Business context and reporting period
Business First Bancshares, Inc. is a Louisiana-based community bank holding company serving Louisiana and Texas. This unaudited Form 10-Q covers the quarter and six months ended June 30, 2018. The company completed its acquisition of Minden Bancorp (MBI) on January 1, 2018; reported year-over-year results therefore include MBI in 2018 but not in 2017.
Financial performance and position
Unless otherwise noted, amounts are in millions of dollars.
| Metric | Q2 2018 | Q2 2017 | Six months 2018 | Six months 2017 |
|---|---|---|---|---|
| Net interest income | $15.0 | $11.7 | $29.5 | $22.3 |
| Provision for loan losses | $0.5 | $1.3 | $0.9 | $1.7 |
| Noninterest income | $2.0 | $1.6 | $3.7 | $2.9 |
| Noninterest expense | $12.0 | $9.1 | $24.0 | $17.9 |
| Net income | $3.6 | $2.1 | $6.7 | $4.0 |
| Diluted EPS | $0.33 | $0.28 | $0.62 | $0.56 |
- Q2 net income increased 77.3%; six-month net income increased 67.5%. Management attributed improvement primarily to MBI, loan growth and a lower corporate tax rate.
- Net interest margin was 3.98% in Q2 and 3.97% for the first half, versus 4.34% and 4.19%, respectively, in 2017. Management cited higher funding costs, loan mix and runoff of higher-yielding balances as sources of margin pressure.
- Effective tax rates declined to 18.8% for Q2 and 18.7% for the first half, from 28.5% and 28.3%. Return on average assets/equity was 0.90%/7.75% for Q2 and 0.83%/7.35% for the first half.
- At June 30, assets were $1,649.2, loans held for investment $1,234.0 gross ($1,224.3 net), deposits $1,329.5, and shareholders’ equity $210.6. Since year-end 2017, assets rose 24.8%, loans 26.5%, and deposits 26.0%, mainly reflecting MBI and organic growth.
- Cash and due from banks were $45.9, down from $107.6 at year-end; six-month operating cash flow was $9.6. Investing cash use was $108.3, including $49.8 net cash paid in the merger and $65.2 net loan growth; financing provided $37.0.
- Borrowings at quarter-end included $85.0 of FHLB advances, $13.6 under repurchase agreements, $2.7 long-term and $0.9 short-term FNBB advances. The company reported $118.5 of available credit lines, with none drawn under those lines.
- Consolidated capital ratios were 11.20% Tier 1 leverage, 12.43% CET1 and Tier 1 risk-based, and 13.11% total risk-based. The bank was classified as well-capitalized.
Material changes, outlook and risks
- MBI was acquired for $56.2 cash; the transaction added approximately $317.3 in assets and generated $25.7 goodwill. The company also issued 1,207,500 shares at $24.00 in June, raising $29.0 gross, to support its planned acquisition of Richland State Bancorp (RSBI). The RSBI agreement was signed June 1; its operating results are not included.
- Expense growth partly reflected MBI and conversion costs ($0.4 in Q2; $0.9 for six months), NASDAQ listing costs, additional staffing and an atypical $0.2 franchise tax charge. Common stock began trading on Nasdaq in April.
- Management anticipated continued pressure on net interest margin and spread from deposit pricing, loan growth and runoff of higher-yielding loans. The filing provides no quantitative earnings or revenue guidance.
- Nonperforming assets were $15.3 versus $12.9 at year-end; nonperforming loans were $14.0 versus $12.7, although nonperforming loans fell to 1.14% of loans from 1.30%. The allowance was $9.8, or 0.79% of loans, versus 0.90% at year-end. Management said the increase in problem assets mainly reflected MBI and two closed branch buildings.
- Available-for-sale securities increased to $252.1; gross unrealized losses were $6.0 versus $2.5 at year-end, contributing to a $2.9 six-month other comprehensive loss. Management considered the losses temporary. Interest-rate, credit, liquidity, economic concentration (Louisiana and Dallas/Fort Worth), energy-sector, acquisition-integration and growth risks were highlighted.
- Off-balance-sheet commitments included $302.4 to extend credit and $10.2 of standby and commercial letters of credit. Management stated routine legal proceedings were not expected to have a material adverse effect. The board declared a $0.08-per-share quarterly dividend in July.
Key facts for investors to verify
- How much reported growth and earnings came from MBI versus organic activity, and the expected integration costs and benefits.
- Whether RSBI’s proposed acquisition proceeds, its financing and capital impact, and how the June share offering proceeds are used.
- Margin trends, deposit repricing and funding costs, and the capacity to sustain loan and deposit growth.
- Credit quality in commercial real estate, construction and commercial portfolios, including changes in classified loans, nonperforming assets and allowance adequacy.
- Liquidity and capital after acquisitions and growth, including the decline in cash, reliance on FHLB funding and unrealized securities losses.