Business First Bancshares, Inc. is a Louisiana-based financial holding company that operates through its wholly-owned subsidiary, b1BANK. The company provides a diverse range of financial services, catering primarily to small-to-midsized businesses and professionals across Louisiana, the Dallas/Fort Worth metroplex, and Houston. With a focus on creating shareholder value, Business First has established an attractive commercial banking franchise since its inception in 2006.

As of March 31, 2024, Business First reported total assets of $6.7 billion, total loans of $5.1 billion, total deposits of $5.6 billion, and total shareholders' equity of $649.0 million. The company's annual net income for the year ended December 31, 2023, was $71.0 million, with annual revenue of $385.6 million, annual operating cash flow of $92.4 million, and annual free cash flow of $78.5 million.

Business Overview

Business First operates as a community bank, providing a wide range of financial products and services to its customers. The company's primary focus is on commercial lending, with a particular emphasis on commercial real estate, construction, and commercial and industrial (C&I) loans. Additionally, the bank offers residential mortgage loans, consumer loans, and a variety of deposit accounts to meet the diverse needs of its customer base.

One of the key strengths of Business First is its geographic diversification. The company operates across Louisiana, the Dallas/Fort Worth metroplex, and Houston, allowing it to capitalize on growth opportunities in multiple markets. This geographic footprint also helps to mitigate the company's exposure to regional economic fluctuations, as it can leverage its presence in different markets to maintain a balanced loan portfolio and deposit base.

Financials

Business First's financial performance has been relatively strong, with the company navigating the challenges of the current economic environment with prudence. In the first quarter of 2024, the company reported net income available to common shareholders of $12.2 million, or $0.48 per diluted common share. This represents a decrease of 10.6% compared to the first quarter of 2023, when the company reported net income available to common shareholders of $13.7 million, or $0.54 per diluted common share.

The decrease in net income was primarily attributable to a lower provision for credit losses, which decreased from $3.2 million in the first quarter of 2023 to $1.2 million in the first quarter of 2024. This decrease in the provision for credit losses was a proactive measure taken by the company to maintain a strong allowance for loan losses in the face of potential economic headwinds.

Despite the decrease in net income, Business First's balance sheet and liquidity position remain strong. The company's total loans held for investment increased by $96.1 million, or 1.9%, from December 31, 2023, to March 31, 2024. This growth was primarily driven by a $68.1 million, or 5.0%, increase in the commercial loan portfolio, which offset a $7.8 million, or 1.2%, decrease in the construction loan portfolio.

The company's net interest margin (NIM) also showed improvement, increasing from 3.32% in the first quarter of 2024 to 3.45% in the second quarter of 2024. This increase was driven by higher loan yields, as well as a moderation in funding pressures, as the company continued to focus on growing its lower-cost core deposit base.

Guidance and Outlook

Business First's management team remains cautiously optimistic about the company's future prospects. In the second quarter earnings call, CEO Jude Melville highlighted the company's solid performance, noting that the team produced a "healthy rebound in net interest margin, an appropriate amount of loan growth, an improvement in the composition of our deposit base, [and] increasing the capital level to intangible book value."

Looking ahead, the company expects to see continued improvement in its core profitability, with management estimating a core net income figure of approximately $14.3 million for the second quarter, which would exceed consensus expectations. This performance is expected to be driven by a combination of factors, including higher loan discount accretion and the successful integration of the recently acquired Waterstone LSP, LLC, which is expected to contribute to the company's fee income business lines.

Risks and Challenges

While Business First has demonstrated resilience in the face of economic headwinds, the company is not without its risks and challenges. One key risk is the company's geographic concentration in Louisiana, the Dallas/Fort Worth metroplex, and Houston. Any significant economic downturn or adverse events in these regions could have a disproportionate impact on the company's performance.

Additionally, the company's reliance on commercial real estate and construction lending exposes it to potential volatility in those sectors. The company has been actively working to manage its concentration in these areas, but a prolonged downturn in the real estate market could still pose a risk to the company's asset quality and profitability.

Another challenge facing Business First is the ongoing pressure on net interest margins due to the rising interest rate environment. While the company has been able to manage this pressure through its focus on growing its lower-cost core deposit base, continued increases in funding costs could put downward pressure on the company's profitability.

Conclusion

Business First Bancshares has demonstrated its ability to navigate the challenges of the current economic environment with prudence and resilience. The company's geographic diversification, strong balance sheet, and focus on commercial lending have allowed it to maintain a solid financial performance, even as it faces headwinds in the form of rising interest rates and potential economic volatility.

Looking ahead, the company's management team remains cautiously optimistic, with a focus on continued improvement in core profitability and the successful integration of its recent acquisition. While risks and challenges remain, Business First's track record of prudent management and its commitment to serving the needs of its customers position the company well for future growth and success.