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Business First BFST Q 22025 Earnings Transcript The Motley Fool

Business First Bancshares Q2 2024 Earnings Call Summary

Business First Bancshares, Inc. (NASDAQ: BFST), the holding company for b1BANK, held its second-quarter 2024 earnings conference call on July 25, 2024. The call featured key executives, including President and CEO David Melville, who provided an overview of the quarter's performance, financial highlights, and strategic updates. Joining him were Chief Financial Officer Philip Jordan and other senior leaders. The discussion emphasized the company's resilience amid economic challenges, with a focus on loan growth, deposit trends, asset quality, and future outlook.

The call opened with standard forward-looking statements, cautioning that actual results could differ materially due to various risks outlined in the company's SEC filings. Melville began by highlighting the quarter's solid results, noting that Business First continued to demonstrate strong fundamentals in a competitive banking environment. He underscored the company's commitment to serving small and medium-sized businesses in Louisiana and Texas, regions where it operates primarily.

Financially, the quarter was marked by notable achievements. Net income for Q2 2024 came in at $16.8 million, or $0.64 per diluted share, reflecting a slight increase from the previous quarter. This performance was driven by robust loan growth and effective cost management. Total loans held for investment grew to $4.9 billion, up 2.5% from the prior quarter, fueled by organic expansion in commercial and industrial lending. Melville pointed out that the loan portfolio's diversification helped mitigate risks, with particular strength in owner-occupied real estate and energy-related sectors, though the latter remains a smaller portion of the book.

Deposit trends were a key positive, with total deposits reaching $5.7 billion, an increase of 3.1% quarter-over-quarter. This growth was attributed to successful deposit-gathering initiatives, including competitive pricing on certificates of deposit and money market accounts. Non-interest-bearing deposits held steady, comprising about 25% of the total, which Melville described as a stable base supporting the net interest margin (NIM). The NIM for the quarter stood at 3.45%, a modest compression from 3.50% in Q1, primarily due to higher funding costs in a rising rate environment. However, management expressed optimism that stabilizing rates could alleviate further pressure.

Asset quality remained a focal point, with non-performing assets (NPAs) at 0.65% of total assets, down slightly from the previous quarter. Net charge-offs were minimal at 0.10% annualized, indicating effective credit risk management. Provisions for credit losses were $2.5 million, reflecting a conservative approach amid economic uncertainties such as inflation and potential recessionary signals. Melville elaborated on the company's rigorous underwriting standards and proactive monitoring of borrower health, particularly in sectors sensitive to commodity prices like agriculture and energy.

On the income statement side, net interest income rose to $52.3 million, up 1.8% from Q1, benefiting from higher earning assets. Non-interest income contributed $10.2 million, bolstered by gains in wealth management fees and service charges, though partially offset by lower mortgage origination volumes due to elevated interest rates. Operating expenses were well-controlled at $40.1 million, with efficiency ratios improving to 62%, reflecting disciplined cost management and investments in technology to enhance digital banking capabilities.

Strategically, Melville discussed ongoing initiatives to expand the company's footprint. This includes targeted hiring in key markets like Dallas and Houston, where Business First sees opportunities for market share gains. The acquisition of Waterman Steele Group earlier in the year was highlighted as a successful integration, adding depth to the wealth management division and contributing to non-interest income growth. Looking ahead, management outlined plans for continued organic growth, with loan pipelines described as healthy, particularly in commercial real estate and C&I segments. However, they remain cautious about broader economic headwinds, including geopolitical tensions and supply chain disruptions.

The call then transitioned to a question-and-answer session, where analysts probed deeper into various aspects. One recurring theme was the impact of interest rate expectations on the balance sheet. Jordan explained that with a significant portion of loans floating-rate based, a potential rate cut by the Federal Reserve could provide some relief on deposit costs but might pressure yields on new originations. Analysts also inquired about capital levels, with the company reporting a total risk-based capital ratio of 13.5%, well above regulatory requirements, positioning it for potential share repurchases or dividends. Melville affirmed that the board had authorized a $20 million repurchase program, signaling confidence in the stock's valuation.

Credit quality drew several questions, particularly regarding exposure to commercial real estate (CRE). Management reassured that CRE concentrations are within regulatory guidelines, with no significant maturities posing immediate risks. They noted stress testing scenarios that account for higher vacancy rates in office properties, though Business First's portfolio is skewed toward industrial and retail spaces, which have shown resilience.

On the growth front, queries focused on M&A opportunities. Melville indicated that while the company is open to accretive deals, the current environment favors organic expansion over aggressive acquisitions. He emphasized building relationships with high-quality clients rather than chasing volume, which has helped maintain strong customer retention rates.

The discussion also touched on non-interest expenses, with Jordan detailing investments in cybersecurity and compliance, essential in an era of increasing regulatory scrutiny. Efficiency initiatives, such as branch optimization and digital enhancements, are expected to yield cost savings in the coming quarters.

In terms of guidance, management provided color on full-year expectations without specific numerical targets, citing economic volatility. They anticipate mid-single-digit loan growth for 2024, with NIM stabilizing around current levels assuming no dramatic rate shifts. Earnings per share are projected to benefit from these trends, potentially reaching $2.50-$2.70 for the year, though subject to macroeconomic factors.

Melville closed the prepared remarks by reiterating Business First's long-term vision: to be the premier community bank in its markets, delivering value to shareholders through prudent risk management and customer-centric strategies. He expressed confidence in the team's ability to navigate challenges, pointing to a strong capital position and diversified revenue streams as key strengths.

Overall, the Q2 2024 earnings call painted a picture of a bank executing well in a tough environment, with balanced growth, solid asset quality, and a cautious yet optimistic outlook. Analysts' questions revealed a focus on sustainability amid potential rate changes and economic slowdowns, but management's responses underscored preparedness and strategic agility. The call concluded with thanks to participants and an invitation to reach out for further discussions, reinforcing the company's transparent communication approach. (Word count: 928)

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