Business First Bancshares targets 1.2% core ROAA by Q4 2026 as it advances M&A integrations and expense discipline

Earnings Call Insights: Business First Bancshares, Inc. (BFST) Q3 2025

MANAGEMENT VIEW

* CEO David Melville reported continued incremental quality earnings improvement, attributing progress largely to strong expense control, with "3 quarters of essentially flat core noninterest expenses." Melville explained, "We have been pivoting our focus to the generation of operating leverage and expect it to remain there."
* Melville highlighted the successful core bank conversion at the end of Q2 and the conversion of Oakwood Bank at the end of Q3, stating, "Although this aspect of performance doesn't easily fit into an earnings model, it's critical to our ongoing performance as an institution." He emphasized the importance of these operational upgrades to future M&A integrations and projected, "We expect to see much more of the all-in economic benefit from the Oakwood transaction achieved by the first quarter of 2026."
* On M&A execution, Melville confirmed the Progressive Bank transaction remains on pace to close early Q1 2026, with integration scheduled for August and full unified post-integration financials expected for Q4 2026.
* Melville drew attention to the correspondent banking unit, now partnering with approximately 175 banks and expected to generate over $17M in revenue for the year, with around $5M to combined net income. He said, "We're only getting started on this front and believe the investments we've made towards this initiative will lead to even more capital-efficient earnings production."
* CFO Gregory Robertson reported, "Third quarter GAAP net income and EPS available to common shareholders was $21.5 million and $0.73 per share." He also noted, "Excluding these noncore items, non-GAAP core net income and EPS available to common shareholders was $21.2 million and $0.72."

OUTLOOK

* Melville stated the company is focused on "effective expense control, fully execute on our recent acquisitions, maintain our historically stable and relatively strong net interest margin as we grow within our retained capital, and continue the progress we've been building...through the building of our correspondent banking unit."
* Melville projected, "We're confident the combined effect will create the steady profitability and tangible book value increases over the course of 2026 in both aggregate and per share basis with visibility into our roughly 1.2% core ROAA run rate by the end of the fourth quarter."
* Robertson indicated, "We expect to pick up a couple of bps in the fourth quarter in margin for that to expand again."
* Regarding noninterest income, Robertson cautioned that a government shutdown could cause quarterly noninterest income to be flat but maintained that annual growth would be "over 20% above last year."

FINANCIAL RESULTS

* Robertson said, "Third quarter results marked another solid quarter of consistent profitability, generating a 1.06% core ROAA with our core efficiency ratio falling to 60.45% for the quarter."
* Total loans held for investment declined $26.6M, or 1.7% annualized, with paydowns totaling $479M and new loan production at $452M. Residential 1-4 family and C&D loans increased, while CRE and C&I loans decreased.
* Total deposits increased $87.2M, driven by growth in interest-bearing deposits, while noninterest-bearing deposits declined $44.15M due to a previously anticipated $60M withdrawal.
* The core net interest margin declined 1 basis point to 3.63%. Core loan yields were 6.94% and the weighted average of new and renewed loan yield was 7.46%. Cost of total deposits increased 3 basis points, while loan yields increased 5 basis points.
* FHLB borrowings decreased $125.5M, reflecting a deliberate reduction in excess borrowings.
* Core noninterest expense for Q3 was $49.3M, down slightly from the prior quarter.
* Noninterest income was $11.6M. Robertson signaled ongoing momentum in this area but noted potential quarter-to-quarter volatility.

Q&A

* Matt Olney, Stephens Inc.: Asked about core margin expectations and deposit pricing competition. Robertson responded, "We expect to pick up a couple of bps in the fourth quarter in margin for that to expand again... we also think that the loan growth will come back and normalize."
* Olney, Stephens Inc.: Queried loan growth evidence. Robertson indicated early Q4 success and projected "low to mid-single-digit loan growth in the fourth quarter."
* Feddie Strickland, Hovde Group: Inquired about noninterest income momentum and M&A strategy. Robertson noted potential government shutdown impact on SBA loan sales, which could delay income. Melville stated the focus is on integrating existing acquisitions and organic growth, adding, "So we want to -- I think our priority will be to let that play out... more focused on profitability than we are on growth just for growth's sake."
* Christopher Marinac, Janney: Asked about new loan pricing and customer sentiment. Robertson said, "Pricing for risk is part of the equation," and as rates move, "that's going to move down from... mid-7s... into the lower 7s to high 6s." He described customer sentiment as "maybe more optimistic with the lower rate environment."
* Michael Rose, Raymond James: Questioned expense outlook and hiring plans. Robertson emphasized ongoing discipline and efficiency, with Q4 expenses expected to rise slightly. Melville added, "Having discipline along the way... means that hopefully, we don't ever reach a point where we have to think of expenses as being on the edge of the cliff."
* Olney, Stephens Inc.: Asked about the Progressive Bank deal; Melville confirmed a positive shareholder vote and projected an early January close.

SENTIMENT ANALYSIS

* Analysts consistently focused on margin, loan growth, noninterest income volatility, and M&A execution, with a neutral to slightly positive tone, particularly around loan growth outlook and integration progress.
* Management’s tone was confident and disciplined during prepared remarks and Q&A, emphasizing operating leverage, expense control, and acquisition integration. Melville stated, "We're confident the combined effect will create the steady profitability and tangible book value increases over the course of 2026."
* Compared to the previous quarter, both analysts and management maintained a similar measured optimism, though management’s confidence in executing integration and achieving operating leverage appeared somewhat stronger.

QUARTER-OVER-QUARTER COMPARISON

* Guidance language shifted toward a stronger emphasis on operating leverage, expense discipline, and M&A integration.
* Management reiterated focus on margin stability and incremental improvement, but increased specificity about the impact and timing of M&A benefits.
* Key metrics such as core ROAA and efficiency ratio improved, with core noninterest expenses remaining flat, as opposed to the modest increase projected in the previous quarter.
* Analysts maintained focus on loan growth, margin, and noninterest income, with more detailed questions about timing and risks related to government actions.
* Management’s confidence in reaching a 1.2% core ROAA by Q4 2026 reflected increased visibility into post-integration results.

RISKS AND CONCERNS

* Management noted the risk of a government shutdown affecting SBA loan sales and noninterest income timing.
* Loan paydowns and competitive deposit pricing remain ongoing challenges.
* Analysts questioned the sustainability of deposit growth, margin expansion, and the effect of external macroeconomic events.
* Management emphasized maintaining flexibility in funding, ongoing discipline in hiring, and readiness to consider share repurchases if the stock price remains attractive.

FINAL TAKEAWAY

Business First Bancshares’ leadership conveyed confidence in the company’s disciplined expense control and effective M&A integration, highlighting continued profitability improvements and a clear path to achieving a 1.2% core ROAA run rate by the end of 2026. Key operational milestones, including major system conversions and the anticipated closing and integration of the Progressive Bank transaction, underpin management’s focus on operating leverage and organic growth. While some risks remain—particularly from external events such as a government shutdown—management’s strategy centers on optimizing existing opportunities, maintaining a strong capital position, and expanding capital-efficient revenue streams through its correspondent banking unit.

Read the full Earnings Call Transcript [https://seekingalpha.com/symbol/bfst/earnings/transcripts]

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