Business context and reporting period
Business First Bancshares, Inc. is a Louisiana bank holding company operating b1BANK in Louisiana and the Dallas/Fort Worth area. This is its annual Form 10-K for the fiscal year ended December 31, 2020, filed March 5, 2021; it does not provide standalone fourth-quarter results. The May 1, 2020 acquisition of Pedestal materially expanded the business. At year-end, the company reported $4.16 billion in assets, $2.99 billion in loans held for investment, $3.62 billion in deposits, and $410.0 million in shareholders’ equity.
Financial and operating performance
- Earnings: Net income was $30.0 million, up 26.2% from $23.8 million in 2019. Diluted EPS declined to $1.64 from $1.74, reflecting substantial share issuance, including 7.6 million shares issued for the Pedestal acquisition. Return on average assets fell to 0.88% from 1.11%; return on average equity eased to 8.42% from 8.70%.
- Interest income and margins: Net interest income rose 59.2% to $127.6 million. Net interest margin was 4.06% versus 4.10%; net interest spread was 3.77% versus 3.67%. Average earning-asset yield declined to 4.76% from 5.29%, while overall cost of funds fell to 0.73% from 1.26%. Management expects continued pressure on margin and spread given the yield curve.
- Credit costs and asset quality: Provision for loan losses increased to $11.4 million from $2.6 million, attributed to loan growth and COVID-19-related economic uncertainty. The allowance was $22.0 million, or 0.74% of loans, versus $12.1 million, or 0.71%. Nonperforming loans were $10.6 million, 0.35% of loans, compared with $9.0 million, 0.53%; nonperforming assets totaled $20.0 million versus $13.2 million.
- Noninterest items and expenses: Noninterest income rose to $21.6 million from $10.7 million, including a $4.2 million gain related to Main Street Lending Program loan transfers. Noninterest expense increased to $101.0 million from $58.4 million, largely reflecting Pedestal, higher staffing and $9.6 million of acquisition-related costs. The company also recorded a $2.4 million loss on early extinguishment of FHLB advances.
- Cash flow: Cash provided by operations was $29.3 million, compared with $24.4 million in 2019. Investing activities used $475.3 million, including net loan growth and securities purchases; financing activities provided $505.7 million, principally from deposit growth. Year-end cash and due from banks was $149.1 million; cash plus federal funds sold was approximately $323.3 million.
- Funding, debt and capital: Deposits increased 103.0% to $3.62 billion; noninterest-bearing deposits were $1.16 billion. Nondeposit borrowings and debt were approximately $106 million, including FHLB advances, repurchase agreements, subordinated debt and other borrowings. The company and bank elected the Community Bank Leverage Ratio framework; year-end ratios were 8.79% and 9.24%, respectively, and the bank was reported well capitalized. The company reported $621.1 million of unfunded commitments to extend credit.
Material changes versus 2019
Pedestal drove much of the increase in assets, loans, deposits, employees and operating expenses; its acquisition added 22 branches and was funded with 7.6 million newly issued shares. Loans held for investment grew 74.9%, while total assets rose 83.0%. Lower deposit costs and increased earning assets supported net interest income, but lower asset yields and higher credit provisions weighed on returns. The allowance-to-loan ratio increased slightly, while the nonperforming-loan ratio improved.
Outlook, risks and unusual items
- Management provided no specific numerical earnings or growth guidance. It anticipates continued net interest margin and spread pressure and expects some borrowers with COVID-19 deferrals may have difficulty resuming regular payments.
- At year-end, $829.1 million of loans had received COVID-19 payment modifications; $98.1 million remained in deferral periods, including $94.8 million of interest-only modifications. Hurricane Laura deferrals totaled $131.5 million, with $20.6 million still in deferral. These were generally not classified as troubled debt restructurings under applicable relief guidance.
- The bank funded approximately 2,800 PPP loans totaling $397.7 million during 2020, with $315.5 million outstanding at year-end. It originated approximately $327.8 million of Main Street loans and transferred or sold 95% of principal, retaining credit exposure on the remainder; the program ended January 8, 2021. PPP-related risks include SBA guarantee disputes, compliance and litigation.
- Key risks include the pandemic and regional economic conditions, energy-sector and real-estate exposure, concentration in Louisiana and Dallas/Fort Worth, commercial real-estate lending, acquisition integration, interest-rate and liquidity risk, and the adequacy of loan-loss reserves. Public-body deposits were approximately $470.3 million, or 13.0% of deposits. The construction-and-development portfolio exceeded the regulators’ 100% concentration-guidance threshold, though the broader CRE measure was within its 300% threshold.
- Auditors issued unqualified opinions on the financial statements and internal controls. The allowance’s qualitative factors and the fair value of Pedestal’s acquired loans were identified as critical audit matters. Management reported no material legal proceedings and no material subsequent events requiring disclosure.
Important facts for investors to verify
- Separate acquisition-driven growth from organic growth, and assess the integration costs, synergies and ongoing performance of Pedestal.
- Track the payment performance and risk grades of modified loans as deferrals expire, especially in hospitality, energy, retail and healthcare; review reserve adequacy and future credit provisions.
- Reconcile the reported capital ratios under the CBLR framework with the applicable requirements, and monitor capital and liquidity as loans, deposits and commitments evolve.
- Assess the sustainability of earnings excluding acquisition costs and the Main Street loan-transfer gain, alongside the decline in diluted EPS and returns.
- Verify the filing’s per-share book-value comparison: it reports $19.88 at December 31, 2020 versus $21.47 in 2019, yet describes this as a 7.4% increase.