Business First Bancshares, Inc. — FY 2022 Form 10-K
Reporting period: Fiscal year ended December 31, 2022. This is an annual filing, not a standalone fourth-quarter report. Business First is a Louisiana-based financial holding company operating b1BANK in Louisiana, the Dallas/Fort Worth area and Houston, with a commercial-banking focus on small and midsized businesses. The March 1, 2022 acquisition of Texas Citizens Bancorp (TCBI) expanded its Houston presence.
Financial performance and condition
| Metric | FY 2022 / Dec. 31, 2022 | Prior comparable period |
|---|---|---|
| Total assets | $5.99 billion | $4.73 billion; up 26.7% |
| Loans held for investment | $4.61 billion | $3.19 billion; up 44.4% |
| Total deposits | $4.82 billion | $4.08 billion; up 18.2% |
| Interest income | $236.1 million | $170.4 million |
| Net interest income | $199.6 million | $153.9 million; up 29.7% |
| Net interest margin / spread | 3.92% / 3.57% | 3.84% / 3.65% |
| Net income available to common shareholders | $52.9 million | $52.1 million; up 1.5% |
| Diluted EPS | $2.32 | $2.53 |
| Operating cash flow | $69.6 million | $56.4 million |
| Cash flow from investing / financing | $(700.5) million / $715.3 million | $(675.4) million / $538.2 million |
Net income was $54.3 million before $1.35 million of preferred dividends. Return on average assets to common shareholders was 0.97% (1.18% in 2021), and return on average common equity was 11.59% (12.25%). The allowance for loan losses was $38.2 million, or 0.83% of loans, versus 0.91%; nonperforming loans were 0.25% of loans versus 0.41%. Net charge-offs were 0.05% of average loans.
Interest expense rose to $36.5 million from $16.6 million as funding costs increased with rate hikes. Average loan yield, excluding PPP loans, rose to 5.43% from 5.16%; overall cost of funds, including noninterest-bearing deposits, increased 32 basis points. Noninterest income fell 18.1% to $29.3 million, largely because 2021 included a $9.2 million gain on PPP loan sales. Noninterest expense increased 27.6% to $149.4 million, reflecting TCBI-related costs, higher staffing and operating expenses. The filing does not provide a single consolidated revenue figure labeled “revenue.”
Cash and cash equivalents were $152.7 million at year-end; cash, due from banks and federal funds sold totaled $168.3 million. Borrowings included $410.1 million of FHLB advances, $110.7 million of subordinated debt, $20.2 million of securities sold under repurchase agreements, and $14.1 million of federal funds purchased. The company issued $72.0 million of preferred stock and raised $47.2 million net in a common-stock offering during 2022. Regulatory capital ratios were 12.75% total risk-based, 10.07% Tier 1 risk-based, 8.68% common equity Tier 1 and 9.49% Tier 1 leverage; b1BANK met well-capitalized requirements.
Material changes and notable items
- TCBI added approximately $534 million in assets, $350 million in loans and $477 million in deposits at acquisition; loan and deposit growth also included organic growth.
- Available-for-sale securities had a $95.2 million gross unrealized loss at year-end, compared with $9.5 million in 2021. Other comprehensive loss was $73.0 million after tax, contributing to a decline in book value per common share to $20.25 from $21.24.
- Commercial real estate represented a substantial share of lending: nonfarm nonresidential loans were 39.7% of loans and construction and land loans 15.7%. The company reported its construction and land portfolio above the applicable regulatory concentration guidance threshold.
- Common shares outstanding increased to 25.11 million from 20.40 million, including shares issued in the TCBI acquisition and public offering. Common dividends declared were $0.48 per share for 2022.
- CECL was adopted January 1, 2023. The filing estimates a $2.7 million increase in the allowance for credit losses and a $3.2 million increase in the unfunded-commitment liability. It also describes a retained-earnings impact that is not consistent across sections: approximately $827,000 in one discussion and a $1.0 million reduction, with a $221,000 deferred-tax-asset increase, in the accounting note.
Outlook, risks and contingencies
No quantified earnings or balance-sheet guidance is provided. Management describes continued organic growth and selective acquisitions as strategic priorities, while emphasizing deposit growth, disciplined underwriting and controlled expansion. The company was asset sensitive in its stated balance-sheet profile, but its year-end simulation showed estimated 12-month net interest income declining 3.5%, 5.9% and 8.6% under instantaneous parallel rate increases of 100, 200 and 300 basis points, respectively. Actual results may differ from model estimates.
Key risks include regional concentration in Louisiana and Texas; credit exposure to commercial real estate, construction and small-business borrowers; higher deposit and wholesale funding costs; reliance on municipal and other potentially rate-sensitive deposits; and securities valuation and liquidity risk. Public-body deposits were $636 million (about 13.2% of deposits), and estimated uninsured deposits were approximately $1.6 billion. The company also reported $1.3 billion of unfunded credit commitments. It expects FDIC insurance premiums to increase in 2023.
COVID-19-related modifications covered $425.2 million of loans at year-end; all were outside deferral periods, and management noted some borrowers could have difficulty resuming regular payments. The company disclosed potential PPP-related litigation and SBA-guaranty risks, but no material legal proceedings were pending; management considered ordinary-course litigation unlikely to have a material adverse effect. The 2022 audit opinion was unqualified, and the auditor reported effective internal control over financial reporting.
Most important facts for investors to verify
- How much of loan growth and earnings reflects TCBI versus organic growth, and whether acquisition integration costs and expected benefits are tracking management’s assumptions.
- Deposit retention, deposit pricing and liquidity trends, especially municipal and uninsured deposits, as funding costs rise and time deposits mature.
- Commercial real estate and construction concentration, loan risk grades, charge-offs, and the adequacy of the allowance under the newly adopted CECL model.
- The securities portfolio’s unrealized losses, available liquidity and capital impact if securities must be sold before maturity.
- The CECL transition figures: the filing gives differing retained-earnings estimates; confirm the final recorded adoption entries and any regulatory-capital effects.
- Common-share dilution, preferred-stock dividend obligations and the sustainability of common dividends relative to earnings and capital needs.