Business First Bancshares, Inc.

Thank you for standing by and welcome to the Business First Bank Shares Q4 2022 earnings call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you'd like to ask a question during this time, simply press star followed by the number one on your telephone keypad. If you'd like to withdraw your question, again, press the star one. Thank you. It is now my pleasure to turn the conference over to Matthew Seeley. SVP, Director of Corporate Strategy, and FP&A. Mr. Seeley, please go ahead.

Thank you. Good morning, and thank you all for joining. Yesterday afternoon, we issued our fourth quarter 2022 earnings press release, a copy of which is available on our website, along with the slide presentation that we will refer to during today's call. Please refer to slide three of our presentation, which includes our safe harbor statements regarding forward-looking statements and the use of non-GAAP financial measures. For those of you joining by phone, please note the slide presentation is available on our website at www.b1bank.com. Please also note our safe harbor statements are available on page seven of our earnings press release that we filed with the SEC yesterday. All comments made during today's call are subject to the safe harbor statements in our slide presentation and earnings release. I'm joined this morning by Business First Bank shares president and CEO Jude Melville, Chief Financial Officer Greg Robertson, and Chief Banking Officer Philip Jordan. After the presentation, we'll be happy to address any questions you may have. And with that, I'll turn the call over to you, Jude.

All right, thanks, Matt, and thanks, everybody, for joining us this morning. We know you have a lot of choices about where to be, and we appreciate you deciding to prioritize being here with us. I'll keep the remarks kind of brief so we can jump into questions. I do want to go over some of the notable trends from the quarter and then some full year highlights, and then we'll get into the Q&A. Fourth quarter, successful fourth quarter. We were pleased with where we ended the year of. Non-GAAP core net income was $16.4 million and $0.66 per share available to common holders. Better than we expected and for good positive reasons. Primarily, we continue to have good, strong loan growth and almost 16% annualized. One of the things that I was excited about was to see that that was diversified. We had it across our regions. And then also a good balance between commercial and CRE credits as well. Second positive impact to the numbers was we had higher loan accretion than we expected. We were able to sell a couple of loans that we felt was good timing for us. And then we had a large payoff as well. and those loans had accounting marks related to them that we were able to benefit from. We benefited slightly from non-interest income through SBIC revenue. You all remember that we have a number of investments in SBICs, which occasionally surprised on the upside, and this was one of the quarters in which we had about $400,000 above budgeted SBIC income. We continue to focus on efficiency, so we're proud of the fact that our non-interest expense came in just below expectations. So certainly, given the environment that we're in, being able to have discipline on expenses is important. Even though we were able to keep our expenses lower than we anticipated, we also made a number of key hires, including Jerry Vascafue, who joined us as our Chief Administrative Officer. after 17, 18 years at Iberia and First Horizons. And so we're excited to, A, have the contribution of the experience that he's had being a part of growth organizations and certainly the contact base, but also excited in that it fills out our exec team. So we feel like we're well established for where we need to be from a senior leadership perspective over the next few years as we begin to approach the $10 billion mark in assets. We did have an elevated loan loss provision relative to our expectations. We took two specific reserves on loans, and we can talk more about that in the Q&A, but we certainly considered them to be isolated and one-off incidents, one of which involved fraud and So we don't feel like that's representative of anything more systemic across the portfolio, and our overall credit metrics certainly reflect that. So if you adjust the quarterly results for backing out the additional loan discount creation and the higher loan loss provision, we would have hit about $15.4 million for the fourth quarter, which is still slightly ahead of expectations. So we feel very positive about that. Also, although it's a challenge, probably the challenge going forward over the next two or three quarters, we actually were not unpleased with our performance on the NEM side of the ledger. We did drop down 13 basis points on our core NEM, but you'll remember in our last quarter we talked about the fact that Our third quarter was artificially inflated by about five basis points, and we expected to have five or six basis point drop modeled on top of that. So we came in really close to what we had modeled, and we feel good about our modeling going forward. We feel like, well, before I say that, I think it's important to take a step back. It's not just quarter-quarter, but first half of the year versus second half of the year a week. at a 20 basis point increase in margin, even with that drop. And so we feel like we're in a better place going into next year, or this year, I guess we are now, versus where we were next year. We also feel like the fourth quarter was a little bit of a catch-up phase. We had modeled that where we had kind of held off on some rate moves, and we're kind of catching up. And we feel like we'll be able to stay about flat for this quarter and and then have some slight increases over the rest of the year. So we'll talk a little more about that when we hit the Q&A, but not unpleased with where we are from a margin perspective. Taking a step back and looking at the full year in review, it was a record year in many ways for us. Achieved a record core net income of $57.6 million for the year, which... It was about 10% above what we finished at last year, but last year, you'll remember, included a sizable positive impact of selling our PPP portfolio. So we actually generated significantly more income this year and feel well poised to take on 2023 with some of the non-monetary accomplishments that we had over the course of the year, which includes... integrating the Texas Citizens transaction out of Houston. It includes integrating a number of banking teams that we picked up at the beginning of the year. So those are kind of like mini acquisitions in a way, and they take effort and judgment and time. And so I feel really good about the success that they're having. don't feel that they are yet at capacity, so we should continue to see good things coming from those teams. We also opened our fourth full-service location in Uptown Dallas and experienced a lot of activity there. We're excited about it. We actually crossed over a billion dollars in loans in Dallas this past quarter, and when you combine the Dallas and Houston operations, we're at about 35% of our accredited portfolio as a whole as in those two large and fast-growing metro areas. As we have talked about, one of our goals is getting closer to 50% of our exposure outside of Louisiana so we can be diversified. We took really big steps towards that this year. Finally, I would just say that we feel good about fortifying our balance sheet. We raised $122 million in equity over the second half of 2022, $72 million in a self-managed preferred equity raise, which this quarter was our first quarter to pay the dividend on that preferred equity raise, which to be able to pay that dividend without yet putting it all to work can still beat our numbers. It's something that I feel is another positive. And then we also did the $50 million common equity raise. So We feel well-placed to take on the opportunities that we feel are out there in this next year. Our clients remain highly positive and confident. Certainly there will be some challenges, but all in all, with the strongest asset quality that we've had and a 45 balance sheet, and then a stronger team than we've ever had, we feel well-positioned to take on 2023. So appreciate your time and happy to answer any questions that you might have.