Business First Bancshares, Inc. (BFST) Earnings

Management highlights

### Overall Quarterly Performance - B1 Bank delivered a solid Q2 2026 that met or exceeded management's multi-quarter targets, positioning the firm for strong H2 2026 performance. The bank returned to normalized loan production, driving healthy net interest income growth, with balanced originations across the entire operating footprint. Management built a significant new loan pipeline, particularly in the Houston, Texas market, expected to drive sustained growth through year-end. Net interest margin expanded 8 basis points, driven by disciplined loan and deposit pricing, plus a sizable loan sale that will create future margin upside as proceeds are redeployed into higher-earning assets over the next two quarters. - Credit quality improved in line with management guidance: non-performing loans were reduced by ~30% quarter-over-quarter, with further improvement expected through year-end. The only headline disappointments were a quarterly deposit decline and higher-than-normal non-interest expenses: - Roughly one quarter of the deposit decline was intentional, representing paydown of high-cost broker deposits. Non-interest-bearing deposits increased in Q2, driving a slight overall reduction in deposit costs. Most of the remaining decline was seasonal, driven by tax payments and municipal client drawdowns, and deposits have already begun to reaccumulate materially in July. - Higher expenses were driven by one-time upfront marketing spend and elevated legal fees tied to non-performing credit resolution; recurring core expenses (including salaries) were flat, and these elevated costs are not expected to recur at the same scale in Q3. ### Strategic & Operational Updates - Near quarter-end, the financial services group added a new partner and product: CFO consulting services for community banks, led by a 20-year collaborator of the firm. This brings the total number of community banks served via the financial services platform to over 200. - The conversion of the Progressive Bank partnership remains on track for August 10, 2026. Post-conversion, Business First will have the largest branch network of any community bank in Northeast Louisiana. - Significant unreported long-term growth tailwinds exist in the Louisiana footprint, which has attracted ~$150 billion in announced capital investments over the past 18 months, anchored by Meta's expanded data center project in Richland Parish, which now totals $50 billion in investment (up from an initial $28 billion commitment). The project will support 7,500 construction jobs and 1,000 permanent positions, with additional related public infrastructure investment, and is driving broader growth in AI, data infrastructure and advanced manufacturing across the state, increasing demand for commercial banking services. Business First recently became the official banking partner for the University of Louisiana Monroe's Athletic Department. - The bank completed a $85 million subordinated debt issuance in Q2, using partial proceeds to redeem a maturing $52 million callable issuance, adding 50 basis points to Q2 capital levels.

Guidance

- Management expects high single-digit annualized loan growth in both Q3 2026 and Q4 2026, with half of the proceeds from the Q2 loan sale deployed in Q3 and half deployed in Q4. The loan sale is expected to add ~4 basis points to net interest margin. - Core non-interest expense is expected to decline to ~$58 million in Q3 2026, and ~$57 million in Q4 2026, as cost savings from the Progressive acquisition are realized after the August conversion. - Management targets an end-of-2026 NPL balance of ~$50 million or slightly below, with 10-20% NPL resolution achievable in Q3 2026 and 10-15% reduction in other real estate owned (OREO) also achievable in Q3. The watchlist of criticized loans has already fallen from $450 million at year-end 2025 to $330 million at end-Q2 2026. - End-of-2026 capital ratios are projected to be ~13.9% for total risk-based capital, ~10.6% for Common Equity Tier 1 (CET1), and ~9% for tangible common equity (TCE), assuming mid-8% annualized loan growth and continued margin expansion. - The baseline macro assumption is no further Federal Reserve interest rate cuts in 2026. Management expects modest margin improvement in either slightly rising or slightly falling rate environments, and holds a 45-55% overall deposit beta target as achievable. CD retention remained strong at 83% in Q2. - Management reaffirms the target of 1.25% ROAA by the end of 2026. The target remains a stretch goal, but management views it as achievable with consistent execution, and it remains the primary focus for structural profitability improvement. - Share repurchases will remain opportunistic above a $12 per share price, with capital prioritized first for organic loan growth, followed by potential partial or full redemption of callable preferred stock in September 2027. The bank aims to continue its 7-year streak of annual dividend increases, targeting a payout ratio of ~20% of earnings.

Segment performance

Business First Bancshares does not break out separate product segment financial performance with absolute values and percentage contribution in this call. All results are reported on a consolidated firm-wide basis: Q2 2026 GAAP net income to common shareholders was $22.8 million, and non-GAAP core net income was $23.3 million. GAAP EPS was $0.70 per share, non-GAAP core EPS was $0.71 per share. Core return on average assets (ROAA) was 1.05%, and the core efficiency ratio was 63.9%. Total loans held for investment decreased $24.8 million (1.5% annualized linked quarter); excluding the large loan sale and non-performing loan (NPL) resolutions, organic loan growth was $96.4 million (5.8% annualized). Texas-based loans represented 35% of total unpaid principal balances, unchanged from the prior quarter. Total deposits decreased $229.4 million, driven by a $237.9 million decrease in interest-bearing deposits (offset by an $8.5 million increase in non-interest-bearing deposits). GAAP net interest margin increased 8 basis points linked quarter to 3.73%; non-GAAP core net interest margin also increased 8 basis points to 3.68%. Core loan yield (excluding accretion) was 6.58%, up 4 basis points from Q1; cost of deposits decreased 7 basis points to 2.26%. GAAP non-interest expense was $59.5 million ($58.4 million core non-interest expense, up $3.1 million from Q1). GAAP non-interest income was $14 million, core non-interest income was $13.4 million. The non-performing loan ratio decreased 27 basis points to 1.26%; the non-performing asset ratio decreased 15 basis points to 1.23%. Revenue for the financial services group is running 20% ahead of 2025's year-to-date pace at the 2026 midpoint.

Risks & headwinds

- Non-performing credit resolutions carry some uncertainty; while management expects most remaining resolutions to not result in significant charge-offs, the bank acknowledges it operates in the risk business and cannot rule out unexpected higher losses. Annualized charge-offs are expected to range in the high single digits for the next two quarters, above the bank's historical very-low normalized levels. - Newer businesses, including swap fee revenue and the financial services group, are currently lumpy quarter-to-quarter, leading to potential volatility in non-interest income that will only smooth out as the business lines mature. - The full positive economic impact of large new capital investments in Louisiana, including the Meta data center project, will play out over multiple years, with near-term revenue upside limited to indirect trickle-down effects rather than direct large loan originations to the investment projects themselves. - While management expects to hit the 1.25% ROAA target for year-end 2026, achievement is not guaranteed and relies on consistent execution of the loan pipeline and continued margin expansion, neither of which are certain.

Analyst Q&A

• Q: Management noted a recent balance sheet repositioning via loan sale that will create excess liquidity for H2 2026 redeployment. How will this impact margins, average earning assets, and net interest income in the back half of the year?

  A: The loan sale closed at the very end of Q2, so it only created a point-in-time reduction in end-of-quarter assets with no near-term earnings impact. Management expects it will add approximately 4 basis points to the net interest margin over time. The bank has a large existing loan pipeline, so no material drag on average earning assets or net interest income is expected. Half of the proceeds will be deployed in Q3, and half in Q4, supporting the forecast of high single-digit annualized loan growth in both quarters.

• Q: What is the cadence of non-interest expenses in coming quarters, and how will capital allocation priorities, including share repurchases, look after the Progressive acquisition?

  A: Core non-interest expense is expected to fall to ~$58 million in Q3 and ~$57 million in Q4 2026, as the one-time elevated marketing and legal costs from Q2 do not recur, and cost savings from the Progressive conversion kick in during Q4. Capital will first be allocated to organic loan growth, particularly in Houston, followed by the option to partially or fully redeem callable preferred stock in September 2027. Share repurchases will remain opportunistic at share prices above $12, and the bank ended Q2 with ~13.9% total risk-based capital, projecting ~10.6% CET1 by year-end, entering 2027 with significant capital optionality.

• Q: How should investors interpret the large new Meta and broader capital investment in Louisiana for Business First's growth outlook?

  A: Management does not expect to originate large direct loans to Meta or the data center project itself. The primary opportunity is indirect: thousands of small and medium vendor and service providers working on the project will need community banking services, and many existing clients across the bank's Louisiana footprint have already won work tied to the development. Longer-term, the large new tax revenue and economic activity will trickle down to support broader consumer, business, and municipal growth across all Louisiana markets. Management believes investors have underappreciated Louisiana's new growth wave, having historically focused more on the faster-forecast Texas markets, leaving upside potential as the impact of these large investments becomes clearer.

• Q: What is the outlook for criticized asset resolution and expected charge-offs through the end of 2026?

  A: Management targets 10-20% NPL resolution and 10-15% OREO reduction in Q3 2026, reaching ~$50 million in total NPLs (the bank's historical normalized range) by year-end, down from $80 million at end-Q2. The watchlist of criticized loans has already fallen from $450 million at year-end to $330 million at end-Q2. Management expects annualized charge-offs of high single digits over the next two quarters, above historical lows, but does not expect significant unexpected losses from the remaining resolutions, as most are being worked out close to booked values.