BFST Q1 2026 Earnings Call Transcript

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DATE

Monday, April 27, 2026 at 5 p.m. ET

CALL PARTICIPANTS

• Chief Executive Officer — David Melville
• President — Gregory Robertson
• Chief Financial Officer — Matthew Sealy

TAKEAWAYS

• Acquisition of Progressive Bank -- Closed Progressive Bank transaction on January 1, adding $774 million in assets and nine North Louisiana branches.
• GAAP Net Income -- $22.2 million for the quarter, including $2.2 million merger-related expenses.
• Non-GAAP Core Net Income -- $24 million, or $0.73 per share, after excluding noncore items.
• Core Return on Average Assets (ROAA) -- 1.10% reported.
• Core Efficiency Ratio -- 62% for the quarter, reflecting expense discipline.
• Loan Portfolio Growth -- Loans held for investment increased $494.8 million, or 32% annualized, compared to previous quarter; excluding Progressive, loans declined by $102.7 million (6.2% annualized).
• Loan Production/Paid Off -- Total paydowns and payoffs of $579 million exceeded total new and renewed loan production of $476 million.
• Texas Loan Concentration -- Texas-based loans represented 35% of total loans at period-end.
• Deposit Growth -- Total deposits up $766.4 million, including $513.3 million in interest-bearing and $253 million in noninterest-bearing deposits.
• Organic Deposit Growth -- Excluding the Progressive acquisition, organic deposits increased $81.5 million (4.4% annualized linked quarter).
• FHLB and Brokered Funding Reduction -- FHLB borrowings reduced by $170.4 million and brokered deposits decreased $112.5 million from the previous quarter.
• Net Interest Margin -- GAAP net interest margin decreased six basis points to 3.65%; core margin declined four basis points to 3.60%.
• Loan Yield Trends -- Core loan yields, excluding accretion, were 6.54%, down 24 basis points from prior quarter; new and renewed loan yields averaged 7.20%.
• Deposit Cost Trends -- Cost of deposits for March was 2.33%, down one basis point from first quarter average.
• Deposit Beta Guidance -- Management expects overall deposit betas of 45%-55% with future rate cuts.
• CD Retention Rate -- 81% core certificate of deposit balance retention achieved during the quarter.
• Noninterest Expenses -- Core noninterest expense was $55.2 million, up $5 million, reflecting Progressive's full-quarter impact; GAAP noninterest expense was $57.5 million.
• Cost Controls -- First quarter noninterest expenses lower than anticipated due to timing of investments and marketing spend.
• Noninterest Income -- GAAP noninterest income was $14.1 million, with $13.9 million core noninterest income; quarter benefited from swap fees and SBA loan sales.
• Credit Metrics -- Loans past due 30+ days (excluding nonaccruals) fell to 0.42%; nonperforming loans/loans ratio rose 29 basis points to 1.53%; nonperforming assets/total assets ratio also up 29 basis points to 1.38%.
• Subordinated Debt Issuance -- Completed $85 million in subordinated debt via self-managed private placement after quarter-end; $67 million used to redeem existing sub debt.
• Expense Impact from Hiring -- Majority of new hires were production-oriented; incremental expense increases expected in second quarter.
• Agentic AI Partnership -- Initiated with Covecta to automate over 300 consumer policy rules; anticipated broader future application.
• Progressive Integration Cost Savings -- Projected $11 million annualized cost savings primarily recognized in fourth quarter post-system conversion.
• Loan Guidance Maintained -- Full-year loan growth guidance reiterated due to early recruitment of production officers.
• Tangible Book Value Growth -- Company grew tangible book value at 16% annualized rate since late 2022.
• Share Repurchases -- Buybacks averaged 1.19x tangible book value; company prioritizing repurchases over near-term M&A.

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RISKS

• Gregory Robertson said, "The ratio of nonperforming loans compared to loans held for investment increased 29 basis points to 1.53% at the end of the first quarter," with most of the $25 million NPL increase tied to one $16 million client relationship.
• Interest reversal on moved nonaccruals resulted in a $1.2 million impact—equating to a 6-7 basis point reduction in net interest margin—due to $25 million in loans moving to NPL status.
• Core loan yields dropped 24 basis points sequentially, and total loan volumes were lower than anticipated due primarily to heightened loan payoffs and paydowns.
• David Melville stated, "We do anticipate the cost of the new hires adding incrementally to our expense rate over the second quarter."

SUMMARY

The addition of $774 million in assets and nine branches through the Progressive Bank acquisition expanded Business First Bancshares (NASDAQ:BFST)'s North Louisiana presence and contributed significantly to linked-quarter asset and deposit growth. The loan portfolio contracted organically due to elevated paydowns and payoffs—$579 million versus $476 million of originations—despite the overall loan balance increase from the Progressive assets. Non-GAAP core net interest margin compressed to 3.60% amid a 6-7 basis point impact from interest reversal and lower loan discount accretion, but management signaled expectation for low to mid-single-digit expansion going forward. Deposit gathering remained robust with 4.4% annualized organic growth and an 81% core certificate of deposit retention, while funding costs trended down moderately. Noninterest expense increased from the prior quarter, though core expenses were restrained by delayed investment and marketing outlays, with management projecting $11 million in annualized cost savings post-Progressive system conversion. Nonperforming loans and nonperforming asset ratios rose sharply due to a concentrated credit, yet past dues declined, and management guided that roughly 30% of nonperforming assets could resolve in the second quarter with further attrition later in the year.

• The company’s $85 million subordinated debt raise post-quarter was effected entirely within a network of correspondent banking relationships, with $67 million allocated to redeem more expensive outstanding sub debt.
• Management highlighted the addition of 11 production officers and a partnership with Covecta to implement Agentic AI solutions, initially targeting over 300 consumer workflow automation opportunities and expanding potential for future efficiency gains.
• Tangible book value growth since late 2022 reached a 16% annualized rate, with share buybacks pursued at an average price-to-tangible book value of 1.19x as an alternative to near-term M&A activity.
• Construction loan portfolio exposure has notably decreased and now stands slightly above 10% of total loans, with management anticipating further modest reduction and stabilization in the high single-digit to 10% range of the overall portfolio.

INDUSTRY GLOSSARY

• Agentic AI: Artificial intelligence systems designed to autonomously perform tasks and make decisions on behalf of users, applied here to streamline banking workflows.
• Deposit beta: The proportion of changes in market interest rates reflected in the bank’s deposit costs, indicating sensitivity of funding costs to rate changes.

Full Conference Call Transcript

David Melville: Okay. Thanks, Matt. Good morning, and thank you for joining us today. We know there are plenty of things you all could be doing on a Monday morning in a world environment as complex as the one in which we find ourselves, and we appreciate you choosing to spend this time with us. This was one of, if not the best, first quarters that we have had as a company. We continue to improve earnings, strengthen capital levels and improve quality of our liquidity posture while consummating our second material acquisition in the past 3 years and making a number of nonacquisitive investments that will pay off over the course of the next few years.

A highlight for the quarter was the addition of a substantial number of new teammates. As I just mentioned, we closed the Progressive transaction on January 1. In balance sheet terms, the acquisition adds over $700 million in assets and 9 branches across North Louisiana, deepening our footprint in an area in which we are already a market leader. Asset quality of the acquired portfolio is stellar as is the makeup of the expanded client base.

On a very promising note, since we announced the acquisition, construction on the Meta data center project in Northeast Louisiana has accelerated and been expanded, and we expect tens of billions of dollars of private investment in a region in which we are as well situated to capture the benefits as any financial institution, large or small. The morale among our former Progressive teammates is high, and the working partnership is off to a smooth start as any acquisition that we've had the honor to participate in, which bodes well for our ability to operate as one team over the course of this year, even before conversion is executed. We also added a material number of bankers organically.

In our last call, I mentioned the addition of Jon Heine, our new market President in Houston, former Market President from Veritex Bank. To date, Jon has attracted an additional 11 teammates, including 7 production officers, the majority of which are also former Veritex bankers. Also in Houston, we are honored to add Ben Marmande to lead our corporate banking activities in Texas. Ben was a long-time banker for IBERIA and then First Horizon, serving in leadership capacities across South Louisiana, and for the past 5 years as President of the FHN Financial's Houston market.

These new partners have already begun building a pipeline of opportunities, and we anticipate them contributing meaningfully to our growth in the second half of the year as we seek to take advantage of M&A-led disruption in the Houston market. We announced and have begun a partnership with Covecta, a provider of Agentic AI capabilities. I include this in my discussion on new teammates because over time, we anticipate this partnership leading to both our more efficiently leveraging the talent we have on board and to our minimizing hiring as we continue to grow.

We are beginning this effort focused on our consumer workflows in which we have already identified over 300 policy rules for potential automation and anticipate expanding utilization of the partnership across broader use cases throughout the bank, including deposits and credit. This effort will take time to unfold, but we are more confident with each day that the potential is actionable and will prove to be meaningful. It's important to note that as we explore the potential of Agentic AI, we remain focused on governance, validation and human oversight so that as models, policies and industry requirements change, we retain our ability to manage that evolution in a disciplined and controlled way.

A very positive note for the quarter is that even as we grow the team, we remain focused on cost control with noninterest expenses for the quarter lower than anticipated. After accounting for the increased costs associated with the Progressive current run rate, our core expenses were essentially flat quarter-over-quarter as well as in comparison to last year's first quarter. We do anticipate the cost of the new hires adding incrementally to our expense rate over the second quarter, but note that the super majority of the hires were production-oriented, which should lead to further operating leverage improvements.

As a key component of our positive earnings results, we are pleased to note the contribution of our noninterest income, primarily through the Financial Services group and in particular, their work providing interest rate swaps and SBA loan gains on sale. As you know, we've been working in the past 3 years in diversifying our revenue streams with investments in this arena, in part so that we might be able to continue to produce consistent earnings even in quarters in which our spread income was not as strong as we hoped. The potential of this effect was put to test in the first quarter as loan volumes were lower than anticipated due primarily to heightened loan payoffs and paydowns.

In addition to the contribution to current earnings, we utilized the Financial Services Group to successfully complete a fully self-managed private placement of subordinated debt just after quarter end, raising $85 million within our cohort of correspondent banking relationships. Of the $85 million raised, we utilized $67 million to redeem existing sub debt, some of which crossed the 5-year mark and already lost about $10 million in capital treatment. The successful debt raise is important in and of itself, but I'm most excited about the way in which we accomplished it, both utilizing and contributing to our growing network of community bank partners.

In closing, we feel very positive about the first quarter on a number of fronts and anticipated to be the start of a solid full year. We reiterated full year loan guidance on loan growth based on our sooner-than-expected hiring of production officers, and we continue to forecast a 1.25% ROAA end-of-year run rate. One of our guiding principles is belief in the compounding power of our incremental improvement, and we see that principle in action in our first quarter results. Thank you again for being with us. And with that, I'll turn it over to Greg.

Gregory Robertson: Thank you, Jude, and good morning, everyone. As always, I'll spend a few minutes reviewing our results and we'll discuss our updated outlook before we open up to Q&A. First quarter GAAP net income and EPS available to common shareholders was $22.2 million and $0.68 and included $2.2 million merger-related expenses, $28,000 gain on former bank premises and $80,000 gain on sale of securities. Excluding the noncore items, non-GAAP core net income and EPS available to common holders was $24 million and $0.73 per share. From our perspective, first quarter results marked another quarter of strong financial performance, generating a 1.10% core ROAA and a core efficiency ratio of 62% for the quarter.

Our first quarter earnings results were highlighted by continued discipline on the expense side and a meaningful contribution from our financial services and correspondent banking group that Jude mentioned. Also during the quarter, we completed the acquisition of North Louisiana-based Progressive Bank, which closed on January 1 of this year and added $774 million in total assets and 9 new locations. From a balance sheet perspective, total loans held for investment increased $494.8 million or 32% annualized on a linked quarter basis. Excluding the acquired Progressive loans, total loans held for investment declined $102.7 million or 6.2% annualized.

Excluding acquired Progressive loans, organic commercial and commercial real estate loans decreased $58.6 million and $23 million, respectively, compared to the linked quarter. Texas-based loans ended the first quarter at 35% of total loans. This was anticipated due to the closing of the Progressive Bank transaction in early January. The lower-than-expected loan growth was driven primarily by an overall increase in loan paydowns and payoffs. Specifically, total paydowns and payoffs during the first quarter totaled $579 million, which compares to the total new and renewed loan production of $476 million during the quarter.

If you recall, in the previous quarter, we experienced slightly higher new and renewed loan production at $500 million, while paydowns and payoffs during the quarter were lower at just $332 million. Total deposits increased $766.4 million due to increases in interest-bearing deposits and noninterest-bearing deposits of $513.3 million and $253 million, respectively. The increase in interest-bearing deposits was largely driven by approximately $325 million in commercial money market accounts and $185 million in personal money market accounts. Excluding acquired Progressive deposits, organic deposit growth was $81.5 million or 4.4% annualized on a linked quarter basis.

Lastly, on the funding side of the balance sheet, we took advantage of the improved liquidity position from softer overall net loan growth and repaid FHLB balances and broker deposits. Total FHLB borrowings decreased $170.4 million and broker deposits were reduced by $112.5 million from the linked quarter. Moving on to the margin. Our GAAP reported first quarter net interest margin decreased 6 basis points linked quarter to 3.65%, while the non-GAAP core net interest margin, excluding purchase accounting accretion, decreased 4 basis points from 3.64% to 3.60% for the quarter ended March 31.

A driver to the lower-than-expected margin performance during the quarter was loan discount accretion falling lower than expected at $1.1 million, which is primarily caused by the lower actual rate marks from the Progressive acquisition. We would expect quarterly loan discount accretion to be in the low $1 million range for the balance of 2026. On a linked quarter basis, cost of deposits decreased 18 basis points, while total loan yields decreased 27 basis points. Core loan yields, excluding loan discount accretion for the first quarter were 6.54%, down 24 basis points from the prior quarter. Total cost of deposits for the month ended March was 2.33%, which compared to the weighted average of the first quarter was 2.34%.

We are pleased with our ability to hold the line in new loan yields during the quarter with a weighted average new and renewed loan yield of 7.20% for the quarter. I would like to make a note of a few takeaways on Slide 19 in our investor presentation. We continue to see 45% to 55% overall deposit betas as achievable regarding any future rate cuts. I would also like to point out overall core CD balance retention rate was 81% during Q1. This impressive statistic reflects on our team's continued focus on maintaining core deposit relationships. Our baseline assumption is that we do not receive any further rate cuts in 2026.

We have worked hard to manage our balance sheet in a relatively neutral position and believe we can achieve modest margin improvement in a slightly down or up rate environment. Moving on to the income statement. GAAP noninterest expense was $57.5 million and included $2.2 million in acquisition-related expense. Core noninterest expense for the first quarter was $55.2 million, up $5 million from the prior quarter and included a full quarter impact of the Progressive expense base mentioned earlier. Core expenses for the first quarter did come in lower than we expected, mostly due to the timing of certain investments and marketing spend not hitting in the quarter, which we do expect to recognize going forward.

We also did recognize a small amount of the Progressive cost saves during the quarter. As a reminder, we should recognize remaining potential cost saves post conversion, which is scheduled for late third quarter this year. First quarter GAAP and core noninterest income was $14.1 million and $13.9 million, respectively. GAAP results did include $80,000 gain on sale of securities and a $28,000 gain on former bank premises. Core noninterest income results for the first quarter were slightly better than we expected, primarily due to continued strong swap fee revenue and gain on sale from SBA activity. Lastly, I'd like to provide some context to the credit migration during the first quarter.

Total loans past due 30 days or more, excluding nonaccruals as a percentage of total loans held for investment decreased from 0.64% to 0.42% at March 31. The ratio of nonperforming loans compared to loans held for investment increased 29 basis points to 1.53% at the end of the first quarter, while the ratio of nonperforming assets compared to total assets increased 29 basis points to 1.38% compared to the linked quarter. That concludes my prepared remarks. I'll hand the call back over to you, Matt, and we'll open it up for questions.

Matthew Sealy: Yes. Thanks, guys. I think we will go ahead and open up to Q&A now.

Operator: [Operator Instructions] Our first question comes from the line of Feddie Strickland with Hovde Group.

Feddie Strickland: Just wanted to start on credit. I just wanted to ask, you mentioned in the release you expect the migration we saw this quarter to be resolved over the next couple of quarters. And can you just help us understand kind of the full opportunity set maybe here and how much we could maybe see NPAs come down by year-end, assuming no further migration?

Gregory Robertson: Yes. Thanks, Feddie. Good question. So we think in the near term, let's talk about just specifically what we think will happen in Q2 and then more so during the later parts of the year. I'll caveat all that by saying we've kind of been talking about some of these credits for almost a year now and the process through moving them to resolution is sometimes precarious and moves at different speeds. So Q2, we think about 30% of the current NPA list will go through to resolution. So as we move past that, we would see it kind of breaking up into thirds as we go through the rest of the year.

So I think another pretty decent amount of it in the third quarter and hopefully some resolution with maybe only a few pieces hanging over past year-end.

Feddie Strickland: Got it. And then the increase this quarter, I apologize, I cut out for a second when you were mentioning this in your opening comments. Was that the Houston medical facility? Or which credits contributed to the higher NPAs this quarter?

Gregory Robertson: We had about $25 million increase this quarter, which were mostly attributable to we have a relationship with one client. It's about $16 million of exposure. Those are varying types of collateral and the timing of that resolution on that, some of it could be imminent. Some of it could last 2, 3 quarters to resolve it. So that was the majority of the increase this quarter. The previously mentioned medical facility was already in the list.

Feddie Strickland: Got it. And just one quick follow-up on the margin. I saw you paid down the FHLB in the broker this quarter, but you also issued the sub debt. Should we expect the margin to -- I guess, the GAAP margin to still directionally move higher in the second quarter? Or is more flat your expectation?

Gregory Robertson: No. We think we're going to -- we think low to mid-single-digit margin expansion as we move forward. Part of that will be reliant on moving some of those NPAs back into accruing assets as well. But that's a little trickier to forecast. But we do think that just the core margin should tick up low to mid-single digits. If you look at the spread we had during the quarter, spread was relatively flat quarter-over-quarter. And we think with the increase in loan volumes, we should get a little bit of pickup.

Operator: Our next question comes from the line of Matt Olney with Stephens.

Matt Olney: Just want to follow up on the credit discussion. I think, Greg, you mentioned expectations of some resolution in the next few quarters. That's great to hear. Any thoughts as far as loss recognition, what kind of allowances do you have on some of these credits? Just trying to anticipate if we should anticipate the charge-offs being a little bit higher in the near term.

Gregory Robertson: Yes. So far -- Matt, it's a good question. So far, we are seeing reserves versus loss recognition going forward to remain pretty consistent with what the Street has forecast for us from a loss standpoint. All of that is kind of incremental as we move on. But so far, what we're seeing, we feel like we'll be in line. If you look at the main driver that gives us a little comfort with that is moving past dues back down below 50 basis points. We feel like that the stuff that we've been talking about is kind of in the list, and we'll just move forward with hopefully no change from that.

Matt Olney: Okay. And then going back to the loan balances. Greg, I think you mentioned some higher paydowns this quarter. Any more color on those paydowns, whether by loan type or by market? Or just any color as far as what you're hearing from your customers given some of the volatility in the market right now?

Gregory Robertson: Yes. I think it was -- the majority of our paydowns were in the Texas franchise. And I think that's -- you could really draw a line back to some of our larger growth years, the '22, '23 years -- '22, '23; some of those projects came to end. Some of them, we just made the decision, whether it rate or credit to move away from relationships. So it's kind of a mixed bag. But I think that's the general guidance is it's more commercial stuff probably in the Dallas first and the Houston markets.

David Melville: Yes. I think it's not a small thing that we've really dramatically downshifted our exposure to construction. And so we're not -- we don't have the same large dollar construction projects funding up as we -- as some of these older construction projects come off the books. And so there's not [indiscernible] replacement there for that particular type of credit, which we feel comfortable with. We want to have a diversified portfolio and minimize our concentrations. And then I would also say that Greg mentioned our loan yields staying pretty flat quarter-over-quarter, which we certainly are prioritizing the need to get paid for what we do over just loan growth.

And so I would echo his thoughts about that was part of the rationale there, but just from a competitive standpoint, seem to be disciplined on pricing, which I think is the right choice to make.

Operator: Our next question comes from the line of Michael Rose with Raymond James.

Michael Rose: Just wanted to kind of dig back on to the expenses as we move from here. So on the one hand, obviously, this quarter on a core basis, good expense control. But I think, Jude, in the press release, you talked about some additional hires by the end of the quarter. And then in your prepared comments, I think you mentioned even a few more. I assume you're continuing to hire. So how should we expect those expenses to -- from a timing and magnitude perspective to layer in? And then as you kind of think about the layering in of the cost saves from Progressive, understanding that the systems conversion will happen late in the quarter.

Just trying to frame out the expense outlook over the next few quarters.

Gregory Robertson: Yes. Thanks, Michael. I think in the near term, Q2, we would expect the mid- to upper 50s and then migrating slightly from there. I think the cost saves, if we continue to have success hiring teammates, some of the cost saves will be offset by the hiring. But I think we would see that trickle up into the upper 50s as we move through the end of the year.

David Melville: But we still remain confident in our projections on the cost saves around the Progressive acquisition, achieving most of them in the fourth quarter. Greg, I think out of the $21 million Progressive run rate, we expect to achieve about $11 million -- that's on an annualized basis on cost. So certainly, still anticipate recognizing the benefits of that -- those efficiencies, primarily in the fourth quarter.

Michael Rose: Perfect. And then maybe just following up on some of the initial and the final marks on the portfolio. It looks like the accretion is going to be less kind of as we move forward. So can you just walk us through maybe some of the purchase accounting adjustments from initial to when it actually closed?

Gregory Robertson: Yes. I think it was just mainly that when we announced the yield curve was a lot different by the time we closed. So the interest rate mark piece of it was less, credit still the same. So we felt like from a total dilutive standpoint for us, I think it is a little bit different, but I think it's all relative. We had forecasted about 44 basis points of tangible book value dilution, $0.44 and it ended up being ex AOCI about $0.04. So we feel really good about the way everything kind of shook out now.

David Melville: So it will be less accretion going forward ,but the trade-off is that we had less dilution than we modeled. So it's a good thing, yes. So I did want to mention real quick since we're talking about tangible book value. We last raised capital in October of '22. And beginning with the end of '22 going to now, we've grown tangible book value at about 16% annualized rate. So we remain focused on growing tangible book value, and we've done so during that period. We've consummated two acquisitions and grown assets by about $2 billion. And so the news on the accretion front versus tangible book value dilution on the Progressive deal is good.

And then we look forward to continuing in future quarters to grow tangible book of ours. And so we're pleased with that result.

Gregory Robertson: Michael, will be about $1 million going forward for accretion per quarter.

Michael Rose: Yes. Heard that. And maybe if I could just sneak one last in on the -- just as it relates to the tangible book value growth and the focus there. The buybacks this quarter were a little bit higher than I think I was looking for. How should we balance that now with a little bit higher starting capital just from the change in marks from the deal? Could we expect you guys to continue to be active with repurchases? Or is now a time to kind of recoup and build tangible book value and capital?

David Melville: Yes. I think it's a balance between the two, the market -- if we feel the market is undervaluing are worth, then we do have the -- we've now built our capital levels and our tangible book value to a level that we can take advantage of that perceived discrepancy. And so we felt like in the first quarter, we had probably a little more opportunity there than we might have guessed at the beginning of the quarter. So I think our average TBV multiple of the buybacks was about 1.19x. And so we felt like that was certainly an undervaluation relative to the worth of the franchise, and we'll continue to look for opportunities there.

We're not going to -- we don't have mandatory buybacks and not going to do it just for the sake of doing it. But when we do see opportunities in that kind of sub-$120 level, we do believe we're in a position to take advantage of it. And that will be a higher priority than seeking out M&A opportunities in the near term.

Operator: [Operator Instructions] Our next question comes from the line of Gary Tenner with D.A. Davidson.

Gary Tenner: I want to ask about your -- I just want to ask about your commentary around loan growth. I think you're kind of sticking to the mid-single-digit growth outlook at this point. And I'm just wondering how much of that is -- kind of what's the balance between that projection on the production versus payoff perspective? Do you have a lot more visibility into kind of a reduction in payoffs just as construction projects are maturing? Or maybe just walk us through kind of how you're looking at the next couple of quarters from a net growth perspective?

Gregory Robertson: Yes, I think from a net growth perspective, as we get further away from kind of the impacts of bringing on '22 and '23 deals in those years, as we move through the year, we should see payoffs slightly reduce. I think the way we're thinking about net loan growth as we go forward with the addition of the new teammates, we're thinking about high single digits to 10% maybe in the second and third quarter, which would end up offsetting kind of the slow first quarter with the mid-single digits, 6% to 8% -- 5% to 6% range loan growth on an annualized basis.

David Melville: I'll just add, this is -- things aren't always smooth lines. And you'll remember in the third quarter of last year, if I remember correctly, that we had elevated paydowns and lower growth in the third quarter, but then we had a -- I don't want to say a record fourth quarter loan growth, but it was a strong quarter, fourth quarter. And if you balance the two, it ended up being kind of at this about 6% range. And we had more paydowns in the third quarter than we did in the fourth quarter. And I would anticipate that same effect helping us from a net loan growth over the remainder of the year.

Greg is right that there will be a point at which those larger dollar construction projects don't -- aren't material in terms of their continued impact on the portfolio. And then again, we've hired, I think, to date, about 11 new producers and more production-oriented staff, and we'll continue to look for talent as we see the opportunity. So -- and none of their pipelines, obviously, have been manifested in terms of actual loan growth yet. And so we anticipate seeing some of that in the second quarter, but really the third and fourth quarters being reflective of that additional strength.

Gary Tenner: Got it. Appreciate that. And just on the construction segment topic just for another second, where do you see that segment kind of bottoming out or stabilizing as a percentage of the overall portfolio? You're right over 10% right now. Where do you see that trending? Like where is your appetite and comfort level with that?

Gregory Robertson: I think we're getting close to the bottom now. I think you can see it bounce in the high single digits to 10% range on a go-forward basis would be comfort spot.

Operator: Our next question comes from the line of Matt Olney with Stephens.

Matt Olney: Just want to go back to the net interest margin. And I'm trying to appreciate if there's any more noise in that margin in this quarter. I went back to my notes last quarter, and it looks like there was that interest reversal that impacted the margin by about $1 million in the fourth quarter from that Houston loan that we discussed. Was there any kind of interest reversal again this quarter with the uptick of nonaccruals? Yes, I'll just leave it there.

Gregory Robertson: Yes. Yes, you're right. There was some noise. I think when you think about relative to the nonaccruals, there was about $1.2 million in interest reversal. That was probably attributable to 6 or 7 basis points impact on the margin. That was due to the movement of about $25 million in loans to NPL during the quarter and the reversal. Kind of as we go forward, I think we'll start inching back toward reclaiming some of that as an earning asset.

But as I mentioned, I think earlier, the timing of how that comes back to an earning or converts back to an earning asset is a little bit tricky because we're still having to resolve these in real time and the twists and turns sometimes of a conflict resolution of some of these credits, it's a little bit unpredictable. But we see some opportunity on the horizon with that for sure.

Operator: And at this time, we have no further questions. That concludes our Q&A session. I will now turn the call back over to Jude Melville for closing remarks.

David Melville: Okay. Well, again, I appreciate everybody being with us and the questions and the attention and energy that you're giving to our calls. We again feel very positive about the first quarter and not only the performance in the first quarter, but also some of the investments and additions that we've made in the first quarter, which will lead to even more positive results in the future. We like our footprint. We like our people and I just look forward to turning the wheels over the course of the year and showing some of that incremental progress, which will lead to increased ROAA and ultimately, tangible book value. We just keep doing what we do.

So I appreciate our team for all their effort. And again, I appreciate your attention this morning. Feel free to reach out if you want to talk any more detail about anything. Thank you all. Have a good week.

Operator: This concludes today's conference call. You may now disconnect your lines at this time. Thank you for your participation, and have a pleasant day.

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