Business First Bancshares Inc.

10/31/2024 | Press release | Distributed by Public on 10/31/2024 11:39

Quarterly Report for Quarter Ending September 30, 2024 (Form 10-Q)

bfst-20240930
Table of Contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_______________________________________________________________________
FORM 10-Q
_______________________________________________________________________
(Mark One)
x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2024
or
o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number: 001-38447
_______________________________________________________________________
BUSINESS FIRST BANCSHARES, INC.
(Exact name of registrant as specified in its charter)
_______________________________________________________________________
Louisiana
20-5340628
(State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification Number)
500 Laurel Street, Suite 101
Baton Rouge, Louisiana
70801
(Address of principal executive offices) (Zip Code)
(225) 248-7600
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Trading Symbol(s) Name of each exchange on which registered
Common Stock, par value $1.00 per share
BFST
NASDAQ Global Select Market
Indicate by check mark whether the registrant: (1) 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 (2) has been subject to such filing requirements for the past 90 days. YesxNo o
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). YesxNo o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer o Accelerated filer x
Non-accelerated filer o Smaller reporting company o
Emerging growth company o
If an emerging growth company, indicate by a check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No x
As of October 24, 2024, the issuer has outstanding 29,541,455 shares of common stock, par value $1.00 per share.
Table of Contents
BUSINESS FIRST BANCSHARES, INC.
PART I - FINANCIAL INFORMATION
Item 1.
Financial Statements
4
Consolidated Balance Sheets as of September 30, 2024 (Unaudited) and December 31, 2023
4
Unaudited Consolidated Statements of Income for the three and nine months ended September 30, 2024, and 2023
5
Unaudited Consolidated Statements of Comprehensive Income for the three and nine months ended September 30, 2024, and 2023
6
Unaudited Consolidated Statements of Changes in Shareholders' Equity for the three and nine months ended September 30, 2024, and 2023
7
Unaudited Consolidated Statements of Cash Flows for the nine months ended September 30, 2024, and 2023
9
Notes to Unaudited Consolidated Financial Statements
11
Item 2.
Management's Discussion and Analysis of Financial Condition and Results of Operations
32
Item 3.
Quantitative and Qualitative Disclosures About Market Risk
68
Item 4.
Controls and Procedures
69
PART II - OTHER INFORMATION
Item 1.
Legal Proceedings
70
Item 1A.
Risk Factors
70
Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds
70
Item 3.
Defaults Upon Senior Securities
70
Item 4.
Mine Safety Disclosures
70
Item 5.
Other Information
70
Item 6.
Exhibits
71
Signatures
72
3
Table of Contents
PART I -FINANCIAL INFORMATION
Item 1. Financial Statements
BUSINESS FIRST BANCSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except per share data)
September 30, 2024
(Unaudited) 		December 31,
2023
ASSETS
Cash and Due from Banks $ 213,199 $ 226,110
Federal Funds Sold 169,980 151,134
Securities Purchased Under Agreements to Resell 25,879 -
Securities Available for Sale, at Fair Values (Amortized Cost of $974,596 at September 30, 2024 and $963,978 at December 31, 2023)
916,091 879,571
Mortgage Loans Held for Sale - 835
Loans and Lease Receivable, Net of Allowance for Loan Losses of $42,154 at September 30, 2024 and $40,414 at December 31, 2023
5,177,964 4,952,371
Premises and Equipment, Net 67,617 69,480
Accrued Interest Receivable 32,547 29,916
Other Equity Securities 39,555 33,942
Other Real Estate Owned 1,787 1,685
Cash Value of Life Insurance 101,362 96,478
Deferred Taxes 20,852 27,323
Goodwill 91,527 88,391
Core Deposit and Customer Intangible 10,326 11,895
Other Assets 19,963 15,419
Total Assets $ 6,888,649 $ 6,584,550
LIABILITIES
Deposits:
Noninterest Bearing $ 1,190,942 $ 1,299,090
Interest Bearing 4,450,004 3,949,700
Total Deposits 5,640,946 5,248,790
Securities Sold Under Agreements to Repurchase 21,529 18,885
Bank Term Funding Program - 300,000
Federal Home Loan Bank Borrowings 367,202 211,198
Subordinated Debt 99,818 99,990
Subordinated Debt - Trust Preferred Securities 5,000 5,000
Accrued Interest Payable 3,752 14,841
Other Liabilities 50,878 41,587
Total Liabilities 6,189,125 5,940,291
Commitments and Contingencies (See Note 11)
SHAREHOLDERS' EQUITY
Preferred Stock, No Par Value; 5,000,000 Shares Authorized; 72,010 Shares ($1,000 Liquidation Preference) Issued at both September 30, 2024 and December 31, 2023, respectively
71,930 71,930
Common Stock, $1 Par Value; 50,000,000 Shares Authorized; 25,519,501 and 25,351,809 Shares Issued and Outstanding at September 30, 2024 and December 31, 2023, respectively
25,520 25,352
Additional Paid-in Capital 398,237 397,447
Retained Earnings 249,981 216,115
Accumulated Other Comprehensive Loss (46,144) (66,585)
Total Shareholders' Equity 699,524 644,259
Total Liabilities and Shareholders' Equity $ 6,888,649 $ 6,584,550
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 INCOME
(Dollars in thousands, except per share data)
For the Three Months Ended
September 30, 		For the Nine Months Ended
September 30,
2024 2023 2024 2023
Interest Income:
Interest and Fees on Loans $ 93,307 $ 84,575 $ 269,858 $ 237,566
Interest and Dividends on Non-taxable Securities 1,050 1,099 3,200 3,265
Interest and Dividends on Taxable Securities 5,367 3,954 14,749 11,667
Interest on Federal Funds Sold and Due From Banks 3,017 3,694 10,815 6,164
Total Interest Income 102,741 93,322 298,622 258,662
Interest Expense:
Interest on Deposits 41,303 30,110 120,232 72,718
Interest on Borrowings 5,324 7,918 16,736 24,575
Total Interest Expense 46,627 38,028 136,968 97,293
Net Interest Income 56,114 55,294 161,654 161,369
Provision for Credit Losses 1,665 604 4,161 4,364
Net Interest Income after Provision for Credit Losses 54,449 54,690 157,493 157,005
Other Income:
Service Charges on Deposit Accounts 2,723 2,540 7,699 7,234
Loss on Sales of Securities (13) - (14) (62)
Gain on Sales of Loans 122 321 2,721 1,426
Other Income 7,942 7,022 21,930 21,631
Total Other Income 10,774 9,883 32,336 30,229
Other Expenses:
Salaries and Employee Benefits 24,877 22,487 75,816 68,002
Occupancy and Equipment Expense 5,828 5,445 16,902 15,558
Other Expenses 11,745 10,675 35,364 33,428
Total Other Expenses 42,450 38,607 128,082 116,988
Income Before Income Taxes 22,773 25,966 61,747 70,246
Provision for Income Taxes 4,930 5,511 13,128 15,027
Net Income 17,843 20,455 48,619 55,219
Preferred Stock Dividends 1,351 1,351 4,051 4,051
Net Income Available to Common Shareholders $ 16,492 $ 19,104 $ 44,568 $ 51,168
Earnings Per Common Share:
Basic $ 0.65 $ 0.76 $ 1.77 $ 2.04
Diluted $ 0.65 $ 0.76 $ 1.75 $ 2.02
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
September 30, 		For the Nine Months Ended
September 30,
2024 2023 2024 2023
Consolidated Net Income $ 17,843 $ 20,455 $ 48,619 $ 55,219
Other Comprehensive Income (Loss):
Unrealized Gain (Loss) on Investment Securities 27,424 (16,398) 25,888 (24,009)
Unrealized Gain (Loss) on Share of Other Equity Investments - (8) 14 (1,451)
Reclassification Adjustment for Losses on Sale of AFS Investment Securities Included in Net Income 13 - 14 62
Income Tax Effect (5,797) 3,466 (5,475) 5,366
Other Comprehensive Income (Loss) 21,640 (12,940) 20,441 (20,032)
Consolidated Comprehensive Income $ 39,483 $ 7,515 $ 69,060 $ 35,187
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 SHAREHOLDERS'EQUITY
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2024 AND 2023
(Dollars in thousands, except per share data)
Preferred
Stock 		Common
Stock 		Additional
Paid-In
Capital 		Retained
Earnings 		Accumulated
Other
Comprehensive
Income (Loss) 		Total
Shareholders'
Equity
Balances at June 30, 2023 $ 71,930 $ 25,344 $ 395,875 $ 189,115 $ (81,296) $ 600,968
Comprehensive Income:
Net Income - - - 20,455 - 20,455
Other Comprehensive Loss - - - - (12,940) (12,940)
Cash Dividends Declared on Preferred Stock, $18.75 Per Share
- - - (1,351) - (1,351)
Cash Dividends Declared on Common Stock, $0.12 Per Share
- - - (3,012) - (3,012)
Stock Based Compensation Cost - - 246 - - 246
Balances at September 30, 2023 $ 71,930 $ 25,344 $ 396,121 $ 205,207 $ (94,236) $ 604,366
Balances at June 30, 2024 $ 71,930 $ 25,502 $ 397,851 $ 237,031 $ (67,784) $ 664,530
Comprehensive Income:
Net Income - - - 17,843 - 17,843
Other Comprehensive Income - - - - 21,640 21,640
Cash Dividends Declared on Preferred Stock, $18.75 Per Share
- - - (1,351) - (1,351)
Cash Dividends Declared on Common Stock, $0.14 Per Share
- - - (3,542) - (3,542)
Stock Based Compensation Cost - 18 386 - - 404
Balances at September 30, 2024 $ 71,930 $ 25,520 $ 398,237 $ 249,981 $ (46,144) $ 699,524
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 SHAREHOLDERS'EQUITY
FOR THE SIX MONTHS ENDED SEPTEMBER 30, 2024 AND 2023
(Dollars in thousands, except per share data)
Preferred
Stock 		Common
Stock 		Additional
Paid-In
Capital 		Retained
Earnings 		Accumulated
Other
Comprehensive
Income (Loss) 		Total
Shareholders'
Equity
Balances at December 31, 2022 $ 71,930 $ 25,110 $ 393,690 $ 163,955 $ (74,204) $ 580,481
Cumulative Effect of Change in Accounting Principle for Credit Losses - - - (827) - (827)
Comprehensive Income:
Net Income - - - 55,219 - 55,219
Other Comprehensive Loss - - - - (20,032) (20,032)
Cash Dividends Declared on Preferred Stock, $56.25 Per Share
- - - (4,051) - (4,051)
Cash Dividends Declared on Common Stock, $0.36 Per Share
- - - (9,089) - (9,089)
Stock Based Compensation Cost - 234 2,431 - - 2,665
Balances at September 30, 2023 71,930 25,344 396,121 205,207 (94,236) 604,366
Balances at December 31, 2023 $ 71,930 $ 25,352 $ 397,447 $ 216,115 $ (66,585) $ 644,259
Comprehensive Income:
Net Income - - - 48,619 - 48,619
Other Comprehensive Income - - - - 20,441 20,441
Cash Dividends Declared on Preferred Stock, $56.25 Per Share
- - - (4,051) - (4,051)
Cash Dividends Declared on Common Stock, $0.42 Per Share
- - - (10,702) - (10,702)
Stock Issuance - - (31) - - (31)
Stock Based Compensation Cost - 168 821 - - 989
Balances at September 30, 2024 $ 71,930 $ 25,520 $ 398,237 $ 249,981 $ (46,144) $ 699,524
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 Nine Months Ended
September 30,
2024 2023
Cash Flows From Operating Activities:
Consolidated Net Income $ 48,619 $ 55,219
Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities:
Provision for Credit Losses 4,161 4,364
Depreciation and Amortization 3,693 3,546
Net Accretion of Purchase Accounting Adjustments (1,788) (6,159)
Stock Based Compensation Cost 989 2,665
Net Amortization of Securities 1,738 3,241
Loss on Sales of Securities 14 62
Gain on Sale of Loans (2,299) (375)
Income on Other Equity Securities (1,723) (3,826)
Gain on Sale of Other Real Estate Owned, Net of Writedowns (49) (308)
Increase in Cash Value of Life Insurance (1,884) (1,675)
Deferred Income Tax Expense 996 2,121
Gain on Sale of Branch - (932)
Changes in Assets and Liabilities:
Increase in Accrued Interest Receivable (2,631) (2,394)
Increase in Other Assets (4,339) (3,313)
Increase (Decrease) in Accrued Interest Payable (11,089) 9,096
Increase in Other Liabilities 9,664 9,816
Net Cash Provided by Operating Activities 44,072 71,148
Cash Flows From Investing Activities:
Purchases of Securities Available for Sale (92,345) (46,211)
Proceeds from Maturities / Sales of Securities Available for Sale 27,964 17,320
Proceeds from Paydowns of Securities Available for Sale 52,011 42,688
Net Cash Paid in Acquisition (3,279) -
Net Cash Paid in Sale of Branch - (14,506)
Purchases of Other Equity Securities (4,539) (13,961)
Redemption of Other Equity Securities 663 21,212
Purchase of Life Insurance (3,000) (2,273)
Net Increase in Loans (224,512) (307,487)
Net Purchases of Premises and Equipment (1,837) (5,718)
Loss on Disposal of Premises and Equipment 7 -
Proceeds from Sales of Other Real Estate 589 1,240
Net Increase in Securities Purchased Under Agreements to Resell (25,879) -
Net Increase in Federal Funds Sold (18,846) (181,010)
Net Cash Used in Investing Activities (293,003) (488,706)
(CONTINUED)
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For the Nine Months Ended
September 30,
2024 2023
Cash Flows From Financing Activities:
Net Increase in Deposits 392,156 386,713
Net Increase in Securities Sold Under Agreements to Repurchase 2,644 3,037
Net Decrease in Federal Funds Purchased - (14,057)
Net Advances (Repayments) on Federal Home Loan Bank Borrowings 156,004 (195,916)
Net Proceeds (Repayments) on Bank Term Funding Program (300,000) 300,000
Repayment of Subordinated Debt - (8,900)
Gain on Extinguishment of Debt - (1,458)
Costs from Issuance of Common Stock (31) -
Payment of Dividends on Preferred Stock (4,051) (4,051)
Payment of Dividends on Common Stock (10,702) (9,089)
Net Cash Provided by Financing Activities 236,020 456,279
Net Increase (Decrease) in Cash and Cash Equivalents (12,911) 38,721
Cash and Cash Equivalents at Beginning of Period 226,110 152,740
Cash and Cash Equivalents at End of Period $ 213,199 $ 191,461
Supplemental Disclosures for Cash Flow Information:
Cash Payments for:
Interest on Deposits $ 121,562 $ 71,039
Interest on Borrowings $ 26,495 $ 17,158
Income Tax Payments $ 11,101 $ 9,489
Supplemental Schedule for Noncash Investing and Financing Activities:
Change in the Unrealized Gain (Loss) on Securities Available for Sale $ 25,902 $ (23,947)
Change in the Unrealized Gain (Loss) on Equity Securities $ 14 $ (1,451)
Change in Deferred Tax Effect on the Unrealized (Gain) Loss on Securities Available for Sale $ (5,475) $ 5,366
Transfer of Loans to Other Real Estate $ 642 $ 1,118
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
Note 1-Basis of Presentation -
The unaudited consolidated financial statements include the accounts of Business First Bancshares, Inc. (the "Company") and its two direct, wholly-owned subsidiaries, b1BANK (the "Bank"), and Coastal Commerce Statutory Trust I; and the Bank's wholly-owned subsidiaries, Business First Insurance, LLC, Smith Shellnut Wilson, LLC, Waterstone LSP, LLC ("Waterstone"), and b1 Securities, LLC. The Bank operates out of full-service banking centers and loan production offices in markets across Louisiana, the Dallas/Fort Worth metroplex and Houston, Texas. As a state bank, it is subject to regulation by the Office of Financial Institutions ("OFI"), State of Louisiana, and the Federal Deposit Insurance Corporation ("FDIC") and undergoes periodic examinations by these agencies. The Company is also regulated by the Federal Reserve and is subject to periodic examinations.
In the opinion of management, the accompanying unaudited consolidated financial statements contain all adjustments necessary to present fairly the financial results 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 United States ("U.S.") generally accepted accounting principles ("GAAP") have been omitted or abbreviated. These interim financial statements should be read in conjunction with the audited consolidated financial statements and footnote disclosures for the Company's previously filed Form 10-K for the year ended December 31, 2023.
Preparation of financial statements in conformity with U.S. GAAP requires management to 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. Critical accounting estimates that are particularly susceptible to significant change for the Company include the determination of the acquired loans and allowance for credit losses and purchase accounting adjustments (other than loans). Other estimates include goodwill, fair value of financial instruments, investment securities and the assessment of income taxes. 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 the Company's markets, and changes in applicable banking regulations. Actual results may ultimately differ from estimates.
Accounting Standards Adopted in Current Period
None
Accounting Standards Not Yet Adopted
ASU No. 2023-07, "Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures."ASU 2023-07 requires public business entities, including those with one reportable segment, to disclose additional disaggregated information about a reportable segment's income and expenses in both interim and annual periods. The standard requires disclosure of the title and position of the chief operating decision maker and an explanation of how the reported measure(s) of segment profit or loss are utilized in assessing segment performance allocating resources.
The update permits disclosure of additional measures of a segment's profit and losses, if multiple measures are utilized by the chief operating decision maker to allocate resources and evaluate profitability. Such measures, to the extent they are relevant but not in accordance with GAAP, shall be accompanied by appropriate disclosures and reconciliations to the appropriate reported GAAP amounts.
ASU 2023-07 became effective for the Company on January 1, 2024. Retrospective application is required upon adoption. The Company is still evaluating the impact of the ASU on the consolidated financial statements and disclosures.
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BUSINESS FIRST BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
ASU No. 2023-09, "Income Taxes (Topic 740): Improvements to Income Tax Disclosures."ASU 2023-09 requires public business entities to disclose additional information in specified categories with respect to the rate reconciliation for federal, state and foreign income taxes. In addition, the updates also require more details about reconciling items in the rate reconciliation in some categories if items meet a quantitative threshold. ASU 2023-09 also requires all entities to disclose income taxes paid, net of refunds, disaggregated by federal, state and foreign taxes for annual periods and to disaggregate the information by jurisdiction based on a quantitative threshold. ASU 2023-09 is effective for the Company starting January 1, 2025, though early adoption is permitted. ASU 2023-09 is not expected to have a significant impact on our financial statements.
Note 2-Reclassifications -
Certain reclassifications may have been made to conform to reporting in 2024. These reclassifications have no material effect on previously reported shareholders' equity or net income.
Note 3-Mergers and Acquisitions -
Waterstone, LSP, LLP
On January 31, 2024, the Company consummated the acquisition, through b1BANK, of Waterstone LSP, LLC ("Waterstone"), headquartered in Katy, Texas. Upon consummation of the acquisition, the Company paid $3.3 million in cash to the former owners of Waterstone. As part of the acquisition, the Company recorded $3.1 million in goodwill.
The Company has recorded approximately $1.5 million and $236,000 of acquisition-related costs within merger and conversion-related expenses and salaries and benefits for the nine months ended September 30, 2024, and year ended December 31, 2023, respectively.
Note 4-Earnings per Common Share -
Basic earnings per share ("EPS") represents income available to common shareholders 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 options and unvested restricted stock awards ("RSAs"), excluding any that were antidilutive. In addition,
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BUSINESS FIRST BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
nonvested share-based payment awards that contain nonforfeitable rights to dividends or dividend equivalents are considered participating securities and are included in the computation of EPS pursuant to the two-class method.
For the Three Months Ended
September 30, 		For the Nine Months Ended
September 30,
2024 2023 2024 2023
(Dollars in thousands, except per share data)
Numerator:
Net Income $ 17,843 $ 20,455 $ 48,619 $ 55,219
Less: Preferred Stock Dividends 1,351 1,351 4,051 4,051
Net Income Available to Common Shares $ 16,492 $ 19,104 $ 44,568 $ 51,168
Denominator:
Weighted Average Common Shares Outstanding 25,289,094 25,111,548 25,227,319 25,064,856
Dilutive Effect of Stock Options and RSAs 151,153 177,112 194,427 217,052
Weighted Average Dilutive Common Shares 25,440,247 25,288,660 25,421,746 25,281,908
Basic Earnings Per Common Share From Net Income Available to Common Shares $ 0.65 $ 0.76 $ 1.77 $ 2.04
Diluted Earnings Per Common Share From Net Income Available to Common Shares $ 0.65 $ 0.76 $ 1.75 $ 2.02
Note 5-Securities -
The amortized cost and fair values of securities available for sale as of September 30, 2024, and December 31, 2023 are summarized as follows:
September 30, 2024
(Dollars in thousands)
Amortized
Cost 		Gross
Unrealized
Gains 		Gross
Unrealized
Losses 		Fair
Value
U.S. Treasury Securities $ 17,646 $ - $ 880 $ 16,766
U.S. Government Agencies 10,188 - 517 9,671
Corporate Securities 48,209 26 3,754 44,481
Mortgage-Backed Securities 590,034 4,724 34,692 560,066
Municipal Securities 308,519 378 23,790 285,107
Total Securities Available for Sale $ 974,596 $ 5,128 $ 63,633 $ 916,091
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BUSINESS FIRST BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2023
(Dollars in thousands)
Amortized
Cost 		Gross
Unrealized
Gains 		Gross
Unrealized
Losses 		Fair
Value
U.S. Treasury Securities $ 17,690 $ - $ 1,451 $ 16,239
U.S. Government Agencies 10,258 - 848 9,410
Corporate Securities 49,609 - 5,770 43,839
Mortgage-Backed Securities 555,148 976 49,814 506,310
Municipal Securities 331,273 298 27,798 303,773
Total Securities Available for Sale $ 963,978 $ 1,274 $ 85,681 $ 879,571
The following tables present a summary of securities with gross unrealized losses and fair values at September 30, 2024 and December 31, 2023, 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 non-credit related.
September 30, 2024
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. Treasury Securities $ - $ - $ 16,766 $ 880 $ 16,766 $ 880
U.S. Government Agencies - - 9,671 517 9,671 517
Corporate Securities - - 41,527 3,754 41,527 3,754
Mortgage-Backed Securities 1,765 11 360,330 34,681 362,095 34,692
Municipal Securities 4,144 16 251,079 23,774 255,223 23,790
Total Securities Available for Sale $ 5,909 $ 27 $ 679,373 $ 63,606 $ 685,282 $ 63,633
December 31, 2023
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. Treasury Securities $ - $ - $ 16,239 $ 1,451 $ 16,239 $ 1,451
U.S. Government Agencies - - 9,410 848 9,410 848
Corporate Securities 7,529 362 36,106 5,408 43,635 5,770
Mortgage-Backed Securities 21,436 895 375,891 48,919 397,327 49,814
Municipal Securities 8,013 63 270,467 27,735 278,480 27,798
Total Securities Available for Sale $ 36,978 $ 1,320 $ 708,113 $ 84,361 $ 745,091 $ 85,681
As of September 30, 2024, and December 31, 2023, respectively, no allowance for credit losses was recognized on available for sale securities in an unrealized loss position as management does not believe any of the securities are impaired due to credit quality. This determination is based on the Company's analysis of the underlying risk characteristics including credit ratings, historical loss experience, and other qualitative factors. Further, the securities
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NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
continue to make principal and interest payments under their contractual terms and management does not have the intent to sell any of the securities and believes that it is more likely than not that the Company will not have to sell any such securities before a recovery of amortized cost basis. Therefore, the Company has determined the unrealized losses are due to changes in market interest rates compared to rates when the securities were acquired.
The amortized cost and fair values of securities available for sale as of September 30, 2024, 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 $ 26,315 $ 26,048
One to Five Years 193,423 183,972
Over Five to Ten Years 353,833 330,029
Over Ten Years 401,025 376,042
Total Securities Available for Sale $ 974,596 $ 916,091
Securities available for sale with a fair value of $347.2 million and $629.7 million, were pledged as collateral on public deposits and for other purposes as required or permitted by law as of September 30, 2024, and December 31, 2023, respectively.
At September 30, 2024 and December 31, 2023, accrued interest receivable on securities was $3.8 million and $4.7 million, respectively, and is included within accrued interest receivable on the consolidated balance sheets.
Note 6-Loans and the Allowance for Loan Losses -
Loans receivable at September 30, 2024 and December 31, 2023 are summarized as follows:
September 30,
2024 		December 31,
2023
(Dollars in thousands)
Real Estate Loans:
Commercial $ 2,256,370 $ 2,217,928
Construction 654,353 669,798
Residential 743,878 682,394
Total Real Estate Loans 3,654,601 3,570,120
Commercial 1,496,480 1,358,838
Consumer and Other 69,037 63,827
Total Loans Held for Investment 5,220,118 4,992,785
Less:
Allowance for Loan Losses (42,154) (40,414)
Net Loans $ 5,177,964 $ 4,952,371
The performing 1-4 family residential, multi-family residential, commercial real estate, and commercial loans, are pledged, under a blanket lien, as collateral securing advances from the FHLB at September 30, 2024 and December 31, 2023. Commercial and agricultural loans are pledged against the Federal Reserve Banks' ("FRB") discount window as of September 30, 2024 and December 31, 2023.
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NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
Net deferred loan origination fees were $12.8 million and $12.6 million at September 30, 2024 and December 31, 2023, respectively, and are netted in their respective loan categories above. In addition to loans issued in the normal course of business, the Company considers overdrafts on customer deposit accounts to be loans and reclassifies overdrafts as loans in its consolidated balance sheets. At September 30, 2024 and December 31, 2023, overdrafts of $6.1 million and $2.2 million, respectively, have been reclassified to loans.
The Bank is the lead lender on participations sold, without recourse, to other financial institutions which amounts are not included in the consolidated balance sheets. The unpaid principal balances of mortgages and other loans serviced for others were approximately $743.3 million and $723.5 million at September 30, 2024 and December 31, 2023, respectively. The Company had servicing rights of $954,000 and $1.1 million recorded at both September 30, 2024, and December 31, 2023, respectively, which are recorded within other assets.
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 and Texas. 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 credit 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.
Portfolio Segments and Risk Factors
The loan portfolio is disaggregated into portfolio segments and then further disaggregated into classes for certain disclosures. GAAP defines a portfolio segment as the level at which an entity develops and documents a systematic method for determining its allowance for credit losses. A class is generally a disaggregation of a portfolio segment. The Company's loan portfolio segments are Real Estate, Commercial, and Consumer and Other. The classes and risk characteristics of each segment are discussed in more detail below. The segmentation and disaggregation of the portfolio is part of the ongoing credit monitoring process.
Real Estate Portfolio Segment
Real Estate: Commercialloans are extensions of credit secured by owner-occupied and non-owner-occupied collateral. Repayment is generally dependent on the successful operations of the property. General economic conditions may impact the performance of these types of loans, including fluctuations in the value of real estate, vacancy rates, and unemployment trends. Real estate commercial loans also include farmland loans that can be, or are, used for agricultural purposes. These loans are usually repaid through refinancing, cash flow from the borrower's ongoing operations, development of the property, or sale of the property.
Real Estate: Constructionloans include loans to small-to-midsized businesses to construct owner-occupied properties, loans to developers of commercial real estate investment properties and residential developments and, to a lesser extent, loans to individual clients for construction of single-family homes in the Company's market areas. Risks associated with these loans include fluctuations in the value of real estate, project completion risk and changes in market trends. The Company is also exposed to risk based on the ability of the construction loan borrower to finance the loan or sell the property upon completion of the project, which may be affected by changes in secondary market terms and criteria for permanent financing since the time that the Company funded the loan.
Real Estate: Residentialloans include first and second lien 1-4 family mortgage loans, as well as home equity lines of credit, in each case primarily on owner-occupied primary residences. The Company is exposed to risk based on fluctuations in the value of the real estate collateral securing the loan, as well as changes in the borrower's financial condition, which could be affected by numerous factors, including divorce, job loss, illness, or other personal hardship. Real estate residential loans also include multi-family residential loans originated to provide permanent financing for multi-family residential income producing properties. Repayment of these loans primarily relies on successful rental and management of the property.
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NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
Commercial Portfolio Segment
Commercialloans include general commercial and industrial, or C&I, loans, including commercial lines of credit, working capital loans, term loans, equipment financing, asset acquisition, expansion, and development loans, borrowing base loans, letters of credit and other loan products, primarily in the Company's target markets that are underwritten based on the borrower's ability to service the debt from income. Commercial loan risk is derived from the expectation that such loans generally are serviced principally from the operations of the business, and those operations may not be successful. Any interruption or discontinuance of operating cash flows from the business, which may be influenced by events not under the control of the borrower such as economic events and changes in governmental regulations, could materially affect the ability of the borrower to repay the loan.
Consumer and Other Portfolio Segment
Consumer and otherloans include a variety of loans to individuals for personal, family and household purposes, including secured and unsecured installment and term loans. The risk is based on changes in the borrower's financial condition, which could be affected by numerous factors, including divorce, job loss, illness or other personal hardship, and fluctuations in the value of the real estate or personal property securing the consumer loan, if any.
The following tables set forth, as of September 30, 2024, and December 31, 2023, the balance of the allowance for credit losses by loan portfolio segment. The allowance for credit 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.
Allowance for Credit Losses and Recorded Investment in Loans Receivable
September 30, 2024
(Dollars in thousands)
Real Estate:
Commercial 		Real Estate:
Construction 		Real Estate:
Residential 		Commercial Consumer
and Other 		Total
Allowance for Loan Losses:
Beginning Balance $ 17,676 $ 6,596 $ 5,485 $ 10,424 $ 233 $ 40,414
Charge-offs (1) (672) (293) (859) (1,558) (3,383)
Recoveries 15 - 12 264 236 527
Provision (Recovery) 394 (267) 1,118 1,756 1,595 4,596
Ending Balance $ 18,084 $ 5,657 $ 6,322 $ 11,585 $ 506 $ 42,154
Reserve for Unfunded Loan Commitments:
Beginning Balance $ 206 $ 1,546 $ 177 $ 1,372 $ 23 $ 3,324
Provision (Recovery) 54 (720) 5 222 4 (435)
Ending Balance $ 260 $ 826 $ 182 $ 1,594 $ 27 $ 2,889
Total Allowance for Credit Losses $ 18,344 $ 6,483 $ 6,504 $ 13,179 $ 533 $ 45,043
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NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2023
(Dollars in thousands)
Real Estate:
Commercial 		Real Estate:
Construction 		Real Estate:
Residential 		Commercial Consumer
and Other 		Total
Allowance for Loan Losses:
Beginning Balance $ 14,702 $ 5,768 $ 5,354 $ 11,721 $ 633 $ 38,178
Adoption of ASU 2016-13 4,823 933 (365) (2,483) (248) 2,660
Beginning Balance After Adoption 19,525 6,701 4,989 9,238 385 40,838
Charge-offs (2,049) (36) (42) (2,813) (1,489) (6,429)
Recoveries 26 1 18 672 327 1,044
Provision (Recovery) 174 (70) 520 3,327 1,010 4,961
Ending Balance $ 17,676 $ 6,596 $ 5,485 $ 10,424 $ 233 $ 40,414
Reserve for Unfunded Loan Commitments:
Beginning Balance $ 220 $ 137 $ 13 $ 229 $ 6 $ 605
Adoption of ASU 2016-13 116 2,113 190 657 121 3,197
Beginning Balance After Adoption 336 2,250 203 886 127 3,802
Provision (Recovery) (130) (704) (26) 486 (104) (478)
Ending Balance $ 206 $ 1,546 $ 177 $ 1,372 $ 23 $ 3,324
Total Allowance for Credit Losses $ 17,882 $ 8,142 $ 5,662 $ 11,796 $ 256 $ 43,738
Included within the above allowance, in the tables above, are loans which management has individually evaluated to determine an allowance for credit losses. The following table summarizes, by segment, the loan balance and specific allowance allocation for those loans which have been individually evaluated.
September 30, 2024 December 31, 2023
Loan Balance Specific Allocations Loan Balance Specific Allocations
(Dollars in thousands)
Real Estate Loans:
Commercial $ 7,375 $ - $ 883 $ -
Construction 4,124 142 2,334 513
Residential - - 1,533 -
Total Real Estate Loans 11,499 142 4,750 513
Commercial - - - -
Consumer and Other - - - -
Total $ 11,499 $ 142 $ 4,750 $ 513
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NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
Credit Quality Indicators
We utilize a risk grading matrix to assign a risk grade to each of our commercial loans. Loans are graded on a scale of 10 to 80. Individual loan officers review updated financial information for all pass grade loans to reassess the risk grade, generally on at least an annual basis. When a loan has a risk grade of 60, it is still considered a pass grade loan; however, it is considered to be on management's "watch list," and subject to additional and more frequent monitoring by both the loan officer and senior credit and risk personnel. When a loan has a risk grade of 70 or higher, a special assets officer monitors the loan on an on-going basis.
The following tables set forth the credit quality indicators, disaggregated by loan segment, as of September 30, 2024, and December 31, 2023:
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NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2024
Criticized
Pass
(Risk Grade 10-45) 		Special Mention
(Risk Grade 50) 		Substandard
(Risk Grade 60) 		Doubtful
(Risk Grade 70) 		Loss
(Risk Grade 80) 		Total Current Period Charge-
offs
(Dollars in thousands)
Real Estate: Commercial
Originated in 2024 $ 198,896 $ - $ - $ - $ - $ 198,896 $ -
Originated in 2023 190,774 22,185 139 - - 213,098 -
Originated in 2022 718,376 38,881 3,353 - - 760,610 2
Originated in 2021 390,941 5,910 473 - - 397,324 -
Originated in 2020 126,015 1,967 446 - - 128,428 4
Originated Prior to 2020 471,558 4,342 6,765 879 - 483,544 (5)
Revolving 73,370 440 660 - - 74,470 -
Revolving Loans Converted to Term - - - - - - -
Total Real Estate: Commercial $ 2,169,930 $ 73,725 $ 11,836 $ 879 $ - $ 2,256,370 $ 1
Real Estate: Construction
Originated in 2024 $ 140,112 $ - $ 403 $ - $ - $ 140,515 $ -
Originated in 2023 117,290 - 701 - - 117,991 46
Originated in 2022 198,474 - 1,258 - - 199,732 278
Originated in 2021 67,395 - 3,005 - - 70,400 348
Originated in 2020 25,524 - 15 - - 25,539 -
Originated Prior to 2020 28,172 101 2,004 - - 30,277 -
Revolving 69,502 397 - - - 69,899 -
Revolving Loans Converted to Term - - - - - - -
Total Real Estate: Construction $ 646,469 $ 498 $ 7,386 $ - $ - $ 654,353 $ 672
Real Estate: Residential
Originated in 2024 $ 62,319 $ - $ 231 $ - $ - $ 62,550 $ 2
Originated in 2023 74,311 - 148 - - 74,459 1
Originated in 2022 203,168 1,162 1,158 10 - 205,498 10
Originated in 2021 94,188 116 207 - - 94,511 1
Originated in 2020 62,259 384 503 41 - 63,187 2
Originated Prior to 2020 132,326 1,687 5,968 251 - 140,232 73
Revolving 102,013 148 1,053 - - 103,214 204
Revolving Loans Converted to Term 227 - - - - 227 -
Total Real Estate: Residential $ 730,811 $ 3,497 $ 9,268 $ 302 $ - $ 743,878 $ 293
Commercial
Originated in 2024 $ 274,743 $ 1,737 $ 8,155 $ - $ - $ 284,635 $ -
Originated in 2023 258,892 2,555 1,104 - - 262,551 19
Originated in 2022 205,033 1,029 9,441 - - 215,503 450
Originated in 2021 98,866 2,743 1,657 - - 103,266 271
Originated in 2020 29,771 45 576 - - 30,392 43
Originated Prior to 2020 59,768 1,933 524 329 - 62,554 76
Revolving 529,754 5,779 2,029 - - 537,562 -
Revolving Loans Converted to Term 17 - - - - 17 -
Total Commercial $ 1,456,844 $ 15,821 $ 23,486 $ 329 $ - $ 1,496,480 $ 859
Consumer and Other
Originated in 2024 $ 8,487 $ - $ - $ - $ - $ 8,487 $ 24
Originated in 2023 6,775 - 21 - - 6,796 59
Originated in 2022 5,181 - 13 - - 5,194 38
Originated in 2021 2,273 - 46 - - 2,319 4
Originated in 2020 1,219 - 67 - - 1,286 31
Originated Prior to 2020 25,657 - 65 - - 25,722 40
Revolving 18,803 - 407 - - 19,210 1,362
Revolving Loans Converted to Term 23 - - - - 23 -
Total Consumer and Other $ 68,418 $ - $ 619 $ - $ - $ 69,037 $ 1,558
Total Loans $ 5,072,472 $ 93,541 $ 52,595 $ 1,510 $ - $ 5,220,118 $ 3,383
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NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2023
Criticized
Pass
(Risk Grade 10-45) 		Special Mention
(Risk Grade 50) 		Substandard
(Risk Grade 60) 		Doubtful
(Risk Grade 70) 		Loss
(Risk Grade 80) 		Total Current Period Charge-
offs
(Dollars in thousands)
Real Estate: Commercial
Originated in 2023 $ 228,902 $ - $ 84 $ - $ - $ 228,986 $ -
Originated in 2022 751,649 1,909 - - - 753,558 -
Originated in 2021 427,269 6,103 492 - - 433,864 357
Originated in 2020 151,848 3,551 8 - - 155,407 -
Originated in 2019 149,946 5,556 372 932 - 156,806 1,447
Originated Prior to 2019 379,503 1,313 7,970 335 - 389,121 245
Revolving 99,723 226 237 - - 100,186 -
Revolving Loans Converted to Term - - - - - - -
Total Real Estate: Commercial $ 2,188,840 $ 18,658 $ 9,163 $ 1,267 $ - $ 2,217,928 $ 2,049
Real Estate: Construction
Originated in 2023 $ 131,617 $ - $ - $ - $ - $ 131,617 $ -
Originated in 2023 322,032 647 62 - - 322,741 -
Originated in 2021 85,438 2,601 1,229 - - 89,268 -
Originated in 2020 22,515 31 16 - - 22,562 -
Originated in 2019 19,402 - 1,675 - - 21,077 1
Originated Prior to 2019 20,180 413 588 345 - 21,526 35
Revolving 60,612 395 - - - 61,007 -
Revolving Loans Converted to Term - - - - - - -
Total Real Estate: Construction $ 661,796 $ 4,087 $ 3,570 $ 345 $ - $ 669,798 $ 36
Real Estate: Residential
Originated in 2023 $ 76,662 $ - $ - $ - $ - $ 76,662 $ -
Originated in 2022 170,229 433 410 14 - 171,086 -
Originated in 2021 98,329 - 708 - - 99,037 11
Originated in 2020 68,281 386 520 57 - 69,244 1
Originated in 2019 54,902 1,112 1,061 119 - 57,194 22
Originated Prior to 2019 97,716 1,230 6,000 299 - 105,245 7
Revolving 103,252 - 654 - - 103,906 1
Revolving Loans Converted to Term 20 - - - - 20 -
Total Real Estate: Residential $ 669,391 $ 3,161 $ 9,353 $ 489 $ - $ 682,394 $ 42
Commercial
Originated in 2023 $ 303,160 $ 1,439 $ 709 $ - $ - $ 305,308 $ -
Originated in 2022 267,678 698 1,196 - - 269,572 247
Originated in 2021 136,291 5,483 928 16 - 142,718 25
Originated in 2020 48,990 448 921 42 - 50,401 49
Originated in 2019 21,137 584 640 231 - 22,592 1,632
Originated Prior to 2019 61,166 3,843 341 251 - 65,601 658
Revolving 499,642 2,128 573 28 - 502,371 202
Revolving Loans Converted to Term 275 - - - - 275 -
Total Commercial $ 1,338,339 $ 14,623 $ 5,308 $ 568 $ - $ 1,358,838 $ 2,813
Consumer and Other
Originated in 2023 $ 11,245 $ - $ - $ - $ - $ 11,245 $ 8
Originated in 2022 7,219 - 27 - - 7,246 78
Originated in 2021 3,372 - 55 - - 3,427 29
Originated in 2020 1,850 - 88 - - 1,938 11
Originated in 2019 2,359 - 40 - - 2,399 18
Originated Prior to 2019 18,280 - 92 - - 18,372 61
Revolving 18,814 100 160 - - 19,074 1,284
Revolving Loans Converted to Term 126 - - - - 126 -
Total Consumer and Other $ 63,265 $ 100 $ 462 $ - $ - $ 63,827 $ 1,489
Total Loans $ 4,921,631 $ 40,629 $ 27,856 $ 2,669 $ - $ 4,992,785 $ 6,429
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NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
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.
As of September 30, 2024, and December 31, 2023, loan balances outstanding more than 90 days past due and still accruing interest amounted to $185,000 and $127,000, respectively. As of September 30, 2024 and December 31, 2023, loan balances outstanding on nonaccrual status amounted to $25.9 million and $16.9 million, respectively. The Bank considers all loans more than 90 days past due as nonperforming loans.
The following tables provide an analysis of the aging of loans and leases as of September 30, 2024, and December 31, 2023. All loans greater than 90 days past due are generally placed on nonaccrual status.
Aged Analysis of Past Due Loans Receivable
September 30, 2024
(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:
Commercial $ 3,745 $ 77 $ 6,751 $ 10,573 $ 2,245,797 $ 2,256,370 $ -
Construction 7,511 - 5,171 12,682 641,671 654,353 56
Residential 804 1,246 4,865 6,915 736,963 743,878 -
Total Real Estate Loans 12,060 1,323 16,787 30,170 3,624,431 3,654,601 56
Commercial 6,365 522 5,346 12,233 1,484,247 1,496,480 103
Consumer and Other 151 41 520 712 68,325 69,037 26
Total $ 18,576 $ 1,886 $ 22,653 $ 43,115 $ 5,177,003 $ 5,220,118 $ 185
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December 31, 2023
(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:
Commercial $ 240 $ 536 $ 2,954 $ 3,730 $ 2,214,198 $ 2,217,928 $ 44
Construction 279 1,320 3,198 4,797 665,001 669,798 -
Residential 1,792 1,207 4,058 7,057 675,337 682,394 20
Total Real Estate Loans 2,311 3,063 10,210 15,584 3,554,536 3,570,120 64
Commercial 1,101 71 1,622 2,794 1,356,044 1,358,838 52
Consumer and Other 280 252 188 720 63,107 63,827 11
Total $ 3,692 $ 3,386 $ 12,020 $ 19,098 $ 4,973,687 $ 4,992,785 $ 127
The following table presents non-accrual loans by segment as of September 30, 2024, and December 31, 2023, respectively.
September 30,
2024 		December 31,
2023
(Dollars in thousands)
Real Estate Loans:
Commercial $ 7,100 $ 3,280
Construction 5,736 3,543
Residential 6,909 7,352
Total Real Estate Loans 19,745 14,175
Commercial 5,581 2,395
Consumer and Other 548 373
Total $ 25,874 $ 16,943
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 September 30, 2024, and December 31, 2023, the concessions granted to certain borrowers included extending the payment due dates and offering below market contractual interest rates, and were not significant to the consolidated financial statement
Accrued interest receivable of $4.0 million and $4.2 million was outstanding at September 30, 2024, and December 31, 2023, respectively, for all loan deferrals, primarily attributable to the COVID-19 pandemic and, to a much lesser extent, hurricanes which occurred in 2020 and 2021. These loans are no longer within their deferral periods. The accrued interest on the loans is due at their maturity.
At September 30, 2024 and December 31, 2023, accrued interest receivable on loans was $28.8 million and $25.2 million, respectively, and is included within accrued interest receivable on the consolidated balance sheets.
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NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
Note 7-Long Term Debt -
On March 1, 2022, the Company assumed, in connection with the TCBI acquisition, three tranches of subordinated debt with an aggregate principal balance outstanding of $26.4 million. One tranche in the amount of $10.0 million bears an adjustable interest rate, based on a benchmark rate plus 350 basis points, until maturity on April 11, 2028. This tranche is currently redeemable at the Company's option. Another tranche in the amount of $7.5 million bears an adjustable interest rate, based on a benchmark rate plus 350 basis points, until maturity on December 13, 2028. This tranche is currently redeemable at the Company's option. The third tranche in the amount of $8.9 million had an adjustable interest rate plus 595 basis points, based on a benchmark rate, until maturity on March 24, 2027. The $8.9 million tranche was called on May 1, 2023, by the Company and has been fully extinguished. The Company recognized a $1.5 million gain on the extinguishment of this debt during 2023. These notes carried an aggregate $890,000 and $1.1 million fair value adjustment as of September 30, 2024, and December 31, 2023, respectively.
Note 8-Bank Term Funding Program ("BTFP") -
On March 12, 2023, the Federal Reserve Board developed the BTFP, which offered loans to banks with a term of up to one year. The loans were secured by pledging the banks' U.S. treasuries, agency securities, agency mortgage-backed securities, and any other qualifying assets. These pledged securities were valued at par for collateral purposes. The Bank participated in the BTFP and had outstanding debt of $300.0 million at December 31, 2023. These loans bore a fixed rate of 4.38% and matured on March 22, 2024, at which time the Bank repaid them in full.
Note 9-Federal Home Loan Bank ("FHLB") Borrowings -
The Company had outstanding advances from the FHLB of $367.2 million and $211.2 million as of September 30, 2024, and December 31, 2023, respectively, consisting of:
One fixed rate loan with an original principal balance of $60.0 million. The loan was made in 2021 and the balance at September 30, 2024 and December 31, 2023 was $26.3 million and $35.3 million, respectively, with interest at 0.89%. Principal and interest payments are due monthly and the loan matures in November 2026.
One fixed rate loan of $875,000 at both September 30, 2024, and December 31, 2023, that was acquired during the TCBI acquisition, with interest at 4.88% paid monthly. Principal is due at maturity in April 2025.
One fixed rate loan of $25.0 million at both September 30, 2024, and December 31, 2023, with interest at 4.89% paid monthly. Principal is due at maturity in July 2025.
One fixed rate loan of $25.0 million at both September 30, 2024, and December 31, 2023, with interest at 4.65% paid monthly. Principal is due at maturity in January 2026.
One fixed rate loan of $25.0 million at both September 30, 2024, and December 31, 2023, with interest at 4.56% paid monthly. Principal is due at maturity in July 2026.
One fixed rate loan of $25.0 million at both September 30, 2024, and December 31, 2023, with interest at 4.13% paid monthly. Principal is due at maturity in October 2028. This advance has put options beginning in October 2024.
One fixed rate loan of $25.0 million at both September 30, 2024, and December 31, 2023, with interest at 3.92% paid monthly. Principal is due at maturity in October 2030. This advance has put options beginning in October 2024.
One fixed rate loan of $25.0 million at both September 30, 2024, and December 31, 2023, with interest at 3.72%paid monthly. Principal is due at maturity in October 2033. This advance has put options beginning in October 2024.
One fixed rate loan of $25.0 million at both September 30, 2024, and December 31, 2023, with interest at 3.57% paid monthly. Principal is due at maturity in October 2033. This advance has put options beginning in October 2024.
One fixed rate loan of $25.0 million at September 30, 2024, with interest at 4.84% paid monthly. Principal is due at maturity in December 2026.
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NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
One fixed rate loan of $25.0 million at September 30, 2024, with interest at 4.78% paid monthly. Principal is due at maturity in September 2027.
One fixed rate loan of $25.0 million at September 30, 2024, with interest at 4.73% paid monthly. Principal is due at maturity in March 2028.
One fixed rate loan of $25.0 million at September 30, 2024, with interest at 4.69% paid monthly. Principal is due at maturity in September 2028.
One short-term fixed rate loan of $65.0 million at September 30, 2024, with interest at 4.88% paid monthly. Principal and interest was due, and paid, at maturity in October 2024.
The Company had an additional $1.2 billion remaining on the FHLB line availability at September 30, 2024.
Note 10-Leases -
The Bank leases certain branch offices through non-cancelable operating leases with terms that range from oneto ten years and contain various renewal options for certain of the leases. Certain leases provide for increases in minimum monthly rental payments as defined by the lease agreement. Rental expense under these agreements was $4.5 million and $4.2 million for the nine months ended September 30, 2024, and 2023, respectively. At September 30, 2024, the Company had a weighted average lease term of 6.1 years and a weighted average discount rate of 3.44%.
Future minimum lease payments under these leases are as follows:
(Dollars in thousands)
October 1, 2024 through December 31, 2024 $ 1,293
January 1, 2025 through December 31, 2025 4,232
January 1, 2026 through December 31, 2026 3,969
January 1, 2027 through December 31, 2027 3,573
January 1, 2028 through December 31, 2028 3,077
January 1, 2029 and Thereafter 5,539
Total Future Minimum Lease Payments 21,683
Less Imputed Interest (2,095)
Present Value of Lease Liabilities $ 19,588
Note 11-Commitments and Contingencies -
In the normal course of business, the Bank is a party to financial instruments with off-balance sheet risk to meet the financing needs of its customers. These financial instruments include commitments to extend credit and standby and commercial letters of credit which are not included in the accompanying financial statements. These instruments involve, to varying degrees, elements of credit risk in excess of the amount recognized in the balance sheet.
The Bank's exposure to credit loss in the event of nonperformance by the other party to the financial instrument for commitments to extend credit and standby and commercial letters of credit is represented by the contractual amount of those instruments. The Bank's policy for obtaining collateral, and the nature of such collateral, is essentially the same as that involved in making commitments to extend credit. The Bank uses the same credit policies in making such commitments and conditional obligations as it does for instruments that are included in the balance sheet. In the normal course of business, the Bank has made commitments to extend credit of approximately $1.2 billion at both September 30, 2024, and December 31, 2023, and standby and commercial letters of credit of approximately $47.9 million and $45.2 million at September 30, 2024 and December 31, 2023, respectively. As discussed in Note 6, we have a reserve for unfunded loan commitments of $2.9 million and $3.3 million at September 30, 2024 and December 31, 2023, respectively.
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BUSINESS FIRST BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
In the normal course of business, the Bank is involved in various legal proceedings. In the opinion of management and counsel, the disposition or ultimate resolution of such proceedings would not have a material adverse effect on the Bank's financial statements.
Note 12- 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 fair values of mortgage loans held for sale are based on commitments on hand from investors within the secondary market for loans with similar characteristics.
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BUSINESS FIRST BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
The following tables present the balance of assets and liabilities measured on a recurring basis as of September 30, 2024, and December 31, 2023. The Company did not record any liabilities at fair value for which measurement of the fair value was made on a recurring basis.
Fair Value Level 1 Level 2 Level 3
(Dollars in thousands)
September 30, 2024
Available for Sale:
U.S. Treasury Securities $ 16,766 $ - $ 16,766 $ -
U.S. Government Agency Securities 9,671 - 9,671 -
Corporate Securities 44,481 - 36,040 8,441
Mortgage-Backed Securities 560,066 - 560,066 -
Municipal Securities 285,107 - 259,881 25,226
Loans Held for Sale - - - -
Total $ 916,091 $ - $ 882,424 $ 33,667
December 31, 2023
Available for Sale:
U.S. Treasury Securities $ 16,239 $ - $ 16,239 $ -
U.S. Government Agency Securities 9,410 - 9,410 -
Corporate Securities 43,839 - 35,871 7,968
Mortgage-Backed Securities 506,310 - 506,310 -
Municipal Securities 303,773 - 282,926 20,847
Loans Held for Sale 835 - 835 -
Total $ 880,406 $ - $ 851,591 $ 28,815
The Company reviews fair value hierarchy classifications on a quarterly basis. Changes in the Company's ability to observe inputs to the valuation may cause reclassification of certain assets or liabilities within the fair value hierarchy.
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BUSINESS FIRST BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
The table below provides a reconciliation for assets measured at fair value on a recurring basis using significant unobservable inputs, or Level 3 inputs, as of September 30, 2024, and December 31, 2023.
Corporate Municipal
Bonds Securities
(Dollars in thousands)
Balance at December 31, 2022 $ 19,000 $ 34,768
Realized Gains (Losses) Included in Net Income - -
Unrealized Losses Included in Other Comprehensive Loss (1,532) (2,228)
Purchases - -
Sales - -
Maturities, Prepayments, and Calls - (1,798)
Transfers Into Level 3 - -
Transfers Out of Level 3 (9,500) (9,895)
Balance at December 31, 2023 7,968 20,847
Realized Gains (Losses) Included in Net Income - -
Unrealized Gains (Losses) Included in Other Comprehensive Loss 473 (1,841)
Purchases - 9,938
Sales - -
Maturities, Prepayments, and Calls - (3,718)
Transfers Into Level 3 - -
Transfers Out of Level 3 - -
Balance at June 30, 2024 $ 8,441 $ 25,226
The following table provides quantitative information about significant unobservable inputs used in fair value measurements of Level 3 assets measured at fair value on a recurring basis at September 30, 2024.
Estimated Valuation Unobservable Range of
Fair Value Technique Inputs Discounts
(Dollars in thousands)
September 30, 2024
Corporate Securities $ 8,441 Present Value of Expected Future Cash Flow Model Liquidity Premium 2 %
Municipal Securities 25,226 Present Value of Expected Future Cash Flow Model Liquidity Premium 1 %
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.
The fair value of the individually evaluated loans is measured at the fair value of the collateral for collateral-dependent loans. Individually evaluated loans are Level 3 assets measured using appraisals from external parties of the collateral less any prior liens and adjusted for estimated selling costs. Adjustments may be made by management based on a customized internally developed discounting matrix. Repossessed assets are initially recorded at fair value less
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BUSINESS FIRST BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
estimated cost to sell, which is generally 10%. 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 3.
Fair Value Level 1 Level 2 Level 3
(Dollars in thousands)
September 30, 2024
Assets:
Individually Evaluated Loans $ 11,499 $ - $ - $ 11,499
Other Nonperforming Assets 1,787 - - 1,787
Total $ 13,286 $ - $ - $ 13,286
December 31, 2023
Assets:
Individually Evaluated Loans $ 4,750 $ - $ - $ 4,750
Other Nonperforming Assets 1,685 - - 1,685
Total $ 6,435 $ - $ - $ 6,435
Fair Value Financial Instruments
The fair value of a financial instruments 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 GAAP, 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.
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.
Other Equity Securities - 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.
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BUSINESS FIRST BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
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 September 30, 2024, and December 31, 2023 are as follows:
Carrying
Amount 		Total
Fair Value 		Level 1 Level 2 Level 3
(Dollars in thousands)
September 30, 2024
Financial Assets:
Cash and Short-Term Investments $ 383,179 $ 383,179 $ 383,179 $ - $ -
Securities Purchased Under Agreements to Resell 25,879 25,879 - 25,879 -
Securities 916,091 916,091 - 882,424 33,667
Loans Held for Sale - - - - -
Loans - Net 5,177,964 5,122,452 - - 5,122,452
Cash Value of BOLI 101,362 101,362 - 101,362 -
Other Equity Securities 39,555 39,555 - - 39,555
Total $ 6,644,030 $ 6,588,518 $ 383,179 $ 1,009,665 $ 5,195,674
Financial Liabilities:
Deposits $ 5,640,946 $ 5,640,442 $ - $ - $ 5,640,442
Borrowings 493,549 480,092 - 480,092 -
Total $ 6,134,495 $ 6,120,534 $ - $ 480,092 $ 5,640,442
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BUSINESS FIRST BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
Carrying
Amount 		Total
Fair Value 		Level 1 Level 2 Level 3
(Dollars in thousands)
December 31, 2023
Financial Assets:
Cash and Short-Term Investments $ 377,244 $ 377,244 $ 377,244 $ - $ -
Securities 879,571 879,571 - 850,756 28,815
Loans Held for Sale 835 835 - 835 -
Loans - Net 4,952,371 4,849,503 - - 4,849,503
Cash Value of BOLI 96,478 96,478 - 96,478 -
Other Equity Securities 33,942 33,942 - - 33,942
Total $ 6,340,441 $ 6,237,573 $ 377,244 $ 948,069 $ 4,912,260
Financial Liabilities:
Deposits $ 5,248,790 $ 5,243,326 $ - $ - $ 5,243,326
Borrowings 635,073 613,464 - 613,464 -
Total $ 5,883,863 $ 5,856,790 $ - $ 613,464 $ 5,243,326
Note 13- Subsequent Events -
On October 1, 2024, the Company consummated the merger of Oakwood Bancshares, Inc. ("Oakwood"), the parent bank holding company for Oakwood Bank, with and into the Company, with the Company continuing as the surviving corporation (the "Oakwood Merger") pursuant to the terms of that certain Agreement and Plan of Reorganization (the "Reorganization Agreement"), dated as of April 25, 2024, by and between the Company and Oakwood. Immediately, following consummation of the Oakwood Merger, Oakwood Bank merged with and into the Bank, with the Bank surviving the merger. Pursuant to the terms of the Reorganization Agreement, upon consummation of the Oakwood Merger, the Company issued 3,914,012 shares of its common stock to the former shareholders of Oakwood. As of September 30, 2024, Oakwood had total assets of $863.6 million, $700.2 million in loans and $741.3 million in deposits.
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Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
FORWARD-LOOKING STATEMENTS
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. and its consolidated subsidiaries, including b1BANK, which we sometimes refer to as "the Bank," unless the context indicates otherwise.
The information contained in this Form 10-Q is accurate only as of the date of this form and the dates specified herein.
All statements other than statements of historical fact contained in this Quarterly Report on Form 10-Q (this "Report") and other periodic reports filed by the Company, and other written or oral statements made by us or on our behalf, are "forward-looking statements," as defined by (and subject to the "safe harbor" protections under) the federal securities laws. 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 these factors include, but are not limited to, the following:
•risks relating to the Oakwood Merger and Oakwood Bank Merger (each as defined herein); unexpected costs associated with the integration of operations; the risks that the businesses will not be integrated successfully or such integration may be more difficult, time-consuming or costly than expected; the potential failure to fully or timely realize expected revenues and revenue synergies, including as the result of revenues following the merger being lower than expected; the risk of deposit and customer attrition; any changes in deposit mix; unexpected operating and other costs, which may differ or change from expectation; the risk of customer and employee loss and business disruptions, including, without limitation, as the result of difficulties in maintaining relationships with employees and; increased competitive pressures on solicitations of customers by competitors;
•risks related to the integration of any other acquired businesses, including exposure to potential asset quality and credit quality risks and unknown or contingent liabilities, risks related to entering a new geographic market, the time and costs associated with integrating systems, technology platforms, procedures and personnel, the ability to retain key employees and maintain relationships with significant customers, the need for additional capital to finance such transactions, and possible failures in realizing the anticipated benefits from acquisitions;
•changes in the strength of the United States ("U.S.") 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;
•economic risks posed by our geographic concentration in Louisiana, the Dallas/Fort Worth metroplex and Houston;
•the ability to sustain and continue our organic loan and deposit growth, and manage that growth effectively;
•market declines in industries to which we have exposure, such as the volatility in oil prices and downturn in the energy industry that impact certain of our borrowers and investments that operate within, or are backed by collateral associated with, the energy industry;
•volatility and direction of interest rates and market prices, which could reduce our net interest margins, asset valuations and expense expectations;
•interest rate risk associated with our business;
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•changes in the levels of loan prepayments and the resulting effects on the value of our loan portfolio;
•increased competition in the financial services industry, particularly from regional and national institutions and emerging non-bank competitors;
•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 our total loan portfolio;
•changes in the value of collateral securing our loans;
•deteriorating asset quality and higher loan charge-offs, and the time and effort required to resolve problem assets;
•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;
•our ability to maintain important deposit customer relationships and our reputation;
•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;
•our ability to prudently manage our growth and execute our strategy;
•risks associated with our acquisition and de novo branching strategy;
•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 the laws, regulations, interpretations or policies relating to financial institutions, accounting, tax, trade, monetary and fiscal matters;
•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;
•natural disasters and adverse weather, acts of terrorism, an outbreak of hostilities or other international or domestic calamities, epidemics and pandemics such as coronavirus, and other matters beyond our control; and
•other risks and uncertainties listed from time to time in our reports and documents filed with the U.S. Securities and Exchange Commission ("SEC").
The foregoing factors should not be construed as exhaustive and should be read together with the other cautionary statements included in this Report. Additional information on these and other risk factors can be found in Item 1A. "Risk Factors" of this Report and in Item 1A. "Risk Factors" in the Company's Annual Report on Form 10-K for the year ended December 31, 2023, filed with the SEC.
In the event that 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
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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.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF BUSINESS FIRST
The following discussion and analysis focuses on significant changes in the financial condition of Business First and its subsidiaries from December 31, 2023 to September 30, 2024, and its results of operations for the three and nine months ended September 30, 2024. This discussion and analysis is intended to highlight and supplement information presented elsewhere in this report and should be read in conjunction with (i) the accompanying unaudited consolidated financial statements and the notes thereto (the "Notes") and (ii) our Annual Report on Form 10-K for the year ended December 31, 2023, including the audited consolidated financial statements and notes thereto, management's discussion and analysis, and the risk factor disclosures contained therein.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 report, 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
We are a registered financial holding company headquartered in Baton Rouge, Louisiana. Through our wholly-owned subsidiary, b1BANK, a Louisiana state chartered bank, we provide a broad range of financial services tailored to meet the needs of small-to-midsized businesses and professionals. Since our inception in 2006, our priority has been and continues to be creating shareholder value through the establishment of an attractive commercial banking franchise in Louisiana and across our region. We consider our primary market to include the State of Louisiana, the Dallas/Fort Worth metroplex, and Houston. We currently operate out of banking centers and loan production offices across Louisiana and Texas. As of September 30, 2024, we had total assets of $6.9 billion, total loans of $5.2 billion, total deposits of $5.6 billion, and total shareholders' equity of $699.5 million.
As a financial holding company operating through one reportable operating segment, community banking, we generate most of our revenues from interest income on loans, customer service and loan fees, and interest income from securities. We incur interest expense on deposits and other borrowed funds and noninterest expense, such as salaries and employee benefits and occupancy expenses. We analyze our ability to maximize income generated from interest-earning assets and expense of our liabilities through our 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 we earn on interest-earning assets or pay on interest-bearing liabilities, as well as the volume and types of interest-earning assets, interest-bearing and noninterest-bearing liabilities and shareholders' 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 our loan portfolio are affected by, among other factors, economic and competitive conditions in our markets and across our region, as well as developments affecting the real estate, technology, financial services, insurance, transportation, manufacturing and energy sectors within our markets.
Other Developments
Bank Term Funding Program ("BTFP")
On March 12, 2023, the Federal Reserve developed the BTFP, which offered loans to banks with a term of up to one year. The loans are secured by pledging the banks' U.S. treasuries, agency securities, agency mortgage-backed securities,
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and any other qualifying assets. These pledged securities were valued at par for collateral purposes. The Bank participated in the BTFP and had outstanding debt of $300.0 million at December 31, 2023. The loans bore a fixed rate of 4.38% and matured on March 22,2024, at which time we repaid them in full.
Federal Reserve Bank's Discount Window
On April 11, 2023, the Bank opened two new lines of credit for additional contingent liquidity, totaling $921.9 million and $1.0 billion as of September 30, 2024, and December 31, 2023, respectively, through the Federal Reserve discount window. The Bank has not yet drawn on either of the lines of credit as of the date of this report.
Sale of Leesville Banking Center
On August 31, 2023, we sold the Leesville banking center, located in Leesville, Louisiana, to Merchants & Farmers Bank & Trust Company headquartered in Leesville, Louisiana, in accordance with the Branch Purchase and Assumption Agreement dated May 11, 2023. We maintained the loan portfolio and transferred those loans to other nearby banking centers. The sale included total deposits of $16.3 million and a pre-tax gain of $945,000.
Acquisition of Waterstone LSP, LLC ("Waterstone")
On January 31, 2024, we consummated the acquisition, through b1BANK, of Waterstone, headquartered in Katy, Texas. Waterstone offers community banks and small businesses a range of SBA lending services including planning, pre-qualification, packaging, closing and disbursements, servicing, and liquidations. Upon consummation of the acquisition, we paid $3.3 million in cash to the former owners of Waterstone.
Acquisition of Oakwood Bancshares, Inc. ("Oakwood")
On October 1, 2024, we consummated the merger of Oakwood Bancshares, Inc. ("Oakwood"), the parent bank holding company for Oakwood Bank, with and into us, with us continuing as the surviving corporation (the "Oakwood Merger") pursuant to the terms of that certain Agreement and Plan of Reorganization (the "Reorganization Agreement"), dated as of April 25, 2024, by and between us and Oakwood. Immediately, following consummation of the Oakwood Merger, Oakwood Bank merged with and into the us, with us surviving the merger. Pursuant to the terms of the Reorganization Agreement, upon consummation of the Oakwood Merger, we issued 3,914,012 shares of our common stock to the former shareholders of Oakwood. As of September 30, 2024, Oakwood had $863.6 million of total assets, $700.2 million in loans and $741.3 million in deposits.
Financial Highlights
The financial highlights as of and for the nine months ended September 30, 2024, include:
•Total assets of $6.9 billion, a $304.1 million, or 4.6%, increase from December 31, 2023.
•Total loans held for investment of $5.2 billion, a $227.3 million, or 4.6%, increase from December 31, 2023.
•Total depositsof $5.6 billion, a $392.2 million, or 7.5%, increase from December 31, 2023.
•Net income available to common shareholders of $44.6 million for the nine months ended September 30, 2024, a $6.6 million, or 12.9%, decrease from the nine months ended September 30, 2023.
•Net interest incomeof $161.7 million for the nine months ended September 30, 2024, an increase of $285,000, or 0.2%, from the nine months ended September 30, 2023.
•Allowance for credit lossesof 0.86% of total loans held for investment, compared to 0.88% as of December 31, 2023, and a ratio of nonperforming loans to total loans held for investment of 0.50%, compared to 0.34% as of December 31, 2023.
•Earnings per common share for the first nine months of 2024 of $1.77 per basic common share and $1.75 per diluted common share, compared to $2.04 per basic common share and $2.02 per diluted common share for the first nine months of 2023.
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•Return on average assets of 0.89% over the first nine months of 2024, compared to 1.09% for the first nine months of 2023.
•Return on average common equity of 10.08% over the first nine months of 2024, compared to 13.00% for the first nine months of 2023.
•Capital ratiosfor Tier 1 Leverage, Common Equity Tier 1, Tier 1 Risk-based and Total Risk-based Capital of 9.61%, 9.42%, 10.69% and 12.99%, respectively, compared to 9.52%, 9.15%, 10.46% and 12.85% at December 31, 2023.
•Book value per common shareof $24.59, an increase of 8.9% from $22.58 at December 31, 2023.
Results of Operations for the Three and Nine Months Ended September 30, 2024, and 2023
Performance Summary
For the three months ended September 30, 2024, net income available to common shareholders was $16.5 million, or $0.65 per basic and diluted common share, compared to net income of $19.1 million, or $0.76 per basic and diluted common share, for the three months ended September 30, 2023. Return on average assets, on an annualized basis, decreased to 0.97% for the three months ended September 30, 2024, from 1.17% for the three months ended September 30, 2023. Return on average equity, on an annualized basis, decreased to 10.76% for the three months ended September 30, 2024, as compared to 14.16% for the three months ended September 30, 2023.
For the nine months ended September 30, 2024, net income available to common shareholders was $44.6 million, or $1.77 per basic common share and $1.75 per diluted common share, compared to net income of $51.2 million, or $2.04 per basic common share and $2.02 per diluted common share, for the nine months ended September 30, 2023. Return on average assets, on an annualized basis, decreased to 0.89% for the nine months ended September 30, 2024, from 1.09% for the nine months ended September 30, 2023. Return on average equity, on an annualized basis, decreased to 10.08% for the nine months ended September 30, 2024, as compared to 13.00% for the nine months ended September 30, 2023.
Net Interest Income
Our operating results depend primarily on our 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, we measure and monitor (1) yields on our loans and other interest-earning assets, (2) the costs of our deposits and other funding sources, (3) our net interest spread and (4) our 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 shareholders' equity also fund interest-earning assets, net interest margin includes the benefit of these noninterest-bearing sources. We calculate average assets, liabilities, and equity using a daily average, and average yield/rate utilizing an actual day count convention.
For the three months ended September 30, 2024, net interest income totaled $56.1 million, and net interest margin and net interest spread were 3.51% and 2.54%, respectively, compared to $55.3 million, 3.61%, and 2.68%, respectively, for the three months ended September 30, 2023. The average yield on the loan portfolio was 7.12% for the three months ended September 30, 2024, compared to 6.84% for the three months ended September 30, 2023, and the average yield on total interest-earning assets was 6.42% for the three months ended September 30, 2024, compared to 6.10% for the three months ended September 30, 2023. For the three months ended September 30, 2024, overall cost of funds (which includes noninterest-bearing deposits) increased 48 basis points compared to the three months ended September 30, 2023, primarily due to the Federal Reserve increasing rates during 2023.
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For the nine months ended September 30, 2024, net interest income totaled $161.7 million, and net interest margin and net interest spread were 3.43% and 2.46%, respectively, compared to $161.4 million, 3.66%, and 2.79%, respectively, for the nine months ended September 30, 2023. The average yield on the loan portfolio was 7.02% for the nine months ended September 30, 2024, compared to 6.58% for the nine months ended September 30, 2023, and the average yield on total interest-earning assets was 6.33% for the nine months ended September 30, 2024, compared to 5.87% for the nine months ended September 30, 2023. For the nine months ended September 30, 2024, overall cost of funds (which includes noninterest-bearing deposits) increased 74 basis points compared to the nine months ended September 30, 2023, primarily due to the Federal Reserve increasing rates during 2023.
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 table also sets 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 three and nine months ended September 30, 2024, and 2023, 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. The average total loans reflected below are net of deferred loan fees and discounts. Acquired loans were recorded at fair value at acquisition and accrete/amortize discounts and premiums as an adjustment to yield.
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For the Three Months Ended September 30,
2024 2023
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 $ 5,212,948 $ 93,307 7.12 % $ 4,906,917 $ 84,575 6.84 %
Securities 924,012 6,417 2.76 885,792 5,053 2.26
Interest-bearing deposits in other banks 227,035 3,017 5.29 278,420 3,694 5.26
Total interest-earning assets 6,363,995 102,741 6.42 6,071,129 93,322 6.10
Allowance for loan losses (41,554) (42,120)
Noninterest-earning assets 466,203 445,926
Total assets $ 6,788,644 $ 102,741 $ 6,474,935 $ 93,322
Liabilities and Shareholders' Equity
Interest-bearing liabilities:
Interest-bearing deposits $ 4,308,780 $ 41,303 3.81 % $ 3,703,682 $ 30,110 3.23 %
Subordinated debt 99,854 1,353 5.39 100,400 1,363 5.39
Subordinated debt - trust preferred securities 5,000 114 9.07 5,000 111 8.81
Bank Term Funding Program - - - 300,000 3,422 4.53
Advances from FHLB 347,476 3,723 4.26 284,930 2,875 4.00
Other borrowings 20,971 134 2.54 23,542 147 2.48
Total interest-bearing liabilities 4,782,081 46,627 3.88 4,417,554 38,028 3.42
Noninterest-bearing liabilities:
Noninterest-bearing deposits 1,269,282 1,399,293
Other liabilities 55,333 50,947
Total noninterest-bearing liabilities 1,324,615 1,450,240
Shareholders' equity:
Common shareholders' equity 610,018 535,211
Preferred equity 71,930 71,930
Total shareholders' equity 681,948 607,141
Total liabilities and shareholders' equity $ 6,788,644 $ 6,474,935
Net interest rate spread (1) 2.54 % 2.68 %
Net interest income $ 56,114 $ 55,294
Net interest margin (2) 3.51 % 3.61 %
Overall cost of funds 3.07 % 2.59 %
____________________________
(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.
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For the Nine Months Ended September 30,
2024 2023
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 $ 5,131,474 $ 269,858 7.02 % $ 4,829,537 $ 237,566 6.58 %
Securities 901,525 17,949 2.66 909,901 14,932 2.19
Interest-bearing deposits in other banks 267,815 10,815 5.39 150,995 6,164 5.46
Total interest-earning assets 6,300,814 298,622 6.33 5,890,433 258,662 5.87
Allowance for loan losses (41,178) (41,888)
Noninterest-earning assets 463,080 442,341
Total assets $ 6,722,716 $ 298,622 $ 6,290,886 $ 258,662
Liabilities and Shareholders' Equity
Interest-bearing liabilities:
Interest-bearing deposits $ 4,216,866 $ 120,232 3.81 % $ 3,482,797 $ 72,718 2.79 %
Subordinated debt 99,913 4,063 5.43 106,555 4,003 5.02
Subordinated debt - trust preferred securities 5,000 340 9.08 5,000 317 8.48
Bank Term Funding Program 86,496 2,788 4.31 238,274 8,111 4.55
Advances from FHLB 298,735 9,189 4.11 368,542 11,755 4.26
Other borrowings 18,758 356 2.54 22,177 389 2.35
Total interest-bearing liabilities 4,725,768 136,968 3.87 4,223,345 97,293 3.08
Noninterest-bearing liabilities:
Noninterest-bearing deposits 1,283,035 1,427,821
Other liabilities 51,629 41,392
Total noninterest-bearing liabilities 1,334,664 1,469,213
Shareholders' equity:
Common shareholders' equity 590,354 526,398
Preferred equity 71,930 71,930
Total shareholders' equity 662,284 598,328
Total liabilities and shareholders' equity $ 6,722,716 $ 6,290,886
Net interest rate spread (1) 2.46 % 2.79 %
Net interest income $ 161,654 $ 161,369
Net interest margin (2) 3.43 % 3.66 %
Overall cost of funds 3.04 % 2.30 %
___________________________
(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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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 the purposes of these tables, changes attributable to both rate and volume that cannot be segregated have been allocated to rate.
For the Three Months Ended September 30, 2024 compared to the
Three Months Ended September 30, 2023
Increase (Decrease) due to change in
Volume Rate Total
(Dollars in thousands) (Unaudited)
Interest-earning assets:
Total loans $ 5,478 $ 3,254 $ 8,732
Securities 265 1,099 1,364
Interest-bearing deposits in other banks (683) 6 (677)
Total increase in interest income $ 5,060 $ 4,359 $ 9,419
Interest-bearing liabilities:
Interest-bearing deposits $ 5,800 $ 5,393 $ 11,193
Subordinated debt (7) (3) (10)
Subordinated debt - trust preferred securities - 3 3
Bank Term Funding Program - (3,422) (3,422)
Advances from FHLB 670 178 848
Other borrowings (16) 3 (13)
Total increase in interest expense $ 6,447 $ 2,152 $ 8,599
Increase (decrease) in net interest income $ (1,387) $ 2,207 $ 820
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For the Nine Months Ended September 30, 2024 compared to the
Nine Months Ended September 30, 2023
Increase (Decrease) due to change in
Volume Rate Total
(Dollars in thousands) (Unaudited)
Interest-earning assets:
Total loans $ 15,879 $ 16,413 $ 32,292
Securities (167) 3,184 3,017
Interest-bearing deposits in other banks 4,717 (66) 4,651
Total increase in interest income $ 20,429 $ 19,531 $ 39,960
Interest-bearing liabilities:
Interest-bearing deposits $ 20,930 $ 26,584 $ 47,514
Subordinated debt (270) 330 60
Subordinated debt - trust preferred securities - 23 23
Bank Term Funding Program (4,892) (431) (5,323)
Advances from FHLB (2,147) (419) (2,566)
Other borrowings (65) 32 (33)
Total increase in interest expense $ 13,556 $ 26,119 $ 39,675
Increase (decrease) in net interest income $ 6,873 $ (6,588) $ 285
Provision for Credit Losses
Our provision for credit losses is a charge to income in order to bring our allowance for credit losses to a level deemed appropriate by management. For a description of the factors taken into account by management in determining the allowance for credit losses see "-Financial Condition-Allowance for Credit Losses." The provision for credit losses was $1.7 million for the three months ended September 30, 2024, and $604,000 for the same period in 2023. For the nine months ended September 30, 2024, and 2023, the provision for credit losses was $4.2 million and $4.4 million, respectively. The higher provision for the three months ended September 30, 2024, compared to the same period in 2023 relates primarily to deterioration in the economic forecast in the current period, as compared to the prior period. Additionally, during the three months ended September 30, 2023, certain nonperforming loans were resolved through charge-offs, with the remaining portfolio requiring a lower reserve replenishment rate. The lower provision for the nine months ended September 30, 2024, compared to the same period in 2023 relates primarily to an improved macro-economic and market outlook in the current nine-month period. Additionally, net charge-offs were elevated during the nine months ended September 30, 2023 due to the resolution of certain acquired credit deteriorated loans.
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Noninterest Income ("Other Income")
Our primary sources of noninterest income are service charges on deposit accounts, debit card and automated teller machine ("ATM") fee income, income from bank-owned life insurance, fees and brokerage commissions and pass-through income from other investments (small business investment company ("SBIC") partnerships and financial technology ("Fintech") funds. The following tables present, for the periods indicated, the major categories of noninterest income:
For the Three Months Ended September 30,
2024 2023 Increase (Decrease)
(Dollars in thousands) (Unaudited)
Noninterest income:
Service charges on deposit accounts $ 2,723 $ 2,540 $ 183
Debit card and ATM fee income 1,864 1,581 283
Bank-owned life insurance income 679 604 75
Gain on sales of loans 122 321 (199)
Loss on sales of investment securities (13) - (13)
Fees and brokerage commissions 1,968 1,933 35
Mortgage origination income 98 108 (10)
Correspondent bank income 217 137 80
Gain (loss) on sales of other real estate owned (16) 85 (101)
Gain on sale of branch - 932 (932)
Gain on extinguishment of debt - 517 (517)
Swap fee income 937 8 929
Pass-through income (loss) from other investments 336 (11) 347
Other 1,859 1,128 731
Total noninterest income $ 10,774 $ 9,883 $ 891
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For the Nine Months Ended September 30,
2024 2023 Increase (Decrease)
(Dollars in thousands) (Unaudited)
Noninterest income:
Service charges on deposit accounts $ 7,699 $ 7,234 $ 465
Debit card and ATM fee income 5,590 4,797 793
Bank-owned life insurance income 1,885 1,675 210
Gain on sales of loans 2,721 1,426 1,295
Loss on sales of investment securities (14) (62) 48
Fees and brokerage commissions 5,780 5,537 243
Mortgage origination income 202 238 (36)
Correspondent bank income 631 268 363
Gain on sales of other real estate owned 49 308 (259)
Gain on sale of branch - 932 (932)
Gain on extinguishment of debt - 1,458 (1,458)
Swap fee income 1,451 21 1,430
Pass-through income from other investments 1,022 2,974 (1,952)
Other 5,320 3,423 1,897
Total noninterest income $ 32,336 $ 30,229 $ 2,107
Total noninterest income increased $891,000, or 9.0%, for the three months ended September 30, 2024 from the same period in 2023. The increase is primarily due to the increases in other income of $731,000, debit card and ATM fee income of $283,000, swap fee income of $929,000, and pass-through income from other investments of $347,000, offset with the gain on the sale of a branch of $932,000 and a gain on the extinguishment of debt of $517,000 which occurred in the same period in 2023.
Total noninterest income increased $2.1 million, or 7.0%, for the nine months ended September 30, 2024 from the same period in 2023. The increase is primarily due to the increases in the gains on sales of loans of $1.3 million, other income of $1.9 million and swap fee income of $1.4 million, offset with the gain on the extinguishment of debt of $1.5 million and the gain on the sale of a branch of $932,000 which occurred in the same period in 2023 and $2.0 million less in pass-through income from other investments from the same period in 2023.
Noninterest Expense ("Other Expense")
Generally, noninterest expense is composed of all employee expenses and costs associated with operating our facilities, obtaining and retaining customer relationships, and providing bank services. The largest component of noninterest expense is salaries and employee benefits. Noninterest expense also includes operational expenses, such as occupancy expenses, depreciation and amortization, professional and regulatory fees, including Federal Deposit Insurance Corporation ("FDIC") assessments, data processing expenses, and advertising and promotion expenses, among others.
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The following tables present, for the periods indicated, the major categories of noninterest expense:
For the Three Months Ended September 30,
2024 2023 Increase (Decrease)
(Dollars in thousands) (Unaudited)
Salaries and employee benefits $ 24,877 $ 22,487 $ 2,390
Non-staff expenses:
Occupancy of bank premises 2,630 2,428 202
Depreciation and amortization 1,844 1,690 154
Data processing 2,881 2,024 857
FDIC assessment fees 887 779 108
Legal and professional fees 873 766 107
Advertising and promotions 1,057 1,202 (145)
Utilities and communications 716 758 (42)
Ad valorem shares tax 900 965 (65)
Directors' fees 245 278 (33)
Other real estate owned expenses and write-downs 11 14 (3)
Merger and conversion related expenses 319 2 317
Other 5,210 5,214 (4)
Total noninterest expense $ 42,450 $ 38,607 $ 3,843
For the Nine Months Ended September 30,
2024 2023 Increase (Decrease)
(Dollars in thousands) (Unaudited)
Salaries and employee benefits $ 75,816 $ 68,002 $ 7,814
Non-staff expenses:
Occupancy of bank premises 7,778 7,131 647
Depreciation and amortization 5,262 5,120 142
Data processing 8,101 6,544 1,557
FDIC assessment fees 2,589 2,804 (215)
Legal and professional fees 2,781 2,340 441
Advertising and promotions 3,168 3,576 (408)
Utilities and communications 2,108 2,199 (91)
Ad valorem shares tax 2,700 2,895 (195)
Directors' fees 795 817 (22)
Other real estate owned expenses and write-downs 119 183 (64)
Merger and conversion related expenses 1,068 173 895
Other 15,797 15,204 593
Total noninterest expense $ 128,082 $ 116,988 $ 11,094
For the three months ended September 30, 2024, total noninterest expense increased $3.8 million, or 10.0%, from the three months ended September 30, 2023, primarily attributed to the increase in salaries and employee benefits of $2.4 million, or 10.6%.
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For the nine months ended September 30, 2024, total noninterest expense increased $11.1 million, or 9.5%, from the nine months ended September 30, 2023, primarily attributed to the increase in salaries and employee benefits of $7.8 million, or 11.5%.
Income Tax Expense
The amount of income tax expense is influenced by the amounts of our 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 three months ended September 30, 2024, income tax expense totaled $4.9 million, a decrease of $581,000, or 10.5%, compared to $5.5 million for the same period in 2023. Our effective tax rates for the three months ended September 30, 2024, and 2023 were 21.6% and 21.2%, respectively.
For the nine months ended September 30, 2024, income tax expense totaled $13.1 million, a decrease of $1.9 million, or 12.6%, compared to $15.0 million for the same period in 2023. Our effective tax rates for the nine months ended September 30, 2024, and 2023 were 21.3% and 21.4%, respectively.
Financial Condition
Our total assets increased $304.1 million, or 4.6%, from December 31, 2023, to September 30, 2024, due primarily from the increase in our loan portfolio.
Loan Portfolio
Our primary source of income is interest on loans to individuals, professionals and small-to-midsized businesses located in our markets. Our loan portfolio consists primarily of commercial loans and real estate loans secured by commercial real estate properties located in our primary market areas. Our loan portfolio represents the highest yielding component of our earning asset base.
As of September 30, 2024, total loans, excluding mortgage loans held for sale, were $5.2 billion, an increase of $227.3 million, or 4.6%, compared to $5.0 billion as of December 31, 2023. Additionally, $835,000 in loans were classified as loans held for sale as of December 31, 2023, and none at September 30, 2024.
Total loans held for investment as a percentage of total deposits were 92.5% and 95.1% as of September 30, 2024, and December 31, 2023, respectively. Total loans held for investment as a percentage of total assets were 75.8% as of both September 30, 2024, and December 31, 2023, respectively.
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The following table summarizes our loan portfolio by type of loan as of the dates indicated:
As of September 30, 2024 (Unaudited) As of December 31, 2023
Amount Percent Amount Percent
(Dollars in thousands)
Real Estate Loans:
Commercial
Retail and Wholesale $ 550,064 10.5 % $ 573,725 11.5 %
Hospitality 285,129 5.5 249,027 5.0
Healthcare 216,294 4.1 201,098 4.0
Services 149,000 2.9 155,283 3.1
Energy 98,643 1.9 100,523 2.0
Other 957,240 18.3 938,272 18.8
Total Commercial 2,256,370 43.2 2,217,928 44.4
Construction 654,353 12.5 669,798 13.4
Residential 743,878 14.3 682,394 13.7
Total Real Estate Loans 3,654,601 70.0 3,570,120 71.5
Commercial 1,496,480 28.7 1,358,838 27.2
Consumer and Other 69,037 1.3 63,827 1.3
Total loans held for investment $ 5,220,118 100.0 % $ 4,992,785 100.0 %
The following table summarizes our commercial real estate portfolio broken down into the geographic regions we operate in.
As of September 30, 2024 As of December 31, 2023
Amount Percent Amount Percent
(Dollars in thousands) (Unaudited)
Commercial real estate:
Dallas Region $ 581,862 25.8 % $ 618,608 27.9 %
New Orleans Region 456,300 20.2 439,087 19.8
North Louisiana Region 446,431 19.8 418,510 18.9
Capitol Region 236,593 10.5 213,492 9.6
Houston Region 231,204 10.3 243,097 10.9
Southwest Louisiana Region 221,816 9.8 201,538 9.1
Bayou Region 82,164 3.6 83,596 3.8
Total commercial real estate 2,256,370 100.0 % 2,217,928 100.0 %
Real Estate: Commercialloans are extensions of credit secured by owner-occupied and non-owner-occupied collateral. Repayment is generally dependent on the successful operations of the property. General economic conditions may impact the performance of these types of loans, including fluctuations in the value of real estate, vacancy rates, and unemployment trends. Real estate commercial loans also include farmland loans that can be, or are, used for agricultural purposes. These loans are usually repaid through refinancing, cash flow from the borrower's ongoing operations, development of the property, or sale of the property.
Real Estate: Commercial loans increased $38.4 million or 1.7%, to $2.3 billion as of September 30, 2024, from $2.2 billion as of December 31, 2023.
Real Estate: Constructionloans include loans to small-to-midsized businesses to construct owner-occupied properties, loans to developers of commercial real estate investment properties and residential developments and, to a lesser
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extent, loans to individual clients for construction of single-family homes in our market areas. Risks associated with these loans include fluctuations in the value of real estate, project completion risk and changes in market trends. We are also exposed to risk based on the ability of the construction loan borrower to finance the loan or sell the property upon completion of the project, which may be affected by changes in secondary market terms and criteria for permanent financing since the time we funded the loan.
Real Estate: Construction loans decreased $15.4 million, or 2.3%, to $654.4 million as of September 30, 2024, from $669.8 million as of December 31, 2023.
Real Estate: Residentialloans include first and second lien 1-4 family mortgage loans, as well as home equity lines of credit, in each case primarily on owner-occupied primary residences. The Company is exposed to risk based on fluctuations in the value of the real estate collateral securing the loan, as well as changes in the borrower's financial condition, which could be affected by numerous factors, including divorce, job loss, illness, or other personal hardship. Real estate residential loans also include multi-family residential loans originated to provide permanent financing for multi-family residential income producing properties. Repayment of these loans primarily relies on successful rental and management of the property.
Real Estate: Residential loans increased $61.5 million, or 9.0%, to $743.9 million as of September 30, 2024, from $682.4 million as of December 31, 2023.
Commercialloans include general commercial and industrial, or C&I, loans, including commercial lines of credit, working capital loans, term loans, equipment financing, asset acquisition, expansion, and development loans, borrowing base loans, letters of credit and other loan products, primarily in the Company's target markets that are underwritten based on the borrower's ability to service the debt from income. Commercial loan risk is derived from the expectation that such loans generally are serviced principally from the operations of the business, and those operations may not be successful. Any interruption or discontinuance of operating cash flows from the business, which may be influenced by events not under the control of the borrower such as economic events and changes in governmental regulations, could materially affect the ability of the borrower to repay the loan.
Commercial loans increased $137.6 million, or 10.1%, to $1.5 billion as of September 30, 2024, from $1.4 billion as of December 31, 2023.
Consumer and otherloans include a variety of loans to individuals for personal, family and household purposes, including secured and unsecured installment and term loans. The risk is based on changes in the borrower's financial condition, which could be affected by numerous factors, including divorce, job loss, illness or other personal hardship, and fluctuations in the value of the real estate or personal property securing the consumer loan, if any.
Consumer and other loans increased $5.2 million, or 8.2%, to $69.0 million as of September 30, 2024, from $63.8 million as of December 31, 2023.
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The contractual maturity ranges of loans in our loan portfolio and the amount of such loans with fixed and floating interest rates in each maturity range as of the date indicated are summarized in the following tables:
As of September 30, 2024
One Year or Less One Through Five
Years 		Five Through
Fifteen Years 		After Fifteen Years Total
(Dollars in thousands) (Unaudited)
Real Estate Loans:
Commercial $ 289,715 $ 1,372,631 $ 511,631 $ 82,393 $ 2,256,370
Construction 308,995 289,537 37,798 18,023 654,353
Residential 102,387 428,210 141,042 72,239 743,878
Total Real Estate Loans 701,097 2,090,378 690,471 172,655 3,654,601
Commercial 627,891 621,459 242,955 4,175 1,496,480
Consumer and Other 41,121 24,237 3,524 155 69,037
Total loans held for investment $ 1,370,109 $ 2,736,074 $ 936,950 $ 176,985 $ 5,220,118
Fixed rate loans:
Real Estate Loans:
Commercial $ 134,153 $ 1,097,292 $ 350,433 $ 12,924 $ 1,594,802
Construction 85,783 157,519 11,086 10,354 264,742
Residential 62,294 375,106 92,026 20,409 549,835
Total Real Estate Loans 282,230 1,629,917 453,545 43,687 2,409,379
Commercial 179,976 334,175 133,291 - 647,442
Consumer and Other 32,013 18,403 2,962 155 53,533
Total fixed rate loans $ 494,219 $ 1,982,495 $ 589,798 $ 43,842 $ 3,110,354
Floating rate loans:
Real Estate Loans:
Commercial $ 155,562 $ 275,339 $ 161,198 $ 69,469 $ 661,568
Construction 223,212 132,018 26,712 7,669 389,611
Residential 40,093 53,104 49,016 51,830 194,043
Total Real Estate Loans 418,867 460,461 236,926 128,968 1,245,222
Commercial 447,915 287,284 109,664 4,175 849,038
Consumer and Other 9,108 5,834 562 - 15,504
Total floating rate loans $ 875,890 $ 753,579 $ 347,152 $ 133,143 $ 2,109,764
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As of December 31, 2023
One Year or Less One Through Five
Years 		Five Through
Fifteen Years 		After Fifteen Years Total
(Dollars in thousands)
Real Estate Loans:
Commercial $ 251,365 $ 1,256,655 $ 620,029 $ 89,879 $ 2,217,928
Construction 325,883 278,039 45,910 19,966 669,798
Residential 79,357 401,852 137,283 63,902 682,394
Total Real Estate Loans 656,605 1,936,546 803,222 173,747 3,570,120
Commercial 520,058 594,274 243,744 762 1,358,838
Consumer and Other 35,971 23,520 4,134 202 63,827
Total loans held for investment $ 1,212,634 $ 2,554,340 $ 1,051,100 $ 174,711 $ 4,992,785
Fixed rate loans:
Real Estate Loans:
Commercial $ 156,227 $ 1,067,124 $ 450,884 $ 17,470 $ 1,691,705
Construction 96,020 187,970 16,388 13,866 314,244
Residential 49,434 344,549 85,731 14,952 494,666
Total Real Estate Loans 301,681 1,599,643 553,003 46,288 2,500,615
Commercial 134,242 331,029 147,388 - 612,659
Consumer and Other 26,867 17,373 3,260 159 47,659
Total fixed rate loans $ 462,790 $ 1,948,045 $ 703,651 $ 46,447 $ 3,160,933
Floating rate loans:
Real Estate Loans:
Commercial $ 95,138 $ 189,531 $ 169,145 $ 72,409 $ 526,223
Construction 229,863 90,069 29,522 6,100 355,554
Residential 29,923 57,303 51,552 48,950 187,728
Total Real Estate Loans 354,924 336,903 250,219 127,459 1,069,505
Commercial 385,816 263,245 96,356 762 746,179
Consumer and Other 9,104 6,147 874 43 16,168
Total floating rate loans $ 749,844 $ 606,295 $ 347,449 $ 128,264 $ 1,831,852
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 generally reversed. Interest income is subsequently recognized only to the extent cash payments are received in excess of principal due, or interest may be recognized on a cash basis as long as the remaining book balance of the loan is deemed collectible. Loans are returned to accrual status when all the principal and interest amounts contractually due are brought current and future payments are reasonably assured.
We have several procedures in place to assist in maintaining the overall quality of our loan portfolio. We have established underwriting guidelines to be followed by our bankers, and we also monitor our delinquency levels for any negative or adverse trends. There can be no assurance, however, that our loan portfolio will not become subject to increasing pressures from deteriorating borrower credit due to general economic conditions.
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We believe our conservative lending approach and focused management of nonperforming assets has resulted in sound asset quality and the timely resolution of problem assets. We had $27.8 million and$18.8 million in nonperforming assets as of September 30, 2024, and December 31, 2023, respectively. We had $26.1 million in nonperforming loans as of September 30, 2024, compared to $17.1 million as of December 31, 2023. The increase in nonperforming assets from December 31, 2023, to September 30, 2024, is primarily due to two lending relationships secured by residential real estate, one secured by commercial real estate, and one commercial loan that is unsecured.
The following tables present information regarding nonperforming assets at the dates indicated:
As of September 30,
2024 (Unaudited) 		As of December 31,
2023
(Dollars in thousands)
Nonaccrual loans $ 25,874 $ 16,943
Accruing loans 90 or more days past due 185 127
Total nonperforming loans 26,059 17,070
Other nonperforming assets - -
Other real estate owned:
Commercial real estate, construction, land and land development 1,495 1,326
Residential real estate 292 359
Total other real estate owned 1,787 1,685
Total nonperforming assets $ 27,846 $ 18,755
Ratio of nonperforming loans to total loans held for investment 0.50 % 0.34 %
Ratio of nonperforming assets to total assets 0.40 0.28
Ratio of nonaccrual loans to total loans held for investment 0.50 0.34
As of September 30, 2024 (Unaudited) As of December 31, 2023
(Dollars in thousands)
Nonaccrual loans by category:
Real Estate Loans:
Commercial $ 7,100 $ 3,280
Construction 5,736 3,543
Residential 6,909 7,352
Total Real Estate Loans 19,745 14,175
Commercial 5,581 2,395
Consumer and Other 548 373
Total $ 25,874 $ 16,943
Potential Problem Loans
From a credit risk standpoint, we classify 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. Ratings are adjusted to reflect the degree of risk and loss that is believed to be inherent in each credit. Our methodology is structured so that specific allocations are increased in accordance with deterioration in credit quality (and a corresponding increase in risk of loss) or decreased in accordance with improvement in credit quality (and a corresponding decrease in risk of loss).
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Credits rated special mention show clear signs of financial weaknesses or deterioration in credit worthiness; however, such concerns are not so pronounced that we generally expect 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.
Credits rated doubtful have all the weaknesses inherent in those rated substandard, with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions, and values, highly questionable and improbable.
The following tables summarize our internal ratings of loans held for investment as of the dates indicated. See Note 6 of the consolidated financial statements for the presentation of loans in their credit quality categories that is in compliance with the CECL standard.
As of September 30, 2024
Pass Special Mention Substandard Doubtful Total
(Dollars in thousands) (Unaudited)
Real Estate Loans:
Commercial $ 2,169,930 $ 73,725 $ 11,836 $ 879 $ 2,256,370
Construction 646,469 498 7,386 - 654,353
Residential 730,811 3,497 9,268 302 743,878
Total Real Estate Loans 3,547,210 77,720 28,490 1,181 3,654,601
Commercial 1,456,844 15,821 23,486 329 1,496,480
Consumer and Other 68,418 - 619 - 69,037
Total $ 5,072,472 $ 93,541 $ 52,595 $ 1,510 $ 5,220,118
As of December 31, 2023
Pass Special Mention Substandard Doubtful Total
(Dollars in thousands)
Real Estate Loans:
Commercial $ 2,188,840 $ 18,658 $ 9,163 $ 1,267 $ 2,217,928
Construction 661,796 4,087 3,570 345 669,798
Residential 669,391 3,161 9,353 489 682,394
Total Real Estate Loans 3,520,027 25,906 22,086 2,101 3,570,120
Commercial 1,338,339 14,623 5,308 568 1,358,838
Consumer and Other 63,265 100 462 - 63,827
Total $ 4,921,631 $ 40,629 $ 27,856 $ 2,669 $ 4,992,785
Allowance for Credit Losses
We maintain an allowance for credit losses, which includes both our allowance for loan losses and reserves for unfunded commitments, that represents management's best estimate of the credit losses and risks inherent in the loan portfolio. In determining the allowance for credit losses, we estimate losses on specific loans, or groups of loans, where the probable loss can be identified and reasonably determined. The balance of the allowance for credit losses is based on
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internally assigned risk classifications of loans, 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 credit loss rates. For additional information, see Note 6 to the consolidated financial statements.
In connection with our review of the loan portfolio, we consider risk elements attributable to particular loan types or categories in assessing the quality of individual loans. Some of the risk elements we consider include:
•for Real Estate: Commercial 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 for properties of that type;
•for Real Estate: Construction 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, the experience and ability of the developer, and the loan to value ratio;
•for Real Estate: Residential real estate 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 Commercial 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;
As of September 30, 2024, the allowance for credit losses totaled $45.0 million, or 0.86%, of total loans held for investment. As of December 31, 2023, the allowance for credit losses totaled $43.7 million, or 0.88%, of total loans held for investment.
The following tables present, as of and for the periods indicated, an analysis of the allowance for credit losses and other related data:
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As of and For the Nine Months Ended
September 30, 2024 (Unaudited) 		As of and For the Year Ended December
31, 2023
(Dollars in thousands)
Average loans outstanding $ 5,131,474 $ 4,859,637
Gross loans held for investment outstanding end of period $ 5,220,118 $ 4,992,785
Allowance for credit losses at beginning of period $ 43,738 $ 38,783
Adoption of ASU 2016-13 - 5,857
Provision for credit losses 4,161 4,483
Charge-offs:
Real Estate:
Commercial 1 2,049
Construction 672 36
Residential 293 42
Total Real Estate 966 2,127
Commercial 859 2,813
Consumer and other 1,558 1,489
Total charge-offs 3,383 6,429
Recoveries:
Real Estate:
Commercial 15 26
Construction - 1
Residential 12 18
Total Real Estate 27 45
Commercial 264 672
Consumer and other 236 327
Total recoveries 527 1,044
Net charge-offs 2,856 5,385
Allowance for credit losses at end of period $ 45,043 $ 43,738
Ratio of allowance for credit losses to end of period loans held for investment 0.86 % 0.88 %
Ratio of net charge-offs to average loans 0.06 0.11
Ratio of allowance for credit losses to nonaccrual loans 174.09 258.15
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As of and For the Nine Months Ended
September 30, 2024 (Unaudited) 		As of and For the Year Ended
December 31, 2023 		As of and For the Nine Months Ended
September 30, 2023 (Unaudited)
Net Charge-offs
(Recoveries) 		Percent of Average
Loans 		Net Charge-offs
(Recoveries) 		Percent of Average
Loans 		Net Charge-offs
(Recoveries) 		Percent of Average
Loans
(Dollars in thousands)
Real estate:
Commercial $ (14) 0.00 % $ 2,023 0.04 % $ 1,806 0.04 %
Construction 672 0.01 % 35 0.00 % - 0.00 %
Residential 281 0.01 % 24 0.00 % 33 0.00 %
Total Real Estate Loans 939 0.02 % 2,082 0.04 % 1,839 0.04 %
Commercial 595 0.01 % 2,141 0.05 % 1,752 0.03 %
Consumer and Other 1,322 0.03 % 1,162 0.02 % 907 0.02 %
Total net charge-offs (recoveries) $ 2,856 0.06 % $ 5,385 0.11 % $ 4,498 0.09 %
Although we believe that we have established our allowance for credit losses in accordance with U.S. generally accepted accounting principles ("GAAP") and that the allowance for credit losses was adequate to provide for known and estimated losses in the portfolio at all times shown above, future provisions will be subject to ongoing evaluations of the risks in our loan portfolio. If we experience economic declines or if asset quality deteriorates, material additional provisions could be required.
The following table shows the allocation of the allowance for credit losses among loan categories and certain other information as of the dates indicated. The allocation of the allowance for credit 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 September 30, 2024 (Unaudited) As of December 31, 2023 As of September 30, 2023 (Unaudited)
Amount Percent to Total Amount Percent to Total Amount Percent to Total
(Dollars in thousands)
Real estate:
Commercial $ 18,344 40.7 % $ 17,882 40.9 % $ 18,832 42.3 %
Construction 6,483 14.4 8,142 18.6 9,869 22.2
Residential 6,504 14.4 5,662 12.9 5,632 12.6
Total real estate 31,331 69.5 31,686 72.4 34,333 77.1
Commercial 13,179 29.3 11,796 27.0 9,737 21.9
Consumer and Other 533 1.2 256 0.6 436 1.0
Total allowance for credit losses $ 45,043 100.0 % $ 43,738 100.0 % $ 44,506 100.0 %
Securities
We use our securities portfolio to provide a source of liquidity, an appropriate return on funds invested, manage interest rate risk, meet collateral requirements, and meet regulatory capital requirements. As of September 30, 2024, the carrying amount of investment securities totaled $916.1 million, an increase of $36.5 million, or 4.2%, compared to $879.6 million as of December 31, 2023. The increase was primarily due to unrealized gains in the first nine months of 2024. Securities represented 13.3% and 13.4% of total assets as of September 30, 2024, and December 31, 2023, respectively.
Our investment portfolio consists entirely of securities classified as available for sale. As a result, the carrying values of our investment securities are adjusted for unrealized gain or loss, and any gain or loss is reported on an after-tax
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basis as a component of other comprehensive income in shareholders' equity. The following tables summarize the amortized cost and estimated fair value of investment securities as of the dates shown:
As of September 30, 2024
Amortized Cost Gross Unrealized
Gains 		Gross Unrealized
Losses 		Fair Value
(Dollars in thousands) (Unaudited)
U.S. treasury securities $ 17,646 $ - $ 880 $ 16,766
U.S. government agencies 10,188 - 517 9,671
Corporate bonds 48,209 26 3,754 44,481
Mortgage-backed securities 590,034 4,724 34,692 560,066
Municipal securities 308,519 378 23,790 285,107
Total $ 974,596 $ 5,128 $ 63,633 $ 916,091
As of December 31, 2023
Amortized Cost Gross Unrealized
Gains 		Gross Unrealized
Losses 		Fair Value
(Dollars in thousands)
U.S. treasury securities $ 17,690 $ - $ 1,451 $ 16,239
U.S. government agencies 10,258 - 848 9,410
Corporate bonds 49,609 - 5,770 43,839
Mortgage-backed securities 555,148 976 49,814 506,310
Municipal securities 331,273 298 27,798 303,773
Total $ 963,978 $ 1,274 $ 85,681 $ 879,571
All of our mortgage-backed securities are agency securities. We do not hold any Fannie Mae or Freddie Mac preferred stock, corporate equity, collateralized debt obligations, collateralized loan obligations, private label collateralized mortgage obligations, subprime, Alt-A, or second lien elements in our investment portfolio as of September 30, 2024.
The allowance for credit losses encompasses potential expected credit losses related to the securities portfolio. In order to develop an estimate of credit losses expected for the current securities portfolio, we perform an assessment that includes reviewing historical loss data for both our portfolio and similar types of investment securities. Additionally, our review of the securities portfolio for expected credit losses includes an evaluation of factors including the security issuer bond ratings, delinquency status, insurance or other available credit support, as well as our expectations of the forecasted economic outlook relevant to these securities. The results of the analysis are evaluated quarterly to confirm that credit loss estimates are appropriate for the securities portfolio. Based on our assessments, expected credit losses on the investment securities portfolio as of both September 30, 2024 and December 31, 2023, was negligible and therefore, no allowance for credit loss was recorded related to our investment securities.
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The following tables set 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 September 30, 2024
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. treasury securities $ - - % $ 16,766 0.80 % $ - - % $ - - % $ 16,766 0.80 %
U.S. government agencies - - % 9,671 0.92 % - - % - - % 9,671 0.92 %
Corporate bonds - - % 13,037 7.14 % 31,444 4.32 % - - % 44,481 5.15 %
Mortgage-backed securities 4,108 2.03 % 49,174 2.06 % 188,434 2.97 % 318,350 3.25 % 560,066 3.04 %
Municipal securities 21,940 1.54 % 95,324 1.68 % 110,151 1.94 % 57,692 2.81 % 285,107 2.00 %
Total $ 26,048 1.62 % $ 183,972 2.05 % $ 330,029 2.76 % $ 376,042 3.18 % $ 916,091 2.76 %
As of December 31, 2023
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. treasury securities $ - - % $ 16,239 0.80 % $ - - % $ - - % $ 16,239 0.80 %
U.S. government agencies - - % 9,410 0.92 % - - % - - % 9,410 0.92 %
Corporate bonds 213 - % 2,390 4.78 % 41,236 4.61 % - - % 43,839 4.60 %
Mortgage-backed securities 147 1.28 % 46,339 2.06 % 191,332 2.68 % 268,492 2.73 % 506,310 2.65 %
Municipal securities 16,766 1.56 % 96,739 1.55 % 117,092 1.91 % 73,176 2.38 % 303,773 1.89 %
Total $ 17,126 1.54 % $ 171,117 1.63 % $ 349,660 2.65 % $ 341,668 2.66 % $ 879,571 2.43 %
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 prepay. Monthly paydowns 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 our investment portfolio was 4.49 years with an estimated effective duration of 3.77 years as of September 30, 2024.
As of September 30, 2024, and December 31, 2023, we did not own securities of any one issuer for which aggregate adjusted cost exceeded 10% of our consolidated shareholders' equity as of such respective dates.
As of September 30, 2024, and December 31, 2023, the Company held other equity securities of $39.6 million and $33.9 million, respectively, comprised mainly of FHLB stock, small business investment companies ("SBICs") and financial technology ("Fintech") fund investments.
Deposits
We offer a variety of deposit accounts having a wide range of interest rates and terms including demand, savings, money market and time accounts. We rely primarily on competitive pricing policies, convenient locations and personalized service to attract and retain these deposits.
Total deposits as of September 30, 2024, were $5.6 billion, an increase of $392.2 million, or 7.5%, compared to $5.2 billion as of December 31, 2023. Total uninsured deposits were $2.4 billion, or 42.4%, of total deposits as of September 30, 2024 compared to $2.0 billion, or 38.9%, of total deposits as of December 31, 2023. Since it is not reasonably practical to
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provide a precise measure of uninsured deposits, the amounts are estimated and are based on the same methodologies and assumptions that are used for regulatory reporting requirements for the call report.
Noninterest-bearing deposits as of September 30, 2024, were $1.2 billion compared to $1.3 billion as of December 31, 2023, a decrease of $108.1 million, or 8.3%.
Average deposits for the nine months ended September 30, 2024, were $5.5 billion, an increase of $520.7 million, or 10.5%, over the full year average for the year ended December 31, 2023, of $5.0 billion. The average rate paid on total interest-bearing deposits increased over this period from 3.00% for the year ended December 31, 2023, to 3.81% for the nine months ended September 30, 2024. The increase in average rates was driven by the Federal Reserve raising rates during the year ended December 31, 2023 and consumer demand for higher earning interest bearing accounts. The cost of deposits increased to 2.92% for the nine months ended September 30, 2024, compared to 2.15% for the year ended December 31, 2023.
The following table presents the daily average balances and weighted average rates paid on deposits for the periods indicated:
For the Nine Months Ended
September 30, 2024 (Unaudited) 		For the Year Ended
December 31, 2023
Average Balance Average Rate Average Balance Average Rate
(Dollars in thousands)
Interest-bearing demand accounts $ 551,135 3.68 % $ 507,782 3.40 %
Negotiable order of withdrawal ("NOW") accounts 434,366 2.00 % 468,094 1.33 %
Limited access money market accounts and savings 2,022,853 3.87 % 1,441,836 2.77 %
Certificates and other time deposits > $250k 605,478 4.57 % 498,054 4.01 %
Certificates and other time deposits <$250k
603,034 4.27 % 650,450 3.61 %
Total interest-bearing deposits 4,216,866 3.81 % 3,566,216 3.00 %
Noninterest-bearing demand accounts 1,283,035 - % 1,412,979 - %
Total deposits $ 5,499,901 2.92 % $ 4,979,195 2.15 %
The ratio of average noninterest-bearing deposits to average total deposits for the nine months ended September 30, 2024, and the year ended December 31, 2023, was 23.3% and 28.4%, respectively.
The following table sets forth the contractual maturities of certain certificates of deposit at September 30, 2024:
Certificates of
Deposit More Than
$250,000 		Certificates of
Deposit of
$100,000 Through
$250,000
(Dollars in thousands) (Unaudited)
3 months or less $ 133,314 $ 115,502
More than 3 months but less than 6 months 53,784 96,089
More than 6 months but less than 12 months 166,743 86,528
12 months or more 276,984 57,961
Total $ 630,825 $ 356,080
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Federal Funds Purchased Lines of Credit Relationships
We maintain Federal Funds Purchased Lines of Credit Relationships with the following correspondent banks and limits as of September 30, 2024:
Fed Funds Purchase
Limits
(Dollars in thousands)
TIB National Association $ 45,000
PNC Bank 38,000
FNBB 35,000
First Horizon Bank 17,000
ServisFirst Bank 10,000
Total $ 145,000
We had no outstanding balances on these lines at September 30, 2024 and December 31, 2023.
Liquidity and Capital Resources
Liquidity
Liquidity involves our ability to utilize 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 nine months ended September 30, 2024, and the year ended December 31, 2023, liquidity needs were primarily met by core deposits, security and loan maturities, and amortizing investment and loan portfolios. In addition, we also utilize, or have available, brokered deposits, purchased funds from correspondent banks, the Federal Reserve discount window, and overnight advances from the FHLB. As of September 30, 2024, and December 31, 2023, we maintained five federal funds purchased lines of credit with correspondent banks which provided for extensions of credit with an availability to borrow up to an aggregate of $145.0 million. There were no funds drawn under these lines of credit at September 30, 2024, and December 31, 2023. We had an additional $1.2 billion of availability through the FHLB at both September 30, 2024, and December 31, 2023. As of September 30, 2024 and December 31, 2023, we had $921.9 million and $1.0 billion, respectively, of availability through the Federal Reserve Discount Window.
The following table illustrates, during the periods presented, the mix of our funding sources and the average assets in which those funds are invested as a percentage of average total assets for the periods indicated. Average total assets equaled $6.7 billion and $6.3 billion for the nine months ended September 30, 2024, and the year ended December 31, 2023, respectively.
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For the Nine
Months Ended
September 30,
2024 (Unaudited) 		For the Year Ended
December 31,
2023
Source of Funds:
Deposits:
Noninterest-bearing 19.1 % 22.3 %
Interest-bearing 62.7 56.2
Subordinated debt (excluding trust preferred securities) 1.5 1.7
Advances from FHLB 4.4 5.2
Other borrowings 0.4 0.4
Bank Term Funding Program 1.3 4.0
Other liabilities 0.7 0.7
Shareholders' equity 9.9 9.5
Total 100.0 % 100.0 %
Uses of Funds:
Loans, net of allowance for loan losses 75.7 % 76.0 %
Securities available for sale 13.4 14.2
Interest-bearing deposits in other banks 4.0 2.8
Other noninterest-earning assets 6.9 7.0
Total 100.0 % 100.0 %
Average noninterest-bearing deposits to average deposits 23.3 % 28.4 %
Average loans to average deposits 93.3 97.6
Our primary source of funds is deposits, and our primary use of funds is loans. We do not expect a change in the primary source or use of our funds in the foreseeable future. Our average net loans increased 6.3% for the nine months ended September 30, 2024, compared to the same period in 2023. We predominantly invest 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. Our securities portfolio had a weighted average life of 4.49 years and an effective duration of 3.77 years as of September 30, 2024. As of December 31, 2023, our securities portfolio had a weighted average life of 4.57 years and an effective duration of 3.81 years.
As of September 30, 2024, we had outstanding $1.2 billion in commitments to extend credit and $47.9 million in commitments associated with outstanding standby and commercial letters of credit. As of December 31, 2023, we had outstanding $1.2 billion in commitments to extend credit and $45.2 million in commitments associated with outstanding standby and commercial letters of credit. Because 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. See "Off Balance Sheet Items" below for additional information.
As of September 30, 2024, and December 31, 2023 we had cash and cash equivalents, including federal funds sold, of $383.2 million and $377.2 million, respectively. We had no exposure to future cash requirements associated with known uncertainties or capital expenditures of a material nature for either period.
Capital Resources
Total shareholders' equity increased to $699.5 million as of September 30, 2024, compared to $644.3 million as of December 31, 2023, an increase of $55.3 million, or 8.6%. This increase was primarily due to net income of $48.6 million and other comprehensive income of $20.4 million resulting from the after-tax effect of unrealized gains in our investment securities portfolio offset with dividends paid on preferred stock and common stock of $14.8 million.
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On October 24, 2024, our Board declared a quarterly dividend in the amount of $18.75 per preferred share to the preferred shareholders of record as of November 15, 2024. The dividend is to be paid on November 30, 2024, or as soon as practicable thereafter.
On October 24, 2024, our Board declared a quarterly dividend based upon our financial performance for the three months ended September 30, 2024, in the amount of $0.14 per common share to the common shareholders of record as of November 15, 2024. The dividend is to be paid on November 30, 2024, or as soon as practicable thereafter.
The declaration and payment of dividends to our shareholders, as well as the amounts thereof, are subject to the discretion of the Board and depend upon our results of operations, financial condition, capital levels, cash requirements, future prospects and other factors deemed relevant by the Board. As a holding company, our ability to pay dividends is largely dependent upon the receipt of dividends from our subsidiary, b1BANK. There can be no assurance that we will declare and pay any dividends to our shareholders.
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. We are subject to regulatory capital requirements at the holding company and bank levels. As of September 30, 2024, and December 31, 2023, we and b1BANK were in compliance with all applicable regulatory capital requirements, and b1BANK was classified as "well-capitalized," for purposes of prompt corrective action regulations. As we employ our capital and continue to grow our operations, our regulatory capital levels may decrease depending on our level of earnings. However, we expect to monitor and control our growth in order to remain in compliance with all applicable regulatory capital standards applicable to us.
The following table presents the actual capital amounts and regulatory capital ratios for us and b1BANK as of the dates indicated.
As of September 30, 2024 (Unaudited) As of December 31, 2023
Amount Ratio Amount Ratio
(Dollars in thousands)
Business First
Total capital (to risk weighted assets) $ 787,847 12.99 % $ 754,990 12.85 %
Tier 1 capital (to risk weighted assets) 648,759 10.69 % 614,975 10.46 %
Common Equity Tier 1 capital (to risk weighted assets) 571,829 9.42 % 538,045 9.15 %
Tier 1 Leverage capital (to average assets) 648,759 9.61 % 614,975 9.52 %
b1BANK
Total capital (to risk weighted assets) $ 772,529 12.74 % $ 730,117 12.43 %
Tier 1 capital (to risk weighted assets) 727,486 12.00 % 686,379 11.69 %
Common Equity Tier 1 capital (to risk weighted assets) 727,486 12.00 % 686,379 11.69 %
Tier 1 Leverage capital (to average assets) 727,486 10.79 % 686,379 10.63 %
FHLB Advances
Advances from the FHLB totaled approximately $367.2 million and $211.2 million at September 30, 2024 and December 31, 2023, respectively. As of September 30, 2024, and December 31, 2023, the FHLB advances were collateralized by a blanket floating lien on certain securities and loans, had a weighted average stated rate of 4.24% and 3.65%, respectively, and mature within ten years.
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Bank Term Funding Program ("BTFP")
On March 12, 2023, the Federal Reserve launched the BTFP, which offered loans to banks with a term of up to one year. The loans were secured by pledging the banks' U.S. treasuries, agency securities, agency mortgage-backed securities, and any other qualifying assets. These pledged securities were valued at par for collateral purposes. The Bank participated in the BTFP and had outstanding debt of $300.0 million at December 31, 2023. The loans bore a fixed rate of 4.38% and matured on March 22, 2024, at which time we repaid them in full.
Contractual Obligations
The following tables summarize contractual obligations and other commitments to make future payments as of September 30, 2024, and December 31, 2023 (other than non-maturity deposit obligations), which consist of future cash payments associated with our contractual obligations pursuant to our FHLB advances, subordinated debt, revolving line of credit, and non-cancelable future operating leases. Payments related to leases are based on actual payments specified in underlying contracts. Advances from the FHLB totaled approximately $367.2 million and $211.2 million at September 30, 2024 and December 31, 2023, respectively. As of September 30, 2024, and December 31, 2023, the FHLB advances were collateralized by a blanket floating lien on certain securities and loans, had a weighted average stated rate of 4.24% and 3.65%, respectively, and mature within ten years. We participated in the BTFP in March 2023 and as of December 31, 2023, had outstanding debt of $300.0 million, at a fixed rate of 4.38% and set to mature on March 22, 2024. We repaid this debt in full at the time of maturity. The subordinated debt totaled $99.8 million and $100.0 million at September 30, 2024 and December 31, 2023, respectively, including premium. Of this subordinated debt, $25.0 million bears interest at a fixed rate of 6.75% through December 31, 2028 and a floating rate, based on a benchmark rate plus 369 basis points, thereafter through maturity in 2033, $52.5 million of this subordinated debt bears interest at a fixed rate of 4.25% through March 31, 2026 and a floating rate, based on a benchmark rate plus 354 basis points, thereafter through maturity in 2031, $3.9 million of this subordinated debt bears interest at a fixed rate of 4.75% through April 1, 2026 and a floating rate, based on a benchmark rate plus 442 basis points, thereafter through maturity in 2031. We acquired three separate notes as part of the TCBI acquisition totaling $26.4 million. Of those notes, $10.0 million bears an adjustable interest rate plus 350 basis points, based on a benchmark rate, adjusting quarterly until maturity on April 11, 2028, and callable beginning April 11, 2023, $7.5 million bears an adjustable interest rate plus 350 basis points, based on a benchmark rate, adjusting quarterly, until maturity on December 13, 2028, and callable beginning December 13, 2023, and $8.9 million, which was called on May 1, 2023 and ceased bearing interest as of such date. As part of valuing these three subordinated notes from TCBI, we incurred a fair value adjustment premium of $3.4 million that will accrete over five-to-seven years, with $890,000 and $1.1 million remaining at September 30, 2024 and December 31, 2023, respectively. We recognized $1.5 million in gains on the extinguishment of this debt during the year ended December 31, 2023.
As of September 30, 2024
1 year or less More than 1 year
but less than 3
years 		3 years or more
but less than 5
years 		5 years or more Total
(Dollars in thousands) (Unaudited)
Non-cancelable future operating leases $ 4,444 $ 7,744 $ 5,828 $ 3,667 $ 21,683
Time deposits 770,244 350,838 31,760 21 1,152,863
Subordinated debt - - 17,500 81,427 98,927
Advances from FHLB 90,875 126,327 75,000 75,000 367,202
Subordinated debt - trust preferred securities - - - 5,000 5,000
Securities sold under agreements to repurchase 21,529 - - - 21,529
Standby and commercial letters of credit 44,372 2,833 651 16 47,872
Commitments to extend credit 679,328 292,873 119,048 101,253 1,192,502
Total $ 1,610,792 $ 780,615 $ 249,787 $ 266,384 $ 2,907,578
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As of December 31, 2023
1 year or less More than 1 year
but less than 3
years 		3 years or more
but less than 5
years 		5 years or more Total
(Dollars in thousands)
Non-cancelable future operating leases $ 4,429 $ 7,166 $ 6,426 $ 5,617 $ 23,638
Time deposits 1,027,366 238,222 35,490 21 1,301,099
Subordinated debt - - 17,500 81,427 98,927
Advances from FHLB - 111,198 25,000 75,000 211,198
BTFP 300,000 - - - 300,000
Subordinated debt - trust preferred securities - - - 5,000 5,000
Securities sold under agreements to repurchase 18,885 - - - 18,885
Standby and commercial letters of credit 43,704 927 546 - 45,177
Commitments to extend credit 625,521 330,138 106,171 112,477 1,174,307
Total $ 2,019,905 $ 687,651 $ 191,133 $ 279,542 $ 3,178,231
Off-Balance Sheet Items
In the normal course of business, we enter into various transactions which, in accordance with GAAP, are not included in our consolidated balance sheets. We enter into these transactions to meet the financing needs of our customers. These transactions include commitments to extend credit and standby and commercial letters of credit which involve, to varying degrees, elements of credit risk and interest rate risk in excess of the amounts recognized in the consolidated balance sheets.
Our commitments associated with outstanding standby and commercial letters of credit and commitments to extend credit expiring by period as of the date indicated are summarized in the tables above. Because commitments associated with letters of credit and commitments to extend credit may expire unused, the amounts shown do not necessarily reflect the actual future cash funding requirements.
Standby and commercial letters of credit are conditional commitments issued by us to guarantee the performance of a customer to a third party. In the event of nonperformance by the customer, we have rights to the underlying collateral, which can include commercial real estate, physical plant and property, inventory, receivables, cash and/or marketable securities. The credit risk to us in issuing letters of credit is essentially the same as that involved in extending loan facilities to our customers.
Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Because many of the commitments are expected to expire without being fully drawn upon, the total commitment amounts disclosed above do not necessarily represent future cash requirements. We evaluate each customer's creditworthiness on a case-by-case basis. The amount of collateral obtained, if considered necessary by us, upon extension of credit, is based on management's credit evaluation of the customer.
Interest Rate Sensitivity and Market Risk
As a financial institution, our primary component of market risk is sensitivity to movement in interest rates. Our asset and liability management policy provides management with the guidelines for effective interest rate risk management, and we have established a measurement system for monitoring our net interest rate sensitivity position. We manage our sensitivity position within our established guidelines.
Fluctuations in interest rates will ultimately impact both the level of income and expense recorded on most of our assets and liabilities, and the market value of all interest-earning assets and interest-bearing liabilities. Interest rate risk is the potential of economic losses due to future interest rate changes. These economic losses can be reflected as a loss of future net interest income and/or a loss of current fair market value of equity. The objective interest rate risk management
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is to measure the effect on net interest income and fair value of equity and to position the balance sheet to minimize the risk of losses and maximize the amount of income without taking on unnecessary earning volatility.
We seek to manage our exposure to interest rates by structuring our balance sheet in the ordinary course of business; however, we may enter into derivative contracts to hedge interest rate risk if it is appropriate given our risk profile and policy guidelines. Based upon the nature of our operations, we are not subject to foreign exchange or commodity price risk. We do not own any trading assets.
Our exposure to interest rate risk is managed by the asset-liability committee ("ALCO") of b1BANK, in accordance with policies approved by our board of directors. In determining the appropriate level of interest rate risk, the committee considers the impact on earnings and capital of the current outlook on interest rates, potential changes in interest rates, regional economies, liquidity, business strategies and other factors. The committee meets regularly to review, among other things, the sensitivity of assets and liabilities to interest rate changes, the book and market values of assets and liabilities, unrealized gains and losses, purchase and sale activities, commitments to originate loans and the maturities of investments and borrowings. Additionally, the committee reviews liquidity, cash flow flexibility, maturities of deposits and consumer and commercial deposit activity. Management employs methodologies to manage interest rate risk which include an analysis of relationships between interest-earning assets and interest-bearing liabilities, and an interest rate shock simulation model.
We use interest rate risk simulation models and shock analysis to test the interest rate sensitivity of net interest income and fair value of equity, and the impact of changes in interest rates on other financial metrics. Contractual maturities and re-pricing opportunities of loans are incorporated in the model as prepayment assumptions, maturity data and optionality. Deposit assumptions such as repricing betas and non-maturity balance decay rates are also incorporated into the model. Model assumptions are revised and updated on a regular basis as directed by policy, and more frequently if conditions merit. The assumptions used are inherently uncertain and, as a result, the model cannot precisely measure future net interest income or precisely predict the impact of fluctuations in market interest rates on net interest income. Actual results will differ from the model's simulated results due to timing, magnitude, and frequency of interest rate changes, as well as changes in market conditions, customer behavior, and the application and timing of various management strategies.
On at least a quarterly basis, we run simulation models to calculate potential impacts to net interest income and the fair value of equity. Specific details of the simulations are reflected in policy as directed by ALCO.
The following table summarizes the simulated change in net interest income and fair value of equity over a 12-month horizon as of the dates indicated:
As of September 30, 2024 As of December 31, 2023
Change in Interest Rates (Basis Points) Percent Change in
Net Interest
Income 		Percent Change in
Fair Value of
Equity 		Percent Change in
Net Interest
Income 		Percent Change in
Fair Value of
Equity
+300 (2.30 %) (3.65 %) (5.50 %) (5.59 %)
+200 1.56 % (2.25 %) (3.20 %) (3.47 %)
+100 0.67 % (1.00 %) (1.10 %) (1.39 %)
Base - % - % - % - %
-100 (1.18 %) 0.38 % 0.30 % 1.40 %
-200 (2.43 %) (0.99 %) 0.50 % 2.67 %
The results of the simulations are primarily driven by the contractual characteristics of all balance sheet instruments and customer behavior.
Impact of Inflation
Our consolidated financial statements and related notes included elsewhere in this statement have been prepared in accordance with GAAP. These require the measurement of financial position and operating results in terms of historical dollars, without considering changes in the relative value of money over time due to inflation or recession.
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Unlike many industrial companies, substantially all of our assets and liabilities are monetary in nature. As a result, interest rates have a more significant impact on our performance than the effects of general levels of inflation. Interest rates may not necessarily move in the same direction or in the same magnitude as the prices of goods and services. However, other operating expenses do reflect general levels of inflation.
Non-GAAP Financial Measures
Our accounting and reporting policies conform to GAAP, and the prevailing practices in the banking industry. However, we also evaluate our performance based on certain additional non-GAAP financial measures. We classify a financial measure as being a non-GAAP financial measure if that financial measure excludes or includes amounts, or is subject to adjustments that have the effect of excluding or including amounts, that are included or excluded, as the case may be, in the most directly comparable measure calculated and presented in accordance with GAAP as in effect from time to time in the United States in our statements of income, balance sheets or statements of cash flows. Non-GAAP financial measures do not include operating and other statistical measures or ratios or statistical measures calculated using exclusively either financial measures calculated in accordance with GAAP, operating measures or other measures that are not non-GAAP financial measures or both.
This discussion and analysis section includes certain non-GAAP financial measures (e.g., referenced as "core" or "tangible") intended to supplement, not substitute for, comparable GAAP measures. These measures typically adjust income available to common shareholders for certain significant activities or transactions that in management's opinion can distort period-to-period comparisons of Business First's performance. Transactions that are typically excluded from non-GAAP measures include realized and unrealized gains/losses on former bank premises and equipment, gains/losses on sales of securities, and acquisition-related expenses (including, but not limited to, legal costs, system conversion costs, severance and retention payments, etc.). The measures also typically adjust goodwill and certain intangible assets from book value and shareholders' equity.
Management believes presentations of these non-GAAP financial measures provide useful supplemental information that is essential to a proper understanding of the operating results of the Company's core business. These non-GAAP disclosures are not necessarily comparable to non-GAAP measures that may be presented by other companies. You should understand how such other banking organizations calculate their financial metrics or with names similar to the non-GAAP financial measures we have discussed in this statement when comparing such non-GAAP financial measures.
Core Net Income.Core net income available to common shareholders, which excludes certain income and expenses, for the three months ended September 30, 2024, was $17.2 million, or $0.68 per diluted common share, compared to core net income available to common shareholders of $18.0 million, or $0.71 per diluted common share, for the three months ended September 30, 2023. Notable noncore events impacting earnings for the three months ended September 30, 2024, included $319,000 in acquisition-related expenses and $511,000 in core conversion expenses, compared to $932,000 in a gain on the sale of our Leesville, Louisiana banking center and $517,000 in a gain on the extinguishment of debt due to the premium associated with the debt from the TCBI acquisition in 2022, which was attributed to the remaining $3.2 million subordinated debt redemption, for the same period in 2023.
For the nine months ended September 30, 2024, core net income available to common shareholders, was $46.3 million, or $1.82 per diluted common share, compared to core net income available to common shareholders of $49.5 million, or $1.96 per diluted common share, for the nine months ended September 30, 2023. Notable noncore events impacting earnings for the nine months ended September 30, 2024, $1.5 million in acquisition-related expenses and $511,000 in core conversion expenses, compared to $932,000 in a gain on the sale of our Leesville, Louisiana banking center, $1.5 million in a gain on the extinguishment of debt due to the premium associated with the debt from the TCBI acquisition in 2022, which was attributed to the $8.9 million subordinated debt redemption, and $173,000 in acquisition-related expenses for the same period in 2023.
For the Three Months Ended September 30, For the Nine Months Ended September 30,
2024 2023 2024 2023
(Dollars in thousands, except per share data) (Unaudited)
Interest Income:
Interest income $ 102,741 $ 93,322 $ 298,622 $ 258,662
Core interest income 102,741 93,322 298,622 258,662
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Interest Expense:
Interest expense 46,627 38,028 136,968 97,293
Core interest expense 46,627 38,028 136,968 97,293
Provision for Credit Losses:
Provision for credit losses 1,665 604 4,161 4,364
Core provision expense 1,665 604 4,161 4,364
Other Income:
Other income 10,774 9,883 32,336 30,229
Gains on former bank premises and equipment - - (50) -
Losses on sale of securities 13 - 14 62
Gain on sale of branch - (932) - (932)
Gain on extinguishment of debt - (517) - (1,458)
Core other income 10,787 8,434 32,300 27,901
Other Expense:
Other expense 42,450 38,607 128,082 116,988
Acquisition-related expenses (2) (319) (2) (1,453) (173)
Core conversion expenses (511) - (511) -
Core other expense 41,620 38,605 126,118 116,815
Pre-Tax Income:
Pre-tax income 22,773 25,966 61,747 70,246
Gains on former bank premises and equipment - - (50) -
Losses on sale of securities 13 - 14 62
Gain on sale of branch - (932) - (932)
Gain on extinguishment of debt - (517) - (1,458)
Acquisition-related expenses (2) 319 2 1,453 173
Core conversion expenses 511 - 511 -
Core pre-tax income 23,616 24,519 63,675 68,091
Provision for Income Taxes: (1)
Provision for income taxes 4,930 5,511 13,128 15,027
Tax on gains on former bank premises and equipment - - (11) -
Tax on losses on sale of securities 3 - 3 13
Tax on gain on sale of branch - (197) - (197)
Tax on gain on extinguishment of debt - (109) - (308)
Tax on acquisition-related expenses (2) - - 91 20
Tax on core conversion expenses 108 - 108 -
Core provision for income taxes 5,041 5,205 13,319 14,555
Preferred Dividends
Preferred dividends 1,351 1,351 4,051 4,051
Core preferred dividends 1,351 1,351 4,051 4,051
Net Income Available to Common Shareholders:
Net income available to common shareholders 16,492 19,104 44,568 51,168
Gains on former bank premises and equipment , net of tax - - (39) -
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Losses on sale of securities, net of tax 10 - 11 49
Gain on sale of branch, net of tax - (735) - (735)
Gain on extinguishment of debt, net of tax - (408) - (1,150)
Acquisition-related expenses (2), net of tax 319 2 1,362 153
Core conversion expenses, net of tax 403 - 403 -
Core net income available to common shareholders $ 17,224 $ 17,963 $ 46,305 $ 49,485
Diluted Earnings Per Common Share:
Diluted earnings per common share $ 0.65 $ 0.76 $ 1.75 $ 2.02
Gains on former bank premises and equipment , net of tax - - - -
Losses on sale of securities, net of tax - - - -
Gain on sale of branch, net of tax - (0.03) - (0.03)
Gain on extinguishment of debt, net of tax - (0.02) - (0.04)
Acquisition-related expenses (2), net of tax 0.01 - 0.05 0.01
Core conversion expenses, net of tax 0.02 - 0.02 -
Core diluted earnings per common share $ 0.68 $ 0.71 $ 1.82 $ 1.96
____________________________
(1)Tax rates, exclusive of certain nondeductible acquisition-related expenses and goodwill, utilized were 21.129% for both 2024 and 2023. These rates approximate the marginal tax rates for the applicable periods.
(2)Includes merger and conversion-related expenses and salary and employee benefits.
Tangible Book Value Per Common Share.Tangible book value per common share is a non-GAAP measure generally used by financial analysts and investment bankers to evaluate financial institutions. We calculate (1) tangible common equity as shareholders' equity less preferred stock, goodwill, and core deposit and customer intangible assets, net of accumulated amortization, and (2) tangible book value per common share as tangible common equity divided by shares of common stock outstanding. The most directly comparable GAAP financial measure for tangible book value per common share is book value per common share.
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The following table reconciles, as of the dates set forth below, total shareholders' equity to tangible common equity and presents tangible book value per common share compared to book value per common share:
As of September
30, 2024 		As of December 31,
2023
(Dollars in thousands, except per share data) (Unaudited)
Tangible Common Equity
Total shareholders' equity $ 699,524 $ 644,259
Preferred stock (71,930) (71,930)
Total common shareholders' equity 627,594 572,329
Adjustments:
Goodwill (91,527) (88,391)
Core deposit and customer intangibles (10,326) (11,895)
Total tangible common equity $ 525,741 $ 472,043
Common shares outstanding (1) 25,519,501 25,351,809
Book value per common shares (1) $ 24.59 $ 22.58
Tangible book value per common shares (1) 20.60 18.62
____________________________
(1)Excludes the dilutive effect, if any, of 194,427 and 217,094 shares of common stock issuable upon exercise of outstanding stock options and restricted stock awards as of September 30, 2024 and December 31, 2023, respectively.
Tangible Common Equity to Tangible Assets.Tangible common equity to tangible assets is a non-GAAP measure generally used by financial analysts and investment bankers to evaluate financial institutions. We calculate tangible common equity, as described above, and tangible assets as total assets less goodwill, core deposit and customer intangible assets, net of accumulated amortization. The most directly comparable GAAP financial measure for tangible common equity to tangible assets is total common shareholders' equity to total assets.
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The following table reconciles, as of the dates set forth below, total shareholders' equity to tangible common equity and total assets to tangible assets:
As of September
30, 2024 		As of December 31,
2023
(Dollars in thousands, except per share data)
(Unaudited)
Tangible Common Equity
Total shareholders' equity $ 699,524 $ 644,259
Preferred stock (71,930) (71,930)
Total common shareholders' equity 627,594 572,329
Adjustments:
Goodwill (91,527) (88,391)
Core deposit and customer intangibles (10,326) (11,895)
Total tangible common equity $ 525,741 $ 472,043
Tangible Assets
Total Assets $ 6,888,649 $ 6,584,550
Adjustments:
Goodwill (91,527) (88,391)
Core deposit and customer intangibles (10,326) (11,895)
Total tangible assets $ 6,786,796 $ 6,484,264
Common Equity to Total Assets 9.1 % 8.7 %
Tangible Common Equity to Tangible Assets 7.7 7.3
Item 3. Quantitative and Qualitative Disclosures about Market Risk
Risk identification and management are essential elements for the successful management of our business. In the normal course of business, we are subject to various types of risk, including interest rate, credit, and liquidity risk. We control and monitor these risks with policies, procedures, and various levels of managerial and board oversight. Our objective is to optimize profitability while managing and controlling risk within board approved policy limits. Interest rate risk is the sensitivity of net interest income and the market value of financial instruments to the magnitude, direction, and frequency of changes in interest rates. Interest rate risk results from various repricing frequencies and the maturity structure of assets and liabilities. We use our asset liability management policy to control and manage interest rate risk. See Item 2. "Management's Discussion and Analysis of Financial Condition and Results of Operations - Interest Rate Sensibility and Market Risk" for additional discussion of interest rate risk.
Liquidity risk represents the inability to generate cash or otherwise obtain funds at reasonable rates to satisfy commitments to borrowers, as well as, the obligations to depositors. We use our asset liability management policy and contingency funding plan to control and manage liquidity risk.
Credit risk represents the possibility that a customer may not perform in accordance with contractual terms. Credit risk results from extending credit to customers, purchasing securities, and entering into certain off-balance sheet loan funding commitments. Our primary credit risk is directly related to our loan portfolio. We use our credit policy and disciplined approach to evaluate the adequacy of our allowance for credit losses to control and manage credit risk. Our investment policy limits the degree of the amount of credit risk that we may assume in our investment portfolio. Our principal financial market risks are liquidity risks and exposures to interest rate movements.
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Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Under the supervision and with the participation of our principal executive officer and principal financial officer, we have evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a - 15(e) and 15d - 15(e) under the Securities Exchange Act of 1934, as amended) as of the end of the period covered by this Report. Based on such evaluation, our principal executive officer and principal financial officer concluded our disclosure controls and procedures were effective as of the end of the period covered by this Report to provide reasonable assurance that the information we are required to disclose in reports that are filed or furnished under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC, including to ensure that such information is accumulated and communicated to management, including our principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure. The effectiveness of our, or any, system of disclosure controls and procedures is subject to certain limitations, including the exercise of judgment in designing, implementing and evaluating the controls and procedures, the assumptions used in identifying the likelihood of future events, and the inability to eliminate misconduct completely. As a result, we cannot assure you that our disclosure controls and procedures will detect all errors or fraud.
Changes in Internal Controls over Financial Reporting
There were no changes in our internal control over financial reporting during the period covered by this Report that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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PART II. OTHER INFORMATION
Item 1. Legal Proceedings
From time to time, we are a party to claims and legal proceedings arising in the ordinary course of business. Management evaluates our exposure to these claims and proceedings individually, and in the aggregate, and provides for potential losses on such litigation if the amount of the loss is estimable and the loss is probable. We are not currently involved in any pending legal proceedings other than routine, nonmaterial proceedings occurring in the ordinary course of business.
Item 1A. Risk Factors
In addition to the other information set forth in this Report, we refer you to Item 1A. "Risk Factors" of our Annual Report on Form 10-K for December 31, 2023, filed with the SEC. Other than the risk factors set forth below, there have been no material changes in the risk factors disclosed in our Annual Report on Form 10-K for December 31, 2023.
We may not achieve the interest benefits of the Oakwood Merger, and the Oakwood Merger may disrupt our existing plans or operations.
There can be no guarantee that we will be able to successfully integrate Oakwood and Oakwood Bank or otherwise realize the expected benefits of the Oakwood Merger and the Oakwood Bank Merger. Difficulties in integrating Oakwood and/or Oakwood Bank may result in operational and other challenges, including an inability to realize the full extent of the intended benefits of the Oakwood Merger and the Oakwood Bank Merger and any delays encountered in the integration process, could have an adverse effect on our revenues, expenses (including as a result of additional or unforeseen expenses) and results of operations, which may adversely affect the value of our common stock. Although we expect the strategic benefits to offset incremental transaction-related costs over time, if we are not able to adequately and effectively address integration challenges, we may be unable to successfully integrate the operations of, or realize the anticipated benefits of the integration of, Oakwood and Oakwood Bank.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
(a)Not applicable.
(b)Not applicable.
(c)Not applicable.
Item 3. Defaults upon Senior Securities
Not applicable.
Item 4. Mine Safety Disclosures
Not applicable.
Item 5. Other Information
(a)Not applicable.
(b)Not applicable.
(c)During the three months ended September 30, 2024, no director or officer of the Company adopted or terminated a "Rule 10b5-1 trading arrangement" or "non-Rule 10b5-1 trading agreement," as each term is defined in Item 408(a) of Regulation S-K.
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Item 6. Exhibits
Number Description
2.1
3.1
3.2
4.1
4.2
31.1
Certification of Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002*
31.2
Certification of Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002*
32.1
Certifications of Principal Executive Officer and Principal Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002*
101.INS Inline XBRL Instance Document*
101.SCH Inline XBRL Taxonomy Extension Schema Document*
101.CAL Inline XBRL Taxonomy Extension Calculation Linkbase Document*
101.DEF Inline XBRL Taxonomy Extension Definition Linkbase Document*
101.LAB Inline XBRL Taxonomy Extension Label Linkbase Document*
101.PRE Inline XBRL Taxonomy Extension Presentation Linkbase Document*
104 Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)
____________
*Filed herewith.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant hereby duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized.
BUSINESS FIRST BANCSHARES, INC.
October 31, 2024 /s/ David R. Melville, III
David R. Melville, III
Chairman, President and Chief Executive Officer
October 31, 2024 /s/ Gregory Robertson
Gregory Robertson
Chief Financial Officer
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