Business First Bancshares Q2 2025 Earnings Call Transcript

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Provided by Quartr
July 28, 2025

Key Takeaways

  • Positive Sentiment: Our Q2 financial results delivered a 1% ROAA, maintained a 3.68% net interest margin, and grew tangible book value by nearly 15% annualized, boosting capital levels and loan originations while reducing C&D concentrations.
  • Positive Sentiment: A successful core conversion to the FIS IPS platform and the sale of a legacy branch are projected to generate about $750,000 in annual savings and improve operational efficiency going forward.
  • Positive Sentiment: The announced partnership with Progressive Bank and the upcoming Oakwood integration position the company for meaningful earnings accretion and expanded footprint entering 2026.
  • Negative Sentiment: Asset quality weakened as nonperforming loans rose from 0.69% to 0.97%, driven by three relationships totaling $23.7 million, though management says reserves are adequate and net charge-offs remain minimal.
  • Positive Sentiment: Strategic funding actions replaced $140 million of high-cost deposits with more efficient brokered CDs and FHLB advances, driving a 4 bps decline in deposit costs and supporting a 4–6 bps margin improvement outlook.
AI Generated. May Contain Errors.
Earnings Conference Call
Business First Bancshares Q2 2025
00:00 / 00:00

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Operator

Thank you for standing by. Hello, and welcome to the Business First Bancshares Q2 twenty twenty five Earnings Conference Call. Please note that this call is being recorded. I would now like to turn the call over to Matt Seeley, Senior Vice President, Director of Corporate Strategy and FP and A. Please go ahead, sir.

Matthew Sealy
Matthew Sealy
SVP & Director - Corporate Strategy & FP&A at Business First Bancshares

Thank you. Good morning, and thank you all for joining. Earlier today, we issued our second quarter twenty twenty five earnings press release, a copy of which is available on our website along with the slide presentation that we will reference during today's call. Please refer to slide three of our presentation, which includes our Safe Harbor statements regarding forward looking statements and the use of non GAAP financial measures. For those of you joining by phone, please note the slide presentation is available on our website at www.b1bank.com.

Matthew Sealy
Matthew Sealy
SVP & Director - Corporate Strategy & FP&A at Business First Bancshares

Please also note our Safe Harbor statements are available on Page seven of our earnings press release that was filed with the SEC today. All comments made during today's call are subject to those Safe Harbor statements in our slide presentation and earnings release. I'm joined this morning by Business First Bancshares Chairman and CEO, Jude Melville Chief Financial Officer, Greg

Matthew Sealy
Matthew Sealy
SVP & Director - Corporate Strategy & FP&A at Business First Bancshares

Robertson Chief Banking Officer, Bill Jordan and President of B1 Bank, Jerry Basakute. After the presentation, we'll be happy to address any questions you may have. And with that, I'll turn it over to you, Jude.

Jude Melville
Jude Melville
CEO at Business First Bancshares

Okay, thanks Matt. Good morning and thanks as always to everyone for prioritizing this call.

Jude Melville
Jude Melville
CEO at Business First Bancshares

I know you have plenty to do on a Monday morning and we appreciate you participating with us. I'd like to start by explaining that we chose a later than normal release date out of an abundance of caution given the core system conversion we conducted over the past few weeks. I wanted to on the side of giving our team ample time to close out the quarter. We were successful and going forward I expect we will revert to our normal release date and time. Four things I'd like to highlight before I turn it over to Greg to offer a more detailed analysis of our performance.

Jude Melville
Jude Melville
CEO at Business First Bancshares

First, the quarter was successful financially. We again posted 1% ROAA earnings, we maintained our net interest margin, we increased our capital levels, as well as increasing our tangible book value by almost 15% annualized. These have been our primary goals over the past few quarters, and we're pleased to accomplish them, despite an extra busy quarter. We also originated loans at a healthy pace, even while continuing to decrease our C and D concentration levels, as well as improving the makeup of our funding base, growing non interest bearing accounts quarter over quarter. Second, the quarter was successful operationally.

Jude Melville
Jude Melville
CEO at Business First Bancshares

We embarked two years ago on a project to upgrade our core processing system to IPS, the FIS large bank platform, and after thousands of man hours of preparation and then an action packed Memorial Day weekend, executed successfully, positioning ourselves for more efficient processing for the foreseeable future. We're excited about this partnership and believe it will lead to more efficient organic and inorganic operational effectiveness. We also continue to work on cultivating our branch footprint, teaming with a local community bank in the sale of one of our legacy branches. We're proud to again deliver on a win win proposition for the local market and our local employees, leaving them in secure hands while we position our broader footprint for future operational savings, approaching $750,000 a year. These operational decisions require significant work to execute by large numbers of our teammates, and I'm proud of the way they've done so.

Jude Melville
Jude Melville
CEO at Business First Bancshares

Third, we announced a partnership with Progressive Bank, a $750,000,000 community bank in the North Louisiana area of our footprint. We've known the team at Progressive for many years, and have felt for that they have made good partners. I'm very proud that they chose to join with us on this next stage of our journey. They have excellent asset quality, strong long term client relationships, and a team that will fit in day one within the B1 culture. Between continued integration of the Oakwood Bank footprint, with conversion scheduled for late in the third quarter, and incorporation of Progressive with a projected close of the first of the New Year, we entered 2026 projecting meaningful upside earnings accretion, added by our fruitful M and A activity.

Jude Melville
Jude Melville
CEO at Business First Bancshares

Fourth, though our asset quality metrics trended negatively during the quarter, that's partly a function of successful work navigating through the process on a handful of relationships that have been previously identified. We've not been identifying new relationships through which we have to work, experiencing a decline in our watch list over the past two quarters. We believe we are adequately reserved against the non performing relationships, and all borrowers continue to work with us towards resolution. While we don't expect we won't suffer any losses over the remainder of the year as we bring the subject credits to their conclusion, the quarter, as with most all our recent quarters, exhibited exemplary net charge offs at 0.01%. We are preparing to enter 2026 with as strong of a balance sheet, as positive a go forward P and L opportunity, as diversified a geographic footprint, and as much operational capacity as I can remember during my time as CEO.

Jude Melville
Jude Melville
CEO at Business First Bancshares

I'm excited to see our team continue to perform. With that, I'll turn it over to Greg. Thanks again.

Gregory Robertson
Gregory Robertson
EVP, CFO & Treasurer at Business First Bancshares

Thank you, Jude, and good morning, everyone. As always, I'll spend a few minutes reviewing our results and we'll discuss our updated outlook before we open up for Q and A. Second quarter GAAP net income and EPS available to common shareholders was 20,800,000.0 and included a $3,360,000 gain on a sale of a branch, which we closed April 4. GAAP results also included a $570,000 acquisition related expense and $1,000,000 core conversion expense. Excluding these non core items, non GAAP core net income and EPS available to common shareholders was $19,500,000 and $0.66 per share.

Gregory Robertson
Gregory Robertson
EVP, CFO & Treasurer at Business First Bancshares

From our perspective, second quarter results marked another solid quarter with consistent profitability, generating a one on one core ROAA. From a corporate perspective, we were active during the quarter with successful core conversion, which occurred over Memorial Day weekend. We also sold one location in South Louisiana in early April, as Jude mentioned, and finally announced the acquisition of North Louisiana based Progressive Bank. The actual merger announcement occurred earlier this month however, we were obviously busy in the months leading up to the announcement. Starting with the balance sheet.

Gregory Robertson
Gregory Robertson
EVP, CFO & Treasurer at Business First Bancshares

Total loans held for investment increased 4.5% annualized on a linked quarter basis, up $66,700,000 from Q1. Scheduled and non scheduled paydowns and payoffs slowed somewhat during the second quarter, totaling $365,000,000 while new loan production was $432,000,000 during the quarter. Loan growth was driven primarily by C and I and CRE, which increased $98,800,000 and $61,600,000 from the linked quarter. This growth was partially offset by decreases in construction and residential of $33,400,000 and $54,500,000 respectively. Based on unpaid principal balances, Texas based loans remained relatively flat at approximately 40% of the overall loan portfolio as of June 30.

Gregory Robertson
Gregory Robertson
EVP, CFO & Treasurer at Business First Bancshares

Total deposits decreased $38,500,000 mostly due to a net decrease in interest bearing deposits of $140,900,000 on a linked quarter basis. The net decline was primarily driven by withdrawals from financial institution accounts and the branch sale earlier in the quarter that we mentioned. The decline in our interest bearing deposits during the quarter was somewhat strategic in nature as the weighted average cost of these outflows averaged 4.45% and was replaced with more efficient source of brokered CDs and deposits. Excluding the $50,700,000 in deposits transferred from the branch sale during the quarter, net deposit growth would have been $12,100,000 for the linked quarter. I think it's worth noting this includes bringing on to the balance sheet and replacing over $100,000,000 in high cost deposit balances with the Oakwood acquisition that we previously mentioned as our strategy.

Gregory Robertson
Gregory Robertson
EVP, CFO & Treasurer at Business First Bancshares

Net interest bearing deposits increased non interest bearing deposits, excuse me, increased $102,000,000 or 7.8% on a linked quarter basis, driven by a short term inflow of approximately $60,000,000 which subsequently was withdrawn after the quarter end. Lastly, on the funding side of the balance sheet, bank borrowings increased $179,000,000 from the prior quarter or approximately 41%. The large increase was due primarily to an increase in short term FHLB advances, which was utilized at quarter end to facilitate the transition of our correspondent banking relationship, which was aligned with our core conversion. Moving on to the margin. Our GAAP reported second quarter net interest margin remained unchanged in the linked quarter at 3.68%, while the non GAAP core net interest margin excluding purchase accounting accretion also remained unchanged from the prior quarter at 3.64%.

Gregory Robertson
Gregory Robertson
EVP, CFO & Treasurer at Business First Bancshares

Interest earning asset growth during the second quarter was offset by excess funding utilized during the core conversion and incremental funding to replace the deposits transferred in the branch sale. The lower cost deposits divested from our branch sale equated to to approximately two basis points drag in the second quarter margin. Additionally, the excess liquidity carried during the second quarter accounted for about three bps drag on the margin. We expect going forward to continue to maintain somewhat elevated liquidity levels, at least in the near term, assuming no rate cuts over the next two quarters. We would expect deposit costs to remain relatively flat in the near term, but we will be affected by our ability to retain and attract lower cost non interest bearing deposit accounts.

Gregory Robertson
Gregory Robertson
EVP, CFO & Treasurer at Business First Bancshares

We are pleased with our ability to manage our deposit rates. Total interest bearing deposit costs declined four basis points from the linked quarter, highlighted by a 26 basis point quarter over quarter reduction in overall cost of money market deposits and a 17 basis point reduction in overall cost of time deposits. Notably, the weighted average total cost of deposits for the first quarter was 2.64%, down six basis points from the linked quarter, while June weighted average cost of total deposits was 2.62%. While further improvements in funding costs are subject to the Fed's interest rate decisions, we remain encouraged by this trajectory. I'd like to make note of a few takeaways to slide on page 22 in our investment presentation.

Gregory Robertson
Gregory Robertson
EVP, CFO & Treasurer at Business First Bancshares

We continue to see 45 through 55% of overall deposit betas as achievable regarding any future rate cuts. I would also like to point out our overall core CD balance retention rate up was 96% during June. This impressive statistics reflects on our team's continued focus on maintaining and retaining core deposit relationships. As you will see on page 23, we have approximately 2,800,000,000 in floating rate loans, approximately at 7.56% weighted average rate, but also have approximately $611,000,000 fixed rate loans maturing over the next twelve months at a weighted average of 6.18%, which we would expect to reprice in the mid seven range. Last thing I would add is our expectations for loan discount accretion to average approximately 750,000 to $800,000 per quarter going forward.

Gregory Robertson
Gregory Robertson
EVP, CFO & Treasurer at Business First Bancshares

Moving on to the income statement, GAAP non interest expense was $51,200,000 and included $570,000 of acquisition related expense and $1,000,000 conversion related expense. Core non interest expense for the quarter of $49,600,000 was relatively unchanged from the linked quarter. We do expect a modest increase in Q3 in the core expense base, primarily due to the timing of various investments hitting in Q3 and Q4. However, we should start seeing partial quarter impact of the Oakwood cost savings after the conversion in the fourth quarter. Second quarter GAAP and core noninterest income was $14,400,000 and $11,100,000 respectively.

Gregory Robertson
Gregory Robertson
EVP, CFO & Treasurer at Business First Bancshares

GAAP results did include the $3,360,000 gain on the branch sale that we mentioned previously and $47,000 loss on the sale of securities. Noninterest income results for the second quarter were relatively in line with our expectations. However, I would like to mention our SBIC pass through income of a negative $246,000 during the quarter was approximately $500,000 lower than what we had expected. This particular component of fee income can be difficult to predict. However, we would expect some normalization going forward.

Gregory Robertson
Gregory Robertson
EVP, CFO & Treasurer at Business First Bancshares

Over the long run, we continue to expect an upward trend in our core noninterest income, although the trajectory may be bumpy, as we've mentioned, from quarter to quarter. Lastly, I'd like to provide some context to the credit migration during the second quarter. Q2 NPLs increased 0.28% from 0.69% in Q1 to 0.97% in Q2. The increase is driven by negative migration of three separate loan relationships representing total outstanding principal balances of 23,700,000.0 Annualized net charge offs decreased from 0.02% from 0.07% in Q1 to 0.05% in Q2. Of the three previously mentioned credits, we are 34% reserved on one credit, 14% reserved on the other, and adequately reserved on final third credit.

Gregory Robertson
Gregory Robertson
EVP, CFO & Treasurer at Business First Bancshares

We expect to find resolution on these credits during the third and fourth quarter of the year with the reserve on the one that has 34% possibly settled in next year. That concludes my prepared remarks. I'll hand the call back over to you, Jude, for anything you'd like to add before opening up for Q and A.

Jude Melville
Jude Melville
CEO at Business First Bancshares

Good. Thanks, Greg. I don't have anything to add yet. Why don't we jump into questions? Thanks.

Operator

Thank you. Our first question comes from the line of Freddie Strickland from Hovde Group. Your line is open.

Feddie Strickland
Director at Hovde Group

Hey, good morning guys. Just wanted to drill down on the excess liquidity piece related to the core conversion. Guess the first way I read that was that maybe that go away. But Greg, it sounds like in your prepared comments you're going to hang on to that excess liquidity for a little bit longer.

Gregory Robertson
Gregory Robertson
EVP, CFO & Treasurer at Business First Bancshares

Yeah. Good question. What we were using liquidity for in the core conversion is we were transferring from a correspondent bank that we've used for a while to a direct to Fed relationship. So during that process, we're clearing two different places. So we needed the additional liquidity.

Gregory Robertson
Gregory Robertson
EVP, CFO & Treasurer at Business First Bancshares

I think we'll continue to carry some of that liquidity as we go forward until we get past the core conversion with the Oakwood franchise because we're helping them manage their balance sheet in real time too. So having that additional liquidity, which we kind of had all year long, has partly been for the conversion specifically in the second quarter, but also now we're looking at Oakwood's conversion. Until we get beyond that and they're just handling everything on one balance sheet, so to speak, we feel that's the right thing to do.

Feddie Strickland
Director at Hovde Group

Got it. That's helpful. And just so I understand the credit moves this quarter, this was simply migration from substandard to nonaccrual and you mostly reserved for this, what it sounds like given some of your prepared comments?

Gregory Robertson
Gregory Robertson
EVP, CFO & Treasurer at Business First Bancshares

Yeah, the one credit was on there last quarter. I think we moved it to non accrual last quarter. We have, like we mentioned, about a 35% reserve on that credit. It's a C and I relationship where we're continuing to evaluate the collateral on that. So that's kind of moving through the process of our trying to get the resolution with that.

Gregory Robertson
Gregory Robertson
EVP, CFO & Treasurer at Business First Bancshares

The borrower has been cooperative on that one. The other two more recent moves is one of them is a commercial real estate piece, the other is owner occupied piece. The commercial real estate piece, we put up 1,000,000 point dollars reserve on it as we move through resolution for that one. And then the owner occupied piece, we're very close to resolution on that one. I think those are moving at different paces, but think we're from what the information we have right now, we think for the risk we have, we kind of reserve where we think appropriate and we'll continue to move toward resolution.

Jude Melville
Jude Melville
CEO at Business First Bancshares

And I'll just emphasize that none of those are surprises. We're just kind of working its way through the system over the course of the year and with each step you label it something different it doesn't necessarily change the underlying risk parameters. So feel good about the progress on working our way through that. As Greg said, we're benefiting from good client communication and working towards resolution together as opposed to there being any standoff. And so as bank, that's what you hope for when you have an issue, that you can work with your borrower to get to a good resolution, and don't feel like those things are happening.

Feddie Strickland
Director at Hovde Group

One follow-up on that. Mean, all else equal, given you feel like you're close to getting resolution on these, I mean, we see NPAs probably drop some in the back half of the year, all else equal?

Gregory Robertson
Gregory Robertson
EVP, CFO & Treasurer at Business First Bancshares

Well, I think if those three credits are 50% of NPLs, so I think as they start resolving or we get to resolution, I think the number will start dropping. Most immediate resolution is the smaller one. It's about 4,500,000 of the 23,700,000, and that one is imminent. And then as we work through the other two, I think you'll see those numbers drop pretty significantly, and that would be back to where we've operated over the last eight quarters, let's just say.

Feddie Strickland
Director at Hovde Group

Got it. Thanks for taking my questions.

Jude Melville
Jude Melville
CEO at Business First Bancshares

I don't know if that's a third quarter thing. Mean hopefully that direction moves correctly, it's kind of through the rest of the year forecast. These things take a while even if you're working together. All right, thanks, Betty.

Operator

Our next question comes from the line of Michael Rose from Raymond James. The line is open.

Michael Rose
Michael Rose
MD - Banking at Raymond James Financial

Hey, good morning, guys. Thanks for taking my questions. Just wanted to start on morning. I just wanted to start on the expense outlook. Looks like you were basically flattish quarter on quarter on an operating basis.

Michael Rose
Michael Rose
MD - Banking at Raymond James Financial

Obviously, you have the systems conversion with Oakwood here coming up, cost savings realization. So just trying to get a sense for that $49,600,000 this quarter, how should we think about the next quarter or two from a progression point of view? I know there's lots of moving pieces and you guys have been pretty busy behind the scenes with the FIS conversion and soon to be the OCOID conversion? Thanks.

Gregory Robertson
Gregory Robertson
EVP, CFO & Treasurer at Business First Bancshares

I think we managed good from an expense standpoint, managed to a good spot in the second quarter with a lot of activity going on. I think in the third quarter, some of our expected investments, you'll probably see that shift up into the low $50,000,000 range. And I do want to remind in the fourth quarter, we're set to close or convert the Oakwood franchise on September 27, the weekend of September 27. So that effectively the way we usually schedule those is we'll only pick up a couple of months of the impact of any kind of cost saves in the fourth quarter. So I would think for the remainder of Q3 specifically, it'd be in the low $50,000,000 range is what we expect for the run rate.

Michael Rose
Michael Rose
MD - Banking at Raymond James Financial

All right. And then it sounds like a little bit higher in the fourth quarter. All right. Appreciate it. And then maybe just going to the margin, certainly understand the excess liquidity the other impacts.

Michael Rose
Michael Rose
MD - Banking at Raymond James Financial

But is it fair that we should I know you're going to hold some of the excess liquidity. So as we're thinking about the core margin, would it have a little bit of upward trajectory from here?

Michael Rose
Michael Rose
MD - Banking at Raymond James Financial

I know there's some puts and takes just obviously with I think loan yields were Q on Q, but you did have some deposit costs come down as well. So just trying to get a kind of a starting point for the margin and how the asset sensitivity could change with the progress deals we think about next year.

Gregory Robertson
Gregory Robertson
EVP, CFO & Treasurer at Business First Bancshares

Yes, I think the way we think about margin from here on out is really for the balance of the remainder of the year. So we think we can improve margin, let's just say in four to six basis points range from here on out for the rest of the year. Now I think it's probably going to trend to maybe be flatter in Q3 and up in Q4, but the timing of that is going to be a little bit tricky based how we handle the excess liquidity and the deals on the fixed rate maturities that are coming due and the timing of which some of those price up. So we think that we'll have margin improvement for the rest of the year. The timing of that may be a little tricky as we move forward.

Michael Rose
Michael Rose
MD - Banking at Raymond James Financial

Okay, great. Maybe just one last one if I could. The loan growth was about 4%, 4.5% annualized this quarter. I know you'd previously talked about kind of low single digits. Obviously, the industry, we're seeing better pull through rates and a little bit more optimism.

Michael Rose
Michael Rose
MD - Banking at Raymond James Financial

Can you just talk about kind of the puts and takes to that prior outlook? I mean, seems like it should be at least modestly improved just given the backdrop that we're seeing. But we'd just love to hear from your perspective how we should think about growth in the near term. Thanks.

Gregory Robertson
Gregory Robertson
EVP, CFO & Treasurer at Business First Bancshares

Yeah, I think we think that the mid single digit growth for the rest of the year is we're having starting to have, as you mentioned, we're starting to have more requests. The pipeline is building. But I think from our standpoint, the tangible book value growth and the capital accretion that we've been experiencing with our financial performance, we're going to maintain some discipline as we go forward and kind of stick to that plan.

Jude Melville
Jude Melville
CEO at Business First Bancshares

I think the other thing is we've made great strides on decreasing some of our concentration risk and so we want to continue to be diversified, and that typically means trying to focus more on C and I growth, and owner occupied kind of stuff, which tend be a little harder to get and a little smaller for a bank like ours. I think the range that we've articulated previously, kind of that mid single digits, four to six, maybe we end up near the high end of that range versus the low end, but I don't think it's a fundamental C shift in where we end up growth wise, partly because it's not just about growth, as Greg said, it's about other things too, margin and tangible book value, capital appreciation, concentration risk, so we want to make sure that we're participating in the growth, but we want to do so in a way that leads to the best kind of incremental outcome for our shareholders, and we think that means balance. I would say the range is still accurate. We just think we'll be at the higher end of the range as opposed to the lower end, which is a positive thing.

Michael Rose
Michael Rose
MD - Banking at Raymond James Financial

Makes sense. Thanks for taking all my questions. I'll step back.

Jude Melville
Jude Melville
CEO at Business First Bancshares

Thank you.

Gregory Robertson
Gregory Robertson
EVP, CFO & Treasurer at Business First Bancshares

Thanks, Mark.

Operator

Thank you. Our next question comes from the line of Matt Olney from Stephens. Your line is open.

Matt Olney
Managing Director at Stephens Inc

Hey, thanks. Good morning, everybody. Want to go back to the discussion around the loan yields and you made a lot of progress there over the last several quarters, but that momentum slowed this quarter. Just looking for any more color on kind of what drove the softness in 2Q and then as you look forward, any more commentary about expectations as far as repricing some of these fixed rate loans we've talked about over the last few quarters?

Gregory Robertson
Gregory Robertson
EVP, CFO & Treasurer at Business First Bancshares

Yes. I think what we saw the balance or the average weighted rate as we stated in the $3.60 range, I think the spot rate at the June was more around $7.40. We still are pricing deals in the mid to low sevens and we think that that's obviously you'd like to get as much yield as you could. But I think competition is driving some of that and we want to be in the mix from a competitive standpoint. And so far the deals that we're seeing price are still holding up in the mid to low sevens, on most of the deals we're looking at. And there's a few that we passed on because of pricing, but we feel like at this time that's kind of where we want to be. Matt, one thing that I'd add too is this isn't readily available from the press release, but the breakdown within the loan portfolio quarter over quarter, we had deferred loan fees and our business manager factoring light product that we offer. Those fees, segment was lower to the tune of about a million quarter over quarter. And so that just all rolls up in the aggregate loan interest income. And so that's a little flavor for where some of that drag might be coming from. But by product type C and I and CRE, those individual loan item categories were still up quarter over quarter.

Matt Olney
Managing Director at Stephens Inc

Okay. Thanks for that Greg and Matt. Then on the you mentioned I think in prepared remarks, FHLB borrowings moved higher in the second quarter and remained elevated at quarter end. Will those also remain elevated in the near term similar to your commentary about just overall liquidity in the next quarter or two? Or have those already came down?

Gregory Robertson
Gregory Robertson
EVP, CFO & Treasurer at Business First Bancshares

So we use some of that with the liquidity bill that I mentioned. I think the reality is that we're going to continue to evaluate the best avenues of funding both in the near and the long term. And at that point, the thing that made the most sense was the utilization of FHLB availability. That was all on the short end. I'll provide a little context to funding.

Gregory Robertson
Gregory Robertson
EVP, CFO & Treasurer at Business First Bancshares

We talked about it on these calls or in meetings since the announcement of the Oakwood acquisition that we were going to manage their balance sheet kind of in a systematic fashion of looking at higher price funding and moving that using our balance sheet or using other sources of funding to reposition that. And over since twelvethirty one of this year, we've been able to manage down or move away about $140,000,000 of deposits that had a weighted average of about 5% or a little higher than that. So we're using different funding sources to systematically kind of manage through that and I would expect us to continue to do that for the back half of the year as well. So to answer your question directly, it could move up and down. I think from a quarter over quarter in a point in time, may not move at all from an optic standpoint, but that doesn't mean we're not moving it up and down intra quarter to take advantage of some pricing opportunities.

Matt Olney
Managing Director at Stephens Inc

Okay, that's great context, Greg. Thanks for that. And then my last question, just going back to the core conversion you guys did recently at the bank. Just any early feedback on that newer platform and just remind us how much of that switch is more of a near term cost savings for the bank versus just a longer term savings, efficiency around future growth? Thanks.

Jude Melville
Jude Melville
CEO at Business First Bancshares

Yeah, I think it's probably a little too early to have much of a judgment in terms of people's feelings about the new system. I think it just takes a little while to get used to it, and we had a very successful execution in terms of getting it done the weekend of, and there was a lot of preparation for that obviously, and now we're in the let's get used to it phase, which clearly change management takes a little while, so it's too early to offer any big picture summation on experience, but I think all the reasons that we chose to move to that system still hold true, and I think we'll end up being very excited about it. One of the reasons that we moved was that we feel like it better prepared us to take advantage of efficient growth in the future and still have every reason to think that's true. We don't know that we'll see a lot of savings immediately, partly because it's allowing us to make some other investments in technology. You know that we've talked quite a bit about preparing to be $10,000,000,000 and making sure that we have the right systems to be able to report and to manage, so the aggregate package is going to end up being similar in cost to costs we already have, but our capability not only on the core but on other technological systems should be increased.

Jude Melville
Jude Melville
CEO at Business First Bancshares

That of course is our decisions that will be out over the next couple of years. I do think that one of the advantages to the system is that not only should it make organic growth more efficient, but it also allows us to contemplate M and A activity with a little more aggression, which not that we haven't had aggression before given our track record, but the confidence that we can get on a calendar to be able to convert new partners is important, also the fact that we can, with assurance, offer them a good core partnership, as bankers think about partnering with other bankers, they think about their systems, and the system I think will give more confidence than the one we had before. So a lot of reasons to embark upon it, even absent a day one financial gain. We do think that over time there will be a lot of financial benefits to being on the system. Again, it will take a few months of change management to get used to it, and that's not a bad thing, that's just part of it, and I look forward to in 2026 cycling through, and I think all of our employees and our clients will be appreciative of the change at that point.

Matt Olney
Managing Director at Stephens Inc

Okay, thank you, Jude. Thanks for all the commentary. I'll step back.

Jude Melville
Jude Melville
CEO at Business First Bancshares

Sure, thank you.

Operator

Thank you. Our next question comes from the line of Christopher Marinac from Janney Montgomery Scott. Your line is open.

Christopher Marinac
Director - Research at Janney Montgomery Scott

Hey, thanks. Good morning. I wanted to drill down on Smith's, Seanup, and just get a sense from you to kind of like where do you think you are in the evolution of the business? I know it's made a lot of progress. It's got 11,000,000,000 of AUM.

Christopher Marinac
Director - Research at Janney Montgomery Scott

Just curious kind of where you think they are in terms of how much more that can go in the next twelve twenty four months.

Jude Melville
Jude Melville
CEO at Business First Bancshares

Yeah, good, thanks Chris, appreciate that. And you know that is a part of our business, it doesn't get quite as much attention, probably because it hasn't been around as long, but it's part that we're very excited about, not just Smith Sheldon Wilson taking in isolation, very excited about the correspondent banking function in general, and that's one of a handful of products that we're offering to our client base, which is probably 120 banks are doing business with us in some form or fashion today. I think when we bought SSW and began that process, they had about 40 banks, maybe 45, so we've been able to grow those relationships, and I don't see any reason that we won't be able to continue to grow that. I will say that I think growth can mean different things, and doesn't just mean AUM, although we have been happy and over doubled the AUM, SSW has over doubled their AUM since joining up with us, and we expect that we'll be able to continue to grow that number, but we're also focused on things that aren't AUM related, such as providing swaps for our client banks, which is beginning to generate some fee income and SBA work, which again doesn't increase your AUM, but it does increase your fee income.

Jude Melville
Jude Melville
CEO at Business First Bancshares

We believe we'll continue to have opportunities to grow that part of the business. We've made some significant changes in personnel, so for the first time this year we have a senior executive whose full time job is to coordinate the multiple parts of our correspondent banking network, and I think we're feeling really good about the progress that he's making. Part of it is we've had a number of products that have run independently, but they haven't really coordinated a lot in terms of their sales efforts, and so we're in the process of making sure that we have a unified sales effort. All that to say, I think as Greg says every quarter, and as I say when I talk about it, I think it's going to continue to be a little rocky in terms of the magnitude each quarter, but if you look at it over time, I think we expect to continue to grow that income in the next twelve, twenty four months. I'll be surprised if we don't double its impact by end of that time period.

Jude Melville
Jude Melville
CEO at Business First Bancshares

We think there's a lot of potential there, and a lot of momentum building internally that doesn't quite show up in the numbers, particularly a little bit mess this time, you just think about our fee income in general, because of that SBIC drag, but the actual underlying growth in fee income relative to the correspondent banking function is moving in the right direction, and we feel excited about it.

Christopher Marinac
Director - Research at Janney Montgomery Scott

Great, thank you for all that background. I appreciate it. And then just a quick capital question as it relates to kind of progressive and kind of the data you shared a few days ago. So as we think about that, 10%, 10.2% excluding Marks after Progressive, is there a North Star on capital ratios that you look for as you think about organic growth plus any other external opportunities that come down the road?

Gregory Robertson
Gregory Robertson
EVP, CFO & Treasurer at Business First Bancshares

We think that by the end of this year, before we close the acquisition, TCE will be close to $8.50, total risk based close to thirteen thirty, thirteen forty range. We think in those two ratios, kind of the north star for us would be on a risk based scenario somewhere in the 13.75 area. We think approaching 14 would probably give us enough capital to be opportunistic and ready to deploy the capital the right way if the opportunity presents itself. I think on the TCE front, that's in the low nine range, somewhere in that ballpark. It's probably what we talk about being our normal over time, or what we aspire to be.

Jude Melville
Jude Melville
CEO at Business First Bancshares

I would say I certainly think that's the direction we want to move in over time, but we've also been operating at a level lower than that and still being able to take advantage of opportunities So we certainly think there is an optimal level, but we also think there is a practical level and you kind of have to balance those two, and so we don't feel like we have to put things on hold necessarily to get to nine as long as we're doing the right things to increase incremental levels of income at the right pace, which over time ultimately generate a higher capital ratio and tangible book value ratio. Nine, I like that number for kind of an aspirational goal, Greg said, but I also don't think that we need to not take advantage of opportunities along the way, as we've done a good job of over the past two, three years when those levels have been considerably lower. Really pleased with the movement, though, and that's probably some of these investments paying off.

Christopher Marinac
Director - Research at Janney Montgomery Scott

Great, Jude, thank you so much. Thank you, Greg as well. I appreciate it.

Jude Melville
Jude Melville
CEO at Business First Bancshares

Thanks, Chris.

Operator

Thank you. Our next question comes from the line of Manuel Navas from D. A. Davidson. Your line is open.

Manuel Navas
MD & Senior Research Analyst at D.A. Davidson

Hey, good morning. A lot of my questions have been asked and answered, but I just wanted to get a little more specific on the loan growth. Is that mid single digit guide just the back half of the year or is that 46% for the whole year? Talk about it seems like your demand is higher, but can you just talk about sentiment on the borrower base as well?

Gregory Robertson
Gregory Robertson
EVP, CFO & Treasurer at Business First Bancshares

Yes. Well, I think I'll answer your first question. So we think that for the whole year, it's probably going to be in the low four, four point five range just based on the production in the first quarter. Slow start of the year dragging us down. We think going forward from here, like you had mentioned, it could be in the 4% to 6%, looks like maybe trending toward the higher part of that range.

Jude Melville
Jude Melville
CEO at Business First Bancshares

On a run rate per And annualized per quarter.

Manuel Navas
MD & Senior Research Analyst at D.A. Davidson

That's really helpful. That your appetite? Or are you sensing an improved sentiment? Can you talk about that for a moment as well?

Jude Melville
Jude Melville
CEO at Business First Bancshares

I think it's a little bit of both. We're in a little different position than we were a year ago in terms of our capital levels and kind of what we were talking about earlier, we want to continue to increase those levels, but we also feel like there's room to take advantage of opportunities, so we want to be sure that we're selective when we do it, but we want to be sure we take advantage of opportunities, particularly the downward transition that we made in our construction concentration levels over the past couple of years have really impacted our loan growth over time, but then also they've put us in a better spot now, we can do some more construction, again being selective and not getting back in a position where we feel like we have too much exposure, but we can incrementally add, pick and choose where we add some exposure there, which we might not have felt as much flexibility to do so a year ago. So a little bit our own. Do think that, anecdotally, you're definitely feeling like there's a little more activity out there in general. I think the year has been somewhat muted by just uncertainty around what's going to happen with terrorists, what's going to happen with the big beautiful bill, things of that nature.

Jude Melville
Jude Melville
CEO at Business First Bancshares

But I think we're starting to either get some clarity on that, or people are just starting to say hey, we've got to keep moving on with our lives and taking care of business, much as they have done over the past five, six years despite numerous uncertainties, and at some point it is, particularly the small businesses that we deal with, they just have to keep on keeping on, so I think you're seeing a little bit of that, a little resolution of whatever the external circumstances are, we're going to continue to do our thing internally, and I think you're feeling bit of positive momentum across our markets as we round up the year and move into 2026. Does anybody at the table have any different opinion or does the elect to agree with that? I think you're also starting to see other banks be a little more aggressive, and that's one reason for the more competition on the loan yield side, is that they're feeling that needs an opportunity to get out there and do some things, and we've tried to be fairly consistent in how we operated the past couple of years, and not get too hot, not get too light, just kind of down the middle of the road.

Jude Melville
Jude Melville
CEO at Business First Bancshares

I think there's some other banks that maybe shut down a little more, but then are now starting back up, and they're obviously seeing some of that same positive sentiment that we're seeing, and it's exciting, we're here to do business, so excited about the industry being in that same mindset.

Manuel Navas
MD & Senior Research Analyst at D.A. Davidson

I appreciate that commentary, I just wanted to switch to fees for a moment. Definitely heard the confidence in the Smithson Wilson team. The swing factor this quarter was that a pass through loss. What other lines do you have like kind of more near term confidence that can kind of just build across the back half of the year? Getting more looking at the fee income line specifically?

Jude Melville
Jude Melville
CEO at Business First Bancshares

Yeah, our two ones that have really taken hold lately have been, or beginning to take hold are the SBA loan service providing, We do that through Waterstone out of Houston, I think we're definitely seeing, they've I believe added four bank clients over the past quarter, in addition to seeing our internal participation in SBA origination growing, again, not a huge needle mover yet, but I think moving in the right direction to be so in the future. So I'm excited about that, and regardless of the political lens, I think if you were to try to list governmental programs that have the most bipartisan support, I think SBA has to be up there near the top of the list, so feel like that opportunity will only grow over time, we're excited about that. We're also seeing quite a bit of momentum in the derivatives business that we have, serving our clients and other bank clients by offering interest rate swaps as a way to tailor the pricing on their loans. We're starting to see more and more wins come through the celebration channel, I don't know what the right word is for it, but as we talk about what we're doing, I'm seeing a greater pace of swap victories.

Jude Melville
Jude Melville
CEO at Business First Bancshares

I think that says our bankers become more comfortable with it, they can help our clients be more comfortable with it, and make sure that we're offering it when it makes sense. But we've only just now begun offering that to other banks. What we like to do is for a lot of these fee income sources of income, the goal really is to provide it to our own clients, make sure that we're comfortable doing so, and then offer it to other bank clients. Each of our partnerships we've begun, whether that be SSW or WR Stone, or now the derivatives business, we've begun by partnering with folks that could serve our own clients, and then we branch out and try to offer that to our community bank clients. So we've only just begun doing that with the derivatives business, and so we look forward to some opportunities, particularly again in '26, '27, picking up there.

Jude Melville
Jude Melville
CEO at Business First Bancshares

The pace at which I'm hearing of victories is increasing and gives us confidence that those will be a couple of areas that we can count on being additive to earnings over the next couple of years. Craig, do want

Gregory Robertson
Gregory Robertson
EVP, CFO & Treasurer at Business First Bancshares

to mention anything else? No, I think you touched on Waterstone in the beginning. From our February 1 acquisition last year, we've increased the number of banks that they do business with, and that because they work on prequalification underwriting, packaging, post closing servicing, all the way to if you have a problem loan, they help the dialogue with the SBA. That is a valuable tool for these banks that they're doing business with, and that is approaching doubling since we've taken over. So I think that we're excited about that with a very robust pipeline for the '5 for them. Very comfortable with that and excited about it.

Jude Melville
Jude Melville
CEO at Business First Bancshares

I think over time we'll look to add some of these product capabilities. You know there are correspondent banks that do a really good job for these banks, but there aren't a lot of correspondent banks that offer some of these slightly more complicated, sophisticated products, we believe that's a role that we can serve. So we'll continue, particularly at some of the governmental lending stuff is our areas that we want to look for further opportunity in.

Manuel Navas
MD & Senior Research Analyst at D.A. Davidson

I appreciate the commentary. Thank you.

Jude Melville
Jude Melville
CEO at Business First Bancshares

Thank you.

Gregory Robertson
Gregory Robertson
EVP, CFO & Treasurer at Business First Bancshares

Thanks, Manuel.

Operator

Thank you. There are no further questions. I'll now turn the call back over to Jude for closing remarks.

Jude Melville
Jude Melville
CEO at Business First Bancshares

Okay, good. Well, again, appreciate everybody joining us today. Seemed like a pretty positive earnings season for us as a bank and then for the community banking industry as a whole. So I'm excited to see that positivity and hope to continue building on it. Know, is a lot about just consistent incremental improvement, grinding it out quarter to quarter and then being prepared for opportunity.

Jude Melville
Jude Melville
CEO at Business First Bancshares

And I think we've done a good job of that, particularly over the past couple of years, incremental improvement, and then when an opportunity for an Oakwood partnership or a progressive partnership comes up, we're prepared to take it on from a capital standpoint and from an institutional knowledge standpoint and now from a technological standpoint. And we'll continue to make those investments and be focused on the little things which add up to big things over time. So appreciate your support and hopefully we'll talk to you all again in about three months. Take care.

Operator

The meeting has now concluded. Thank you all for joining. You may now disconnect.

Executives
    • Matthew Sealy
      Matthew Sealy
      SVP & Director - Corporate Strategy & FP&A
    • Jude Melville
      Jude Melville
      CEO
    • Gregory Robertson
      Gregory Robertson
      EVP, CFO & Treasurer
Analysts
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