Business First Bancshares, Inc.

Good afternoon. My name is Chrissy and I will be your conference operator today. At this time, I would like to welcome everyone to the Business First Bank Shares Q1 2023 Earnings Conference 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 would like to ask a question during this time, simply press star then the number one on your telephone keypad. If you would like to withdraw your question, please press star 1 again. Thank you. Matt Seeley, you may begin your conference.

Thank you, Christy. Good afternoon, and thank you all for joining. Earlier today, we issued our first quarter 2023 earnings press release, a copy of which is available on our website along with the slide presentation that we'll refer to during today's call. Please refer to slide 3 of our presentation, which includes our safe harbor statements regarding forward-looking statements and the use of non-GAAP financial measures. For those of you joining by phone, please note the slide presentation is available on our website at www.b1bank.com. Please also note our safe harbor statements are available on page seven of our earnings press release that we filed earlier today with the SEC. All comments made during today's call are subject to the safe harbor statements in our slide presentations and earnings release. I'm joined this afternoon by Business First Bank Chair's President and CEO Jude Melville, Chief Financial Officer Greg Robertson, Chief Banking Officer, Philip Jordan, and Chief Administrative Officer, Jerry Vaskeku. After the presentation, we'll be happy to address any questions you may have. And with that, I'll turn the call over to you, Jude.

Okay, thanks, Matt, and thanks, everybody, for joining us. We recognize it takes energy and effort and commitment, particularly as we're near the end of a busy earnings season, and we appreciate the opportunity to provide color to our story. Before we get into the details of the quarter and thoughts about future projections, I'd like to take just a second to zoom out to a big picture perspective. Ultimately, we're not working to put up a number for a quarter or two. We're working to build a sustainable franchise that produces value for our multiple constituents over time. We've made a number of investments over the past few years with this end in mind, and I want to give you an update on where we are relative to our loan return goals, particularly on the significant progress we've made over the past year. And we've been working towards three primary objectives. First, diversification of risk. Second, growth to a meaningful size. And third, increasing our earnings power. On diversification of risk, we've primarily chosen to accomplish this through geographic expansion into Texas. Not a retreat from Louisiana, where we're still the largest domiciled bank as measured by deposits, but an expansion into Texas. We've had significant success in organic development of the Dallas market, growing to almost $1.3 billion in loans. which makes it our largest single metro area by exposure and nearly $300 million in deposits over four locations. We're for real in the country's most vibrant market at a greater scale than we imagined when we did Novo Den about five years ago. Additionally, over the past year, we've successfully integrated our Houston acquisition into a meaningful part of our team, growing the acquired asset base, securing and integrating the team, while achieving our projected cost savings along the way. With the two markets combined, our Texas exposure is now 37% of the credit book ahead of our timeline. As we've all been reminded over the past few weeks, though, risk is not just asset-based. It's also found in the makeup of our liabilities. With that in mind, I'd point out the work we've done on a new slide in our deck, number nine, slide number nine, in which we detail our liquidity profile. Low uninsured levels, high granularity of accounts, and no measurable slippage over the recent volatile times. This is our longer-term strategy of combining growth of credit in the West with stability of deposits in the East, and it's working. Second, meaningful size. All of the current pressures point towards the importance of scale, and it's likely that even more scale will be required to maintain efficiencies required to offset the cost of managing with higher levels of liquidity. Slide 10 demonstrates our approach toward achievement of scale as a combination of organic and acquired assets. We're sometimes labeled a roll-up story, but that's really a function, perhaps, of our not telling our story clearly enough, and hopefully this slide will help with that. We do look to partner with certain institutions when the time is right for both parties, but those efforts are complementary to our organic efforts, not a replacement for them. You'll see on slide 10 that our annualized deposit CAGR since 2015 is 26%, a large number, but our unacquired growth has been 16%, also a very healthy number. More to the point of the current period, you'll see that the number of accounts we've grown is heavily weighted towards smaller accounts at a ratio of nearly 50 to 1. When we set out on our most recent five-year plan, we aimed to double in size to $7.4 billion in assets. That's $6.2 billion at the end of this quarter. We're ahead of schedule, and we've done it in what we believe to be the right way. Finally, profitability. Our first quarter is traditionally our least profitable quarter, so there's been a light and expected step back in profitability relative to the fourth quarter of 2022. But year over year, we've increased tangible book value, we've increased pre-provision, pre-tax income considerably, and we've increased EPS, even while adding shares to the Texas citizens acquisition and the capital raised in the fall. We expect to be capital accretive next quarter, and now that we've achieved a footprint of enough size and geographic diversity that we can be certain of our staying power, we expect to prioritize increasing our returns relative to capital over the coming quarters and years. So a big picture, I'd argue we've accomplished a tremendous amount of franchise building over the past year and years, and I want to make sure our team knows how proud I am of those efforts beginning to come to fruition. With that said, I'll focus briefly on quarterly highlights before turning it over to Greg for more detail and questions. First quarter non-GAAP net income and EPS were $13.8 million and $0.55, respectively, both better than expected. These results were driven by good expense management, some green shoots in non-interest income, including development of our SBA offerings, continued loan growth, and higher loan discount accretion than expected from previous acquisitions. Our lenders have done a good job of charging for new loans, with current new loan yields topping 8%. Obviously, we've been impacted by the dramatic shift in posture towards deposits the market has experienced over the past few weeks, as with most banks, offsetting some of the gains by increased deposit and borrowings costs. But our margin, while down for the quarter, is still up year over year and has historically been quite consistent in this range. Two last things to note. One, implementation of CECL causes us to recognize differently the asset quality of acquired and paired loans. So as our reported asset quality level, while still excellent, appears to have degraded slightly. It's a function of accounting rules and not practical change and risk. If anything, our underlying asset quality as measured apples to apples, pre-CECL versus post-CECL, has improved quarter over quarter, as Greg will explain in more detail. Second, one final new slide, number 27, speaks to our CRE, C&D, and in particular, our office exposure and granularity. We feel good about the geographic diversity of our exposure, as well as the manageable pace of renewals that we'll face over the next two years. And we'll be happy to address that in greater detail should there be questions. Again, thanks much for your time, and now I'll turn it over to Greg. Thank you, Jude.