Business First Bancshares Q3 2024 Earnings Report

Business First Bancshares EPS Results

• Actual EPS: $0.68
• Consensus EPS: $0.57
• Beat/Miss: Beat by +$0.11
• One Year Ago EPS: $0.71

Business First Bancshares Revenue Results

• Actual Revenue: $113.52 million
• Expected Revenue: $65.24 million
• Beat/Miss: Beat by +$48.28 million
• YoY Revenue Growth: N/A

Business First Bancshares Announcement Details

• Quarter: Q3 2024
• Date: 10/24/2024
• Time: After Market Closes
• Conference Call Date: Thursday, October 24, 2024
• Conference Call Time: 5:00PM ET

Business First Bancshares (NASDAQ:BFST) is a bank holding company headquartered in Baton Rouge, Louisiana. Through its subsidiary, b1BANK, the company provides banking and financial services to businesses, professionals, individuals and public-sector organizations.

b1BANK offers commercial and industrial lending, commercial real estate financing, residential and consumer loans, deposit accounts, treasury management and other cash-management services. The bank also provides wealth management, trust and investment-related services designed to support its business and individual customers.

Founded in 2006, Business First has expanded its banking operations across Louisiana and into neighboring markets, including Mississippi and Texas. Its strategy emphasizes relationship-based banking and serving small and middle-market businesses, along with retail customers and community organizations. Jude Melville serves as the company’s president and chief executive officer.

Business First Bancshares Q3 2024 Earnings Call Transcript

Key Takeaways

• Business First achieved improved operating leverage in Q3 with core net interest margin up 12 bps to 3.46% and a $1 million reduction in core expenses quarter-over-quarter despite ongoing technology investments.
• The bank’s noninterest income is diversifying through its asset management arm (SSW), SBA servicing (Waterstone), FIG Group and a nascent swaps desk, which collectively have been a consistent positive contributor in 2024.
• Management maintained disciplined balance sheet growth—deposits rose 5.5% annualized while loans grew 4.4% annualized—boosting capital levels and tangible book value outside of AOCI impacts.
• The October 1 close of the Oakwood acquisition raised Texas loan exposure to ~42% of the portfolio and is expected to be accretive to both core margin and loan discount accretion.
• Q3 GAAP net income was $16.5 million ($0.65 per share) and core net income was $17.2 million ($0.68 per share); the loan pipeline remains strong and the bank expects further core NIM expansion and stable credit metrics.

Presentation

[Operator]

Good day, everyone, and welcome to the Business First Bancshares Q3 2024 earnings call. Just a reminder that today's call is being recorded. At this time, I would like to hand things over to Mr. Matt Sealy, Senior Vice President, Director of Corporate Strategy and FP&A. Please go ahead, sir.

[Matt Sealy, SVP, Director of Corporate Strategy, and FP&A at Business First Bancshares]

Good afternoon, and thank you all for joining. Earlier today, we issued our third quarter twenty twenty-four earnings press release, a copy of which is available on our website, along with the slide presentation that we'll refer to during today's call. Please refer to Slide 3 of our presentation, which includes our safe harbor statements regarding forward-looking statements and the use of non-GAAP financial measures. For those of you joining by phone, please note the slide presentation is available on our website at www.b1bank.com. Please also note our safe harbor statements are available on Page 7 of our earnings press release that was filed with the SEC today. All comments made during today's call are subject to those safe harbor statements in our slide presentation and earnings release.

[Matt Sealy, SVP, Director of Corporate Strategy, and FP&A at Business First Bancshares]

I'm joined this afternoon by Business First Bancshares Chairman, President, and CEO Jude Melville, Chief Financial Officer Greg Robertson, Chief Banking Officer Philip Jordan, and President of b1BANK Jerry Vascocu. After the presentation, we'll be happy to address any questions you may have. With that, I'll turn the call over to you, Jude.

[Jude Melville, Chairman, President and CEO at Business First Bancshares]

Okay, thanks, Matt, and good afternoon, everybody. To begin, I want to be sure to say thank you to everyone currently on the call or listening to it or rereading the transcripts at some point in the future. We know you have choices to make, and we appreciate you making us a priority today. I can be relatively brief as the quarter was straightforward and generally positive. Primary theme I'd like to highlight is the improvement in operating leverage, achieved through a combination of continued expansion of our net interest margin and expense control. Core expenses were down about $1 million linked quarter, even while we continued to make the technological investments that we've detailed in previous quarterly calls.

[Jude Melville, Chairman, President and CEO at Business First Bancshares]

Our core margin expanded twelve basis points linked quarter to 3.46%, driven by roughly flat deposit costs and a one basis point linked quarter, paired with increased aggregate portfolio loan yields as new and renewed loans pricing held steady at 8.46%. Secondary theme I'd like to highlight is the continued diversification of revenue from the investments we've made over the past couple of years and sources of non-interest income, including SSW, our asset management company, Waterstone, our SBA loan service provider, our FIG group, and our nascent internal swaps desk. A new chart on Page 15 explains the primary sources of that increased income, and while we expect the components of that income to shift quarter to quarter, we're pleased that the aggregate impact is incrementally positive to income and has been consistently over the course of two thousand and twenty-four.

[Jude Melville, Chairman, President and CEO at Business First Bancshares]

Third, we demonstrated discipline in the management of our balance sheet, again, growing deposits at a rate faster than loans, while also growing risk assets appropriately in line with retained earnings, leading to increased capital levels and tangible book value growth, even outside the impact of positive AOCI movement. We believe we've positioned the loan and deposit portfolios favorably considering the current rate outlook, and anticipate continued incremental improvement in our NIM due to this positioning and the hard on-the-ground work of our banking teams. Finally, on a broader topic of adding value to the franchise beyond just the numbers, we were pleased to successfully close the Oakwood transaction on October first, bringing the percentage of our asset exposure in the Dallas and Houston markets to the mid-40s% as a percentage of the overall loan book.

[Jude Melville, Chairman, President and CEO at Business First Bancshares]

Thank you to the Oakwood team for their positivity and their energy, and thank you also to our regulatory partners for reviewing the merger in a professional and timely manner. We also recently announced the promotion of Jerry Vascocu to the position of President of the bank, while I remain Chair and CEO. Jerry has made an impact serving with us for a couple of years already and had an extensive career with growing regional banks before joining our team. We believe we'll have many opportunities before us in the coming years and want to be sure that we are positioning our internal operations to continue their coordinated performance, even while we expand interaction with our external constituencies. This will be especially important as we move closer to the ten billion-dollar asset level, a transition that we want to be certain we approach proactively.

[Jude Melville, Chairman, President and CEO at Business First Bancshares]

With that, I again thank you for calling in, and I'd like to close by congratulating our team and our loyal clients on another successful quarter. I'll now turn the call over to Greg for further detail.

[Greg Robertson, CFO at Business First Bancshares]

Thank you, Jude, and good afternoon, everyone. The third quarter GAAP net income and EPS available to common shareholders was $16.5 million and $0.65 per share and included a $13,000 pre-tax loss on sale of securities, $319,000 pre-tax acquisition-related expense, and $511,000 pre-tax conversion-related expense. Excluding this, non-core item, non-GAAP core net income and EPS available to common shareholders was $17.2 million and $0.68 per share. As Jude mentioned, while expenses did come in lower than we had expected, we feel like Q3 represents an overall solid run rate going forward. I'll start on the balance sheet before moving to the margin, and then conclude with the income statement.

[Greg Robertson, CFO at Business First Bancshares]

Total loans held for investment increased by $57.3 million or 4.4% annualized during the third quarter. I should note our production pipeline remains very strong as we sold approximately $30 million in loans to participating banks during the third quarter. Loan growth from linked quarter was largely attributable to net growth in the commercial real estate portfolio of $58.2 million and $16.9 million net growth in the C&D portfolio. Production was led by our North Louisiana region and our New Orleans region, which accounted for approximately three-quarters of net loan growth from the linked quarter. Based on unpaid principal balances, Texas-based loans represent approximately 35% of the overall portfolio as of September 30th.

[Greg Robertson, CFO at Business First Bancshares]

And as Jude mentioned, as we expect Oakwood to contribute $690 million in net loans, bringing the total Texas loan balances to approximately 42%. Total deposits increased $77.3 million or 5.5% annualized quarter over quarter. During the quarter ended September thirtieth, interest-bearing accounts drove the increase with $196.5 million in growth, offset by $119 million in reduction in non-interest-bearing accounts compared to the linked quarter. The reduction in the non-interest-bearing accounts was isolated to seven clients with production-related accounts that make up approximately $75 million in deposits. In spite of that, new production remains strong, with approximately $25 million in new deposits generated during the quarter.

[Greg Robertson, CFO at Business First Bancshares]

The increase in interest bearing was largely attributable to $161 million increase in our money market accounts. The weighted average money market portfolio rate declined by 35 basis points in the linked quarter from 4.22%-3.87%. Total non-interest-bearing deposits represent 21.1% of total deposits as of September thirtieth, and down from 23.5% linked quarter, but remains in line with our expectations at the beginning of the year, to end the year of 2024 in the low twenty percent range. Our GAAP-reported third quarter net interest margin of 3.551% benefited from $705,000 in discount loan accretion, which was in line with our consensus expectations.

[Greg Robertson, CFO at Business First Bancshares]

Third quarter core NIM, excluding accretion of 3.46, came in higher than we expected. The 12 basis point linked quarter expansion in the core NIM benefited from continued strong new and renewed loan yield, like loan yields, repricing tailwinds, and moderated funding pressures. A little context there. Our weighted average new and renewed loan yields for the third quarter was approximately 8.46%, with a spot rate at the end of September at 8.49%. While quarter over quarter total deposits declined 1 basis point, with the September cut in interest rates, we do expect deposit costs to continue to decline in the near term, but will be affected by our ability to retain and attract lower cost funding and non-interest-bearing deposit accounts.

[Greg Robertson, CFO at Business First Bancshares]

This is a good opportunity to direct your attention to a new slide we created in our earnings presentation. Please reference the slide on Page 21 for a summary of our deposit beta assumptions in an easing interest rate environment. We expect overall total deposit betas to be in the 45%-55% range, which should translate into low single digit expansion in the core NIM, assuming a static balance sheet. There could be additional upside for margin expansion should we assume some normal organic growth. We feel like this new beta slide is a good complement to the following slide on Page 22, which depicts the repricing opportunities within the loan portfolio. As you'll see on Page 22, we have approximately $2 billion in floating rate loans at approximately 8.15% weighted average.

[Greg Robertson, CFO at Business First Bancshares]

But we also have approximately $500 million in fixed rate loans maturing over the next 12 months at a weighted average of 6.28%, which we would expect to reprice in the low 8% range. Last thing I would add is just the impact of the addition of the Oakwood balance sheet, which we have a full quarter impact during the fourth quarter. We continue to expect Oakwood to be a couple of basis points accretive to our overall core margin, and we also expect loan discount accretion to average an approximated $700,000-$800,000 per quarter range going forward, including Oakwood addition. Moving on to the income statement, our GAAP non-interest expense was $42.4 million and included $319,000 in acquisition-related expense and $511,000 in conversion-related expense.

[Greg Robertson, CFO at Business First Bancshares]

Core net interest expense for the third quarter, $41.6 million, declined approximately $1.1 million linked quarter and benefited from timing of salaries, salary accruals, and certain investments not hitting during the quarter. We would expect this to reverse trend somewhat during the fourth quarter, and with the full impact of Oakwood, we view the current consensus estimate for the non-interest expense of approximately $50 million to be a fair estimate and a good run rate going forward. Third quarter GAAP and core non-interest income was $10.8 million, but GAAP did include a $13,000 dollar loss of sale on securities. Non-interest income results for the third quarter did come in slightly better than we had expected and was driven by contribution from our newly formed customer swap business, which generated approximately $900,000 in revenue during the quarter.

[Greg Robertson, CFO at Business First Bancshares]

We view Q3 of core non-interest income as a good run rate going forward and expect our non-interest income to continue to trend with an upward trajectory that will be bumpy as our investments continue to season. As Jude mentioned, we did add a new non-interest income slide on Page 15 in our earnings presentation that summarizes those investments and provides additional color. Lastly, while the addition of Oakwood will be additive to the overall non-interest income, that increase will be modest in the near term as they get used to our product offerings. That concludes my remarks for today, and I'll hand it back over to Jude.

[Jude Melville, Chairman, President and CEO at Business First Bancshares]

Thanks, Greg. Again, just a good, solid, workaday quarter, and we're pleased with the incremental improvement, and I think we're positioned well to continue that over the coming quarters. So with that, I'll look for any questions that we might have and look forward to the conversation.

[Operator]

Everyone, if you have a question today, please press star one on your telephone keypad. We'll take our first question from Michael Rose, Raymond James.

[Michael Rose, Managing Director at Raymond James]

Hey, good afternoon, everyone. Thanks for taking my questions. Nice expansion on the margin, and good to see the deposit costs come down. I think as I recall, last quarter, you guys had a bunch of brokered CDs that are expected to mature by the end of the year. I think it was $450 million last quarter. Just wanted to see how much of a tailwind is there? I think you had previously talked about the core margin reaching kind of a, you know, around 3.50 by the end of the second quarter. Just wanted to see if there were any updates. Then just embedded in that, it seems like the accretion might be a little bit lower.

[Michael Rose, Managing Director at Raymond James]

Do you have the amount of expected accretion you expect to realize from Oakwood, what the addition would be to the kind of the nine million that was remaining at the end of the third quarter? Thanks.

[Greg Robertson, CFO at Business First Bancshares]

Yep. Yeah, I'll start out answering the first part. As far as the CD books and the maturity go, that was what we had last time we talked to you. We had isolated on about $400 million in retail CD renewals in the near term. We have been pulling through with a fairly solid above 50% retention rate on that CD book and repricing. So we feel pretty confident there are some tailwinds, and we do feel like that will be instrumental in helping us achieve that 3.50 margin by the second quarter, like I spoke of. As of the

[Jude Melville, Chairman, President and CEO at Business First Bancshares]

Hey, Michael, I'll jump in, kind of give you a little bit of color in terms of the three fifty target in the second quarter. I think you're referring to the second quarter of twenty-five core margin run rate. So we're, you know, obviously, a little bit ahead of schedule is what it would appear, service level. There's a couple things that I would call out that I'm not sure how much could be sustained within that core margin currently. So within our Business Manager factoring product set that we have, there's about seven-ish basis points within the core margin attributed to that business line, and really no direct balances on balance sheet balances associated with that with that interest income that we have.

[Jude Melville, Chairman, President and CEO at Business First Bancshares]

There's a couple larger clients that are currently reflected in that number, and the past quarter or so, we've been uncertain if they're going to stick around, and fortunately, they have. That is a bit of a wild card. While we are currently ahead of schedule to hit that three fifty core margin by Q2 of next year, I would just caveat it with that, those couple clients that account for a few basis points, maybe about three basis points of that seven related to those folks. Now, that is also pre-Oakwood. So if you layer in Oakwood, there are another couple basis points accretive.

[Jude Melville, Chairman, President and CEO at Business First Bancshares]

So I'd say all in all, still very confident that we can hit that core margin run rate by Q2 of next year and potentially a little bit sooner, but that's kind of the context around that piece of it. And then lastly, on the kind of to Greg's point about the CD repricing and maturing, we do have on our new Slide 21 in the presentation, the last bullet point, which depicts the upcoming maturities within the CD portfolio in Q4 and Q1 to the tune of about $300 million. So we'll try to keep updating that and rolling that forward so you can see kind of the context going forward in the next couple of quarters.

[Greg Robertson, CFO at Business First Bancshares]

Yeah. And, Michael, your last question in regards to the accretion gain with the Oakwood closing. You know, we're - from the time we announced the transaction, the interest rate environment has changed, so we're in the process of finalizing the marks and the accretion and all that on that. So a little bit too early to tell on that, but we're still working on that. It will be additive-

[Michael Rose, Managing Director at Raymond James]

All right.

[Greg Robertson, CFO at Business First Bancshares]

But we're still zeroing in on that.

[Michael Rose, Managing Director at Raymond James]

But $700,000-$800,000 a quarter with Oakwood is what you're still expecting, I think what I heard?

[Greg Robertson, CFO at Business First Bancshares]

Yep. Yep, that's right.

[Michael Rose, Managing Director at Raymond James]

Okay, perfect. Sorry for the three-part question in the first question. Just as one follow-up, you know, saw the provision came in a little bit lower than I was expecting. But looking at Slide 31, I did notice that the special mention, you know, was up, and NPLs did go up a little bit as well. Can you just give some context there? Anything to worry about? And just any general overall thoughts on credit? Thanks.

[Greg Robertson, CFO at Business First Bancshares]

Yeah, I will say, I'll start with NPLs. So the increase in NPLs is really attributable to one loan, that's a SBA guaranteed loan, that we should have resolution with that, within the next month or so. So that. I think what we're seeing within the credit book is just the impacts of normalized credit performance. With, for example, the past due loans, the increase in that, two of the three loans that make up most of the increase, we should have some resolution on those as well. So, still seeing some one-off things. I think as far as the watch list goes, that is an impact or a direct reflection of the interest rate environment, probably majority of the movement with that.

[Greg Robertson, CFO at Business First Bancshares]

But I think it would be foolish not to say that we're in a more normal credit environment. So we're seeing no major degradation in the credit portfolio, just one-off examples here and there.

[Michael Rose, Managing Director at Raymond James]

Very helpful. Thanks for taking my questions.

[Operator]

Next up is Matt Olney, Stephens Inc.

[Matt Olney, Equity Research Analyst at Stephens Inc.]

Hey, thanks for taking the question, guys. Want to ask about loan growth. A little bit slower than what we've seen at the bank more recently, but still quite a bit above what we've seen from peers over the last week or two. Would love to kind of hear what your borrowers are saying, specifically the C&I borrowers. Looks like the utilization rates moved down a little bit. Would love to hear just kind of what you're hearing from your customers.

[Greg Robertson, CFO at Business First Bancshares]

I'll talk about the impact of the balance sheet, and I'll let Philip or Jerry kind of chime in on what they're seeing with the customers. The 4.4% is kind of in line with what we've been talking about lately in being understanding the impacts to capital with growth and profitability. So I think that's right in line, and as I mentioned, you know, we did sell $30 million worth of loans in the quarter to participating banks in our network. So we still feel like the pipeline's strong and in a good place, but I'll let these guys talk a little more about that.

[Philip Jordan, Chief Banking Officer at Business First Bancshares]

Yeah, I would say I don't know that there's necessarily an outlier from that perspective, too, in customer feedback. I think this is kind of the timing for us. We don't see it. It's just kind of normal on a year-over-year basis as far as how our clients are utilizing their lines. Also, it's a point of the year where a lot of our ag loans are paying down, so we're seeing some of that. I don't think there's any necessarily outliers.

[Philip Jordan, Chief Banking Officer at Business First Bancshares]

I would offer, too, kind of my second year through the process. We are seeing some pretty nice growth embedded there from some core customers that are, you know, really kind of having a successful season. It's been nice to see that this over the last couple of, particularly the last few months. It's manifesting some additional good core growth.

[Matt Olney, Equity Research Analyst at Stephens Inc.]

Okay, great. Thanks for all the commentary on the loan growth. And I guess going over to the fee side, another nice quarter on the fees. I think it was the swap fees that maybe drove the strong trends this quarter. I think these can be a little volatile quarter to quarter, but it sounds like based off the prepared remarks, you don't expect any kind of step back in the near term. You think you can continue to grow it from this run rate that we saw in the third quarter. Is that right?

[Greg Robertson, CFO at Business First Bancshares]

That's right. And if you think about our production in that non-interest income in the second quarter, that was really driven by a $1 million, or $1.9 million kind of outlier fee from a USDA gain on sale. So, for us to really build from there, shows the continued investment in those different business lines that we've been and we're highlighting in the slide deck this quarter. We do think it'll be bumpy, like you said, but we do expect it to continue to incrementally grow over time.

[Jerry Vascocu, President at b1BANK]

Yeah, uh-

[Philip Jordan, Chief Banking Officer at Business First Bancshares]

Go ahead, Jerry.

[Jerry Vascocu, President at b1BANK]

I was going to add, it was a good question. One of the things I think we've been most pleased about, particularly with the swap business, is it's become more granular. We've got a good rhythm with that product and applying it to the right clients, good clients. If you look at the slide that breaks out the swap, some detail there, it's 20 trades in the quarter. So I think what we've been most pleased about is it's not as lumpy in the third quarter, and we can kind of see it leveling out over time in a good way with a good gradual ramp. Good response from our bankers and our clients.

[Jude Melville, Chairman, President and CEO at Business First Bancshares]

I think I would also add just that we don't expect for swaps to necessarily be the leader every quarter. You know, one of the reasons that we've chosen to invest in multiple sources of revenue is that we know that it can be a little more volatile than our traditional spread income. And so we wanted to be sure we had three or four sources, and I think today we're probably feeling like in the fourth quarter, the SBA income probably the stronger pipeline than swap income. Not that the swaps won't continue to accrete, but we wanted to be sure that we had multiple sources of revenue so that as we experience some fluctuation in the individual components, the overall aggregate results should be incrementally positive.

[Matt Olney, Equity Research Analyst at Stephens Inc.]

Okay, great. All right, I'll step back. Thanks for the commentary, guys.

[Greg Robertson, CFO at Business First Bancshares]

Thanks, Matt.

[Operator]

The next question comes from Feddie Strickland of Hovde Group.

[Philip Jordan, Chief Banking Officer at Business First Bancshares]

Hey, Feddie.

[Feddie Strickland, Director and Equity Research Analyst at Hovde Group]

Good afternoon, everybody.

[Greg Robertson, CFO at Business First Bancshares]

Hey, Feddie.

[Feddie Strickland, Director and Equity Research Analyst at Hovde Group]

Just wanted to ask, you know, as you integrate Oakwood, how should we think about the expense growth, you know, kind of later in 2025? Are there any major initiatives? I mean, I know you'll maybe have some cost saves here and there earlier in the year, but anything major we should look out for or, you know, is kind of past years pre-merger a good piece of history to look at for that?

[Greg Robertson, CFO at Business First Bancshares]

I would say past years pre-merger is a good indicator of how we think about it. I think the overarching, you know, we're going to grow or we want to grow loans in the mid-single-digit range next year. And so keeping that expense base in line with that asset growth is really what we're thinking about from an overall strategy standpoint. So, do remember, it's worth noting that because of the later in the year core conversion with them that we're not pulling through a lot of cost saves in 2025. Those will be showing towards the end of 2025, 2026.

[Philip Jordan, Chief Banking Officer at Business First Bancshares]

But, one thing that I'd add, well, Greg had hit on this in his prepared remarks.

[Matt Sealy, SVP, Director of Corporate Strategy, and FP&A at Business First Bancshares]

all in Oakwood in the fourth quarter, kind of a good launching point going into 2025 is, kind of the current consensus number out there, which I believe is right at $50-ish million, all in, and that includes fully loaded impact of Oakwood. That's kind of a good launching point.

[Feddie Strickland, Director and Equity Research Analyst at Hovde Group]

Gotcha. And then you said the cost savings are probably later in the year, wouldn't see as many of those initially, right?

[Greg Robertson, CFO at Business First Bancshares]

We're probably not gonna see any of those till the Q4 of next year, and then pulling through into 2026.

[Feddie Strickland, Director and Equity Research Analyst at Hovde Group]

Okay, that's helpful. And then, you know-

[Jude Melville, Chairman, President and CEO at Business First Bancshares]

Which is what our expectation was when we structured the deal, as we modeled. So it's not a delay, it's just a sequence of events with our own internal work, including a core conversion of the legacy b1 prior to doing the Oakwood conversion.

[Feddie Strickland, Director and Equity Research Analyst at Hovde Group]

Understood. And then just one more question from me is just, you know, kind of still around Oakwood a little bit, but how do you think about either geographic expansion or just growth going forward? I mean, does M&A remain a part of the playbook in the medium term here? Would you look at doing team lift-outs, or do you just still feel like there's a good bit of runway with the current footprint, in terms of, I guess, low-hanging fruit for additional loan deposit growth?

[Jude Melville, Chairman, President and CEO at Business First Bancshares]

Yeah, I think, as always, we want to be prepared to take advantage of opportunity when it presents itself, and we believe that we can be successful on multiple fronts. I would say that our current priority remains organic growth and making sure that we're maximized in the team that we have. And we do have a really good track record of enabling teams that we've partnered with to grow beyond where they were before we partnered with them. And so that, you know, certainly will be the first priority will be in our current footprint, continuing to gain operating leverage.

[Jude Melville, Chairman, President and CEO at Business First Bancshares]

You know, certainly, team lift outs are a great way to grow, and we've done that successfully, and we'll continue to look for some opportunities, and we prepared, we feel prepared to take on the M&A should the right partner come. So I would say from a footprint standpoint, number one priority is our current footprint. Number two priority is filling in some of the gaps in our current footprint. You know, Dallas to Houston is a possible area that might be fertile, and we still have plenty of room to grow in Louisiana as well, as we continue to build our core franchise. Secondarily, I would say there, you know, we, over time, will look for opportunities, most likely to the east.

[Jude Melville, Chairman, President and CEO at Business First Bancshares]

But, you know, that's if we think about our footprint and what we want it to look like five, seven, 10 years from now, I would imagine more widespread and the pace or the order of how we do that will be determined by who we can partner with. And our location choices have always been about the bankers more than the specific geography, and so we'll continue to do that. But we do think we have plenty to do even in our current footprint, and that'll be our priority for the near term whether that's through organic growth or through partnership.

[Greg Robertson, CFO at Business First Bancshares]

I might mention to you that we had a couple of bankers retire in our Houston footprint, and we backfilled those with two new bankers, so.

[Jude Melville, Chairman, President and CEO at Business First Bancshares]

Yeah.

[Greg Robertson, CFO at Business First Bancshares]

We're excited for that addition.

[Jude Melville, Chairman, President and CEO at Business First Bancshares]

We're excited about that, and again, an incremental addition to our current talent base, we think will produce positive earnings results.

[Feddie Strickland, Director and Equity Research Analyst at Hovde Group]

Perfect. Appreciate the color. I'll step back in the queue. Thanks for taking my question.

[Jude Melville, Chairman, President and CEO at Business First Bancshares]

Thanks, Feddie. You know, I think it is worth pointing out that, and Greg mentioned this before, but, you know, our two biggest growth areas this year or this quarter were North Louisiana and New Orleans. So, I know we're excited about Dallas and Houston, and those are things that tend to get the headlines. But we also feel really good about our competitive posture within our core Louisiana franchise. And with each quarter and each year that passes, I think we build credibility, and we build brand power, and we accumulate additional talent. And so, while Texas certainly is a key part of our future, we believe we have plenty of opportunities throughout our footprint.

[Jude Melville, Chairman, President and CEO at Business First Bancshares]

I think third quarter was a really good example of the different constituent elements of our footprint working together to serve the greater whole. You can paint a picture over 2024 and 2023, which some of our Southwest Louisiana portion of our footprint, for example, provided the most deposit growth. One of the things that we've tried to do over time is say that we have an opportunity to combine the best of both worlds, which is the more kind of community banker-ish slightly rural locations that we might have in our Louisiana footprint with the slightly more commercial metro banking that we might do in other areas.

[Jude Melville, Chairman, President and CEO at Business First Bancshares]

And I think when you really kind of parse out the results over the course of this year, we've had good evolution of leadership from throughout the footprint and we're excited about opportunities across the spectrum.

[Operator]

And we'll take our next question today from Manuel Navas, D.A. Davidson.

[Manuel Navas, VP and Equity Research Analyst at D.A. Davidson]

Hey, good afternoon. The low single-digit core NIM expansion under the fifty basis point reduction, that's only so far. What's the future rate cut improvement? And is that slide only on the balance sheet as of 3Q? Can you just kind of talk through-

[Greg Robertson, CFO at Business First Bancshares]

Yeah.

[Manuel Navas, VP and Equity Research Analyst at D.A. Davidson]

some of the assumptions behind that slide?

[Greg Robertson, CFO at Business First Bancshares]

Yeah, that would be on a static balance sheet as of 3Q, and then that would be an assumption for every 50 basis points. That would be what we would realize.

[Matt Sealy, SVP, Director of Corporate Strategy, and FP&A at Business First Bancshares]

Yeah, and a little bit more color there, Manuel. So that's the incremental and kind of additive expansion on top of our current trajectory, assuming flat rates. So, you know, we've got a scenario where if rates were not cut, we would still see some expansion and lift. So that couple basis point pickup is not off of the current Q3 figure or current Q3 ending figure. There's already some inherent expansion in there in just a flat rate environment. So that's really the additive expansion on top of already some modest expansion over the next twelve months. So that's not a, you know, three-month outlook, expansion from the recent cut, plus ordinary course of business expansion from growth, and margin improvement, if that makes the-

[Greg Robertson, CFO at Business First Bancshares]

Yeah.

[Matt Sealy, SVP, Director of Corporate Strategy, and FP&A at Business First Bancshares]

If that makes sense.

[Greg Robertson, CFO at Business First Bancshares]

It really, so I think the last time we talked, we talked about the work we had done to restructure the liability side of the balance sheet. And I think this really paints a picture and shows the work that we've put in to become more neutral and position the balance sheet where we can be reactive to interest rate movements. This is just a snapshot that shows indication of what that work is proves out to give us a little bit of lift to be able to do.

[Manuel Navas, VP and Equity Research Analyst at D.A. Davidson]

If that low single digits, let's say, is two to three basis points, and we the forward curve contemplates another hundred and fifty basis points cut in Fed funds by middle of next year, is this saying almost like another six basis points improvement in core NIM under these assumptions?

[Greg Robertson, CFO at Business First Bancshares]

I think that'd be reasonable to expect.

[Manuel Navas, VP and Equity Research Analyst at D.A. Davidson]

Okay. And then you add in, layer in the Oakwood core, NIM improvement, Oakwood, purchase accounting accretion on top of that, so there's a couple other pieces as well.

[Greg Robertson, CFO at Business First Bancshares]

Yeah.

[Manuel Navas, VP and Equity Research Analyst at D.A. Davidson]

Okay.

[Greg Robertson, CFO at Business First Bancshares]

I think the NIM from before, from Oakwood is correct. I think the accretion lift on Oakwood, we're still trying to finalize the numbers on that, but I think there will be slightly some lifts on that.

[Manuel Navas, VP and Equity Research Analyst at D.A. Davidson]

Sure, sure. Hey, so the money markets stepped down pretty, pretty nicely this quarter. They, they're expected to have pretty strong betas through the cycle. You're about a month since the Fed cut rates. How has the acceptance of those cuts progressed from your customers?

[Greg Robertson, CFO at Business First Bancshares]

Not a lot of volatility in that account. You know, we've had slight growth since the Fed cuts, no run-out. So we feel pretty good about the decision we made so far.

[Manuel Navas, VP and Equity Research Analyst at D.A. Davidson]

That's great. That's great to hear. Any other updates on Oakwood now that it's closed? It seems like there's a little bit more loan growth there. Did they use up some of the cash? Because you were gonna have about $100 million in cash deployed pretty quickly. Kind of just walk me through any other, like-

[Greg Robertson, CFO at Business First Bancshares]

They did. I'll give you an update. They did have loan growth since the deal was announced. And so their loan-to-deposit ratio did tick higher. That's where some of the cash went. And then, we'll continue to evaluate opportunities from their funding base, as we move it to ours. They have a little more of a structured time deposit funding base that has renewal opportunities coming up, so we'll deal with that on a one-off basis, and hopefully be able to see some improvement in that. But, everything's going as planned, for sure.

[Manuel Navas, VP and Equity Research Analyst at D.A. Davidson]

Okay. I appreciate the update. I'll step back into the queue. Thank you, guys.

[Greg Robertson, CFO at Business First Bancshares]

Thank you.

[Operator]

A reminder, it's star one to ask a question. We'll go to Christopher Marinac, Janney Montgomery Scott.

[Christopher Marinac, Director of Research at Janney Montgomery Scott]

Hey, good afternoon. Thanks for hosting us. Wanted to ask about the lower interest rates and the impact on credit upgrades in future quarters. Is that possible? And, you know, what would that look like?

[Matt Sealy, SVP, Director of Corporate Strategy, and FP&A at Business First Bancshares]

Yep. It's a good question. We're in the process right now of kind of going through at a pretty granular level our risk ratings across the portfolio, and we do feel like there are some opportunities to see some benefit and some improvements in risk rating, so we're looking at it across the board, across the portfolio, and applying that factor and going about it in a pretty disciplined fashion. It's been a good phase.

[Jude Melville, Chairman, President and CEO at Business First Bancshares]

Most of our increase in the watch list has been due to higher debt service requirements based on rising rates. So we would expect that a reverse would hold true to some degree. And you know it is a little bit of a question of timing and how quickly do rates actually move, and how does that feed into whatever stress clients might have been under previously. And then also you know from our perspective.

[Jude Melville, Chairman, President and CEO at Business First Bancshares]

you know, just make the decisions, you require documentation and updated financials, and, you know, all those things which take a little time. But, I do think we expect that the changing rate environment should be a net positive for to counter some of the watch list growth that we've experienced over the past couple quarters, in particular.

[Christopher Marinac, Director of Research at Janney Montgomery Scott]

Jude, is there any kind of, I guess, separation between watchlist that is CRE related versus pure C&I? Would the C&I have its own separate behavior these next few quarters?

[Greg Robertson, CFO at Business First Bancshares]

This is Greg, Chris. There is a pretty good distinction between on the makeup of the watchlist. I would say it's probably 60% CRE, 40% C&I, something in that range. But I think the overarching fact, kind of play off what Jude said, is about 90% of that watchlist is paying as agreed, but does have financial performance impacted if you're looking at ratios from a ratio standpoint. So, and that's prior to the rate cut. So we feel like that it will naturally probably help those customers. But as far as having the granularity on the performance in each group, we can probably get you some of that data, but we don't have it right now.

[Christopher Marinac, Director of Research at Janney Montgomery Scott]

Nope, no problem. That's helpful. And then just last question, just goes back to the beta slide on number twenty-one. Would you see that mix changing if we think prospectively twelve to eighteen months, or should we think of Business First as kind of the same, mix in this environment?

[Greg Robertson, CFO at Business First Bancshares]

I would say, you know, we worked real hard over the last 12 to 18 months to move the mix into this position, to give us a little more balanced or neutral balance sheet. So I would say, going out into the future, save for some, you know, dramatic change from an M&A standpoint, and I don't think, you know, that's realistic, that this would be what we could expect.

[Jude Melville, Chairman, President and CEO at Business First Bancshares]

Yeah.

[Christopher Marinac, Director of Research at Janney Montgomery Scott]

Very good.

[Matt Sealy, SVP, Director of Corporate Strategy, and FP&A at Business First Bancshares]

I'd say that beta range is probably a good assumption to use, not just in the recent 50 basis point cut we got, but foreseeable future, any rates we might get in the future, in the near term.

[Christopher Marinac, Director of Research at Janney Montgomery Scott]

Got it. Thank you, Matt. Thank you, Greg. Appreciate it.

[Greg Robertson, CFO at Business First Bancshares]

Thanks, Chris.

[Operator]

At this time, there are no further questions. I apologize. I'll hand it back to Jude Melville.

[Jude Melville, Chairman, President and CEO at Business First Bancshares]

All right, I'm ready. Thank you, and appreciate everybody's participation and questions. You know, it's just, it's been an unexpected and eventful couple of years, and I'm just really proud of the work that we've done to position ourselves coming out of this cycle to maximize 2025 and 2026 and beyond, and really proud of just community banking in general.

[Jude Melville, Chairman, President and CEO at Business First Bancshares]

You know, there were an awful lot of dark clouds hanging over the industry in general over the past couple of years, and I think we're going to find that community banks, in particular, have exceeded expectations and are well prepared to continue to play a critical role in our country's future in the upcoming quarters and years, and we're proud to be a part of it. Thank you for your interest, and look forward to next quarter being our first quarter with our Oakwood teammates' numbers incorporated in ours, and look forward to seeing what we can do together. Thank you.

[Operator]

Once again, everyone, that does conclude today's conference. We would like to thank you all for your participation. You may now disconnect.

Participants

Executives

• Matt Sealy, SVP, Director of Corporate Strategy, and FP&A
• Jude Melville, Chairman, President and CEO
• Greg Robertson, CFO
• Philip Jordan, Chief Banking Officer

Analysts

• Michael Rose, Managing Director at Raymond James
• Matt Olney, Equity Research Analyst at Stephens Inc.
• Jerry Vascocu, President at b1BANK
• Feddie Strickland, Director and Equity Research Analyst at Hovde Group
• Manuel Navas, VP and Equity Research Analyst at D.A. Davidson
• Christopher Marinac, Director of Research at Janney Montgomery Scott