管理層發言
Ladies and gentlemen, thank you for standing by. My name is Desiree, and I will be your conference operator today. At this time, I would like to welcome everyone to the Business First Bancshares second quarter 2026 earnings call. 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, press star 1. I would now like to turn the call over to Mr. Matthew Sealy, Senior Vice President, Director, Corporate Strategy and FP&A. You may begin.
Good afternoon. Thank you all for joining. Earlier today, we issued our second quarter 2026 earnings press release, a copy of which is available on our website along with the slide presentation that we will reference during today's call. Please refer to Slide 3 of our presentation, which includes our Safe Harbor 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 on page 6 of our earnings press release that was filed with the SEC today. All comments made during today's call are subject to the Safe Harbor statements in our slide presentation and earnings release. I am joined this afternoon by Business First Bancshares' Chairman and CEO, Jude Melville; Chief 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. With that, I will turn the call over to Jude.
Okay. Thanks, Matthew. Good afternoon, and thank you all for joining us today. B1 Bank had an encouragingly solid second quarter that met or exceeded the progress we have been articulating for you over the past few quarters, and one that positions us well for a strong second half of 2026. As an example, we returned to our normalized rate of loan production, driving a healthy increase in net interest income. In addition to the production in the second quarter, which came in a relatively balanced way across our footprint, we built a significant pipeline, particularly in the Houston area, that we expect will translate into sustained growth for the remainder of the year. Margin expanded by eight basis points during the quarter, driven partly by disciplined loan and deposit pricing. We also executed a relatively sizable loan sale that we believe will create additional margin opportunity as we redeploy those proceeds into higher-earning assets over the next two quarters. Our team made meaningful progress on the credit front, reducing nonperforming loans by about 30 percent, in line with the progress we forecasted at the beginning of the quarter. We anticipate continued improvement on that front over the remainder of the year. Revenue from our financial services group is running roughly 20 percent 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 two areas. First, deposits. I would point out, however, that a quarter of the decline was purposeful, reflecting our pay down of higher-cost broker deposits. Our noninterest-bearing accounts were positive for the quarter, leading to a slight decrease in overall deposit costs. 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 are 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 to upfront marketing spend and elevated legal fees connected to the resolution of a large nonperforming credit—two 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 I wanted you to know that all in all, the quarter was a positive step toward 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 five gigawatts of capacity in more than $50 billion in total investment, up from its initial $28 billion commitment, making it one of the largest data center developments in the world. Expansion is expected to support roughly 7,500 construction jobs and about 1,000 permanent operations positions. Meta also announced more than $1 billion in related infrastructure investment for roads, water, and wastewater systems, along with 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 we look forward to your questions.
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. This included a $1.2 million merger-related expense, a $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 percent core ROAA and a core efficiency ratio of 63.9 percent for the quarter. Our second quarter earnings results were highlighted by better-than-expected margin expansion, improved credit metrics, the resolutions on previously identified troubled loans, and building capital levels from disciplined balance sheet management. Also during the quarter, we completed the fully self-managed private placement of $85 million of 6.5 percent fixed-to-floating rate subordinated debt due in 2036. Total loans held for investment decreased $24.8 million, or 1.5 percent annualized on a linked-quarter basis. Excluding the Progressive loan sale mentioned as a resolution of certain nonperforming loans during Q2, total loans held for investment increased $96.4 million, or 5.8 percent annualized. Based on unpaid principal balances, Texas-based loans were unchanged from the prior quarter at 35 percent. 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, total FHLB borrowings increased $181.7 million from the 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 for redemption of our $52 million issuance that became callable. The net impact from the capital raise was 50 basis points to the Q2 2026 consolidated total risk-based capital measure. Our GAAP reported second quarter net interest margin increased eight basis points linked quarter to 3.73 percent, while the non-GAAP core net interest margin, excluding any purchase accounting accretion, increased eight basis points as well from 3.60 percent to 3.68 percent 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 six 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 seven basis points, while total loan yields increased three basis points. Core loan yields, excluding loan discount accretion for the second quarter, were 6.58 percent, up four basis points from the prior quarter. Total cost of deposits for the month ended June 2026 was 2.26 percent, which was consistent with 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 percent for the second quarter. A few takeaways from Slide 19 of our investor presentation: we continue to see 45 percent to 55 percent overall deposit betas as achievable regarding any future rate cuts. I would also like to point out overall core CD deposit retention rate was 83 percent 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 a relatively neutral position and we believe we can achieve modest margin improvement in a slightly down or slightly up rate environment. Moving on to the income statement, GAAP 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, the 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 of securities and a $545 thousand gain on extinguishment of debt. Core noninterest income results for the second quarter were down relative to our expectation, primarily due to slower swap fee revenue. As we have mentioned in the past, some of our noninterest revenue businesses 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 percent at June 30, while the ratio of nonperforming assets compared to total assets decreased 15 basis points to 1.23 percent on a linked-quarter basis. This was largely driven by the resolution of certain previously identified CRE and commercial business relationships during the second quarter. We are pleased with the improvement in credit resolution during the quarter and expect to continue improvement over the next couple of quarters. That concludes my prepared remarks, and I will hand the call back over to Jude for anything he would like to add before opening up for Q&A.
Great. Thanks, Gregory. I think we are ready to move to Q&A.
分析師問答
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. Our first question comes from the line of Matt Olney with Stephens. Your line is open.
Good afternoon. I want to ask more about the balance sheet repositioning that you disclosed. It seems like this will give you some excess liquidity that you want to redeploy for the back half of the year. 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.
Good question. The transaction happened in the last few days of the quarter. We had started, at the closing of the Progressive transaction, running analytics and finally came to an agreement. So there was really no impact other than the assets being lower at the end of the quarter on a point-in-time basis. Going forward, we expect to pick up about a four basis point go-forward impact to the margin from applying that liquidity, and that is just very minimal when you think about applying that liquidity to borrowings or similar. So that is a reasonable expectation.
And Gregory, just to follow up there, given the timing 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 NII?
I do not think so. We should have a replacement for that in Q3 with asset growth from the loan pipeline. So I do not know that there will be a material impact. We expect to pick up that growth with our pipeline.
We continue to expect a high single-digit annualized increase in both the third and fourth quarters, so we would anticipate putting that liquidity to work. Ballpark, you could say half in the third quarter and half in the fourth quarter. We ended the quarter with loan growth being hidden somewhat by the sale, but based on our pipeline we expect to put that to work quickly.
The other part of that, Matthew, is we had about a $21 million reduction in nonperforming loans on the balance sheet, but actually we resolved about $35 million during the quarter—about $31 million of that pay down and about $4 million moved to OREO. Those two things combined should give us a little bit of margin expansion, and we have the ability with the pipeline to put that to work pretty quickly.
Okay. And then, switching gears to the funding side, Jude mentioned part of the deposit decline in Q2 was strategic and part seasonal. I assume borrowings this quarter that went up had a more favorable cost than some of the broker deposits. Any more color there and expectations for deposits in the back half of the year?
I'll touch on each of them. The deposit outflow of $237 million in interest-bearing deposits was mostly from municipals and commercial money market accounts: $72 million specifically from commercial money market accounts and about $63 million in broker deposits. The good news is we have seen a lot of the commercial money market outflows come back in so far this quarter, so we feel like that was pretty seasonal. The broker paydown of slightly over $60 million had a weighted average cost above 4 percent, so we felt it was the right thing to do and had the cash on balance sheet to do it. The borrowings are more forward-looking in price relative to the pipeline build and give us optionality as we go forward.
Okay. Thanks for the color. I will step back.
Just to add a little more color on seasonality, we have historically been a business-oriented bank and tend to see seasonality around tax payments and also from long-term relationships with municipalities and governmental authorities. Those balances tend to reach a low point in the second quarter and then build back up. On a proportional basis, this year's movement was essentially the same as last year and the year before; it's a regular pattern we've seen for a decade.
Our next question comes from the line of Fadi Strickland with Hovde Group. Your line is open.
Gregory, I wanted to go back to your comments on expenses. You mentioned cost saves from the Progressive systems conversion in Q4. In Q3, should we expect the advertising line and elevated professional legal fees to drop closer to what you had in Q1? How should I think about the expense cadence going into Q3?
Yes. Directionally, we expect expenses to be slightly down in Q3, closer to $58 million, and then about $57 million in the fourth quarter. That's the way we think about it now.
Got it. And switching to the capital side, it looks like share repurchase picked up 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 opportunistic?
I think at the price we are at—if it stays above about $1.20—that's where we started doing the math on value relative to other capital opportunities. Our primary capital use is organic growth opportunities, including our Houston team and other loan pipeline opportunities. The second near-term opportunity is the callable event of our preferred stock next September, which we could pay down in part or whole. So those are the priorities in the order we are thinking about them right now.
Got it. And congratulations on your second baby, by the way.
Oh, it is my first, but I appreciate it.
Next question comes from the line of Gary Tenner with D.A. Davidson. Your line is open.
On deposits: you talked about seasonality and some commercial money market outflows that have come back in this quarter. With that money returning, which I assume is coming in at a rate a bit higher than the quarter average, does that put pressure on deposit costs? Or are there other levers to continue pushing cost down?
There are two components. We were up in noninterest-bearing deposits by about $8 million quarter over quarter, and we continue to see that build. That gives us some pricing optionality. The inflows we've seen so far have been coming back in pretty much matching the average weighted rate for Q2, so we have not yet experienced upward pressure, but it is early and we are optimistic.
Regarding the CD book weighted average rate of 3.3 percent in the quarter, is there an opportunity to push that down? Or are we at stasis on the funding side without any Fed action?
We have opportunities with both broker and organic CDs in the third and fourth quarters to reprice those down, so if rates remain where they are, we would expect to be able to take advantage of that.
You mentioned swap fees were down quarter over quarter. Could you talk about the dynamics around that?
Those fees were down from a very strong prior quarter. Swap fee revenue can be lumpy quarter to quarter; Q2 was strong and Q3 should see some recovery. We already have indications of wins in Q3, so we expect that revenue to come back closer to Q2 levels.
It is still a relatively nascent business, so early on it will be lumpy. As it matures, we expect it to smooth out, but it remains a meaningful line item even today.
Just a couple deals happening or not happening quarter over quarter can make a difference to the top line.
We see the same lumpiness in our SBA and financial services businesses. As these businesses mature, they should become less volatile quarter to quarter.
Our next question comes from the line of Christopher Marinac with Brean Capital. Your line is open.
Hey, good afternoon. I want to dig a little bit further into criticized asset trends—what you are seeing there and how that may look a few quarters out.
Christopher, we feel good about the resolutions we achieved in Q2. We ended Q2 with about $80 million in NPLs. We are working toward possibly a 10 to 20 percent resolution in NPLs in Q3 and possibly a reduction in OREO of 10 to 15 percent. We feel that is achievable for Q3, and from there we expect a gradual improvement in Q4. Our target is to end the year closer to $50 million or slightly below in NPLs; historically, we have been in the $40 to $50 million range. Two encouraging things: past dues for us in Q1 and Q2 are more in line with historical expectations, below 50 basis points, and our watch list—what we call rated 4, 5, and 6 credits—was about $450 million at year-end and is down to about $330 million at June 30. Those two items give us confidence that we've largely worked through the lumpier period caused by a few problem credits.
Great, that is really helpful. Does any of this give you relief on the allowance going forward, or would you just assume you grow into what you have at this moment?
Our plan is to grow into what we have. The allowance was pretty flat quarter over quarter. As we see improvement and some of the classified and criticized loans move out, it gives us the opportunity to bolster the performing book within the pool and continue our plan to reserve approximately 1.20x on all new loan growth. We want to maintain prudent levels while we continue to grow.
Great. Thanks for hosting us today.
Thank you. Next question comes from the line of Michael Rose with Raymond James. Your line is open.
Most of mine 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 means for you from an opportunity perspective? I assume you're not making loans to Meta or doing data center loans—that's not the immediate opportunity. What does it really mean in terms of ability to grow loans and some of the fee products?
You are right; we are not expecting to bank the data center itself. When you have an entity of that size, there are many vendors and service providers that operate around the project. Our initial opportunity is to bank the small businesses that are doing work for the data center. Even after the construction period, there will be maintenance, materials, transportation needs, and ongoing services. We are already seeing some of our clients in Baton Rouge, Lafayette, Lake Charles, and Houston generate work related to the data center development in Rayville. The investment is so large that it brings vendors from contiguous geographies and creates dispersed economic benefit across the region. For example, the Richland Parish school system was able to give teachers a $50,000 bonus last year because of tax implications related to the data center investment. There will be opportunities for municipal and infrastructure reinvestment that will benefit a wide array of citizens. Over time, these dollars will trickle throughout the community and show up in more dispersed ways than just directly with the company investing in the data center. We began as a bank focused on small businesses, and over time we have grown to be the largest Louisiana-headquartered bank as measured by Louisiana assets and locations. As the positive economic impact trickles down, we believe we are well-placed to take advantage of it across our footprint. This is not a short-term quarter phenomenon; the effects will play out over a longer horizon, and that longer-term impact is what we find most exciting.
Very helpful. Maybe one follow-up: as you think about the second half of the year—loan growth pipeline, redeploying loan sale proceeds, improving credit, cost saves from Progressive, and the Louisiana opportunity—what do you think investors are underappreciating most about the story right now? Where do you see potential upside to expectations?
A couple of things. First, I think investors historically have not focused much on Louisiana for growth. For many years, Dallas and Houston drew more attention, which is understandable. Louisiana has not typically been seen as a high-growth market, but that perception is changing quickly given recent developments. Some of the news is recent—Meta's expansion was announced within the last ten days—so it is not realistic to expect investors to have picked up on it immediately. The investment magnitude is large relative to our starting point in Louisiana, so even a fraction of the projected activity will be significant for our franchise. There are still national unknowns about how data center development trickles through local economies, so we will all learn more over time. Given our starting point and positioning in the region, it is hard to imagine the net outcome not being very positive for us.
Appreciate all the color. I'll step back.
And our last question comes from the line of Matt Olney with Stephens. Your line is open.
A few follow-ups. On the credit front, Gregory, you mentioned more resolutions in the back half of the year. Any color on anticipated charge-offs from these resolutions?
It's hard to be precise. Historically our charge-offs were very low. For the next couple of quarters, we might expect to see high single-digit charge-offs on an annualized basis if we experience a normal cadence. If something pops up, it could be higher, but we are working these credits closely and are trying to avoid significant losses.
Understood. On market disruption in your markets: you have had some nice wins and hires. Any updates on M&A benefits or market disruption?
We added two or three members to the Houston team in Q2 and want to ensure they begin producing and integrating properly. We anticipate continued opportunities to add to that team as we demonstrate success. The primary use of capital in the near term is likely to be organic growth, given the disruption we are seeing in the market. There are not many institutions of our size and capability in Louisiana and Texas, particularly in Dallas and Houston, so we see opportunities both to attract talent and to gain business from clients seeking a community bank mentality with larger capabilities. We are being measured about salary commitments while maintaining our structural profitability targets, but the disruption remains an opportunity we intend to pursue thoughtfully.
Thanks. One last question on the ROA goal: you have a target to exit the year at 1.25 percent ROA. Any additional commentary, especially given the balance sheet repositioning? I would think that sale of lower-yielding loans would be supportive of ROA.
That remains our articulated goal. This quarter is a constructive step on the plan we've been discussing: to increase structural profitability. It is not automatic—we have to execute and the pipeline must come to fruition—but it is a credible opportunity. Achieving 1.25 percent ROA will require loan growth, some margin expansion (which the repositioning supports), and continued expense discipline. Salary costs have been essentially flat over the past several quarters and we expect that to continue. We've invested in building a larger, more productive team, and we are focused on helping our employees be as productive as possible. If we perform and execute, 1.25 percent is achievable. If we don't quite get there, we still expect material improvement and will continue the focus next year.
I want to mention a written-in question we received about dividends. We declared a dividend as announced in the press release, and it is consistent with where we were last quarter. We have now paid and increased the dividend seven years in a row since we started paying it. We have about 50 percent retail shareholders who value the dividend, and we intend to continue to target an annual incremental increase, not a quarterly increase. Historically we have targeted about 20 percent of earnings for the dividend. As our earnings power appreciates, we expect the opportunity to reward shareholders with dividends to increase, along with opportunistic share repurchases when appropriate. We have only begun opportunistic repurchases this year following improved earnings and capital levels, and that optionality is likely to continue as we build tangible book value and structural earnings.
Great. Thank you all for joining. I believe I've articulated the things that are important to us and the opportunities we are working on—all of which should accumulate tangible book value and provide a good return on investment for our shareholders. I want to take a final moment to wish our team good luck in August for the Progressive conversion. Although we have experience and have done this successfully several times, it is still a stressful and critical weekend. I want to thank and wish the best of luck to the former Progressive employees joining B1 and to our operations teams and everyone involved in that process. We learned many lessons from our first acquisition about 11 years ago, have invested in the process, and I am proud of our team's ability to execute. We anticipate a successful conversion weekend and being ready to help provide capital to the communities we serve in North Louisiana and across our footprint. Thank you all very much, and have a good end of the week.
Ladies and gentlemen, that concludes today's call. Thank you all for joining. You may now disconnect.