Business context and reporting period
Business First Bancshares, Inc. (NASDAQ: BFST), through b1BANK, provides community banking services in Louisiana and the Dallas/Fort Worth area. This unaudited Form 10-Q covers the quarter ended March 31, 2021. The company had 43 banking centers and operated as a single community-banking segment.
Year-over-year comparisons are materially affected by the May 2020 acquisition of Pedestal Bancshares; the reported first-quarter 2020 results do not include a full quarter of Pedestal operations. The company agreed to acquire investment advisor Smith Shellnut Wilson (about $3.5 billion in assets under management) on March 22, 2021; the acquisition closed April 1, after quarter-end.
Financial results and condition
Amounts below are in millions of dollars except per-share data and ratios.
| Metric | Q1 2021 / March 31, 2021 | Comparable / prior date |
|---|---|---|
| Interest income | $44.3 | $26.0 in Q1 2020 |
| Net interest income | $40.3 | $20.2 in Q1 2020 |
| Net interest margin / spread | 4.23% / 4.06% | 3.93% / 3.55% in Q1 2020 |
| Provision for loan losses | $3.4 | $1.4 in Q1 2020 |
| Noninterest income / expense | $5.1 / $27.0 | $2.8 / $16.6 in Q1 2020 |
| Income before taxes / tax provision | $15.1 / $2.7 | $5.0 / $0.5 in Q1 2020 |
| Net income | $12.3 | $4.5 in Q1 2020 |
| Basic / diluted EPS | $0.60 / $0.59 | $0.34 / $0.34 in Q1 2020 |
| Total assets | $4,443.6 | $4,160.4 at Dec. 31, 2020 |
| Loans held for investment, gross | $3,042.0 | $2,991.4 at Dec. 31, 2020 |
| Deposits | $3,858.7 | $3,616.7 at Dec. 31, 2020 |
| Shareholders’ equity | $416.7 | $410.0 at Dec. 31, 2020 |
| Cash and cash equivalents | $460.9 | $323.3 at Dec. 31, 2020 |
- Net income rose 174% year over year, while net interest income increased 99.4%. Growth in average earning assets, including Pedestal and PPP loans, and lower funding costs contributed; these comparisons are not fully like-for-like.
- Net interest margin improved from Q1 2020, but average yield on total interest-earning assets fell to 4.65% from 5.06%. Management said the current yield curve could continue to pressure margin and spread.
- Return on average assets was 1.15% versus 0.80%; return on average equity was 11.86% versus 6.31%.
- Operating cash flow was $18.1 million; investing cash flow was negative $83.7 million and financing cash flow was positive $271.7 million. The $206.1 million increase in cash was supported by $242.3 million of net deposit growth and $52.5 million of subordinated-debt proceeds, alongside investing outflows.
- Allowance for loan losses was $25.3 million, or 0.83% of gross loans, versus $22.0 million and 0.74% at year-end. Net charge-offs were $0.1 million for the quarter.
- Nonperforming loans rose to $13.4 million, or 0.44% of loans, from $10.6 million and 0.35% at year-end. Nonperforming assets were $22.9 million, or 0.52% of assets, versus $20.0 million and 0.48%. Management attributed the increase primarily to one energy-related loan.
- Regulatory capital ratios at March 31 were 8.37% Tier 1 leverage, 10.64% Common Equity Tier 1, 10.79% Tier 1 risk-based, and 13.95% total risk-based. b1BANK was reported as well-capitalized and both company and bank were in compliance with applicable requirements.
- Subordinated debt totaled $77.5 million, up from $25.0 million at year-end, following a $52.5 million issuance at a fixed 4.25% through March 2026, then floating at benchmark plus 354 basis points through 2031. The company repaid $11.0 million of other long-term borrowings during the quarter.
Changes, outlook, risks and unusual items
- Assets increased 6.8% and deposits 6.7% from year-end; management cited PPP activity, cash growth and first-quarter municipal tax deposits. Gross loans grew 1.7%, with PPP loans totaling approximately $385.9 million at quarter-end.
- Interest expense declined to $4.0 million from $5.8 million year over year, while noninterest expense increased 62%, mainly reflecting the larger post-Pedestal business. Noninterest income rose 81%, including higher deposit service charges, debit-card/ATM income and brokerage commissions.
- The $3.4 million loan-loss provision included approximately $1.4 million of additional reserves on a $1.9 million energy loan transferred to nonaccrual during the quarter.
- Available-for-sale securities rose to $721.2 million from $640.6 million. Q1 other comprehensive loss was $4.5 million, chiefly reflecting a $7.1 million unrealized securities loss, partly offset by a $1.5 million unrealized gain on other equity investments. Management considered the securities losses temporary.
- As of March 31, 105 loans totaling $90.5 million remained in COVID-related deferral periods; $84.6 million were interest-only modifications to seasoned, highly rated clients. The company said qualifying pandemic modifications were not classified as troubled debt restructurings. Pandemic effects could still impair borrowers and business continuity.
- Off-balance-sheet commitments included $715.1 million to extend credit and $22.4 million in standby and commercial letters of credit. These amounts may not translate into actual funding needs because commitments can expire unused.
- Management identified risks including pandemic impacts, credit deterioration, energy-sector and geographic exposure, acquisition integration, interest-rate and liquidity changes, competition, and regulatory or economic developments. It stated that future margin pressure was possible and did not provide specific earnings guidance.
- The board declared a quarterly dividend of $0.12 per share on April 22, payable May 31, 2021 to shareholders of record May 15. The company reported no material change to previously disclosed risk factors, no material pending legal proceedings, and effective disclosure controls.
Important facts for investors to verify
- How much of reported earnings and balance-sheet growth reflects Pedestal, PPP-related balances and purchase-accounting accretion, and how sustainable those contributions are.
- Performance, repayment and forgiveness trends in the $385.9 million PPP portfolio, and the credit condition of borrowers still under deferral.
- Developments in the energy-related nonaccrual loan and whether rising nonperforming loans require further provision increases.
- Whether deposit growth and funding costs remain favorable, and how interest-rate movements affect net interest margin and securities values.
- Post-quarter integration and financial effects of the SSW acquisition, which closed April 1, 2021.
- Capital and liquidity after the subordinated-debt issuance, planned growth, dividends and $737.5 million of combined credit and letter-of-credit commitments.