Business First Bancshares (NASDAQ:BFST) reported third-quarter results that management said reflected stronger loan and deposit growth, continued net interest margin expansion and lower core expenses following the integration of Progressive Bank.
GAAP net income available to common shareholders totaled $23.2 million, or $0.71 per share, including $3.5 million of merger-related expense and a $21,000 loss on securities sales. Excluding those items, core net income was $26 million, or $0.79 per share, according to Chief Financial Officer Greg Robertson.
The company generated a 1.17% core return on average assets and a 61.1% core efficiency ratio. Core pretax, pre-provision earnings were $36.3 million, exceeding management’s expectations, Robertson said.
Growth and funding improvements
Loans held for investment increased $21.4 million from the prior quarter, representing 7.2% annualized growth. Growth was led by the Houston, Texas, and Southwest Louisiana markets. Texas loans represented 35% of the portfolio based on unpaid principal balance, unchanged from the prior quarter.
Deposits increased $141.2 million, or 7.7% annualized, including a $119.1 million increase in interest-bearing deposits and a $22.1 million increase in non-interest-bearing deposits. Commercial money market accounts increased $180.1 million, partially offset by the company’s decision to reduce higher-cost brokered deposits by about $66 million.
Business First also repaid $108 million in Federal Home Loan Bank borrowings during the quarter, reducing its FHLB balance to $334.2 million. Robertson said management sees further opportunities in the fourth quarter to reduce borrowings and brokered deposits.
Chairman and CEO Jude Melville said the company’s growth pipeline in Houston has begun translating into loan production. He also cited moderate growth in Louisiana, including Southwest Louisiana, the capital region and North Louisiana. Melville said the Meta development in Northeast Louisiana has contributed to lending activity in other parts of the bank’s footprint, as companies in South Louisiana participate in related construction and materials activity.
For the fourth quarter, Robertson said the company expects mid- to upper-single-digit loan growth, broadly consistent with third-quarter performance.
Margin expansion and expense control
GAAP net interest margin rose 13 basis points sequentially to 3.86%. Core net interest margin, excluding purchase accounting accretion, increased 12 basis points to 3.80%.
Robertson attributed the improvement to higher loan yields, slightly lower funding costs, reduced brokered deposits and FHLB borrowings, and a full-quarter benefit from the sale of lower-yielding Progressive loans late in the second quarter. Total loan yields increased 10 basis points sequentially, while total deposit costs declined 2 basis points.
Core loan yields, excluding discount accretion, reached 6.66% during the quarter. The weighted-average yield on new and renewed loans was 6.99% in the third quarter and 7.13% in September, management said.
The company expects margin expansion in the fourth quarter, though Robertson noted competitive pressure on deposit pricing and seasonal municipal deposit growth could affect funding costs. Management said it believes low- to mid-single-digit quarterly margin expansion could be achievable if rate changes remain measured and deposit repricing continues to lag asset repricing.
Core non-interest expense declined $1.4 million from the prior quarter to $56.9 million, helped by accelerated realization of cost savings from the Progressive acquisition. The core conversion was completed in mid-August. Robertson said the company expects approximately $57 million of expenses in the fourth quarter, followed by low-single-digit organic expense growth over the next year as it continues to invest in bankers, infrastructure and technology.
Credit, capital and strategic expansion
Credit metrics improved modestly. The ratio of non-performing loans to loans held for investment declined 2 basis points to 1.24%, while non-performing assets as a percentage of total assets fell 1 basis point to 1.22%. The 30-day-or-more past due ratio held steady at 0.48% for the third consecutive quarter.
Net charge-offs increased during the quarter due to a single previously identified commercial relationship that had been fully reserved, Robertson said. Management expects non-performing assets to decline by more than $15 million in the fourth quarter as delayed resolutions are completed, with additional reductions anticipated during the first half of 2027. The company’s target is for non-performing loans to fall to 50 basis points or less of loans.
Business First continued repurchasing common shares during the quarter while tangible book value per share increased at a 1.7% annualized rate. Robertson said the company views the increase as notable given its buyback activity and the effect of interest rates on accumulated other comprehensive income.
Melville highlighted several growth initiatives, including the addition of a six-person commercial banking team in Tyler, Texas, which he said will help expand the company’s presence along the I-20 corridor between Dallas and Shreveport. He said Dallas remains the company’s largest individual market, and Business First recently hired a new market leader there.
Management also pointed to regional investment activity, including Meta’s data center development in North Louisiana, Amazon’s roughly $20 billion commitment in the state’s northwest region and SpaceX’s announced $100 billion investment in South Louisiana. Melville said the SpaceX project could create commercial opportunities sooner and potentially support residential growth over time.
The company’s financial services group, which now serves more than 200 banks following the addition of American Planning Corp., is growing revenue at an annualized rate above 20%, Melville said. Management expects the business to remain a source of diversified, though sometimes uneven, fee income.
About Business First Bancshares (NASDAQ:BFST)
Business First Bancshares, Inc is a bank holding company headquartered in Baton Rouge, Louisiana. Through its principal banking subsidiary, b1BANK, the company provides financial services to businesses, professionals and individual customers.
b1BANK offers commercial and consumer deposit accounts, commercial and real estate lending, residential mortgage loans, treasury management and other traditional banking services. The bank also provides wealth management and related financial services designed to support business owners, institutions and retail customers.
Business First Bancshares was established in 2006 and has expanded its presence across Louisiana and into Texas.
