 billion commitment. Making it 1 of the largest data center developments in the world. Expansion is expected to support roughly 7.5 thousand construction jobs and about 1 thousand permanent operations positions. Meta also announced more than $1 billion in related infrastructure investment for roads, water, and waste wastewater systems. Along with the new energy agreement with Entergy Louisiana projected to save customers more than $2 billion over 20 years. The state is seeing a broader wave of activity in AI, data infrastructure, and advanced manufacturing that is 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 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 have made to continue building this franchise on behalf of our shareholders, our employees, our regulatory partners, and the communities we serve. With that, I will turn it over to Gregory to walk through the financial results in more detail and look forward to your questions.
Gregory Robertson: Thank you, Jude, and good afternoon, everyone. As always, I will spend a few minutes reviewing our results and discuss our updated outlook before we open it 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 thousand gain on extinguishment of debt and a $6 thousand loss on the sale of securities. Excluding these noncore 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 1.5% 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 or 6.5% fixed to floatings rate subordinated debt 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, as a resolution of certain and resolution of certain nonperforming loans during Q2 total loans held for investment increased $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 noninterest bearing deposits. The decrease in interest bearing deposits was largely driven by approximately $72 million in commercial money market accounts. And $63 million in broker deposits. On the funding side of the balance sheet, the total FHLB borrowings increased $181.7 million from prior quarter in anticipation of upcoming loan fundings. Lastly, on April 2, 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 26 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 30. The margin performance during the second quarter was driven by improvement in loan yields and securities yields 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 a 6 basis point 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 for the Q2 full quarter weighted average rate We are pleased with our ability to hold the line on these loan yields during the quarter, with a weighted average new and renewed loan yield of 7.21% for the second quarter. I would 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 betas 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 do not receive any further interest rate cuts during 2026. We have worked hard to manage our balance sheet in 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 noninterest expense was $59.5 million and included $1.2 million in acquisition related expense. Core noninterest 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 saves in the fourth quarter from the Progressive acquisition. As a reminder, that core conversion for Progressive is scheduled for mid August. Second quarter GAAP and core noninterest income was $14 million and $13.4 million respectively. GAAP results did include a $6 thousand loss on sale securities and a $545 thousand gain on extinguishment of debt. Core noninterest income results for the second quarter were down relatively with our expectation, Primarily due to slower swap fee revenue, as we have mentioned in the past, some of our noninterest revenue business can be lumpy from quarter to quarter. But overall, in the intermediate and long term, we do expect a steady build in overall contribution. Lastly, I would like to highlight the improvement in credit quality that we saw during the second quarter. The ratio of nonperforming loans compared to loans held for investment, decreased 27 basis points to 1.26% at June 30, while the ratio of nonperforming assets compared to total assets decreased 15 basis points to 1.23% for 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 in progress and 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 will hand the call back over to you, Jude, for anything you would like to add before opening up for Q&A.
David R. Melville: Great. Thanks, Gregory. I think we are ready to move to Q&A.
Operator: Thank you. Thank you. We will now begin the question-and-answer session. If you have dialed in and would like to ask a question, please press 1 on your telephone keypad to raise your hand and join the queue. If you are called upon to ask your question and are listening via speakerphone or device, Please pick up your handset to ensure that your phone is not on mute when asking your question. Again, Press 1 to join the queue. And our first question comes from the line of Matt Olney with Stephens. Your line is open.
Matt Olney: Good afternoon. 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 for 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 for the back half of the year. Thanks.
Gregory Robertson: Good question. Thanks, Matthew. Trend 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 start kind of running 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 a 4 basis point go forward. Impact to the margin in the quarter. And that is just very minimal just applying that liquidity to you know, borrowings or anything like that. So I think that would-- that is a reasonable expectation.
Matt Olney: And, Gregory, just to follow-up there, given the timing of the of the loan sale, should we anticipate average earning assets would move lower in the near term? so a little bit of a drag on the NII?
Gregory Robertson: I do not think so. I think with our, we should have a replacement for that. In Q3 with asset growth with the pipeline loan pipeline. So I do not know that there will be a material impact to it.
David R. Melville: We continue to expect, you know, with building the pipeline, a high single digit annualized increase in both the third and fourth quarters. So we would anticipate putting that liquidity to work Ballpark, could say half in the third quarter and half in the fourth quarter. But, we do not expect to clearly, we ended the quarter with the loan growth being hidden somewhat by the sale. But expect, based on our pipeline, to be able to put that to work. Pretty quickly.
Gregory Robertson: The other part of that Matthew, is we have about a $21 million reduction in non performing loans. But actually, we resolved about $35 million during the quarter. So $31 million of that pay down and about $4 million of that ballpark moved to OREO. So you know, those 2 things combined should give us a little bit of margin expansion, but also we have the ability with the pipeline that we are seeing to put those to work pretty quick.
Matt Olney: 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. I just wanna dig more into that. I would assume borrowings this quarter that went up just had a more favorable cost. Than some of the broker deposits. Any more color there and expectations for there at the back half of the year on deposits?
Gregory Robertson: Yeah, I will touch on each of them. And I think it is 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 have seen a lot of that so far this quarter come back in. So we feel like that is pretty seasonal, actually, Matthew. We had you know, smaller balance sheet a year ago, but that same on a percentage basis, the same outflow year over year. So the broker that we pay down, look, slightly over $60 million in broker that was weighted average above 4%. So we just we felt that was the right thing to do. 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 it gives us a little bit of optionality as we go forward.
Matt Olney: Okay. Thanks for the color. I will step back. Thanks.
David R. Melville: I think-- just to add a little more color on the-- excuse me 1 second. Just 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, long term relationships with municipalities and governmental authorities not only with B1, but some of our processor institutions that we have partnered with through acquisition, and they tend to reach a low point. In the second quarter as well. And then begin building back up. So it is a mainly due to the composition of some of our larger clients. That seasonality occurs and as Gregory said, on proportional basis, this year was essentially the same from impact standpoint as last year and the year before that. And really the general movement that we have seen for a good 10 years now. Thank you.
Operator: Our next question comes from the line of Fadi Strickland with Hovde Group. Your line is open.
Fadi Strickland: Gregory, I just wanted to go back to your comments on expenses. You understand the cost saves in the fourth quarter from the systems conversion was progressive. But in the third quarter, are you saying we will 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?
Gregory Robertson: Yes. Would say the directional way to see it is slightly down in the third quarter. Closer to 58 third quarter. And then $57 million in the fourth quarter. Is the way we think Okay.
Fadi Strickland: Got it. And, you know, just wanted to ask, switching to the capital side. I mean, it looks like share repurchase has picked up some this quarter. 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?
Gregory Robertson: Yes. I think we kind of-- we think at the price we are at, as long as it stays, you know, above $1.20. that is kind of where we started doing the math on the value based on our other capital opportunities. I think the other 2 capital opportunities we have, obviously, 1 would be our organic growth opportunities with our Houston team that we recently hired and just be other loan pipeline opportunities we have. Would be the first, foremost 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 use useful opportunity for the capital. So those are kind of the in the order we have been thinking about it right now.
David R. Melville: Got it. And we have got-- which Matthew-- Matt can probably give you a little bit of a projection for where we expect to end the year.
Matthew Sealy: Capital ratio wise? Yes, capital wise consolidated total risk base 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 is assuming mid-8%-ish annualized loan growth in the next couple of quarters.
David R. Melville: Kind of steady balance sheet growth and, like Gregory mentioned earlier, continued margin expansion. We will we will enter 2027 with as much capital as we have had in a number of years. Position of relative capital strength compared to you know, hitting its low, I guess, in 2022 is probably when they were low. But so looking forward to reinvesting that primarily in organic growth. As Greg mentioned, but it will be nice to be able to have some savings projected through the refi of the preferred equity here at the end of the year as well. So, Fadi, we will continue to have our plan in place to look and be opportunistic with repurchases. You know, we did 176 thousand shares, about $4.8 million the second quarter. So if the opportunity arises, we will be ready for that as well.
Gregory Robertson: Yeah. Hey, Freddie.
David R. Melville: Congratulations on your on your second baby, by the way.
Fadi Strickland: Oh, it is-- it is number 1, but I appreciate it.
David R. Melville: Oh, number 1? I am sorry about that. It feels like it.
Fadi Strickland: But thank you very much. Congratulations. Thank you. I will step back.
Operator: Next question comes from the line of Gary Tenner with D. A. Davidson. Your line is open.
Gary Tenner: I just wanted to ask on the deposits. You talked about the seasonality and the outflows of some of the commercial money market that is 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 cost down?
Gregory Robertson: Gary, there is 2 components to that. So we were up in noninterest bearing about $8 million quarter over quarter, and we continue to see that build. So we have 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 have mentioned surprised about is the inflows we have seen have been coming back in, pretty much matching the average weighted rate for the for Q2. So had not had not really experienced any lift yet, but it is early. So but we are we are up optimistic about that.
Gary Tenner: Got it. I mean, just as it relates to the CD book weighted average rate of 3.3% in the quarter, is there an opportunity to push that down? Or are we now sort of at stasis on the on the funding side without any Fed action?
Gregory Robertson: Norman. We have some we have got some opportunities with both broker and organic CDs in the third and fourth quarter to reprice those down. So we will hopefully, if rates stay where they are, we may we would be able to take advantage of that.
Gary Tenner: 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, could you just talk about the dynamics around that?
Gregory Robertson: Yes. I think we had a well, I think the dynamics about it naturally was we had a really good Q2. And those fees, swap fees for the second quarter. So they were down but probably closer to in line with the forecast for the for the year. And I think we already got some indications, some pretty good wins, third quarter. So I think we will see that come back up closer to Q2 levels.
David R. Melville: Very good. Really strong first quarter. Yeah. Strong first quarter. They were down, but they really were in line with their expectations. Think also, it is, you know, it is a relatively nascent business. So these newer businesses are can be lumpy.
Gregory Robertson: And just a couple happening or not happening quarter over quarter can make a difference to the to the top line.
David R. Melville: it is still material. So as we as we mature it, as this happened with all of our clients of business over the years, we will be able to delumpify it -- I am not sure that is a word -- but we are able to hopefully kind of smooth it out a little bit. But it is still it is still young enough that just a couple deals do make a difference in a given quarter. Same with our SBA business and really our financial services group as a whole, which is still a fairly new entrepreneurial endeavor. Thank you.
Operator: Our next question comes from the line of Marinac with Breen Capital. Your line is open.
Analyst: Hey. Good afternoon. Just I 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.
Gregory Robertson: Yeah. Christopher, we feel happy with the resolution we got in the third quarter that I mentioned in the second quarter that I mentioned. As we look out into Q3, I think seeing that we ended at $80 million For Q2. We are working toward possibly a 10% to 20% resolution again in we think that is achievable in Q3. In NPL in NPLs and then also a reduction in OREO possibly. You know, 10% to 15% of that as well. So we feel like that is achievable in Q3. We think that and that will continue to maybe slightly down from there in Q4. But we think that it is achievable to end the year closer to $50 million or slightly below And then that historically for us, that has been an area that is been pretty normal know, sleep $40 to $50 million in NPLs. The good news from a credit firm are 2 things, I think, that are kind of when you start pulling the curtain back a little more is past dues for us quarter for the first quarter and the second quarter. Continue to be more in line with our historical expectations, below 50 basis points. Or 0.5%. I think the other thing is if you look at our the watch list, specifically what we call 4, 5, and 6 rated credits. Those are the ones that we start watching that have not made it to nonperformer yet. Or classified. At the end of the year, that was about $450 million that is down to about $330 million at the end of June. So those 2 things from a forward looking perspective, along with, we have not seen any major build in NPLs give us the kind of outlook on the future that we think you know, we have kind of gotten past the little lumpy period that we had with those few problem credits we talked about probably for 3 or 4 quarters and then started resolving last quarter. Great. that is really helpful, Gregory. Thank you for that background. And does any of this give you relief on the allowance going forward, or would you just assume you kind of grow into what you have at this moment? I think our plan is to try to grow into what we have. We are pretty flat quarter over quarter. You know, it is the as the improvement with some of the classified and criticized loans move out, I think it gives us the opportunity just to continue to both bolster the good book within the pool and continue our plan to try to reserve 1.20x all new loan growth because we feel like we would like to continue to grow it.
Analyst: Great. Again for hosting us today. Thanks.
Operator: Thank you. Next question comes from the line of Michael Rose with Raymond James. Your line is open.
Michael Rose: 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 are not making loans to Meta or doing data center loans or things like that. What does that really mean in the context of the ability to grow both loans and maybe some of the fee products? We just love to get some color there. Thanks.
David R. Melville: Yes. Norman, you are right. In fact, we have a discussion in our Board meeting today about that. We are 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. So the bank small businesses that are doing work for the 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 are finding is that not only is there opportunities specifically in that geography, but the investment is so large that they are needing to bring in vendors from contiguous geographies. And so we have 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 and in the Rayville area. So it is really ample. And so that is that is 1 thing I would say. Second thing I would say is that what is 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 is investing there and just the company's doing business there. And a good example is recently the Richland Parish school system gave each of their teachers a $50 thousand bonus for last year's work. So the tax implications of the and that is what 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 wider array of citizens and you know, we now although we began with a very limited branch network focused primarily on small businesses over time, We have grown to be the largest Louisiana headquartered bank as measured by Louisiana assets. So number 5 is in Louisiana, and number of locations. So as the positive economic impact trickles down, to communities throughout Louisiana. We feel like we are as well placed as any entity to take advantage of that general economic positive turn. So it is really not anything that is magic per se about banking the data center itself. And by the way, there are other data centers underway in other parts of the state, including where we are, including Bossier Parish. And but we do not anticipate all of a sudden doing major macro loan deals with the data centers themselves, but as the economic benefits trickle down, we believe again that we are well placed to do traditional community banking. Across our footprint, and we will be, as long as we put in the effort and put in the work and treat the clients right, then we will this should be a problem. Beneficiary of that triple down the path.
Michael Rose: Exciting. Norman. Really, really appreciate-- oh, go ahead, Jerry.
David R. Melville: Well, I was gonna say it is exciting not just for the data center itself, but for the wider potential effects that will take a little while to play out. You know, it is not a it is not a third quarter thing, right? I mean, there is activity there is work there. We are seeing some loan demand increase because of the businesses that we think are doing business there. But I think the longer term effects are what is really exciting about the opportunity both for us and for the citizens of Louisiana.
Michael Rose: Very helpful commentary. May maybe just 1 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 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 is kind of a long, maybe tough question, but maybe just a couple of points would be, I think, helpful because it seems like there is a fair amount of tailwinds here. Thanks.
David R. Melville: Thank you. Well, I think a couple of things. 1, is that I think that historically, investors and analysts have not appreciated I should not say appreciate it. And they have not turned to Louisiana for growth. Louisiana has historically been a stable place and had a couple of periods where we were too concentrated and showed up and couple of energy crises. But I think that over time, investors really have not 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 2 over the past 10, 15 years, it is a pretty, 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 had not gotten a lot of attention. So I do not know that it is my first point would be I know that it is they have not what are they missing? I think it is just that they are only now beginning to realize that they should look harder. At Louisiana than they might have over the past 10, 15 years when the when the news was not as growthy as it potentially is now. And then second of all, I would say some of the news is recent. You know, the increase in the investment in Meta that I just mentioned literally happened in the last 10 days. And I think Sunday night, last was the kind of preannouncement, and they announced it on Monday. So really is not realistic to expect that investors would pick up on that. That quickly. And then I think some of the news the data center in Bossier, for example, and the and the 1 near Saint Francisville, which is North Of Baton Rouge. I mean, that I just think it is all a bit new. And I think as a country, we are still figuring out exactly what data center development's gonna look like. Right, and what the actual impact is gonna be. The 1 reason that I feel comfortable that it is gonna be extremely positive here is that, you know, we have not had those significant growth opportunities. So on a relative basis, we have more room to grow than some other places do. And so whatever the development is, whether it is a quarter of what it sounds like it is gonna be here, whether it is 50% or whether it is a 100%. it is gonna be significant. And I think unless you have already been paying attention here, it might be hard to kind of put that in the proper context. So I think it is moving quickly. I think that there are still some still some unknowns nationally about the economic flow transfer and the trickle down effect. And so we will all have to kinda learn that together, but I do believe given our starting point in Louisiana that it is it is hard to imagine that it will not be a net very positive outcome. Appreciate all the color. I will step back.
Analyst: Thanks, guys.
Operator: Okay. And our last question comes from the line of Matt Olney with Stephens. Your line is open.
Matt Olney: Hey, guys. A few follow ups here. On the on the credit front, Gregory, you mentioned some more resolutions in the back half of the year. Any color as far as anticipated charge offs from these resolutions?
Gregory Robertson: Yeah. I would say, what we what we expect of and it is hard to say back to historical, because our historical charges were very low, almost nothing. I think high single digits would be something we expect. On an annualized basis in a in a normal quarter. These next 2 quarters possibly. And then we kind of go from there. And if we have something that pops up, then we have to take more of a loss, it might look more like what this quarter did. So we-- okay. I think we are working them close to where they are not gonna be any significant losses. But, you know, we are in the we are in the risk business, so it is hard to say no losses, Matthew.
Matt Olney: Understood. Understood. Thanks for the color. And then market disruption, I in your marketplace. I know we have talked a lot about this over the last year, you have had some nice wins, nice announcements from some new hires. Did not know if there was any other announcements or updates to the M&A benefits or market disruption.
David R. Melville: Well, we were we were able to add 2 or 3 members to the team in Houston in the second quarter. And so we feel like for now, we want to kinda consider that our team, and we want to begin producing and making sure that is 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 is called upon regularly by folks that are interested in talking. And again, I think we are we are kind of where we want to be for the short run, but I do think over the long run, our biggest opportunity in it is 1 of the biggest reasons that I mentioned earlier, the and Gregory mentioned the primary use for our capital in the upcoming is likely to be organic because we do believe there is there is continued opportunity around that disruption. And I do not I do not see that tailing off in the near term. So we are having a few conversations in doubt. Not quite as aggressive in Dallas as we are in Houston. Just because of the relative size of our franchise. In each. We feel like Houston is we made that investment in Texas Citizens a few years ago, and we wanna be sure that we invest properly to in that market. But we do still need to be tempered in our in our in our salary expectations, and we are we have made commitments to view ourselves about our increased structural profitability. So we wanna be sure that we follow through on those even while we are taking advantage of the opportunities. But we do see continued opportunities on the disruption front. And you think about the banks that are that have our kind of range of size and capability, There are not very many of us in Louisiana, and Texas, and in particular, 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 looking for a bank that is a community bank in attitude, but is a larger bank in terms of capabilities. So we are most excited about the potential for our franchise, given that disruption which I think will continue to be an opportunity. I started rambling a little bit. I think I answered your question. Did I answer your question, Matthew? Jude, you answered it and then some. So appreciate all the great color as always. I answered your follow on question. Yes.
Matt Olney: Well, it just 1 last 1 from me here. We have talked a lot about the, you know, the ROA goal, the 1.25, exiting the year in the fourth quarter, and we would 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 ROA given the lower yielding nature of those loans that were sold. But, anyway, just love any commentary from that. Thanks.
David R. Melville: Yeah. Well, that is 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 have 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, you know, it does not mean that it is a slam dunk, and does not mean that it is automatic that we will be able to get to the 1.25% ROA. But we still believe if we perform and execute and things go our way that is a credible opportunity for us to kind of reset our profitability, our structural profitability and that is the goal for the rest of the year. You know, even if we were to not quite get there, we still made material improvement. And still plan to continue to have that focus next year as well, and we will continue working on it. that is 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 you know, we have had really flat salary cost over the past 4 quarters essentially. And anticipate that continuing over the next couple, certainly. And our team has been improving its ability to be productive So we are significantly larger than we were a year and a half ago, 2 years ago, and have a very similar number of people at the bank. And proud of that. And it is it is certainly a part of our daily conversation. How can we how can we help our employees be the most safe be, which helps us be the most we can be from a from a product production and a profitability standpoint. So yes, that is still our target. And we do need to execute and things need to go our way, but we feel we feel like that is a realistic path that we are focused on achieving. A little bit of a stretch when we when we laid it out last year. But, you know, you do not stretch yourself, then you do not get anywhere. So we are we are excited about that. And I do think that it is time for us to produce at that level of profitability as a franchise. You know, we are we are 20 years old. We have had we go through the different list of things that we have accomplished, the list is pretty long and we have 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 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 have grown to $9 billion. So we are 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 which is our goal. And I think we are we are well on our on our on our way towards doing that. Okay. that is perfect. Thank you, Jude. Thank you. Hey. I wanna 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 have now and it is a consistent dividend with where we were last quarter and we have now, I believe, 7 years in a row, we started paying a dividend, we have increased it 7 years in a row. And we would still like for that to be our goal. We feel like we have 50% of our shareholders who are retail investors that have partnered with us and stuck with us through these acquisitions. And the dividend is important to them as it is to us and so we will continue the dividend path, and the goal would be to incrementally increase on an annual basis, so not on a quarterly basis, but on a on a annual basis. And that is why I wanted to take an opportunity since we were we were talking about that. And we have historically kinda targeted about 20% of our And so that is roughly where we are now. As our earnings power appreciates, then there is no reason to think that to some degree, our opportunity to reward shareholders with dividends would track that increased share of profitability as has the ability to buy back shares, which, again, we have only this year begun to strike opportunistic opportunistically on that front. And that is the result of our earnings leading to increases in capital. Which gives us that optionality. So we assume that opportunity will continue as well as we are focused on building tangible book value and again, that structural earnings increase in our profile. Thanks for letting me answer that other question with your question, Matthew.
Operator: That concludes the question-and-answer session. I would now like to turn the call back over to Jude Melville for closing remarks.
David R. Melville: Great. 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 are working, 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 thought or a final moment to wish our team good luck in August. We will do the conversion as both Gregory and I mentioned, and although we have had experience now and have done it successfully a number of times, still stressful and critical weekend. Preparing for that. And I wanna thank and wish the best of luck to not only the former Progressive employees that are now B1 employees, but also our ops teams and everyone that is involved in that process. We are you know, our first acquisition that we did a long time ago now, I guess, about 11 years ago, learned a lot of lessons, and so we worked hard to invest in that process. And I am 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 have had on in that perspective. And we are confident that we will succeed on the on the conversion weekend and then be ready to go in terms of helping provide capital to the communities that we are 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.
Operator: Ladies and gentlemen, that concludes today's call. Thank you all for joining. You may now disconnect.
Matthew Sealy: Good afternoon. Thank you all for joining. Earlier today, we issued our second quarter 26 earnings press release. 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 statement 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 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 am joined this afternoon by Business First Bancshares' Chairman and CEO, Jude Melville; Financial Officer, Gregory Robertson; Chief Banking Officer, Philip Jordan; and President of B1 Bank, Jerry Vascocu. After the presentation, we will be happy to address any questions you may have. And with that, I will turn the call over to you, Jude.
David R. Melville: Okay. Thanks, Matthew. Good afternoon, and thank you all for joining us today. B1 Bank had an encouragingly solid second quarter, 1 that met or exceeded the progress we have been articulating for you over the past few quarters, and 1 that positions us well for a strong second half of 26. 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 2 quarters. Our team made meaningful progress on the credit front, reducing nonperforming 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 SSW 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 2 areas. First, deposits. I would point out that however, that a quarter of the decline was purposeful. Reflecting our pay down of higher cost broker 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 is important details beneath the headline worth exploring. The costs we expect to be recurring, including salaries and related expenses, were flat. With the increase tied up to excuse me, with the increase tied to upfront marketing spend, and elevated legal fees connected to the resolution of a large non performing credit. 2 costs that, while core, we do not expect to see again at this scale in the third quarter. I am sure we will cover this in more detail during Gregory's portion of the call, but 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 10. On that subject, I would like to mention something that I do not know that we have 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 would 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 in more than $50 billion in total investment. Up from its initial $28 billion commitment. Making it 1 of the largest data center developments in the world. Expansion is expected to support roughly 7.5 thousand construction jobs and about 1 thousand permanent operations positions. Meta also announced more than $1 billion in related infrastructure investment for roads, water, and waste wastewater systems. Along with the new energy agreement with Entergy Louisiana projected to save customers more than $2 billion over 20 years. The state is seeing a broader wave of activity in AI, data infrastructure, and advanced manufacturing that is 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 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 have made to continue building this franchise on behalf of our shareholders, our employees, our regulatory partners, and the communities we serve. With that, I will turn it over to Gregory to walk through the financial results in more detail and look forward to your questions.
Gregory Robertson: Thank you, Jude, and good afternoon, everyone. As always, I will spend a few minutes reviewing our results and discuss our updated outlook before we open it 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 thousand gain on extinguishment of debt and a $6 thousand loss on the sale of securities. Excluding these noncore 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 1.5% 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 or 6.5% fixed to floatings rate subordinated debt 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, as a resolution of certain and resolution of certain nonperforming loans during Q2 total loans held for investment increased $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 noninterest bearing deposits. The decrease in interest bearing deposits was largely driven by approximately $72 million in commercial money market accounts. And $63 million in broker deposits. On the funding side of the balance sheet, the total FHLB borrowings increased $181.7 million from prior quarter in anticipation of upcoming loan fundings. Lastly, on April 2, 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 26 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 30. The margin performance during the second quarter was driven by improvement in loan yields and securities yields 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 a 6 basis point 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 for the Q2 full quarter weighted average rate We are pleased with our ability to hold the line on these loan yields during the quarter, with a weighted average new and renewed loan yield of 7.21% for the second quarter. I would 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 betas 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 do not receive any further interest rate cuts during 2026. We have worked hard to manage our balance sheet in 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 noninterest expense was $59.5 million and included $1.2 million in acquisition related expense. Core noninterest 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 saves in the fourth quarter from the Progressive acquisition. As a reminder, that core conversion for Progressive is scheduled for mid August. Second quarter GAAP and core noninterest income was $14 million and $13.4 million respectively. GAAP results did include a $6 thousand loss on sale securities and a $545 thousand gain on extinguishment of debt. Core noninterest income results for the second quarter were down relatively with our expectation, Primarily due to slower swap fee revenue, as we have mentioned in the past, some of our noninterest revenue business can be lumpy from quarter to quarter. But overall, in the intermediate and long term, we do expect a steady build in overall contribution. Lastly, I would like to highlight the improvement in credit quality that we saw during the second quarter. The ratio of nonperforming loans compared to loans held for investment, decreased 27 basis points to 1.26% at June 30, while the ratio of nonperforming assets compared to total assets decreased 15 basis points to 1.23% for 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 in progress and 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 will hand the call back over to you, Jude, for anything you would like to add before opening up for Q&A.
David R. Melville: Great. Thanks, Gregory. I think we are ready to move to Q&A.
Operator: Thank you. Thank you. We will now begin the question-and-answer session. If you have dialed in and would like to ask a question, please press 1 on your telephone keypad to raise your hand and join the queue. If you are called upon to ask your question and are listening via speakerphone or device, Please pick up your handset to ensure that your phone is not on mute when asking your question. Again, Press 1 to join the queue. And our first question comes from the line of Matt Olney with Stephens. Your line is open.
Matt Olney: Good afternoon. 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 for 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 for the back half of the year. Thanks.
Gregory Robertson: Good question. Thanks, Matthew. Trend 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 start kind of running 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 a 4 basis point go forward. Impact to the margin in the quarter. And that is just very minimal just applying that liquidity to you know, borrowings or anything like that. So I think that would-- that is a reasonable expectation.
Matt Olney: And, Gregory, just to follow-up there, given the timing of the of the loan sale, should we anticipate average earning assets would move lower in the near term? so a little bit of a drag on the NII?
Gregory Robertson: I do not think so. I think with our, we should have a replacement for that. In Q3 with asset growth with the pipeline loan pipeline. So I do not know that there will be a material impact to it.
David R. Melville: We continue to expect, you know, with building the pipeline, a high single digit annualized increase in both the third and fourth quarters. So we would anticipate putting that liquidity to work Ballpark, could say half in the third quarter and half in the fourth quarter. But, we do not expect to clearly, we ended the quarter with the loan growth being hidden somewhat by the sale. But expect, based on our pipeline, to be able to put that to work. Pretty quickly.
Gregory Robertson: The other part of that Matthew, is we have about a $21 million reduction in non performing loans. But actually, we resolved about $35 million during the quarter. So $31 million of that pay down and about $4 million of that ballpark moved to OREO. So you know, those 2 things combined should give us a little bit of margin expansion, but also we have the ability with the pipeline that we are seeing to put those to work pretty quick.
Matt Olney: 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. I just wanna dig more into that. I would assume borrowings this quarter that went up just had a more favorable cost. Than some of the broker deposits. Any more color there and expectations for there at the back half of the year on deposits?
Gregory Robertson: Yeah, I will touch on each of them. And I think it is 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 have seen a lot of that so far this quarter come back in. So we feel like that is pretty seasonal, actually, Matthew. We had you know, smaller balance sheet a year ago, but that same on a percentage basis, the same outflow year over year. So the broker that we pay down, look, slightly over $60 million in broker that was weighted average above 4%. So we just we felt that was the right thing to do. 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 it gives us a little bit of optionality as we go forward.
Matt Olney: Okay. Thanks for the color. I will step back. Thanks.
David R. Melville: I think-- just to add a little more color on the-- excuse me 1 second. Just 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, long term relationships with municipalities and governmental authorities not only with B1, but some of our processor institutions that we have partnered with through acquisition, and they tend to reach a low point. In the second quarter as well. And then begin building back up. So it is a mainly due to the composition of some of our larger clients. That seasonality occurs and as Gregory said, on proportional basis, this year was essentially the same from impact standpoint as last year and the year before that. And really the general movement that we have seen for a good 10 years now. Thank you.
Operator: Our next question comes from the line of Fadi Strickland with Hovde Group. Your line is open.
Fadi Strickland: Gregory, I just wanted to go back to your comments on expenses. You understand the cost saves in the fourth quarter from the systems conversion was progressive. But in the third quarter, are you saying we will 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?
Gregory Robertson: Yes. Would say the directional way to see it is slightly down in the third quarter. Closer to 58 third quarter. And then $57 million in the fourth quarter. Is the way we think Okay.
Fadi Strickland: Got it. And, you know, just wanted to ask, switching to the capital side. I mean, it looks like share repurchase has picked up some this quarter. 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?
Gregory Robertson: Yes. I think we kind of-- we think at the price we are at, as long as it stays, you know, above $1.20. that is kind of where we started doing the math on the value based on our other capital opportunities. I think the other 2 capital opportunities we have, obviously, 1 would be our organic growth opportunities with our Houston team that we recently hired and just be other loan pipeline opportunities we have. Would be the first, foremost 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 use useful opportunity for the capital. So those are kind of the in the order we have been thinking about it right now.
David R. Melville: Got it. And we have got-- which Matthew-- Matt can probably give you a little bit of a projection for where we expect to end the year.
Matthew Sealy: Capital ratio wise? Yes, capital wise consolidated total risk base 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 is assuming mid-8%-ish annualized loan growth in the next couple of quarters.
David R. Melville: Kind of steady balance sheet growth and, like Gregory mentioned earlier, continued margin expansion. We will we will enter 2027 with as much capital as we have had in a number of years. Position of relative capital strength compared to you know, hitting its low, I guess, in 2022 is probably when they were low. But so looking forward to reinvesting that primarily in organic growth. As Greg mentioned, but it will be nice to be able to have some savings projected through the refi of the preferred equity here at the end of the year as well. So, Fadi, we will continue to have our plan in place to look and be opportunistic with repurchases. You know, we did 176 thousand shares, about $4.8 million the second quarter. So if the opportunity arises, we will be ready for that as well.
Gregory Robertson: Yeah. Hey, Freddie.
David R. Melville: Congratulations on your on your second baby, by the way.
Fadi Strickland: Oh, it is-- it is number 1, but I appreciate it.
David R. Melville: Oh, number 1? I am sorry about that. It feels like it.
Fadi Strickland: But thank you very much. Congratulations. Thank you. I will step back.
Operator: Next question comes from the line of Gary Tenner with D. A. Davidson. Your line is open.
Gary Tenner: I just wanted to ask on the deposits. You talked about the seasonality and the outflows of some of the commercial money market that is 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 cost down?
Gregory Robertson: Gary, there is 2 components to that. So we were up in noninterest bearing about $8 million quarter over quarter, and we continue to see that build. So we have 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 have mentioned surprised about is the inflows we have seen have been coming back in, pretty much matching the average weighted rate for the for Q2. So had not had not really experienced any lift yet, but it is early. So but we are we are up optimistic about that.
Gary Tenner: Got it. I mean, just as it relates to the CD book weighted average rate of 3.3% in the quarter, is there an opportunity to push that down? Or are we now sort of at stasis on the on the funding side without any Fed action?
Gregory Robertson: Norman. We have some we have got some opportunities with both broker and organic CDs in the third and fourth quarter to reprice those down. So we will hopefully, if rates stay where they are, we may we would be able to take advantage of that.
Gary Tenner: 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, could you just talk about the dynamics around that?
Gregory Robertson: Yes. I think we had a well, I think the dynamics about it naturally was we had a really good Q2. And those fees, swap fees for the second quarter. So they were down but probably closer to in line with the forecast for the for the year. And I think we already got some indications, some pretty good wins, third quarter. So I think we will see that come back up closer to Q2 levels.
David R. Melville: Very good. Really strong first quarter. Yeah. Strong first quarter. They were down, but they really were in line with their expectations. Think also, it is, you know, it is a relatively nascent business. So these newer businesses are can be lumpy.
Gregory Robertson: And just a couple happening or not happening quarter over quarter can make a difference to the to the top line.
David R. Melville: it is still material. So as we as we mature it, as this happened with all of our clients of business over the years, we will be able to delumpify it -- I am not sure that is a word -- but we are able to hopefully kind of smooth it out a little bit. But it is still it is still young enough that just a couple deals do make a difference in a given quarter. Same with our SBA business and really our financial services group as a whole, which is still a fairly new entrepreneurial endeavor. Thank you.
Operator: Our next question comes from the line of Marinac with Breen Capital. Your line is open.
Analyst: Hey. Good afternoon. Just I 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.
Gregory Robertson: Yeah. Christopher, we feel happy with the resolution we got in the third quarter that I mentioned in the second quarter that I mentioned. As we look out into Q3, I think seeing that we ended at $80 million For Q2. We are working toward possibly a 10% to 20% resolution again in we think that is achievable in Q3. In NPL in NPLs and then also a reduction in OREO possibly. You know, 10% to 15% of that as well. So we feel like that is achievable in Q3. We think that and that will continue to maybe slightly down from there in Q4. But we think that it is achievable to end the year closer to $50 million or slightly below And then that historically for us, that has been an area that is been pretty normal know, sleep $40 to $50 million in NPLs. The good news from a credit firm are 2 things, I think, that are kind of when you start pulling the curtain back a little more is past dues for us quarter for the first quarter and the second quarter. Continue to be more in line with our historical expectations, below 50 basis points. Or 0.5%. I think the other thing is if you look at our the watch list, specifically what we call 4, 5, and 6 rated credits. Those are the ones that we start watching that have not made it to nonperformer yet. Or classified. At the end of the year, that was about $450 million that is down to about $330 million at the end of June. So those 2 things from a forward looking perspective, along with, we have not seen any major build in NPLs give us the kind of outlook on the future that we think you know, we have kind of gotten past the little lumpy period that we had with those few problem credits we talked about probably for 3 or 4 quarters and then started resolving last quarter. Great. that is really helpful, Gregory. Thank you for that background. And does any of this give you relief on the allowance going forward, or would you just assume you kind of grow into what you have at this moment? I think our plan is to try to grow into what we have. We are pretty flat quarter over quarter. You know, it is the as the improvement with some of the classified and criticized loans move out, I think it gives us the opportunity just to continue to both bolster the good book within the pool and continue our plan to try to reserve 1.20x all new loan growth because we feel like we would like to continue to grow it.
Analyst: Great. Again for hosting us today. Thanks.
Operator: Thank you. Next question comes from the line of Michael Rose with Raymond James. Your line is open.
Michael Rose: 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 are not making loans to Meta or doing data center loans or things like that. What does that really mean in the context of the ability to grow both loans and maybe some of the fee products? We just love to get some color there. Thanks.
David R. Melville: Yes. Norman, you are right. In fact, we have a discussion in our Board meeting today about that. We are 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. So the bank small businesses that are doing work for the 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 are finding is that not only is there opportunities specifically in that geography, but the investment is so large that they are needing to bring in vendors from contiguous geographies. And so we have 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 and in the Rayville area. So it is really ample. And so that is that is 1 thing I would say. Second thing I would say is that what is 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 is investing there and just the company's doing business there. And a good example is recently the Richland Parish school system gave each of their teachers a $50 thousand bonus for last year's work. So the tax implications of the and that is what 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 wider array of citizens and you know, we now although we began with a very limited branch network focused primarily on small businesses over time, We have grown to be the largest Louisiana headquartered bank as measured by Louisiana assets. So number 5 is in Louisiana, and number of locations. So as the positive economic impact trickles down, to communities throughout Louisiana. We feel like we are as well placed as any entity to take advantage of that general economic positive turn. So it is really not anything that is magic per se about banking the data center itself. And by the way, there are other data centers underway in other parts of the state, including where we are, including Bossier Parish. And but we do not anticipate all of a sudden doing major macro loan deals with the data centers themselves, but as the economic benefits trickle down, we believe again that we are well placed to do traditional community banking. Across our footprint, and we will be, as long as we put in the effort and put in the work and treat the clients right, then we will this should be a problem. Beneficiary of that triple down the path.
Michael Rose: Exciting. Norman. Really, really appreciate-- oh, go ahead, Jerry.
David R. Melville: Well, I was gonna say it is exciting not just for the data center itself, but for the wider potential effects that will take a little while to play out. You know, it is not a it is not a third quarter thing, right? I mean, there is activity there is work there. We are seeing some loan demand increase because of the businesses that we think are doing business there. But I think the longer term effects are what is really exciting about the opportunity both for us and for the citizens of Louisiana.
Michael Rose: Very helpful commentary. May maybe just 1 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 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 is kind of a long, maybe tough question, but maybe just a couple of points would be, I think, helpful because it seems like there is a fair amount of tailwinds here. Thanks.
David R. Melville: Thank you. Well, I think a couple of things. 1, is that I think that historically, investors and analysts have not appreciated I should not say appreciate it. And they have not turned to Louisiana for growth. Louisiana has historically been a stable place and had a couple of periods where we were too concentrated and showed up and couple of energy crises. But I think that over time, investors really have not 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 2 over the past 10, 15 years, it is a pretty, 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 had not gotten a lot of attention. So I do not know that it is my first point would be I know that it is they have not what are they missing? I think it is just that they are only now beginning to realize that they should look harder. At Louisiana than they might have over the past 10, 15 years when the when the news was not as growthy as it potentially is now. And then second of all, I would say some of the news is recent. You know, the increase in the investment in Meta that I just mentioned literally happened in the last 10 days. And I think Sunday night, last was the kind of preannouncement, and they announced it on Monday. So really is not realistic to expect that investors would pick up on that. That quickly. And then I think some of the news the data center in Bossier, for example, and the and the 1 near Saint Francisville, which is North Of Baton Rouge. I mean, that I just think it is all a bit new. And I think as a country, we are still figuring out exactly what data center development's gonna look like. Right, and what the actual impact is gonna be. The 1 reason that I feel comfortable that it is gonna be extremely positive here is that, you know, we have not had those significant growth opportunities. So on a relative basis, we have more room to grow than some other places do. And so whatever the development is, whether it is a quarter of what it sounds like it is gonna be here, whether it is 50% or whether it is a 100%. it is gonna be significant. And I think unless you have already been paying attention here, it might be hard to kind of put that in the proper context. So I think it is moving quickly. I think that there are still some still some unknowns nationally about the economic flow transfer and the trickle down effect. And so we will all have to kinda learn that together, but I do believe given our starting point in Louisiana that it is it is hard to imagine that it will not be a net very positive outcome. Appreciate all the color. I will step back.
Analyst: Thanks, guys.
Operator: Okay. And our last question comes from the line of Matt Olney with Stephens. Your line is open.
Matt Olney: Hey, guys. A few follow ups here. On the on the credit front, Gregory, you mentioned some more resolutions in the back half of the year. Any color as far as anticipated charge offs from these resolutions?
Gregory Robertson: Yeah. I would say, what we what we expect of and it is hard to say back to historical, because our historical charges were very low, almost nothing. I think high single digits would be something we expect. On an annualized basis in a in a normal quarter. These next 2 quarters possibly. And then we kind of go from there. And if we have something that pops up, then we have to take more of a loss, it might look more like what this quarter did. So we-- okay. I think we are working them close to where they are not gonna be any significant losses. But, you know, we are in the we are in the risk business, so it is hard to say no losses, Matthew.
Matt Olney: Understood. Understood. Thanks for the color. And then market disruption, I in your marketplace. I know we have talked a lot about this over the last year, you have had some nice wins, nice announcements from some new hires. Did not know if there was any other announcements or updates to the M&A benefits or market disruption.
David R. Melville: Well, we were we were able to add 2 or 3 members to the team in Houston in the second quarter. And so we feel like for now, we want to kinda consider that our team, and we want to begin producing and making sure that is 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 is called upon regularly by folks that are interested in talking. And again, I think we are we are kind of where we want to be for the short run, but I do think over the long run, our biggest opportunity in it is 1 of the biggest reasons that I mentioned earlier, the and Gregory mentioned the primary use for our capital in the upcoming is likely to be organic because we do believe there is there is continued opportunity around that disruption. And I do not I do not see that tailing off in the near term. So we are having a few conversations in doubt. Not quite as aggressive in Dallas as we are in Houston. Just because of the relative size of our franchise. In each. We feel like Houston is we made that investment in Texas Citizens a few years ago, and we wanna be sure that we invest properly to in that market. But we do still need to be tempered in our in our in our salary expectations, and we are we have made commitments to view ourselves about our increased structural profitability. So we wanna be sure that we follow through on those even while we are taking advantage of the opportunities. But we do see continued opportunities on the disruption front. And you think about the banks that are that have our kind of range of size and capability, There are not very many of us in Louisiana, and Texas, and in particular, 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 looking for a bank that is a community bank in attitude, but is a larger bank in terms of capabilities. So we are most excited about the potential for our franchise, given that disruption which I think will continue to be an opportunity. I started rambling a little bit. I think I answered your question. Did I answer your question, Matthew? Jude, you answered it and then some. So appreciate all the great color as always. I answered your follow on question. Yes.
Matt Olney: Well, it just 1 last 1 from me here. We have talked a lot about the, you know, the ROA goal, the 1.25, exiting the year in the fourth quarter, and we would 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 ROA given the lower yielding nature of those loans that were sold. But, anyway, just love any commentary from that. Thanks.
David R. Melville: Yeah. Well, that is 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 have 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, you know, it does not mean that it is a slam dunk, and does not mean that it is automatic that we will be able to get to the 1.25% ROA. But we still believe if we perform and execute and things go our way that is a credible opportunity for us to kind of reset our profitability, our structural profitability and that is the goal for the rest of the year. You know, even if we were to not quite get there, we still made material improvement. And still plan to continue to have that focus next year as well, and we will continue working on it. that is 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 you know, we have had really flat salary cost over the past 4 quarters essentially. And anticipate that continuing over the next couple, certainly. And our team has been improving its ability to be productive So we are significantly larger than we were a year and a half ago, 2 years ago, and have a very similar number of people at the bank. And proud of that. And it is it is certainly a part of our daily conversation. How can we how can we help our employees be the most safe be, which helps us be the most we can be from a from a product production and a profitability standpoint. So yes, that is still our target. And we do need to execute and things need to go our way, but we feel we feel like that is a realistic path that we are focused on achieving. A little bit of a stretch when we when we laid it out last year. But, you know, you do not stretch yourself, then you do not get anywhere. So we are we are excited about that. And I do think that it is time for us to produce at that level of profitability as a franchise. You know, we are we are 20 years old. We have had we go through the different list of things that we have accomplished, the list is pretty long and we have 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 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 have grown to $9 billion. So we are 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 which is our goal. And I think we are we are well on our on our on our way towards doing that. Okay. that is perfect. Thank you, Jude. Thank you. Hey. I wanna 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 have now and it is a consistent dividend with where we were last quarter and we have now, I believe, 7 years in a row, we started paying a dividend, we have increased it 7 years in a row. And we would still like for that to be our goal. We feel like we have 50% of our shareholders who are retail investors that have partnered with us and stuck with us through these acquisitions. And the dividend is important to them as it is to us and so we will continue the dividend path, and the goal would be to incrementally increase on an annual basis, so not on a quarterly basis, but on a on a annual basis. And that is why I wanted to take an opportunity since we were we were talking about that. And we have historically kinda targeted about 20% of our And so that is roughly where we are now. As our earnings power appreciates, then there is no reason to think that to some degree, our opportunity to reward shareholders with dividends would track that increased share of profitability as has the ability to buy back shares, which, again, we have only this year begun to strike opportunistic opportunistically on that front. And that is the result of our earnings leading to increases in capital. Which gives us that optionality. So we assume that opportunity will continue as well as we are focused on building tangible book value and again, that structural earnings increase in our profile. Thanks for letting me answer that other question with your question, Matthew.
Operator: That concludes the question-and-answer session. I would now like to turn the call back over to Jude Melville for closing remarks.
David R. Melville: Great. 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 are working, 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 thought or a final moment to wish our team good luck in August. We will do the conversion as both Gregory and I mentioned, and although we have had experience now and have done it successfully a number of times, still stressful and critical weekend. Preparing for that. And I wanna thank and wish the best of luck to not only the former Progressive employees that are now B1 employees, but also our ops teams and everyone that is involved in that process. We are you know, our first acquisition that we did a long time ago now, I guess, about 11 years ago, learned a lot of lessons, and so we worked hard to invest in that process. And I am 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 have had on in that perspective. And we are confident that we will succeed on the on the conversion weekend and then be ready to go in terms of helping provide capital to the communities that we are 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.
Operator: Ladies and gentlemen, that concludes today's call. Thank you all for joining. You may now disconnect.