Business First Bancshares Highlights Profitable, Disciplined Growth

Business First Bancshares ((BFST)) has held its Q4 earnings call. Read on for the main highlights of the call.

Business First Bancshares Earnings Call Signals Momentum Amid Manageable Headwinds

The latest earnings call from Business First Bancshares painted a picture of a bank with strong underlying momentum, balancing robust profitability, capital growth, and strategic execution against a handful of contained headwinds. Management highlighted double‑digit EPS growth, rising returns on assets, faster tangible book value accretion, and improved efficiency, while acknowledging pressure from a single large credit issue, modest margin compression tied to rate cuts, and near‑term integration and conversion costs. The overall tone emphasized disciplined execution and risk management, with management repeatedly underscoring that the positive drivers substantially outweigh the challenges.

Strong Profitability and EPS Growth

Business First showcased another year of solid earnings power, with core return on assets at 1.06% for the full year and 1.16% in the fourth quarter. GAAP Q4 net income reached $21.0 million, or $0.71 per share, while core non‑GAAP results were even stronger at $23.5 million and $0.79 per share. Earnings per share rose 14% for the year and 20% year‑over‑year in Q4, underscoring improving profitability despite a mixed rate environment and ongoing investment in growth. The bank’s ability to grow EPS at this pace while also strengthening capital and absorbing one‑time costs was a central theme of the call.

Net Interest Margin and Loan Yield Performance

Net interest margin held up better than many peers, with GAAP NIM rising 3 basis points quarter‑over‑quarter to 3.71% and core NIM edging up 1 basis point to 3.64%. While management acknowledged some pressure from rate cuts and an interest income reversal on a nonaccrual loan, overall loan pricing remained attractive: the weighted‑average yield on new and renewed loans was 6.97% in Q4. This combination of stable margin and healthy loan yields suggests Business First is still pricing credit risk appropriately while competing effectively for quality lending opportunities.

Loan and Deposit Growth

Balance‑sheet growth accelerated in the fourth quarter, driven by strong loan demand and solid deposit inflows. Total loans held for investment rose by $168.4 million, an 11.1% annualized linked‑quarter pace, as roughly $500 million of new and renewed loan production exceeded $332 million of paydowns and payoffs. On the funding side, deposits increased $191.7 million in Q4, fueled by a $236.2 million rise in interest‑bearing balances. This combination of loan and deposit growth, in a competitive and rate‑sensitive environment, reinforced management’s message that organic growth engines are firmly in place.

Balance Sheet and Capital Strength

The company’s capital story continues to improve, providing a buffer for growth and shareholder returns. Tangible common equity increased 90 basis points year‑over‑year, and the consolidated CET1 ratio rose 50 basis points. Tangible book value per share grew an impressive 17.3% over the past year, a notable figure for bank investors focused on intrinsic value compounding. With that backdrop, management resumed share buybacks—repurchasing roughly 150,000 shares in the fourth quarter—and raised the common dividend for the seventh straight year, signaling confidence in the sustainability of earnings and capital generation.

Efficiency and Expense Discipline

Operating efficiency took a meaningful step forward, even as the bank digested growth and strategic investments. The core efficiency ratio improved to 59.7% in Q4, moving Business First into sub‑60 territory for the first time. Management held non‑interest expenses relatively flat while growing revenue, producing positive operating leverage. Looking ahead, leadership laid out a path toward an efficiency ratio in the mid‑50s by 2027, implying continued focus on cost control, process improvement, and revenue mix optimization as the bank scales.

Non-Interest Income Momentum and Correspondent Banking

Non‑interest income emerged as a growing contributor to overall results. Core non‑interest income reached $13.2 million in Q4 (GAAP $12.2 million), bolstered by stronger‑than‑expected swap fee revenue—about $1.0 million above internal expectations—and a $312,000 gain on other real estate owned. The bank’s correspondent banking platform, now serving more than 175 community bank clients, has become a meaningful and recurring fee income driver. This higher‑margin business helps diversify revenue away from pure spread income and should support earnings resilience across rate cycles.

Strategic Operations and Technology Upgrades

Management emphasized the operational groundwork laid during the year, highlighted by two major core system conversions and multiple software and platform rollouts. These upgrades enhance capabilities in fraud detection, loan review, audit, and pricing and profitability analytics—key tools for managing a larger, more complex institution. While these projects carried upfront costs and execution risk, the bank expects them to improve scalability and execution quality, positioning Business First for more efficient growth and tighter risk management in 2026 and beyond.

Targeted Market and Footprint Progress

Geographically, Business First is refining and diversifying its footprint. The acquisition of Progressive Bank in North Louisiana closed at year‑end, bringing in new deposits and revenue streams and modestly reducing the bank’s concentration in Texas loans from about 39% to roughly 36%. Organic growth was led by the Southwest and North Louisiana markets in Q4, suggesting the combined franchise has momentum in core regions. Management framed Progressive as both a growth and diversification play, consistent with the bank’s strategy of building a balanced multi‑market platform.

Credit Migration and Single Large CRE Deterioration

Credit quality metrics did show some deterioration in the quarter, but management stressed that the issues are concentrated and manageable. The nonperforming loan ratio rose 42 basis points to 1.24%, and nonperforming assets increased 26 basis points to 1.09%, largely due to a single $25.8 million commercial real estate relationship tied to a medical facility in Houston being moved to nonperforming status—one of the largest individual exposures on the books. While this drove headline credit metrics higher, the concentration in one known relationship provides visibility, and the bank reiterated its commitment to building reserves and closely managing the exposure.

Rise in Past-Due Loans and Charge-Offs

Beyond the single large CRE credit, broader credit metrics also showed some normalization. Loans 30 days or more past due (excluding non‑accruals) increased from 27 basis points to 64 basis points, indicating some pressure in the portfolio as the credit cycle matures. Annualized net charge‑offs ended the year at about 19 basis points. However, management guided toward annualized losses normalizing to roughly 10–12 basis points next year, suggesting that current levels are elevated but not indicative of a structural deterioration in asset quality.

Pressure on Loan Yields and Margin from Rate Cuts

The rate environment is beginning to weigh on loan yields and reported margins, even as headline NIM remained slightly higher this quarter. Core loan yields excluding discount accretion fell 15 basis points quarter‑over‑quarter to 6.78%, as Q4 rate cuts and competitive dynamics pressured pricing on new and renewed credits. The bank also recorded a $1.0 million interest income reversal on a nonaccrual loan, representing roughly a 5 basis point drag on Q4 NIM. Management acknowledged these pressures but believes the balance sheet is positioned to see modest margin improvement in a slightly lower‑rate environment.

Near-Term Expense Increases and One-Time Costs

Expenses in the quarter reflected both underlying growth and one‑time items associated with strategic initiatives. GAAP non‑interest expense was $52.4 million, including $1.4 million of acquisition‑related costs and $796,000 of conversion‑related expense. Management cautioned that the core expense base will step up in the first quarter as the Progressive acquisition flows through and annual expense resets take effect. However, they view these increases as investments ahead of expected cost savings and efficiency gains once integrations and conversions are complete.

Deposit Mix and Seasonality Risks

On the funding side, mix and seasonality are key watch points. Non‑interest‑bearing deposits declined by $44.5 million during the quarter, reflecting some continued migration toward interest‑bearing products in a still‑competitive rate environment. Management also flagged an expected outflow of public funds in the first quarter due to normal seasonal dynamics. Core certificate‑of‑deposit retention was about 83% in Q4, a solid level but one that underscores some retention risk as market rates evolve and customers reassess term structures.

Elevated Loan Discount Accretion Volatility

Loan discount accretion added some noise to reported margins in Q4 and is expected to remain a source of volatility. Accretion income came in at $1.4 million in the quarter, elevated due to an acquired loan paying off earlier than modeled. For 2026, management projects roughly $1.8 million of loan discount accretion per quarter when including Progressive, which will support NIM but make quarter‑to‑quarter comparisons less straightforward. Investors were encouraged to focus on core margin trends excluding accretion and one‑time items.

Forward-Looking Guidance and Outlook

Management’s guidance leaned toward measured, disciplined growth with continued balance‑sheet fortification. They expect mid‑single‑digit loan growth in 2026, a step down from Q4’s annualized 11.1% pace but consistent with a cautious stance late in the credit cycle. The base case assumes no additional Federal Reserve cuts, with the flexibility to deliver 45%–55% deposit betas if further cuts occur, and core CD retention around 83%. In this framework, the bank sees modest margin improvement in a slightly down‑rate scenario, supported by core NIM of 3.64%, core loan yields of 6.78%, and new loan yields around 6.97%. Loan discount accretion is projected at about $1.8 million per quarter in 2026, while quarterly non‑interest income is expected in the mid‑to‑high $13 million range, including roughly $1 million per quarter from the Progressive acquisition. On capital, management plans opportunistic buybacks—particularly when the stock trades below about 1.2 times tangible book—alongside ongoing dividend support and further improvements in CET1 and tangible common equity. Credit guidance calls for reserve coverage of at least 1.0% (about 1.06% today when including marks) and annualized net losses returning to 10–12 basis points, while efficiency efforts target pushing the ratio into the 50s by 2027, aided by Progressive cost saves after full conversion, expected by the third quarter of 2026. Seasonal public funds outflows are anticipated in Q1 but are incorporated into the bank’s planning.

In closing, Business First Bancshares’ earnings call reflected a bank that is growing profitably, investing in its platform, and returning capital, while managing through isolated credit issues and typical rate‑cycle and integration challenges. The narrative centered on strong EPS and tangible book growth, improving efficiency, and expanding fee income, all underpinned by rising capital ratios. While investors will watch the large CRE exposure, deposit mix trends, and integration expenses closely, management’s clear remediation plans and disciplined guidance indicate that the franchise is positioned to continue compounding value in the years ahead.