Logo of jester cap with thought bubble.

Image source: The Motley Fool.

DATE

Thursday, January 22, 2026 at 5 p.m. ET

CALL PARTICIPANTS

  • President and Chief Executive Officer — Jude Melville
  • Chief Financial Officer — Greg Robertson
  • Chief Banking Officer — Jerry Vasquez

TAKEAWAYS

  • Core ROA -- 1.16% in the fourth quarter, exceeding the company's stated target.
  • Core Net Income -- $23.5 million in the fourth quarter, after excluding merger, conversion, and other noncore items.
  • Reported EPS -- $1.07 per share on a GAAP basis, with $0.79 per share core EPS after noncore exclusions.
  • Loan Growth -- Total loans held for investment increased $168.4 million, or 11.1% annualized, compared to the previous quarter.
  • Deposit Growth -- Total deposits rose $191.7 million on a linked-quarter basis, driven by a net increase in interest-bearing deposits of $236.2 million, offset by a $44.5 million decrease in noninterest-bearing deposits.
  • Net Interest Margin (NIM) -- GAAP NIM improved by 3 basis points sequentially to 3.71%, while core NIM increased by 1 basis point to 3.64%.
  • Efficiency Ratio -- Core efficiency ratio fell to 59.7% in the fourth quarter, indicating further improvement in expense management.
  • Book Value Growth -- Tangible book value grew 17.3% year over year.
  • Share Repurchase Activity -- Repurchased about 150,000 shares during the quarter, resuming buybacks for the first time in nearly six years.
  • Dividend Increase -- Common stock dividend increased for the seventh consecutive year.
  • Non-Interest Income -- Core noninterest income of $13.2 million for the fourth quarter, supported by swap fee revenue approximately $1 million higher than expected.
  • CRE Loan Performance -- Owner-occupied commercial real estate loans increased $76 million, or 28% annualized; non-owner-occupied CRE loans grew $77.7 million, or 23.9% annualized, both compared to last quarter.
  • Deposit Betas -- Management anticipates 45%-55% overall deposit betas for future interest rate cuts.
  • Correspondent Banking -- Client base in correspondent banking expanded to over 175 community banks and became a meaningful non-interest income source.
  • Reserve Coverage -- Allowance for credit losses plus credit marks totals approximately 1.06% of loans, with a target for the reserve ratio above 1% over time.
  • Loan Production Diversification -- Fourth quarter loan growth led primarily by Southwest and North Louisiana, showing benefit from geographical diversification.
  • Major Acquisition -- Closed acquisition of Progressive Bank in North Louisiana at year-end, expected to enhance deposit mix and noninterest income in 2026.

Need a quote from a Motley Fool analyst? Email [email protected]

RISKS

  • Asset Quality Deterioration -- The ratio of nonperforming loans to loans held for investment increased 42 basis points to 1.24%, attributed primarily to the deterioration of a single $25.8 million commercial real estate relationship.
  • Credit Migration -- Loans past due 30 days or more (excluding non-accruals) rose to 64 basis points of total loans, up from 27 basis points as of the prior quarter.
  • Deposit Mix Shift -- Noninterest-bearing deposits decreased $44.5 million sequentially, and management expects some outflow of public funds deposits due to first-quarter seasonality.
  • Expense Increase Expected -- Core noninterest expense anticipated to rise further in the first quarter, mainly from Progressive Bank acquisition integration and annual first-quarter expense resets.

SUMMARY

Business First Bancshares (BFST +0.07%) delivered year-end results marked by solid core profitability, supported by robust loan and deposit growth and an improved efficiency ratio. Management emphasized the transition from large-scale projects toward leveraging recent systems investments and focusing on operational execution, with no immediate plans for further M&A activity. Expansion of the correspondent banking platform continued to diversify noninterest income, while the acquisition of Progressive Bank was finalized to reinforce geographic diversification and deposit strength. Expense management and optimization from prior technology upgrades are expected to be primary drivers of future operating leverage and profitability.

  • Management indicated capital deployment flexibility has increased, citing renewed share repurchases and a commitment to periodic buybacks at or below 1.2x tangible book value.
  • The fourth quarter's noninterest income outperformance was due in part to "swap fee revenue, which was about $1,000,000 higher than expected," according to Chief Financial Officer Greg Robertson.
  • Loan growth for 2026 is projected in the mid-single digit percentage range, with improvements anticipated from both new client acquisition and solution integration across markets.
  • The company's correspondent banking group has begun executing swaps for other banks' balance sheets, broadening the potential for fee-based income beyond direct clients.

INDUSTRY GLOSSARY

  • Deposit Beta: The proportion of interest rate changes passed through to depositors, measuring how quickly and fully deposit rates respond to moves in benchmark rates.
  • Swap Fee Revenue: Income generated from facilitating interest rate swaps, often used to manage fixed-rate loan risk for the bank or its clients.
  • Correspondent Banking: Financial services provided by one bank to other banks, often including payment processing, loan participations, and investment management.
  • OREO (Other Real Estate Owned): Real estate held by a bank due to foreclosure or loan default, reported as a nonperforming asset until sold.

Full Conference Call Transcript

Jude Melville: Okay. Thanks, Matt. Good afternoon, everybody. We thank you all for being with us today. I'd like to begin our conversation with a brief high-level review of the work our team accomplished in 2025, which turned out to be, in my opinion, one of the most meaningful and positive years our franchise has experienced. I'll start with a few of the non-financial highlights. While I don't contribute much to the short-term modeling that this call invariably centers around, they are what enables future opportunity and therefore representative of the most important work that we do.

Over the course of 2025, we conducted two major core conversions and implemented a number of software platforms designed to prepare us for managing at this and future scale. We continue to develop multiple internal divisions focused on preventing and mitigating fraud, internal loan review, audit, and various capabilities, contributing to both our ability to operate safely and maintenance of a positive regulatory relationship. Continued our practice of incrementally evolving our footprint, closing three banking centers and opening one. We made big strides developing our correspondent banking initiative into a significant part of the bank, contributing meaningful non-interest income. Growing the client base to over 175 community banks.

We announced and then at the turn of the year closed the acquisition of Progressive Bank in North Louisiana. And this may sound out of place on the call such as this, but we learned some lessons while working through credit issues for the first time in a number of years. Things that will ultimately make us better providers and managers of credit in the future. And for the fifth year in a row, we were one of the winners of the American Bankers Best Banks to Work For Award. Voted on by employees, and therefore one of my favorite awards to win. These non-financial accomplishments are important, and I'm proud of them. But they, of course, aren't alone sufficient.

2025 was also a year of accomplishment from a balance sheet perspective. Over the past twelve months, we bolstered our capital ratios with tangible common equity increasing by 90 basis points and consolidated CET1 capital increasing 50 basis points year over year. We grew tangible book value 17.3%. We have as balanced a balance sheet as we have ever had. With limited concentrations in any lending category and significant geographic diversification grew loans and deposits in tandem, particularly in the fourth quarter as we got through of the bigger non-financial projects. Returned with more focus to production. We began purchasing shares back for the first time in almost six years.

And positioned ourselves to have that tool as a viable option in the future. And we increased our common stock dividend for the seventh year in a row. Now we recognize that all this non-financial and balance sheet activity needs to lead up something else, something tangible. Over the course of 2025, we delivered strong P and L improvement. Beyond what we or the analysts forecasted. We grew ROA beyond our stated 1% goal to a 1.06 core ROA of a for the year. And a 1.16 core ROA in the fourth quarter. We delivered a 14% increase in EPS over the course of the year, and in the fourth quarter a 20% year over year improvement.

We grew our full year core margin beyond our stated goals of 3.5 to 3.63. And we held non-interest expense growth relatively flat, while growing revenue. Generating positive operating leverage. Posting a sub-sixty efficiency ratio in the fourth quarter. In sum, we are turning the investments we've made over the past few years into momentum. Which leads me to believe that even though 2025 was a pivotal year for B1, 2026 will be even more fruitful. With our major systems implementations behind us, we will focus more on optimizing the systems, which will lead to greater efficiencies. With a healthy footprint in place, we will focus less on expanding it, and more on deepening it.

By the way, over the past few weeks, we were pleased to begin to take advantage of some of the in the Houston market by recruiting John Hiney, formerly Veritex, to be our new market leader and he's already been able to add a couple of impressive bank bankers to the foundational team we have in place. Finally, we will focus less than 2026 on embarking upon new major projects. And more on daily execution. We have a good team, we're in good markets, and we're focused on the right things. Sustainable ROA, tangible book value accretion, EPS enhancement, non-interest revenue giving us greater revenue optionality, and non-interest expense discipline leading to continued efficiency ratio improvement.

It's an exciting time and we look forward to discussing it further over the course of the call. I thank you all again for your attention, and I'll turn it over to Greg.

Greg Robertson: Thank you, Jude, and good afternoon, everyone. As always, I'll spend a few minutes reviewing our results and then with discuss our updated outlook before we open up to Q and A. Fourth quarter GAAP net income and EPS available to common shareholders was $21,000,000.07 $1 per share and included $2,200,000 in merger and core conversion related expense, $995,000 loss on former Bank of bank premises, $35,000 gain on sale of securities.

Excluding these noncore items and non-GAAP core net income and EPS available to common shareholders, was $23,500,000 and $0.79 per share, From our perspective, fourth quarter results marked another quarter strong financial performance generating as Jude mentioned, a 1.16% core ROA with our core efficiency ratio falling to 59.7% for the quarter. A notable impact during the fourth quarter included continuing meaningful contribution from our correspondent banking group. Also, as Jude mentioned, added several new slides to our earnings presentation. I'll start on Slide 24. A new overview slide from our loan portfolio. Total loans held for investment increased $168,400,000 or 11.1% annualized on a linked quarter basis.

The higher than expected loan growth was driven by overall improved demand and a slowing in pay down and payoffs. Specifically, new and renewed loan production of approximately $500,000,000 during the fourth quarter compares to a slower scheduled and non-scheduled paydowns and payoffs of $332,000,000 Recall, in the previous quarter, we experienced a slight decrease in net loan production, which was a result of $395,000,000 in paydowns and payoffs only offset by 368,000,000 new and renewed loan dilution during the third quarter. On a linked quarter basis, owner occupied CRE loans increased 76,000,000 or 28% annualized. While non-owner occupied CRE loans increased $777,000,000 or 23.9% annualized.

Based on unpaid principal balances, Texas based loans slightly declined slightly from 39% as of 12/31/2025. We expect that percentage of the Texas loans to further decline with closing of Progressive Bank to approximately 36% in the first quarter. Moving back to Slide 16. Total deposits increased 191,700,000.0 mostly due to net increase in interest bearing deposits of $236,200,000 on a linked quarter basis somewhat offset by a net decrease in noninterest bearing deposits of $44,500,000 from the prior quarter. The increase in interest bearing deposits was largely driven by $105,000,000 in public funds and $60,800,000 in commercial money market accounts.

We do expect somewhat of an outflow of the public funds markets during the first quarter consistently with prior year's Q1 seasonality. Moving to the margin. Our GAAP reported fourth quarter net interest margin increased three basis linked quarter to 3.71%. While the non-GAAP core net interest margin, excluding purchase accounting accretion increased one basis point from 3.63% to 3.64%. For the quarter ended in December. The margin performance during the quarter was driven by elevated loan discount accretion due to a single large acquired loan paying off sooner than we expected.

Loan discount accretion during the quarter was elevated at $1,400,000 including the addition of Progressive, we expect quarterly accretion in 2026 of approximately 1,800,000.0 On a linked quarter basis, cost of total deposits decreased 15 basis points. While total loan yields decreased 13 basis points. Core loan yields, excluding loan discount accretion for the fourth quarter, was 6.78%, down 15 basis points from the prior quarter. The total cost of deposits for the month ended December was 2.44%. Which compared to the weighted average of the fourth quarter of 2.51%.

We're pleased with our ability to hold the line of new loan yields during the quarter with a weighted average new and renewed loan yield of 6.97% for the fourth quarter. However, with the interest rate cuts we experienced during the fourth quarter, we did start seeing some pressure from overall loan pricing. I'd like to take a moment to explain some of the movement in the margin during the fourth quarter. We recognized $1,000,000 of interest income reversal for a nonaccrual loan. This translated to about five basis points in the fourth quarter net interest margin. That is to say, we had we not recognized this accrual reversal, our Q4 margin would have been five basis points higher.

It is of note, until we find resolution on that credit, that was primarily responsible for the income adjustment, we would expect this somewhat of a drag to remain. We are pleased with our ability to manage funding costs for the quarter with the weighted average rate of all new interest bearing deposit accounts during December of 3.51%, down from September's weighted average rate new interest bearing deposit accounts of 3.66%. I'd like to make a note of a few takeaways Slide 22 in our investor deck, as we continue see 45% to 55% of overall deposit betas achievable regarding any future rate cuts.

I would also like to point out overall core CD balance retention rate was about 83% during the fourth quarter. That statistic reflects our team's continued focus on maintaining and retaining core deposit relationships. Our baseline assumption is that we do we do not receive any further rate cuts in 2026. We have worked hard to manage our balance sheet to a relatively neutral position, and we believe we can achieve modest margin improvement in a slightly down rate environment. Lastly, on the topic of net interest margin, I'd like to mention a new slide we created and added to the quarterly slide presentation.

Slide 20 is a combination of two prior slides and shows our GAAP and core net interest margin in the context of the volatility in the Fed funds rate since 2020. We're proud of our ability over the years to maintain the margin with relatively tight range. This slide also shows our ability to hold the line on overall loan yields in a declining rate environment while managing funding costs downward. Moving on to the income statement. GAAP noninterest expense was $52,400,000 and included 1,400,000.0 acquisition related expense and $796,000 conversion related expense.

Core net interest expense for the fourth quarter of 50,200,000.0 was up slightly from the prior quarter but we do expect an increase in Q1 in the Q1 core expense base primarily due to the closing of the Progressive acquisition and timing of various first quarter annual expense resets. As a reminder, we should begin to recognize the impact of Progressive's cost saves post conversion, which should occur in the third quarter of this year. Fourth quarter GAAP and core non-interest income was about $12,200,000 and $13,200,000 respectively. GAAP results did include $35,000 gain on sales securities and a $995,000 loss on former bank premises.

Core noninterest income results for the fourth quarter were better than we expected primarily due to swap fee revenue, which was about $1,000,000 higher than expected. Also included in core noninterest income was $312,000 gain on OREO. We expect near term quarterly non interest income in the to be in the mid to high $13,000,000 range, which includes $1,000,000 quarterly contribution from the Progressive Bank acquisition closed on January 1. Lastly, I'd like to provide some context to the credit migration during the fourth quarter. Total loans past due thirty days or more excluding non accruals as a percentage of total loans held for investment increased from 27 basis points to 64. At December 31.

The ratio of nonperforming loans compared to loans held for investment increased 42 basis points to 1.24% at December 31. While the ratio of nonperforming assets compared to total assets increased 26 basis points to 1.09 compared to the linked quarter. The increases in the nonperforming loans and assets ratio over the linked quarter were largely attributable to the to the deterioration of a single $25,800,000 commercial real estate relationship. With that, that will conclude my prepared remarks, and I'll hand it back over to Jude so he can wrap up the conversation.

Jude Melville: Okay. Thanks, Greg. I just want to take one moment to welcome our new former Progressive Bank shareholders and employees as well as your listening. Excited about that partnership and I feel like everything that we've worked on thus far is ahead schedule in terms of you know, from our getting the approvals that we needed to get to close it to all the social integration work that we've already done and enjoyed over the past couple of weeks. Being able to spend time with a number of other employees and the former board members. And really excited about incorporating that into our already existing strong North Louisiana franchise.

It's an important part of our footprint, important part of the state. And I look forward to continuing to make a significant contribution to the economy our role as a community bank. In that area. So with that, I'd be happy to turn it over to the question and answer period. Do our best to answer any questions you might have.

Desiree: 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 in your device, please pick up your handset to ensure that your phone is not on mute when asking your question. We do request for today's session that you please limit to one question and two follow-up questions only. Thank you. And our first question comes from the line of Matt Olney with Stephens. Your line is open.

Matt Olney: Appreciate you guys taking my question. Wanna start on the loan growth front. Sounds like the paydowns that have been a challenge over the last few quarters weren't as much of a challenge this quarter. Any more color you can you can add to that? As far as the fourth quarter growth? And then the outlook for organic loan growth from here?

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

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

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

Matt Olney: Okay. That's helpful, Greg. And then Matt, I would Yeah. Hey, Matt. This is a little more color on the loan growth in fourth quarters. It was nice to see that it was kind of led by Southwest Louisiana and North Louisiana. We've worked hard to build a footprint that's diversified. And you think about that first from a credit perspective, but you also to think about diversification from a production standpoint. It's interesting to track that over time, and certainly wanna give those areas their due for so much to the strong quarter on the production side. And Texas is an important investment for us and will continue to be.

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

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

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

So we decided to do the prudent thing and move it over.

Jude Melville: Where does that rank of size wise? Size wise, I would say that's one of our larger if not one of the largest single commercial real estate exposures. I think it's the largest single that's for which we hold the exposure on our books. As you know, we try to actively participate exposures, particularly when they get to the 20, 25,000,000 level, and certainly at this level, at anything above this level. So, yeah. It's one of the larger ones. And yeah, if you think about lessons learned or things to continue to work I do think the biggest lesson banking is just concentration risk and exposure risk.

You can do everything right, they're gonna be there's gonna be something that happens to a certain number of credits. And if you look at banks that have failed or just been in serious trouble over the past fifteen years, generally it comes down to a relatively small number of outsized credits. And so one of the reasons that our metrics have moved around a little bit more than we would like, they've been more volatile, is, because the loans that we've had something happen on have been slightly bigger. And so not necessarily representative of the entire portfolio.

It just feels worse when it hits the when it hits the different stages of the life cycle of, of a credit that you're working through. So I think a reinforcement of the idea that we wanna even as we continue to grow, we wanna to keep our individual loan exposures to manageable levels. And then we also wanna make sure that on our concentrations from an industry perspective or a geography perspective, that we don't get too over reliant upon any one particular type of loan. I think, and these are just generic We've had a long period here where we haven't had to really run many credit issues through any kind of process.

And so just as we kind of remember how to do that, if you will, there gonna be lessons learned about how aggressive you are when you see warning signs. How you do from a monitoring standpoint along the way, and not so much with this particular credit as much as just general things that I think whatever stumbles we've had credit wise over the past twelve, fifteen months, we'll will benefit us as we continue to make credit decisions along the way and continue to refine our processes as we as we continue to get bigger. Okay.

Matt Olney: You, guys. Appreciate all the color. I'll step back.

Jude Melville: Thank you, Matt. Thanks, Matt.

Desiree: Our next question comes from the line of Michael Rose with Raymond James. Your line is open.

Michael Rose: Hey, good afternoon, guys. Thanks for taking my questions. Hey, Jude, you mentioned in the prepared remarks that the focus this year is going to be more so on daily execution versus any sort of major projects. I don't want put any words in your mouth, but I might take that to mean or someone might take that to mean that maybe additional M and A opportunities may not be in the cards Obviously, you've been fairly acquisitive here.

Lately, but just wanted to get a better sense of, you know, kind of what that comment means And maybe if you can remind us on some of the projects that you've recently completed and maybe just what that daily execution would mean. I know there's a lot in there, but, hopefully, you can provide some context. Thanks.

Jude Melville: Yes, sir. I appreciate you asking that, actually. Know, we had a busy year, busy number of years. But in particular this year, in addition to consummating an act or integrating an acquisition in Dallas and then consummating an acquisition North Louisiana. We also did a lot of process improvement internally and although and we've talked about on these calls a few times, a number of projects that we took on that are technology related. So we only did we convert another bank, Oakwood, over the course of the year, we actually converted ourselves to a new platform on Nucor. Platform which is a two year project and, involved pretty much everybody in the bank.

So it's a big deal and we also had three or four others, you know, five or six in total implementations, which you know, does take a certain amount of bandwidth and takes a certain amount of energy and the things that we felt like we needed to do to be able to manage and run more effectively at $9,000,000,000 in size over two states and a significant geography. Versus what we could manage and run when we knew everybody follow our all the employees and most of clients. Is that team had the relationships with you? As you scale, you need better processes.

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

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

We've made a number of really what we believe to be really good investments and partners throughout the years. And we're beginning to see, believe we have the opportunity now to demonstrate why those good partners not only give us greater opportunity over time and diversified our risk, but also have been good financial partners, leading to increased profitability. And sometimes, you know, the way you can really demonstrate that. Is to pause the m and a for a second and kinda let the good things percolate and catch up with you. So we saw significant improvement in ROA over the course of 2024. Excuse me, 2025.

And I shared with you last time that we intended to be over a 1.2 ROA. Last half of this year, 2026. And so that's become more of a focus for us. Than seeking to expand. We wanna deepen the relationships that we have, which will in turn lead to greater profitability. Which leads to greater tangible book value, which should lead to a enhanced share price. And that gives you more optionality for M and A down the road. And so we're kind of at that point where we believe we've we've made a number of investments over the years.

And we to be able to demonstrate what we know, which is that they were good investments that we've done well. And wanna be able to prove that out a little bit through increased financial performance. Before we take on other initiatives. So gonna execute. We're gonna work on the investments that we've made, and we're gonna be good bankers day to day. And that will translate into increased profitability that'll be sustainable and that will give us more optionality. To embark upon future projects down the road.

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

Jude Melville: That's a great question. And obviously, something we're talking about at the board level. We'll continue to talk about. We were able to buy back about 150,000 shares in the fourth quarter, and what proved to be attractive prices 24.7 kind of range. And those were more in the $110 to 115 ROA range or tangible book value multiple range. I think we certainly I would certainly agree with your characterization of one hundred twenty. Still being a reasonable and even cheap price.

And over the course of the year, we'll we have more optionality on what we do with capital than we did last year Last year, we had more than we had the year before because we've been building up those capital levels. So we will definitely continue to look for opportunities on a quarterly basis. I don't see us just setting it and letting it go and saying we're gonna buy back this number of shares no matter what. We wanna we do wanna be pick and choose when the right moments are, but certainly, would think over the long run, anything below one and twenty would be an attractive price You wanna add anything, Greg?

Greg Robertson: No. I'm Correct. One thing one thing I'd add, Michael, is that when you think about Q1, we're gonna take a little bit of a step back in tangible book on a per share basis with progressive closing. It would be an effective kind of slightly higher multiple right now than just 120. There's something we're thinking about when we evaluate buybacks.

Michael Rose: Perfect. Got it. At the outset, they said keep it to two follow-up questions, I'm going to use that one. Just as we kind of think about hiring from here in the opportunity set, just given some of the dislocation, you mentioned John Hiney was hired as new Houston Market President. You just frame up what you see as kind of the opportunity to hire? I think we've heard mix messages from Some banks are being fairly aggressive. Some are saying, like, take a wait and see approach. Just wanted to see how we should think about the opportunity set for you guys Or is it just more opportunistic? Making a kind of a full court press here. Thanks.

Jude Melville: Yes. Think the answer actually is probably similar to the answer I just gave you on stock buybacks. Right? I think it's kind of a we're prepared to hire and would like to hire if they're the right people. We don't feel any need to hit our in order to hit our profitability targets and our growth targets, we don't necessarily have to hire to do that. But we do know that there are good people out there and they're living in a more disruptive world than they were a year ago.

And we know we also are a different bank than we were a year, two years, and three years ago in terms of our capabilities, which also means in terms of our attractiveness as an employer. So why not continue to have conversations. I would expect that we will add another two or three in Houston. Over the next couple months as we've got some conversations and would like to bring those to fruition. And beyond that, it'll really be on a case by case basis. We don't have to hire every banker in the world to do what we wanna do in terms of financial performance.

Just need to hire the right bankers, and so we'll focus on evaluating that on a case by case basis as the opportunities arise. But I do think there will be opportunities, and we will be thoughtful about the one reason we can't afford to be a little less aggressive on M and A is that we believe that in our footprint, organic growth is going to be possible. And part of that is growing with our current staff, but part of that is incrementally adding some additional team members. Teammates. And so for the for the near future, we believe that's a more likely and profitable use of our capital than m and a.

Michael Rose: Thanks, Mark.

Desiree: Next question comes from the line of Fadi Strickland with Hovde Group. Your line is open.

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

Greg Robertson: I think good question. I think what we still see some migration from some of those non bearing accounts to interest bearing. So not a huge piece of that business is actual account. We're losing accounts. I think it's more of migration. That has slowed over the course of 2025. With the addition of our progressive Bank partnership they have a nice amount of their deposit base is non interest bearing. So we should get some lift from that in the first quarter. We still have plans to continue to focus on elevating deposit gathering through treasury and non interest bearing sources.

So it's something that we are looking at in 'twenty six as a big part of our plan of operation. But there has been some movement.

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

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

I think also, we think the SSW group and the brokerage piece of our business. So to speak. We do continue to see it scaling. We've been investing over the last few years in more talent in that area, and I think we'll continue to invest So we do look at upside for that. So I think noninterest income is a as a as a whole, we feel like that will be in the mid to upper $13,000,000 per quarter with the addition of Progressive Group. So we're comfortable understanding that it may be rocky going upward, but think the trajectory is still we're excited about that upward slope.

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

Jude Melville: Well, the deliberate part the strategy was building the footprint that we knew that not every market had to hit every moment in order to move forward. And delivering up building a footprint that didn't rely upon one market to carry the load. All the time. You know, I do think just based on demographics and differentials between economies, the that there's more upward growth opportunity in Dallas and Houston, as just they're just faster growing. Cities, and we have enough of a footprint in both. We'll be able to take advantage of that. But we've got a good core consistent growth in most of the Louisiana markets.

In a quarter in which one of our larger markets slowed down a little bit for whatever reason that is. Dallas was slower this quarter. Then we'll have our more consistent markets across Louisiana there to give us some more predictability as we try to forecast out from a balance sheet perspective over time. Yes, I guess the answer to your question is, we specifically say we need to grow Southwest Louisiana and North Louisiana faster in the fourth quarter than the other markets? No.

But we did specifically, try to build or put show up the footprint in which we could have different parts of the footprint experiencing greater success different times, which hopefully over time leads to a good consistent moderate growth pace for the bank as a whole.

Greg Robertson: Yeah, I think if you think about 2025 as a whole, had both North Louisiana and Southwest Louisiana grow over $100,000,000 in loans and deposits each. And, you know, we're we're excited about Southwest Louisiana now has over 2,000,000,000 in deposits. Which is a large part of our deposit base and an important part of that. North Louisiana with that kind of growth as well, a 100,000,000 in deposits. They are now over 1,000,000,000 or approaching $1,000,000,000 in deposits with the addition of our progressive partners.

Will be approaching $2,000,000,000 So we're excited about those areas and as I said, the Southwest Louisiana, Dallas comparison is an intriguing one because one of the thesis behind the construction of our footprint was that not only with different areas produced differently at different times, but that we could be a little more thoughtful about funding generation versus loan generation depending upon what type of market So as Greg mentioned, the Southwest Louisiana has been able to be more aggressive on deposits over the past two or three years. Probably because we knew we had growth in the Dallas loan environment. And so Dallas is actually our largest market, as measured by loan volume.

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

Jerry Vasquez: Yeah, I'd like to add one thing. Really pops. This is Jerry, by the way. Yeah. Jerry, I'd ask you to hear your Betty Just an important part of this is I wanna call out lot of this growth is coming from adding new clients. It's not just legacy client base. It's tenured strong, bankers in our footprint. New bankers bringing in new clients, is a accounting for quite a bit of that growth, which is really nice to see. In these markets that we've, got such strength within. Yeah. And so this is still to understand also. Obviously, we're excited with the addition of John and the horsepower that he's gonna bring to Houston market.

But in North Louisiana, we're we're excited, the progressive addition and the opportunity, as Jude talked about, in '26, deepening our existing relationships, Progressive being a deep in those relationships with a bigger balance sheet.

Feddie Strickland: Perfect. Thanks for all the additional color, guys.

Jude Melville: Thanks, Feddie.

Desiree: Next question comes from the line of Gary Tenner with D. A. Davidson. Your line is open.

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

Greg Robertson: Yeah. Think one of the things that the rate environment could provide some challenges, but I think as we continue to scale and understand our philosophy around pricing and fixed rate loan pricing with long duration. We would like to And I think our bankers are becoming accustomed to taking some of that those rate bets off the table with longer duration deals. So I think as the we continue to integrate that process, and it's a it's a very new process within our bank being only a little over a year old.

But I think as we integrate that process with our bankers and our new banks and they understand that we would like to manage that rate risk a longer maturity fixed rate loans. Through the swap vehicle. I think that gives us even in a in a rate environment that may be more challenging than what it has been, more opportunity. Yeah. So that's a good point. It's not just about the economic opportunity for the seed generation.

It's also an opportunity to offer the client more options even while we put ourselves in a better place to manage our interest rate risk You know, we it's important one reason we added that chart that Matt described earlier, believe, or maybe it was Craig that described earlier, chart showing the pretty consistent NIM over time was we don't believe that we should be taking significant interest rate risk, and we manage only the bank's entire balance sheet, but our investment portfolio, in particular, we manage it for cash flow as consistent predictable cash flow as opposed to yield.

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

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

Even if it ends up faster rate of growth off our balance sheet as opposed to with our direct clients.

Gary Tenner: Great, thank you.

Jude Melville: I was going to say real quick on the correspondent banking our biggest opportunity, we have about a little over 175, 180 clients. And with most of them, we just do probably just one thing, I mean, for the vast majority. And so part of our biggest opportunity there that we've been working on is having more of a unified sales approach so that we can actually increase the share of wallet. If you will, and have multiple provide multiple opportunities.

So most of the folks that we've done SBA with, we haven't done swaps with and vice versa or the other products that we that we offer our largest one, actually, and our original one was through our affiliate SSW. Manages other banks' investment portfolios. We have a 6,000,000,000 to $7,000,000,000 in assets under management, and being able to cross sell the different products that we've been working on adding to our tool set. Think it's the biggest opportunity that we have regardless of the demographic or economic changes in the environment.

Desiree: And our last question comes from the line of Christopher Marinac with Janney Montgomery Scott. Your line is open.

Christopher Marinac: Hey, thanks for taking the questions this afternoon. I wanted to go back to the reserve. What should be the reserve ratio over time? Just looking at kind of annualized losses this quarter, last quarter, and just thinking the three point five, four year average life, should the reserve be higher over time even if we included the discount you have on the deck.

Greg Robertson: Yeah. I think that's great question, Chris. I think what we talk about internally is continuing to move that reserve to 1% or higher. I think the charge offs that we had in this quarter took it down a few basis points. But I think internally, we're we're reserving at a rate of one twenty on every new loan we make. So over time, we would like that to be above 1%. I think that's our intentions as well. And especially when you add the credit marks in there, I think we're currently all in about one zero six like we show in the deck, and that'll continue to move up with the closing of the Progressive transaction.

Christopher Marinac: Got it. And should annualized losses be somewhere kind of in the in the mid teens or 20 or you have a thought about that?

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

Jude Melville: We took some losses on them last year. Yep. And have some specific reserves as well.

Greg Robertson: There could be a bit of a drag in terms of the actual recoveries So gross, to Greg's point, is maybe in the mid teens, net kind of lower. To low double digits. Annualized. Chris, I think the days of us operating in the four to five basis points of charge offs that's going be tough going forward. Think it's just for the industry as a whole.

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

Greg Robertson: Yeah. I think our plan is to continue to improve operating leverage. Think as we as Jude mentioned, we're moving toward being able to have a run rate of fourth quarter of 120 run rate. I think if that's achieved, then I think that thing gets close to 60. On an annualized basis. And then, you'll probably start seeing on a monthly basis, into the fifties post integration of Progressive. Here and there as we as we continue to prove improve performance and earnings throughout the balance of the second half of the year. As we get into 2027, we would expect that our goal is to have that into the 50s.

And I think there's once you kinda achieve those third quarter, fourth quarter twenty six ROA targets that we've been talking about, then there's a pretty natural glide path into the 50s. I think that we feel like it's very achievable. And necessary.

Christopher Marinac: Great. You again, guys. Appreciate taking the time.

Jude Melville: Thanks, Chris. Thank you.

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

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

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