of Business First Bancshares Inc. Please note that today's meeting is being recorded. During the meeting, we'll have a question and answer session. You may submit questions or comments at any time by clicking on the Q&A tab. It is now my pleasure to turn today's meeting over to Bob Greer, Chairman of the Board. Mr. Greer, the floor is yours.
Good morning, ladies and gentlemen, welcome to the 2023 annual meeting of shareholders of Business First Bancshares. I am Bob Greer, chairman of the board of Business First Bancshares, and I will act as chairman of this meeting. Being able to hear from our shareholders is important to us. Although our shareholders who are attending virtually will not be able to speak verbally during the meeting today, you have two ways to ask questions or make statements. First, when you registered to participate in the virtual meeting, you were given an opportunity to submit a question in writing. We have those questions, and we'll read them aloud and respond to them later in the meeting. Second, you can submit a question in writing during the meeting through the Q&A function of the virtual meeting website.
We will also use the Q&A function to receive seconds to motions that are not received in person in the boardroom. As with the questions submitted during the re-registration process, we'll read and respond to the appropriate questions later in the meeting. A couple of other housekeeping announcements. First, there are several documents that you may want to access during the meeting. When you registered, you should have received a copy of the agenda and rules of the conduct for today's meeting. The company's proxy and annual report are located on your screen now. You can click on each document to access. We ask that in fairness to all shareholders attending the meeting, you honor the rules of conduct. Please take a moment to familiarize yourself with the rules.
In accordance with the notice of this meeting that was previously delivered to all our shareholders, I hereby call this meeting to order. There are three items of business on this morning's agenda. One, to elect 17 directors to serve on the board of directors of the company until the company's 2024 annual meeting of shareholders, or until their successors are duly elected and qualified. Two, to approve on a non-binding advisory basis the compensation of the company's NEOs. three, to ratify the appointment of Forvis LLP as the independent registered public accounting firm of the company for the year ending December 31st, 2023. Before we proceed with the formal business date of this meeting, I would like to make a few introductions. First, I would like to introduce to you our directors of our holding company and bank.
In addition to me, all of whom have joined this meeting today, either virtually or in person. Jude Melville, who is also President and Chief Executive Officer of our holding company and b1BANK. Drew Brees, J.J. Buquet, Carol Calkins, Ricky Day, John D. Ducrest , Mark N. Folse, Vernon Johnson, Rolfe H. McCollister, Jr. , Andrew O. McLindon , Patrick Mockler, David Montgomery, Art Price, Keith A. Tillag e, Steve White, Kenny Smith . Next, I would like to introduce the bank's executive members who are attending this meeting. Jesse Jackson, Executive Vice President and President of Financial Institution Group. Philip Jordan, Executive Vice President and Chief Banking Officer. Greg Robertson, Executive Vice President and Chief Financial Officer. Keith Mansfield, Chief Operations Officer. Kathryn Manning, Chief Risk Officer. Warren McDonald, Chief Credit Officer. Saundra Strong, General Counsel and Corporate Secretary. Jerry Vascocu , Chief Administrative Officer. We appreciate the hard work and dedication of all our directors and employees.
Finally, I would also like to introduce our guests that have been invited to attend today's meeting. Ashley Eans , a partner with Forvis LLP, our independent auditors, and Tammy Marshall from Computershare Trust Company, our transfer agent. Following the formal part of this meeting, Jude Melville, our President and Chief Executive Officer, will provide management's remarks. At that time, there will be a question and answer session. We now proceed with the formal business of this meeting. Saundra Strong will act as secretary of this meeting and will announce the tabulation of the votes. Saundra Strong and Tammy Marshall of Computershare have been appointed and agreed to serve as vote inspectors for this meeting and will conduct the formal tabulation of the votes.
All persons who are shareholders of record as of June second, 2023, the record date of the meeting, are entitled to vote at this meeting. Ms. Strong, Secretary of this meeting, please report on the notice of this meeting and the affidavits of mailing.
Mr. Chairman, I present to the meeting the following documents. First is the certified list of the shareholders of the company as of the close of business on the record date. The second is an affidavit as to the mailing on or about June twelfth, 2023, of a notice of this meeting and a notice of internet availability of proxy materials. I'm pleased to report that at least a majority of the outstanding shares of Business First Bancshares common stock are represented either in person or by proxy at this meeting. Accordingly, a quorum is present. We're authorized to proceed with the business of the meeting.
Thank you, Saundra. Please file these materials with the business of the meeting. The secretary has reported the existence of a quorum at this meeting. Accordingly, we will proceed with the formal business. I now declare the polls open for voting at this 2023 annual meeting of shareholders. If you wish to vote at the meeting and have not yet done so, you should do so now. If you have previously submitted a proxy, then your vote has already been recorded, and you do not need to vote during this meeting unless you wish to change your vote. The polls will remain open until immediately after any question on today's proposal. The first item on the agenda for this meeting is the election of 17 individuals to serve as directors of Business First Bancshares.
I'll now call on Saundra Strong, the company's General Counsel and Secretary of this meeting, to identify the proposal. Mr. Chairman, I present to the meeting the following proposal, which is described in the proxy statement dated June 12, 2023, and is presented at this meeting by the Board of Directors. The proposal is to elect the following 17 nominees to serve as directors of Business First Bancshares, with terms expiring at the 2024 annual meeting of shareholders. Drew Brees, J.J. Buquet , Carol Calkins, Ricky Day, John D. Ducrest , Mark N. Folse , Bob Greer, Vernon Johnson, Rolfe McCollister
Our board of directors has recommended these individuals be elected as directors of Business First Bankshares. Is there a motion?
moved.
I have a motion. I have a second. Any discussion? Thank you. There being no discussion, I now call on Saundra Strong to identify the second proposal.
Mr. Chairman, I present to the meeting the following proposal, which is described in the proxy statement dated June 12, 2023, and is presented at this meeting by the board of directors. The proposal is to approve, on a non-binding advisory basis, the compensation for the company's named executive officers, or NEOs, for 2023.
Our board of directors has recommended the approval, on a non-binding advisory basis, of the compensation of the company's NEOs. Is there a motion?
moved.
A motion.
Second.
Second. Any discussion? There being no discussion, I now call on Saundra Strong to identify the third proposal.
Mr. Chairman, I present to the meeting the following proposal, which is described in the proxy statement dated June twelfth, 2023, and is presented at this meeting by the board of directors. The proposal is to ratify the appointment of Forvis LLP as the auditor for Business First Bancshares for the year ending December thirty-first, 2023.
Our audit committee is appointing Forvis to serve as the independent auditor to the company for the year December 31, 2023. The board has recommended the appointment be ratified by our shareholders at this meeting. Do I hear a motion?
moved.
for the appointment of Forvis, Forvis be ratified by the shareholders?
moved.
I got a motion. I got a second. There being no further discussion on the proposals, we will now close the polls. Please vote now if you have not already voted. Unless we receive a request through the Q&A function of the virtual meeting website to extend the period of casting ballots within the next 30 seconds, we will close the voting polls. I now declare the polls closed. I will now ask that our vote inspectors complete the tabulation of the votes. Madam Secretary, have the vote inspectors completed the tabulation of voting?
Mr. Chairman, based on the voting of shareholder proxies received prior to the meeting, plus the vote inspectors' tabulation of proxies and ballots voted at this meeting in person, I am pleased to report the following results. The 17 individuals nominated to serve as directors of Business First Bancshares Inc have been duly elected. The compensation for the company's NEOs for 2023 has been duly approved on a non-binding advisory basis, and the proposal to ratify the appointment of Forvis LLP as our auditor for 2023 has been duly approved. Official voting results will be posted in the current form, on a current report on Form 8-K, to be filed with the SEC within the next four business days.
Thank you. Following the conclusion of the business portion of this meeting, we will continue with management's report and with the question and answer session. I'm aware of no other business that should be brought before this meeting, hereby move that we adjourn this meeting. Is there a second?
Second.
I have a second. I would like to thank all of you for attending the 2023 annual meeting of shareholders. I would also like to express my appreciation to all of the shareholders who submitted their proxies, but were not able to attend the meeting. The directors, officers, and employees of Business First Bancshares appreciate the loyalty and confidence of our shareholders. The business portion of this meeting is hereby adjourned. At this time, I will turn the meeting over to Jude Melville, who will provide management's remarks. Following which we will address questions received from shareholders prior to this meeting through the Q&A function. Jude?
Thanks, Bob, thanks to everybody for being here. I share Bob's appreciation for the involvement, both here in person and on the phone, and it's nice to actually have some guest shareholders here in person for the first time in a couple of years, I think. I think maybe we usually have one Baton Rouge person that comes on a regular basis, and he's traveling today. He sent me a text this morning, making sure that my feelings weren't hurt, that he wasn't here. I appreciate that. I wanna say that I am glad that the board was reelected. You know, I think we, I think we have as vibrant and active and involved board as we've ever had over our 17 years of having the board, I guess, in this way.
We also are continue to look for ways to improve on the operations and the makeup. I look forward to being able to repeat that statement next year. I want to tell Bob personally, this is our 13th time to do this together, I believe. I want to say how much I appreciate his leadership of the board and our relationship throughout this, this journey that we've been on together. The journey is moving forward in a at a pace that I probably wouldn't have expected 13 years ago when we started.
I think we also, though, are at a point at which we have as much potential for the future as we have experienced success in the past, which is a good place to be. One thing that I talk quite a bit about internally and on our earnings call is the things that we are working on now are really pretty simple in terms of what the big picture goals are. On those big picture goals, we've made a lot of progress over the past 12 months. You know, we are focused on becoming more efficient through scale, right? Through growth, healthy growth, and we certainly have accomplished a lot of that over the past year.
We integrated our last acquisition, Texas Citizens Bank, just after our last shareholder meeting or during our last shareholders meeting. Have seen that not only survive, which is not always the case with an acquisition, but actually thrive. You know, this quarter, I think they had the most success generating deposits of any of our regions. Their integration and their contribution to the network as a whole is solidified and again, leads to part of the thing that leads to my optimism about our future potential. In addition to the acquisition, though, we've also continued to have good, solid, organic growth. We're at about $6.5 billion now in terms of assets.
Which I believe that we started the last year, 12 months ago, at about $5.5 billion. We've had about $1 billion in growth through organically over the past year, which growth for growth's sake is not important, but that does lead to increased efficiency. Operating a bank today at the level at which we want to operate it, costs a lot of money for a lot of reasons, technology and high level personnel and regulatory burden. We need to be a certain size that we are now reaching in order to be able to do all those things and still earn the profit that we need to earn.
We measure that through our efficiency ratio, which basically speaks to the amount of money that it costs to earn a dollar. We have historically kind of run in the high $0.60, so $0.67, $0.68. We're going to work that down to $0.60, maybe below $0.60. Over the past 12 months, we've moved pretty, what I would say is a pretty consistently solid level of being in the low $0.60s. I know that's a bit numeric, I guess. A lot of in banking, a lot of the big picture goals really come down to the numbers. That's one very important one that I'm proud of the improvement that we've made. Efficiency through scale, risk mitigation through diversification.
You've heard us talk a lot over the years about our expansion into other markets. It's why we focus not just on Baton Rouge, where we began, but New Orleans, North Louisiana, now Dallas, Houston, and of course, many markets in between or within that square, I guess I would say. We've had tremendous success over the past 12 months continuing that geographic diversification. Began the year in the high 20% of our assets being outside of our original home market. Meaning right now, meaning being in Texas. We've finished the past 12 months, almost 40% in terms of our assets being outside of Louisiana. Certainly not abandoning Louisiana.
One of the more impressive things about that diversification is that it's come even while our core home base has grown. We're larger in Louisiana. We're the number one Louisiana headquarter bank, as measured by Louisiana deposits. We also have grown outside Louisiana. Again, not growth for growth's sake, but growth for the advantage it brings us through risk mitigation. Different markets do better at different times, whether that be asset quality or it be production strength. More diverse we can make that, I think better off the company and the shareholders will be. Diversity is not just about geography, it's also about client base. We've worked hard to make sure that we're not as lumpy as we used to be.
When, Bob, when we began, this particular part of our journey 13 years ago, one of my biggest concerns was that we had a handful of outsized clients. They were good clients, proud to have them. I didn't want to run them off, but also, we're somewhat vulnerable to either them deciding to go somewhere else or just bad luck, something happening. One of our efforts has been to make sure that we keep those clients. I can't think of any of those particular clients that are no longer with us, but also to add many more and make sure that as we grow in size, we don't grow our individual client exposure at the same but in a linear basis with our growth in assets.
we have been quite successful, I would say, in capping the exposures, either through deciding not to extend credit to a certain point or through development of a participation network with our big group, selling and partnering with community banks for some of the outsized exposure. We've been successful on the loan side, diversifying our exposures at reasonable levels. We've also, and to be honest, it wasn't something that was on the tip of everyone's tongue until a couple months ago, we also have been successful, particularly through our M&A efforts, diversifying our deposit base. We have a for a bank that is focused on businesses, we actually have a very diverse, more community bank-type deposit base, funding base.
Over 100,000 accounts, and average balance is in the $40,000 range, and high degree of small dollar accounts that are covered through FDIC insurance. We've been successful not only marrying kind of the East/West, where you have the slower growth, but solid core deposit base of Louisiana funding higher growth, more credit focused growth in Texas. We've also been successful developing a diversified deposit base to support the strong credit program that we have. Our efforts to mitigate risk through diversification have paid off in those arenas.
The area that I'm excited about the most in terms of diversification going forward is not so much geography or number of clients, but it's also type of clients, in that one of the things that we are focused on and will continue to focus on, is diversification of revenue stream. By that, I, I particularly mean product set. We've been focused on, on planting some seeds and developing alternate revenue streams, in particular, non-interest income streams. Historically, community banks and our bank have been very tied to spread income. Most of our income comes from taking credit risk. Over time, to move from a solid performer financially to a high performer, we need to add to that some non-interest income. Made big strides this year in our SBA program.
We've gone from $200,000-$300,000 a year in revenue to $300,000 a quarter. Which is not yet enough to really move the needle, but it's certainly a trajectory that's moving in the right direction. We also, as you all know, from two years ago, bought an asset manager, Smith Shellnut Wilson. We've been working to integrate that successfully. They have been thriving. They have grown by, I believe, about 40%, since we've affiliated together over the past two years. We still are just kind of scraping the surface in terms of making the most financially of that acquisition. Any acquisition, there's always the, how do they fit? Can we keep what we bought?
Then there's the, how do we make the most of it? We're now in the how do we make the most of it phase versus is it going to work phase, which is a good place to be. Lots of diversification efforts going on to parallel that growth effort. Then the final kind of main thrust or the third main thrust is profitability. You know, historically, we've spoken about our past kind of five-year phases, and the first phase was the startup phase. It's just kind of get going and kind of ramp up growth-wise. Second kind of five-year phase was recover from the first five-year phase. Because starting up is hard.
You know, even most people think of banks as kind of just, I don't know, falling from the sky or just the government says, "Yes, you, you are a bank." It actually is a startup venture that, or it can be a startup venture, in ways that are more complicated than other startups. Not only do you have to do all the basic startup stuff, raising money, getting people, trying to get revenue coming in the door, but you have to do so within a regulated environment. Those first five years, we also had certain challenges in, in Louisiana, like Hurricane Katrina, that led to us, needing to spend those next five years kind of getting healthy. You had growth, then you had to get healthy.
The third five-year period was healthy growth, and so that's when we began our acquisitions, and began to get to a size at which we had a stable base from which to operate. We did that successfully. This last five-year period has been about continuing healthy growth, but making it healthy, profitable growth, which is ultimately the, the goal over time, right? Not to be profitable, but to do so in a sustainable way over time. We've made significant progress or strides in that arena. In fact, the past 12 months have been probably our, the thing that I'm most excited about and proudest of, is that I do believe that we've made a bit of a transition.
Beginning of the year, we were floating with that 1% ROA, 10% ROE, and we felt like we were able to do it, but we kind of had everything had to work kind of just right. By the end of the 12 months, where we are today, I consider the 1% to be kind of our baseline, and then if things work right on top of that, we have a chance to have outsized profits. Going from 31%, as the regulators might say, to a healthy 1%, is probably the biggest thing that we've done this year, even through adverse economic times. I wouldn't say the times have been adverse, I'd say they've been uncertain about that, which leads to choices that you have to make.
Excited about where we are from a profitability standpoint, not satisfied, but I think in terms of moving forward on that path of becoming a higher earner, this was a very important year. Finally, we've always been about our performance that's directly tied to the quality of our people. As we think about our franchise going forward, it's important that we not focus so much on efficiency and profitability, and adding assets in a given period of time, that we forget to invest in other kind of non-quantitative things that will pay off, not today, but in the future. We always talk about playing offense even while we're playing defense. We've done that in a couple of ways.
One way is that, I speak about it in terms of, in, in context of people, because it is a person, has been particularly a particular part of this. We've begun in a way that we haven't before, investing in marketing and branding. It's been pretty powerful this year to see us go through a transition of even here in our home market of Baton Rouge, really for the first time, I would say, being known by the people that didn't already know us, right? For years, although we had a core group that was a part of and impressed with and knew about the story, most non-business people have known who b1 was. Beginning to change, and a lot of it has to do with our marketing.
We've done investments that we've made over the past year, year and a half, and in particular, the relationship that we have with one of our board members, Drew Brees, has really been a big needle mover this year, that I anticipate will provide additional payoff in years to come. Even just yesterday, I was at a meeting and one of the members of the group that I was with introduced me to one of his younger associates. He was trying to kind of get him to know some people here. He only moved here about three years ago. When I said what bank I was with, or I was introduced as being with b1BANK, the younger guy said, "Oh, yeah, y'all are Drew Brees' bank," which is tough, you know?
There was for many years, that young person would not have heard of us. Now they have, which is exciting, not only in terms of, what we've done to get here, but in terms of what it means for the future, in terms of our growth. To be the number one bank, size-wise, in Louisiana without having that brand recognition, you know, A, was hard work that was accomplished over time, but B, it speaks to, how little we've actually accomplished in terms of what we have to accomplish. Keeping in line with the people, theme, that too, has been something that we've made good strides with this year.
In particular, although, as I think about our exec team in particular, they certainly have been being molded and shaped over a many-year period. One of the things that I'm proudest of about our organization is we have a good solid team that's been through a lot together, but we're willing to add new members when it makes sense, and when they can bring something that, that we need to make us better. Our kind of core exec team has been together now through a long period of time, from startup, through the great financial crisis, through the energy scare in the 2014, 2015 period, through the COVID pandemic, and then through the governmental reaction to the COVID pandemic.
Of course, through the I wouldn't say the deposit or liquidity crisis earlier this year, because we didn't really experience a crisis, but the perceived crisis is what I would say. That's a lot of experience building up over time that should prepare us well for whatever challenges, which I'm obviously not very good at predicting, because I wouldn't have predicted any of those events. Whatever challenges might occur over the next few years. It's probably a good lesson for banking, by the way, that you need to build your infrastructure and your balance sheet in such a way that you can respond to events that you can't predict. Never put so many eggs in one basket that or in banking terms, that's concentration risk.
That gets back to the diversification that we've been working on. I, I wanna, on the people front, though, I also want to say that we've got this core group that has experience and made it through and built something during tough times. It's been a tough period for banking in specific and for the country, but managed to do that. We've also added some people. This year, we've been able to add Jerry Vascocu, who was the Chief of Commercial Strategy for a much larger regional bank for Thrive Area and then First Horizon. To have him on our team is exciting, not just for what we can do for today, but also as we continue this journey.
Having other folks that have been on that journey before at other banks will help ensure that we get there. Not only get there, get there the right way. You know, one of our guiding principles is, "Do the right thing, the right way." How you do something is important, and having Jerry join the team, who we already have some representatives on the exec team who have kind of been through that growth journey with a, with an organization. Having Jerry join, I'm excited about that, being able to learn from the lessons that he's learned over time. Two other similar additions, we have a new Chief HR Officer, who was the Chief HR Officer for IBERIABANK. Michael Peltier . Peltier? How do I say it exactly, Peltier?
Perfect.
Perfect. has joined us. The HR officer for IBERIABANK through a period of significant growth in a geography that matches ours and then extends beyond ours. Excited to have his input not only today but tomorrow as well. Zach Smith has joined us as treasurer. Zach was instrumental in the treasury function of a much larger regional bank, Bank of the Ozarks, in Arkansas, which is a about $30 billion bank that's experienced high growth, a lot of construction work. Some of his technical skills have already been demonstrated since he's been on board for the past two months. I'm very excited to have them join us.
Very excited about the fact that we are an organization that doesn't rest on our laurels in terms of our people and are able to incorporate and make the most of good, strong people. I think we have a executive team that doesn't have any major gaps, and one that can take us to be an institution that's significantly larger than we are today, should that be the fact that we go on. Again, asset size is only one of the goals for the efficiency that it brings. Being here for a long time is also a goal of risk mitigation. Being here for a long time, earning profitably over that time, is probably the major goal that everything else leads to.
We'll continue to focus on those things and, I thought I had about a two-minute speech, and that's turned into a 20-minute speech. I apologize, but I'll stop now. It's been a good year, and it's hard to not talk about things that are good, right? I'm looking forward to the seeing what we can do the next 12 months.
Thank you, Jude. Any questions in the room? Do you have any questions virtually?
None online.
You okay? You all okay?
I'd like to thank Mr. Melville and the board for maneuvering the bank through a difficult time. The only question I'd like to know is about commercial loans. How does the bank stand in that regard, since that's become a big topic with the banking industry now?
By commercial, you mean commercial real estate loans specifically?
Yeah.
You know, we've been working hard to diversify our concentration risk, we don't feel like we have any outsized exposure. We do have commercial real estate. Obviously, it's part of what we do. We do have more commercial and industrial loans than a typical community bank because we've focused on doing other stuff than just commercial real estate. As we think about commercial real estate, we do have a couple of things that are working in our favor. Number one is that the bulk of our commercial real estate, in particular, our construction exposure, is in growing markets. If you look at our footprint, our construction and our commercial real estate tend to be more, in particular, the recent growth has been in Dallas, Baton Rouge, New Orleans.
In North Louisiana, there are even names that won't be as familiar, but still micro markets that are stronger than others. You think about Ruston, for example, is a place that we've had some good success exposure. From a geographic distribution standpoint, I like where our commercial real estate is relative to some other parts of our market. We've also one of the things as you deal with interest rate movements is, and in particular with commercial real estate, is trying to build a portfolio that doesn't all mature at the same time. Banks are generally built to be smooth operators over time.
You might have ups and downs, but you don't wanna have too much of the up or down at one time. Part of that is, as you structure your real estate portfolio, we don't wanna have too many of our clients have to deal with the change in rates at one time. That's what the concern is, that 400-450 basis point movement in rates at renewal, could cause hardship either through the ability to repay or through the value of the appraisal for the property. You know, that certainly could be a problem. One of our goals has been to make sure that we don't have too many of those potential problems maturing at any given point, so that if there is a problem, it won't be one that's existential.
If you think about the maturity schedule of our commercial real estate portfolio, it's relatively smooth. We don't have a big lump coming up. We're not facing 10% of our portfolio maturing in the next three months. Whatever does happen in terms of people being able to adjust, we feel like we'll have time to see it through. Now, I will tell you that we haven't had any challenges thus far, and we have had plenty of renewals at the higher rates. We haven't had any challenges of any material nature with that impacting us yet. Our asset quality is as strong as it's ever been and seems to be even improving a little bit.
Feel very blessed for where we are today in terms of the impact thus far. And feel like the dampened impact thus far, combined with the fact that it appears that rates are reaching a peak, at least in the short run. And then the fact that our exposure to that rate increase-- those rate increases, are fairly spread out. I feel quite confident about our ability to withstand any of the tensions that the market is suggesting might come with CRE exposures. Good question. Thanks.
Thank you.
Thank you for your question. This concludes the 2023 annual meeting of shareholders. Thank you all for your participation this morning.