10-Q 1 d945413d10q.htm FORM 10-Q Form 10-Q
Table of Contents

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C.

 

 

FORM 10-Q

 

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE

SECURITIES EXCHANGE ACT OF 1934

FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2015

Commission file number: 333-200112

 

 

BUSINESS FIRST BANCSHARES, INC.

(Exact name of registrant as specified in its charter)

 

 

For the transition period from              to             

 

Louisiana   20-5340628
(State or other jurisdiction of incorporation or organization)   (I.R.S. Employer Identification Number)

Business First Bank Plaza

8440 Jefferson Highway, Suite 101

Baton Rouge, Louisiana 70809

  70809
(Address of principal executive offices)   (Zip Code)

(Registrant’s telephone number, including area code: (225) 248-7600

Indicate by check mark whether the registrant: (i) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (ii) has been subject to such filing requirements for the past 90 days.    Yes  x    No  ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  x    No  ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer, or a smaller reporting company. See definition of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer   ¨    Accelerated filer   ¨
Non-accelerated filer   x    Smaller reporting company   ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).    Yes  ¨    No  x

As of August 14, 2015 the issuer has 7,205,913 shares of common stock outstanding.

 

 

 


Table of Contents

BUSINESS FIRST BANCSHARES, INC.

 

PART I - FINANCIAL INFORMATION

  

Item 1.

   Financial Statements   
   Balance Sheets as of June 30, 2015 and December 31, 2014    2
   Statements of Income for the Three and Six months ended June 30, 2015 and 2014    3
   Statements of Comprehensive Income for the Three and Six months ended June 30, 2015 and 2014    4
   Statement of Changes in Stockholders’ Equity for the Six months ended June 30, 2015 and 2014    5
   Statements of Cash Flows for the Six months ended June 30, 2015 and 2014    6
   Notes to Unaudited Financial Statements    8

Item 2.

   Management’s Discussion and Analysis of Financial Condition and Results of Operations    30

Item 3.

   Quantitative and Qualitative Disclosures About Market Risk    57

Item 4.

   Controls and Procedures    57

PART II - OTHER INFORMATION

  

Item 1.

   Legal Proceedings    58

Item 1A.

   Risk Factors    58

Item 2.

   Unregistered Sales of Equity Securities and Use of Proceeds    58

Item 3.

   Defaults Upon Senior Securities    58

Item 4.

   Mine Safety Disclosures    58

Item 5.

   Other Information    58

Item 6.

   Exhibits    58

Signatures

   59

Exhibit 31.1

   Certification of Principal Executive Officer pursuant to Rule 13a-14(a)   

Exhibit 31.2

   Certification of Principal Financial Officer pursuant to Rule 13a-14(a)   

Exhibit 32.1

   Certification of Chief Executive Officer and Principal Financial Officer pursuant to Rule 13a-14(b) and 18 U.S.C. Section 1350   

 

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Table of Contents

PART I – FINANCIAL INFORMATION

 

Item 1. Financial Statements

BUSINESS FIRST BANCSHARES, INC. AND SUBSIDIARIES

UNAUDITED CONSOLIDATED BALANCE SHEETS

(Dollars in thousands)

 

     June 30,
2015
    December 31,
2014
 
ASSETS     

Cash and Due from Banks

   $ 106,508      $ 26,015   

Federal Funds Sold

     13,419        817   

Securities Available for Sale, at Fair Values

     203,652        74,503   

Loans and Lease Receivable, Net of Allowance for Loan

    

Losses of $7,049 at June 30, 2015 and $6,632 at December 31, 2014

     725,839        551,754   

Premises and Equipment, Net

     12,353        2,180   

Accrued Interest Receivable

     2,587        1,772   

Other Equity Securities

     4,124        1,799   

Other Real Estate Owned

     3,502        3,028   

Cash Value of Life Insurance

     22,012        17,376   

Goodwill

     2,967        —     

Core Deposit Intangible

     2,762        —     

Other Assets

     7,004        5,258   
  

 

 

   

 

 

 

Total Assets

   $ 1,106,729      $ 684,502   
  

 

 

   

 

 

 
LIABILITIES     

Deposits:

    

Noninterest Bearing

   $ 244,516      $ 108,965   

Interest Bearing

     681,548        478,287   
  

 

 

   

 

 

 

Total Deposits

     926,064        587,252   

Securities Sold Under Agreements to Repurchase

     6,781        —     

Federal Home Loan Bank Borrowings

     55,459        15,000   

Accrued Interest Payable

     605        416   

Other Liabilities

     5,213        2,989   
  

 

 

   

 

 

 

Total Liabilities

     994,122        605,657   
STOCKHOLDERS’ EQUITY     

Common Stock, $1 Par Value; 10,000,000 Shares Authorized; 7,205,913 Shares Issued at June 30, 2015 and 5,314,925 at December 31, 2014

     7,206        5,315   

Additional Paid-in Capital

     87,987        57,225   

Retained Earnings

     19,104        16,948   

Accumulated Other Comprehensive Loss

     (1,690     (643
  

 

 

   

 

 

 

Total Stockholders’ Equity

     112,607        78,845   
  

 

 

   

 

 

 

Total Liabilities and Stockholders’ Equity

   $ 1,106,729      $ 684,502   
  

 

 

   

 

 

 

The accompanying notes are an integral part of these financial statements.

 

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Table of Contents

BUSINESS FIRST BANCSHARES, INC. AND SUBSIDIARIES

UNAUDITED CONSOLIDATED STATEMENTS OF INCOME

(Dollars in thousands)

 

     For The Three Months
Ended June 30,
     For The Six Months
Ended June 30,
 
     2015      2014      2015      2014  

Interest Income:

           

Interest and Fees on Loans

   $ 8,747       $ 6,371       $ 15,380       $ 12,878   

Interest and Dividends on Securities

     968         380         1,411         838   

Interest on Federal Funds Sold

     78         38         104         64   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total Interest Income

     9,793         6,789         16,895         13,780   

Interest Expense:

           

Interest on Deposits

     1,053         926         1,903         1,829   

Interest on Borrowings

     178         78         264         153   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total Interest Expense

     1,231         1,004         2,167         1,982   
  

 

 

    

 

 

    

 

 

    

 

 

 

Net Interest Income

     8,562         5,785         14,728         11,798   

Provision for Loan Losses

     150         150         300         300   
  

 

 

    

 

 

    

 

 

    

 

 

 

Net Interest Income after Provision for Loan Losses

     8,412         5,635         14,428         11,498   

Other Income:

           

Service Charges on Deposit Accounts

     440         154         589         292   

Gain on Sales of Securities

     —           —           —           6   

Other Income

     541         233         821         426   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total Other Income

     981         387         1,410         724   

Other Expenses:

           

Salaries and Employee Benefits

     4,236         2,778         7,174         5,504   

Occupancy and Equipment Expense

     1,105         609         1,762         1,240   

Other Expenses

     2,643         1,247         3,930         2,554   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total Other Expenses

     7,984         4,634         12,866         9,298   
  

 

 

    

 

 

    

 

 

    

 

 

 

Income Before Income Taxes

     1,409         1,388         2,972         2,924   

Provision for Income Taxes

     386         355         816         752   
  

 

 

    

 

 

    

 

 

    

 

 

 

Net Income

   $ 1,023       $ 1,033       $ 2,156       $ 2,172   
  

 

 

    

 

 

    

 

 

    

 

 

 

Earnings Per Share:

           

Basic

   $ 0.14       $ 0.19       $ 0.34       $ 0.41   

Diluted

   $  0.14       $ 0.19       $ 0.33       $ 0.39   

The accompanying notes are an integral part of these financial statements.

 

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BUSINESS FIRST BANCSHARES, INC. AND SUBSIDIARIES

UNAUDITED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Dollars in thousands)

 

     For The Three Months
Ended June 30,
    For The Six Months
Ended June 30,
 
     2015     2014     2015     2014  

Consolidated Net Income

   $ 1,023      $ 1,033      $ 2,156      $ 2,172   

Other Comprehensive Income (Loss):

        

Unrealized Gain (Loss) on Investment Securities

     (2,229     985        (1,587     2,656   

Reclassification Adjustment for Gains included in Net Income

     —          —          —          6   

Income Tax Effect

     758        (335     540        (905
  

 

 

   

 

 

   

 

 

   

 

 

 

Other Comprehensive Income (Loss)

     (1,471     650        (1,047     1,757   
  

 

 

   

 

 

   

 

 

   

 

 

 

Consolidated Comprehensive Income (Loss)

   $ (448   $ 1,683      $ 1,109      $ 3,929   
  

 

 

   

 

 

   

 

 

   

 

 

 

The accompanying notes are an integral part of these financial statements.

 

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BUSINESS FIRST BANCSHARES, INC. AND SUBSIDIARIES

UNAUDITED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

(Dollars in thousands)

 

     Common
Stock
     Additional
Paid-In
Capital
     Retained
Earnings
     Accumulated
Other
Comprehensive
Income (Loss)
    Total
Stockholders’
Equity
 

Balances at December 31, 2013

   $ 5,315       $ 56,740       $ 12,915       $ (3,047   $ 71,923   

Comprehensive Income:

             

Net Income

     —           —           2,172         —          2,172   

Other Comprehensive Income (Loss)

     —           —           —           1,757        1,757   

Stock Based Compensation Cost

     —           249         —           —          249   
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Balances at June 30, 2014

   $ 5,315       $ 56,989       $ 15,087       $ (1,290   $ 76,101   
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Balances at December 31, 2014

   $ 5,315       $ 57,225       $ 16,948       $ (643   $ 78,845   

Comprehensive Income:

             

Net Income

     —           —           2,156         —          2,156   

Other Comprehensive Income (Loss)

     —           —           —           (1,047     (1,047

Merger Consideration - net

     1,891         30,519         —           —          32,410   

Stock Based Compensation Cost

     —           243         —           —          243   
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Balances at June 30, 2015

   $ 7,206       $ 87,987       $ 19,104       $ (1,690   $ 112,607   
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

The accompanying notes are an integral part of these financial statements.

 

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BUSINESS FIRST BANCSHARES, INC. AND SUBSIDIARIES

UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Dollars in thousands)

 

     For The Six Months
Ended June 30,
 
     2015     2014  

Cash Flows From Operating Activities:

    

Consolidated Net Income

   $ 2,156      $ 2,172   

Adjustments to Reconcile Net Income to Net Cash Provided by (Used in) Operating Activities:

    

Provision for Loan Losses

     300        300   

Depreciation and Amortization

     544        404   

Amortization of Purchase Accounting Valuations

     (205     —     

Noncash Compensation Expense

     243        249   

Net Amortization of Securities

     562        262   

Gain on Sales of Securities

     —          (6

Gain on Sale of Other Real Estate Owned Net of Writedowns

     (7     —     

Increase in Cash Value of Life Insurance

     (310     (282

Credit for Deferred Income Taxes

     (663     (55

Changes in Assets and Liabilities:

    

(Increase) Decrease in Accrued Interest Receivable

     (78     181   

(Increase) Decrease in Other Assets

     (1,035     1,206   

Increase in Accrued Interest Payable

     58        44   

Increase in Other Liabilities

     526        645   
  

 

 

   

 

 

 

Net Cash Provided by Operating Activities

     2,091        5,120   
  

 

 

   

 

 

 

Cash Flows From Investing Activities:

    

Purchases of Securities Available for Sale

     (32,257     —     

Proceeds from Maturities / Sales of Securities Available for Sale

     1,836        25,224   

Proceeds from Paydowns of Securities Available for Sale

     7,481        2,860   

Net Cash Received in Merger

     87,377        —     

Purchases of Other Equity Securities

     (1,898     (543

Proceeds from Sales of Other Equity Securities

     1,651        1,866   

Net Increase in Loans

     (31,279     (1,456

Purchases of Premises and Equipment

     (176     (169

Proceeds from Sales of Other Real Estate

     413        —     

Net Increase in Federal Funds Sold

     (12,262     (4,666
  

 

 

   

 

 

 

Net Cash Provided by (Used in) Investing Activities

     20,886        23,116   
  

 

 

   

 

 

 

(CONTINUED)

 

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Table of Contents
     For The Six Months
Ended June 30,
 
     2015     2014  

Cash Flows From Financing Activities:

    

Net Increase (Decrease) in Deposits

     55,580        (5,150

Net Increase in Other Borrowings

     2,505        —     

Net Payments on Borrowings

     (569     —     
  

 

 

   

 

 

 

Net Cash Provided by Financing Activities

     57,516        (5,150
  

 

 

   

 

 

 

Net Increase in Cash and Cash Equivalents

     80,493        23,086   

Cash and Cash Equivalents at Beginning of Year

     26,015        10,074   
  

 

 

   

 

 

 

Cash and Cash Equivalents at End of Year

   $ 106,508      $ 33,160   
  

 

 

   

 

 

 

Supplemental Disclosures for Cash Flow Information:

    

Cash Payments for:

    

Interest on Deposits

   $ 1,805      $ 1,785   
  

 

 

   

 

 

 

Interest on Borrowings

   $ 145      $ 153   
  

 

 

   

 

 

 

Income Tax Payments

   $ 1,852      $ 916   
  

 

 

   

 

 

 

Supplemental Schedule for Noncash Investing and Financing Activities:

    

Change in the Unrealized Gain (Loss) on Securities Available for Sale

   $ (1,587   $ 2,663   
  

 

 

   

 

 

 

Change in Deferred Tax Effect on the Unrealized (Gain) Loss on Securities Available for Sale

   $ 540      $ (905
  

 

 

   

 

 

 

Transfer of Loans to Other Real Estate

   $ 117      $ 32   
  

 

 

   

 

 

 

The accompanying notes are an integral part of these financial statements.

 

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BUSINESS FIRST BANCSHARES, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands)

Note 1 – Basis of Presentation –

The unaudited consolidated financial statements include the accounts of Business First Bancshares, Inc. (the Company or Bancshares) and its wholly-owned subsidiary, Business First Bank (the Bank), and its wholly-owned subsidiaries, Business First Insurance, LLC and American Gateway Insurance Agency, LLC. The Bank operates in fifteen full service locations and one loan production office in Louisiana (Baton Rouge metro region, Shreveport, Covington, Lafayette, Lake Charles and Houma (LPO)). As a state bank, it is subject to regulation by the Office of Financial Institutions, State of Louisiana, and the Federal Deposit Insurance Corporation and undergoes periodic examinations by these agencies. The Company is regulated by the Federal Reserve and is also subject to periodic examinations.

In the opinion of management, the accompanying unaudited consolidated financial statements contain all adjustments necessary to present fairly the Company’s consolidated balance sheet, statement of income, comprehensive income, changes in stockholders’ equity and cash flows for the periods presented, and all such adjustments are of a normal recurring nature. All material intercompany transactions are eliminated. The results of operations for the interim periods are not necessarily indicative of the results to be expected for the entire year.

These interim consolidated financial statements have been prepared according to the rules and regulations of the Securities and Exchange Commission and, therefore, certain information and footnote disclosures normally presented in accordance with accounting principles generally accepted in the United State of America (“U.S. GAAP”) have been omitted or abbreviated.

Preparation of financial statements in conformity with U.S. GAAP requires management make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying disclosures. These estimates are based on management’s best knowledge of current events and actions the Company may undertake in the future. Estimates are used in accounting for, among other items, the allowance for loan losses, useful lives for depreciation and amortization, fair value of financial instruments, deferred taxes, and contingencies. Estimates that are particularly susceptible to significant change for the Company include the determination of the allowance for loan losses and the assessment of deferred tax assets and liabilities, and therefore are critical accounting policies. Management does not anticipate any material changes to estimates in the near term. Factors that may cause sensitivity to the aforementioned estimates include but are not limited to: external market factors such as market interest rates and employment rates, changes to operating policies and procedures, economic conditions in our markets, and changes in applicable banking regulations. Actual results may ultimately differ from estimates, although management does not generally believe such differences would materially affect the consolidated financial statements in any individual reporting period presented.

Note 2 – Reclassifications –

Certain reclassifications may have been made to conform to the classifications adopted for reporting in 2015. These reclassifications have no effect on previously reported net income.

 

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BUSINESS FIRST BANCSHARES, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands)

 

Note 3 – Mergers and Acquisitions –

After the close of business on March 31, 2015, the Company merged with American Gateway Financial Corporation (AGFC), parent bank holding company for American Gateway Bank, to which the operations of AGFC merged with the Company. Prior to the merger, American Gateway Bank was a full service bank with 10 branches located in the Baton Rouge metro region. As part of the merger, the Company issued common stock, as well as cash, for the outstanding shares of AGFC. The Company believes with this merger, it will not only increase its presence in the Baton Rouge region, but also in Louisiana statewide, by being able to offer more services to its customers. The Company also believes the merger with AGFC will increase the Company’s core deposits and allow the opportunity to further increase the loan portfolio. Results of operations include the revenues and expenses of the acquired operations from the acquisition date forward.

The following table provides the purchase price calculation as of the merger date and the identifiable assets purchased and the liabilities assumed at their estimated fair values. The purchase price calculation is an estimate, as the cash consideration to shareholders who have exercised their statutory rights of appraisal has not yet been finalized. The fair value measurements are subject to refinement for up to one year after the merger date based on additional information that may be obtained by us that existed as of the merger date.

Cost and Allocation of Purchase Price for American Gateway Financial Corporation (AGFC):

(Dollars in thousands, except per share data)

 

Purchase Price:

     

AGFC Shares Outstanding at March 31, 2015

     217,944      

Gross Business First Shares Issued for AGFC Shares

     2,589,174      

Exchange Ratio

     11.88      

Less: Shares Cashed Out Under Terms of Merger

     698,186      

Net Business First Shares Issued for AGFC Shares

        1,890,988   

Market Value per Share of Business First stock

        17.66   
     

 

 

 

Aggregate Pro Forma Value of Business First Stock Issued in Merger

      $ 33,395   

Aggregate Cash Consideration Paid in Merger

        1,595   

Cash Paid to Shareholders Exercising Appraisal Rights through June 30, 2015

        9,176   
     

 

 

 

Total Pro Forma Purchase Price

      $ 44,166   
     

 

 

 

Net Assets Acquired:

     

Cash and Cash Equivalents

      $ 98,489   

Securities Available for Sale

        108,358   

Loans and Leases Receivable

        143,223   

Premises and Equipment, Net

        10,495   

Cash Value of Life Insurance

        4,326   

Other Real Estate Owned

        745   

Core Deposit Intangible

        2,762   

Other Assets

        3,588   
     

 

 

 

Total Assets

        371,986   

Noninterest Bearing Deposits

        80,865   

Interest Bearing Deposits

        202,442   
     

 

 

 

Total Deposits

        283,307   

Borrowings

        45,509   

Other Liabilities

        1,971   
     

 

 

 

Total Liablilites

        330,787   

Net Assets Acquired

        41,199   
     

 

 

 

Goodwill Resulting from Merger

      $ 2,967   
     

 

 

 

* - Unsettled Appraisal Rights Shares at June 30, 2015 was 58,753 shares.

 

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BUSINESS FIRST BANCSHARES, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands)

 

The following table provides the unaudited pro forma results of operations for the three and six month periods ended June 30, 2015 and 2014, as if the acquisition occurred on January 1 of each year. These adjustments reflect the impact of certain purchase accounting fair value measurements, primarily comprised of AGFC’s loan, securities and deposit portfolios. The pro forma financial information is not necessarily indicative of the results of operations that would have occurred had the transaction been effected on the assumed date.

 

     For The Three Months
Ended June 30,
     For The Six Months
Ended June 30,
 
     2015      2014      2015      2014  
     (Dollars in thousands, except per share data)  

Interest Income

   $ 9,626       $ 9,934       $ 19,413       $ 20,075   

Interest Expense

     1,019         1,395         2,219         2,785   
  

 

 

    

 

 

    

 

 

    

 

 

 

Net Interest Income

     8,607         8,539         17,194         17,290   

Provision for Loan Losses

     150         225         300         500   
  

 

 

    

 

 

    

 

 

    

 

 

 

Net Interest Income after Provision for Loan Losses

     8,457         8,314         16,894         16,790   

Noninterest Income

     970         1,353         2,071         2,515   

Noninterest Expense

     8,077         7,772         15,677         15,489   
  

 

 

    

 

 

    

 

 

    

 

 

 

Income Before Income Taxes

     1,350         1,895         3,288         3,816   

Income Tax Expense

     366         342         939         723   
  

 

 

    

 

 

    

 

 

    

 

 

 

Net Income

   $ 984       $ 1,553       $ 2,349       $ 3,093   
  

 

 

    

 

 

    

 

 

    

 

 

 

Earnings Per Common Share

           

Basic

   $ 0.14       $ 0.22       $ 0.33       $ 0.43   

Diluted

   $ 0.13       $ 0.21       $ 0.31       $  0.42   

 

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BUSINESS FIRST BANCSHARES, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands)

 

Note 4 – Earnings per Common Share –

Basic earnings per share (EPS) represents income available to common stockholders divided by the weighted average number of common shares outstanding; no dilution for any potentially convertible shares is included in the calculation. Diluted EPS reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock or resulted in the issuance of common stock that then shared in the earnings of the Company. The potential common shares that may be issued by the Company relate to outstanding stock warrants and stock options.

 

     For The Three Months
Ended June 30,
     For The Six Months
Ended June 30,
 
     2015      2014      2015      2014  
     (Dollars in thousands, except per share data)  

Numerator:

           

Net Income Available to Common Shares

   $ 1,023       $ 1,033       $ 2,156       $ 2,172   
  

 

 

    

 

 

    

 

 

    

 

 

 

Denominator:

           

Weighted Average Common Shares Outstanding

     7,196,883         5,314,925         6,261,103         5,314,925   

Dilutive Effect of Stock Options and Warrants

     293,600         194,888         293,600         194,888   
  

 

 

    

 

 

    

 

 

    

 

 

 

Weighted Average Dilutive Common Shares

     7,490,483         5,509,813         6,554,703         5,509,813   
  

 

 

    

 

 

    

 

 

    

 

 

 

Basic Earnings Per Common Share From Net Income Available to Common Shares

   $ 0.14       $ 0.19       $ 0.34       $ 0.41   
  

 

 

    

 

 

    

 

 

    

 

 

 

Diluted Earnings Per Common Share From Net Income Available to Common Shares

   $ 0.14       $ 0.19       $ 0.33       $ 0.39   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

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BUSINESS FIRST BANCSHARES, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands)

 

Note 5 – Securities –

The amortized cost and fair values of securities available for sale as of June 30, 2015 and December 31, 2014 are summarized as follows:

 

     June 30, 2015  
     (Dollars in thousands)  
     Amortized
Cost
     Gross
Unrealized
Gains
     Gross
Unrealized
Losses
     Fair
Value
 

U.S. Government Agencies

   $ 14,319       $ 26       $ 90       $ 14,255   

Corporate Securities

     11,191         —           20         11,171   

Mortgage-Backed Securities

     123,813         58         1,754         122,117   

Municipal Securities

     55,778         391         736         55,433   

Other Securities

     1,112         —           436         676   
  

 

 

    

 

 

    

 

 

    

 

 

 
   $ 206,213       $ 475       $ 3,036       $ 203,652   
  

 

 

    

 

 

    

 

 

    

 

 

 
     December 31, 2014  
     (Dollars in thousands)  
     Amortized
Cost
     Gross
Unrealized
Gains
     Gross
Unrealized
Losses
     Fair
Value
 

U.S. Government Agencies

   $ 9,260       $ 31       $ 149       $ 9,142   

Corporate Securities

     —           —           —           —     

Mortgage-Backed Securities

     34,591         51         616         34,026   

Municipal Securities

     30,324         562         226         30,660   

Other Securities

     1,302         —           627         675   
  

 

 

    

 

 

    

 

 

    

 

 

 
   $ 75,477       $ 644       $ 1,618       $ 74,503   
  

 

 

    

 

 

    

 

 

    

 

 

 

The following table is a summary of securities with gross unrealized losses and fair values at June 30, 2015 and December 31, 2014, aggregated by investment category and length of time in a continued unrealized loss position. Due to the nature of these investments and current prevailing market prices, these unrealized losses are considered a temporary impairment of the securities.

 

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BUSINESS FIRST BANCSHARES, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands)

 

     June 30, 2015  
     Less Than 12 Months      12 Months or Greater      Total  
     (Dollars in thousands)  
     Fair
Value
     Gross
Unrealized
Losses
     Fair
Value
     Gross
Unrealized
Losses
     Fair
Value
     Gross
Unrealized
Losses
 

U.S. Government Agencies

   $ 9,272       $ 51       $ 3,851       $ 39       $ 13,123       $ 90   

Corporate Securities

     11,171         20         —           —           11,171         20   

Mortgage-Backed Securities

     89,302         1,011         26,559         743         115,861         1,754   

Municipal Securities

     33,074         477         4,702         259         37,776         736   

Other Securities

     —           —           676         436         676         436   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
   $ 142,819       $ 1,559       $ 35,788       $ 1,477       $ 178,607       $ 3,036   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
     December 31, 2014  
     Less Than 12 Months      12 Months or Greater      Total  
     (Dollars in thousands)  
     Fair
Value
     Gross
Unrealized
Losses
     Fair
Value
     Gross
Unrealized
Losses
     Fair
Value
     Gross
Unrealized
Losses
 

U.S. Government Agencies

   $ —         $ —         $ 8,003       $ 149       $ 8,003       $ 149   

Corporate Securities

     —           —           —           —           —           —     

Mortgage-Backed Securities

     —           —           32,714         616         32,714         616   

Municipal Securities

     4,703         20         9,687         206         14,390         226   

Other Securities

     —           —           675         627         675         627   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
   $ 4,703       $ 20       $ 51,079       $ 1,598       $ 55,782       $ 1,618   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Management evaluates securities for other than temporary impairment when economic and market conditions warrant such evaluations. Consideration is given to the extent and length of time the fair value has been below cost, the reasons for the decline in value, and the Company’s intent to sell a security or whether it is more likely than not that the Company will be required to sell the security before the recovery of its amortized cost. The Company developed a process to identify securities that could potentially have a credit impairment that is other than temporary. This process involves evaluating each security for impairment by monitoring credit performance, collateral type, collateral geography, loan-to-value ratios, credit scores, loss severity levels, pricing levels, downgrades by rating agencies, cash flow projections and other factors as indicators of potential credit issues. When the Company determines that a security is deemed to be other than temporarily impaired, an impairment loss is recognized.

 

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BUSINESS FIRST BANCSHARES, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands)

 

The amortized cost and fair values of securities available for sale as of June 30, 2015 by contractual maturity are shown below. Actual maturities may differ from contractual maturities in mortgage-backed securities because the mortgages underlying the securities may be called or repaid without any penalties.

 

     Amortized
Cost
     Fair
Value
 
     (Dollars in thousands)  

Less Than One Year

   $ 2,379       $ 2,384   

One to Five Years

     27,081         27,221   

Over Five to Ten Years

     65,767         65,323   

Over Ten Years

     110,986         108,724   
  

 

 

    

 

 

 
   $ 206,213       $ 203,652   
  

 

 

    

 

 

 

Note 6 – Loans and the Allowance for Loan Losses –

Loans receivable at June 30, 2015 and December 31, 2014 are summarized as follows:

 

     June 30,
2015
     December 31,
2014
 
     (Dollars in thousands)  

Real estate loans:

     

Construction and land

   $ 95,734       $ 61,062   

Farmland

     10,055         16,097   

1-4 family residential

     90,414         41,552   

Multi-family residential

     18,569         11,369   

Nonfarm nonresidential

     296,090         215,797   

Commercial

     194,350         185,291   

Consumer

     27,676         27,218   
  

 

 

    

 

 

 

Total loans held for investment

     732,888         558,386   
  

 

 

    

 

 

 

Less:

     

Allowance for loan losses

     (7,049      (6,632
  

 

 

    

 

 

 

Net loans

   $ 725,839       $ 551,754   
  

 

 

    

 

 

 

 

14


Table of Contents

BUSINESS FIRST BANCSHARES, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands)

 

The Bank grants loans and extensions of credit to individuals and a variety of businesses and corporations located in its general market areas throughout Louisiana. Management segregates the loan portfolio into portfolio segments which is defined as the level at which the Bank develops and documents a systematic method for determining its allowance for loan losses. The portfolio segments are segregated based on loan types and the underlying risk factors present in each loan type. Such risk factors are periodically reviewed by management and revised as deemed appropriate.

Loans acquired in business combinations are initially recorded at fair value, which includes an estimate of credit losses expected to be realized over the remaining lives of the loans, and therefore no corresponding allowance for loan losses is recorded for these loans at acquisition. Methods utilized to estimate any subsequently required allowance for loan losses for acquired loans not deemed credit-impaired at acquisition are similar to originated loans; however, the estimate of loss is based on the unpaid principal balance and then compared to any remaining unaccreted purchase discount. To the extent the calculated loss is greater than the remaining unaccreted discount, an allowance is recorded for such difference.

The following table sets forth, as of June 30, 2015 and December 31, 2014, the balance of the allowance for loan losses by portfolio segment, disaggregated by impairment methodology, which is then further segregated by amounts evaluated for impairment collectively and individually. The allowance for loan losses allocated to each portfolio segment is not necessarily indicative of future losses in any particular portfolio segment and does not restrict the use of the allowance to absorb losses in other portfolio segments.

 

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BUSINESS FIRST BANCSHARES, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands)

 

Allowance for Credit Losses and Recorded Investment in Loans Receivable

 

    June 30, 2015  
    (Dollars in thousands)  
    Real Estate:
Construction
and Land
    Real Estate:
Farmland
    Real Estate:
1-4 Family
Residential
    Real Estate:
Multi-family
Residential
    Real Estate:
Nonfarm
Nonresidential
    Commercial     Consumer     Total  

Allowance for credit losses:

               

Beginning Balance

  $ 525      $ 19      $ 775      $ 35      $ 1,140      $ 3,813      $ 325      $ 6,632   

Charge-offs

    —          —          (39     —          (44     (41     —          (124

Recoveries

    30        —          16        —          3        108        84        241   

Provision

    72        4        43        8        74        90        9        300   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Ending Balance

  $ 627      $ 23      $ 795      $ 43      $ 1,173      $ 3,970      $ 418      $ 7,049   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Ending Balance:

               

Individually evaluated for impairment

  $ 505      $ —        $ —        $ —        $ —        $ 470      $ —        $ 975   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Collectively evaluated for impairment

  $ 122      $ 23      $ 795      $ 43      $ 1,173      $ 3,500      $ 418      $ 6,074   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Purchased Credit Impaired (1)

  $ —        $ —        $ —        $ —        $ —        $ —        $ —        $ —     
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Loans receivable:

               

Ending Balance

  $ 95,734      $ 10,055      $ 90,414      $ 18,569      $ 296,090      $ 194,350      $ 27,676      $ 732,888   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Ending Balance:

               

Individually evaluated for impairment

  $ 2,727      $ —        $ 855      $ —        $ 3,961      $ 5,216      $ 13      $ 12,772   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Collectively evaluated for impairment

  $ 92,707      $ 10,055      $ 88,681      $ 18,321      $ 288,854      $ 189,134      $ 27,663      $ 715,415   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Purchased Credit Impaired (1)

  $ 300      $ —        $ 878      $ 248      $ 3,275      $ —        $ —        $ 4,701   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

(1) Purchased credit impaired loans are evaluated for impairement on an individual basis.

 

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BUSINESS FIRST BANCSHARES, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands)

 

     December 31, 2014  
     (Dollars in thousands)  
     Real Estate:
Construction
and Land
     Real Estate:
Farmland
     Real Estate:
1-4 Family
Residential
    Real Estate:
Multi-family
Residential
     Real Estate:
Nonfarm
Nonresidential
     Commercial     Consumer      Total  

Allowance for credit losses:

                     

Beginning balance

   $ 315       $ 6       $ 836      $ 22       $ 946       $ 3,647      $ 271       $ 6,043   

Charge-offs

     —           —           (174     —           —           (10     —           (184

Recoveries

     —           —           29        —           —           16        28         73   

Provision

     210         13         84        13         194         160        26         700   
  

 

 

    

 

 

    

 

 

   

 

 

    

 

 

    

 

 

   

 

 

    

 

 

 

Ending Balance

   $ 525       $ 19       $ 775      $ 35       $ 1,140       $ 3,813      $ 325       $ 6,632   
  

 

 

    

 

 

    

 

 

   

 

 

    

 

 

    

 

 

   

 

 

    

 

 

 

Ending Balance:

                     

Individually evaluated for impairment

   $ 505       $ —         $ —        $ —         $ —         $ 41      $ —         $ 546   
  

 

 

    

 

 

    

 

 

   

 

 

    

 

 

    

 

 

   

 

 

    

 

 

 

Collectively evaluated for impairment

   $ 20       $ 19       $ 775      $ 35       $ 1,140       $ 3,772      $ 325       $ 6,086   
  

 

 

    

 

 

    

 

 

   

 

 

    

 

 

    

 

 

   

 

 

    

 

 

 

Loans receivable:

                     

Ending Balance

   $ 61,062       $ 16,097       $ 41,552      $ 11,369       $ 215,797       $ 185,291      $ 27,218       $ 558,386   
  

 

 

    

 

 

    

 

 

   

 

 

    

 

 

    

 

 

   

 

 

    

 

 

 

Ending Balance:

                     

Individually evaluated for impairment

   $ 2,772       $ —         $ 977      $ —         $ 4,358       $ 3,714      $ 47       $ 11,868   
  

 

 

    

 

 

    

 

 

   

 

 

    

 

 

    

 

 

   

 

 

    

 

 

 

Collectively evaluated for impairment

   $ 58,290       $ 16,097       $ 40,575      $ 11,369       $ 211,439       $ 181,577      $ 27,171       $ 546,518   
  

 

 

    

 

 

    

 

 

   

 

 

    

 

 

    

 

 

   

 

 

    

 

 

 

Management further disaggregates the loan portfolio segments into classes of loans, which are based on the initial measurement of the loan, risk characteristics of the loan and the method for monitoring and assessing the credit risk of the loan.

 

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BUSINESS FIRST BANCSHARES, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands)

 

As of June 30, 2015 and December 31, 2014, the credit quality indicators, disaggregated by class of loan, are as follows:

Credit Quality Indicators

 

     June 30, 2015  
     Pass      Special Mention      Substandard      Doubtful      Total  
     (Dollars in thousands)  

Real Estate Loans:

              

Construction and land

   $ 88,413       $ 2,960       $ 1,530       $ 2,831       $ 95,734   

Farmland

     10,055         —           —           —           10,055   

1-4 family residential

     82,490         2,032         3,021         2,871         90,414   

Multi-family residential

     17,241         945         383         —           18,569   

Nonfarm nonresidential

     264,130         10,749         19,199         2,012         296,090   

Commercial

     172,855         7,696         12,111         1,688         194,350   

Consumer

     27,199         431         46         —           27,676   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 662,383       $ 24,813       $ 36,290       $ 9,402       $ 732,888   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
     December 31, 2014  
     Pass      Special Mention      Substandard      Doubtful      Total  
     (Dollars in thousands)  

Real Estate Loans:

              

Construction and land

   $ 56,740       $ 2,069       $ 642       $ 1,611       $ 61,062   

Farmland

     16,097         —           —           —           16,097   

1-4 family residential

     39,702         912         786         152         41,552   

Multi-family residential

     10,463         906         —           —           11,369   

Nonfarm nonresidential

     190,356         16,410         7,812         1,219         215,797   

Commercial

     161,904         12,087         11,254         46         185,291   

Consumer

     26,654         517         47         —           27,218   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 501,916       $ 32,901       $ 20,541       $ 3,028       $ 558,386   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

The above classifications follow regulatory guidelines and can generally be described as follows:

 

    Pass loans are of satisfactory quality.

 

    Special mention loans have an existing weakness that could cause future impairment, including the deterioration of financial ratios, past due status, questionable management capabilities and possible reduction in the collateral values.

 

    Substandard loans have an existing specific and well defined weakness that may include poor liquidity and deterioration of financial ratios. The loan may be past due and related deposit accounts experiencing overdrafts. Immediate corrective action is necessary.

 

    Doubtful loans have specific weaknesses that are severe enough to make collection or liquidation in full highly questionable and improbable.

 

18


Table of Contents

BUSINESS FIRST BANCSHARES, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands)

 

The following table reflects certain information with respect to the loan portfolio delinquencies by loan class and amount as of June 30, 2015 and December 31, 2014. All loans greater than 90 days past due are generally placed on non-accrual status.

Aged Analysis of Past Due Loans Receivable

 

     June 30, 2015  
     (Dollars in thousands)  
     30-59 Days
Past Due
     60-89 Days
Past Due
     Greater
Than 90 Days
Past Due
     Total
Past Due
     Current      Total Loans
Receivable
     Recorded
Investment Over
90 Days Past Due
and Still Accruing
 

Real Estate Loans:

                    

Construction and land

   $ 71       $ 14       $ 1,441       $ 1,526       $ 94,208       $ 95,734       $ —     

Farmland

     —           —           —           —           10,055         10,055         —     

1-4 family residential

     946         348         1,127         2,421         87,993         90,414         —     

Multi-family residential

     —           —           —           —           18,569         18,569         —     

Nonfarm nonresidential

     47         127         542         716         295,374         296,090         —     

Commercial

     28         1,661         20         1,709         192,641         194,350         —     

Consumer

     7         —           —           7         27,669         27,676         —     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 1,099       $ 2,150       $ 3,130       $ 6,379       $ 726,509       $ 732,888       $ —     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
     December 31, 2014  
     (Dollars in thousands)  
     30-59 Days
Past Due
     60-89 Days
Past Due
     Greater
Than 90 Days
Past Due
     Total
Past Due
     Current      Total Loans
Receivable
     Recorded
Investment Over
90 Days Past Due
and Still Accruing
 

Real Estate Loans:

                    

Construction and land

   $ —         $ —         $ 182       $ 182       $ 60,880       $ 61,062       $ —     

Farmland

     —           —           —           —           16,097         16,097         —     

1-4 family residential

     —           —           63         63         41,489         41,552         5   

Multi-family residential

     —           —           —           —           11,369         11,369         —     

Nonfarm nonresidential

     —           —           311         311         215,486         215,797         —     

Commercial

     41         —           —           41         185,250         185,291         —     

Consumer

     —           —           —           —           27,218         27,218         —     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 41       $ —         $ 556       $ 597       $ 557,789       $ 558,386       $ 5   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

19


Table of Contents

BUSINESS FIRST BANCSHARES, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands)

 

The following is a summary of information pertaining to impaired loans as of June 30, 2015 and December 31, 2014. Acquired non-impaired loans are placed on nonaccrual status and reported as impaired using the same criteria applied to the originated portfolio. Purchased impaired credits are excluded from this table. The interest income recognized for impaired loans was insignificant.

 

     June 30, 2015  
     (Dollars in thousands)  
     Recorded
Investment
     Unpaid
Principal
Balance
     Related
Allowance
     Average
Recorded
Investment
 

With an allowance recorded:

           

Real Estate Loans:

           

Construction and land

   $ 1,383       $ 1,383       $ 505       $ 1,402   

Farmland

     —           —           —           —     

1-4 family residential

     —           —           —           —     

Multi-family residential

     —           —           —           —     

Nonfarm nonresidential

     —           —           —           —     

Other Loans:

           

Commercial

     1,661         1,661         470         284   

Consumer

     —           —           —           —     
  

 

 

    

 

 

    

 

 

    

 

 

 
   $ 3,044       $ 3,044       $ 975       $ 1,686   
  

 

 

    

 

 

    

 

 

    

 

 

 

With no allowance recorded:

           

Real Estate Loans:

           

Construction and land

   $ 1,344       $ 1,344       $ —         $ 1,344   

Farmland

     —           —           —           —     

1-4 family residential

     855         898         —           884   

Multi-family residential

     —           —           —           —     

Nonfarm nonresidential

     3,961         4,867         —           4,024   

Other Loans:

           

Commercial

     3,555         3,555         —           3,590   

Consumer

     13         13         —           26   
  

 

 

    

 

 

    

 

 

    

 

 

 
   $ 9,728       $ 10,677       $ —         $ 9,868   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total Impaired Loans:

           

Real Estate Loans:

           

Construction and land

   $ 2,727       $ 2,727       $ 505       $ 2,746   

Farmland

     —           —           —           —     

1-4 family residential

     855         898         —           884   

Multi-family residential

     —           —           —           —     

Nonfarm nonresidential

     3,961         4,867         —           4,024   

Other Loans:

           

Commercial

     5,216         5,216         470         3,874   

Consumer

     13         13         —           26   
  

 

 

    

 

 

    

 

 

    

 

 

 
   $ 12,772       $ 13,721       $ 975       $ 11,554   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

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BUSINESS FIRST BANCSHARES, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands)

 

     December 31, 2014  
     (Dollars in thousands)  
     Recorded
Investment
     Unpaid
Principal
Balance
     Related
Allowance
     Average
Recorded
Investment
 

With an allowance recorded:

           

Real Estate Loans:

           

Construction and land

   $ 1,428       $ 1,428       $ 505       $ 1,345   

Farmland

     —           —           —           —     

1-4 family residential

     —           —           —           83   

Multi-family residential

     —           —           —           —     

Nonfarm nonresidential

     —           —           —           —     

Other Loans:

           

Commercial

     41         41         41         3   

Consumer

     —           —           —           —     
  

 

 

    

 

 

    

 

 

    

 

 

 
   $ 1,469       $ 1,469       $ 546       $ 1,431   
  

 

 

    

 

 

    

 

 

    

 

 

 

With no allowance recorded:

           

Real Estate Loans:

           

Construction and land

   $ 1,344       $ 1,344       $ —         $ 1,905   

Farmland

     —           —           —           —     

1-4 family residential

     977         1,020         —           1,090   

Multi-family residential

     —           —           —           —     

Nonfarm nonresidential

     4,358         5,264         —           5,069   

Other Loans:

           

Commercial

     3,673         3,673         —           3,753   

Consumer

     47         47         —           205   
  

 

 

    

 

 

    

 

 

    

 

 

 
   $ 10,399       $ 11,348       $ —         $ 12,022   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total Impaired Loans:

           

Real Estate Loans:

           

Construction and land

   $ 2,772       $ 2,772       $ 505       $ 3,250   

Farmland

     —           —           —           —     

1-4 family residential

     977         1,020         —           1,173   

Multi-family residential

     —           —           —           —     

Nonfarm nonresidential

     4,358         5,264         —           5,069   

Other Loans:

           

Commercial

     3,714         3,714         41         3,756   

Consumer

     47         47         —           205   
  

 

 

    

 

 

    

 

 

    

 

 

 
   $ 11,868       $ 12,817       $ 546       $ 13,453   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

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BUSINESS FIRST BANCSHARES, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands)

 

The Company elected to account for certain loans acquired in the AGFC merger as acquired impaired loans under FASB ASC 310-30, Loans and Debt Securities Acquired with Deteriorated Credit Quality (“ASC 310-30”), due to evidence of credit deterioration at acquisition and the probability that the Company will be unable to collect all contractually required payments.

The following table presents the fair value of loans acquired with deteriorated credit quality as of the date of the AGFC merger. The expected cash flows approximated fair value as of the date of merger and, as a result, no accretable yield was recognized at acquisition.

 

     April 1, 2015  
     (Dollars in thousands)  

Purchased Impaired Credits:

  

Contractually required principal and interest

   $ 11,294   

Nonaccretable difference

     6,375   
  

 

 

 

Cash flows expected to be collected

     4,919   

Accretable yield

     —     
  

 

 

 

Fair value of Purchased Impaired Credits

   $ 4,919   
  

 

 

 

The following table presents the changes in the carrying amount of the purchased impaired credits from the April 1, 2015 merger date to June 30, 2015.

 

     Purchased
Impaired Credits
 
     (Dollars in thousands)  

Carrying amount - April 1, 2015 (acquisition)

   $ 4,919   

Payments received, net

     (218
  

 

 

 

Carrying amount - June 30, 2015

   $ 4,701   
  

 

 

 

Total loans acquired in the AGFC merger included $142.8 million of performing loans not accounted for under ASC 310-30.

The Bank seeks to assist customers that are experiencing financial difficulty by renegotiating loans within lending regulations and guidelines. The Bank makes loan modifications, primarily utilizing internal renegotiation programs via direct customer contact, that manage customers’ debt exposures held only by the Bank. Additionally, the Bank makes loan modifications with customers who have elected to work with external renegotiation agencies and these modifications provide solutions to customers’ entire unsecured debt structures. During the periods ended June 30, 2015 and December 31, 2014, the concessions granted to certain borrowers included extending the payment due dates, lowering the contractual interest rate, reducing accrued interest, and reducing the debt’s face or maturity amount.

Once modified in a troubled debt restructuring, a loan is generally considered impaired until its contractual maturity. At the time of the restructuring, the loan is evaluated for an asset-specific allowance for credit losses. The Bank continues to specifically reevaluate the loan in subsequent periods, regardless of the borrower’s performance under the modified terms. If a borrower subsequently defaults on the loan after it is restructured the Bank provides an allowance for credit losses for the amount of the loan that exceeds the value of the related collateral.

 

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BUSINESS FIRST BANCSHARES, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands)

 

The following tables present informative data regarding loan modifications occurring as of June 30, 2015 and December 31, 2014.

Modifications as of June 30, 2015:

 

     Number
of
Contracts
     Pre-Modification
Outstanding
Recorded
Investment
     Post-Modification
Outstanding
Recorded
Investment
 
            (Dollars in thousands)         

Troubled Debt Restructing

        

Real Estate Loans:

        

Construction and land

     1       $ 1,586       $ 1,162   

Farmland

        —           —     

1-4 family residential

     4         1,388         855   

Multi-family residential

        —           —     

Nonfarm nonresidential

     3         5,143         3,830   

Other Loans:

        

Commercial

     4         3,786         3,538   

Consumer

     2         139         13   
  

 

 

    

 

 

    

 

 

 

Total Loans

     14       $ 12,042       $ 9,398   
  

 

 

    

 

 

    

 

 

 

Modifications as of December 31, 2014:

 

     Number
of
Contracts
     Pre-Modification
Outstanding
Recorded
Investment
     Post-Modification
Outstanding
Recorded
Investment
 
            (Dollars in thousands)         

Troubled Debt Restructing

        

Real Estate Loans:

        

Construction and land

     1       $ 1,586       $ 1,162   

Farmland

        —           —     

1-4 family residential

     5         1,519         973   

Multi-family residential

        —           —     

Nonfarm nonresidential

     5         7,201         4,047   

Other Loans:

        

Commercial

     6         3,888         3,658   

Consumer

     2         139         47   
  

 

 

    

 

 

    

 

 

 

Total Loans

     19       $ 14,333       $ 9,887   
  

 

 

    

 

 

    

 

 

 

 

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BUSINESS FIRST BANCSHARES, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands)

 

Note 7 – Fair Value of Financial Instruments –

Fair Value Disclosures

The Company groups its financial assets and liabilities measured at fair value in three levels. Fair value should be based on the assumptions market participants would use when pricing the asset or liability and establishes a fair value hierarchy that prioritizes the inputs used to develop those assumptions and measure fair value. The hierarchy requires companies to maximize the use of observable inputs and minimize the use of unobservable inputs. The three levels of inputs used to measure fair value are as follows:

 

    Level 1 – Includes the most reliable sources, and includes quoted prices in active markets for identical assets or liabilities.

 

    Level 2 – Includes observable inputs. Observable inputs include inputs other than quoted prices that are observable for the asset or liability (for example, interest rates and yield curves at commonly quoted intervals, volatilities, prepayment speeds, loss severities, credit risks, and default rates) as well as inputs that are derived principally from or corroborated by observable market data by correlation or other means (market-corroborated inputs).

 

    Level 3 – Includes unobservable inputs and should be used only when observable inputs are unavailable.

Recurring Basis

Fair values of investment securities available for sale were primarily measured using information from a third-party pricing service. This pricing service provides information by utilizing evaluated pricing models supported with market data information. Standard inputs include benchmark yields, reported trades, broker/dealer quotes, issuer spreads, benchmark securities, bids, offers, and reference data from market research publications.

The following tables present the balance of assets and liabilities measured on a recurring basis as of June 30, 2015 and December 31, 2014. The Company did not record any liabilities at fair value for which measurement of the fair value was made on a recurring basis.

 

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BUSINESS FIRST BANCSHARES, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands)

 

     Fair Value      Quoted Prices in
Active Markets
for Identical
Assets
(Level 1)
     Significant
Other
Observable
Inputs
(Level 2)
     Significant
Unobservable
Inputs
(Level 3)
 
     (Dollars in thousands)  

June 30, 2015

           

Available for Sale:

           

U.S. Government Agency Securities

   $ 14,255       $ —         $ 14,255       $ —     

Corporate Securities

     11,171         —           11,171         —     

Mortgage-Backed Securities

     122,117         —           122,117         —     

Municipal Securities

     55,433         —           55,433         —     

Other Securities

     676         —           676         —     
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 203,652       $ —         $ 203,652       $ —     
  

 

 

    

 

 

    

 

 

    

 

 

 

December 31, 2014

           

Available for Sale:

           

U.S. Government Agency Securities

   $ 9,142       $ —         $ 9,142       $ —     

Corporate Securities

     —           —           —           —     

Mortgage-Backed Securities

     34,026         —           34,026         —     

Municipal Securities

     30,660         —           30,660         —     

Other Securities

     675         —           675         —     
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 74,503       $ —         $ 74,503       $ —     
  

 

 

    

 

 

    

 

 

    

 

 

 

Nonrecurring Basis

The Company has segregated all financial assets and liabilities that are measured at fair value on a nonrecurring basis into the most appropriate level within the fair value hierarchy based on the inputs used to determine the fair value at the measurement date in the table below. The Company did not record any liabilities at fair value for which measurement of the fair value was made on a nonrecurring basis.

 

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BUSINESS FIRST BANCSHARES, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands)

 

The fair value of the impaired loans is measured at the fair value of the collateral for collateral-dependent loans. Impaired loans are Level 2 assets measured using appraisals from external parties of the collateral less any prior liens. Repossessed assets are initially recorded at fair value less estimated cost to sell. The fair value of repossessed assets is based on property appraisals and an analysis of similar properties available. As such, the Bank records repossessed assets as Level 2.

 

     Fair Value      Quoted Prices in
Active Markets
for Identical
Assets
(Level 1)
     Significant
Other
Observable
Inputs
(Level 2)
     Significant
Unobservable
Inputs
(Level 3)
 
     (Dollars in thousands)  

June 30, 2015

           

Assets:

           

Impaired Loans

   $ 16,498       $ —         $ 16,498       $ —     

Repossessed Assets

     3,502         —           3,502         —     
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 20,000       $ —         $ 20,000       $ —     
  

 

 

    

 

 

    

 

 

    

 

 

 

December 31, 2014

           

Assets:

           

Impaired Loans

   $ 11,322       $ —         $ 11,322       $ —     

Repossessed Assets

     3,028         —           3,028         —     
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 14,350       $ —         $ 14,350       $ —     
  

 

 

    

 

 

    

 

 

    

 

 

 

Fair Value Financial Instruments

The fair value of a financial instrument is the current amount that would be exchanged between willing parties, other than in a forced liquidation. Fair value is best determined based upon quoted market prices. However, in many instances, there are no quoted market prices for the Company’s various financial instruments. In cases where quoted market prices are not available, fair values are based on estimates using present value or other valuation techniques. Those techniques are significantly affected by the assumptions used, including the discount rate and estimates of future cash flows. Accordingly, the fair value estimates may not be realized in an immediate settlement of the instrument. In accordance with generally accepted accounting principles, certain financial instruments and all non-financial instruments are excluded from these disclosure requirements. Accordingly, the aggregate fair value amounts presented may not necessarily represent the underlying fair value of the Company.

The following methods and assumptions were used to estimate the fair value of each class of financial instruments for which it is practicable to estimate that value:

Cash and Short-Term Investments – For those short-term instruments, the carrying amount is a reasonable estimate of fair value.

Securities – Fair value of securities is based on quoted market prices. If a quoted market price is not available, fair value is estimated using quoted market prices for similar securities.

 

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BUSINESS FIRST BANCSHARES, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands)

 

Loans – The fair value for loans is estimated using discounted cash flow analyses, with interest rates currently being offered for similar loans to borrowers with similar credit rates. Loans with similar classifications are aggregated for purposes of the calculations. The allowance for loan losses, which was used to measure the credit risk, is subtracted from loans.

Cash Value of Bank-Owned Life Insurance (BOLI) – The carrying amount approximates its fair value.

Deposits – The fair value of demand deposits and certain money market deposits is the amount payable at the reporting date. The fair value of fixed-maturity certificates of deposit is estimated using discounted cash flow analyses, with interest rates currently offered for deposits of similar remaining maturities.

Borrowings – The fair value of FHLB advances and other long-term borrowings is estimated using the rates currently offered for advances of similar maturities. The carrying amount of short-term borrowings maturing within ninety days approximates the fair value.

Commitments to Extend Credit and Standby and Commercial Letters of Credit – The fair values of commitments to extend credit and standby and commercial letters of credit do not differ significantly from the commitment amount and are therefore omitted from this disclosure.

The estimated approximate fair values of the Bank’s financial instruments as of June 30, 2015 and December 31, 2014 are as follows:

 

     Carrying
Amount
     Total
Fair Value
     Quoted Prices in
Active Markets
for Identical
Assets
(Level 1)
     Significant
Other
Observable
Inputs
(Level 2)
     Significant
Unobservable
Inputs
(Level 3)
 
     (Dollars in thousands)  

June 30, 2015

              

Financial Assets:

              

Cash and Short-Term Investments

   $ 119,927       $ 119,927       $ 119,927       $ —         $ —     

Securities

     203,652         203,652         —           203,652         —     

Loans - Net

     725,839         724,201         —           —           724,201   

Cash Value of BOLI

     22,012         22,012         —           22,012         —     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
   $ 1,071,430       $ 1,069,792       $ 119,927       $ 225,664       $ 724,201   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Financial Liabilities:

              

Deposits

   $ 926,064       $ 914,531       $ —         $ —         $ 914,531   

Borrowings

     62,240         59,288         —           59,288         —     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
   $ 988,304       $ 973,819       $ —         $ 59,288       $ 914,531   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

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Table of Contents

BUSINESS FIRST BANCSHARES, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands)

 

 

     Carrying
Amount
     Total
Fair Value
     Quoted Prices in
Active Markets
for Identical
Assets
(Level 1)
     Significant
Other
Observable
Inputs
(Level 2)
     Significant
Unobservable
Inputs
(Level 3)
 
     (Dollars in thousands)  

December 31, 2014

              

Financial Assets:

              

Cash and Short-Term Investments

   $ 26,832       $ 26,832       $ 26,832       $ —         $ —     

Securities

     74,503         74,503         —           74,503         —     

Loans - Net

     551,754         551,037         —           —           551,037   

Cash Value of BOLI

     17,376         17,376         —           17,376         —     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
   $ 670,465       $ 669,748       $ 26,832       $ 91,879       $ 551,037   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Financial Liabilities:

              

Deposits

   $ 587,252       $ 581,239       $ —         $ —         $ 581,239   

Borrowings

     15,000         14,986         —           14,986         —     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
   $ 602,252       $ 596,225       $ —         $ 14,986       $ 581,239   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Note 8 – Recently Issued Accounting Pronouncements –

In January 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2014-01, Investments – Equity Method and Joint Venture – Accounting for Investments in Qualified Affordable Housing Projects, which permits entities to make an accounting policy election to account for investments in qualified affordable housing projects using the proportional amortization method if certain conditions are met. The new guidance also requires new disclosures for all investors in these projects. ASU No. 2014-01 is effective for interim and annual reporting periods beginning after December 15, 2014. The adoption of this ASU did not have a material impact on the Company’s consolidated financial statements.

In January 2014, the FASB issued ASU No. 2014-04, Receivables – Troubled Debt Restructurings by Creditors – Reclassification of Residential Real Estate Collateralized Consumer Mortgage Loans Upon Foreclosure, which clarifies when an in-substance repossession of foreclosure is deemed to occur, that is when a creditor should be considered to have received physical possession of residential real estate property collateralizing a consumer mortgage loan, and the loan should be derecognized and the real estate property should be recognized. This ASU clarifies that an in-substance repossession or foreclosure has occurred when either the creditor obtains legal title to the property or the borrower conveys all interest in the property to the creditor to satisfy the loan through completion of a deed in lieu of foreclosure or similar legal agreement. ASU 2014-04 also requires the Company to disclose both the amount of foreclosed residential real estate property held and the investment in consumer mortgage loans collateralized by residential real estate that are in the process of foreclosure. This ASU is effective for interim and annual reporting periods beginning after December 15, 2014. The adoption of this ASU did not have a material impact on the Company’s consolidated financial statements.

 

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Table of Contents

BUSINESS FIRST BANCSHARES, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands)

 

In August 2014, the FASB issued ASU No. 2014-14, Receivables – Troubled Debt Restructurings by Creditors – Classification of Certain Government-Guaranteed Residential Mortgage Loans Upon Foreclosure, which provides guidance concerning the classification of foreclosed residential mortgage loans held by creditors that are fully guaranteed under certain government programs. If certain conditions are met, a residential mortgage loan is derecognized and a separate other receivable is recorded upon foreclosure. ASU No. 2014-14 is effective for interim and annual reporting periods beginning after December 15, 2014. The adoption of this ASU did not have a material impact on the Company’s consolidated financial statements.

In August 2014, the FASB issued ASU No. 2014-15, Presentation of Financial Statements – Going Concern: Disclosures of Uncertainties about an Entity’s Ability to Continue as a Going Concern, which requires management to evaluate whether there are conditions and events that raise substantial doubt about the entity’s ability to continue as a going concern within one year after the financial statements are issued. This ASU is effective for interim and annual reporting periods beginning after December 15, 2016. The adoption of this ASU is not expected to have a material impact on the Company’s consolidated financial statements.

 

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Table of Contents
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

FORWARD LOOKING STATEMENTS

NOTE: When we refer in this Form 10-Q to “we,” “our,” “us,” the “Company” and “Business First,” we are referring to Business First Bancshares, Inc., unless the context indicates otherwise.

This Quarterly Report on Form 10-Q, or the “Report,” contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and 21E of the Securities Exchange Act of 1934. These forward-looking statements include statements that reflect the current views of our senior management with respect to our financial performance and future events with respect to our business and the banking industry in general. These statements are often, but not always, made through the use of words or phrases such as “may,” “should,” “could,” “predict,” “potential,” “believe,” “will likely result,” “expect,” “will continue,” “anticipate,” “seek,” “estimate,” “intend,” “plan,” “projection,” “would” and “outlook,” and similar expressions of a future or forward-looking nature. These statements involve estimates, assumptions and risks and uncertainties. Accordingly, there are or will be important factors that could cause our actual results to differ materially from those indicated in these statements.

We believe that these factors include, but are not limited to, the following: changes in the strength of the United States economy in general and the local economy in our local market areas adversely affecting our customers and their ability to transact profitable business with us, including the ability of our borrowers to repay their loans according to their terms or a change in the value of the related collateral; changes in interest rates and market prices, which could reduce our net interest margins, asset valuations and expense expectations; changes in the levels of loan prepayments and the resulting effects on the value of our loan portfolio; increased competition for deposits and loans adversely affecting rates and terms; increased credit risk in our assets and increased operating risk caused by a material change in commercial, consumer and/or real estate loans as a percentage of the total loan portfolio; the failure of assumptions underlying the establishment of and provisions made to our allowance for credit losses; changes in the availability of funds resulting in increased costs or reduced liquidity; a determination or downgrade in the credit quality and credit agency ratings of the securities in our securities portfolio; increased asset levels and changes in the composition of assets and the resulting impact on our capital levels and regulatory capital ratios; the loss of senior management or operating personnel and the potential inability to hire qualified personnel at reasonable compensation levels; legislative or regulatory developments, including changes in laws and regulations concerning taxes, banking, securities, insurance and other aspects of the financial securities industry, such as the recently enacted Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”), and the extensive rule making required to be undertaken by various regulatory agencies under the Dodd-Frank Act; further government intervention in the U.S. financial system; changes in statutes and government regulations or their interpretations applicable to us, including changes in tax requirements and tax rates; acts of terrorism, an outbreak of hostilities or other international or domestic calamities, weather or other acts of God and other matters beyond our control; and other risks and uncertainties listed from time to time in our reports and documents filed with the SEC.

The foregoing factors should not be construed as exhaustive and should be read together with the other cautionary statements included in this Report. If one or more events related to these or other risks or uncertainties materialize, or if our underlying assumptions prove to be incorrect, actual results may differ materially from what we anticipate. Accordingly, you should not place undue reliance on any such forward-looking statements. Any forward-looking statement speaks only as of the date on which it is made and we do not undertake any obligation to update any forward-looking statement or statements to reflect events or circumstances after the date on which such statement is made or to reflect the occurrence of unanticipated events. New factors emerge from time to time, and it is not possible for us to predict which will arise. In addition, we cannot assess the impact of each factor on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements.

 

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF BUSINESS FIRST

The following discussion and analysis is to focus on significant changes in the financial condition of Business First Bancshares, Inc. and its subsidiaries (Business First), from December 31, 2014 to June 30, 2015 and its results of operations for the six months ended June 30, 2015. This discussion and analysis is intended to highlight and supplement information presented elsewhere in this quarterly report on Form 10-Q, particularly the consolidated financial statements and related notes appearing in Item 1. This discussion and analysis contains forward-looking statements that are subject to certain risks and uncertainties and are based on certain assumptions that Business First believes are reasonable but may prove to be inaccurate. Certain risks, uncertainties and other factors, including those set forth under “Forward-Looking Statements,” “Risk Factors” and elsewhere in this statement, may cause actual results to differ materially from those projected results discussed in the forward-looking statements appearing in this discussion and analysis. Business First assumes no obligation to update any of these forward-looking statements.

Overview

Business First is a bank holding company headquartered in Baton Rouge, Louisiana. Through its wholly-owned subsidiary, Business First Bank, a Louisiana state chartered bank, Business First provides a broad range of financial services tailored to meet the needs of small to medium-sized businesses and professionals. Since its inception in 2006, its priority has been and continues to be creating shareholder value through the establishment of an attractive commercial banking franchise in Louisiana. Business First considers its primary market to include the State of Louisiana. Business First currently operates out of its main office, fourteen branch locations and one loan production office, all of which are located in Louisiana. As of June 30, 2015, Business First had total assets of $1.1 billion, total loans of $732.9 million, total deposits of $926.1 million, and total stockholders’ equity of $112.6 million.

After the close of business on March 31, 2015, Business First merged with American Gateway Financial Corporation (AGFC), parent bank holding company for American Gateway Bank, pursuant to which the operations of AGFC were merged with Business First. Business First’s financial condition and results of operations as of and for the period ended June 30, 2015 were impacted as a result of this merger, as 10 former American Gateway branches were added to Business First’s branch network. Total assets acquired were $372.0 million, which included loans of $143.2 million, investment securities of $108.4 million, and deposits of $283.3 million. Shareholders of AGFC received $10 per share in cash, plus 11.88 shares of Business First common stock. See Note 3 to the Unaudited Consolidated Financial Statements for additional information regarding this merger.

As a bank holding company operating through one market segment, community banking, Business First generates most of its revenues from interest income on loans, customer service and loan fees, and interest income from securities. Business First incurs interest expense on deposits and other borrowed funds and noninterest expense, such as salaries and employee benefits and occupancy expenses. Business First analyzes its ability to maximize income generated from interest earning assets and expense of its liabilities through its net interest margin. Net interest margin is a ratio calculated as net interest income divided by average interest-earning assets. Net interest income is the difference between interest income on interest-earning assets, such as loans and securities, and interest expense on interest-bearing liabilities, such as deposits and borrowings, which are used to fund those assets.

Changes in the market interest rates and the interest rates Business First earns on interest-earning assets or pays on interest-bearing liabilities, as well as the volume and types of interest-earning assets, interest-bearing and noninterest-bearing liabilities and stockholders’ equity, are usually the largest drivers of periodic changes in net interest spread, net interest margin and net interest income. Fluctuations in market interest rates are driven by many factors, including governmental monetary policies, inflation, deflation, macroeconomic developments, changes in unemployment, the money supply, political and international conditions and conditions in domestic and foreign financial markets. Periodic changes in the volume and types of loans in Business First’s loan portfolio are affected by, among other factors, economic and competitive conditions in Louisiana, as well as developments affecting the real estate, technology, financial services, insurance, transportation, manufacturing and energy sectors within its target market and throughout the state of Louisiana.

 

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Financial Highlights

The financial highlights for the quarter ended June 30, 2015 include:

 

    The merger with AGFC was completed after the close of business on March 31, 2015.

 

    Total assets of $1.1 billion, a $422.2 million or 61.7% increase from December 31, 2014.

 

    Total loans of $732.9 million, a $174.5 million or 31.3% increase from December 31, 2014.

 

    Total deposits of $926.1 million, a $338.8 million or 57.7% increase from December 31, 2014.

 

    Net income for the three months ended June 30, 2015 of $1.0 million, a $10,000 or 1.0% decrease from the quarter ended June 30, 2014.

 

    Net interest income of $8.6 million for the three months ended June 30, 2015, a year-over-year increase of $2.8 million or 48.0%, from the three month period ended June 30, 2014.

 

    An allowance for loan and lease losses of 0.96% of total loans and a ratio of non-performing loans to total loans of 1.13%.

 

    Return on average assets of 0.48% over the first six months of 2015.

 

    Return on average equity of 4.41% over the first six months of 2015.

 

    Capital ratios for Tier 1 Leverage, Common Equity Tier 1, Tier 1 Risk-based and Total Risk-based Capital of 9.52%, 11.56%, 11.56% and 12.33%, respectively.

 

    Book value per share of $15.63 as of June 30, 2015, an increase of 5.4% from $14.83 at December 31, 2014.

Results of Operations for the Six and Three Months Ended June 30, 2015 and 2014

Net Interest Income

Business First’s operating results depend primarily on its net interest income, calculated as the difference between interest income on interest-earning assets, such as loans and securities, and interest expense on interest-bearing liabilities, such as deposits and borrowings. Fluctuations in market interest rates impact the yield and rates paid on interest sensitive assets and liabilities. Changes in the amount and type of interest-earning assets and interest-bearing liabilities also impact net interest income. The variance driven by the changes in the amount and mix of interest-earning assets and interest-bearing liabilities is referred to as a “volume change.” Changes in yields earned on interest-earning assets and rates paid on interest-bearing deposits and other borrowed funds are referred to as a “rate change.”

To evaluate net interest income, Business First measures and monitors (1) yields on its loans and other interest-earning assets, (2) the costs of its deposits and other funding sources, (3) its net interest spread and (4) its net interest margin. Net interest spread is the difference between rates earned on interest-earning assets and rates paid on interest-bearing liabilities. Net interest margin is calculated as net interest income divided by average interest-earning assets. Because noninterest-bearing sources of funds, such as noninterest-bearing deposits and stockholders’ equity also fund interest-earning assets, net interest margin includes the benefit of these noninterest-bearing sources. Business First calculates average assets, liabilities, and capital using a monthly average.

For the six months ended June 30, 2015, net interest income totaled $14.7 million, and net interest margin and net interest spread were 3.41% and 3.24%, respectively. For the six months ended June 30, 2014 net interest income totaled $11.8 million and net interest margin and net interest spread were 3.59% and 3.41%, respectively. The change in net interest margin and net interest spread were primarily attributable to the change in rate environment where the average rate on the loan portfolio decreased 15 basis points from 4.84% as of June 30, 2014 to 4.69% as of June 30, 2015. In addition, the Bank experienced a decrease in borrowing costs of 12 basis points. For the three months ended June 30, 2015, net interest income totaled $8.5 million, and net interest margin and net interest spread were 3.28% and 3.11%, respectively. For the three months ended June 30, 2014 net interest income totaled $5.8 million and net interest margin and net interest spread were 3.54% and 3.34%, respectively. The change in net interest margin and net interest spread were primarily attributable to the change in rate environment where the average rate on the loan portfolio decreased 8 basis points from 4.82% as of June 30, 2014 to 4.74% as of June 30, 2015. In addition, the Bank experienced a decrease in borrowing costs of 16 basis points. Business First experienced significant growth in average loan balances, but market yields on new loan originations are below the average yield of amortizing or paid-off loans. Due to the continued impact of new loan growth and the runoff of higher yielding loan balances, Business First anticipates continued pressure on its net interest margin and net interest spread.

 

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The following tables present, for the periods indicated, an analysis of net interest income by each major category of interest-earning assets and interest-bearing liabilities, the average amounts outstanding and the interest earned or paid on such amounts. The tables also set forth the average rate earned on interest-earning assets, the average rate paid on interest-bearing liabilities, and the net interest margin on average total interest-earning assets for the same periods. Interest earned on loans that are classified as nonaccrual is not recognized in income; however the balances are reflected in average outstanding balances for the period. For the six and three months ended June 30, 2015 and 2014, interest income not recognized on nonaccrual loans was not material. Any nonaccrual loans have been included in the table as loans carrying a zero yield.

 

     For the Six Months Ended June 30,  
     2015     2014  
     Average
Outstanding
Balance
    Interest
Earned/
Interest
Paid
     Average
Yield/
Rate
    Average
Outstanding
Balance
    Interest
Earned/
Interest
Paid
     Average
Yield/
Rate
 
     (Dollars in thousands) (Unaudited)  

Assets

              

Interest-earning assets:

              

Total loans

   $ 655,711      $ 15,380         4.69   $ 531,737      $ 12,878         4.84

Securities available for sale

     144,594        1,411         1.95     84,403        838         1.99

Interest-bearing deposits in other banks

     64,632        104         0.32     40,251        64         0.32
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

    

 

 

 

Total interest-earning assets

     864,937        16,895         3.91     656,391        13,780         4.20

Allowance for loan losses

     (6,819          (6,073     

Noninterest-earning assets

     51,511             38,122        
  

 

 

   

 

 

      

 

 

   

 

 

    

Total assets

   $ 909,629      $ 16,895         $ 688,440      $ 13,780      
  

 

 

   

 

 

      

 

 

   

 

 

    

Liabilities and Stockholders’ Equity

              

Interest-bearing liabilities:

              

Interest-bearing deposits

   $ 592,860      $ 1,903         0.64   $ 484,547      $ 1,829         0.75

Advances from FHLB

     49,046        260         1.06     15,000        151         2.01

Other borrowings

     2,436        4         0.33     342        2         1.17
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

    

 

 

 

Total interest-bearing liabilities

     644,342        2,167         0.67     499,889        1,982         0.79
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

    

 

 

 

Noninterest-bearing liabilities:

              

Noninterest-bearing deposits

     161,796             113,345        

Other liabilities

     4,905             3,439        
  

 

 

        

 

 

      

Total noninterest-bearing liabilities

     166,701             116,784        

Stockholders’ equity

     98,586             71,767        
  

 

 

        

 

 

      

Total liabilities and stockholders’ equity

   $ 909,629           $ 688,440        
  

 

 

        

 

 

      

Net interest rate spread(1)

          3.24          3.41

Net interest income

     $ 14,728           $ 11,798      
    

 

 

        

 

 

    

Net interest margin(2)

          3.41          3.59

 

(1) Net interest spread is the average yield on interest-earning assets minus the average rate on interest-bearing liabilities.
(2) Net interest margin is equal to net interest income divided by average interest-earning assets.

 

     For the Three Months Ended June 30,  
     2015     2014  
     Average
Outstanding
Balance
    Interest
Earned/
Interest
Paid
     Average
Yield/
Rate
    Average
Outstanding
Balance
    Interest
Earned/
Interest
Paid
     Average
Yield/
Rate
 
     (Dollars in thousands) (Unaudited)  

Assets

              

Interest-earning assets:

              

Total loans

   $ 737,778      $ 8,747         4.74   $ 528,936      $ 6,371         4.82

Securities available for sale

     203,372        968         1.90     78,568        380         1.93

Interest-bearing deposits in other banks

     101,686        78         0.31     46,230        38         0.33
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

    

 

 

 

Total interest-earning assets

     1,042,836        9,793         3.76     653,734        6,789         4.15

Allowance for loan losses

     (6,908          (6,131     

Noninterest-earning assets

     59,617             37,490        
  

 

 

   

 

 

      

 

 

   

 

 

    

Total assets

   $ 1,095,545      $ 9,793         $ 685,093      $ 6,789      
  

 

 

   

 

 

      

 

 

   

 

 

    

Liabilities and Stockholders’ Equity

              

Interest-bearing liabilities:

              

Interest-bearing deposits

   $ 701,887      $ 1,053         0.60   $ 480,235      $ 926         0.77

Advances from FHLB

     55,549        177         1.27     15,000        78         2.08

Other borrowings

     4,450        1         0.09     65        -         0.00
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

    

 

 

 

Total interest-bearing liabilities

     761,886        1,231         0.65     495,300        1,004         0.81
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

    

 

 

 

Noninterest-bearing liabilities:

              

Noninterest-bearing deposits

     207,709             113,390        

Other liabilities

     6,193             3,658        
  

 

 

        

 

 

      

Total noninterest-bearing liabilities

     213,902             117,048        

Stockholders’ equity

     119,757             72,745        
  

 

 

        

 

 

      

Total liabilities and stockholders’ equity

   $ 1,095,545           $ 685,093        
  

 

 

        

 

 

      

Net interest rate spread(1)

          3.11          3.34

Net interest income

     $ 8,562           $ 5,785      
    

 

 

        

 

 

    

Net interest margin(2)

          3.28          3.54

 

(1) Net interest spread is the average yield on interest-earning assets minus the average rate on interest-bearing liabilities.
(2) Net interest margin is equal to net interest income divided by average interest-earning assets.

 

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Table of Contents

The following tables present information regarding the dollar amount of changes in interest income and interest expense for the periods indicated for each major component of interest-earning assets and interest-bearing liabilities and distinguishes between the changes attributable to changes in volume and changes attributable to changes in interest rates. For purposes of these tables, changes attributable to both rate and volume that cannot be segregated have been allocated to rate.

 

     For the Six Months Ended June 30, 2015
compared to the Six Months ended
June 30, 2014
 
     Increase (Decrease) due to change in  
         Volume              Rate              Total      
     (Dollars in thousands) (Unaudited)  

Interest-earning assets:

  

Total loans

   $ 2,908       $ (406    $ 2,502   

Securities available for sale

     587         (14      573   

Interest-earning deposits in other banks

     39         1         40   
  

 

 

    

 

 

    

 

 

 

Total increase (decrease) in interest income

   $ 3,534       $ (419    $ 3,115   
  

 

 

    

 

 

    

 

 

 

Interest-bearing liabilities:

  

Interest-bearing deposits

   $ 348       $ (274    $ 74   

Advances from FHLB

     180         (71      109   

Other borrowings

     3         (1      2   
  

 

 

    

 

 

    

 

 

 

Total increase (decrease) in interest expense

     531         (346      185   
  

 

 

    

 

 

    

 

 

 

Increase (decrease) in net interest income

   $ 3,003       $ (73    $ 2,930   
  

 

 

    

 

 

    

 

 

 

 

     For the Three Months Ended June 30, 2015
compared to the Three Months ended

June 30, 2014
 
     Increase (Decrease) due to change in  
         Volume              Rate              Total      
     (Dollars in thousands) (Unaudited)  

Interest-earning assets:

  

Total loans

   $ 2,476       $ (100    $ 2,376   

Securities available for sale

     594         (6      588   

Interest-earning deposits in other banks

     43         (3      40   
  

 

 

    

 

 

    

 

 

 

Total increase (decrease) in interest income

   $ 3,113       $ (109    $ 3,004   
  

 

 

    

 

 

    

 

 

 

Interest-bearing liabilities:

  

Interest-bearing deposits

   $ 333       $ (206    $ 127   

Advances from FHLB

     129         (30      99   

Other borrowings

     1         (0      1   
  

 

 

    

 

 

    

 

 

 

Total increase (decrease) in interest expense

     463         (236      227   
  

 

 

    

 

 

    

 

 

 

Increase (decrease) in net interest income

   $ 2,650       $ 127       $ 2,777   

Provision for Loan Losses

Business First’s provision for loan losses is a charge to income in order to bring its allowance for loan losses to a level deemed appropriate by management. For a description of the factors taken into account by Business First’s management in determining the allowance for loan losses see “—Financial Condition—Allowance for Loan Losses.” The provision for loan losses was $300,000 for the six months ended June 30, 2015 and for the same period in 2014. For the three months ended June 30, 2015 and 2014, the provision for loan losses was $150,000 for both periods.

Noninterest Income

Business First’s primary sources of recurring noninterest income are service charges on deposit accounts, gains on the sale of securities and other real estate owned, and income from bank-owned life insurance.

The following tables present, for the periods indicated, the major categories of noninterest income:

 

     For the Six Months Ended
June 30,
     Increase
(Decrease)
 
         2015              2014         
     (Dollars in thousands) (Unaudited)  

Noninterest income:

        

Service charges on deposit accounts

   $ 589       $ 292       $ 297   

Gain (Loss) on sales of other real estate owned

     19         —          19   

Bank-owned life insurance income

     310         282         28   

Gain on sales of investment securities

     —          6         (6

Other

     492         144         348   
  

 

 

    

 

 

    

 

 

 

Total noninterest income

   $ 1,410       $ 724       $ 686   
  

 

 

    

 

 

    

 

 

 

 

     For the Three Months Ended
June 30,
     Increase
(Decrease)
 
         2015              2014         
     (Dollars in thousands) (Unaudited)  

Noninterest income:

        

Service charges on deposit accounts

   $ 440       $ 154       $ 286   

Gain (Loss) on sales of other real estate owned

     (3      —          (3

Bank-owned life insurance income

     172         145         27   

Gain on sales of investment securities

     —          —          —    

Other

     372         88         284   
  

 

 

    

 

 

    

 

 

 

Total noninterest income

   $ 981       $ 387       $ 594   
  

 

 

    

 

 

    

 

 

 

 

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Table of Contents

Noninterest income for the six months ended June 30, 2015 increased $686,000 or 94.8% to $1.4 million compared to noninterest income of $724,000 for the same period in 2014. For the three months ended June 30, 2015, noninterest income increased $594,000 or 153.5% to 981,000 compared to $387,000 for the same period in 2014. The primary components of the increase were as follows:

Service charges on deposit accounts. Business First earns fees from its customers for deposit-related services, and these fees constitute a significant and predictable component of its noninterest income. Service charges on deposit accounts were $589,000 for the six months ended June 30, 2015, an increase of $297,000 over the same period in 2014. For the three months ended June 30, 2015, service charges on deposit accounts were $440,000, an increase of $286,000 over the same period in 2014. The increases were primarily due to the merger with AGFC.

Gain (Loss) on sales of other real estate owned. Gain (Loss) on sales of other real estate owned was $19,000 and zero dollars for the six months ended June 30, 2015 and 2014, respectively. During the three months ended June 30, 2015 and 2014, the loss was $3,000 and zero dollars, respectively. There was minimal activity during both time periods.

Bank-owned life insurance income. Business First invests in bank-owned life insurance due to its attractive nontaxable return and protection against the loss of its key employees. Business First records income based on the growth of the cash surrender value of these policies as well as the annual yield. Income from bank-owned life insurance was $310,000 for the six months ended June 30, 2015 as compared to $282,000 for the same time period in 2014, an increase of $28,000. Income for the three months ended June 30, 2015 was $172,000 compared to $145,000 for the same time period in 2014, an increase of $27,000. The increases were primarily due to the merger with AGFC.

Gain on Sale of Investment Securities. The gain on sale of investment securities was zero dollars and $6,000 for the six months ended June 30, 2015 and 2014, respectively. There was no gain or loss on the sale of investment securities for the three months ended June 30, 2015 and 2014. There was minimal trading activity for both time periods.

Other. This category includes a variety of other income producing activities, including wire transfer fees, mortgage related income, and debit card fees. Other income increased $348,000 or 241.7% for the six months ended June 30, 2015, compared to the same period in 2014. For the three months ended June 30, 2015, other income increased $284,000. The increases were primarily due to rental income associated with other real estate and the merger with AGFC.

Noninterest Expense

Generally, noninterest expense is composed of all employee expenses and costs associated with operating Business First’s facilities, obtaining and retaining customer relationships and providing bank services. The major component of noninterest expense is salaries and employee benefits. Noninterest expense also includes operational expenses, such as occupancy expenses, depreciation and amortization of office equipment, professional and regulatory fees, including FDIC assessments, data processing expenses, and advertising and promotion expenses.

The following tables present, for the periods indicated, the major categories of noninterest expense:

 

     For the Six Months Ended
June 30,
     Increase
(Decrease)
 
     2015      2014     
     (Dollars in thousands) (Unaudited)  

Salaries and employee benefits

   $ 7,174       $ 5,504       $ 1,670   

Non-staff expenses:

        

Occupancy of bank premises

     973         633         340   

Depreciation and amortization

     544         404         140   

Data processing

     451         355         96   

FDIC assessment fees

     303         225         78   

Legal and other professional fees

     1,140         386         754   

Advertising and promotions

     230         222         8   

Utilities and communications

     218         157         61   

Other real estate owned expenses and write-downs

     66         27         39   

Other

     1,767         1,385         382   
  

 

 

    

 

 

    

 

 

 

Total noninterest expense

   $ 12,866       $ 9,298       $ 3,568   
  

 

 

    

 

 

    

 

 

 

 

     For the Three Months Ended
June 30,
     Increase
(Decrease)
 
     2015      2014     
     (Dollars in thousands) (Unaudited)  

Salaries and employee benefits

   $ 4,236       $ 2,778       $ 1,458   

Non-staff expenses:

        

Occupancy of bank premises

     610         283         327   

Depreciation and amortization

     342         201         141   

Data processing

     273         166         107   

FDIC assessment fees

     186         100         86   

Legal and other professional fees

     894         187         707   

Advertising and promotions

     126         96         30   

Utilities and communications

     144         77         67   

Other real estate owned expenses and write-downs

     66         23         43   

Other

     1,107         723         384   
  

 

 

    

 

 

    

 

 

 

Total noninterest expense

   $ 7,984       $ 4,634       $ 3,350   
  

 

 

    

 

 

    

 

 

 

 

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Noninterest expense for the six months ended June 30, 2015 increased $3.6 million or 38.4% to $12.9 million compared to noninterest expense of $9.3 million for the same period in 2014. For the three months ended June 30, 2015, noninterest expense increased $3.4 million or 72.3% to $8.0 million, compared to $4.6 million for the same period in 2014. The most significant components of the increase were as follows:

Salaries and employee benefits. Salaries and employee benefits are the largest component of noninterest expense and include payroll expense, the cost of incentive compensation, benefit plans, health insurance and payroll taxes. Salaries and employee benefits were $7.2 million for the six months ended June 30, 2015, an increase of $1.7 million or 30.3% compared to the same period in 2014. For the three months ended June 30, 2015, salaries and employee benefits were $4.2 million, an increase of $1.5 million or 52.5%, compared to the same period in 2014. The increase was primarily attributable to additional hires for new positions, the Banks’s merit increase cycle and the merger with AGFC. As of June 30, 2015, Business First had 182 full-time equivalent employees. Salaries and employee benefits included stock-based compensation expense of $243,000 and $249,000 for the six months ended June 30, 2015 and 2014, respectively, and $122,000 and $124,000 for the three months ended June 30, 2015 and 2014, respectively.

Occupancy of bank premises. Expense associated with occupancy of premises was $973,000 for the six months ended June 30, 2015 and $633,000 for the same period in 2014. For the three months ended June 30, 2015 and 2014, occupancy and bank premises expenses were $610,000 and $283,000, respectively. The increases of $340,000 and $327,000 for the six months and three months ended June 30, 2015, respectively, can primarily be attributed to the addition of 10 banking centers in conjunction with the merger with AGFC.

Depreciation and amortization. Depreciation and amortization costs were $544,000 and $404,000 for the six months ended June 30, 2015 and 2014, respectively. For the three months ended June 30, 2015 and 2014, respectively, depreciation and amortization costs were $342,000 and $201,000. This category includes leasehold, furniture, fixtures and equipment depreciation totaling $544,000 and $404,000 for the six months ended June 30, 2015 and 2014, respectively, and $342,000 and $201,000 for the three months ended June 30, 2015 and 2014, respectively. There was no amortization of an intangible asset in either period.

Data processing. Data processing expenses were $451,000 for the six months ended June 30, 2015 and $355,000 for the same period in 2014. For the three months ended June 30, 2015 and 2014, data processing expenses were $273,000 and $166,000. The increases of $96,000 for the six months ended June 30, 2015 and $107,000 for the three months ended June 30, 2015, were attributable to the merger with AGFC.

FDIC assessment fees. FDIC assessment fees were $303,000 and $225,000 for the six months ended June 30, 2015 and 2014, respectively. For the three months ended June 30, 2015 and 2014, the FDIC assessment fees were $186,000 and $100,000, respectively. The increase of $78,000 or 34.7% for the six months ended June 30, 2015 and increase of $86,000 or 86.0% for the three months ended June 30, 2015, is primarily due to the merger with AGFC.

Legal and other professional fees. Other professional fees include audit, loan review, regulatory assessments, and other consultants. These fees were $1.1 million and $386,000 for the six months ended June 30, 2015 and 2014, respectively. For the three months ended June 30, 2015 and 2014, other professional fees were $894,000 and $187,000, respectively. The increases of $754,000 for the six months ended June, 30, 2015 and $707,000 for the three months ended June 30, 2015, can be attributed to Business First Bank’s merger with AGFC.

Other real estate owned expenses and write-downs. Expenses and write-downs related to other real estate owned were $66,000 and $27,000 for the six months ended June 30, 2015 and 2014, respectively. For the three months ended June 30, 2015 and 2014, other real estate expenses were $66,000 and $23,000, respectively. There was very little new activity during both time periods. The increases of $39,000 for the six months ended June 30, 2015 and $43,000 for the three months ended June 30, 2015 was due primarily due to expenses associated with one existing property as well as expenses incurred relating to the properties acquired in the merger with AGFC.

Other. This category includes operating and administrative expenses including business development expenses (i.e. travel and entertainment, donations and club memberships), insurance, and security expenses. Other noninterest expense increased $382,000 for the six months ended June 30, 2015 compared to the same period in 2014. For the three months ended June 30, 2015, other noninterest expenses increased $384,000 compared to the same period in 2014. The increases in both periods were primarily due to the merger with AGFC.

Income Tax Expense

The amount of income tax expense is influenced by the amounts of Business First’s pre-tax income, tax-exempt income and other nondeductible expenses. Deferred tax assets and liabilities are reflected at currently enacted income tax rates in effect for the period in which the deferred tax assets and liabilities are expected to be realized or settled. As changes in tax laws or rates are enacted, deferred tax assets and liabilities are adjusted through the provision for income taxes. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized.

For the six months ended June 30, 2015, income tax expense totaled $816,000, an increase of $64,000 or 8.5% compared to $752,000 for the same period in 2014. For the three months ended June 30, 2015, income tax expense totaled $386,000, an increase of $31,000 compared to the same period in 2014. For both periods presented, the increase in income tax expense can be attributed primarily to the merger with AGFC. Business First’s effective tax rates for the six months ended June 30, 2015 and 2014 were 27.5% and 25.7%, respectively. For the three months ended June 30, 2015 and 2014, the effective tax rates were 27.4% and 25.6%, respectively. Business First’s effective tax rates for both periods were affected primarily by tax-exempt income generated by municipal securities and bank-owned life insurance and by other nondeductible expenses.

Financial Condition

Business First’s assets increased $422.2 million or 61.7% from $684.5 million as of December 31, 2014 to $1.1 billion as of June 30, 2015. Business First’s asset growth was primarily driven by the merger with AGFC and loan growth during the second quarter of 2015.

Loan Portfolio

Business First’s primary source of income is interest on loans to individuals, professionals, small to medium-sized businesses and commercial companies located in Louisiana. Business First’s loan portfolio consists primarily of commercial loans and real estate loans secured by commercial real estate properties located in its primary market area. Business First’s loan portfolio represents the highest yielding component of its earning asset base.

As of June 30, 2015, total loans were $732.9 million, an increase of $174.5 million compared to $558.4 million as of December 31, 2014. These increases were primarily due to the merger with AGFC and its continued penetration in its primary market area. There were no loans held for sale as of June 30, 2015.

Total loans as a percentage of deposits were 79.1% and 95.1% as of June 30, 2015 and December 31, 2014 respectively. Total loans as a percentage of assets were 66.2% and 81.6% as of June 30, 2015 and December 31, 2014, respectively.

 

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Table of Contents

The following table summarizes the loan portfolio of Business First by type of loan as of the dates indicated:

 

     As of June 30, 2015     As of December 31,
2014
 
     Amount      Percent     Amount      Percent  
    

(Dollars in

thousands)

(Unaudited)

   

(Dollars in

thousands)

 

Commercial

   $ 194,350         26.5   $ 185,291         33.2

Real estate:

          

Construction and land

     95,734         13.1     61,062         10.9

Farmland

     10,055         1.4     16,097         2.9

1-4 family residential

     90,414         12.3     41,552         7.4

Multi-family residential

     18,569         2.5     11,369         2.0

Nonfarm nonresidential

     296,090         40.4     215,797         38.7

Consumer

     27,676         3.8     27,218         4.9
  

 

 

    

 

 

   

 

 

    

 

 

 

Total loans held for investment

   $ 732,888         100   $ 558,386         100
  

 

 

    

 

 

   

 

 

    

 

 

 

Commercial loans. Commercial loans are underwritten after evaluating and understanding the borrower’s ability to operate profitably and effectively. These loans are primarily made based on the identified cash flows of the borrower, and secondarily, on the underlying collateral provided by the borrower. Most commercial loans are secured by the assets being financed or other business assets, such as accounts receivable or inventory, and generally include personal guarantees.

Commercial loans increased $9.1 million or 4.9% to $194.4 million as of June 30, 2015 from $185.3 million as of December 31, 2014. The increase in lending activity was due to the merger with AGFC and the efforts of Business First’s bankers who leveraged existing bank relationships to fund expansion and growth opportunities.

Construction and land. Construction and land development loans are comprised of loans to fund construction, land acquisition and land development construction. The properties securing the portfolio are located throughout Louisiana and are generally diverse in terms of type.

Construction and land loans increased $34.6 million or 56.8% to $95.7 million as of June 30, 2015 from $61.1 million as of December 31, 2014. The increase was attributable to the merger with AGFC and the opportunities to fund small residential land development with proven developers, who are existing customers of the Bank and have demonstrated a successful track record for many years.

1-4 family residential. Business First’s 1-4 family residential loan portfolio is comprised of loans secured by single family homes, which are both owner-occupied and investor owned. Business First’s 1-4 family residential loans have a relatively small balance spread between many individual borrowers.

1-4 family residential loans increased $48.8 million or 117.6% to $90.4 million as of June 30, 2015 from $41.6 million as of December 31, 2014. This increase resulted from the merger with AGFC as well as both the conversion of residential construction to in-house financed owner-occupied term debt and new financing of existing 1-4 family residential.

Nonfarm nonresidential. Nonfarm nonresidential loans are underwritten primarily based on projected cash flows and, secondarily, as loans secured by real estate. These loans may be more adversely affected by conditions in the real estate markets or in the general economy. The properties securing the portfolio are located throughout Louisiana and are generally diverse in terms of type. This diversity helps reduce the exposure to adverse economic events that affect any single industry.

Nonfarm nonresidential loans increased $80.3 million or 37.2% to $296.1 million as of June 30, 2015 from $215.8 million as of December 31, 2014. The increase was primarily driven by opportunities from existing customers to fund well supported loans.

Other loan categories. Other categories of loans included in its loan portfolio include farmland and agricultural loans made to farmers and ranchers relating to their operations, multi-family residential loans and consumer loans. None of these categories of loans represents a significant portion of its total loan portfolio.

 

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Table of Contents

The contractual maturity ranges of loans in Business First’s loan portfolio and the amount of such loans with fixed and floating interest rates in each maturity range as of date indicated are summarized in the following tables:

 

     As of June 30, 2015  
     One Year
or Less
     One
Through
Five Years
     After Five
Years
     Total  
     (Dollars in thousands)(Unaudited)  

Commercial

   $ 76,973       $ 89,448       $ 27,929       $ 194,350   

Real estate:

           

Construction and land

     53,829         28,646         13,259         95,734   

Farmland

     2,186         6,906         963         10,055   

1-4 family residential

     11,337         47,355         31,722         90,414   

Multi-family residential

     160         12,478         5,931         18,569   

Nonfarm nonresidential

     42,088         117,472         136,530         296,090   

Consumer

     12,873         12,299         2,504         27,676   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total loans

   $ 199,446       $ 314,604       $ 218,838       $ 732,888   
  

 

 

    

 

 

    

 

 

    

 

 

 

Amounts with fixed rates

   $ 94,620       $ 194,471       $ 121,816       $ 410,907   

Amounts with floating rates

   $ 104,826       $ 120,133       $ 97,022       $ 321,981   
     As of December 31, 2014  
     One Year
or Less
     One
Through
Five Years
     After Five
Years
     Total  
     (Dollars in thousands)  

Commercial

   $ 69,025       $ 77,459       $ 38,807       $ 185,291   

Real estate:

           

Construction and land

     32,493         21,203         7,366         61,062   

Farmland

     6,733         2,719         6,645         16,097   

1-4 family residential

     4,780         32,103         4,669         41,552   

Multi-family residential

     1,338         7,304         2,727         11,369   

Nonfarm nonresidential

     43,420         104,275         68,102         215,797   

Consumer

     11,747         13,537         1,934         27,218   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total loans

   $ 169,536       $ 258,600       $ 130,250       $ 558,386   
  

 

 

    

 

 

    

 

 

    

 

 

 

Amounts with fixed rates

   $ 75,376       $ 166,007       $ 102,878       $ 344,261   

Amounts with floating rates

   $ 94,160       $ 92,593       $ 27,372       $ 214,125   

Nonperforming Assets

Loans are considered past due if the required principal and interest payments have not been received as of the date such payments were due. Loans are placed on nonaccrual status when, in management’s opinion, the borrower may be unable to meet payment obligations as they become due, as well as when required by regulatory provisions. Loans may be placed on nonaccrual status regardless of whether or not such loans are considered past due. When interest accrual is discontinued, all unpaid accrued interest is reversed. Interest income is subsequently recognized only to the extent cash payments are received in excess of principal due. Loans are returned to accrual status when all the principal and interest amounts contractually due are brought current and future payments are reasonably assured.

Business First has several procedures in place to assist it in maintaining the overall quality of its loan portfolio. Business First has established underwriting guidelines to be followed by its bankers, and Business First also monitors its delinquency levels for any negative or adverse trends. There can be no assurance, however, that its loan portfolio will not become subject to increasing pressures from deteriorating borrower credit due to general economic conditions.

Business First believes its conservative lending approach and focused management of nonperforming assets has resulted in sound asset quality and timely resolution of problem assets. Business First had $11.8 million and $6.1 million in nonperforming assets as of June 30, 2015 and December 31, 2014, respectively. Business First had $8.2 million in nonperforming loans as of June 30, 2015 compared to $3.0 million as of December 31, 2014. The increase in nonperforming assets and nonperforming loans from December 31, 2014 to June 30, 2015 is directly attributable to the merger with AGFC.

 

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The following table presents information regarding nonperforming loans at the dates indicated:

 

    As of June 30,
2015
(Dollars in
thousands)
(Unaudited)
    As of December 31,
2014

(Dollars in
thousands)
 

Nonaccrual loans

  $ 8,248      $ 3,028   

Accruing loans 90 or more days past due

    —         —    
 

 

 

   

 

 

 

Total nonperforming loans

    8,248        3,028   
 

 

 

   

 

 

 

Nonaccrual debt securities

    —         —    

Other real estate owned:

   

Commercial real estate, construction, land and land development

    2,485        2,057   

Residential real estate

    1,017        971   
 

 

 

   

 

 

 

Total other real estate owned

    3,502        3,028   
 

 

 

   

 

 

 

Total nonperforming assets

  $ 11,750      $ 6,056   
 

 

 

   

 

 

 

Restructured loans-nonaccrual

  $ 798      $ 1,106   

Restructured loans-accruing

    8,600        8,781   

Ratio of nonperforming loans to total loans

    1.13     0.54

Ratio of nonperforming assets to total assets

    1.06     0.88
    As of June 30,
2015
(Dollars in
thousands)
(Unaudited)
    As of December 31,
2014
(Dollars in
thousands)
 

Nonaccrual loans by category:

   

Real estate:

   

Construction and land

  $ 1,987      $ 1,611   

1-4 family residential

    2,731        152   

Multi-family residential

    —         —    

Nonfarm nonresidential

    1,842        1,219   

Commercial

    1,688        46   

Consumer

    —         —    
 

 

 

   

 

 

 

Total

  $ 8,248      $ 3,028   
 

 

 

   

 

 

 

Potential Problem Loans

From a credit risk standpoint, Business First classifies loans in one of four categories: pass, special mention, substandard or doubtful. Loans classified as loss are charged-off. The classifications of loans reflect a judgment about the risks of default and loss associated with the loan. Business First reviews the ratings on credits monthly. Ratings are adjusted to reflect the degree of risk and loss that is believed to be inherent in each credit as of each monthly reporting period. Business First’s methodology is structured so that specific allocations are increased in accordance with deterioration in credit quality (and a corresponding increase in risk and loss) or decreased in accordance with improvement in credit quality (and a corresponding decrease in risk and loss).

Credits rated special mention show clear signs of financial weaknesses or deterioration in credit worthiness, however, such concerns are not so pronounced that Business First generally expects to experience significant loss within the short-term. Such credits typically maintain the ability to perform within standard credit terms and credit exposure is not as prominent as credits with a lower rating.

Credits rated substandard are those in which the normal repayment of principal and interest may be, or has been, jeopardized by reason of adverse trends or developments of a financial, managerial, economic or political nature, or important weaknesses which exist in collateral. A protracted workout on these credits is a distinct possibility. Prompt corrective action is therefore required to reduce exposure and to assure that adequate remedial measures are taken by the borrower. Credit exposure becomes more likely in such credits and a serious evaluation of the secondary support to the credit is performed.

 

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The following table summarizes Business First’s internal ratings of its loans as of the dates indicated.

 

     As of June 30, 2015  
     Pass      Special Mention      Substandard      Doubtful      Total  
     (Dollars in thousands) (Unaudited)  

Real estate:

  

Construction and land

   $ 88,413       $ 2,960       $ 1,530       $ 2,831       $ 95,734   

Farmland

     10,055         —          —          —          10,055   

1-4 family residential

     82,490         2,032         3,021         2,871         90,414   

Multi-family residential

     17,241         945         383         —          18,569   

Nonfarm nonresidential

     264,130         10,749         19,199         2,012         296,090   

Commercial

     172,855         7,696         12,111         1,688         194,350   

Consumer

     27,199         431         46         —          27,676   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 662,383       $ 24,813       $ 36,290       $ 9,402       $ 732,888   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
     As of December 31, 2014  
     Pass      Special Mention      Substandard      Doubtful      Total  
     (Dollars in thousands)  

Real estate:

  

Construction and land

   $ 56,740       $ 2,069       $ 642       $ 1,611       $ 61,062   

Farmland

     16,097         —          —          —          16,097   

1-4 family residential

     39,702         912         786         152         41,552   

Multi-family residential

     10,463         906         —          —          11,369   

Nonfarm nonresidential

     190,356         16,410         7,812         1,219         215,797   

Commercial

     161,904         12,087         11,254         46         185,291   

Consumer

     26,654         517         47         —          27,218   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 501,916       $ 32,901       $ 20,541       $ 3,028       $ 558,386   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Allowance for loan losses

Business First maintains an allowance for loan losses that represents management’s best estimate of the loan losses and risks inherent in the loan portfolio. In determining the allowance for loan losses, Business First estimates losses on specific loans, or groups of loans, where the probable loss can be identified and reasonably determined. The balance of the allowance for loan losses is based on internally assigned risk classifications of loans, historical loan loss rates, changes in the nature of the loan portfolio, overall portfolio quality, industry concentrations, delinquency trends, current economic factors and the estimated impact of current economic conditions on certain historical loan loss rates. For additional discussion of Business First’s methodology, please refer to “—Critical Accounting Policies—Allowance for loan losses.”

In connection with its review of the loan portfolio, Business First considers risk elements attributable to particular loan types or categories in assessing the quality of individual loans. Some of the risk elements Business First considers include:

 

    for commercial and industrial loans, the operating results of the commercial, industrial or professional enterprise, the borrower’s business, professional and financial ability and expertise, the specific risks and volatility of income and operating results typical for businesses in that category and the value, nature and marketability of collateral;

 

    for commercial mortgage loans and multifamily residential loans, the debt service coverage ratio (income from the property in excess of operating expenses compared to loan payment requirements), operating results of the owner in the case of owner occupied properties, the loan to value ratio, the age and condition of the collateral and the volatility of income, property value and future operating results typical of properties of that type;

 

    for 1-4 family residential mortgage loans, the borrower’s ability to repay the loan, including a consideration of the debt to income ratio and employment and income stability, the loan to value ratio, and the age, condition and marketability of the collateral; and

 

    for construction, land development and other land loans, the perceived feasibility of the project including the ability to sell developed lots or improvements constructed for resale or the ability to lease property constructed for lease, the quality and nature of contracts for presale or prelease, if any, experience and ability of the developer and loan to value ratio.

 

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Table of Contents

As of June 30, 2015, the allowance for loan losses totaled $7.0 million or 0.96% of total loans. As of December 31, 2014, the allowance for loan losses totaled $6.6 million or 1.19% of total loans. The decline in the allowance for loan losses as a percent of total loans is primarily as a result of the merger with AGFC. Loans acquired in business combinations are initially recorded at fair value, which includes an estimate of credit losses expected to be realized over the remaining lives of the loans and, therefore, no corresponding allowance for loan losses is recorded for these loans at acquisition.

The following table presents, as of and for the periods indicated, an analysis of the allowance for loan losses and other related data:

 

     For the Six months
Ended
June 30, 2015
(Dollars in thousands)
(Unaudited)
    As of December 31,
2014
(Dollars in thousands)
 

Average loans outstanding(1)

   $ 655,711      $ 535,725   
  

 

 

   

 

 

 

Gross loans outstanding at end of period(1)

   $ 732,888      $ 558,386   
  

 

 

   

 

 

 

Allowance for loan losses at beginning of period

     6,632        6,043   

Provision for loan losses

     300        700   

Charge-offs:

    

Real estate:

    

Construction, land and farmland

     —         —    

Residential

     39        174   

Nonfarm non-residential

     44        —    

Commercial

     41        10   

Consumer

     —         —    
  

 

 

   

 

 

 

Total charge-offs

     124        184   

Recoveries:

    

Real estate:

    

Construction, land and farmland

     30        —    

Residential

     16        29   

Nonfarm non-residential

     3        —    

Commercial

     107        16   

Consumer

     85        28   
  

 

 

   

 

 

 

Total recoveries

     241        73   
  

 

 

   

 

 

 

Net charge-offs

     (117     111   
  

 

 

   

 

 

 

Allowance for loan losses at end of period

   $ 7,049      $ 6,632   
  

 

 

   

 

 

 

Ratio of allowance to end of period loans

     0.96     1.19

Ratio of net charge-offs (recoveries) to average loans

     (0.02 %)      0.02

 

(1) Excluding loans held for sale.

Although Business First believes that it has established its allowance for loan losses in accordance with accounting principles generally accepted in the United States and that the allowance for loan losses was adequate to provide for known and inherent losses in the portfolio at all times shown above, future provisions will be subject to ongoing evaluations of the risks in its loan portfolio. If Business First experiences economic declines or if asset quality deteriorates, material additional provisions could be required.

 

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Table of Contents

The following table shows the allocation of the allowance for loan losses among loan categories and certain other information as of the dates indicated. The allocation of the allowance for loan losses as shown in the table should neither be interpreted as an indication of future charge-offs, nor as an indication that charge-offs in future periods will necessarily occur in these amounts or in the indicated proportions. The total allowance is available to absorb losses from any loan category.

 

     As of June 30,
2015
    As of December 31,
2014
 
     Amount      Percent
to Total
    Amount      Percent
to Total
 
     (Dollars in
thousands)
(Unaudited)
    (Dollars in
thousands)
 

Real estate:

          

Construction and land

   $ 627         8.9   $ 525         7.9

Farmland

     23         0.3     19         0.3

1-4 family residential

     795         11.3     775         11.7

Multi-family residential

     43         0.6     35         0.5

Nonfarm nonresidential

     1,173         16.7     1,140         17.2
  

 

 

    

 

 

   

 

 

    

 

 

 

Total real estate

     2,661         37.8     2,494         37.6

Commercial

     3,970         56.3     3,813         57.5

Consumer

     418         5.9     325         4.9
  

 

 

    

 

 

   

 

 

    

 

 

 

Total allowance for loan losses

   $ 7,049         100   $ 6,632         100
  

 

 

    

 

 

   

 

 

    

 

 

 

Securities

Business First uses its securities portfolio to provide a source of liquidity, provide an appropriate return on funds invested, manage interest rate risk, meet collateral requirements and meet regulatory capital requirements. As of June 30, 2015, the carrying amount of investment securities totaled $203.6 million, an increase of $129.1 million or 173.3% compared to $74.5 million as of December 31, 2014. Securities represented 18.4%, and 10.9% of total assets as of June 30, 2015 and December 31, 2014, respectively. The increase in securities from December 31, 2014 to June 30, 2015 is directly attributable to the merger with AGFC.

Business First’s investment portfolio consists entirely of securities classified as available for sale. As a result, the carrying values of its investment securities are adjusted for unrealized gain or loss, and any gain or loss is reported on an after-tax basis as a component of other comprehensive income in stockholders’ equity. The following table summarizes the amortized cost and estimated fair value of investment securities as of the dates shown:

 

     As of June 30, 2015  
     Amortized
Cost
     Gross
Unrealized
Gains
     Gross
Unrealized
Losses
     Fair Value  
     (Dollars in thousands) (Unaudited)  

U.S. government agencies

   $ 14,319       $ 26       $ 90       $ 14,255   

Corporate bonds

     11,191         —          20         11,171   

Municipal securities

     55,778         391         736         55,433   

Mortgage-backed securities

     123,813         58         1,754         122,117   

Other securities

     1,112         —          436         676   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 206,213       $ 475       $ 3,036       $ 203,652   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

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     As of December 31, 2014  
     Amortized
Cost
     Gross
Unrealized
Gains
     Gross
Unrealized
Losses
     Fair Value  
     (Dollars in thousands)  

U.S. government agencies

   $ 9,260       $ 31       $ 149       $ 9,142   

Corporate bonds

     —          —          —          —    

Municipal securities

     30,324         562         226         30,660   

Mortgage-backed securities

     34,591         51         616         34,026   

Other securities

     1,302         —          627         675   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 75,477       $ 644       $ 1,618       $ 74,503   
  

 

 

    

 

 

    

 

 

    

 

 

 

All of Business First’s mortgage-backed securities are agency securities. Business First does not hold any Fannie Mae or Freddie Mac preferred stock, corporate equity, collateralized debt obligations, collateralized loan obligations, structured investment vehicles, private label collateralized mortgage obligations, subprime, Alt-A, or second lien elements in its investment portfolio. As of June 30, 2015, the investment portfolio did not contain any securities that are directly backed by subprime or Alt-A mortgages.

Management evaluates securities for other-than-temporary impairment, at least on a quarterly basis, and more frequently when economic or market conditions warrant such an evaluation.

The following table sets forth the fair value, maturities and approximated weighted average yield based on estimated annual income divided by the average amortized cost of the securities portfolio as of the dates indicated. The contractual maturity of a mortgage-backed security is the date at which the last underlying mortgage matures.

 

     As of June 30, 2015  
     Within One
Year
    After One Year
but
Within Five Years
    After Five Years but
Within Ten Years
    After Ten
Years
    Total  
     Amount      Yield     Amount      Yield     Amount      Yield     Amount      Yield     Total      Yield  
     (Dollars in thousands) (Unaudited)  

U.S. government agencies

   $ —          —      $ 6,568         1.43   $ 5,719         2.27   $ 1,968         1.49   $ 14,255         1.78

Corporate bonds

     —          —        —          —        11,171         1.53     —          —        11,171         1.53

Municipal securities

     2,384         0.98     18,014         1.86     19,743         2.10     15,292         2.45     55,433         2.07

Mortgage-backed securities

     —          —        2,639         1.43     28,690         1.47     90,788         1.60     122,117         1.57

Other securities

     —          —        —          —        —          —        676         1.60     676         1.60
  

 

 

      

 

 

      

 

 

      

 

 

      

 

 

    

Total

   $ 2,384         0.98   $ 27,221         1.72   $ 65,323         1.74   $ 108,724         1.72   $ 203,652         1.72
  

 

 

      

 

 

      

 

 

      

 

 

      

 

 

    

 

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Table of Contents
     As of December 31, 2014  
     Within One
Year
    After One Year
but
Within Five Years
    After Five Years but
Within Ten Years
    After Ten
Years
    Total  
     Amount      Yield     Amount      Yield     Amount      Yield     Amount      Yield     Total      Yield  
     (Dollars in thousands)  

U.S. government agencies

   $ —          —      $ —          —      $ 7,179         2.12   $ 1,963         1.49   $ 9,142         1.99

Corporate bonds

     —          —        —          —        —          —        —          —        —          —   

Municipal securities

     262         1.29     9,236         2.00     9,556         2.25     11,606         2.71     30,660         2.35

Mortgage-backed securities

     —          —        —          —        4,515         1.05     29,511         1.72     34,026         1.64

Other securities

     —          —        —          —        —          —        675         1.53     675         1.53
  

 

 

      

 

 

      

 

 

      

 

 

      

 

 

    

Total

   $ 262         1.29   $ 9,236         2.00   $ 21,250         1.95   $ 43,755         1.97   $ 74,503         1.96
  

 

 

      

 

 

      

 

 

      

 

 

      

 

 

    

The contractual maturity of mortgage-backed securities, collateralized mortgage obligations and asset backed securities is not a reliable indicator of their expected life because borrowers have the right to prepay their obligations at any time. Mortgage-backed securities and asset-backed securities are typically issued with stated principal amounts and are backed by pools of mortgage loans and other loans with varying maturities. The term of the underlying mortgages and loans may vary significantly due to the ability of a borrower to pre-pay. Monthly pay downs on mortgage-backed securities tend to cause the average life of the securities to be much different than the stated contractual maturity. During a period of increasing interest rates, fixed rate mortgage-backed securities do not tend to experience heavy prepayments of principal and consequently, the average life of this security will be lengthened. If interest rates begin to fall, prepayments may increase, thereby shortening the estimated life of this security. The weighted average life of Business First’s investment portfolio was 5.28 years with an estimated effective duration of 56.34 months as of June 30, 2015.

As of June 30, 2015 and December 31, 2014, Business First did not own securities of any one issuer for which aggregate adjusted cost exceeded 10% of the consolidated stockholders’ equity as of such respective dates.

Deposits

Business First offers a variety of deposit accounts having a wide range of interest rates and terms including demand, savings, money market and time accounts. Business First relies primarily on competitive pricing policies, convenient locations and personalized service to attract and retain these deposits.

Total deposits as of June 30, 2015 were $926.1 million, an increase of $338.8 million compared to $587.3 million as of December 31, 2014. Deposit growth was primarily due to merger with AFGC and Business First’s continued penetration in its primary market area.

Noninterest-bearing deposits as of June 30, 2015 were $244.5 million compared to $109.0 million as of December 31, 2014, an increase of $135.5 million or 124.4%.

Average deposits for the six months ended June 30, 2015 were $754.7 million, an increase of $150.1 million or 24.8% over the full year average for the year ended December 31, 2014 of $604.6 million primarily due to the merger with AGFC. The average rate paid on total interest-bearing deposits decreased over this period from 0.75% for the year ended December 31, 2014 to 0.64% for the six months ended June 30, 2015. The decrease in average rates was driven primarily by strategic reductions in limited access money market and certificate of deposit pricing during this time period. In addition, the continued growth of noninterest-bearing demand accounts resulted in further reductions to the cost of deposits from 0.60% for the year ended December 31, 2014 to 0.50% for the six months ended June 30, 2015.

 

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The following table presents the daily average balances and weighted average rates paid on deposits for the periods indicated:

 

     For the Six months
Ended June 30, 2015
    For the Year Ended December 31,
2014
 
     Average
Balance
     Average
Rate
    Average
Balance
     Average
Rate
 
     (Dollars in thousands)               
     (Unaudited)     (Dollars in thousands)  

Interest-bearing demand accounts

   $ 22,008         0.34   $ 8,641         0.58

NOW accounts

     94,880         0.19     60,991         0.24

Limited access money market accounts and savings

     193,658         0.42     173,335         0.42

Certificates and other time deposits > $100k

     196,888         0.87     194,456         0.99

Certificates and other time deposits < $100k

     85,426         1.21     48,294         1.63
  

 

 

      

 

 

    

Total interest-bearing deposits

     592,860         0.64     485,717         0.75
  

 

 

      

 

 

    

Noninterest-bearing demand accounts

     161,796         —        118,883         —   
  

 

 

      

 

 

    

Total deposits

   $ 754,656         0.50   $ 604,600         0.60
  

 

 

      

 

 

    

The ratio of average noninterest-bearing deposits to average total deposits for the six months ended June 30, 2015 and the year ended December 31, 2014 was 21.4% and 19.7%, respectively.

The following table sets forth the amount of certificates of deposit that are $100,000 or greater by time remaining until maturity:

 

     As of
June 30, 2015
(Unaudited)
     As of December 31,
2014
 
     (Dollars in thousands)  

1 year or less

   $ 151,277       $ 123,299   

More than 1 year but less than 3 years

     40,337         24,255   

3 years or more but less than 5 years

     13,027         15,453   

5 years or more

     3,423         3,764   
  

 

 

    

 

 

 

Total

   $ 208,064       $ 166,771   
  

 

 

    

 

 

 

Borrowings

Business First utilizes short-term and long-term borrowings to supplement deposits to fund its lending and investment activities, each of which is discussed below.

Federal Home Loan Bank (FHLB) advances. The FHLB allows Business First to borrow on a blanket floating lien status collateralized by certain securities and loans. As of June 30, 2015 and December 31, 2014, total borrowing capacity of $221.8 million and $211.0 million, respectively, was available under this arrangement and $55.5 million and $15 million, respectively, was outstanding with a weighted average stated interest rate of 2.59% as of June 30, 2015 and 1.90% as of December 31, 2014. Business First’s current FHLB advances mature within five years. Business First utilizes these borrowings to meet liquidity needs and to fund certain fixed rate loans in its portfolio.

As a result of the merger with AGFC, Business First assumed the outstanding FHLB advances of American Gateway Bank. These assets were recorded at fair value as of acquisition which totaled $41.2 million, resulting in a market value adjustment of $2.0 million which will be accreted over the life of the respective advances as a reduction of interest expense on borrowings.

 

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The following table presents its FHLB borrowings at the dates indicated. Other than FHLB borrowings, Business First had no other short-term borrowings at the dates indicated.

 

     FHLB
Advances
 
    

(Dollars in

Thousands)

 

June 30, 2015

  

Amount outstanding at quarter-end

   $ 55,459   

Weighted average stated interest rate at quarter-end

     2.59

Maximum month-end balance during the quarter

   $ 55,976   

Average balance outstanding during the quarter

   $ 55,549   

Weighted average interest rate during the quarter

     1.26

December 31, 2014

  

Amount outstanding at year-end

   $ 15,000   

Weighted average stated interest rate at year-end

     1.90

Maximum month-end balance during the year

   $ 15,000   

Average balance outstanding during the year

   $ 15,112   

Weighted average interest rate during the year

     1.90

Correspondent Bank Federal Funds Purchased Relationships

Business First Bank maintains Federal Funds Purchased Relationships with the following financial institutions and limits as of June 30, 2015:

 

    

(Dollars in

Thousands)

 

The Independent Banker’s Bank TIB

   $ 25,000   

First Tennessee National Bank

   $ 17,000   

First National Bankers Bank

   $ 26,700   

ServisFirst Bank

   $ 6,000   

Center State Bank

   $ 9,000   

 

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Table of Contents

The following table represents combined Federal Funds Purchased for all relationships at the dates indicated.

 

     Fed Funds
Purchased
 
    

(Dollars in

Thousands)

 

June 30, 2015

  

Amount outstanding at quarter-end

   $ —    

Weighted average interest rate at quarter-end

     —   

Maximum month-end balance during the quarter

   $ —    

Average balance outstanding during the quarter

   $ 287   

Weighted average interest rate during the quarter

     1.64

December 31, 2014

  

Amount outstanding at year-end

   $ —    

Weighted average interest rate at year-end

     —   

Maximum month-end balance during the year

   $ —    

Average balance outstanding during the year

   $ —    

Weighted average interest rate during the year

     —   

Liquidity and Capital Resources

Liquidity

Liquidity involves Business First’s ability to raise funds to support asset growth and acquisitions or reduce assets to meet deposit withdrawals and other payment obligations, to maintain reserve requirements and otherwise to operate on an ongoing basis and manage unexpected events. For the six months ended June 30, 2015 and the year ended December 31, 2014, liquidity needs were primarily met by core deposits, security and loan maturities and amortizing investment and loan portfolios. Although access to brokered deposits, purchased funds from correspondent banks and overnight advances from the FHLB and the Federal Reserve Bank of Atlanta are available and have been utilized on occasion to take advantage of investment opportunities, Business First does not generally rely on these external funding sources. As of June 30, 2015 and December 31, 2014, Business First maintained 5 lines of credit with commercial banks which provide for extensions of credit with an availability to borrow up to an aggregate $83.7 million as of June 30, 2015 and $84.7 million as of December 31, 2014. There were no funds under these lines of credit outstanding as of June 30, 2015 and December 31, 2014.

 

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Table of Contents

The following table illustrates, during the periods presented, the mix of Business First’s funding sources and the average assets in which those funds are invested as a percentage of average total assets for the period indicated. Average assets totaled $909.6 million for the six months ended June 30, 2015 and $696.9 for the year ended December 31, 2014.

 

     For the Six
Months Ended
June 30, 2015
    For the Years
Ended
December 31,
2014
 
     (Unaudited)        

Sources of Funds:

    

Deposits:

    

Noninterest-bearing

     17.8     17.1

Interest-bearing

     65.2     69.7

Advances from FHLB

     5.4     2.1

Other borrowings

     0.3     0.0

Other liabilities

     0.5     0.5

Stockholders’ equity

     10.8     10.6
  

 

 

   

 

 

 

Total

     100     100
  

 

 

   

 

 

 

Uses of Funds:

    

Loans

     71.3     76.0

Securities available for sale

     15.9     11.6

Interest-bearing deposits in other banks

     7.1     6.7

Other noninterest-earning assets

     5.7     5.7
  

 

 

   

 

 

 

Total

     100     100
  

 

 

   

 

 

 

Average noninterest-bearing deposits to average deposits

     21.4     19.7

Average loans to average deposits

     86.0     88.6

Business First’s primary source of funds is deposits, and its primary use of funds is loans. Business First does not expect a change in the primary source or use of its funds in the foreseeable future. Business First’s average loans increased 23.4% for the six months ended June 30, 2015 compared to the same period in 2014. Business First predominantly invests excess deposits in overnight deposits with the Federal Reserve, securities, interest-bearing deposits at other banks or other short-term liquid investments until needed to fund loan growth. Business First’s securities portfolio had a weighted average life of 5.28 years and an effective duration of 56.34 months as of June 30, 2015 and a weighted average life of 7.21 years and an effective duration of 56.06 months as of December 31, 2014.

As of June 30, 2015, Business First had outstanding $214.2 million in commitments to extend credit and $10.1 million in commitments associated with outstanding standby and commercial letters of credit. As of December 31, 2014, Business First had outstanding $134.4 million in commitments to extend credit and $8.2 million in commitments associated with outstanding standby and commercial letters of credit. Since commitments associated with letters of credit and commitments to extend credit may expire unused, the total outstanding may not necessarily reflect the actual future cash funding requirements.

As of June 30, 2015 and December 31, 2014, Business First had no exposure to future cash requirements associated with known uncertainties or capital expenditures of a material nature. As of June 30, 2015, Business First had cash and cash equivalents of $119.9 million compared to $26.8 million as of December 31, 2014.

Capital Resources

Total stockholders’ equity increased to $112.6 million as of June 30, 2015, compared to $78.8 million as of December 31, 2014, an increase of $33.8 million or 42.8%. This increase was primarily the result of the merger with AGFC and $2.2 million in net income. To date, Business First has not declared or paid dividends on its common stock.

 

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Table of Contents

Capital management consists of providing equity to support current and future operations. Banking regulators view capital levels as important indicators of an institution’s financial soundness. As a general matter, FDIC-insured depository institutions and their holding companies are required to maintain minimum capital relative to the amount and types of assets they hold. Business First is subject to regulatory capital requirements at the bank holding company and bank levels. As of June 30, 2015 and December 31, 2014, Business First and Business First Bank were in compliance with all applicable regulatory capital requirements, and Business First Bank was classified as “well capitalized,” for purposes of the prompt corrective action regulations. As Business First employs its capital and continues to grow its operations, its regulatory capital levels may decrease depending on its level of earnings. However, Business First expects to monitor and control its growth in order to remain in compliance with all regulatory capital standards applicable to it.

The following table presents the actual capital amounts and regulatory capital ratios for Business First and Business First Bank as of the dates indicated.

 

     As of June 30, 2015     As of December 31, 2014  
     Amount      Ratio     Amount      Ratio  
     (Unaudited)               
     (Dollars in thousands)  

Business First Bancshares, Inc.

          

Total capital (to risk weighted assets)

   $ 116,184         12.57   $ 86,437         13.36

Tier 1 capital (to risk weighted assets)

     109,135         11.80     79,805         12.33

Common Equity Tier 1 capital (to risk weighted assets)

     109,135         11.80     N/A         N/A   

Tier 1 capital (to average assets)

     109,135         9.72     79,805         11.24

Business First Bank

     

Total capital (to risk weighted assets)

   $ 113,768         12.33   $ 83,637         12.96

Tier 1 capital (to risk weighted assets)

     106,719         11.56     77,005