BFST — Q2 2026 Financial Report Analysis

Bigger bank, same earnings per share: Business First's Q2 2026

Business First Bancshares, the Baton Rouge parent of b1BANK, earned $24.2 million in the second quarter of 2026, up 9.4% from a year earlier, mostly because it absorbed Progressive Bancorp (about $774 million of assets) on January 1. But it issued 3.19 million new shares to pay for that deal, so diluted earnings per share stayed at $0.70, exactly where they were in Q2 2025. The core lending business did get better: net interest income (what the bank earns on loans and securities minus what it pays depositors and lenders) rose 16.1%, and the net interest margin widened to 3.73%.

At a glance

• $0.70 diluted EPS, flat year on year. Net income grew, but the average diluted share count grew 10.7% (32.76 million vs 29.59 million), so each shareholder's slice didn't get any bigger.
• 3.73% net interest margin, up from 3.68%. The margin is net interest income as a share of the bank's interest-earning assets. Loan yields fell 33 basis points (a basis point is 0.01 percentage point), but the overall cost of funds fell 34 basis points, so the gap held and slightly widened.
• 1.26% of loans nonperforming, up from 0.97% a year ago. Problem loans improved from 1.53% in Q1, but they are still well above last year, and foreclosed property on the books rose to $25.1 million from $1.5 million.

The numbers

The efficiency ratio is operating expenses as a share of revenue, so lower is better: 64.83% means about 65 cents of every revenue dollar went to running the bank. The CET1 ratio is the regulator's core measure of loss-absorbing capital against risk-weighted assets; the 10-Q compares it with year-end rather than with a year earlier. Business First does not report a return on tangible common equity, so none is shown here.

Where the growth came from

Mostly the acquisition. Management says the gains in net interest income and earnings for the first half were "largely attributable to the acquisition of Progressive." Progressive brought $597 million of loans and $685 million of deposits, which accounts for most of the year-on-year rise in period-end loans (+$612 million) and deposits (+$816 million).

Funding got cheaper. Interest income rose $10.8 million while total interest expense was flat at $47.8 million, even though the bank was much larger. Interest paid on deposits fell slightly to $41.3 million from $41.5 million. So the margin gain came from paying less for money, not from charging borrowers more: the average loan yield fell to 6.63% from 6.96%.

Costs grew faster than revenue. Other expenses rose 16.2% against 12.7% revenue growth. Salaries and benefits rose to $33.1 million from $28.3 million, and occupancy to $8.3 million from $7.2 million, as the bank added Progressive's staff and branches. Merger costs were small this quarter ($0.3 million on the income statement). That is why the efficiency ratio worsened by two points even though the margin widened. The release attributes the expense rise over Q1 to higher advertising, legal and professional fees and regulatory assessments.

The quarter itself was a holding pattern for the balance sheet. Loans fell $24.8 million from March: about $96 million of new organic lending was offset by selling $88.3 million of low-yielding acquired Progressive loans (part of a $100.3 million sale of mortgages at about 3.0% and commercial real estate loans at about 3.5%) and by $21.0 million coming off one nonperforming loan. Deposits fell $229.4 million from March, including $71.8 million of commercial money-market balances and $62.6 million of brokered deposits (funds placed through brokers, which usually cost more than local customer deposits). Short-term Federal Home Loan Bank advances (borrowing from a government-sponsored lender to banks) filled most of the gap, and borrowings rose $206.3 million.

What the headline numbers hide

• Last year's EPS included a one-off gain. Q2 2025 included a $3.4 million gain from selling the Kaplan banking center, worth $0.09 per share after tax. Remove that and other items management excludes, and core EPS rose to $0.71 from $0.66 (+7.6%) while core net income to common rose 19.5% ($23.3 million vs $19.5 million). This quarter's GAAP figure also includes $1.2 million of acquisition-related costs and a $0.5 million gain on redeeming old subordinated debt, which roughly offset each other per share ($0.02 and $0.01). On this view the underlying business improved and the flat GAAP EPS mostly reflects last year's one-off gain.
• The flat other income reflects the same one-off. Noninterest income fell 3.1%, which the 10-Q puts down mainly to the absence of the Kaplan gain and $423,000 less swap-fee income. Service charges on deposit accounts (+21%) and gains on loan sales (about double, $1.6 million vs $0.8 million) both grew.
• Credit is better than in Q1 but worse than a year ago. Nonperforming loans were $84.1 million against $58.8 million at June 30, 2025, and foreclosed real estate ("other real estate owned") was $25.1 million against $1.5 million. Management says the improvement since March came from resolving "previously identified commercial real estate and commercial business relationships." Actual losses are still small: net charge-offs were 0.04% of average loans in the quarter (about 0.16% at an annual rate) and 0.06% for the half year. The allowance covers 84.7% of nonaccrual loans.
• Some margin comes from acquisition accounting. Excluding $1.0 million of loan-discount accretion (accounting income from acquired loans that were bought below face value), the non-GAAP margin was 3.68%, not 3.73%. That boost shrinks as those loans pay down or are sold, and the remaining purchase discount fell to $7.3 million from $15.8 million in March.
• Cash conversion is fine. Operating cash flow for the first half was $53.8 million against net income of $47.7 million.
• Buybacks are too small to drive EPS. The bank bought back 176,849 shares for $4.8 million in Q2, at an average of $27.22, below the $28.79 book value per share. It has bought back $7.6 million year to date, which barely offsets the 3.19 million shares issued for Progressive.
• Uninsured deposits are rising. Uninsured deposits rose to 46.9% of the total from 43.2% at year-end. Money above the FDIC limit is more likely to leave quickly in a scare, so this is worth watching alongside the drop in deposits during the quarter.

Did last time's read hold up?

This is our first published analysis of Business First, so there is no earlier outlook to check.

Takeaway: The Progressive deal made Business First about 14% bigger by average assets but has not yet raised earnings per share: GAAP EPS is flat at $0.70 and return on equity fell to 9.8% from 10.9%. The case for the deal now depends on the second half, with merger costs ending, the core systems integrated and the margin holding above 3.7%, and on a nonperforming-loan ratio still 30% above last year's level not turning into real losses.

What to watch next

Management gave no numerical guidance. CEO Jude Melville said the quarter is "laying the foundation we expected for a strong second half of the year," pointing to the full integration of Progressive expected in August, Meta's announced additional $40 billion investment in Northeast Louisiana, and a growing Houston-area loan pipeline. The bank also bought American Planning Corporation, a financial consulting firm, on June 29 for $6.8 million to expand its advisory arm (Smith Shellnut Wilson). It refinanced its capital stack in April with an $85.0 million 6.50% subordinated note issue, which lifted total risk-based capital to 13.77%.

In the Q3 report, look for:

• Expenses with merger costs gone. If the efficiency ratio doesn't come back below about 63% once Progressive's systems are fully integrated, the savings from combining the two banks aren't showing up yet.
• Margin excluding accretion. The non-GAAP 3.68% margin is the more durable figure. Selling about $100 million of 3.0–3.5% loans should help it, but replacing lost deposits with FHLB advances costs more.
• Deposit trend. Another quarter of falling interest-bearing deposits would make it hard to fund the loan growth management is pointing to without more borrowing.
• Foreclosed property. The $25.1 million of other real estate owned needs to be sold without large write-downs. That is where the year-on-year rise in problem assets would hit earnings.