Business context and reporting period
Business First Bancshares, Inc. (NASDAQ: BFST) filed this unaudited Form 10-Q for the quarter ended March 31, 2022. The company operates b1BANK, a community bank serving Louisiana and Texas, including the Dallas/Fort Worth and Houston markets.
On March 1, 2022, the company completed its acquisition of Texas Citizens Bancorp, Inc. (TCBI), issuing approximately 2.07 million shares. TCBI had reported $534.2 million of assets, $349.5 million of loans and $477.2 million of deposits immediately before the merger. The purchase price was approximately $55.0 million and provisional goodwill recorded was $30.0 million.
Financial results and condition
Unless otherwise noted, dollar amounts below are in millions. Income and cash-flow comparisons are Q1 2022 versus Q1 2021; balance-sheet comparisons are March 31, 2022 versus December 31, 2021.
| Metric | Q1 2022 / March 31, 2022 | Comparable period / prior year-end |
|---|---|---|
| Total assets | $5,362; up 13.5% | $4,726 |
| Loans held for investment, gross | $3,748; up 17.5% | $3,190 |
| Deposits | $4,658; up 14.2% | $4,077 |
| Net interest income | $40.5 | $40.3 |
| Net income | $8.7 | $12.3 |
| Diluted earnings per share | $0.41 | $0.59 |
| Net interest margin | 3.51% | 4.23% |
| Return on average assets / equity | 0.71% / 7.83% | 1.15% / 11.86% |
Total interest income was $44.1 million, down slightly from $44.3 million; total interest expense fell to $3.6 million from $4.0 million. Provision for loan losses declined to $1.6 million from $3.4 million. Higher noninterest expense—$33.7 million versus $26.7 million—more than offset growth in other income, contributing to lower net income. Salaries and benefits rose by $4.8 million, primarily reflecting TCBI and additional staffing; merger and conversion expenses were $0.8 million.
Net cash provided by operating activities was $19.5 million; investing activities provided $92.2 million and financing activities provided $102.0 million. Cash and due from banks ended at $282.1 million, while federal funds sold were $67.8 million. The company also reported $349.9 million in cash and cash equivalents, including federal funds sold, at quarter-end.
Total shareholders’ equity was $456.8 million. After-tax other comprehensive loss was $38.6 million, principally reflecting unrealized losses on available-for-sale securities; accumulated other comprehensive loss moved to $39.8 million from $1.2 million at year-end. The securities portfolio’s fair value was $961.4 million, with $51.3 million of gross unrealized losses before tax.
Loans were 80.5% of deposits. The allowance for loan losses was $29.2 million, or 0.78% of loans held for investment, versus 0.91% at year-end. Nonperforming loans were $10.8 million, or 0.29% of loans, compared with $13.1 million, or 0.41%, at year-end. Net charge-offs were $1.5 million for the quarter.
Deposits were the primary funding source. The average cost of interest-bearing deposits was 0.31%, and the overall cost of funds was 0.33%. Borrowings totaled $219.5 million, including $111.2 million of subordinated debt and $80.0 million of FHLB advances. The company reported $154.0 million of available correspondent-bank federal funds lines, with none drawn.
Business First’s capital ratios at quarter-end were 8.15% Tier 1 leverage, 8.59% Common Equity Tier 1, 8.70% Tier 1 risk-based and 11.76% total risk-based. b1BANK’s corresponding ratios were 10.14%, 10.83%, 10.83% and 11.49%; the bank was classified as well-capitalized. Book value per share was $20.25, down from $21.24 at year-end.
Material changes, outlook and risks
- TCBI’s acquisition drove much of the quarter’s asset, loan and deposit growth, and added subordinated debt. Acquisition-related costs were approximately $0.8 million in Q1.
- Net interest margin contracted despite slightly higher net interest income. Management attributed lower asset yields in part to a lower loan yield and reduced PPP balances; it noted that funding costs benefited from lower deposit rates and a greater share of noninterest-bearing deposits.
- Management reported no numerical earnings or growth guidance. It stated that interim results are not necessarily indicative of full-year results. The board declared a $0.12-per-share quarterly dividend on April 26, payable May 31, 2022, to shareholders of record May 15.
- Management identified risks including interest-rate and securities valuation changes, credit deterioration, economic conditions in its Louisiana and Texas markets, energy-sector exposure, liquidity and funding costs, and execution and integration risks from acquisitions. Approximately $520.7 million of loans had previously received pandemic-related payment deferrals, though none remained in a deferral period at quarter-end.
- Off-balance-sheet commitments included approximately $1.05 billion to extend credit and $34.9 million in standby and commercial letters of credit; amounts may not be fully drawn. Management said routine legal proceedings were not expected to have a material adverse effect and reported no material change to previously disclosed risk factors.
- The company is preparing to adopt CECL in January 2023 and stated that adoption may materially affect its financial statements. Management reported disclosure controls were effective and no material change in internal control over financial reporting during the quarter.
Important facts for investors to verify
- How TCBI integration progresses, including realization of expected benefits, retention of customers and employees, and any final adjustments to provisional acquisition accounting.
- Whether margin pressure continues as interest rates change, and how deposit pricing, loan repricing and securities values affect earnings and capital.
- Credit quality and allowance adequacy as the portfolio expands, particularly in commercial real estate, commercial lending and energy-related exposures.
- The effect of the substantial unrealized securities losses on tangible equity, liquidity and regulatory capital if securities are sold or losses persist.
- CECL implementation assumptions and its eventual impact on the allowance, earnings and capital; also monitor the size and utilization of unfunded commitments.