Business First Bancshares Highlights Growth Despite Credit Hurdles

Business First Bancshares ((BFST)) has held its Q1 earnings call. Read on for the main highlights of the call.

Business First Bancshares’ latest earnings call struck a cautiously upbeat tone as management highlighted solid profitability, strong deposit inflows, and the strategic lift from its Progressive Bank acquisition. While acknowledging near-term pressures from loan paydowns, higher nonperformers, and modest margin compression, executives emphasized that capital strength, disciplined pricing, and ongoing investments position the bank for improved performance through 2024.

Acquisition Expands Footprint and Assets

The January 1 closing of the Progressive Bank deal added $774 million in assets and nine branches, significantly deepening Business First’s presence in North Louisiana. The combination also tilted the loan book further toward Texas, where credits now represent 35% of total loans, reinforcing the bank’s strategic focus on high-growth Sun Belt markets.

Strong Quarterly Earnings and EPS

For the quarter, Business First posted GAAP net income of $22.2 million, translating into GAAP EPS of $0.68. On a core basis, excluding notable items, net income reached $24.0 million and core EPS came in at $0.73, underscoring resilient earnings power despite credit and margin headwinds.

Profitability and Efficiency Metrics

Core return on average assets was 1.10%, signaling solid profitability for a growing regional bank in a still-challenging rate environment. Management also reported a 62% core efficiency ratio, reflecting ongoing expense discipline even as the company invests in new markets, talent, and technology platforms.

Significant Deposit Inflows and Improved Liquidity

Total deposits surged by $766.4 million, with interest-bearing balances up $513.3 million and noninterest-bearing deposits higher by $253.0 million, materially strengthening liquidity. Excluding the Progressive acquisition, organic deposit growth reached $81.5 million, or 4.4% on an annualized linked-quarter basis, signaling healthy core franchise momentum.

Successful Capital and Liability Management

The company completed an $85 million private placement of subordinated debt and used $67 million of the proceeds to redeem higher-cost subordinated debt. Management further de-risked the balance sheet by repaying $170.4 million in FHLB borrowings and reducing brokered deposits by $112.5 million, lowering wholesale funding reliance.

Noninterest Income Contribution

Core noninterest income totaled $13.9 million, or $14.1 million on a GAAP basis, providing a meaningful offset to softer spread revenues. Strong swap fee generation and gains on SBA loan sales were key drivers, highlighting the value of fee businesses in cushioning net interest margin pressure.

Talent Acquisition and Organic Growth

Beyond the Progressive transaction, the bank continued to build its bench with strategic hires to fuel organic growth, including a new Houston market president and a corporate banking leader for Texas. Around 11 new producers were added in Houston alone, bolstering the future loan and deposit pipeline in a priority growth market.

Deposit Retention and Pricing Discipline

The bank maintained an 81% retention rate on core CDs in the first quarter, demonstrating strong customer loyalty despite competitive pressures on funding. At the same time, management preserved margin by originating and renewing loans at a weighted average yield of 7.20%, signaling a disciplined stance on risk-adjusted pricing.

Tangible Book Value Growth and Share Repurchases

Tangible book value has compounded at roughly a 16% annualized rate since the end of 2022, reflecting accretive earnings and balance sheet management. The company has been opportunistic with share buybacks, repurchasing stock at an average multiple of about 1.19 times tangible book value and remaining ready to act when valuations appear compelling.

Loan Paydowns and Lower Organic Loan Growth

Loan dynamics were a notable soft spot, as paydowns and payoffs of $579 million outpaced $476 million of new and renewed production. Excluding Progressive, loans held for investment declined $102.7 million, or 6.2% on an annualized linked-quarter basis, resulting in lower-than-anticipated organic growth.

Increase in Nonperforming Loans and Assets

Credit quality showed some strain, with nonperforming loans rising 29 basis points to 1.53% of loans held for investment and nonperforming assets climbing to 1.38% of total assets. Roughly $25 million of loans migrated to nonperforming status in the quarter, with one client relationship of about $16 million a primary contributor to the uptick.

Net Interest Margin Pressure

Reported GAAP net interest margin slipped 6 basis points to 3.65%, while core NIM edged down 4 basis points to 3.60%, reflecting the impact of higher funding costs and mix shifts. Margin was also dented by approximately $1.2 million in interest income reversals on loans placed on nonaccrual, which management estimated shaved about 6 to 7 basis points off NIM.

Lower Than-Expected Loan Discount Accretion

Loan discount accretion, historically a modest tailwind to margin, fell to $1.1 million in the quarter and ran below internal expectations. Looking ahead, management now anticipates quarterly accretion to remain in the low $1 million range, trimming a small but previously helpful source of net interest income.

Core Expense Increase and Near-Term Hiring Costs

Core noninterest expense rose to $55.2 million, up $5 million from the prior quarter, while GAAP noninterest expense totaled $57.5 million including $2.2 million of acquisition-related costs. Executives flagged additional near-term expense pressure from new hires in the second quarter before cost savings from the Progressive integration fully flow through.

Concentrated Paydown Pressure in Texas

Loan paydowns were heavily concentrated in the Texas franchise, particularly in Dallas and Houston, where the bank has been scaling up its presence. These paydowns reflected both the wind-down of larger projects originated in 2022–2023 and selective exits from certain relationships, creating temporary headwinds to loan growth in these core markets.

Credit Resolution Uncertainty

Management expressed confidence that about 30% of the current nonperforming asset list will resolve in the second quarter, with the remainder working off in stages over the balance of the year. Still, they acknowledged that workout timing is inherently uncertain, especially around larger relationships, and could cause some quarter-to-quarter volatility in reported asset quality metrics.

Reduced Purchase Accounting Accretion

The Progressive acquisition delivered smaller-than-expected interest rate marks, which in turn reduced the level of loan discount accretion anticipated from the deal. While this weighs modestly on future margin, management emphasized the trade-off came with materially less tangible book value dilution than initially forecast, supporting long-term shareholder value.

Guidance and Outlook

Looking ahead, Business First reaffirmed its outlook for mid-single-digit annualized loan growth of roughly 5% to 6% and a year-end ROAA run-rate of 1.25%, assuming no additional rate cuts. The bank expects modest improvement in core NIM from the first quarter’s 3.60%, deposit betas in the 45% to 55% range, a core efficiency ratio trending toward the mid- to upper-50s as Progressive cost saves are realized, and staged credit remediation with roughly 30% of current NPAs resolving in the second quarter and most of the remainder by year-end.

The call painted a picture of a growing regional bank balancing expansion and discipline as it digests a sizable acquisition and navigates a tricky credit and rate backdrop. Investors will be watching execution on loan growth, cost saves, and credit resolution, but management’s reaffirmed guidance and strong deposit momentum suggest the franchise remains on a constructive trajectory for 2024 and beyond.