Business context and reporting period
Business First Bancshares, Inc. is a Louisiana-based financial holding company operating through b1BANK, with banking markets in Louisiana, Dallas/Fort Worth and Houston. This unaudited Form 10-Q covers the three months ended March 31, 2024; comparative operating results are for Q1 2023, while balance-sheet changes are generally versus December 31, 2023. Amounts below are in U.S. dollars.
Key financial metrics
| Metric | Q1 2024 / March 31, 2024 | Comparable period / prior date |
|---|---|---|
| Total assets | $6.696 billion | $6.585 billion at Dec. 31, 2023 |
| Loans held for investment | $5.089 billion | $4.993 billion at Dec. 31, 2023 |
| Total deposits | $5.573 billion | $5.249 billion at Dec. 31, 2023 |
| Net interest income | $51.5 million | $52.7 million in Q1 2023 |
| Net interest margin | 3.32% | 3.75% in Q1 2023 |
| Net income / common earnings | $13.6 million / $12.2 million | $15.0 million / $13.7 million in Q1 2023 |
| EPS | $0.49 basic; $0.48 diluted | $0.55 basic; $0.54 diluted in Q1 2023 |
| Operating cash flow | $7.6 million | $22.9 million in Q1 2023 |
| Cash and cash equivalents, including federal funds sold | $397.2 million | $377.2 million at Dec. 31, 2023 |
Total interest income was $96.0 million and interest expense was $44.5 million. Provision for credit losses was $1.2 million; noninterest income was $9.4 million and noninterest expense was $42.5 million. Return on average assets was 0.74% and return on average common equity was 8.51%. The allowance for credit losses was $44.5 million, or 0.88% of loans held for investment.
At quarter-end, total liabilities were $6.047 billion and shareholders’ equity was $649.0 million. FHLB borrowings were $308.2 million, up from $211.2 million at year-end; the $300 million Bank Term Funding Program borrowing was repaid at maturity in March. Regulatory capital ratios for the Company were 9.38% Tier 1 leverage, 9.14% Common Equity Tier 1, 10.42% Tier 1 risk-based and 12.78% total risk-based. The Bank remained classified as well-capitalized.
Material changes versus comparable periods
- Year-over-year net interest income fell 2.3% as interest expense rose faster than interest income. Deposit interest expense increased to $38.0 million from $18.9 million; the average rate on interest-bearing deposits rose to 3.76% from 2.30%. The average yield on loans increased to 6.88% from 6.34%, but overall cost of funds rose 103 basis points.
- Net income available to common shareholders declined 10.6%; diluted EPS fell from $0.54 to $0.48. Management cited higher funding costs and expenses. Noninterest expense increased 9.9%, including higher salaries and data-processing costs.
- Deposits grew $324.0 million, or 6.2%, and loans held for investment grew $96.1 million, or 1.9%, from year-end. The loan-to-deposit ratio declined to 91.3% from 95.1%.
- Nonperforming loans rose to $21.6 million from $17.1 million at year-end; nonperforming assets increased to $23.0 million from $18.8 million. The nonperforming-loan ratio rose to 0.43% from 0.34%. Management attributed the increase primarily to two lending relationships secured by residential real estate.
- Available-for-sale securities had a fair value of $872.9 million versus $879.6 million at year-end. Gross unrealized losses were $91.3 million, up from $85.7 million; the filing attributes these losses to market interest rates, not credit quality, and reports no related credit-loss allowance.
- Other comprehensive loss was $5.0 million in Q1 2024, compared with income of $6.2 million in Q1 2023, primarily reflecting securities valuation changes.
Outlook, management commentary, risks and unusual items
- The filing provides no specific earnings, growth, margin or other quantitative guidance. Management says results for the interim period are not necessarily indicative of full-year results.
- On January 31, 2024, the Company acquired Waterstone LSP, LLC for $3.3 million cash and recorded $3.1 million of goodwill. Q1 acquisition-related expenses were approximately $715,000. On April 25, 2024, it entered into an agreement to acquire Oakwood Bancshares, which had $843 million of assets, $732 million of deposits and $654 million of loans at December 31, 2023; the filing does not provide transaction terms or expected financial effects.
- Liquidity resources included $1.2 billion of FHLB availability, $726.2 million of Federal Reserve discount-window availability and $145 million of correspondent-bank fed funds lines, with no balances drawn on the correspondent lines. The Company reported $2.2 billion of uninsured deposits, 39.8% of total deposits.
- Off-balance-sheet exposures included $1.203 billion of commitments to extend credit and $48.9 million of standby and commercial letters of credit. These may expire unused; the Company maintained a $3.4 million reserve for unfunded commitments.
- Interest-rate sensitivity modeling showed that a parallel 300-basis-point increase was estimated to reduce 12-month net interest income by 1.50% and fair value of equity by 3.63% as of March 31, 2024. The filing cautions that modeled outcomes depend on assumptions and actual results may differ.
- Key stated risks include deposit outflows and funding costs, interest-rate and securities-valuation volatility, deterioration in borrower and collateral quality, geographic and industry concentration, and acquisition integration and execution. Management said routine legal proceedings are not expected to have a material adverse effect. Disclosure controls were assessed as effective.
Most important facts for investors to verify
- Whether deposit growth is durable and the cost of deposits continues to rise; monitor uninsured deposits and the 24.0% average noninterest-bearing deposit mix.
- Whether net interest margin stabilizes, given the decline to 3.32% and the sharp year-over-year increase in deposit interest expense.
- Whether nonperforming loans and criticized loan categories continue to increase, particularly exposures tied to residential real estate, and whether allowance coverage remains adequate.
- The valuation and duration risks in the securities portfolio, including $91.3 million of gross unrealized losses and a 3.71-year estimated effective duration.
- Final terms, approvals, financing and integration risks for the Oakwood acquisition, and realized benefits and costs from Waterstone.
- How the Company funds loan growth and manages obligations as FHLB borrowings increase and large certificate-of-deposit maturities approach.