Business First Bancshares Inc. (BFST) Overview
Business First Bancshares Inc. (BFST) is a Louisiana-based financial holding company that has established itself as a regional banking powerhouse through strategic expansion and a focus on serving small-to-mid-sized businesses and professionals. With a history spanning nearly two decades, BFST has evolved into a diversified financial institution that continues to capitalize on opportunities across its footprint in Louisiana, Texas, and beyond.
BFST's Origins and Expansion Journey
Incorporated in 2006, Business First Bancshares began operations with the goal of creating a premier commercial banking franchise in Louisiana. The company's early years were marked by organic growth, as it steadily expanded its presence across the state by opening new banking centers and attracting top-tier talent. This expansion strategy extended beyond Louisiana, with the company establishing loan production offices in Texas as well.
A significant milestone in BFST's growth trajectory came in 2022 with the acquisition of Texas Capital Bancshares (TCBI). This transformative move not only expanded the company's geographic reach into the Dallas-Fort Worth and Houston markets but also added three tranches of subordinated debt to Business First's capital structure. The successful integration of TCBI has allowed BFST to leverage additional talent and customer relationships, further solidifying its position in the Texas market.
Throughout its history, BFST has demonstrated resilience in the face of various challenges. The company successfully navigated the economic impact of the COVID-19 pandemic and volatility in oil prices that affected certain borrowers in the energy industry. BFST's conservative lending approach and disciplined management of nonperforming assets have been key factors in maintaining sound asset quality during these turbulent periods.
As of September 30, 2024, Business First Bancshares boasts impressive financial metrics, with total assets of $6.9 billion, total loans of $5.2 billion, and total deposits of $5.6 billion. These figures underscore the company's successful growth strategy and its ability to build a diverse loan portfolio, primarily consisting of commercial loans and real estate loans secured by commercial real estate properties.
Financial Strength and Diversification
BFST's financial performance has been marked by consistent profitability and a steadfast commitment to prudent risk management. For the fiscal year ended December 31, 2023, the company reported revenue of $247.42 million, net income of $71.04 million, operating cash flow of $92.43 million, and free cash flow of $80.78 million. This translated to diluted earnings per share of $2.59. This strong financial performance was driven by a robust net interest margin of 3.66% and disciplined expense management.
For the most recent quarter (Q3 2024), BFST reported revenue of $66.552 million, net income of $17.843 million, operating cash flow of $21.405 million, and free cash flow of $25.849 million. Revenue grew year-over-year, driven by continued growth in net interest income and non-interest income. However, net income declined year-over-year primarily due to higher provision for credit losses and non-interest expenses.
The company's balance sheet remains well-capitalized, with a Tier 1 leverage ratio of 9.61%, a Common Equity Tier 1 ratio of 9.42%, a Tier 1 Risk-based capital ratio of 10.69%, and a Total Risk-based capital ratio of 12.99% as of September 30, 2024. This solid capital position provides BFST with the flexibility to continue investing in growth initiatives and weathering potential economic headwinds.
One of the standout features of BFST's business model is its diversification efforts. In addition to its traditional commercial banking operations, the company has strategically invested in a range of complementary business lines, including wealth management, insurance, and specialized lending services. These diversified revenue streams have helped BFST mitigate risk and generate a more stable and predictable income stream.
For the nine months ended September 30, 2024, BFST reported a healthy loan portfolio, with total loans held for investment increasing by 4.6% to $5.2 billion. The commercial real estate and construction loan segments led the charge, growing by 1.7% and 2.3%, respectively, during the period. This balanced loan growth reflects the company's disciplined underwriting and its ability to capitalize on opportunities across its target markets.
Navigating the Interest Rate Environment
The ongoing shifts in the interest rate landscape have presented both challenges and opportunities for BFST. The Federal Reserve's series of rate hikes in 2023 has put pressure on the company's deposit costs, with the average rate paid on interest-bearing deposits increasing to 3.81% for the nine months ended September 30, 2024, up from 3.00% for the full year 2023.
However, BFST has been proactive in managing its balance sheet to mitigate the impact of rising rates. The company has strategically positioned its loan portfolio, with a significant portion of loans tied to floating rates that can reprice more quickly in a rising rate environment. Additionally, BFST has made concerted efforts to optimize its deposit mix, focusing on low-cost, core deposits to help offset the increase in funding costs.
Furthermore, the company has introduced new initiatives to diversify its revenue streams and capitalize on the changing interest rate landscape. This includes the launch of a successful customer swap business, which generated approximately $900,000 in revenue during the third quarter of 2024. BFST's willingness to innovate and adapt has been a key driver of its resilience in the face of market volatility.
Liquidity
Business First Bancshares maintains a strong liquidity position, which is crucial for meeting its financial obligations and supporting its growth initiatives. The company's liquidity management strategy focuses on maintaining adequate levels of cash and cash equivalents, as well as access to various funding sources.
As of September 30, 2024, BFST reported $213.2 million in cash and cash equivalents, representing a significant buffer against potential liquidity needs. Additionally, the company has established relationships with correspondent banks and has access to various credit facilities, including:
- $145 million in federal funds purchased lines of credit with various correspondent banks, with no outstanding balance as of September 30, 2024. - $1.2 billion of availability through the Federal Home Loan Bank (FHLB) as of September 30, 2024. - $921.9 million of availability through the Federal Reserve Discount Window as of September 30, 2024.
The company's loan-to-deposit ratio, a key measure of liquidity, stood at 92.9% as of September 30, 2024. This ratio indicates a balanced approach to lending and deposit gathering, ensuring that BFST maintains sufficient liquidity while efficiently deploying its resources.
Other important liquidity metrics as of September 30, 2024, include:
- Debt-to-Equity ratio: 0.95 - Current ratio: 3.05 - Quick ratio: 3.05
These ratios demonstrate BFST's strong liquidity position and its ability to meet short-term obligations.
Navigating Acquisition Integration and Continued Growth
The acquisition of Texas Capital Bancshares in 2022 has been a transformative event for BFST, significantly expanding its geographic footprint and enhancing its scale. The integration of TCBI's operations has been a top priority for the company, and it has made significant progress in leveraging synergies and realizing the benefits of the combined entity.
As BFST navigates the post-acquisition landscape, it remains focused on driving organic growth across its expanded footprint. The company's pipeline of commercial lending opportunities remains robust, and it continues to invest in talent acquisition and technology enhancements to better serve its growing customer base.
Looking ahead, BFST is well-positioned to capitalize on further growth opportunities, both within its existing markets and through potential future acquisitions. The company's strong capital position, diverse revenue streams, and disciplined approach to risk management provide a solid foundation for continued success.
Loan Portfolio and Market Focus
BFST's loan portfolio is primarily concentrated in commercial loans and real estate loans secured by commercial real estate properties in its primary market areas of Louisiana, the Dallas-Fort Worth metroplex, and Houston. As of September 30, 2024, the company's loan portfolio was diversified across the following categories:
- Real Estate Commercial loans: $2.30 billion (up 1.7% from December 31, 2023) - Real Estate Construction loans: $654.40 million (down 2.3% from December 31, 2023) - Real Estate Residential loans: $743.90 million (up 9.0% from December 31, 2023) - Commercial loans: $1.50 billion (up 10.1% from December 31, 2023) - Consumer and other loans: $69.00 million (up 8.2% from December 31, 2023)
This diversified loan portfolio reflects BFST's commitment to serving a wide range of customers and industries across its target markets.
Forward-Looking Guidance
Based on recent management commentary, BFST has provided the following guidance for future performance:
- Core Net Interest Margin (NIM): The company expects low-single-digit expansion assuming a 50 basis point reduction in interest rates, in addition to the organic growth and margin improvement they are already seeing. BFST is ahead of schedule on achieving its previously stated target of a core NIM of around 3.50% by the second quarter of 2025, having reported a core NIM of 3.46% in the most recent quarter.
- Deposit Betas: BFST expects overall total deposit betas to be in the 45% to 55% range in an easing interest rate environment, which should translate into low-single-digit expansion in the core NIM assuming a static balance sheet.
- Oakwood Acquisition Impact: The addition of the Oakwood acquisition is expected to be a couple of basis points accretive to BFST's overall core margin.
- Loan Discount Accretion: The company expects loan discount accretion to average $700,000 to $800,000 per quarter going forward, including the impact of the Oakwood acquisition.
- Non-Interest Expense: BFST views the current consensus estimate of approximately $50 million as a fair estimate and a good run rate going forward, including the impact of the Oakwood acquisition.
Conclusion
Business First Bancshares has emerged as a formidable regional banking player, leveraging its strategic vision, operational excellence, and commitment to serving its communities. The company's successful track record of organic growth, targeted acquisitions, and diversification efforts have positioned it as a resilient and adaptable financial institution, well-equipped to navigate the evolving market landscape. With a strong financial foundation, a diversified loan portfolio, and a clear strategy for future growth, BFST remains a compelling investment opportunity for those seeking exposure to a well-managed, community-focused bank with a proven ability to create long-term shareholder value.