Business First Widens Margin as Deposit Costs Ease
Net interest margin expanded 8 bps from the first quarter to 3.73% as deposit pricing eased.
Business First Bancshares (BFST), the Louisiana-based regional bank, expanded its net interest margin 8 bps from the prior quarter to 3.73% as lower deposit costs supported its core spread. Net interest income rose 3.5% QoQ and 16.1% YoY to $77.8 million. The average rate on interest-bearing deposits fell 7 bps QoQ to 2.88%, helping offset loan yields that remained 33 bps below the year-earlier level.
The margin improvement reflected a 7-bp increase in the yield on interest-earning assets to 6.02%, including a 2-bp rise in loan yield, while the overall cost of funds declined 1 bp to 2.44%. Average loans increased 0.9% QoQ and 12.7% YoY to $6.76 billion.
Period-end loans declined 0.37% QoQ after the bank sold $88.3 million of acquired loans and completed a $21.0 million problem-loan resolution. Those moves offset $96.4 million of organic production and marked a reversal from the 2.80% linked-quarter growth recorded in the fourth quarter. Commercial balances rose by $45.3 million, while residential mortgages fell by $62.2 million as the bank shed lower-yielding acquired commercial-real-estate and residential credits.
Funding shifted toward wholesale sources as period-end deposits fell 3.07% QoQ to $7.24 billion, reversing the fourth quarter's 2.95% increase. Interest-bearing deposits declined by $237.9 million, while noninterest-bearing balances increased by $8.5 million. Total borrowings rose 53.66%, primarily through short-term Federal Home Loan Bank advances.
Capital measures strengthened alongside a larger buyback. The total risk-based capital ratio increased 69 bps QoQ to 13.77%, and tangible common equity to tangible assets rose 14 bps to 8.79%. Business First repurchased 176,849 shares for $4.8 million, up from $2.7 million in the first quarter, while keeping its dividend at $0.15 a share.
Credit costs eased modestly, with the provision for credit losses declining to $2.0 million from $2.3 million in the prior quarter. Nonperforming loans fell 27 bps QoQ to 1.26% of loans, though that ratio remained above 0.97% a year earlier. Net charge-offs increased to 4 bps of average loans from 1 bp, as quarterly charge-offs rose to $3.2 million.
Fee income slipped 0.6% QoQ to $14.0 million as swap fees declined, while deposit service charges, card fees and brokerage commissions each increased from both the prior quarter and a year earlier. Noninterest expense rose 3.57% QoQ to $59.5 million, pushing the efficiency ratio 38 bps higher to 64.83%.
The quarter left Business First with wider spreads and continued organic loan production, alongside a smaller deposit base and greater reliance on wholesale funding. The pace and pricing of future balance-sheet growth will determine whether the margin benefit from easing deposit costs can outlast the repositioning.