Business First Bancshares, Inc. (BFST) Earnings

Management highlights

• This was one of, if not the best, first quarters as a company, with improved earnings, strengthened capital levels, and improved liquidity posture. • Closed the progressive transaction on January 1st, adding over 700 million assets in nine branches across North Louisiana. • Added a substantial number of new teammates organically, including John Heine and Ben Marmon in Houston. • Announced and begun a partnership with Covecta for agentic AI capabilities focused on consumer workflows. • Non-interest expenses for the quarter were lower than anticipated, with core expenses essentially flat quarter over quarter. • Non-interest income, primarily through the Financial Services Group, contributed to positive earning results. • Utilized the financial services group to successfully complete a fully self-managed private placement of subordinated debt, raising $85 million

Guidance

• Reiterate full-year loan guidance based on sooner-than-expected hiring of production officers. • Forecast a 1.25 ROA end-of-year run rate. • Think mid to mid low to mid single digit margin expansion as we move forward. • Expect about a million dollars going forward for accretion per quarter. • Anticipate high single digits to 10% loan growth in the second and third quarter, ending up with mid-single digits, 5% to 6% range loan growth on an annualized basis

Segment performance

The acquisition added over 700 million assets in nine branches across North Louisiana. Total loans held for investment increased 494.8 million for 32% annualized on a link order basis. Excluding acquired progressive loans, total loans held for investment declined 102.7 million for 6.2% annualized. Excluding acquired progressive loans, organic commercial and commercial real estate loans decreased 58.6 million and 23 million respectively. Texas-based loans ended the first quarter at 35% of total loans. Total deposits increased $766.4 million. GAAP-reported first quarter net interest margin decreased six basis points linked quarter to 3.65%. Non-GAAP core net interest margin ended March 31st. Core loan yields excluding loan discount accretion for the first quarter were 6.54%, down 24 basis points from the prior quarter. GAAP non-interest expense was $57.5 million and included $2.2 million in acquisition-related expense. Core non-interest expense for the first quarter was $55.2 million. GAAP and core non-interest income was $14.1 million and $13.9 million, respectively. Total loans past due 30 days or more excluding non-accruals as a percentage of total loans held for investment decreased from 0.64 to 0.42 on March 31st. The ratio of non-performing 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 non-performing assets compared to total assets increased 29 basis points to 138 compared to the linked quarter

Risks & headwinds

• Some credits have varying types of collateral and timing of resolution is uncertain, which could impact NPA resolution and related financials. • Timing of non-accrual loans converting back to earning assets is tricky and unpredictable, which could affect margin

Analyst Q&A

• Q: Hey, good morning, everybody. Just wanted to start on credit. 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 of how much we could maybe see NPAs come down by year end, assuming no further migration?

  A: Yeah, thanks, Patty. 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 for moving them to resolution is sometimes precarious and moves at different speeds. Q2, we think about 30% of the current NPA list will go through to a 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.

• Q: And then the increase this quarter, I apologize, I cut out for a second when you were mentioning this in your opening comments, but was that the Houston Medical Facility or which credits contributed to the higher MPAs this quarter?

  A: No, we had about a $25 million increase this quarter, which were mostly attributable to we have a relationship with one client. It's about $16 million in 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 two or three quarters to resolve it. So that was the majority of the increase this quarter. The previously mentioned medical facility was already in the list.

• Q: And just one quick follow-up on the margin. I saw你paid down the FHLD and the broker this quarter, but you also issued the sub-debt. um you know should we expect the margin to i guess the gap margin to still directionally move higher in the second quarter or is more flat your expectation

  A: no we we think we're gonna we we think mid mid low to mid single digit margin expansion as we move forward um you know part of that uh will be reliant on uh 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 margins should tick up low to mid-single digits. If you look at the spread we had during the quarters, the spread was relatively flat quarter over quarter. And we think with the increase in volume, we should get a little bit of pickup.

• Q: Hey, thanks. Good morning. Just want to follow up on the credit discussion. I think, Greg, you mentioned expectations of some resolutions of the next few quarters. That's great to hear. Any thoughts as far as loss of condition? You know, what kind of allowances do you have on some of these credits? Just trying to anticipate that. We should anticipate the charge obviously being a little bit higher in the near term.

  A: 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 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.

• Q: Hey, good morning, guys. Thanks for taking my questions. Just wanted to kind of dig back onto 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你mentioned a even a few more, I assume you're continuing to hire. So, you know, how should we expect those expenses to, you know, from a timing and magnitude perspective to layer in? And then if 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. I'm just trying to frame out the expense, you know, outlook over the next few quarters.

  A: Yeah, 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. But we still remain... 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 on an annualized basis on costs. So certainly still anticipate recognizing the benefits of those efficiencies. primarily in fourth quarter.

• Q: Hey, thanks for taking the follow-up, guys. Just want to go back to the net interest margin, and我'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 looked like there was that interest reversal that impacted the margin by about $1 million in the fourth quarter. from that Houston line that we discussed. Was there any kind of interest reversal, again, this quarter with the uptick of non-accruals?

  A: Yeah, I'll just leave it there. Yeah, you're right. There was some noise. I think when you think about relative to the non-accruals, there was about a million-two in interest reversal. That was probably attributable to six or seven basis points, in fact, on the margin. That was due to the movement of about $25 million of loans to NPL during the quarter and the reversal. 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 It's a little bit tricky because we're still having to resolve这些in real time, and the twist and turn sometimes of a conflict resolution with some of these credits, it's a little bit unpredictable. But we see some opportunity on the horizon with that for sure.