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Baton Rouge, La. (April 27, 2023) – Business First Bancshares, Inc. (Nasdaq: BFST) (Business First), parent company of b1BANK, today announced its unaudited results for the quarter ended March 31, 2023, including net income available to common shareholders of $13.7 million, or $0.54 per diluted common share, decreases of $2.9 million and $0.13, respectively, from the linked quarter, and increases of $5.0 million and $0.13, respectively, from the quarter ended March 31, 2022. On a non-GAAP basis, core net income for the quarter ended March 31, 2023, which excludes certain income and expenses, was $13.8 million, or $0.55 per diluted common share, decreases of $2.6 million and $0.11, respectively, from the linked quarter, and increases of $3.5 million and $0.06, respectively, from the quarter ended March 31, 2022.
“With over 100,000 clients spread out over diverse MSAs, a successful record of growing organically and through acquisition, and a history of taking care of clients through multiple years of crisis, we have laid the foundation of a franchise built to last,” said b1BANK President & CEO Jude Melville. “Our first quarter results both demonstrate our resilience as a company and illustrate opportunities to continue improving efficiency, profitability and capital allocation over the coming years. We are here for our partners as we together navigate the current uncertainty and are positioned to help them thrive once the economy heals.”
On April 27, 2023, Business First’s board of directors declared a quarterly preferred dividend in the amount of $18.75 per share, which is the full quarterly dividend of 1.875% based on the per annum rate of 7.50%. Additionally, the board of directors declared a quarterly common dividend based upon financial performance for the first quarter in the amount of $0.12 per share, same as the prior quarter. The preferred and common dividends will be paid on May 31, 2023, or as soon thereafter as practicable, to the shareholders of record as of May 15, 2023.
Quarterly Highlights
- Return on Assets and Equity. Return to common shareholders on average assets and common equity, each on an annualized basis, were 0.91% and 10.73%, respectively, for the quarter ended March 31, 2023, compared to 1.12% and 13.56%, respectively, for the linked quarter, and 0.72% and 7.94% for the quarter ended March 31, 2022. Non-GAAP core return on average assets and common equity, each on an annualized basis, were 0.91% and 10.81%, respectively, for the quarter ended March 31, 2023, compared to 1.10% and 13.37%, respectively, for the linked quarter, and 0.85% and 9.33% for the quarter ended March 31, 2022.
- Shareholder Value. Total shareholders’ equity increased $17.2 million from the linked quarter due to $6.2 million improvement in accumulated other comprehensive income (AOCI) and $13.7 million in net income available to common shareholders, offset by $3.0 million in common dividends. Book value per share increased $0.52, or 2.53%, and non-GAAP tangible book value per share increased $0.56, or 3.51% from the linked quarter. AOCI has improved $16.7 million from its low of $(84.7) million at September 30, 2022, to $(68.0) million as of March 31, 2023.
- Deposits. Branch deposits remained stable, increasing $2.4 million from the linked quarter, with new account openings continuing to outpace 2022 trends. Other corporate deposits (comprised of financial institution group (FIG), brokered, and listed certificates of deposits) decreased $16.6 million from the linked quarter. Overall, total deposits decreased $14.2 million or 0.29%, 1.19% annualized, for the quarter ended March 31, 2023, due to a $29.0 million decrease in the financial institutions group (FIG) deposit base. As of March 31, 2023, Business First held approximately 103,020 deposit accounts with an average balance of approximately $46,650, of which $1.5 billion or 30.65% were uninsured by the FDIC. Excluding public funds, which are secured by securities or Federal Home Loan Bank (FHLB) letters of credit, the unsecured deposit total is approximately $1.0 billion, or 21.33% of total deposits.
- Access to Liquidity. As of March 31, 2023, Business First had approximately $1.8 billion of primary and secondary liquidity. On April 11, 2023, Business First opened lines of credit through the Federal Reserve Discount Window totaling $949.5 million, increasing current liquidity to approximately $2.7 billion.
- Credit Quality. Credit performance remains strong from linked quarter and year-over-year comparisons. The ratios of nonperforming loans compared to loans held for investment and nonperforming assets compared to total assets were 0.29% and 0.23%, respectively, at March 31, 2022, 0.25% and 0.21%, respectively, at December 31, 2022, and 0.36% and 0.29% at March 31, 2023. The increases for the quarter ended March 31, 2023, were attributable to accounting guidance no longer applicable which previously excluded certain acquired impaired loans from nonperforming ratios.
- ASU 2016-13 Adoption (i.e., Current Expected Credit Loss). On January 1st, 2023, Business First adopted the Current Expected Credit Loss (CECL) model. The adoption of CECL increased the allowance for loan losses and reserve for unfunded commitments, collectively called the allowance for credit losses, by $2.7 million and $3.2 million, respectively. The increases were offset by a $4.8 million reclassification of loan discount to allowance for loan losses for previously acquired impaired loans, resulting in a net $1.1 million pre-tax decrease to shareholder’s equity on the date of adoption.
Statement of Financial Condition
Loans
Loans held for investment increased $196.9 million or 4.27%, 17.33% annualized, from the linked quarter. Loan growth from the linked quarter was attributed to originations in the commercial, $85.5 million, real estate construction, $65.6 million, and real estate commercial, $35.1 million, portfolios. Approximately $60.7 million of the $65.6 million growth, 92.56%, in the real estate construction portfolio was attributable to fundings associated with commitments made in 2022. These three loan portfolios accounted for 94.53% of the loan growth for the quarter ended March 31, 2023.
The Dallas Fort Worth region produced 53.52% of total loan growth from the linked quarter based on unpaid principal balance, while Business First also continued to originate growth from several other key strategic markets, 14.62% from the Greater New Orleans region and 13.82% from the Houston region. Based on unpaid principal balances, Texas-based loans represent approximately 37% of the overall loan portfolio as of March 31, 2023.
Credit Quality
The ratios of nonperforming loans compared to loans held for investment and nonperforming assets compared to total assets increased from 0.25% and 0.21%, respectively, at December 31, 2022, to 0.36% and 0.29% at March 31, 2023. The increases were attributable to accounting guidance no longer applicable, which previously excluded certain acquired impaired loans from nonperforming ratios.
During the quarter ended March 31, 2023, Business First resolved a lending relationship which resulted in a $1.9 million charge-off attributable to previously acquired impaired loans. Prior to the adoption of CECL on January 1, 2023, the $1.9 million individual allowance for loan loss reserve was within the loans’ amortized cost basis, as a loan discount. Business First’s resolution of the loans resulted in a net gain of $190,000 compared to the amortized cost basis as of the quarter ended December 31, 2022. Excluding the $1.9 million charge-off on the acquired impaired loan relationship, charge-offs on non-acquired loans were low and consistent with historical percentages.
Securities
The securities portfolio increased $13.2 million or 1.48%, from the linked quarter. The increase was the net impact of positive fair value adjustments, $7.9 million, and the remainder of the increase was attributable to net security purchases during the quarter.
Deposits
Deposits decreased $14.2 million or 0.29%, 1.19% annualized, for the quarter ended March 31, 2023; however, branch deposits remained stable, increasing $2.4 million from the linked quarter, with new account openings continuing to outpace 2022 trends. Other corporate deposits decreased $16.6 million from the linked quarter, with the FIG deposit base decreasing $29.0 million.
Noninterest-bearing deposits decreased $73.6 million or 4.75%, and interest-bearing deposits increased $59.4 million or 1.82%, compared to the linked quarter. The net growth in interest-bearing deposits was attributable to growth in the certificate of deposit (CD) portfolio of $181.3 million compared to a decrease in transactional accounts of $121.9 million, of which $37.5 million of the decrease was attributable to the FIG deposit base. A significant portion of the transactional deposit decrease was attributable to existing client relationships transitioning funds to the CD portfolio.
As of March 31, 2023, Business First held approximately 103,020 deposit accounts with an average balance of approximately $46,650, of which $1.5 billion or 30.65% were uninsured by the FDIC. Excluding public funds, which are secured by securities or Federal Home Loan Bank (FHLB) letters of credit, the unsecured deposit total is approximately $1.0 billion, or 21.33% of total deposits.
Borrowings
Borrowings increased $291.9 million or 52.11%, from the linked quarter, largely to fund loan growth. During March 2023, Business First utilized the Bank Term Funding Program (BTFP) offered by the Federal Reserve to pay off some of the outstanding short-term seven-day rolling FHLB borrowings which were priced at approximately 5.00%. On March 24, 2023, Business First executed a $310 million fixed one-year loan at 4.38% through the BTFP. The Bank chose to utilize this source of funding due to its lower yield and the ability to prepay the loan without penalty compared to FHLB borrowings. On April 11, 2023, Business First opened two new lines of credit for additional contingent liquidity, totaling $949.5 million, through the Federal Reserve discount window. As of April 27, 2023, Business First has not yet drawn on either of the lines of credit.
Shareholders’ Equity
AOCI improved $6.2 million due to favorable after-tax fair value changes in the securities portfolio, improving $16.7 million from the low of $(84.7) million at September 30, 2022. Book value per common share was $20.77 at March 31, 2023, compared to $20.25 at December 31, 2022, increasing $0.52 or 2.53% from the linked quarter. On a non-GAAP basis, tangible book value per common share was $16.73 at March 31, 2023, compared to $16.17 at December 31, 2022, increasing $0.56 or 3.51% from the linked quarter.
Results of Operations
Net Interest Income
For the quarter ended March 31, 2023, net interest income totaled $52.7 million, compared to $56.1 million from the linked quarter, and was supported by strong loan and interest-earning asset yields of 6.34% and 5.65%, respectively, compared to 6.09% and 5.39%, respectively, from the linked quarter. Net interest margin and net interest spread were 3.75% and 2.96%, respectively, compared to 4.06% and 3.43%, respectively, for the linked quarter. Interest income for the quarter ended December 31, 2022, included $1.3 million of additional loan discount accretion due to a large, acquired loan payoff and accelerated accretion from the purchased impaired portfolio. Overall costs of funds, which include noninterest-bearing deposits, increased from 1.38% to 1.97% or 59 basis points, from the linked quarter.
Non-GAAP net interest income totaled $49.8 million for the quarter ended March 31, 2023, compared to $51.8 million from the linked quarter. Non-GAAP net interest margin and net interest spread (excluding loan discount accretion of $2.9 million) were 3.54% and 2.75%, respectively, for the quarter ended March 31, 2023, compared to 3.75% and 3.13% (excluding loan discount accretion of $4.2 million) for the linked quarter. Excluding loan discount accretion, loan yields increased 37 basis points from 5.72% to 6.09% and interest earning asset yields increased 35 basis points from 5.09% to 5.44%, compared to the linked quarter. The compression of net interest margin and net interest spread was largely attributed to the continued increases in funding costs during the quarter ended March 31, 2023.
Provision for Credit Losses
During the quarter ended March 31, 2023, Business First recorded a provision for credit losses of $3.2 million, compared to $3.1 million for the linked quarter. The provision for credit losses for the quarter ended March 31, 2023, was impacted by the resolution of an acquired impaired lending relationship in March 2023, which resulted in a charge-off of $1.9 million. Prior to implementation of CECL, the credit reserve was embedded within the loan discount. The charge-off was offset by reserves on new loan originations during the quarter and application of qualitative factors within the CECL model.
Other Income
For the quarter ended March 31, 2023, other income increased $110,000, or 1.33%, compared to the linked quarter. The net increase was largely attributable to a $552,000 increase in gain on sales of loans during the quarter from SBA loans and loan participations, offset by $435,000 less income from equity investments. Year-over-year, other income increased $2.5 million or 42.27%, partially attributable to the successful integration of Texas Citizens on March 1, 2023. On a non-GAAP basis, other income increased $1.7 million or 26.23%, after removing the $717,000 loss on disposal of former premises and equipment and $31,000 loss on sales of securities which occurred during the quarter ended March 31, 2022.
Other Expenses
For the quarter ended March 31, 2023, other expenses increased by $333,000, or 0.87%, compared to the linked quarter. The net increase was largely attributable to a $971,000 increase in salaries and expenses (salary increases and payroll taxes) and $322,000 increase in estimated FDIC premiums (rate increases will become effective for the quarter ended March 31, 2023). These were offset by reductions in data processing of $716,000, largely due to approximately $453,000 credit adjustments from prior period overbillings, and advertising and promotions of $423,000.
Return on Assets and Common Equity
Return to common shareholders on average assets and common equity, each on an annualized basis, were 0.91% and 10.73%, respectively, for the quarter ended March 31, 2023, compared to 1.12% and 13.56%, respectively, for the linked quarter. Non-GAAP return to common shareholders on average assets and common equity, each on an annualized basis, were 0.91% and 10.81%, respectively, for the quarter ended December 31, 2022, compared to 1.10% and 13.37%, respectively, for the linked quarter.
Conference Call and Webcast
Executive management will host a conference call and webcast to discuss results on Thursday, April 27, at 4:30 p.m. CDT. Interested parties may attend the call by dialing toll-free 1-800-715-9871 (North America only), conference ID 8276536, or asking for the Business First Bancshares conference call. The live webcast can be found at https://edge.media-server.com/mmc/p/x6vwyp8q. The corresponding slide presentation can be accessed the day of the presentation on b1BANK’s website at https://www.b1bank.com/shareholder-info.
About Business First Bancshares, Inc.
Business First Bancshares, Inc., (Nasdaq: BFST) through its banking subsidiary b1BANK, has $6.3 billion in assets, $6.5 billion in assets under management through b1BANK’s affiliate Smith Shellnut Wilson, LLC (SSW) (excludes $0.9 billion of b1BANK assets managed by SSW) and operates Banking Centers and Loan Production Offices in markets across Louisiana and the Dallas and Houston, Texas areas, providing commercial and personal banking products and services. Commercial banking services include commercial loans and letters of credit, working capital lines and equipment financing, and treasury management services. b1BANK was awarded #1 Best-In-State Bank, Louisiana, by Forbes and Statista, and is a multiyear winner of American Banker’s “Best Banks to Work For.” Visit b1BANK.com for more information.
Non-GAAP Financial Measures
This press release includes certain non-GAAP financial measures (e.g., referenced as “core” or “tangible”) intended to supplement, not substitute for, comparable GAAP measures. “Core” 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 “core” measures include realized and unrealized gains/losses on former bank premises and equipment, investment sales, acquisition-related expenses (including, but not limited to, legal costs, system conversion costs, severance and retention payments, etc.). “Tangible” measures adjust common equity by subtracting goodwill, core deposit intangibles, and customer intangibles, net of accumulated amortization. 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 Business First’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. 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 about 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 Business First. 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.
