Business First Bancshares, Inc. — 2023 Form 10-K
Reporting period: Fiscal year ended December 31, 2023. This is an annual filing, not a standalone fourth-quarter report. Business First is a Louisiana-based financial holding company operating b1BANK across Louisiana, Dallas/Fort Worth and Houston, focused primarily on small-to-midsized businesses.
Financial performance and condition
| Metric | 2023 | 2022 |
|---|---|---|
| Total assets at year-end | $6.585 billion | $5.990 billion |
| Loans held for investment at year-end | $4.993 billion | $4.606 billion |
| Deposits at year-end | $5.249 billion | $4.820 billion |
| Net interest income | $215.1 million | $199.6 million |
| Net interest margin | 3.62% | 3.92% |
| Net income available to common shareholders | $65.6 million | $52.9 million |
| Diluted earnings per common share | $2.59 | $2.32 |
| Allowance for credit losses / loans held for investment | 0.88% | 0.84% |
| Nonperforming loans / loans held for investment | 0.34% | 0.25% |
- Net income increased 24.1%; return on average assets to common shareholders rose to 1.04% from 0.97%, and return on average common equity increased to 12.36% from 11.59%.
- Higher asset yields lifted interest income, but funding costs rose sharply: average interest-bearing deposit cost increased to 3.00% from 0.81%, and overall cost of funds to 2.43% from 0.74%. Net interest margin contracted despite higher net interest income.
- Provision for credit losses was $4.5 million, down from $10.9 million. Net charge-offs increased to $5.4 million from $1.8 million, or 0.11% of average loans versus 0.05%.
- Operating cash flow was $92.4 million; investing cash flow was negative $521.1 million and financing cash flow was positive $502.1 million. Cash and cash equivalents, as presented in the cash-flow statement, increased $73.4 million to $226.1 million. Management separately reported $377.2 million including federal funds sold.
- Year-end shareholders’ equity was $644.3 million, up 11.0%. Company capital ratios included CET1 of 9.15% and total risk-based capital of 12.85%; b1BANK was classified as well-capitalized.
Material changes from 2022
- Assets, loans and deposits grew 9.9%, 8.4% and 8.9%, respectively. Commercial and industrial loans increased 17.8%; commercial real estate loans increased 9.8%, while construction loans declined 7.2%.
- Noninterest income rose 25.0% to $36.6 million, including a $945,000 gain on the sale of the Leesville banking center and a $1.5 million gain on extinguishing acquired subordinated debt. These were partly offset by $2.6 million of securities-sale losses.
- Noninterest expense increased 4.9% to $156.7 million. Lower acquisition-related costs were partly offset by higher compensation, data processing, FDIC assessments and other operating costs.
- Nonperforming loans rose to $17.1 million from $11.4 million. The company says the comparison was affected in part by CECL adoption and the resulting treatment of acquired purchased-credit-deteriorated loans.
- Uninsured deposits increased to an estimated $2.0 billion, or 38.9% of deposits, from $1.5 billion, or 31.9%. Noninterest-bearing deposits declined $250.3 million.
- Gross unrealized losses on available-for-sale securities were $85.7 million, partially offset by $1.3 million of unrealized gains. The portfolio’s fair value was $879.6 million. The company sold $71.5 million of securities in the fourth quarter at a loss and reinvested the proceeds in higher-yielding investments; management estimated it would recoup the loss in 1.1 years.
Liquidity, debt and key risks
- Year-end borrowings included $300 million under the Federal Reserve’s Bank Term Funding Program (BTFP), $211.2 million of FHLB advances, $100.0 million of subordinated debt, $18.9 million of repurchase-agreement liabilities and $5.0 million of trust-preferred securities. BTFP debt carried a 4.38% rate and matured March 22, 2024; management expected to refinance or repay it and cited sufficient borrowing capacity at year-end.
- Brokered and wholesale deposits, including reciprocal deposits, were 20.5% of total deposits. Public-body deposits were $657.5 million, approximately 12.5% of deposits. The filing identifies deposit retention, funding costs and liquidity as material risks.
- Unfunded commitments to extend credit totaled $1.174 billion, with a further $45.2 million in standby and commercial letters of credit. Actual funding needs may differ because commitments can expire unused.
- Commercial and construction real estate represented 57.8% of loans; loans with real estate as a primary or secondary collateral component represented 71.5%. Management reported construction and land-development exposure above the applicable 100% regulatory-guidance benchmark due to the timing of project draws, and described monitoring controls.
- Management reported interest-rate sensitivity as close to neutral but slightly asset-sensitive under its model; modeled results are uncertain and could differ from actual outcomes. The filing also highlights regional economic, real estate, energy, severe-weather, cyber, regulatory and acquisition risks.
- CECL was adopted January 1, 2023, reducing retained earnings by $827,000. The allowance estimate depends on forecasts and management judgments; the auditor identified the allowance for loan losses as a critical audit matter. The auditor issued unqualified opinions on the financial statements and internal control over financial reporting.
- No material legal proceedings were reported. The company stated that cybersecurity threats had not materially affected, and were not reasonably likely to materially affect, b1BANK as of the filing.
Outlook and unusual items
The filing provides no specific numerical earnings, revenue or margin guidance. Management describes continued emphasis on organic growth, deposit generation, disciplined underwriting and selective expansion or acquisitions. It also reports acquiring Waterstone LSP, LLC on January 31, 2024, after year-end. The 2023 results include the securities-sale loss, Leesville branch-sale gain, debt-extinguishment gain and a $432,000 write-down on a former bank property. Core net income, a company-defined non-GAAP measure, was $66.3 million versus $57.6 million in 2022; it should be considered alongside GAAP results.
Important facts for investors to verify
- How the March 2024 BTFP maturity was repaid or refinanced, and the resulting funding cost and liquidity position.
- Subsequent trends in deposit mix, uninsured and brokered deposits, deposit pricing and public-fund balances.
- Commercial real estate and construction credit performance, criticized/classified loans, nonperforming loans, charge-offs and allowance adequacy.
- Whether the reported securities-loss recovery estimate is realized, and how securities values and accumulated other comprehensive loss affect capital and liquidity.
- Quarterly net interest margin, loan and deposit growth, and whether earnings improvement persists without unusual gains or other adjustments.
- Waterstone acquisition terms and integration progress, and the company’s disclosures on any material subsequent events.