Business First Bancshares, Inc. — Q1 2017 Form 10-Q
Reporting period: Three months ended March 31, 2017; balance-sheet comparisons are to December 31, 2016. The Louisiana-based community banking company reported results on a consolidated basis. Unless otherwise stated, financial amounts are in U.S. dollars.
Financial performance
| Metric | Q1 2017 | Comparable period / change |
|---|---|---|
| Net interest income | $10.56 million | $9.43 million; up 12.0% |
| Net income | $1.98 million | $1.40 million; up 40.7% |
| Basic / diluted EPS | $0.29 / $0.27 | $0.20 / $0.19 |
| Net interest margin / spread | 4.04% / 3.84% | 3.69% / 3.53% |
| Provision for loan losses | $355,000 | $670,000 |
| Noninterest income | $1.30 million | $1.44 million; down 9.5% |
| Noninterest expense | $8.77 million | $8.40 million; up 4.3% |
| Return on average assets / equity | 0.70% / 6.91% | Q1 2017 figures |
Net interest margin benefited from a one-time $1.1 million purchase discount recognized in interest income after the sale of a participation in an acquired impaired credit. Excluding that item, management reported margin of 3.60% and spread of 3.40%. Management cited higher costs of funds and lower yields on new lending as sources of ongoing margin pressure.
Financial position, cash flow and liquidity
- Total assets were $1.158 billion, up 4.7% from year-end. Loans held for investment were $854.0 million, up 5.3%; deposits were $963.3 million, up 3.3%.
- Cash and due from banks were $50.0 million, compared with $42.2 million at year-end. Q1 operating cash flow was $2.0 million, investing cash outflow was $44.3 million, and financing cash inflow was $50.1 million.
- Loans equaled 88.7% of deposits. Noninterest-bearing deposits were $246.4 million, up 10.2% from year-end.
- Borrowings included $66.5 million of FHLB advances, $3.0 million of long-term FNBB advances, $862,000 of short-term FNBB borrowings, and $3.1 million in repurchase agreements. FHLB advances rose from $47.1 million at year-end. The company also reported $109.5 million of available credit lines with no outstanding balances under those lines.
- Shareholders’ equity was $116.2 million. Regulatory capital ratios for the company were 9.62% Tier 1 leverage, 10.34% Common Equity Tier 1 and Tier 1 risk-based, and 11.12% total risk-based. The bank was classified as well-capitalized.
- The allowance for loan losses was $8.18 million, or 0.96% of loans held for investment, versus 1.01% at year-end. Net charge-offs were $334,000.
Material changes and asset quality
- Loan growth drove the increase in assets; notable growth included commercial loans, construction and land, and nonfarm nonresidential real estate loans.
- Nonperforming assets rose to $13.95 million from $8.48 million at year-end; nonperforming loans increased to $12.55 million from $7.29 million. The nonperforming-loan ratio rose to 1.47% from 0.90%.
- Management attributed the increase in problem assets mainly to two relationships placed on nonaccrual during the quarter, one in energy and one in gaming. Past-due loans totaled $11.75 million, including $6.14 million over 90 days past due.
- Net interest income rose, while noninterest income declined, mainly reflecting the absence of prior-year securities-sale gains and an employee-related life-insurance death benefit. Brokerage commissions increased after the addition of a four-person advisory team.
- Net income and other comprehensive income increased shareholders’ equity; a $0.05-per-share dividend was declared in the quarter. The board subsequently declared a $0.06-per-share dividend for shareholders of record May 15, payable May 31, 2017.
Outlook, risks and unusual items
- No quantified earnings or growth guidance was provided. Management anticipated continued net interest margin and spread pressure from loan-growth mix, runoff of higher-yielding loans, and funding costs.
- Management identified economic and borrower-credit conditions, Louisiana market exposure, oil-price weakness affecting energy borrowers and investments, interest-rate changes, competition for deposits and loans, liquidity and funding costs, and regulatory changes among key risks. It also cited weather events, including the 2016 Louisiana flood.
- Q1’s reported margin was materially affected by the $1.1 million acquired-credit purchase-discount recognition. Management said the lower prior-year provision reflected an increase in general energy-sector reserves in Q1 2016 that was not required in Q1 2017.
- Available-for-sale securities had $2.32 million of gross unrealized losses at quarter-end; management considered the losses temporary. The filing also reported $212.6 million of commitments to extend credit and $12.0 million of standby and commercial letters of credit; these may not be fully drawn.
- The company said it was not involved in pending legal proceedings other than routine, nonmaterial matters. Management concluded disclosure controls were effective and reported no material change in internal control over financial reporting.
Important facts for investors to verify
- Whether loan quality stabilizes after the energy- and gaming-related relationships moved to nonaccrual, and how recoverable collateral and workout outcomes develop.
- How much of future earnings and net interest margin is sustainable without the one-time acquired-credit discount recognition.
- Whether loan growth can continue to be funded by deposits without materially higher deposit costs or increased reliance on borrowings.
- How the allowance and capital ratios respond to further asset growth, charge-offs, and credit deterioration.
- The scale and timing of actual funding draws on the $212.6 million of credit commitments and other contingent obligations.