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    Business First Bancshares Inc (BFST)

    BFST Q2 2024: NIM to Rise ~50–60bps as 48% of Loans Reprice

    Reported on May 8, 2025 (After Market Close)
    Pre-Earnings Price$25.22Last close (Jul 25, 2024)
    Post-Earnings Price$25.44Open (Jul 26, 2024)
    Price Change
    $0.22(+0.87%)

    What went well

    • Easing Deposit Cost Pressure: Management highlighted a trend of declining deposit costs, driven by increased noninterest-bearing deposits and competitive money market deposit rates, which help boost net interest margins.
    • Attractive Acquisition & Partnership Opportunities: The orderly progress of the Oakwood acquisition coupled with the promising Waterstone partnership is expected to enhance the loan sale pipeline and fee income, supporting a stronger revenue profile.
    • Robust Loan Repricing & Growth Potential: With nearly 48% of loans (about $2+ billion) set to reprice over the next 12 months at higher yields—even in a rate cut scenario—and a strategic focus on quality C&I relationships, the bank is well positioned for sustained margin expansion.

    What went wrong

    • Reliance on non-recurring earnings boosts: The Q&A highlighted that significant parts of recent earnings were driven by unique items (e.g., a $1.9 million gain on a USDA loan sale and $1.7 million in loan discount accretion) which are not expected to be regular, raising concerns about sustainable earnings going forward.
    • Rising noninterest expense pressures: Executives noted expectations for 2-3% growth in noninterest expense in upcoming quarters due to factors such as seasonal bonuses and sustained wage pressures, which could compress future profitability.
    • Integration risks with upcoming acquisition: Despite positive preliminary feedback on Oakwood Bank’s performance, there remains uncertainty regarding the integration process and timing, which could introduce operational challenges and affect margins.

    Q&A Summary

    1. Margin Outlook
      Q: What is your near-term NIM outlook?
      A: Management expects core NIM to improve by low to mid-single digits over the next few quarters with loan discount accretion stabilizing at about $700K per quarter, supporting strong margins overall.

    2. Repricing Impact
      Q: How will rate cuts affect repricing?
      A: Even with rate cuts, the existing loan repricing—covering about 48% of loans—will still deliver roughly 50–60 basis points of margin pickup as lower funding costs offset moderated loan yield growth.

    3. Acquisition Outlook
      Q: How is Oakwood performing and what is the timeline?
      A: Oakwood’s preliminary Q2 results are in line with BFST’s expectations, and the acquisition is on track to close in Q4, with integration planned for next year, signaling a strong strategic fit.

    4. Deposit Costs
      Q: What are the trends in deposit costs?
      A: Deposit costs eased, with the weighted average rate on new money market deposits falling from 4.88% in March to 4.65% in June, while growth in noninterest-bearing deposits helps reduce overall funding pressure.

    5. Commercial Pipeline
      Q: How is your commercial loan pipeline?
      A: The pipeline is healthy, expecting around 6% annualized loan growth, and management anticipates steady demand even if rate cuts occur, reflecting a cautious yet robust approach to capital allocation.

    6. Loan Growth Mix
      Q: What shift are you seeing in your loan mix?
      A: There is a strategic transition away from construction-heavy portfolios toward C&I lending and enhanced noninterest income, a move designed to lower concentration risk and foster sustainable growth over time.

    7. Noninterest Expense
      Q: What is your noninterest expense outlook?
      A: Managed expectations indicate a modest rise in noninterest expenses, targeting about $175 million by year-end driven primarily by personnel investments and seasonal bonus-related costs.

    8. Deposit Maturation
      Q: What deposit maturities create cost-saving opportunities?
      A: With roughly $66 million in brokered deposits and $450 million in customer CDs maturing before the end of the year, BFST sees clear opportunities to reduce funding costs as these roll off at lower prevailing rates.

    9. Loan Sale & AUM
      Q: What are the trends in loan sale gains and AUM?
      A: The loan sale business is gaining traction—excluding the one-off USDA gain—and while AUM under SSW has trended lower, it reflects portfolio restructurings rather than a loss in business, maintaining strong client relationships.

    10. DDA Growth
      Q: What drives DDA growth?
      A: Growth in demand deposit accounts is fueled by active C&I relationship development as well as robust consumer participation in money market accounts, demonstrating a balanced approach to deposit gathering.

    11. CRE Special Mention
      Q: Why did CRE special mention increase?
      A: The rise from 2.4% to 7.5% reflects a more detailed risk-rating approach and some cash flow caution amid tightening rate conditions, though overall asset quality remains solid.

    12. Loan Discount Accretion
      Q: How will loan discount accretion evolve?
      A: The accretion is expected to decline from $1.7 million to approximately $700K per quarter, a level anticipated to sustain for the next 12 months, ensuring stable income flow.

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