Business First Bancshares (NASDAQ:BFST) executives said the company’s second quarter of 2026 showed progress on loan production, margin expansion and credit resolution, while acknowledging seasonal deposit outflows and higher-than-normal expenses.
Chairman, President and CEO Jude Melville said b1BANK had an “encouragingly solid” quarter that positions the company for a stronger second half of the year. He said loan production returned to a normalized pace and was balanced across the bank’s footprint, with a significant pipeline developing in the Houston market.
Earnings, Margin and Balance Sheet Trends
Chief Financial Officer Greg Robertson said second-quarter GAAP net income available to common shareholders was $22.8 million, or $0.70 per share. Results included $1.2 million in merger-related expense, a $545,000 gain on extinguishment of debt and a $6,000 loss on sale of securities. Excluding those items, core net income available to common shareholders was $23.3 million, or $0.71 per share.
Robertson said the company generated a 1.05% core return on average assets and a core efficiency ratio of 63.9% for the quarter. He said results were helped by better-than-expected margin expansion, improved credit metrics tied to resolutions of previously identified troubled loans and higher capital levels from disciplined balance sheet management.
Reported net interest margin increased eight basis points from the prior quarter to 3.73%, while core net interest margin, excluding purchase accounting accretion, also rose eight basis points to 3.68%. Robertson attributed the improvement to higher loan and securities yields and lower deposit costs. He also noted that the second quarter did not include the interest income reversal that weighed on first-quarter margin.
Total loans held for investment decreased $24.8 million, or 1.5% annualized, from the prior quarter. Excluding the Progressive loan sale and resolutions of certain non-performing loans, loans held for investment increased $96.4 million, or 5.8% annualized. Melville said the loan sale created an opportunity to redeploy proceeds into higher-earning assets over the next two quarters.
In response to an analyst question, Robertson said the loan sale occurred in the final days of the quarter and had little impact on second-quarter results beyond reducing period-end assets. He said the company expects about a four-basis-point go-forward margin benefit from the transaction. Melville said the bank expects high single-digit annualized loan growth in both the third and fourth quarters and anticipates deploying roughly half of the related liquidity in each quarter.
Deposits Decline, but Management Cites Seasonality
Total deposits decreased by $229.4 million during the quarter, as a $237.9 million decrease in interest-bearing deposits was partly offset by an $8.5 million increase in non-interest-bearing deposits. Robertson said the interest-bearing decline was largely driven by about $72 million in commercial money market accounts and $63 million in brokered deposits.
Melville said roughly one-quarter of the deposit decline was intentional, reflecting the paydown of higher-cost brokered deposits. Robertson said the brokered deposits paid down were slightly over $60 million and carried a weighted average cost above 4%.
Executives described the remaining deposit outflow as largely seasonal, tied partly to tax payments and municipal and governmental relationships that typically reach low points in the second quarter before rebuilding. Robertson said deposit inflows early in the third quarter have been returning at rates close to the second-quarter average, while Melville said deposits had already begun moving back in materially during July.
Robertson said total cost of deposits declined seven basis points linked quarter, and the weighted average deposit cost for June was 2.26%, consistent with the full-quarter average. He said the company still sees 45% to 55% overall deposit betas as achievable in the event of future rate cuts, though management’s baseline assumption is no additional interest rate cuts in 2026.
Expenses and Fee Income
GAAP non-interest expense was $59.5 million, including $1.2 million in acquisition-related expenses. Core non-interest expense was $58.4 million, up $3.1 million from the prior quarter. Robertson said the increase was slightly above expectations and mostly reflected elevated marketing and advertising spending. Melville also cited higher legal fees tied to resolving a large non-performing credit.
Robertson said expenses are expected to be slightly lower in the third quarter, closer to $58 million, and closer to $57 million in the fourth quarter as cost savings from the Progressive acquisition begin to be recognized. The company said the Progressive core conversion is scheduled for mid-August.
Second-quarter GAAP non-interest income was $14 million, while core non-interest income was $13.4 million. Robertson said core non-interest income was generally in line with expectations, though swap fee revenue was slower. Melville said businesses such as swaps, SBA and the broader financial services group can be “lumpy” because they remain relatively young.
Melville said revenue from the financial services group is running about 20% ahead of last year’s pace at the halfway point of 2026. He also said the bank added a new partner and product through Jeff Fair with American Planning Corp., which provides CFO-type consulting services to community banks. Melville said the partnership brings the number of banks served through the financial services platform to more than 200.
Credit Quality Improves
Robertson highlighted improvement in credit quality during the quarter. The ratio of non-performing loans to loans held for investment declined 27 basis points to 1.26% at June 30, while non-performing assets as a percentage of total assets declined 15 basis points to 1.23%.
Robertson said the improvement was driven by resolutions of previously identified commercial real estate and commercial business relationships. In the question-and-answer session, he said the bank resolved about $35 million of non-performing loans during the quarter, including about $31 million in paydowns and about $4 million moving to other real estate owned.
Looking ahead, Robertson said management believes a further 10% to 20% reduction in non-performing loans is achievable in the third quarter, along with a possible 10% to 15% reduction in other real estate owned. He said the company believes it can end the year closer to $50 million or slightly below in non-performing loans, a range he described as more normal historically for the bank.
Louisiana Growth, Capital and Shareholder Returns
Melville emphasized potential growth in Louisiana, pointing to roughly $150 billion in announced capital investment in the state over the past 18 months. He cited Meta’s data center project in Richland Parish, which he said was recently expanded to 5 gigawatts of capacity and more than $50 billion in total investment.
Melville said the bank does not expect to bank the data center itself, but sees opportunities with vendors, service providers and small businesses connected to the project. He also said the broader economic impact could benefit municipalities, schools and local communities over time.
On capital, Robertson said the company completed a fully self-managed private placement of $85 million of 6.5% fixed-to-floating subordinated debt due in 2036. Part of the proceeds was used to redeem a $52 million issuance that had become callable. Matt Sealy, senior vice president and director of corporate strategy and FP&A, said management expects to end the year with consolidated total risk-based capital near 13.9%, CET1 just under 10.6% and tangible common equity around 9%, assuming mid-8% annualized loan growth over the next two quarters.
Robertson said the company repurchased 176,000 shares for about $4.8 million in the second quarter and will remain opportunistic. Melville said the company also intends to continue its dividend path, with a goal of incremental annual increases, noting that the bank has increased its dividend for seven consecutive years since initiating it.
About Business First Bancshares (NASDAQ:BFST)
Business First Bancshares, Inc is the bank holding company for Business First Bank, a regional community bank headquartered in Louisville, Kentucky. Through its wholly owned subsidiary, the company provides a full suite of commercial and retail banking services to small and medium-sized businesses, professionals and individual consumers. Business First Bancshares operates under a community-focused model, emphasizing personalized service, local decision-making and relationship banking.
The company’s primary business activities include commercial lending, treasury and cash management, and deposit services.
