BUSINESS FIRST BANCSHARES, INC., ANNOUNCES FINANCIAL RESULTS FOR Q2 2020

July 29, 2020

Baton Rouge, La. (July 29, 2020) – Business First Bancshares, Inc. (NASDAQ: BFST) (Business First), parent company of b1BANK, Baton Rouge, Louisiana, today announced its unaudited results for the quarter ended June 30, 2020, including net income of $2.1 million, or $0.11 per diluted share, decreases of $4.8 million and $0.39, respectively, from the quarter ended June 30, 2019. On a non-GAAP basis, core net income for the quarter ended June 30, 2020, which excludes certain income and expenses, was $7.4 million, or $0.41 per diluted share, an increase of $748,000 and decrease of $0.07, respectively, from the quarter ended June 30, 2019. Both net income and diluted earnings per share were adversely impacted for the quarter ended June 30, 2020, by additional provision for loan losses associated with the sustained pressure on the general economy caused by the COVID-19 pandemic and acquisition-related expenses.

“The second quarter was simultaneously the most challenging, and in many ways, the most rewarding period we’ve experienced as a company,” said Jude Melville, president and CEO. “We stood with our clients during an economic crisis, we consummated a transformative merger during a time of market crisis, and we took care of our people in the midst of a health crisis. I could not be prouder of our team. We’ll continue to do our part as our region’s leading community bank as we recover together in the coming months.”

On July 23, 2020, Business First’s board of directors declared a quarterly dividend based upon financial performance for the second quarter in the amount of $0.10 per share, same as the prior quarter, to the common shareholders of record as of August 15, 2020. The dividend will be paid on August 31, 2020, or as soon thereafter as practicable.

Quarterly Highlights

  • Successful Acquisition and Conversion of Pedestal Bancshares Inc. Business First acquired Pedestal Bancshares Inc. (Pedestal), with approximately $1.4 billion in assets, $935.8 million in gross loans, and $1.2 billion in deposits, on May 1, 2020. The conversion of data processing was successfully completed during the weekend of May 23, 2020.
  • COVID-19 Related Matters. Business First proactively assisted, and continues to assist, customers by deferring principal and/or interest payments on approximately 2,600 loans with an outstanding balance of $938.5 million as of June 30, 2020.  Approximately $223.0 million of the deferrals were interest-only as of June 30, 2020.  Additionally, Business First has funded approximately 2,800 loans with an aggregate outstanding balance of $395.4 million under the Small Business Administration (SBA) Paycheck Protection Program (PPP), of which $86.1 million were acquired in the Pedestal acquisition. Business First also recorded $5.4 million of provision expense, of which a significant portion was associated with the continued impact the COVID-19 pandemic caused on the general economy.
  • Stable Credit Quality. Ratios of nonperforming loans compared to loans held for investment and nonperforming assets compared to total assets decreased from 0.57% and 0.59%, respectively, at March 31, 2020, to 0.39% and 0.49% at June 30, 2020. The decreases were attributable to the increased size of the loan portfolio, including SBA PPP loans, and total assets associated with the acquisition of Pedestal on May 1, 2020.   
  • Net Interest Margin and Spread. Net interest margin and spread were negatively impacted due to the full effect of the federal funds rate cuts of 150 basis points during the month of March and lower-yielding SBA PPP loans, offset by a reduction in cost of funds, increased loan discount, deposit premium, and Federal Home Loan Bank (FHLB) premium accretion, and a higher-yielding loan portfolio due to the Pedestal acquisition, compared to the quarter ended March 31, 2020. Net interest margin and net interest spread were 3.89% and 3.59%, respectively, for the quarter ended June 30, 2020, compared to 3.93% and 3.55% for the quarter ended March 31, 2020. Excluding loan discount accretion, net interest margin and spread were 3.71% and 3.41%, respectively, for the quarter ended June 30, 2020, compared to 3.88% and 3.49% for the quarter ended March 31, 2020. 
  • Loan Growth. Total loans held for investment at June 30, 2020, were $3.0 billion, an increase of $1.2 billion compared to March 31, 2020. Loan growth was significantly impacted by the acquisition of Pedestal and origination of SBA PPP loans.  Net organic loan growth, excluding the Pedestal acquisition and SBA PPP originated loans, was 3.22% annualized for the quarter ended June 30, 2020.

Financial Condition

June 30, 2020, Compared to March 31, 2020

Loans

Total loans held for investment increased by $1.2 billion compared to March 31, 2020. The increase was largely attributable to the $893.3 million in net loans acquired from Pedestal, including $86.1 million of SBA PPP loans, and $309.3 million of SBA PPP loans originated by Business First. Excluding the Pedestal acquisition and SBA PPP originations, net organic loan growth was $20.8 million for the quarter ended June 30, 2020, or 3.22% annualized.

Consistent with the quarter ended March 31, 2020, Business First’s unfunded commitments remained constant throughout the quarter ended June 30, 2020, excluding the increase attributable to the acquisition of Pedestal. Business First has not identified any unusual customer usage of unfunded commitments since the beginning of the COVID 19-panademic in March 2020.

Credit Quality

Nonperforming loans as a percentage of total loans held for investment decreased from 0.57% as of March 31, 2020, to 0.39% as of June 30, 2020. Nonperforming assets as a percentage of total assets decreased from 0.59% as of March 31, 2020, to 0.49% as of June 30, 2020. The decreases were attributable to an increase in overall total loans held for investment and total assets from the acquisition of Pedestal during the quarter ended June 30, 2020.

Total Shareholders’ Equity

Book value per common share was $18.69 at June 30, 2020, compared to $21.58 at March 31, 2020. The decreases were attributable to the initial book value dilution caused by the acquisition of Pedestal during the quarter ended June 30, 2020.

June 30, 2020, Compared to June 30, 2019

Loans

Total loans held for investment increased by $1.4 billion compared to June 30, 2019, or 82.3%, due primarily to the acquisition of Pedestal and origination of SBA PPP loans during the quarter ended June 30, 2020.

Credit Quality

Nonperforming loans as a percentage of total loans held for investment decreased from 0.61% as of June 30, 2019, to 0.39% as of June 30, 2020. Nonperforming assets as a percentage of total assets decreased from 0.58% as of June 30, 2019, to 0.49% as of June 30, 2020. The decreases were attributable to an increase in overall total loans held for investment and total assets from the acquisition of Pedestal during the quarter ended June 30, 2020.

Total Shareholders’ Equity

Book value per common share was $18.69 at June 30, 2020, compared to $20.77 at June 30, 2019. The decreases were attributable to the initial book value dilution caused by the acquisition of Pedestal during the quarter ended June 30, 2020.

Results of Operations

Second Quarter 2020 Compared to First Quarter 2020

Net Income and Diluted Earnings Per Share

For the quarter ended June 30, 2020, net income was $2.1 million, or $0.11 per diluted share, compared to net income of $4.5 million, or $0.34 per diluted share, for the quarter ended March 31, 2020. The decreases were largely attributable to the increase in the provision for loan losses, due to the COVID-19 pandemic’s sustained impact on the general economy, and increase in acquisition-related expenses, offset by increases in investment income from Small Business Investment Companies (SBICs) and interest income from SBA PPP loans.

On a non-GAAP basis, core net income, which excludes certain income and expenses, for the quarter ended June 30, 2020, was $7.4 million, or $0.41 per diluted share, compared to core net income of $5.0 million, or $0.37 per diluted share, for the quarter ended March 31, 2020. Notable events impacting earnings for the quarter ended June 30, 2020, included the incurrence of $6.6 million in acquisition-related expenses, compared to the incurrence of $1.2 million in acquisition-related expenses for the quarter ended March 31, 2020, and $530,000 reduction in income tax expense due to stock option exercises.

Interest Income

For the quarter ended June 30, 2020, net interest income totaled $30.9 million and net interest margin and net interest spread were 3.89% and 3.59%, respectively, compared to $20.2 million, 3.93% and 3.55% for the quarter ended March 31, 2020. The average yield on the loan portfolio (excluding SBA PPP loans) was 5.61% for the quarter ended June 30, 2020, compared to 5.55% for the quarter ended March 31, 2020. The average yield on total interest-earning assets was 4.65% for the quarter ended June 30, 2020, compared to 5.06% for the quarter ended March 31, 2020.  

Net interest margin and net interest spread were positively impacted for the quarter ended June 30, 2020, by additional loan discount, deposit premium, and FHLB premium accretion, an overall higher-yielding loan portfolio from the Pedestal acquisition, and reduction in the overall cost of funds (which includes noninterest-bearing deposits), offset by the full impact of the federal funds rate cuts of 150 basis points during March 2020. The average loan yield (excluding SBA PPP loans) was also impacted by the same factors, excluding the impact of deposit and FHLB premium accretion and cost of funds.

The average yield on total interest-earning assets was negatively impacted for the quarter ended June 30, 2020, due to lower-yielding SBA PPP loans which were originated during the quarter.

Net interest margin and net interest spread (excluding loan discount accretion of $1.5 million) were 3.71% and 3.41%, respectively, for the quarter ended June 3o, 2020, compared to 3.88% and 3.49% (excluding loan discount accretion of $290,000) for the quarter ended March 31, 2020.

Interest Expense

For the quarter ended June 30, 2020, overall cost of funds (which includes noninterest-bearing deposits) decreased by 43 basis points, from 1.20% to 0.77%, compared to the quarter ended March 31, 2020. The decrease in cost of funds was partially attributable to the accretion of deposit premium and FHLB premium associated with the Pedestal acquisition ($551,000), but largely attributable to an overall reduction in interest rates on deposit offerings and the lower-yielding deposit portfolio acquired from Pedestal.

Other Income

For the quarter ended June 30, 2020, other income was impacted by an additional $1.2 million in SBIC investment income and additional increases in other categories largely attributable to the Pedestal acquisition, compared to the quarter ended March 31, 2020.

Other Expense

For the quarter ended June 30, 2020, the increases were largely attributable to the Pedestal acquisition, compared to the quarter ended March 31, 2020.

Provision for Loan Losses

During the quarter ended June 30, 2020, Business First recorded a provision for loan losses of $5.4 million, compared to $1.4 million for the quarter ended March 31, 2020. The reserve for the quarter ended June 30, 2020, was impacted significantly by the sustained impact on the general economy of the COVID-19 pandemic.  The increase related to the COVID-19 pandemic was recorded through a qualitative adjustment. 

Return on Assets and Equity

Return on average assets and equity, each on an annualized basis, were 0.23% and 2.35%, respectively, for the quarter ended June 30, 2020, compared to 0.80% and 6.31%, respectively, for the quarter ended March 31, 2020. Both returns were significantly impacted by the provision for loan loss and acquisition-related expenses recorded for the quarter ended June 30, 2020.

Second Quarter 2020 Compared to Second Quarter 2019

Net Income and Diluted Earnings Per Share

For the quarter ended June 30, 2020, net income was $2.1 million, or $0.11 per diluted share, compared to net income of $6.8 million, or $0.50 per diluted share, for the quarter ended June 30, 2020. The decreases in net income and diluted earnings per share were largely attributable to increased provision for loan losses and additional expenses associated with the acquisition of Pedestal on May 1, 2020, offset by increases in net interest income and other income related to the acquisition of Pedestal for the quarter ended June 30, 2020.

On a non-GAAP basis, core net income, which excludes certain income and expenses, for the quarter ended June 30, 2020, was $7.4 million, or $0.41 per diluted share, compared to core net income of $6.6 million, or $0.48 per diluted share, for the quarter ended June 30, 2019. Notable events impacting earnings for the quarter ended June 30, 2020, included the incurrence of $6.6 million in acquisition-related expenses, compared to the incurrence of $436,000 in acquisition-related expenses and a $593,000 gain associated with the sale of a banking center for the quarter ended June 30, 2019.

Interest Income

For the quarter ended June 30, 2020, net interest income totaled $30.9 million and net interest margin and net interest spread were 3.89% and 3.59%, respectively, compared to $20.2 million, 4.19% and 3.75% for the quarter ended June 30, 2019. The average yield on the loan portfolio (excluding SBA PPP loans) was 5.61% for the quarter ended June 30, 2020, compared to 5.96% for the quarter ended June 30, 2019. The average yield on total interest-earning assets was 4.65% for the quarter ended June 30, 2020, compared to 5.37% for the quarter ended June 30, 2019.

Average loan yield (excluding SBA PPP loans), average yield on total interest-earning assets, net interest margin, and net interest spread were impacted for the quarter ended June 30, 2020, by the federal funds rate cuts of 225 basis points which occurred throughout the second half of 2019 and first quarter of 2020. The average yield on total interest-earning assets was also impacted by the lower-yielding SBA PPP loans originated during the quarter ended June 30, 2020.

Net interest margin and net interest spread (excluding loan discount accretion of $1.5 million) were 3.71% and 3.41%, respectively, for the quarter ended June 30, 2020, compared to 4.02% and 3.58% (excluding loan discount accretion of $826,000) for the quarter ended June 30, 2019.

Interest Expense

For the quarter ended June 30, 2020, overall cost of funds (which includes noninterest-bearing deposits) decreased by 49 basis point, from 1.26% to 0.77%, compared to the quarter ended June 30, 2019. The decrease in cost of funds was partially attributable to the accretion of deposit and FHLB premiums associated with the Pedestal acquisition ($551,000), but largely attributable to an overall reduction in interest rates on deposit offerings and the lower-yielding deposit portfolio acquired from Pedestal.

Other Income

For the quarter ended June 30, 2020, the increase was largely attributable to the acquisition of Pedestal, partially offset by the $593,000 gain on sale of a banking center during the quarter ended June 30, 2019.

Other Expense

For the quarter ended June 30, 2020, the increase was largely attributable to the acquisition of Pedestal during the quarter ended June 30, 2020.

Provision for Loan Losses

During the quarter ended June 30, 2020, Business First recorded a provision for loan losses of $5.4 million compared to $1.3 million for the quarter ended June 30, 2019. The reserve for the quarter ended June 30, 2020, was impacted significantly by the sustained impact on the general economy of the COVID-19 pandemic. 

Return on Assets and Equity

Return on average assets and return on average equity, each on an annualized basis, were 0.23% and 2.35%, respectively, for the quarter ended June 30, 2020, from 1.30% and 10.13%, respectively, for the quarter ended June 30, 2019. Both returns were significantly impacted by the provision for loan loss and acquisition-related expenses recorded for the quarter ended June 30, 2020, in addition to a lower net interest margin for the quarter ended June 30, 2020.

About Business First Bancshares, Inc.

Business First Bancshares, Inc., through its banking subsidiary b1BANK, formerly known as Business First Bank, operates 48 banking centers in markets across Louisiana and in the Dallas, Texas area. b1BANK provides commercial and personal banking, treasury management and wealth solutions services to small to midsize businesses and their owners and employees. Visit www.b1BANK.com for more information. Business First’s common stock is traded on the NASDAQ Global Select Market under the symbol “BFST.”

Non-GAAP Financial Measures

This press release includes certain non-GAAP financial measures (e.g., referenced as “core”) intended to supplement, not substitute for, comparable GAAP measures. These measures typically adjust income available to common shareholders for certain significant activities or transactions that, in management’s opinion, can distort period-to-period comparisons of Business First’s performance. Transactions that are typically excluded from non-GAAP measures include realized and unrealized gains/losses on former bank premises and equipment, investment sales, impaired loan sales, acquisition-related expenses (including, but not limited to, legal costs, system conversion costs, severance and retention payments, etc.). Management believes presentations of these non-GAAP financial measures provide useful supplemental information that is essential to a proper understanding of the operating results of the Company’s core business. These non-GAAP disclosures are not necessarily comparable to non-GAAP measures that may be presented by other companies. Reconciliations of non-GAAP financial measures to GAAP financial measures are provided at the end of the tables below.

Special Note Regarding Forward-Looking Statements

Certain statements contained in this release may not be based on historical facts and are “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. These forward-looking statements may be identified by their reference to a future period or periods or by the use of forward-looking terminology such as “anticipate,” “believe,” “estimate,” “expect,” “may,” “might,” “will,” “would,” “could,” or “intend.” We caution you not to place undue reliance on the forward-looking statements contained in this news release, in that actual results could differ materially from those indicated in such forward-looking statements as a result of a variety of factors, including those factors specified in our Annual Report on Form 10-K and other public filings. Actual results will also be significantly impacted by the effects of the ongoing COVID-19 pandemic, including, among other effects: the impact of the public health crisis; the extent and duration of closures of businesses, including our branches, vendors and customers; the operation of financial markets; employment levels; market liquidity; the impact of various actions taken in response by the U.S. federal government, the Federal Reserve, other banking regulators, state and local governments; the adequacy of our allowance for loan losses in relation to potential losses in our loan portfolio; and the impact that all of these factors have on our borrowers, other customers, vendors and counterparties. We undertake no obligation to update these forward-looking statements to reflect events or circumstances that occur after the date of this news release.

Additional Information

For additional information on Business First, you may obtain Business First’s reports that are filed with the Securities and Exchange Commission (SEC) free of charge by using the SEC’s EDGAR service on the SEC’s website at www.sec.gov or by contacting the SEC for further information at 1-800-SEC-0330. Alternatively, these documents can be obtained free of charge from Business First by directing a request to: Business First Bancshares, Inc., 500 Laurel Street, Suite 101, Baton Rouge, Louisiana 70801, Attention: Corporate Secretary.

No Offer or Solicitation

This release does not constitute or form part of any offer to sell, or a solicitation of an offer to purchase, any securities of the Company. There will be no sale of securities in any jurisdiction in which such an offer, solicitation or sale would be unlawful prior to registration or qualification under the securities laws of such jurisdiction.