Business First Bancshares, Inc. Q3 FY2026 earnings call

• Strong Execution: Third quarter results exceeded expectations, driven by loan growth of ~7%, deposit growth of ~7.7%, and margin expansion of 12 basis points on a core basis.
• Credit Quality: Non-performing loans decreased modestly to 1.24% of loans held for investment. An increase in net charge-offs was attributed to a single previously identified and fully reserved commercial relationship, representing expected credit cleanup.
• Progressive Acquisition Integration: The progressive conversion in North Louisiana was completed in August. All cost savings from this acquisition have been recognized, contributing to lower-than-expected expenses.
• Strategic Growth Drivers: Significant opportunities are emerging from major investments in the footprint, including Meta’s data center in North Louisiana, Amazon’s $20 billion commitment in Northwest Louisiana, and SpaceX’s $100 billion investment in Southwest Louisiana.
• Talent Expansion: A six-person commercial team was added in Tyler, Texas, aimed at filling the I-20 corridor between Dallas and Shreveport and enhancing East Texas growth.
• Capital Return: Tangible book value per share increased approximately 1.7% annualized despite interest rate pressure on AOCI, supported by active share repurchases.
• Deposit Retention: Core CD balance retention rate was strong at 77%, and the company anticipates maintaining 45-55% deposit betas for future rate changes.

The transcript does not break down financial performance by distinct product segments (e.g., Commercial Banking vs. Financial Services Group) with specific revenue contribution percentages for the core banking unit. However, it highlights that the Financial Services Group (FIG), which serves over 200 banks including American Planning Corp. and SSW, is growing revenue at better than 20% annualized. For the core bank, Total Loans increased by $21.4 million (7.2% annualized) and Total Deposits increased by $141.2 million (7.7% annualized). GAAP Net Income was $23.2 million ($0.71 EPS), while Non-GAAP Core Net Income was $26.0 million ($0.79 EPS). Core Pre-tax Pre-provision earnings were $36.3 million.

• Loan Growth: Management expects mid-to-upper single-digit annualized loan growth in Q4 2026, replicating Q3 performance, driven by the Houston pipeline and new teams.
• Margin Expansion: Core net interest margin is expected to expand further in Q4 2026, aided by asset sensitivity and repricing from the September Fed rate hike, though competitive deposit pressures are monitored.
• Expense Outlook: Base non-interest expense for Q4 is projected at approximately $57 million, with low-single-digit organic growth expected over the next year as the firm invests in bankers and infrastructure.
• Long-term Profitability: Management anticipates continued improvement in core profitability extending into 2027, assuming disciplined execution and flat-to-moderately rising rates.
• FIG Revenue: The Financial Services Group aims to maintain >20% annualized revenue growth, acknowledging some quarterly lumpiness but expecting long-term steady build.

• Competitive Deposit Pressure: Increased competition in the market, particularly around broker borrowings nearing one-year FHLB rates, poses a risk to funding costs.
• Seasonal Liability Costs: Seasonal inflows from municipalities in Q4 may negatively impact the liability side and deposit costs.
• Credit Resolution Delays: While NCOs were contained, the resolution of specific non-performing assets can be delayed due to timing restrictions, potentially impacting short-term metrics.
• Unfunded Commitments: Growth in unfunded commitments for high-quality clients may exert short-term pressure on risk-based capital ratios.
• Non-Interest Income Volatility: Revenue from SBIC and swap services can be 'lumpy' quarter-to-quarter due to yield curve dynamics and deal timing.

Q: Analyst Matt Olney asked about the sustainability of loan growth, specifically regarding the Houston pipeline and the newly hired team in Tyler, Texas. / A: CEO Jude Melville stated that the Houston pipeline is converting to production and noted a positive network effect where Meta’s investment drives loan activity across other Louisiana markets. Regarding Tyler, he expressed confidence in the new team’s ability to hit the ground running and serve clients effectively within the I-20 corridor. CFO Greg Robertson added that Q4 loan growth is expected to remain in the mid-to-upper single digits, consistent with Q3 trends.

Q: Analyst Freddie Strickland inquired about the drivers behind the decline in fee income and how the Financial Services Group (SSW/FIG) might perform if interest rates rise further. / A: CFO Greg Robertson explained that the fee drop was seasonal and attributed underperformance to timing issues in SBIC and swap revenues, expecting a reversion to the mean in Q4. Regarding rate sensitivity, CEO Melville highlighted that SSW focuses clients on cash flow rather than yield, reducing duration risk compared to peers. He viewed rising rates as an opportunity for reinvestment rather than a negative, noting that SSW’s strategy mitigates the pain of rapid rate moves.

Q: Analyst Michael Rose asked about the trajectory of non-interest expenses post-acquisition integration and whether the company could lag deposit cost increases to support further margin expansion in early 2027. / A: Greg Robertson outlined that Q4 base expenses will be around $57 million, with low-single-digit organic growth anticipated as they deepen relationships in Texas and Louisiana. On margins, he confirmed that due to the bank's asset sensitivity and the lag in deposit repricing, low-to-mid single-digit quarterly margin expansion is achievable and reasonable in the near term, provided rate movements remain measured.

Q: Analyst Christopher Marinac sought clarification on the outlook for the Dallas market and the potential impact of SpaceX’s $100 billion investment in South Louisiana. / A: Jude Melville clarified that Dallas is not de-emphasized; rather, it is their largest market where a new leader has recently joined to reset relationships after earlier credit upticks. Regarding SpaceX, he described the $100 billion investment as a transformative opportunity for both commercial and residential activity in Southwest Louisiana. He emphasized that commercial benefits would likely materialize sooner due to existing infrastructure, while residential impacts would follow as planning details emerge.