Operator: At this time, I would like to welcome everyone to the Business First Bancshares Q3 2026 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 would like to ask a question during this time, simply press star followed by the number one on your telephone keypad. If you would like to withdraw your question, press star one again.
Operator: I would now like to turn the conference over to Matt Sealy, Senior Vice President, Director of Corporate Strategy and FP&A. You may begin.
Matt Sealy: Thank you. Good morning, and thank you all for joining. Earlier today, we issued our Q3 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 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 six 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 on our slide presentation and earnings release.
Matt Sealy: I am joined this morning by Business First Bancshares Chairman and CEO, Jude Melville; Chief Financial Officer, Greg Robertson; and President of b1BANK, 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 you, Jude.
Jude Melville: Okay. Thanks, Matt. Good morning, everyone, and thank you for joining us. Monday mornings come with plenty of competing priorities. We know that, and we appreciate you spending part of yours with us. When we spoke in July, we told you we expected a stronger H2. Loan growth picking up, deposits rebounding, and continued progress on margin. I am pleased to say the Q3 delivered on each of those. I describe it as simply a quarter in which good execution turned into good results. Loans grew a little over 7% annualized, led by the Houston pipeline we talked about last quarter, and deposits grew at a similar pace, which gave us the opportunity to pay down higher cost brokered funding and borrowings. Margin expanded another 12 basis points on a core basis, and expenses stayed in check.
Jude Melville: Added up, these incremental improvements produced our strongest core profitability in several years. With our shares trading below what we believe the Business First franchise is worth, we continued buying back stock while still growing tangible book value. The one area where progress came slightly slower than we had hoped is credit. Non-performing loans moved down only modestly this quarter, primarily due to timing on solutions already in motion. We expect to show further progress on non-performing loans in the Q4. One thing worth noting is that while we had an uptick in NCOs, these were primarily loans previously discussed in this forum, the bulk of which were already fully specifically reserved for as we worked on resolution over the course of the year. Just as important, though less visible in the numbers, we completed the Progressive conversion in August.
Jude Melville: Conversions are rarely as easy as they look from the outside, and I want to thank our North Louisiana clients and teammates, both in North Louisiana and throughout the company, for making this one as smooth as any I can remember. It positions us to hit the ground running in a region where investment activity continues to build. Looking ahead, the set of opportunities across our footprint is as broad as I have ever seen it. North Louisiana is now home to not only Meta's largest data center, but also in the northwest corner of the state, Amazon's roughly $20 billion commitment. The opportunities in Houston and Dallas speak for themselves. Southwest Louisiana keeps delivering steady growth, something we expect to continue as SpaceX's $100 billion investment gets underway.
Jude Melville: We were pleased to add a six-person lift-out of a commercial team in Tyler, Northeast Texas' largest city, giving us the opportunity to begin filling in the I-20 portion of our footprint between Dallas and Shreveport. Finally, our financial services group, now serving more than 200 banks with the addition of American Planning Corp, is growing revenue at better than 20% annualized. Our job is to pursue these opportunities with the same discipline that got us to this point. If we can do that, we expect to see continued improvement in core profitability, not over the rest of the year, but into 2027. Again, thank you for your time and attention. With that, I will now turn it over to Greg.
Greg Robertson: Thank you, Jude, and good morning, everyone. As always, I will spend a few minutes reviewing our results and will discuss our updated outlook before we open up to Q&A. Q3 GAAP net income and EPS available to common shareholders was $23.2 million and $0.71 per share and included $3.5 million in merger-related expense and $21,000 loss on sale of securities. Excluding these non-core items, non-GAAP core net income and EPS available to common holders was $26 million and $0.79 per share. From our perspective, Q3 results marked another quarter of strong financial performance, generating a 1.17 core ROAA and a core efficiency ratio of 61.1% core. Core pre-tax, pre-provision earnings for Q3 was $36.3 million and exceeded our expectations. Our Q3 earnings results were highlighted by better-than-expected margin expansion, balanced loan and deposit growth, and disciplined expense control.
Greg Robertson: Q3 benefited from recognizing substantially all cost saves from Progressive acquisition and a full quarter impact of the loan sale of lower yielding loans. The strong financial results allowed us to remain active repurchasing our common shares during the quarter. On our balance sheet, total loans held for investment increased to $21.4 million or 7.2% annualized on a linked quarter basis, led by our Houston, Texas, and Southwest Louisiana markets. Based on unpaid principal balance, Texas loans were unchanged from the prior quarter at 35% of our portfolio. Total deposits increased to $141.2 million or 7.7% annualized, driven by a $119.1 million increase in interest-bearing deposits and $22.1 million increase in non-interest-bearing deposits. The increase in interest-bearing deposits was largely attributable to $180.1 million in commercial money market accounts, partially offset by the decision to pay down roughly $66 million in higher cost broker deposits during the quarter.
Greg Robertson: During the quarter, we also managed to repay $108 million in FHLB borrowings, bringing our total FHLB balances to $334.2 million. Looking ahead to Q4, we do see some opportunity to further reduce borrowings in broker deposits. Lastly, I think it is worth mentioning the slight increase in tangible book value per share, which increased approximately 1.7% annualized during the linked quarter. While this is not a significant increase on an absolute percentage basis, we feel positive movement in tangible book value per share while being active in our buyback plan and while interest rate pressured AOCI is certainly a noteworthy highlight of the quarter. Moving on to the margin, our GAAP reported Q3 net interest margin increased 13 basis points linked quarter to 3.86%, while the non-GAAP core net interest margin, excluding purchase accounting accretion, increased 12 basis points from 3.68% to 3.80% for the quarter ended September 30.
Greg Robertson: The margin performance during Q3 was driven by improvement in loan yields and slight decrease in funding costs due to the previously mentioned reduction in broker deposits and reduction in FHLB balances. The margin also benefited from a full quarter impact of Progressive loan sale, which occurred in late Q2 of this year. Loan discount accretion during Q3 was roughly $1.2 million, was driven by higher than expected early paydowns. However, going forward, we expect loan accretion to average about $500,000 for the next few quarters. On a linked quarter basis, cost of total deposits decreased 2 basis points while total loan yields increased 10 basis points. Core loan yields, excluding loan discount accretion for Q3, was 6.66%, up 9 basis points from the prior quarter.
Greg Robertson: Total cost of deposits for the month ended September 2026 is 2.25%, which was relatively consistent for the Q3 2026 full quarter weighted average. We are pleased with our continued ability to hold the line on new loan yields during the quarter with a weighted average of new and renewed loan yield of 6.99% for the third quarter and 7.13% for the month of September. I'd like to make a note of a few takeaways to slide 19 in our investor presentation. We continue to see 45% to 55% overall deposit betas achievable regarding any future rate changes. I'd also like to point out overall core CD balance retention rate was 77% during Q3. This impressive statistic reflects our team's continued focus on maintaining and retaining core deposit relationships.
Greg Robertson: Our baseline assumption is that interest rates remain flat for the remainder of 2026, other than the recent September increase in Fed funds. We would expect additional rate hikes to slightly benefit our net interest margin and net interest income in the near term. On the income statement, GAAP non-interest expense was $60.5 million and excluded $3.5 million in non-reoccurring acquisition conversion related expense, which included $1.23 million in lease termination expense. Core non-interest expense for the third quarter was $56.9 million, down $1.4 million from the prior quarter. This was below our expectation for the quarter and was driven by an acceleration in recognizing cost saves from the Progressive acquisition. Recall, we completed Progressive's core conversion in mid-August of this year. Third quarter GAAP and core non-interest income was $12.5 million. GAAP results did include $21,000 loss on sale of securities.
Greg Robertson: Non-interest income results for the third quarter were slightly below our expectations, primarily due to the lower than expected SBIC revenue and swap fee revenue. As we have mentioned in the past, some of our non-interest revenue business can be lumpy from quarter to quarter, but over the immediate and longer term, we do expect a steady build and overall contribution. Lastly, in credit quality, I'd like to mention the modest improvement in credit quality during the quarter, highlighted by our 30-day or more past due ratio, 0.48%, holding stable over the last three quarters. The ratio of non-performing loans compared to loans held for investment decreased two basis points to 1.24% to 30 September, while the ratio of non-performing assets compared to total assets decreased one basis point to 1.22% compared to the linked quarter.
Greg Robertson: I'd like to mention the increase in charge-offs during the third quarter was attributed to a single previously identified and fully reserved commercial relationship. This credit cleanup is consistent with our previous conversations, and we expect continued resolution as we move forward over the next few quarters. That concludes my prepared remarks. I'll hand the call back over to you, Jude, for anything additionally before I open up to Q&A.
Jude Melville: Thanks, Greg. I would just summarize by saying we have been, I think, fairly transparent and consistent in the things that we have been speaking about to you over the past few quarters, which match up with the things that we have been working on as a bank. Not that complicated. Healthy growth, discipline on the expense side, making sure that we execute on acquisitions, and then making sure that we are thinking through our capital allocation decisions. I think what we saw in Q3 was those elements of incremental improvement coming together to produce good results. We look forward to continuing to focus on those kind of broad principles as we navigate the opportunities and inevitable challenges that we will have over the next few quarters. We look forward to it. With that, I will turn it over for any questions anybody might have.
Operator: Thank you. We will now begin the question and answer session. To ask the question, you will need to press star, then the number 1 on your telephone keypad. If you would like to withdraw your question, press star 1 again. We do request for today's session that you please limit to one question and one follow-up. Thank you. Our first question comes from the line of Matt Olney with Stephens Inc. Your line is open.
Matt Olney: Hey, thanks. Good morning, everybody. I want to start on the good morning. On the loan growth front, good to see some strong trends this quarter. It sounds like Houston was a big driver. Any more color on the pipelines from here? The second part, you mentioned the lift out of a team in Tyler, I would love to hear about expectations that you have for this team. Thanks.
Jude Melville: Sure. I will start us off. Greg. We do see the Houston pipeline that we have been building beginning to turn into actual on-the-books production, which is exciting, and we believe that will continue. One thing we are especially pleased with is that, whenever you recruit bankers over, often they have a period of non-solicitation. A number of the members of our expanded team are operating under that or have been able to produce even with those constrictions. So we will look forward to when we pass the year mark and be able to broaden the universe of their calling efforts. We are very pleased with the progress there and anticipate that will continue. Also saw good moderate loan growth in parts of Louisiana. Southwest Louisiana and the capital region are doing well, and North Louisiana as well. We saw some positive movement.
Jude Melville: One interesting thing that we are seeing, I talked a fair amount last quarter about the Meta development in Northeast Louisiana, where we now have a significant presence. We have been there for a number of years, but it, of course, was added onto with our Progressive acquisition. One interesting thing about that is we are actually seeing an uptick in loan production in the other parts of our footprint related to the Meta investment. When you think about who is actually moving materials and being involved in the construction, quite a bit of it we are seeing is coming from South Louisiana. Some of the uptick in fundings in Baton Rouge and Lake Charles and Lafayette have come from companies already prepared and actively serving in the Meta area.
Jude Melville: It has been nice to see the kind of network effect of our footprint being the only community bank in Louisiana that is truly Louisiana-wide in terms of our footprint. We are seeing benefit in multiple areas, which we would expect to continue. I know Greg can talk a little more about that in terms of details, if you want to, Greg.
Greg Robertson: Yep. Matt, we think going forward, Q4, we feel like the mid to upper single-digit growth with the pipeline that we are seeing, as Jude mentioned, continued build out of Houston is what we are expecting to see more in line with kind of a replication of the performance in Q3. I think one of the things that we are seeing, and this is kind of moving away from loan growth, but I think it is a result of loan growth, is the, probably noticed risk-based capital had a slight decline. I think that is the impact of some of the unfunded commitments for these types of business Jude was referring to with some of our Meta clients. That underfunded commitment portion does drag on capital a little bit. So that is short-term, and we feel like we will be accreting capital with the loan growth relative to those relationships going forward.
Jude Melville: We feel good about the pipeline, for sure. Matt, I know your second question was on Tyler, which we are excited about. At the beginning of the year in our board planning process, we have discussed areas of our footprint that we would be most excited about filling in. I guess it is the right word. It is a new venture, but it also is squarely within our current footprint. Tyler was top of that list. We feel like there is really a good growth story in East Texas, and Tyler is kind of the jewel of East Texas in that regard. So when you think about it being not only what we could do in Tyler, but as a window to the rest of East Texas, Marshall, Longview, those other growth areas along I-20, we are excited about the long-term opportunities that we have there.
Jude Melville: The team that we partnered with came out of a community bank there in Tyler, and feel like they will be able to hit the ground running and make a material difference for us, not only in the long term, but over the next year as they work to transition their book to ours. We have a good history, not only of being able to move business, but because of the size of our balance sheet relative to most community banks in the area, we can actually allow them to do more with their current clients. So we are excited about the opportunity to enable those bankers to better serve their clients, and look forward to seeing what they can do.
Matt Olney: Okay. All right. Well, I appreciate the color, Jude and Greg, on that front. If I switch over to core margin, I am curious also at expectations there. I mean, the 380 margin we are at now is the highest we have seen in a while. So congrats on that. Would just love to appreciate expectations on the core margin from here. It sounds like you are not expecting any rate changes, in the near term at least. But would love to kind of appreciate your outlook, if you sensitize that based off higher rates from here. Thanks.
Greg Robertson: Yeah. We expect the margin to expand in Q4. I will put a little bit of context to that. The 25 basis point rate hike that we saw in September, with our balance sheet being slightly asset sensitive, 53% of our loan book is variable price. So we did get some benefit. All of those have repriced by now. As a result of that, it would lead you to believe that we should see some margin expansion. I will say that with a caveat, as we move through Q4, what we are seeing is some competitive rate pressure on the deposit side. For example, there are some specials we are seeing out there pretty much across the markets that are very nearing one-year broker borrowings rates. So we are going to keep an eye on that. Our bankers have been doing an excellent job of recruiting new relationships and managing funding costs.
Greg Robertson: But it is something to stay aware of. That with our build that we seasonally get in Q4 from municipalities. That does have an impact on the liability side from a cost standpoint. So we are going to keep an eye on that. I think we feel like margin expansion in the fourth quarter is very achievable, but we will have to continue to manage the liability side of it.
Jude Melville: We started really talking publicly about a year ago about margin being our priority over growth. We think we can do both. But we will continue to focus and prioritize on incrementally improving that margin as we can. This level of growth on the loan side, particularly when it is match funded, feels like a pretty healthy natural rate. If we can continue to have this moderate healthy growth and maintain a little bit of incremental improvement on the margin each quarter, I think we will all be very pleased with the results.
Matt Olney: Okay. I appreciate the commentary and congrats on the results. I will step back.
Jude Melville: Thanks.
Greg Robertson: Thanks.
Operator: Next question comes from the line of Feddie Strickland with Hovde Group. Your line is open.
Feddie Strickland: Hey, good morning. Just wanted to ask a couple questions here on fees. There is a $500,000, I think, step down in the other fees line versus both last quarter and last year. Was there any one item driving that?
Greg Robertson: I would say, not necessarily. I think it is just seasonally as we continue to work through different types of client bases. I think that is just the movement that you would expect to see. No major step back from a total standpoint. I think on the non-interest income side, I think the thing that we felt like that really underperformed expectations, as we mentioned, was the SBIC and the timing of the income from those investments sometimes is a little bit tricky. Then also the swap revenue that we have seen quarter-over-quarter. I think the yield curve had a little bit to do with that and also some timing of some deals that are coming through the pipeline. We expect to see that start to trend back up, though.
Jude Melville: I think we have been able to talk a few times about one of the good side of this part of the business is that it is generally non-spread based, right? So it is a diversifier, but the challenge sometimes is that the earnings can be a little bit lumpy quarter-to-quarter, and you really have to take a step back and look at the overall longer-term trends. We still remain on pace to improve revenues 20% and bottom line earnings 20% year-over-year, which would be, I think, the third year that we have done that. We anticipate that that trend will continue. It just might be a little up and down as we get there, but that is the nature of that type of business, and it is a good thing.
Jude Melville: We think we will revert to the mean a little bit in Q4 and should see a little, again, not a major uptick, but maybe a little bit back to the norm in Q4 in that line item.
Greg Robertson: One driver, Feddie, in that group is it is not always predictable to control the revenue coming off of it. As Jude mentioned, it is kind of lumpy. But one thing we are proud of is while growing the business, I think the banks that we serve now that make up part of that revenue stream are over 200 banks. So as we continue to grow and add relationships with banks, you would hope that that would continue to offset some of the lumpiness.
Jude Melville: Mm-hmm. Yeah. Same thing that as we grew our core bank, in the early days, particularly being a business bank, the individual client exposure could be fairly lumpy. Rather than try to write off some of those bigger clients, we actually grew into them so that the lumpiness became more diversified and a large enough group that changes in individual client relationships mitigated through the number of client relationships. To Greg Robertson's point, we are building a large number of banks in which we have a relationship. The larger we can get that group, then the less lumpy individual transactions will appear. So good opportunity for us to keep working on as we continue to grow that part of the bank.
Feddie Strickland: That is great. On that same topic, is there any potential impact I should think about if we do see rate increases and higher long end yields? How does that impact SSW and the FIG group? I get a lower gain on sale on swaps most likely, but just curious how SSW and the FIG group in particular might see changes with where the yield curve is.
Greg Robertson: Yeah, I think we would have to keep an eye and pay attention to SSW, their RIA. So assets under management matter. AOCI negatively impacts that. They historically, if you look back at their earnings since our partnership with them, they have not only added banks to offset some of this, like we were talking about previously, but also if you compare their performance versus the industry, the impact to AOCI was significantly less than industry. So, we feel good about the way they manage that portfolio, and it will be impacted to your point. I think they are doing the things not only on a day-to-day basis, but also by adding additional banks to offset the income impact as well.
Jude Melville: Yeah, I think that is a really good point. Not to get too weedy, but SSW, who, as you know, worked with us for, I think, 17 years before we officially partnered with them. SSW guides their clients in the construction of their investment portfolios to focus more on cash flow than on yield. One of the things that that has done is meant that the duration risk as rates increase has been lower than it has been for non-SSW peer banks. So I think from proving out their worth to potential clients, we actually have a good story to tell there. As rates move, I think that story will be only more apparent and visible and be a great proof point to potential clients that we offer value in a way that is different from just a normal brokerage-type arrangement.
Jude Melville: The other thing about managing for cash flow versus just yield is that it means that as rates rise, they will have the opportunity to reinvest that cash flow faster than some other banks that are not following that same philosophy. Again, that should be an opportunity to serve our client banks at an even higher level, which should ultimately benefit them in terms of being able to grow the client base. In banking, whether it is the SSW part of the world or the core bank, it is not really rate movements that gets you. It is how quickly the rates move that gets you.
Jude Melville: Right now it feels as if it is going to be a fairly measured rate of increase, which I think is something that we can all manage through much less painfully than the March Madness days and times at which they had to move rates a lot quicker in order to get them what they thought needed to be done. We do not view it as a negative. We view it as an opportunity.
Greg Robertson: Yeah. Betty, I think another data point outside of the SSW relationship with a lot of these banks, our FIG group manages slightly over $300 million in deposits from other banks as well. That is a part of our balance sheet, and the funding cost on that is between 75 and 90 basis points below what a one-year FHLB and broker would be today. It is on the higher price, but it is also relative to other funding types, cheaper, and helps solidify those relationships with multiple products.
Feddie Strickland: Perfect. That is great color. Thank you both. I will step back.
Operator: Next question comes from the line of Michael Rose with Raymond James. Your line is open.
Michael Rose: Hey, good morning, guys. Thanks for taking my questions. Greg, I just wanted to start on expenses. I think you said that essentially all of the Progressive cost saves have been realized through Q3. Obviously, this quarter's results were better than expected. Just how should we think about the growth rate from here, starting point for Q4, and then as you continue to invest in bankers, infrastructure, and technology as we move into next year, how should we at least initially think about a base rate of expense growth for you guys? Thanks.
Greg Robertson: It's a great question. I think what we expect in Q4 would be about $57 million as the base case, starting there, and then low single-digit organic growth rate going forward over the next year. I think what we expect is to grow maybe not as aggressively as we did with our Houston team lift-out in numbers. But we want to continue to fill in organically bankers in our markets to deepen those relationships that we have in our existing markets, and that'd be Texas and Louisiana.
Michael Rose: Okay. That's helpful. Then I wanted to go back to Matt's question on the margin. I think I heard that the new and renewed loan production was at $713 million in the month of September. I think you guys said that you don't have any more rate hikes built in, but the forward curve certainly does. I know you guys are rate sensitive. I guess the real question is there opportunity for you to kind of continue to lag deposit cost increases, and should we kind of contemplate at least some additional margin expansion at least in the earlier part of next year? Thanks.
Greg Robertson: Yeah, the lag is the key. That is a great point. I think what we think is all things being equal, as long as rates are measured. We think low- to mid-single-digit margin expansion quarterly, depending on that lag, is probably achievable and reasonable. First in Q4, and then depending on how many moves happen going forward.
Michael Rose: All right. That is helpful. I will step back. Thanks, guys.
Greg Robertson: Thanks.
Operator: Next question comes from the line of Gary Tenner with D.A. Davidson. Your line is open.
Gary Tenner: Thanks. Good morning. Just wanted to follow up on, Greg Robertson, your comment about the September loan yields. Just curious if you are seeing any kind of pressure on demand or transactions as it relates to the higher rate environment.
Greg Robertson: We are pleased with the demand we are seeing and the pipeline we are seeing. I think the rate environment is a component of it. What we are experiencing is with new bankers and new teammates, their pipeline and moving that business has not really shown any decay due to the 25-basis-point rate move. We are excited about it. More recently saw loan committees with multiple new deals presented with all rates around the 7% mark, which we were very happy with that. We feel good about the pipeline. So far, the rate environment does not look like it has decayed any of the work our bankers have been doing to move those relationships over.
Gary Tenner: Thank you for that. In terms of the deposit beta that you had noted that is in your deck, I assume that is based on the existing deposit base. If you are able to further reduce the broker deposit amount, the overall cost of deposit should increase at a pace below the beta that you are targeting. Is that the right way to think about it?
Greg Robertson: That is exactly right.
Gary Tenner: Is that inclusive of changes in the mix?
Greg Robertson: No, that's the right way to think about it.
Gary Tenner: Great. Thank you.
Operator: Next question comes from the line of Christopher Marinac with Brean Capital. Your line is open.
Christopher Marinac: Hey, good morning. Wanted to ask about Dallas, and is Dallas de-emphasized, or what would be the outlook for there? Again, appreciate all the success in Houston that you've called out this quarter and last quarter too.
Jude Melville: Yeah, no, not de-emphasized. In fact, we hired a new market leader there about 2 months ago, and he's jumping in and beginning to make his mark. We did have, if you look at our asset quality,
Jude Melville: upticks that we had earlier in the year, I would say the bulk of them came from the Dallas area. Again, not a huge number when you think about the amount of growth that we've been able to put on the books over the past 7, 8 years. But we certainly have an opportunity to kind of hit the reset button a little bit on some of those relationships, and that's why it's been a little flatter as of late. But in terms of the potential and opportunity going forward, we're as excited about Dallas as we've ever been. Maybe we don't talk about it quite as much because it's kind of a given, just being Dallas, and we've been talking more about some of the newer opportunities within our footprint.
Jude Melville: But Dallas remains. It's actually our largest individual market, and as we continue to add bankers there, we anticipate really good things from Dallas as well. As we talk about our overall growth goals, those include performing well in Dallas over the next few quarters as well.
Christopher Marinac: Great, Jude. Thank you for that. I appreciate it. Then just to follow up on sort of the announcement by SpaceX to do a big development in South Louisiana. What does that mean from your standpoint, both for commercial and also residential activity?
Jude Melville: Well, much like the Meta investment, maybe even on a bigger scale, it is a tremendous opportunity for Louisiana and therefore a tremendous opportunity for us given our footprint. We were already excited about the opportunities in Lafayette area, the Acadiana area, even without SpaceX. I think they have done a nice job of diversifying their industry exposure over time. If you were to ask me 6 months ago what area of Louisiana was I most excited about, of course, we would talk about North Louisiana with the data centers. I would have also put Lafayette there as an area that we want to continue to invest in and take advantage of the growth opportunities there. That has only been magnified now that SpaceX has made their announcement.
Jude Melville: It is really hard to quantify a $100 billion investment in an area that has not seen a lot of that type of investment over the years. It is difficult to say with any specificity what that means, other than it is going to be really good for the economy, and that should impact both commercial opportunities and residential opportunities over time. When you think about our prioritization of new branches within Louisiana, that is most likely to be our number one priority to make sure that we capture our fair share of the benefits. I think there are still some things to figure out in terms of specifically where the activity will take place.
Jude Melville: I do not mean the actual spaceport itself, but when you think about roads being constructed, for example, to access the facilities and where the executives that are working there will be living, there is still a little bit of work to be done in terms of planning. I think it is something that we will probably see a little, on the commercial side, we will probably see the benefit sooner. There are already companies at work, and the infrastructure from a commercial standpoint is already in place. I do not mean the physical spaceport, but I mean the companies that can support the work to build out the infrastructure are already active and in place.
Jude Melville: I would expect that we would see more commercial uplift in the near term, but over the long term, there should be a lot of residential impact as well, as some of the pieces of the puzzle fit in. But $100 billion is a lot of money, a lot of investment, and when they are successful, I doubt that that will be the last investment. You are already seeing some of the other areas of the state where we have data centers and things of that nature are expanding their investment, and it would not surprise me if SpaceX ends up in the same way. A little hard to quantify exactly what the benefits will be, but they are going to be significant, they will be large, and they will be meaningful. It is going to be an operating plan.
Jude Melville: One of the concerns about the data center investments that has been raised has been what happens after construction in terms of the actual jobs created. I am not that worried about with the data centers because the investments are so large that the construction periods are. I think I saw the Meta construction just on the current investment is not scheduled to be complete until 2031, so we still have a number of years to go there. But when you think about the space port with SpaceX, that is an ongoing operation that will employ individuals for a long time and will have other ancillary industry developments as vendors and other experts choose to co-locate in the area. So I think that is one that will be meaningful for a long period of time. And we feel like we are well placed to be an active participant in that development.
Jude Melville: Really, I do not remember in my lifetime, and I am a lifelong Louisiana resident, 52, and I do not remember a time in which there was as much excitement about the economic opportunity here in Louisiana.
Christopher Marinac: Great, Jude. Thank you for sharing all that background. I appreciate it, and thanks for hosting the call today.
Jude Melville: Yeah. Thank you.
Operator: There are no further questions at this time. That concludes the question and answer session. I will now turn the call back over to Jude Melville for closing comments.
Jude Melville: Sure. Just want to mention that I appreciate the North Louisiana integration process that we just went through and the smoothness of it speaks to the teammates that we inherited and to our own team in terms of their proactive and positive jumping into the opportunity. While the Progressive teammates have been teammates since the beginning of the year when we formally closed the acquisition, it is exciting to share a name and share processes and truly operate as a team. So again, I want to thank them for the positivity which they jumped in. I also want to reiterate my appreciation for the Tyler team that took the risk to come join us and look forward to supporting them. I will get to see some of them tomorrow, in fact, and look forward to that.
Jude Melville: I would say that just in closing, the things that we have been working on, again, are working and it is nice to have some optionality. When you think about our focus on growing tangible book, I know on a percentage basis, as Greg said, we did not grow significantly, but it was positive, and we would have actually grown significantly more, I think over 14% tangible book, if they had not had the AOCI impact and if we had not done share buyback. So it is nice to have that optionality when you think about the difference in our balance sheet, in our P&L today versus a year ago.
Jude Melville: You can kind of summarize it in saying that we have built in more optionality, whether that be from a healthier funding base, diversification of earning assets, or profitability leading to a situation in that we are growing capital faster than we are deploying it, even though we are deploying it at a healthy rate. So I love that optionality and plan on continuing to maximize that opportunity in the coming quarters and years. Really it was a little bit of a boring quarter in some ways, if you think about it, and it is exciting to be boring in a way because we are a bank, and so we like that, and I want to continue that. I appreciate everybody's time and everybody's efforts over time that have led us to this spot and excited about continuing. Look forward to visiting with you again. Matt, you had something you wanted to add?
Matt Sealy: Might have one more, it looks like. Looks like someone's got a follow-up question here. I want to see if we can get him in if possible. Freddie, I do not know if that was you, is what it looked like it might be. Want to make sure we get all questions addressed. Let's see. Operator, could you potentially open up Freddie Strickland's line with Hovde Group?
Operator: One moment, please.
Jude Melville: No?
Operator: One moment, please. Okay. Freddie Strickland with Hovde Group, your line is open. Please go ahead.
Feddie Strickland: The late follow-up here. Not sure if you can hear me, but just wanted to ask about credit. It seems like there is still credit improvement on the horizon here. Maybe some items just took a little longer to get to the finish line than you expected. Just how should we think about the workouts and overall level of NPAs the next couple quarters?
Jude Melville: Yeah, thanks. Thanks, Freddie. We still expect to reduce NPAs in Q4. I think they will continue to work. As resolutions happen in that type of business, sometimes they are delayed as you work through the process. We feel pretty confident that some of those delays in Q3 will pull through into Q4, and you will start seeing reductions upwards of $15 million in Q4 in those. Then that will continue to move throughout H1 of next year. Maybe not at that cliff, but they will continue to move down with our target range of having that NPA percentage of loans being 50 basis points or less.
Feddie Strickland: Perfect. That would do it. Thank you so much.
Jude Melville: Yeah. I think one thing that
Greg Robertson: We talk about that impacts performance, then we feel like Q4, Jude is always about, since the beginning of the year, our ROA performance, Q3 was evidence of the kind of plan pulling forward. NPAs are a part of that as you start putting those assets back online. We do expect, we have a glide path to get in Q4 to that 125 goal that we have talked about all year. I think it is each component, whether it be margin, loan growth, deposit funding, the cost of that funding, has to fall in line like they did in Q3. But I think if those components continue to play out, I think we will be pleased with Q4 results and have a way to get to that 125 as well. Non-performing assets is a part of that.
Jude Melville: Yes. I think everything is we've. Go ahead.
Feddie Strickland: Sorry, just 125 ROA. Is that-
Greg Robertson: Yes. That's it.
Feddie Strickland: Got it.
Jude Melville: Yeah. Again, as we have said earlier in the year, that means we have to be able to perform on all cylinders, and things have to work out. But right now, we believe we can do that, and certainly plan on continuing the upward trajectory from our 117 in Q3. And where exactly we end up, we will have to see, but we do know that it will be significantly better from a long-term structural profitability standpoint, wherever it ends up than we began the year, which really should be our goal every year, right? Well, with that, I will not subject you all to a repeat of my closing statement. But I do want to thank everybody for being with us and for following. And happy to answer any follow-up questions offline, should you have any. So thank you all again. Have a good week.
Operator: This concludes today's conference call. Thank you all for joining, and you may now disconnect.
