Business First Bancshares, Inc. (BFST) Q3 2026 earnings review
Business First profitability rebounds, but its problem loans stay elevated
Business First, the Louisiana and Texas parent of b1BANK, rebuilt its profitability this quarter while its problem-loan cleanup stalled. Return on average assets excluding one-offs climbed to 1.17% as lending spreads widened 0.12 percentage points and operating costs fell. Chief executive Jude Melville also completed the Progressive Bank systems conversion in August and grew loans and deposits above 7% annualized.
| Return on average assets, excluding one-offs | 1.17% 1.05% last quarter (Q4 target: 1.25%) |
|---|---|
| Profit per share, excluding one-offs | $0.79 +11% from last quarter (+10% from a year ago) |
| Net interest margin, excluding loan discount accretion | 3.80% +0.12 percentage points from last quarter |
| Nonperforming loans | $84.1M -0.1% from last quarter (plan: 10–20% drop) |
⚖️ Verdict: 🟢 Bullish
The story got better because the rebound in lending spreads and lower operating costs put the 1.25% fourth-quarter return target back within reach after two quarters of decline. Strong commercial deposit inflows also let the bank pay down $174 million of wholesale borrowings and brokered deposits. The bad news: problem loans stayed at $84 million against a plan for a 10% to 20% drop, and writing off a reserved commercial loan trimmed the loss allowance to 0.95% of loans.
The question now is whether credit cleanup and Progressive cost savings can carry the bank across its year-end finish line. One view is that the August systems conversion and Houston loan pipeline will lift fourth-quarter returns to 1.25%; the other is that stubborn commercial nonaccruals and foreclosed property costs will eat into those gains. Fourth-quarter operating expenses and nonperforming loan balances will settle it.
🐂 Bull Case
Lending Spreads and Cost Cuts Lifted Returns
"We grew loans and deposits at a balanced pace appropriate to our level of capital strength, and we did so while expanding our net interest margin by 12 basis points and keeping non-interest expenses in check," chief executive Jude Melville said. Business First, the parent of b1BANK in Louisiana and Texas, aims for a 1.25% annualized return on average assets (ROAA, profit as a percentage of bank assets) by the fourth quarter.
After sliding for two quarters to 1.05%, ROAA excluding one-offs rebounded to 1.17% in the third quarter. Two shifts drove the 0.12-point jump: net interest margin (NIM, the spread between loan yields and funding costs) excluding loan discount accretion rose 0.12 percentage points to 3.80%, and operating expenses excluding one-offs fell $1.4 million to $56.9 million. In August, the company also finished moving acquired Progressive Bank onto its computer systems.
- Loan yields: 6.74%, up 0.11 percentage points from last quarter after the second-quarter sale of low-rate loans
- Overall cost of funds: 2.40%, down 0.04 percentage points as the bank paid down borrowings
- Salaries and employee benefits: 35.0% of revenue, down 1.1 percentage points from last quarter by our math
- Occupancy and equipment: 10.8% of revenue, up 1.8 percentage points on "a lease termination fee associated with better alignment of legacy b1BANK and Progressive corporate facilities"
The rebound matters because it puts the year-end profitability goal back within reach. By our math, hitting 1.25% ROAA in the fourth quarter now requires about $27.6 million of profit excluding one-offs, up 6% from this quarter's $26.0 million, and the August systems conversion sets up the remaining Progressive cost savings.
What to watch: fourth-quarter operating expenses excluding one-offs against the $57 million target set last quarter. Hitting that number would provide most of the remaining lift needed to reach the 1.25% return goal.
Houston Lending Drove Loan Growth Inside the Target
Loan growth had fallen short of the company's own plans in three of the previous four tests because customer loan payoffs kept offsetting new lending. For the second half of 2026, management targeted 7% to 9% annualized growth in loans held for investment (HFI, loans the bank keeps on its balance sheet).
In the third quarter, loans held for investment grew $121.4 million, or 7.2% annualized, landing inside the target range. Growth was "led by our Houston, Texas and Southwest Louisiana markets", with gross loan production in Houston reaching $157.8 million. Compared with a year ago, reported loans rose 12.6%, or 4.7% by our math from businesses owned a year ago after stripping out the Progressive acquisition and the second-quarter loan sale.
- Houston loans: $535.9 million, up 32.5% from last quarter by our math
- Southwest Louisiana loans: $1,526.0 million, up 1.6% from last quarter
- North Louisiana loans: $1,646.6 million, up 1.0% from last quarter
- Dallas-Fort Worth loans: $1,813.9 million, down 0.7% from last quarter
One quarter inside the target softens the concern over loan payoffs, but it does not settle it. Construction loans (+$80.7 million) and commercial real estate (+$72.7 million) carried the quarter, while residential mortgages shrank $30.6 million and Dallas-Fort Worth, the bank's largest market, edged down.
What to watch: fourth-quarter loan growth against the 7% to 9% annualized plan, along with loan payoff volumes on the conference call. A second straight quarter inside the range would show the Houston and Louisiana pipelines can outrun payoffs.
Customer Deposits Replaced High-Cost Wholesale Debt
In the second quarter, interest-bearing deposits had dropped $237.9 million and the bank had added $181.7 million in short-term advances from the Federal Home Loan Bank (FHLB) to fund upcoming loans. That shift raised questions about reliance on wholesale borrowing.
The third quarter reversed that move. Total deposits rose $141.2 million, or 7.7% annualized, as commercial money market accounts grew $180.1 million and noninterest-bearing accounts (checking accounts that pay no interest) added $22.1 million. Management used those inflows to cut brokered deposits by $65.9 million and pay down FHLB borrowings by $107.8 million, or 24.5% by our math, pushing the loan-to-deposit ratio down to 91.92%.
What to watch: certificate of deposit retention in the fourth quarter, when $144 million of core CDs mature, followed by $174 million in the first quarter. Keeping retention near this quarter's 77% rate without raising rates would protect the 2.40% funding cost.
🐻 Bear Case
Problem Loans Stalled and Charge-offs Doubled
Last quarter, management laid out a plan to cut nonperforming loans (NPLs, loans past due 90 days or no longer accruing interest) by 10% to 20% in the third quarter and reach about $50 million by year-end, while trimming foreclosed properties (other real estate owned, or OREO) by 10% to 15%. In the release, Business First highlighted that the ratio of nonperforming loans to total loans dipped 0.02 percentage points to 1.24%.
The dollar balances tell a tougher story and cut against the improvement framing. Nonperforming loans barely budged, slipping 0.1% by our math from $84.14 million to $84.06 million, because loangrowth rather than problem-loan cleanup drove the ratio down. Foreclosed real estate fell just 1.4% to $24.8 million, and net charge-offs (loans written off as uncollectible) doubled to 0.08% of average loans for the quarter, or 0.32% annualized by our math, "mainly attributable to one previously fully reserved commercial relationship".
- Nonperforming loans: $84.1 million, vs $67–76 million implied by last quarter's 10–20% reduction plan
- Commercial loan NPL ratio: 2.02% of the $1.94 billion commercial book, the highest of any loan category
- Quarterly gross charge-offs: $5.8 million, up from $3.2 million last quarter
- Allowance for credit losses: 0.95% of total loans, down from 1.02% last quarter as the reserved loan was written off
This matters because writing off a previously reserved loan drained the loss reserve by $2.9 million without shrinking the nonperforming loan pile, meaning new problem loans replaced what exited. By our math, hitting the $50 million year-end target now requires a 41% drop in the fourth quarter.
What to watch: fourth-quarter nonperforming loan balances and the commercial nonaccrual breakdown in the quarterly filing. A failure to push nonperforming loans toward $50 million would keep credit costs and foreclosed property expenses elevated into 2027.
Buybacks Above the Valuation Ceiling Trimmed Capital
Since resuming stock buybacks in late 2025, management had described its program as opportunistic under a rule of buying below roughly 1.2 times tangible book value per share (TBVPS, net asset value per share excluding goodwill and intangibles). Management also set year-end capital goals of roughly 10.6% for Common Equity Tier 1 (CET1, core bank capital against risk-weighted assets), 13.97% for total risk-based capital, and 9.0% for tangible common equity to tangible assets (TCE/TA).
In the third quarter, Business First accelerated repurchases to 204,160 shares for $6.3 million at an average price of $30.81 per share — 1.30 times this quarter's $23.71 tangible book value by our math. Together with $121.4 million of loan growth and $24.2 million in pre-tax bond value markdowns, the buybacks pulled all three capital ratios down from the second quarter: CET1 slipped 0.09 percentage points to 10.29%, total risk-based capital fell 0.22 points to 13.55%, and TCE/TA eased 0.07 points to 8.72%.
What to watch: fourth-quarter share repurchases and the year-end CET1 ratio. Reaching the 10.6% CET1 and 9.0% TCE/TA targets in one quarter would require pausing buybacks and seeing bond values recover.
Risks this quarter didn't answer
Four standing concerns from prior quarters cannot be read from the earnings release and slide deck because the detailed tables live in the quarterly Form 10-Q filing or on the conference call.
- Commercial (C&I) substandard and watchlist loans: the slides show commercial nonperforming loans at 2.02% of the book, but the substandard grade migration ($72.6 million in Q2) awaits the 10-Q.
- Unfunded loan commitments: the forward lending pipeline stood at $2.02 billion in Q2; only $480 million for the top five categories is shown on slide 22, so the full total awaits the 10-Q footnotes.
- Uninsured deposit share: stood at 46.9% of total deposits ($3.4 billion) in Q2 and is disclosed in the 10-Q deposit footnote.
- Interest-rate cut sensitivity: 53.4% of loans are floating-rate, but the updated 12-month net interest income impact from a 1.00-point rate cut (-3.7% in Q2) awaits the 10-Q.
💲 Other KPIs
Noninterest income fell 10.4% from last quarter, up 7.2% from a year ago. The $1.5 million sequential drop came from a $0.8 million decline in gains on loan sales and the absence of last quarter's $0.5 million debt-redemption gain. Excluding one-offs, fee income fell 6.7% from last quarter to $12.5 million, though interest-rate swap fees rebounded from $0.4 million to $0.6 million.
Tangible book value per share — net worth per share after stripping out $163.7 million of goodwill and intangibles — rose 0.4% from last quarter and 4.8% from a year ago. Retained earnings lifted the figure despite $24.2 million in pre-tax bond portfolio markdowns that widened accumulated other comprehensive loss by 53.3% to $54.9 million. Excluding bond marks, it rose 2.8% sequentially to $25.41.
Average diluted shares edged down 0.1% from last quarter on buybacks, while sitting 10.4% higher than a year ago by our math because the bank issued stock on January 1, 2026 to buy Progressive Bank. That 3.1-million-share increase explains why profit per share excluding one-offs rose 9.7% from a year ago while total profit excluding one-offs jumped 22.6%.
🔮 Guidance
Unchanged. Internal modeling still points to a 45% to 55% deposit beta — the share of any central-bank interest-rate change passed on to depositors — "in a slightly up or down rate environment". Because 53.4% of the loan book carries a floating rate and another 14.6% reprices within 12 months, funding costs must move nearly half as fast as market rates to protect lending spreads.
Raised. The balance of core certificates of deposit (excluding brokered accounts and Progressive Bank) scheduled to mature in the fourth quarter is now $144 million, up from $127 million indicated last quarter, with another $174 million maturing in the first quarter of 2027. That is down from $245 million scheduled for the third quarter, when the bank retained 77% of maturing accounts.
Unchanged. The board declared a quarterly common dividend of $0.15 per share (up from $0.14 a year ago) and a preferred dividend of $18.75 per share (a 7.50% annual rate), payable November 30, 2026. The common payout uses about 19% of third-quarter profit per share excluding one-offs.
❓ Key Questions
Why did nonperforming loans stay at $84 million?
Management targeted a 10% to 20% reduction in nonperforming loans for the third quarter, yet the balance stayed at $84.1 million even as gross charge-offs rose to $5.8 million. How much of the old problem book was resolved, and what new loans entered nonaccrual?
Is the $50 million year-end NPL target still intact?
Reaching $50 million of nonperforming loans by December 31 now requires a 41% reduction in a single quarter by our math, alongside $24.8 million still sitting in foreclosed real estate. Does management still expect to hit $50 million this year?
Why buy back shares at 1.30 times tangible book?
The bank repurchased 204,160 shares at $30.81 — 1.30 times tangible book value by our math, above its stated 1.2 times ceiling — while CET1 and TCE/TA slipped away from year-end targets. Has the price limit or capital target changed?
What were third-quarter loan payoffs and unfunded commitments?
Loans grew 7.2% annualized as Houston produced $157.8 million, while Dallas-Fort Worth shrank slightly. Where did total loan payoffs and the $2.02 billion unfunded commitment pipeline finish the quarter?