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Item 5. Market for Registrant’s Common Equity

2023-03-02 compared with 2022-03-01 · 394 added, 293 removed, 824 unchanged (45% of the section changed)

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Our common stock is traded on the Nasdaq Global Select Market under the symbol “BFST”.

Our shares have been traded on the Nasdaq Global Select Market since April 11, 2018.

Our common shares have been traded on the Nasdaq Global Select Market since April 11, 2018.

Prior to that date, there was no public trading market for our common stock.

As of February 21, 2022, there were 20,400,349 issued and outstanding shares of our common stock held of record by approximately 845 shareholders.

As of February 22, 2023, there were 25,110,313 issued and outstanding shares of our common stock held of record by approximately 997 shareholders.

We also had outstanding 130,924 options to purchase shares of our common stock issued under our equity compensation plans, as described below.

In 2016, our board of directors made the determination to begin paying regular quarterly dividends;

however, we are not obligated to pay dividends.

In 2016, our board of directors made the determination to begin paying regular quarterly dividends on our common stock;

however, we are not obligated to pay dividends on either our common or preferred stock.

Dividends on our common stock are not payable if we have not paid the full dividends on our Series A preferred stock for the most recently completed quarterly dividend period.

The payment of future dividends and our dividend policy will depend on our earnings, capital requirements and financial condition, as well as other factors that our board of directors deems relevant.

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Although our 2006 Stock Option Plan expired on December 22, 2016 and we are no longer permitted to issue additional stock options under this plan, as of December 31, 2022, we had 130,924 outstanding and unexercised stock options that have been issued to our executive officers and key personnel and remain subject to the terms and conditions of the 2006 Stock Option Plan until they are exercised or forfeited.

On June 29, 2017, our shareholders approved the 2017 Equity Incentive Plan, or the Plan.

On June 29, 2017, our shareholders approved the 2017 Equity Incentive Plan, or the Plan and the shareholders approved additional shares under the Plan during 2022.

The Plan provides for the grant of various types of equity grants and awards, including incentive stock options, non-statutory stock options, stock appreciation rights, restricted stock, restricted stock units, performance units, performance shares and other stock-based awards to eligible participants, which includes our employees, directors and consultants.

The Plan has reserved 500,000 shares of common stock for grant, award or issuance to eligible participants, all of which may be subject to incentive stock option treatment.

As of December 31, 2021, there were 275,334 shares issued under this Plan to our employees, directors or consultants.

The Plan has reserved 1,043,908 shares of common stock for grant, award or issuance to eligible participants, all of which may be subject to incentive stock option treatment.

As of December 31, 2022, there were 572,588 common shares issued under this Plan to our employees, directors or consultants.

The following table summarizes information as of December 31, 2022 relating to the number of securities to be issued upon the exercise of the outstanding options and warrants and their weighted-average exercise price.

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Recent Sales of Unregistered Securities

Preferred Stock

On September 1, 2022, we entered into a securities purchase agreement with certain investors pursuant to which we offered and sold shares of its 7.50% fixed-to-floating rate non-cumulative perpetual preferred stock, with no par value, for an aggregate purchase price of $72.0 million.

Holders of the preferred stock will be entitled to receive, if, when, and as declared by our board of directors, non-cumulative cash dividends at a rate of 7.50% per share for the first five years following issuance and thereafter at a variable rate equal to the then current 3-month secured overnight financing rate (“SOFR”), reset quarterly, plus 470 basis points.

The preferred stock has a perpetual term and may not be redeemed, except under certain circumstances, under the first five years of issuance.

The preferred stock is non-convertible and dividends equivalent to $18.75 per share were paid during the year ended December 31, 2022.

Purchases of Equity Securities by the Issuer and Affiliated Purchasers

On December 13, 2018, our board of directors approved a resolution authorizing management to repurchase shares of its common stock with an aggregate purchase price of up to $15.0 million from time to time, subject to certain limitations and conditions.

The stock repurchase program was effective immediately and provided for a term of 24 months.

The stock repurchase program did not obligate Business First to repurchase any shares of its common stock.

As of December 31, 2019, $12.5 million remained available to repurchase shares under the stock repurchase program.

This plan was terminated on October 22, 2020.

Between January 1, 2020 and October 22, 2020, $5.0 million was spent on repurchasing 434,781 shares of common stock under the 2018 stock repurchase program.

On October 22, 2020, the Company’s board of directors approved a resolution authorizing management to repurchase shares of its common stock with an aggregate purchase price of up to $30.0 million from time to time, subject to certain limitations and conditions.

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The Company repurchased 520,845 shares for $11.7 million under the 2020 stock repurchase program between October 22, 2020 and December 31, 2021.

There were no shares repurchased during the fourth quarter of the year ended December 31, 2021.

Stock Performance Graph

The following table and graph compares the cumulative total shareholder return on our common stock to the cumulative total return of the S&P 500 Index and the KBW Nasdaq Regional Bank Index (“KRX”) for the period beginning on April 11, 2018, the first day of trading of our common stock on the Nasdaq Global Select Market, through December 31, 2022.

The following assumes $100 invested on April 11, 2018 in our common stock at the closing price of $25.02 per share, otherwise reflects our stock and the S&P 500 and KRX values as of close of trading, and assumes the reinvestment of dividends, if any.

The following assumes $100 invested on April 11, 2018 in our common stock at the closing price of $25.02 per common share, otherwise reflects our stock and the S&P 500 and KRX values as of close of trading, and assumes the reinvestment of dividends, if any.

The historical stock price performance for our common stock shown on the graph below is not necessarily indicative of future stock performance.

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Business First assumes no obligation to update any of these forward-looking statements.

A discussion regarding significant changes in the financial condition of Business First and its subsidiaries from December 31, 2020 to December 31, 2021 and its results of operations for the year ended December 31, 2021 can be found under “

Management ’

s Discussion and Analysis of Financial Condition and Results of Operations ”

in our Annual Report on Form 10-K for the year ended December 31, 2021, filed with the SEC on March 1, 2022, which is available on the SEC ’

s website at www.sec.gov and on the Company ’

s website, www.b1bank.com.

We are a registered financial holding company headquartered in Baton Rouge, Louisiana.

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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, upon completion of the TCBI merger on March 1, 2022, Houston.

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 in markets across Louisiana and Texas.

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in our audited consolidated financial statements included in Item 8 of this Report.

Private Placement and Acquisition of Minden Bancorp, Inc.

On October 5, 2017, we entered into a definitive agreement to acquire Minden Bancorp, Inc., or MBI, and its banking subsidiary MBL Bank.

In connection with the acquisition of MBI, on October 12, 2017 we completed the issuance and sale of 3,299,925 shares of our common stock in a private placement offering at a price of $20.00 per share.

The aggregate offering price totaled $66.0 million, and the aggregate placement agent fee and commission was $3.3 million.

The acquisition of MBI was consummated on January 1, 2018.

At December 31, 2017, MBI had fair values of approximately $317.4 million in total assets, $192.7 million in net loans, $264.0 million in total deposits, and $30.6 million in total shareholders’

Acquisition of Richland State Bancorp, Inc.

On June 4, 2018, we entered into a definitive agreement to acquire Richland State Bancorp, Inc., or RSBI, and its banking subsidiary Richland State Bank.

The acquisition of RSBI was consummated on November 30, 2018.

At November 30, 2018, RSBI had fair values of approximately $316.4 million in total assets, $190.8 million in net loans, $290.0 million in total deposits, and $25.4 million in total shareholders’

Acquisition of Pedestal Bancshares, Inc.

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The acquisition of Pedestal was consummated on May 1, 2020.

At April 30, 2020, Pedestal had fair values of approximately $1.3 billion in total assets, $893.3 million in net loans, $1.2 billion in total deposits, and $93.3 million in total shareholders’

At April 30, 2020, Pedestal had reported $1.4 billion in total assets, $935.8 million in loans, $1.2 billion in total deposits.

Acquisition of Smith Shellnut Wilson, LLC

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At March 31, 2021, SSW reported $3.6 million in total assets and $2.3 million in total liabilities.

Recent Developments

Issuance of Subordinated Debt

On March 26, 2021, we issued $52.5 million in subordinated debt.

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.

The subordinated notes are redeemable by us at our option beginning in 2026.

Sale of Oak Grove Banking Center

On October 1, 2021, we sold the Oak Grove banking center, located in Oak Grove, Louisiana, to Caldwell Bank & Trust Company headquartered in Columbia, Louisiana, in accordance with the Branch Purchase and Assumption Agreement dated June 29, 2021.

The sale included $3.7 million in loans, $18.7 million in deposits and an estimated pre-tax gain on sale of $492,000.

Acquisition of Texas Citizens Bancorp, Inc.

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(“TCBI”), the parent bank holding company for Texas Citizens Bank, National Association, headquartered in Pasadena, Texas.

As of December 31, 2021, TCBI had consolidated total assets of $547.2 million, loans of $359.1 million and deposits of $482.8 million.

The Company acquired TCBI on March 1, 2022.

As a result of the TCBI acquisition, we added six banking locations in the Houston, Texas market.

The COVID-19 pandemic has caused extensive disruptions to the global, national and regional economy.

Governments, businesses, and the public are taking unprecedented actions to contain the spread of COVID-19 and to mitigate its effects, including quarantines, travel bans, shelter-in-place orders, closures of businesses and schools, fiscal stimulus, and legislation designed to deliver monetary aid and other relief.

We have taken a number of actions in response to the COVID-19 pandemic:

In anticipation of credit losses expected as a result of the COVID-19 pandemic, we recorded an additional provision for loan losses during the year ended December 31, 2020, of which a large portion of that provision still remained within the allowance for loan losses at December 31, 2021;

In sensitivity to our customers, we have waived certain service fees, such as late fees, excessive withdrawal fees, etc.

and increased daily limits on ATM withdrawals, during the year ended December 31, 2020;

We continue to monitor borrowers who have deferred payments under our COVID-19 Deferral Assistance Program, described in further detail below;

We participated in the Small Business Administration (“SBA”) Paycheck Protection Program (“PPP”), as described in further detail below, including participation in round 2 of the PPP during the year ended December 31, 2021.

During the year ended December 31, 2021, we sold approximately 2,000 PPP loans with an aggregate balance of $243.6 million at a gain of $9.2 million.

As of December 31, 2021, we had approximately $5.4 million in SBA PPP loans remaining;

We continue to monitor those sectors particularly impacted by the pandemic – such as energy, hotels, restaurants, 1-4 family and retail – and have flagged those sectors for additional monitoring;

COVID-19 Deferral Assistance Program

The acquisition was consummated on March 1, 2022.

At February 28, 2022, TCBI reported $534.2 million in total assets, $349.5 million in loans and $477.2 million in total deposits.

Preferred Stock Issuance

On September 1, 2022, we entered into a securities purchase agreement with certain investors pursuant to which we offered and sold shares of our 7.50% fixed-to-floating rate non-cumulative perpetual preferred stock, with no par value, for an aggregate purchase price of $72.0 million.

The preferred stock was structured to qualify as additional Tier 1 capital under applicable regulatory capital guidelines.

Holders of the preferred stock will be entitled to receive, if, when, and as declared by our board of directors (the “Board”), non-cumulative cash dividends at a rate of 7.50% for the first five years following issuance and thereafter at a variable rate equal to the then current 3-month secured overnight financing rate (“SOFR”), reset quarterly, plus 470 basis points.

The preferred stock has a perpetual term and may not be redeemed, except under certain circumstances, under the first five years of issuance.

We intend to use the net proceeds from the preferred stock issuance to provide additional capital support to the Bank, to support growth, to better position us to take advantage of strategic opportunities that may arise from time to time, repayment of existing debt, and for general corporate purposes.

Public Offering

On October 12, 2022, we entered into an underwriting agreement with Stephens, Inc., a representative of several underwriters, to issue and sell 2,500,000 shares of our common stock, $1.00 par value per share, in an underwritten public offering and a public offering price of $20.00 per share.

After deducting underwriting discounts, commissions and offering expenses, the net proceeds of the offering was $47.2 million.

Loan Deferrals

Beginning on March 25, 2020, we have taken proactive measures to help customers impacted by COVID-19 by deferring principal and/or interest payments.

As of December 31, 2021, we had deferrals remaining on 1,574 loans with an aggregate outstanding balance of $522.0 million.

As of December 31, 2022, we had deferrals remaining on 1,164 loans with an aggregate outstanding balance of $425.2 million, although all loans were outside their deferral periods.

In accordance with FASB and interagency regulatory guidance issued in March 2020, loans that are modified under the terms of our COVID-19 Deferral Assistance Program will not be considered as troubled debt restructurings to the extent that they meet the terms of such guidance under Section 4013 of the CARES Act, as extended by the Consolidated Appropriations Act of 2021.

COVID-19 Programs

SBA PPP Participation

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As of December 31, 2020, we had transferred/sold 95%, or $311.4 million, of the principal balance of the MSLP loans to a MSLP special purpose vehicle entity and retained $16.4 million of the outstanding principal balance.

As of December 31, 2021, we retained the outstanding principal balance of $15.5 million.

As of December 31, 2022 and 2021, we retained the outstanding principal balance of $14.9 million and $15.5 million, respectively.

Financial Highlights

The financial highlights as of and for the year ended December 31, 2022 include:

Total assets of $4.7 billion, a $566.0 million, or 13.6%, increase from December 31, 2020.

Total loans held for investment of $3.2 billion, a $198.3 million, or 6.6%, increase from December 31, 2020.

Total assets of $6.0 billion, a $1.3 billion, or 26.7%, increase from December 31, 2021.

Total loans held for investment of $4.6 billion, a $1.4 billion, or 44.4%, increase from December 31, 2021.

Total deposits of $4.8 billion, a $743.1 million, or 18.2%, increase from December 31, 2021.

Net income of $52.1 million, a $22.1 million, or 73.8%, increase from the year ended December 31, 2020.

Net income available to common shareholders of $52.9 million, a $769,000, or 1.5%, increase from the year ended December 31, 2021.

Net interest income of $199.6 million, a $45.7 million, or 29.7%, increase from the year ended December 31, 2021.

An allowance for loan and lease losses of 0.83% of total loans held for investment, compared to 0.91% as of December 31, 2021, and a ratio of nonperforming loans to total loans held for investment of 0.25%, compared to 0.41% as of December 31, 2021.

Earnings per share for the year ended December 31, 2021 of $2.54 per basic share and $2.53 per diluted share, compared to $1.65 per basic share and $1.64 per diluted share for the year ended December 31, 2020.

Return on average assets of 1.18% compared to 0.88% for the year ended December 31, 2020.

Return on average equity of 12.25% compared to 8.42% for the year ended December 31, 2020.

Capital Ratios included Tier 1 Leverage, Common Equity Tier 1, Tier 1 Risk-based and Total Risk-based Capital of 8.14%, 9.04%, 9.17% and 11.94%, respectively.

During the year ended December 31, 2020, we elected the Community Bank Leverage Ratio (“CBLR”) and had a ratio of 8.79% at December 31, 2020.

We have since elected to return to risk-based regulatory capital reporting for 2021.

Book value per share of $21.24, an increase of 6.8% from $19.88 at December 31, 2020.

Earnings per common share for the year ended December 31, 2022 of $2.34 per basic common share and $2.32 per diluted common share, compared to $2.54 per basic common share and $2.53 per diluted common share for the year ended December 31, 2021.

Return to common shareholders on average assets of 0.97% compared to 1.18% for the year ended December 31, 2021.

Return to common shareholders on average common equity of 11.59% compared to 12.25% for the year ended December 31, 2021.

Capital Ratios included Tier 1 Leverage, Common Equity Tier 1, Tier 1 Risk-based and Total Risk-based Capital of 9.49%, 8.68%, 10.07% and 12.75%, respectively, compared to Tier 1 Leverage, Common Equity Tier 1, Tier 1 Risk-based and Total Risk-based Capital of 8.14%, 9.04%, 9.17% and 11.94% for the year ended December 31, 2021.

Book value per common share of $20.25, a decrease of 4.7% from $21.24 at December 31, 2021.

Results of Operations for the Years Ended December  

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Performance Summary

For the year ended December 31, 2021, net income was $52.1 million, or $2.54 per basic share and $2.53 per diluted share, compared to net income of $30.0 million, or $1.65 per basic share and $1.64 per diluted share, for the year ended December 31, 2020.

Return on average assets increased to 1.18% for the year ended December 31, 2021 from 0.88% for the year ended December 31, 2020.

Return on average equity increased to 12.25% for the year ended December 31, 2021, as compared to 8.42% for the year ended December 31, 2020.

For the year ended December 31, 2022, net income available to common shareholders was $52.9 million, or $2.34 per basic common share and $2.32 per diluted common share, compared to net income available to common shareholders of $52.1 million, or $2.54 per basic common share and $2.53 per diluted common share, for the year ended December 31, 2021.

Return to common shareholders on average assets decreased to 0.97% for the year ended December 31, 2022 from 1.18% for the year ended December 31, 2021.

Return to common shareholders on average common equity decreased to 11.59% for the year ended December 31, 2022, as compared to 12.25% for the year ended December 31, 2021.

Net Interest Income

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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 monthly average, and average yield/rate utilizing a 30/360 day convention.

We calculate average assets, liabilities, and equity using a monthly average, and average yield/rate utilizing an actual 365 day count convention.

For the year ended December 31, 2022, net interest income totaled $199.6 million, and net interest margin and net interest spread were 3.92% and 3.57%, respectively.

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The average yield on the loan portfolio was 5.43%, excluding SBA PPP loans, for the year ended December 31, 2022, compared to 5.16% for the year ended December 31, 2021, and the average yield on total interest-earning assets was 4.64% for the year ended December 31, 2022, compared to 4.25% for the year ended December 31, 2021.

For the year ended December 31, 2021, overall cost of funds (which includes noninterest-bearing deposits) decreased 31 basis points compared to the year ended December 31, 2020, primarily due to the federal funds rate cuts during the second half of 2019 and first quarter of 2020, along with lower yielding deposits and increased deposit and borrowing accretion from the Pedestal acquisition.

While we experienced significant loan growth in average loan balances, we anticipate continued pressure on our net interest margin and net interest spread in future periods based on the current yield curve.

For the year ended December 31, 2022, overall cost of funds (which includes noninterest-bearing deposits) increased 32 basis points compared to the year ended December 31, 2021, primarily due to the federal reserve increasing rates during 2022.

The following table presents, 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.

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For the Years Ended December 31,

Earned/Interest

Average Yield/Rate

Earned/Interest

Average Yield/Rate

Earned/Interest

Average Yield/Rate

(Dollars in thousands)

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SBA PPP loans

Securities available for sale

Interest-bearing deposits in other banks

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Noninterest-earning assets

Liabilities and Shareholders ’

Liabilities and Shareholders' Equity

Interest-bearing liabilities:

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Subordinated debt

Subordinated debt –

trust preferred securities

Subordinated debt - trust preferred securities

Advances from FHLB

Paycheck Protection Program Liquidity Facility (“PPPLF”)

First National Banker's Bank ("FNBB") Line of Credit

Paycheck Protection Program Liquidity Facility ("PPPLF")

Other borrowings

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Total noninterest-bearing liabilities

Shareholders’

Total liabilities and shareholders’

Shareholders' equity:

Common shareholders' equity

Preferred equity

Total shareholders' equity

Total liabilities and shareholders' equity

Net interest rate spread (1)

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Overall cost of funds

(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.

(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.

The following table presents information regarding the dollar amount of changes in interest income and interest expense for the periods indicated for each major component of interest-earning assets and interest-bearing liabilities, and distinguishes between the changes attributable to changes in volume and changes attributable to changes in interest rates.

For purposes of these tables, changes attributable to both rate and volume that cannot be segregated have been allocated to rate.

For the Year Ended December 31, 2021

Compared to the Year Ended

December 31, 2020

For purposes of this table, changes attributable to both rate and volume that cannot be segregated have been allocated to rate.

For the Year Ended December 31, 2022 compared to the Year

Ended December 31, 2021

Increase (Decrease) due to change in

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Interest-earning assets:

Total loans (excluding SBA PPP)

Total loans (excluding SBA PPP loans)

SBA PPP loans

Securities available for sale

Interest-earning deposits in other banks

Interest-bearing deposits in other banks

Total increase in interest income

Interest-bearing liabilities:

Interest-bearing deposits

Subordinated debt

Subordinated debt - trust preferred securities

Advances from FHLB

FNBB Line of Credit

Other borrowings

Total increase in interest expense

Increase (decrease) in net interest income

For the Year Ended December 31, 2021 compared to the Year

Ended December 31, 2020

Increase (Decrease) due to change in

(Dollars in thousands)

Interest-earning assets:

Total loans (excluding SBA PPP loans)

SBA PPP loans

Interest-bearing deposits in other banks

Total increase (decrease) in interest income

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Subordinated debt

Subordinated debt –

trust preferred securities

Subordinated debt - trust preferred securities

Advances from FHLB

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Total increase (decrease) in interest expense

Increase in net interest income

Increase (decrease) in net interest income

Provision for Loan Losses

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The provision for loan losses was $10.9 million and $8.0 million for the years ended December 31, 2022 and 2021, respectively.

The lower provision during the year ended December 31, 2021 compared to the same period in 2020 relates primarily to the improvement of the qualitative factors attributed to the general economy and energy sector, offset by reserves for new loan growth.

The higher provision during the year ended December 31, 2022 compared to 2021 relates primarily to the overall growth of the loan portfolio.

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 small business investment company (“SBIC”) partnerships.

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 fintech technology (“Fintech”) funds).

The following table presents, for the periods indicated, the major categories of noninterest income:

For the Years Ended

For the Years Ended December 31,

Increase (Decrease)

(Dollars in thousands)

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Gain on sales of loans

Gain on sales of investment securities

Gain (loss) on sales of investment securities

Fees and brokerage commissions

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Correspondent bank income

Participation fee income

Gain (loss) on sales of other real estate owned

Gain on sale of banking center

Gain (loss) on sale / disposal of other assets

Pass-through income from SBIC partnerships

Gain (loss) on sales / disposals of other assets

Pass-through income from other investments

Total noninterest income

Noninterest income for the year ended December 31, 2021 increased $14.2 million, or 65.9%, to $35.8 million compared to noninterest income of $21.6 million for the same period in 2020.

Noninterest income for the year ended December 31, 2022 decreased $6.5 million, or 18.1%, to $29.3 million compared to noninterest income of $35.8 million for the same period in 2021.

The components of noninterest income with significant fluctuations compared to the prior year period were as follows:

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Service charges on deposit accounts were $8.3 million for the year ended December 31, 2022 as compared to $6.8 million for the same time period in 2021, an increase of $1.5 million, or 21.4%.

The increase was primarily due to increases in deposit balances and accounts from the acquisition of Pedestal and organic growth.

The increase was primarily due to increases in deposit balances and accounts from the acquisition of TCBI and organic growth.

Debit card and ATM fee income.

We earn fees from our customers based upon card activity, and these fees constitute a significant recurring component of our noninterest income.

Fee income was $6.2 million and $4.3 million for the years ended December 31, 2021 and 2020, respectively, representing an increase of $1.9 million, or 43.5%.

The increase was primarily due to the additional accounts and ATMs from the acquisition of Pedestal and organic growth.

Fee income was $6.4 million and $6.2 million for the years ended December 31, 2022 and 2021, respectively, representing an increase of $208,000, or 3.4%.

Gain on sales of loans.

We had gains on sales of loans of $10.1 million mainly due to the sale of the bulk of our SBA PPP portfolio.

We sold approximately 2,000 PPP loans with an aggregate balance of $243.6 million realizing a gain of $9.2 million.

We had gains on sales of loans of $574,000 in 2022 compared to $10.1 million in 2021.

For the year ended December 31, 2021, we sold approximately 2,000 PPP loans with an aggregate balance of $243.6 million realizing a gain of $9.2 million.

Fees and brokerage commissions.

We earn commissions from brokerage services provided by our Wealth Solutions Group and SSW.

Fees and brokerage commissions totaled $5.0 million and $970,000 for the years ended December 31, 2021 and 2020, respectively.

The increase of $4.0 million for the year ended December 31, 2021, compared to the same time period in 2020, was primarily due to the acquisition of Pedestal’s brokerage customers and SSW.

Fees and brokerage commissions totaled $7.0 million and $5.0 million for the years ended December 31, 2022 and 2021, respectively.

The increase of $1.9 million for the year ended December 31, 2022, compared to the same time period in 2021, was primarily due to the continued increase in SSW productivity and an additional quarter of income for 2022.

Gain (loss) on sale of other real estate owned.

The majority of the loss on sale of other real estate resulted from the sale of seven properties that were originally held for future expansion at a total loss of $1.1 million.

The majority of the loss on sale of other real estate in 2021 resulted from the sale of seven properties that were originally held for future expansion at a total loss of $1.1 million.

Gain on sale of banking center.

We sold a banking center located in Oak Grove, Louisiana that resulted in a gain of $492,000 during the fourth quarter of 2021.

Gain (loss) on sales / disposals of other assets.

We had disposals of former bank premises during 2022 which resulted in a loss of $717,000.

This category includes a variety of other income producing activities, including wire transfer fees, mortgage-related income, insurance commissions and credit card income.

Other income increased $604,000, or 30.9%, for the year ended December 31, 2021, compared to the same period in 2020.

The increase for the year ended December 31, 2021, compared to the same period in 2020, is primarily due to increases in the use of these services by legacy Pedestal customers.

Other income increased $1.3 million, or 48.7%, for the year ended December 31, 2022, compared to the same period in 2021.

Noninterest Expense ( “

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The following table presents, for the periods indicated, the major categories of noninterest expense:

For the Years Ended

  (Decrease)

For the Years Ended December 31,

Increase (Decrease)

(Dollars in thousands)

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FDIC assessment fees

Legal and other professional fees

Legal and professional fees

Advertising and promotions

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Ad valorem shares tax

Directors’

Directors' fees

Other real estate owned expenses and write-downs

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Salaries and employee benefits were $85.2 million for the year ended December 31, 2022, an increase of $19.4 million, or 29.5%, compared to the same period in 2021.

The increase was primarily due to additional hires for new positions, our merit increase cycle, the acquisition of Pedestal (including severance and retention payments related to the acquisition) and its legacy operations and employees, and the acquisition of SSW.

The increase was primarily due to additional hires for new positions, our merit increase cycle, the acquisition of TCBI (including severance and retention payments related to the acquisition) and its legacy operations and employees.

As of December 31, 2022, we had 742 full-time equivalent employees, compared to 659 full-time equivalents as of December 31, 2021.

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Expense associated with occupancy of premises was $9.2 million for the year ended December 31, 2022 and $7.2 million for the same period in 2021.

The increase of $1.9 million, or 35.3%, for the year ended December 31, 2021, compared to the same period in 2020, may be attributed primarily to the acquisition of Pedestal.

The increase of $2.0 million, or 27.7%, for the year ended December 31, 2022, compared to the same period in 2021, may be attributed primarily to the acquisition of TCBI.

Depreciation and amortization.

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The amortization of intangible assets was $2.0 million and $1.6 million for the years ended December 31, 2022 and 2021, respectively.

The increase in depreciation and amortization primarily resulted from the acquisition of Pedestal’s assets and the core deposit intangible recorded in connection with the Pedestal acquisition, as well as the customer intangible recorded in connection with the SSW acquisition.

The increase in depreciation and amortization primarily resulted from the acquisition of TCBI’s assets and the core deposit intangible recorded in connection with the TCBI acquisition.

Data processing .

Data processing fees were $8.4 million and $8.1 million for the years ended December 31, 2022 and 2021, respectively.

The increase of $2.6 million, or 47.8%, for the year ended December 31, 2021, compared to the same period in 2020, is primarily due to increased costs in connection with the Pedestal acquisition.

The increase of $221,000, or 2.7%, for the year ended December 31, 2022, compared to the same period in 2021, is primarily due to increased costs in connection with the TCBI acquisition.

Advertising and promotions.

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Merger and conversion related expenses.

Merger and conversion related expenses for the years ended December 31, 2021 and 2020 were related primarily to the acquisitions of Pedestal in 2020, and SSW and TCBI in 2021.

Merger and conversion related expenses for the years ended December 31, 2022 and 2021 were related primarily to the acquisitions of SSW in 2021, and TCBI in 2021 and 2022.

This category includes various operating and administrative expenses including business development expenses (i.e.

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Our effective tax rate for the year ended December 31, 2021, was also impacted by nondeductible goodwill write-offs associated with a branch sale.

Our effective tax rate for the year ended December 31, 2020 was impacted by excess tax deductions from the exercise of stock options on founder grants.

Financial Condition

Our total assets increased $566.0 million, or 13.6%, from $4.2 billion as of December 31, 2020 to $4.7 billion as of December 31, 2021, due primarily from the increases in our investment and loan portfolios, offset with decreases in cash and cash equivalents.

Our total assets increased $1.3 billion, or 26.7%, from $4.7 billion as of December 31, 2021 to $6.0 billion as of December 31, 2022, due primarily from the increases in our loan portfolio, offset with decreases in cash and cash equivalents.

Loan Portfolio

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Our loan portfolio represents the highest yielding component of our earning asset base.

As of December 31, 2021, total loans, excluding mortgage loans held for sale, were $3.2 billion, an increase of $198.3 million or 6.6%, compared to $3.0 billion as of December 31, 2020.

The increase was primarily due to the growth of our Dallas/Fort Worth metroplex, New Orleans and Baton Rouge markets, offset by the sale of the majority of our SBA PPP loans.

Additionally, $1.2 million and $969,000 in mortgage loans were classified as loans held for sale as of December 31, 2021 and 2020, respectively.

As of December 31, 2022, total loans, excluding mortgage loans held for sale, were $4.6 billion, an increase of $1.4 billion or 44.4%, compared to $3.2 billion as of December 31, 2021.

The increase was primarily due to the acquisition of TCBI and growth in our Dallas/Fort Worth metroplex, Houston, North Louisiana and New Orleans regions.

Additionally, $304,000 and $1.2 million in mortgage loans were classified as loans held for sale as of December 31, 2022 and 2021, respectively.

Total loans held for investment as a percentage of deposits were 95.6% and 78.2% as of December 31, 2022 and 2021, respectively.

Total loans as a percentage of assets were 67.5% and 71.9% as of December 31, 2021 and 2020, respectively.

Total loans held for investment as a percentage of assets were 76.9% and 67.5% as of December 31, 2022 and 2021, respectively.

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

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Total loans held for investment

SBA PPP loans accounted for $5.4 million of the commercial portfolio as of December 31, 2021, and $313.9 million and $1.5 million of the commercial and consumer portfolios, respectively, as of December 31, 2020.

SBA PPP loans accounted for $2.8 million and $5.4 million of the commercial portfolio as of December 31, 2022 and 2021, respectively.

Commercial loans.

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Most commercial loans are secured by the assets being financed or other business assets, such as accounts receivable or inventory, and generally include personal guarantees.

Commercial loans decreased $164.9 million, or 18.6%, to $721.4 million as of December 31, 2021 from $886.3 million as of December 31, 2020, primarily due to the sale of the majority of the SBA PPP portfolio, offset largely by new originations in the Dallas/Fort Worth metroplex and New Orleans markets.

Commercial loans increased $369.0 million, or 51.1%, to $1.1 billion as of December 31, 2022 from $721.4 million as of December 31, 2021.

Construction and land.

Construction and land development loans are comprised of loans to fund construction, land acquisition and land development construction.

The properties securing the portfolio are located primarily throughout Louisiana and the Dallas/Fort Worth metroplex, and are generally diverse in terms of type.

Construction and land loans increased $145.5 million, or 36.1%, to $548.5 million as of December 31, 2021 from $403.1 million as of December 31, 2020, primarily due to our Dallas/Fort Worth metroplex, New Orleans and Baton Rouge markets.

The properties securing the portfolio are located primarily throughout Louisiana and the Dallas/Fort Worth metroplex and Houston, and are generally diverse in terms of type.

Construction and land loans increased $173.5 million, or 31.6%, to $722.1 million as of December 31, 2022 from $548.5 million as of December 31, 2021.

Farmland loans are loans that can be, or are, used for agricultural purposes.

Farmland loans increased $106.1 million, or 121.3%, to $193.6 million as of December 31, 2022 from $87.5 million as of December 31, 2021.

1-4 family residential.

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Our 1-4 family residential loans have a relatively small average balance spread between many individual borrowers and are generally offered as accommodations to existing customers.

1-4 family residential loans decreased $951,000, or 0.2%, to $467.7 million as of December 31, 2021 from $468.7 million as of December 31, 2020.

1-4 family residential loans increased $90.0 million, or 19.3%, to $557.7 million as of December 31, 2022 from $467.7 million as of December 31, 2021.

Nonfarm nonresidential.

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This diversity helps reduce the exposure to adverse economic events that affect any single industry.

Nonfarm nonresidential loans increased $172.8 million, or 17.8%, to $1.1 billion as of December 31, 2021 from $971.6 million as of December 31, 2020, primarily due to our Dallas/Fort Worth metroplex and New Orleans markets.

Nonfarm nonresidential loans increased $682.4 million, or 59.6%, to $1.8 billion as of December 31, 2022 from $1.1 billion as of December 31, 2021.

Other loan categories.

Other categories of loans included in our loan portfolio include farmland and agricultural loans made to farmers and ranchers relating to their operations, multi-family residential loans, and consumer loans.

None of these categories of loans represents a significant portion of our total loan portfolio.

None of these categories of loans represent a significant portion of our total loan portfolio.

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 date indicated are summarized in the following tables:

As of December 31, 2022

One Year or Less

One Through Five

Fifteen Years

After Fifteen Years

(Dollars in thousands)

5 unchanged sentences

Total loans held for investment

Amounts with fixed rates

Amounts with floating rates

Fixed rate loans:

Construction and land

1-4 family residential

Multi-family residential

Nonfarm nonresidential

Consumer and other

Total fixed rate loans

Floating rate loans:

Construction and land

1-4 family residential

Multi-family residential

Nonfarm nonresidential

Consumer and other

Total floating rate loans

As of December 31, 2021

One Year or Less

One Through Five

Fifteen Years

After Fifteen Years

(Dollars in thousands)

5 unchanged sentences

Total loans held for investment

Amounts with fixed rates

Amounts with floating rates

Fixed rate loans:

Construction and land

1-4 family residential

Multi-family residential

Nonfarm nonresidential

Consumer and other

Total fixed rate loans

Floating rate loans:

Construction and land

1-4 family residential

Multi-family residential

Nonfarm nonresidential

Consumer and other

Total floating rate loans

Nonperforming Assets

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We had $11.4 million in nonperforming loans as of December 31, 2022 compared to $13.1 million as of December 31, 2021.

The decrease in nonperforming assets from December 31, 2020 to December 31, 2021 is primarily due to sale of other real estate owned.

The following tables present information regarding nonperforming loans at the dates indicated:

As of and for the Year Ended

The decrease in nonperforming assets from December 31, 2021 to December 31, 2022 is primarily attributable to chargeoffs.

Past due and nonaccrual loans exclude acquired impaired loans, even if contractually past due and we do not expect to receive payment in full, as we are currently accreting interest income over the expected life of the loans.

The following tables present information regarding nonperforming loans at the dates indicated:

As of December 31,

(Dollars in thousands)

Nonaccrual loans

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Ratio of nonperforming assets to total assets

As of and for the Year Ended

Ratio of nonaccrual loans to total loans held for investment

As of December 31,

(Dollars in thousands)

Nonaccrual loans by category:

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Consumer and other

Through December 31, 2021, we had agreed to deferrals related to the effect of the COVID-19 pandemic on 1,574 loans with outstanding balances of $522.0 million by granting temporary payment deferrals of principal and/or interest.

As of December 31, 2020, we had agreed to deferrals on 2,259 loans with an aggregate outstanding balance of $829.1 million.

We had 121 loans with outstanding principal balances of $98.1 million still in their deferral periods as of December 31, 2020, although $94.8 million were interest-only modifications to seasoned, highly rated clients.

As of December 31, 2021, none of these loans are currently in their deferral period.

In accordance with FASB and interagency regulatory guidance issued in March 2020, loans that are modified under the terms of our COVID-19 Deferral Assistance Program are not required to be classified as troubled debt restructurings to the extent that they meet the terms of such guidance under Section 4013 of the CARES Act.

As of December 31, 2022, our loan portfolio included 1,164 loans with an aggregate outstanding balance of $425.2 million that has previously been granted temporary payment deferrals of principal and/or interest due to the effect of the COVID-19 pandemic.

As of December 31, 2021, our loan portfolio included 1,574 loans with an aggregate outstanding balance of $522.0 million that had previously been granted temporary payment deferrals.

In accordance with FASB and interagency regulatory guidance issued in March 2020, loans that were modified under the terms of our COVID-19 Deferral Assistance Program are not to be considered as troubled debt restructurings to the extent that they meet the terms of such guidance under Section 4013 of the CARES Act.

Loans under these deferrals remain in their current risk rating and/or past due status through the deferral period.

None of these loans are currently in their deferral period at December 31, 2022 and 2021, respectively.

Potential Problem Loans

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As of December 31, 2021, the allowance for loan losses totaled $29.1 million, or 0.91%, of total loans held for investment.

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

As of and for the Year Ended

December 31, 2021

(Dollars in thousands)

December 31, 2020

As of December 31, 2020, the allowance for loan losses totaled $22.0 million, or 0.74%, of total loans held for investment.

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

For the Years Ended December 31,

(Dollars in thousands)

Average loans outstanding (1)

Gross loans held for investment outstanding at end of period

Gross loans held for investment outstanding end of period

Allowance for loan losses at beginning of period

1 unchanged sentence

Construction, land and farmland

Nonfarm non-residential

Nonfarm nonresidential

Consumer and other

1 unchanged sentence

Construction, land and farmland

Nonfarm non-residential

Nonfarm nonresidential

Consumer and other

4 unchanged sentences

Ratio of net charge-offs to average loans

Ratio of allowance to nonaccrual loans

(1) Excluding loans held for sale

For the Years Ended December 31,

Net Charge-offs

Percent of Average

Net Charge-offs

Percent of Average

Net Charge-offs

Percent of Average

(Dollars in thousands)

Construction and land

1-4 family residential

Multi-family residential

Nonfarm nonresidential

Consumer and other

Total net charge-offs (recoveries)

Although we believe that we have established our allowance for loan losses in accordance with GAAP and that the allowance for loan losses was adequate to provide for known and inherent losses in the portfolio at all times shown above, future provisions will be subject to ongoing evaluations of the risks in our loan portfolio.

3 unchanged sentences

The total allowance is available to absorb losses from any loan category.

As of December 31,

For the Years Ended December 31,

Percent to Total

(Dollars in thousands)

Construction and land

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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 December 31, 2021, the carrying amount of investment securities totaled $1.0 billion, an increase of $380.5 million, or 59.4%, compared to $640.6 million as of December 31, 2020.

The increase was primarily due to deployment of excess cash related to the SBA PPP forgiveness and portfolio sale.

As of December 31, 2022, the carrying amount of investment securities totaled $890.8 million, a decrease of $130.3 million, or 12.8%, compared to $1.0 billion as of December 31, 2021.

The decrease was primarily due to increase in unrealized losses in the securities portfolio.

Securities represented 14.9% and 21.6% of total assets as of December 31, 2022 and 2021, respectively.

3 unchanged sentences

As of December 31, 2022

Amortized Cost

Gross Unrealized

(Dollars in thousands)

5 unchanged sentences

As of December 31, 2021

Amortized Cost

Gross Unrealized

(Dollars in thousands)

treasury securities

government agencies

2 unchanged sentences

Municipal securities

Other securities

All of our mortgage-backed securities are agency securities.

4 unchanged sentences

As of December 31, 2022

After One Year

Within Five Years

After Five Years but

Within Ten Years

Within One Year

After One Year but Within Five Years

After Five Years but Within Ten Years

After Ten Years

(Dollars in thousands)

5 unchanged sentences

As of December 31, 2021

After One Year

Within Five Years

After Five Years but

Within Ten Years

Within One Year

After One Year but Within Five Years

After Five Years but Within Ten Years

After Ten Years

(Dollars in thousands)

treasury securities

government agencies

2 unchanged sentences

Municipal securities

Other securities

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.

1 unchanged sentence

The term of the underlying mortgages and loans may vary significantly due to the ability of a borrower to prepay.

Monthly pay downs on mortgage-backed securities tend to cause the average life of the securities to be much different than the stated contractual maturity.

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.

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equity as of such respective dates.

As of December 31, 2021 and December 31, 2020, the Company held other equity securities of $16.6 million and $12.7 million, respectively, comprised mainly of FHLB stock, SBIC’s and financial technology (“Fintech”) fund investments.

As of December 31, 2022 and 2021, the Company held other equity securities of $37.5 million and $16.6 million, respectively, comprised mainly of FHLB stock, SBIC’s and financial technology (“Fintech”) fund investments.

We offer a variety of deposit accounts having a wide range of interest rates and terms including demand, savings, money market and time accounts.

2 unchanged sentences

Noninterest-bearing deposits as of December 31, 2022 were $1.5 billion compared to $1.3 billion as of December 31, 2021, an increase of $258.3 million, or 20.0%.

Average deposits for the year ended December 31, 2021 were $3.8 billion, an increase of $1.0 billion, or 36.2%, compared to the year ended December 31, 2020 of $2.8 billion.

The average rate paid on total interest-bearing deposits decreased over this period from 0.89% for the year ended December 31, 2020 to 0.47% for the year ended December 31, 2021.

The decrease in average rates was driven by the federal funds rate cuts that occurred in the first quarter of 2020 and the maturing of higher yielding deposits, along with the accretion of deposit premium from the Pedestal acquisition.

Average deposits for the year ended December 31, 2022 were $4.5 billion, an increase of $746.0 million, or 19.6%, compared to the year ended December 31, 2021 of $3.8 billion.

The average rate paid on total interest-bearing deposits increased over this period from 0.47% for the year ended December 31, 2021 to 0.81% for the year ended December 31, 2022.

The increase in average rates was driven by the federal reserve raising interest rates during the year ended December 31, 2022.

In addition, the stability and the continued growth of noninterest-bearing demand accounts served to reduce the cost of deposits to 0.54% for the year ended December 31, 2022 and 0.32% for the year ended December 31, 2021.

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

For the Year Ended

December 31, 2021

For the Year Ended

December 31, 2020

(Dollars in thousands)

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

For the Years Ended December 31,

Average Balance

(Dollars in thousands)

Interest-bearing demand accounts

Negotiable order of withdrawal (“NOW”) accounts

Negotiable order of withdrawal ("NOW") accounts

Limited access money market accounts and savings

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Certificates of

Deposit More Than

Certificates of

$100,000 Through

(Dollars in thousands)

3 unchanged sentences

12 months or more

At December 31, 2022, 2021 and 2021, we had approximately $1.6 billion, $1.4 billion and $1.1 billion, respectively, in uninsured deposits including related interest accrued and unpaid.

Since it is not reasonably practicable to 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.

We utilize short-term and long-term borrowings to supplement deposits to fund our lending and investment activities.

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The following table presents our FHLB borrowings at the dates indicated.

FHLB Advances

(Dollars in Thousands)

December 31, 2022

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The balance outstanding at both December 31, 2022 and 2021 was $25.0 million.

This subordinated notes were issued for the purpose of paying off our long term advance and line of credit with First National Bankers Bank (“FNBB”), for general corporate purposes and to provide Tier 2 capital.

These subordinated notes were issued for the purpose of paying off our long term advance and line of credit with FNBB, for general corporate purposes and to provide Tier 2 capital.

The subordinated notes are redeemable by the Company at its option beginning in 2028.

On March 26, 2021, we issued $52.5 million in subordinated notes.

These subordinated notes 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.

The balance at December 31, 2021 on these notes was $52.5 million.

These subordinated notes bear 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.

The balance outstanding at both December 31, 2022 and 2021 was $52.5 million.

On April 1, 2021, we consummated the acquisition of SSW.

1 unchanged sentence

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.

The balance at December 31, 2021 on this debt was $3.9 million.

The balance outstanding at both December 31, 2022 and 2021 was $3.9 million.

On March 1, 2022, we consummated the acquisition of TCBI.

As part of the acquisition, we assumed $26.4 million in subordinated debt.

Of these notes, $10.0 million bears interest at a fixed rate of 6.25% until April 11, 2023, then will reset to a floating interest rate based on a benchmark plus 350 basis points, adjusting quarterly until maturity on April 11, 2028, $7.5 million bears a fixed rate of 6.38% until December 13, 2023, then will reset to a floating interest rate based on a benchmark rate plus 350 basis points, adjusting quarterly, until maturity on December 13, 2028, $8.9 million bears an adjustable interest rate plus 595 basis points, based on a benchmark rate, until maturity on March 24, 2027.

The balance outstanding at December 31, 2022 was $26.4 million.

As part of this debt, we recorded a fair value adjustment premium in the amount of $3.4 million, to accrete over five-to-seven years, with a remaining adjustment of $2.9 million as of December 31, 2022.

The following table presents the Subordinated Debt at the dates indicated.

Subordinated Debt

(Dollars in Thousands)

December 31, 2022

13 unchanged sentences

This line of credit, established on September 12, 2016, was secured by a pledge of and security interest in the common stock of our wholly-owned subsidiary, b1BANK.

This line of credit did not have a balance at December 31, 2019.

In March 2020, we utilized the full amount of this line of $5.0 million, all of which was outstanding at December 31, 2020.

This line of credit carried a variable interest rate equal to the Wall Street Journal Prime rate.

1 unchanged sentence

This line of credit was paid in full in March 2021.

FNBB revolving advances .

FNBB allows us to borrow on a revolving basis up to $5.0 million.

This line of credit, established on November 3, 2021, is secured by a pledge of and security interest in the common stock of our wholly-owned subsidiary, b1BANK.

This line of credit was re-established on November 3, 2021.

This line of credit did not have a balance at December 31, 2021.

In May 2022, we utilized the full amount of this line of $5.0 million.

This line of credit carried a variable interest rate equal to the Wall Street Journal Prime rate not to be less than 3.50%.

This line of credit was paid in full, and not renewed, in November 2022.

FNBB note payable .

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Principal and interest payments on the junior subordinated debentures are in a superior position to the liquidation rights of holders of common stock.

Correspondent Bank Federal Funds Purchased Relationships

We maintain Federal Funds Purchased Relationships with the following financial institutions and limits as of December 31, 2021:

Fed Funds Purchased

The Independent Bankers Bank

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 December 31, 2022:

Fed Funds Purchase

(Dollars in thousands)

TIB National Association

First Horizon Bank

1 unchanged sentence

South State Bank

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

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

Fed Funds Purchased

(Dollars in Thousands)

December 31, 2022

Amount outstanding at year-end

Weighted average interest rate at year-end

Weighted average stated interest rate at year-end

Maximum month-end balance during the year

3 unchanged sentences

Amount outstanding at year-end

Weighted average interest rate at year-end

Weighted average stated interest rate at year-end

Maximum month-end balance during the year

5 unchanged sentences

Although access to brokered deposits, purchased funds from correspondent banks and overnight advances from the FHLB have been utilized on occasion to take advantage of investment opportunities, we do not generally rely on these external funding sources.

As of December 31, 2021 and 2020, we maintained six lines of credit with commercial banks which provided for extensions of credit with an availability to borrow up to an aggregate of $154.0 million and $126.0 million as of December 31, 2021 and 2020, respectively.

There were no funds under these lines of credit outstanding as of December 31, 2021 and 2020.

As of December 31, 2022 and 2021, we maintained six lines of credit with correspondent banks which provided for extensions of credit with an availability to borrow up to an aggregate of $154.0 million and $154.0 million as of December 31, 2022 and 2021, respectively.

At December 31, 2022, we had $14.1 million outstanding under these lines of credit.

There were no funds under these lines of credit outstanding as of December 31, 2021.

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 period indicated.

Average assets totaled $5.5 billion and $4.4 billion for the years ended December 31, 2022 and 2021, respectively.

For the Year Ended

December 31, 2021

For the Year Ended

December 31, 2020

Sources of Funds:

For the Years Ended December 31,

Source of Funds:

Noninterest-bearing

4 unchanged sentences

Other liabilities

Shareholders’

Shareholders' equity

Uses of Funds:

7 unchanged sentences

We do not expect a change in the primary source or use of our funds in the foreseeable future.

Our average loans increased 16.2% for the year ended December 31, 2021 compared to the same period in 2020, primarily due to our Dallas/Fort Worth metroplex, New Orleans and Baton Rouge markets, offset with the sale of the majority of our SBA PPP portfolio.

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 average loans increased 32.4% for the year ended December 31, 2022 compared to the same period in 2021, primarily due to organic growth and the acquisition of TCBI.

We predominantly invest excess funds 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 5.92 years and an effective duration of 54.07 months as of December 31, 2022 and a weighted average life of 5.87 years and an effective duration of 53.46 months as of December 31, 2021.

As of December 31, 2022, we had outstanding $1.3 billion in commitments to extend credit and $45.6 million in commitments associated with outstanding standby and commercial letters of credit.

As of December 31, 2020, we had outstanding $621.1 million in commitments to extend credit and $23.9 million in commitments associated with outstanding standby and commercial letters of credit.

As of December 31, 2021, we had outstanding $1.0 billion in commitments to extend credit and $35.3 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.

2 unchanged sentences

As of December 31, 2022, we had no exposure to future cash requirements associated with known uncertainties or capital expenditures of a material nature.

As of December 31, 2021, we had cash and cash equivalents of $68.4 million compared to $149.1 million as of December 31, 2020, excluding federal funds sold.

We had cash and cash equivalents, including federal funds sold, of $168.3 million and $295.4 million as of December 31, 2022 and 2021, respectively.

Capital Resources

1 unchanged sentence

equity increased to $580.5 million as of December 31, 2022, compared to $433.4 million as of December 31, 2021, an increase of $147.1 million, or 33.9%.

This increase was primarily due to net income of $52.1 million, offset with $11.8 million in the change in unrealized losses on our investment portfolio, $9.4 million in paid dividends and $10.9 million in stock repurchases.

On January 24, 2022, our board of directors declared a quarterly dividend based upon our financial performance for the three months ended December 31, 2021 in the amount of $0.12 per share to the common shareholders of record as of February 15, 2022.

This increase was primarily due to the issuance of $72.0 million in preferred stock, $55.0 million in common stock and equity awards in the acquisition of TCBI, $47.2 in net proceeds from the public offering of common stock, and net income available to common shareholders of $52.9 million, offset with other comprehensive losses of $73.0 million resulting from the after tax effect of unrealized losses in our investment securities portfolio and dividends paid on common shares of $10.8 million.

The preferred stock was structured to qualify as additional Tier 1 capital.

On January 25, 2023, our board of directors declared a quarterly dividend based upon our financial performance for the three months ended December 31, 2022 in the amount of $0.12 per common share to the common shareholders of record as of February 15, 2023.

The dividend was paid on February 28, 2023.

On January 25, 2023, our board of directors declared a quarterly dividend in the amount of $18.75 per preferred share to the preferred shareholders of record as of February 15, 2023.

The dividend was paid on February 28, 2023.

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 bank holding company, our ability to pay dividends is largely dependent upon the receipt of dividends from our subsidiary, b1BANK.

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.

7 unchanged sentences

However, we expect to monitor and control our growth in order to remain in compliance with all applicable regulatory capital standards applicable to us.

For the year ended December 31, 2020, we elected to opt in to the CBLR framework.

Pursuant to section 201(b) of EGRRCPA, the federal bank regulatory agencies adopted a final rule in 2019 imposing a minimum community bank leverage ratio requirement of 9.0%.

On April 6, 2020, as mandated under the CARES Act, the federal bank regulatory agencies adopted an interim final rule that temporarily reduced the minimum community bank leverage ratio requirement to 8.0% and provided a two quarter grace period for banks with a leverage ratio between 7.0% and 8.0%.

A transition interim final rule also adopted by the federal bank regulatory agencies on April 6, 2020 provides a graduated transition from the temporary 8.0% community bank leverage ratio requirement, to the 9.0% community bank leverage ratio requirement as established under the 2019 final rule.

Specifically, the transition interim final rule provides that the community bank leverage ratio will be 8.0% in the second quarter through fourth quarter of calendar year 2020, 8.5% in calendar year 2021, and 9.0% thereafter.

During the first quarter of 2021, we elected to revert to the risk weighted ratios detailed below.

The increase in capital was primarily due to the issuance of preferred stock (accounted for as additional Tier 1 capital for us).

The following table presents the actual capital amounts and regulatory capital ratios for us and b1BANK as of the dates indicated.

As of December 31,

As of December 31, 2020

(Dollars in thousands)

Business First Bancshares, Inc.

Business First

Total capital (to risk weighted assets)

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Common Equity Tier 1 capital (to risk weighted assets)

CBLR and/or Tier 1 Leveraged capital (to average assets)

Tier 1 Leverage capital (to average assets)

Total capital (to risk weighted assets)

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Common Equity Tier 1 capital (to risk weighted assets)

CBLR and/or Tier 1 Leveraged capital (to average assets)

Tier 1 Leverage capital (to average assets)

Preferred Stock

The preferred stock was structured to qualify as additional Tier 1 capital under applicable regulatory capital guidelines.

Holders of the preferred stock will be entitled to receive, if, when, and as declared by our board of directors, non-cumulative cash dividends at a rate of 7.50% for the first five years following issuance and thereafter at a variable rate equal to the then current 3-month secured overnight financing rate (“SOFR”), reset quarterly, plus 470 basis points.

The preferred stock has a perpetual term and may not be redeemed, except under certain circumstances, under the first five years of issuance.

Long Term Debt

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Contractual Obligations

The following table summarizes contractual obligations and other commitments to make future payments as of December 31, 2021 and 2020 (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, note payables, and non-cancelable future operating leases.

The following tables summarize contractual obligations and other commitments to make future payments as of December 31, 2022 and 2021 (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 $82.0 million and $43.1 million (included remaining purchase premium) as of December 31, 2021 and 2020, respectively.

Advances from the FHLB totaled approximately $410.1 million and $82.0 million as of December 31, 2022 and 2021, respectively.

As of December 31, 2022 and 2021, the FHLB advances were collateralized by a blanket floating lien on certain securities and loans, had a weighted average stated rate of 3.88% and 1.08%, respectively, and maturing within five years.

The subordinated debt totaled $110.7 million and $81.4 million as of December 31, 2022 and 2021.

The remaining $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.

The revolving line of credit with FNBB had a balance of $5.0 million at December 31, 2020 which was paid off during the first quarter 2021.

We acquired a note payable to FNBB in the amount of $7.0 million, of which $6.0 million was outstanding as of December 31, 2020 and was paid off during the first quarter of 2021.

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 interest at a fixed rate of 6.25% until April 11, 2023, then will reset to a floating interest rate based on a benchmark plus 350 basis points, adjusting quarterly until maturity on April 11, 2028, $7.5 million bears a fixed rate of 6.38% until December 13, 2023, then will reset to a floating interest rate based on a benchmark rate plus 350 basis points, adjusting quarterly, until maturity on December 13, 2028, $8.9 million bears an adjustable interest rate plus 595 basis points, based on a benchmark rate, until maturity on March 24, 2027.

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 $2.9 million remaining at December 31, 2022.

In November 2021, we entered into a revolving line of credit with FNBB in the amount of $5.0 million with a variable interest rate equal to the Wall Street Journal Prime and not to be less than 3.5%.

This revolving line of credit is for one year and matures in November, 2022.

This revolving line of credit with FNBB had no balance outstanding at December 31, 2021, was fully utilized in May 2022 and fully paid off at maturity in November 2022.

As of December 31, 2022

1 year or less

year but less

more but less

More than 1 year

but less than 3

3 years or more

but less than 5

5 years or more

(Dollars in thousands)

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Time deposits

Subordinated debt

Subordinated debt (including premium)

Advances from FHLB

Subordinated debt –

trust preferred securities

Subordinated debt - trust preferred securities

Securities sold under agreements to repurchase

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1 year or less

year but less

more but less

More than 1 year

but less than 3

3 years or more

but less than 5

5 years or more

(Dollars in thousands)

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Advances from FHLB

Purchase premium on advances from FHLB

Subordinated debt –

trust preferred securities

FNBB revolving line of credit

FNBB notes payable

Subordinated debt - trust preferred securities

Securities sold under agreements to repurchase

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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 below.

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.

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We manage our exposure to interest rates by structuring our balance sheet in the ordinary course of business.

We do not enter into instruments such as leveraged derivatives, interest rate swaps, financial options, financial futures contracts or forward delivery contracts for the purpose of reducing interest rate risk.

Based upon the nature of our operations, we are not subject to foreign exchange or commodity price risk.

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Our exposure to interest rate risk is managed by the asset-liability committee of b1BANK, in accordance with policies approved by our board of directors.

The committee formulates strategies based on appropriate levels of interest rate risk.

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.

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Non-parallel simulation involves analysis of interest income and expense under various changes in the shape of the yield curve.

Internal policy regarding internal rate risk simulations currently specifies that for instantaneous parallel shifts of the yield curve, estimated net income at risk for the subsequent one-year period should not decline by more than 5% for a 100 basis point shift, 10% for a 200 basis point shift, and 12.5% for a 300 basis point shift.

Internal policy regarding internal rate risk simulations currently specifies that for instantaneous parallel shifts of the yield curve, estimated net interest income at risk for the subsequent one-year period should not decline by more than 5% for a 100 basis point shift, 10% for a 200 basis point shift, and 12.5% for a 300 basis point shift.

Internal policy regarding interest rate simulations currently specifies that for instantaneous parallel shifts of the yield curve, estimated fair value of equity at risk for the subsequent one-year period should not decline by more than 10% for a 100 basis point shift, 15% for a 200 basis point shift, and 25% for a 300 basis point shift.

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As of December 31,

As of December 31, 2020

Change in Interest

Rates (Basis Points)

Percent Change

in Net Interest

Percent Change

in Fair Value of

Percent Change

in Net Interest

Percent Change

in Fair Value of

Change in Interest Rates (Basis Points)

Percent Change in

Fair Value of

Percent Change in

Fair Value of

The results are primarily due to the balance sheet mix and behavior of demand, money market and savings deposits during such rate fluctuations.

The model also assumes no management intervention.

We have found that, historically, interest rates on these deposits change more slowly than changes in the discount and federal funds rates.

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Transactions that are typically excluded from non-GAAP measures include realized and unrealized gains/losses on former bank premises and equipment, gain/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 intangible assets from book value and shareholders’

The measures also typically adjust goodwill and certain intangible assets from book value and shareholders’

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.

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Core Net Income.

Core net income for the year ended December 31, 2021 was $53.9 million, or $2.61 per diluted share, compared to core net income of $37.5 million, or $2.05 per diluted share, for the year ended December 31, 2020.

Core net income for the year ended December 31, 2021 included the $378,000 in gains on sale of securities and a $492,000 gain on sale of the Oak Grove Banking Center, the incurrence $1.0 million in losses attributed to former bank premises and equipment, $515,000 in acquisition-related expenses and $1.6 million in hurricane repair expenses compared to $135,000 in gains on sale of securities, the incurrence of $9.6 million in acquisition-related expenses, and 351,000 in losses attributed to former bank premises and equipment December 31, 2020.

Core net income available to common shareholders for the year ended December 31, 2022 was $57.6 million, or $2.52 per diluted common share, compared to core net income available to common shareholders of $53.9 million, or $2.61 per diluted common share, for the year ended December 31, 2021.

Core net income available to common shareholders for the year ended December 31, 2022 included adjustment for $48,000 in losses on sales of securities, $687,000 in insurance reimbursements from storm expenditures, the incurrence of $717,000 in losses attributed to former bank premises and equipment, $5.2 million in acquisition-related expenses and $501,000 million in hurricane repair expenses compared to $378,000 in gains on the sales of securities, a $492,000 gain on the sale of the Oak Grove Banking Center, the incurrence of $1.0 million in losses attributed to former bank premises and equipment, $515,000 in acquisition-related expenses, and $1.6 million in hurricane repair expenses for the year ended December 31, 2021.

For the Years Ended December 31,

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Other Income:

Sale of impaired credit

Losses on former bank premises and equipment

(Gains) on sale of securities

(Gains) on sale of branch

(Gains) losses on sale of securities

Gain on sale of branch

Insurance reimbursement of storm expenditures

Core other income

For the Years Ended December 31,

(Dollars in thousands, except per share data) (Unaudited)

Other Expenses:

Other expenses

Other Expense:

Other expense

Acquisition-related expenses (2)

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Occupancy and bank premises - hurricane repair

Early lease termination

Core other expenses

Core other expense

Pre-Tax Income:

Pre-tax income

Sale of impaired credit

Losses on former bank premises and equipment

(Gains) on sale of securities

(Gains) on sale of branch

(Gains) losses on sale of securities

Gain on sale of branch

Insurance reimbursement of storm expenditures

Acquisition-related expenses (2)

Stock option exercises - excess taxes (founder's tax)

Stock option exercises - excess taxes (founder's grants)

Occupancy and bank premises - hurricane repair

Early lease termination

Core pre-tax income

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Provision for income taxes

Tax on sale of impaired credit

Tax on losses on former bank premises and equipment

Tax on (gains) on sale of securities

Tax on (gains) on sale of branch

Tax on (gains) losses on sale of securities

Tax on gain on sale of branch

Tax on insurance reimbursement of storm expenditures

Tax on acquisition-related expenses (2)

Tax on stock option exercises (founder's grants)

Tax on stock option exercises - excess taxes (founder's grants)

Tax on occupancy and bank premises - hurricane repair

Tax on early lease termination

Core provision for income taxes

Sale of impaired credit, net of tax

Preferred Dividends

Preferred dividends

Core preferred dividends

Net Income Available to Common Shareholders:

Net income available to common shareholders

Losses on former bank premises and equipment , net of tax

(Gains) on sale of securities, net of tax

(Gains) on sale of branch, net of tax

(Gains) losses on sale of securities, net of tax

Gain on sale of branch, net of tax

Insurance reimbursement of storm expenditures, net of tax

Acquisition-related expenses (2), net of tax

Stock option exercises (founder's grants), net of tax

Stock option exercises - excess taxes (founder's grants), net of tax

Occupancy and bank premises - hurricane repair, net of tax

Early lease termination, net of tax

Core net income

Diluted Earnings Per Share:

Diluted earnings per share

Sale of impaired credit, net of tax

Core net income available to common shareholders

Diluted Earnings Per Common Share:

Diluted earnings per common share

Losses on former bank premises and equipment , net of tax

(Gains) on sale of securities, net of tax

(Gains) on sale of branch, net of tax

(Gains) losses on sale of securities, net of tax

Gain on sale of branch, net of tax

Insurance reimbursement of storm expenditures, net of tax

Acquisition-related expenses (2), net of tax

Stock option exercises (founder's grants)

Stock option exercises - excess taxes (founder's grants), net of tax

Occupancy and bank premises - hurricane repair, net of tax

Early lease termination, net of tax

Core diluted earnings per share

Tax rates, exclusive of certain nondeductible acquisition-related expenses and goodwill, utilized were 21% for 2021, 2020 and 2019.

These rates approximated the marginal tax rates.

Core diluted earnings per common share

Tax rates, exclusive of certain nondeductible acquisition-related expenses and goodwill, utilized were 21% for both 2022 and 2021.

These rates approximate the marginal tax rates for the applicable periods.

Includes merger and conversion-related expenses and salary and employee benefits.

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We calculate (1) tangible common equity as shareholders’

equity less 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.

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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As of December 31,

(Dollars in thousands, except per

share data) (Unaudited)

(Dollars in thousands, except per share

data) (Unaudited)

Tangible Common Equity

Total shareholders’

Total shareholders' equity

Preferred stock

Total common shareholders' equity

Core deposit and customer intangibles

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Common shares outstanding (1)

Book value per common share

Tangible book value per common share

Book value per common shares (1)

Tangible book value per common shares (1)

Excludes the dilutive effect, if any, of 184,015 and 132,032 shares of common stock issuable upon exercise of outstanding stock options and restricted stock awards as of December 31, 2022 and 2021, respectively.

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As of December 31,

(Dollars in thousands, except per share

data) (Unaudited)

(Dollars in thousands, except per share data) (Unaudited)

Tangible Common Equity

Total shareholders’

Total shareholders' equity

Preferred stock

Total common shareholders' equity

Core deposit and customer intangibles

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We believe that the judgments, estimates and assumptions used in the preparation of our financial statements are appropriate.

Acquired Loans and Allowance for Loan Losses

Acquired Loans

Loans acquired in business combinations are initially recorded at fair value which includes an estimate of credit losses expected to be realized over the remaining lives of the loans and, therefore, no corresponding allowance for loan losses is recorded for these loans at acquisition.

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Under current accounting principles, if we determine that losses arose after the acquisition date, the additional losses will be reflected as a provision to the allowance for loan losses.

Purchased loans acquired in a business combination are recorded at their estimated fair value as of the acquisition date and there is no carryover of the seller’s allowance for loan losses.

The Company accounts for acquired impaired loans in accordance with ASC 310-30, Loans and Debt Securities Acquired with Deteriorated Credit Quality ( “

ASC  310 - 30”

 An acquired loan is considered impaired when there is evidence of credit deterioration since origination and it is probable at the date of acquisition that the Company will be unable to collect all contractually required payments.

Purchased impaired credits (i.e., loans) are accounted for individually or aggregated into loan pools with similar risk characteristics, which include:

the loan type by regulatory guidelines, nature of the collateral/loan, relative amount of fair value discount to credit, amongst other factors..

The Company estimates the amount and timing of undiscounted expected cash flows for each loan, and the expected cash flows in excess of fair value is recorded as interest income over the remaining life of the loan (accretable yield).

The excess of the loan’s contractual principal and interest over the expected cash flows is not recorded (nonaccretable difference).

Over the life of the loan, expected cash flows continue to be estimated.

If the expected cash flows decrease, a provision for loan losses and the establishment of an allowance for loan losses with respect to the acquired impaired loan is recorded.

If the expected cash flows increase, it is recognized as part of future interest income.

The performing loans are accounted for under ASC 310-20, Nonrefundable Fees and Other Costs ( “

ASC 310-20 ”

) , with the related discount or premium being recognized as an adjustment to yield over the life of the loan.

Allowance for Loan Losses

The allowance for loan losses is an estimated amount management believes is adequate to absorb inherent losses on existing loans that may be uncollectible based upon review and evaluation of the loan portfolio.

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Management considers delinquency status to be the most meaningful indicator of the credit quality of 1-4 family residential, home equity loans and lines of credit and other consumer loans.

In general, loans do not begin to show signs of credit deterioration or default until they have been outstanding for some period of time, a process we refer to as “seasoning”.

As a result, a portfolio of older loans will usually behave more predictably than a portfolio of newer loans.

In general, loans do not begin to show signs of credit deterioration or default until they have been outstanding for some period of time, a process we refer to as “seasoning.” As a result, a portfolio of older loans will usually behave more predictably than a portfolio of newer loans.

Because the majority of our portfolio is relatively new, the current level of delinquencies and defaults may not be representative of the level that will prevail when the portfolio becomes more seasoned, which may be higher than current levels.

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 5. Market for Registrant’s Common Equity