Business First Bancshares, Inc. Q3 FY2024 earnings call

• Improvement in operating leverage through net interest margin expansion and expense control; core expenses down ~$1 million linked quarter while investing in technology.
• Diversification of revenue from non-interest income sources including SSW, Waterstone, FIG Group, and internal swaps desk.
• Discipline in balance sheet management, growing deposits faster than loans, increasing capital levels.
• Successfully closed the Oakwood transaction on October 1, bringing Dallas and Houston exposure to mid-40s of the loan book; promoted Jerry Vascocu to President of b1BANK.

Total loans held for investment increased by $57.3 million or 4.4% annualized in the third quarter. Loan growth was largely from commercial real estate ($58.2 million net growth) and C&D portfolios ($16.9 million net growth). Texas-based loans were ~35% of the portfolio as of September 30, expected to rise to ~42% with the Oakwood transaction. Total deposits increased $77.3 million or 5.5% annualized, with interest-bearing accounts driving growth (money market accounts up $161 million) and non-interest-bearing deposits decreasing. The core net interest margin expanded 12 basis points linked quarter to 3.46% due to flat deposit costs and increased loan yields (new and renewed loans pricing at 8.46%).

• Expect core net interest margin to reach a ~350 basis points run rate by Q2 2025, with Oakwood expected to add a couple of basis points.
• Non-interest income is expected to continue an upward trajectory though bumpy as investments season.
• Oakwood addition to non-interest income will be modest in the near-term as they adapt to product offerings.

• Uncertainty around interest rate movements affecting deposit betas and loan re-pricing.
• Volatility in non-interest income from fluctuating performance of investment business lines.
• Impact of regulatory changes or economic downturn on credit quality and loan portfolio.

Q: Michael Rose asked about brokered CDs maturing, core margin target, and Oakwood accretion.

A: Jude and Greg discussed CD repricing, core margin progress (expecting to hit ~350 basis points run rate by Q2 2025 with Oakwood adding a couple of basis points), and Oakwood accretion being in the process of finalization but expected to be additive.

Q: Matt Olney asked about loan growth, fee side, and swap fees.

A: Discussed loan growth drivers (North Louisiana and New Orleans regions), fee income trends (swap business generating ~$900,000 in Q3 and expected to continue incrementally growing), and swap business not being lumpy with 20 trades in Q3.

Q: Feddie Strickland asked about Oakwood expenses, growth, and M&A.

A: Discussed cost savings timing (likely showing in Q4 2025 and Q1 2026), growth priorities (organic growth first, then team lift outs and M&A if opportunities arise), and readiness to pursue M&A if the right partner presents.

Q: Manuel Navas asked about NIM assumptions, Oakwood updates.

A: Discussed NIM improvement expectations (reasonable to expect ~6 basis points improvement with 150 basis point Fed funds cut by mid-2025), Oakwood loan growth since deal announcement, and funding base updates (Oakwood had loan growth, with cash deployed and term deposit renewal opportunities being evaluated).

Q: Christopher Marinac asked about credit upgrades, watch list, beta slide.

A: Discussed potential credit upgrades from changing rate environment countering watch list growth, watch list composition (~60% CRE, ~40% C&I), and beta slide assumptions (total deposit betas expected to be in 45%-55% range in easing rate environment).