Business context and reporting period
Business First Bancshares, Inc. is a Louisiana-based bank holding company operating b1BANK across Louisiana and Dallas, Texas. This unaudited Form 10-Q covers the three months ended March 31, 2020; balance-sheet comparisons are with December 31, 2019. Amounts below are in U.S. dollars unless noted.
Financial performance and condition
| Metric | Q1 2020 / March 31, 2020 | Comparable / prior period |
|---|---|---|
| Total assets | $2.288 billion | $2.274 billion at December 31, 2019 |
| Loans held for investment | $1.771 billion | $1.710 billion at December 31, 2019 |
| Total deposits | $1.803 billion | $1.782 billion at December 31, 2019 |
| Net interest income | $20.2 million | $19.1 million, Q1 2019 |
| Net income | $4.5 million; $0.34 basic and diluted EPS | $5.7 million; $0.43 basic and $0.41 diluted EPS, Q1 2019 |
| Net interest margin / spread | 3.93% / 3.55% | 4.01% / 3.61%, Q1 2019 |
| Return on average assets / equity | 0.80% / 6.31% | 1.09% / 8.62%, Q1 2019 |
| Allowance for loan losses | $13.3 million; 0.75% of loans | $12.1 million; 0.71% at December 31, 2019 |
| Shareholders’ equity | $282.0 million; book value $21.58 per share | $285.1 million; $21.47 per share at December 31, 2019 |
Interest income rose 5.8% year over year, but interest expense also increased, primarily due to higher borrowing costs and balances. Average loan yield fell to 5.55% from 5.79%; management cited continued downward pressure on net interest margin and spread based on the prevailing yield curve. Provision for loan losses was $1.37 million versus $0.63 million, with the increase primarily reflecting a COVID-19 qualitative adjustment. Noninterest expense increased 20.7% to $16.6 million, including $1.15 million of merger and conversion costs; reported net income also included a lower effective tax rate of 10.1%, versus 19.2% a year earlier.
Operating cash flow was $7.0 million, investing cash outflow was $26.5 million and financing cash inflow was $10.2 million. Cash and cash equivalents ended the quarter at $80.1 million, down from $89.4 million at year-end. Deposits were the primary funding source. Borrowings included $138 million of FHLB advances, $25 million of subordinated debt, $14.7 million under repurchase agreements and a $5 million revolving line. The company reported a 10.27% Tier 1 leverage ratio under the Community Bank Leverage Ratio framework; it said the company and bank complied with applicable capital requirements and b1BANK was well-capitalized.
Material changes and unusual items
- Loans grew 3.6% and deposits 1.2% from year-end. Loans were 98.3% of deposits at March 31, up from 96.0% at December 31.
- Nonperforming loans increased to $10.1 million from $9.0 million; nonperforming assets were $13.4 million versus $13.2 million. Loans more than 90 days past due and still accruing rose to $0.8 million from $0.1 million.
- Q1 included a $5.0 million share repurchase (434,781 shares at an average $11.50), alongside $1.34 million in dividends paid. The board declared a further $0.10 per-share dividend on April 23, payable May 31, 2020, subject to stated terms.
- Unrealized securities losses reduced other comprehensive income by $0.5 million in Q1 2020, compared with $3.1 million of other comprehensive income in Q1 2019.
- On May 1, 2020, after quarter-end, the company completed its Pedestal Bancshares merger and issued 7,614,506 shares. Pedestal reported $1.3 billion in assets, $848.6 million in loans and $1.0 billion in deposits at March 31.
Outlook, management commentary, risks and contingencies
The filing gives no specific earnings or revenue guidance. Management said future net interest margin and spread may face continued pressure. It emphasized that the duration and severity of COVID-19 make its financial effects uncertain, including potential borrower stress, credit losses, lower fee income, operational disruption, liquidity needs and pressure on capital. The company identified energy, hotels, restaurants, retail and 1–4 family lending as sectors for added monitoring.
By April 29, the company had agreed to payment deferrals on approximately 1,350 loans totaling $623.3 million; Pedestal reported approximately 1,000 deferrals totaling $304.5 million. These figures are post-quarter-end. The company reported that approximately 150 loans totaling $83.0 million were modified during Q1, and determined the pandemic-related deferrals meeting applicable guidance were not troubled debt restructurings. Through April 19, Business First had funded approximately 1,050 PPP loans totaling $250 million; Pedestal funded approximately 486 totaling $83 million. Management cautioned that PPP loans may have low profitability and involve legal, regulatory and SBA-guaranty risks.
Commitments to extend credit totaled $400.3 million and standby and commercial letters of credit $23.2 million; many may expire undrawn. Management considered pending legal matters routine and immaterial. The company stated that CECL implementation was delayed to January 2023 for smaller reporting companies and may materially affect future financial statements. The quarter’s statements are interim and results are not necessarily indicative of full-year results.
Important facts for investors to verify
- Subsequent-quarter credit performance, including the scale and repayment status of COVID-related deferrals, changes in delinquency and nonperforming loan levels, and future allowance provisioning.
- Pedestal merger integration, purchase accounting, realized synergies, acquired asset quality and the effect of issued shares on earnings per share and capital.
- PPP loan forgiveness, fee recognition, servicing costs and whether SBA guarantees are maintained.
- Funding and liquidity trends, including deposit movements, borrowing levels and draws on the $400.3 million of credit commitments.
- Whether margin compression, elevated expenses and the unusually low Q1 effective tax rate persist, and whether reported results reconcile with management’s non-GAAP core measures.