Business First Bancshares, Inc. Q2 FY2025 earnings call

• Core system conversion to IPS FIS large bank platform completed successfully over Memorial Day weekend, positioning for future efficiency.
• Sold a legacy branch in South Louisiana, partnering with a local community bank for a win-win, expecting $750,000 annual operational savings.
• Announced partnership with Progressive Bank, a $750 million community bank, with expected earnings accretion.
• Maintained ROAA, increased capital levels, and tangible book value by almost 15%. Originated loans at a healthy pace and improved funding base with noninterest-bearing accounts growth.
• Asset quality metrics trended negatively but watch list declined, with adequate reserves against nonperforming relationships.

GAAP net income for Q2 2025 was $20.8 million with EPS of $0.70, including a $3.36 million gain on the sale of a branch. Excluding noncore items, non-GAAP core net income was $19.5 million with EPS of $0.66 per share. Total loans held for investment increased 4.5% annualized on a linked-quarter basis, up $66.7 million from Q1. Total deposits decreased $38.5 million, while noninterest-bearing deposits increased $102 million quarter-over-quarter. GAAP net interest margin was 3.68%, and non-GAAP core net interest margin was 3.64%. Q2 NPLs increased to 0.97%, with net charge-offs at 0.05%.

• Loan growth expected in the mid-single digits, likely at the higher end of the previous range.
• Margin expected to improve 4-6 basis points for the remainder of the year.
• Core noninterest expense to see a modest increase in Q3, with Oakwood cost savings expected in Q4.
• Loan discount accretion projected to average $750,000 to $800,000 per quarter going forward.

• Credit migration issues with a few loan relationships, though reserved appropriately and working towards resolution.
• Uncertainty in fee income components like SBIC pass-through income.
• Dependence on Fed interest rate decisions affecting funding costs.

Q: Feddie Strickland asked about excess liquidity related to core conversion and credit moves.

A: Gregory Robertson said excess liquidity is carried for core conversion and Oakwood conversion, and credit moves involve reserves on certain loans with ongoing resolution efforts.

Q: Michael Rose inquired about the expense outlook.

A: Gregory Robertson stated Q3 expense to be in the low $50 million range, with Oakwood cost savings in Q4 having a partial impact.

Q: Matt Olney asked about loan yields and fixed rate repricing.

A: Gregory Robertson mentioned loan yield softness due to competition, and David Melville noted deferred loan fees contributed to the drag.

Q: Christopher Marinac asked about Smith Shellnut and capital ratios.

A: David Melville discussed Smith Shellnut growth and Gregory Robertson outlined capital ratio targets of ~13.75% risk-based and low 9% TCE.

Q: Manuel Navas asked about loan growth and fees.

A: Gregory Robertson and David Melville discussed loan growth in the mid-single digits and Smith Shellnut fee growth potential from SBA and derivatives business.