Business First Bank(BFST) - 2019 Q2 - Quarterly Report

PART I - FINANCIAL INFORMATION Item 1. Financial Statements This section presents the unaudited consolidated financial statements, including balance sheets, income statements, and cash flows, with detailed notes Consolidated Balance Sheets Total assets increased to $2.15 billion by June 30, 2019, driven by growth in net loans, with total liabilities and shareholders' equity also rising Consolidated Balance Sheet Highlights (in thousands) | Account | June 30, 2019 (Unaudited) | December 31, 2018 | | :--- | :--- | :--- | | Total Assets | $2,153,608 | $2,094,896 | | Net Loans and Lease Receivable | $1,630,970 | $1,517,249 | | Total Deposits | $1,702,902 | $1,733,934 | | Total Liabilities | $1,876,139 | $1,834,838 | | Total Shareholders' Equity | $277,469 | $260,058 | Consolidated Statements of Income Net income significantly increased to $6.8 million for Q2 2019 and $12.5 million for the six-month period, driven by higher net interest income Income Statement Summary (in thousands, except per share data) | Metric | Three Months Ended June 30, 2019 | Three Months Ended June 30, 2018 | Six Months Ended June 30, 2019 | Six Months Ended June 30, 2018 | | :--- | :--- | :--- | :--- | :--- | | Net Interest Income | $20,193 | $14,976 | $39,313 | $29,476 | | Provision for Loan Losses | $1,302 | $474 | $1,935 | $948 | | Net Income | $6,843 | $3,638 | $12,502 | $6,746 | | Diluted EPS | $0.50 | $0.33 | $0.91 | $0.62 | Consolidated Statements of Cash Flows Net cash provided by operating activities was $15.7 million, while investing activities used $97.5 million, leading to a $32.0 million net decrease in cash Cash Flow Summary for Six Months Ended June 30 (in thousands) | Activity | 2019 | 2018 | | :--- | :--- | :--- | | Net Cash Provided by Operating Activities | $15,658 | $9,565 | | Net Cash Used in Investing Activities | ($97,520) | ($108,271) | | Net Cash Provided by Financing Activities | $49,833 | $36,976 | | Net (Decrease) in Cash and Cash Equivalents | ($32,029) | ($61,730) | Notes to Unaudited Consolidated Financial Statements The notes provide detailed explanations of financial statements, including mergers, loan portfolios, credit quality, and fair value measurements - The company completed the acquisition of Minden Bancorp, Inc. (MBI) on January 1, 2018, for $56.2 million in cash, resulting in $25.6 million of goodwill[26][27] - The acquisition of Richland State Bancorp, Inc. (RSBI) was completed on November 30, 2018, for $42.4 million in stock, resulting in $17.1 million of goodwill[28][29] - A branch acquired from RSBI was subsequently sold on June 28, 2019, for a net gain of $593,000[29] - The allowance for loan losses increased to $11.6 million at June 30, 2019, from $11.2 million at December 31, 2018[53] - The provision for loan losses for the first six months of 2019 was $1.9 million[53] - The company adopted the new lease accounting standard (ASU 2016-02) on January 1, 2019, recognizing a right-of-use asset and lease liability of approximately $13.0 million[97] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses Q2 and H1 2019 financial performance, covering key drivers, capital, and non-GAAP reconciliations Financial Highlights The company reported strong financial results for H1 2019, with total assets reaching $2.2 billion and total loans growing 7.5% to $1.6 billion, improving profitability metrics Key Performance Indicators | Metric | Six Months Ended June 30, 2019 | Six Months Ended June 30, 2018 | | :--- | :--- | :--- | | Net Income | $12.5 million | $6.7 million | | Diluted EPS | $0.91 | $0.62 | | Return on Average Assets | 1.20% | 0.83% | | Return on Average Equity | 9.38% | 7.35% | | Book Value Per Share (as of period end) | $20.77 | N/A | Results of Operations Operating results for Q2 and H1 2019 showed significant improvement, with net interest income growing 34.8% and noninterest income more than doubling, despite increased noninterest expense - Net interest income for Q2 2019 was $20.2 million with a net interest margin of 4.19%, compared to $15.0 million and 3.98% for Q2 2018[122] - Noninterest income for Q2 2019 increased by $2.2 million (110.3%) year-over-year, driven by a $593,000 gain on the sale of a banking center and a $1.04 million increase in pass-through income from SBIC partnerships[133][134][137] - Salaries and employee benefits rose by $2.2 million (34.2%) in Q2 2019 compared to Q2 2018, primarily due to additional staff from the RSBI acquisition and new hires. Full-time equivalent employees increased from 241 to 348 year-over-year[141] Financial Condition The company's financial condition remained strong, with total assets increasing to $2.2 billion and the loan portfolio growing 7.5%, while asset quality improved and nonperforming assets decreased - Total loans held for investment grew by $114.1 million (7.5%) to $1.6 billion as of June 30, 2019, compared to December 31, 2018[152] - Nonperforming assets decreased to $12.4 million at June 30, 2019, from $15.5 million at December 31, 2018[167][168] - The ratio of nonperforming loans to total loans improved to 0.61% from 0.89%[168] - The allowance for loan losses was 0.71% of total loans held for investment at June 30, 2019, compared to 0.73% at December 31, 2018[179] - Total deposits decreased by $31.0 million, primarily due to the sale of a banking center which included $24.9 million in associated deposits[193] Liquidity and Capital Resources The company maintained solid liquidity and capital, with total shareholders' equity increasing to $277.5 million and all regulatory capital ratios remaining well above 'well-capitalized' thresholds Regulatory Capital Ratios (Consolidated) | Ratio | June 30, 2019 | December 31, 2018 | | :--- | :--- | :--- | | Tier 1 Leverage | 10.74% | 11.66% | | Common Equity Tier 1 | 11.73% | 11.83% | | Tier 1 Risk-based | 11.73% | 11.83% | | Total Risk-based | 13.69% | 13.91% | - The Board of Directors declared a quarterly dividend of $0.10 per share on July 23, 2019[216] Non-GAAP Financial Measures This section provides reconciliations of GAAP to non-GAAP financial measures, with core net income at $6.6 million and tangible book value per common share increasing to $16.60 Core Net Income Reconciliation (in thousands) | Metric | Three Months Ended June 30, 2019 | Three Months Ended June 30, 2018 | | :--- | :--- | :--- | | Net Income (GAAP) | $6,843 | $3,638 | | Adjustments (net of tax) | ($241) | $430 | | Core Net Income (Non-GAAP) | $6,602 | $4,078 | Tangible Book Value Per Share Reconciliation | Metric | June 30, 2019 | December 31, 2018 | | :--- | :--- | :--- | | Book Value Per Share (GAAP) | $20.77 | $19.68 | | Tangible Book Value Per Share (Non-GAAP) | $16.60 | $15.34 | Item 3. Quantitative and Qualitative Disclosures about Market Risk Primary market risks include interest rate, credit, and liquidity, managed through established policies and committee oversight - The company's primary market risks are identified as interest rate, credit, and liquidity risk, which are managed through board-approved policies[247] Item 4. Controls and Procedures Disclosure controls and procedures were effective as of June 30, 2019, with no material changes to internal control - Management concluded that the company's disclosure controls and procedures were effective as of June 30, 2019[250] - No material changes were made to the company's internal control over financial reporting during the second quarter of 2019[251] PART II - OTHER INFORMATION Item 1. Legal Proceedings The company is not involved in any material legal proceedings beyond routine litigation - The company is not a party to any material legal proceedings outside of routine matters occurring in the ordinary course of business[251] Item 1A. Risk Factors This section refers to risk factors detailed in the company's 2018 Annual Report on Form 10-K - For a discussion of risk factors, the report refers to Item 1A of the company's 2018 Form 10-K[252] Item 6. Exhibits This section lists exhibits filed with the Form 10-Q, including officer certifications and XBRL data files - Exhibits filed with the report include CEO and CFO certifications under Sections 302 and 906 of the Sarbanes-Oxley Act[252]