Business First Bancshares, Inc. Q4 FY2025 earnings call

Non-Financial Highlights

• Conducted two major core conversions and implemented software platforms.
• Developed internal divisions for fraud prevention, loan review, etc.
• Closed three banking centers and opened one; developed correspondent banking to over 175 community banks.
• Acquired Progressive Bank in North Louisiana; learned credit lessons.
• Won American Bankers Best Banks to Work For Award for fifth year.

Balance Sheet Strength

• Bolstered capital ratios: tangible common equity up 90bps, CET1 up 50bps; tangible book value grew 17.3%.
• Balanced balance sheet with limited concentrations; grew loans and deposits tandem.
• Began share buybacks after almost 6 years and increased common stock dividend for seventh year.

P&L Improvement

• Grew ROA beyond 1% goal to 1.06% core ROA for the year and 1.16% in Q4.
• EPS increased 14% year-over-year, 20% in Q4.
• Core margin grew to 3.63% beyond stated goals.
• Held non-interest expense flat while growing revenue, posting sub-60 efficiency ratio in Q4.

Total loans held for investment increased $168.4 million or 11.1% annualized on a linked quarter basis. Total deposits increased $191.7 million, mostly due to a net increase in interest-bearing deposits of $236.2 million. GAAP reported fourth quarter net interest margin increased three basis points linked quarter to 3.71%, while the non-GAAP core net interest margin increased one basis point to 3.64% for the quarter ended in December. Core ROA was 1.06% for the year and 1.16% in the fourth quarter. Core margin grew to 3.63% from the stated goal of 3.5-3.6.

Loan Growth

• Expect mid-single-digit loan growth in 2026.

Margin

• Baseline assumption: no further rate cuts in 2026; expect modest margin improvement in down rate environment.

Non-Interest Income

• Expect near-term quarterly non-interest income in mid to high $13 million range, including $1 million quarterly contribution from Progressive Bank acquisition.

Reserves

• Intend to move reserve to 1% or higher; annualized losses expected to be in lower teens to mid-teens.

• A single $25.8 million commercial real estate relationship in Houston deteriorated, increasing nonperforming loans and assets ratio.
• Concentration risk and exposure risk, as outsized credits can impact metrics.

Q: Matthew Olney asked about loan growth front, specifically paydowns and organic loan growth outlook.

A: Greg Robertson said Q4 loan growth was due to pent-up demand and slowing paydowns, expecting mid-single-digit loan growth in 2026.

Q: Matthew Olney followed up on credit side, asking about the deteriorated commercial real estate relationship.

A: Greg Robertson said it's a $25.8 million commercial real estate medical facility in Houston, been dealing with it, marked down to immaterial loss, but kept dragging on. Jude Melville said it's one of the larger single commercial real estate exposures, and lessons learned include concentration and exposure risk.

Q: Michael Rose asked about focus on daily execution vs major projects and M&A outlook.

A: Jude Melville said no prioritization on M&A now, focus on maximizing output from past implementations, deepening relationships for increased profitability.

Q: Michael Rose followed up on buybacks and hiring.

A: Jude Melville said will continue to look for buyback opportunities below 1.2x tangible book, and will hire selectively if right people, focusing on organic growth with current staff.

Q: Feddie Strickland asked about DDAs and non-interest income.

A: Greg Robertson said DDAs migration from non-bearing to interest-bearing slowed, non-interest income expected mid to high $13M quarterly with Progressive contribution, and opportunity in swap fees, SBA, and brokerage.

Q: Feddie Strickland followed up on loan growth balance.

A: Jude Melville said strategy is to have balanced growth with different markets experiencing success at different times, aiming for consistent moderate growth.

Q: Gary Tenner asked about swap business and steady state rate environment.

A: Greg Robertson said swap business has opportunity as bankers integrate rate risk management with longer duration fixed rate loans; Jude Melville added it's also about offering clients options while managing interest rate risk.

Q: Christopher Marinac asked about reserves and efficiency goals.

A: Greg Robertson said reserves intend to move to 1% or higher, annualized losses expected lower teens to mid-teens; efficiency goal is to improve operating leverage, aiming for 50s efficiency ratio by 2027.