What changed in this filing

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Item 1A. Risk Factors

2024-03-01 compared with 2023-03-02 · 73 added, 131 removed, 485 unchanged (30% of the section changed)

71 unchanged sentences

If the overall economic climate in the United States, generally, or our market areas, specifically, experiences material disruption, our borrowers may experience difficulties in repaying their loans, the collateral we hold may decrease in value or become illiquid, and the level of nonperforming loans, charge-offs and delinquencies could rise and require significant additional provisions for credit losses.

Additional factors related to the credit quality of commercial loans include the quality of the management of the business and the borrower’s ability both to properly evaluate changes in the supply and demand characteristics affecting our market for products and services and to effectively respond to those changes.

Additional factors related to the credit quality of commercial real estate loans include tenant vacancy rates and the quality of management of the property.

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Our loan portfolio includes owner-occupied and non-owner-occupied commercial real estate loans for individuals and businesses for various purposes, which are secured by commercial properties, as well as real estate acquisition, construction and development loans.

As of December 31, 2022, approximately $2.8 billion, or 61.7% of our loan portfolio is secured by commercial real estate.

As of December 31, 2023, approximately $2.9 billion, or 57.8% of our loan portfolio is secured by commercial and construction real estate.

These loans typically involve repayment dependent upon income generated, or expected to be generated, by the property securing the loan in amounts sufficient to cover operating expenses and debt service, which may be adversely affected by changes in the economy or local market conditions.

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Accordingly, charge-offs on non-owner-occupied commercial real estate loans may be larger on a per loan basis than those incurred with our residential or consumer loan portfolios.

Unexpected deterioration in the credit quality of our commercial real estate loan portfolio would require us to increase our provision for loan losses, which would reduce our profitability, and could adversely affect our business, financial condition, results of operations and prospects.

Unexpected deterioration in the credit quality of our commercial real estate loan portfolio would require us to increase our provision for credit losses, which would reduce our profitability, and could adversely affect our business, financial condition, results of operations and prospects.

Because a significant portion of our loan portfolio is comprised of real estate loans, negative changes in the economy affecting real estate values and liquidity could impair the value of collateral securing our real estate loans and result in loan and other losses.

The market value of real estate can fluctuate significantly in a short period of time.

As of December 31, 2022, approximately $3.4 billion, or 73.8%, of our total loans were comprised of loans with real estate as a primary or secondary component of collateral.

As of December 31, 2023, approximately $3.6 billion, or 71.5%, of our total loans were comprised of loans with real estate as a primary or secondary component of collateral.

Adverse changes affecting real estate values and the liquidity of real estate in one or more of our markets could increase the credit risk associated with our loan portfolio, and could result in losses that adversely affect our business, financial condition, and results of operations.

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Since we originate loans secured by real estate, we may have to foreclose on the collateral property to protect our investment and may thereafter, own and operate such property, in which case, we would be exposed to the risks inherent in the ownership of real estate.

As of December 31, 2022, we held approximately $1.4 million in other real estate owned (“OREO”) of which $711,000 is related to former bank facilities.

As of December 31, 2023, we held approximately $1.7 million in other real estate owned (“OREO”) of which $279,000 is related to former bank facilities.

The amount that we, as a mortgagee, may realize after a default is dependent upon factors outside of our control, including, but not limited to general or local economic conditions, environmental cleanup liability, assessments, interest rates, real estate tax rates, operating expenses of the mortgaged properties, ability to obtain and maintain adequate occupancy of the properties, zoning laws, governmental and regulatory rules, and natural disasters.

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Along with other risks inherent in our loans, such as the deterioration of the underlying businesses or property securing these loans, the higher average size of our loans presents a risk to our lending operations.

Because we have a large average loan size, if only a few of our largest borrowers become unable to repay their loan obligations as a result of economic or market conditions or personal circumstances, our nonperforming loans and our provision for loan losses could increase significantly, which could have an adverse effect on our business, financial condition and results of operations.

Our allowance for loan losses may prove to be insufficient to absorb losses inherent in our loan portfolio, which could have a material adverse effect on our business, financial condition and results of operations.

We maintain an allowance for loan losses that represents management’s judgment of probable losses and risks inherent in our loan portfolio.

As of December 31, 2022, our allowance for loan losses totaled $38.2 million, which represents approximately 0.83% of our total loans held for investment.

The level of the allowance reflects management’s continuing evaluation of general economic conditions, diversification and seasoning of the loan portfolio, historic loss experience, identified credit problems, delinquency levels and adequacy of collateral.

The determination of the appropriate level of the allowance for loan losses is inherently highly subjective and requires us to make significant estimates of and assumptions regarding current credit risks and future trends, all of which may undergo material changes.

Inaccurate management assumptions, deterioration of economic conditions affecting borrowers, new information regarding existing loans, identification or deterioration of additional problem loans, acquisition of problem loans and other factors, both within and outside of our control, may require us to increase our allowance for loan losses.

In addition, our regulators, as an integral part of their periodic examination, review our methodology for calculating, and the adequacy of, our allowance for loan losses and may direct us to make additions to the allowance based on their judgments about information available to them at the time of their examination.

Further, if actual charge-offs in future periods exceed the amounts allocated to the allowance for loan losses, we may need additional provisions for loan losses to restore the adequacy of our allowance for loan losses.

Finally, the measure of our allowance for loan losses is dependent on the adoption and interpretation of accounting standards.

The Financial Accounting Standards Board (“FASB”) recently issued a new credit impairment model, the Current Expected Credit Loss (“CECL”) model, which became applicable to us on January 1, 2023.

Because we have a large average loan size, if only a few of our largest borrowers become unable to repay their loan obligations as a result of economic or market conditions or personal circumstances, our nonperforming loans and our provision for credit losses could increase significantly, which could have an adverse effect on our business, financial condition and results of operations.

Our allowance for credit losses may prove to be insufficient to absorb losses inherent in our loan portfolio, which could have a material adverse effect on our business, financial condition and results of operations.

We maintain an allowance for credit losses that represents management’s judgment of probable losses and risks inherent in our loan portfolio, including unfunded commitments.

As of December 31, 2023, our allowance for credit losses totaled $43.7 million, which represents approximately 0.88% of our total loans held for investment.

The allowance also incorporates our current views on our current risk management practices, which may change in the future.

Additionally, the allowance incorporates historical industry loss data as part of the estimate.

The determination of the appropriate level of the allowance for credit losses is inherently highly subjective and requires us to make significant estimates of and assumptions regarding current credit risks and future trends, all of which may undergo material changes.

In addition, our regulators, as an integral part of their periodic examination, review our methodology for calculating, and the adequacy of, our allowance for credit losses and may direct us to make additions to the allowance based on their judgments about information available to them at the time of their examination.

Further, if actual charge-offs in future periods exceed the amounts allocated to the allowance for credit losses, we may need additional provisions for credit losses to restore the adequacy of our allowance for credit losses.

Finally, the measure of our allowance for credit losses is dependent on the adoption and interpretation of accounting standards.

CECL requires financial institutions to estimate and develop a provision for credit losses at origination for the lifetime of the loan, as opposed to reserving for incurred or probable losses up to the balance sheet date.

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Under the CECL model, credit deterioration would be reflected in the income statement in the period of origination or acquisition of the loan, with changes in expected credit losses due to further credit deterioration or improvement reflected in the periods in which the expectation changes.

Accordingly, the CECL model could require financial institutions like the Bank to increase their allowances for credit losses.

Moreover, the CECL model likely would create more volatility in our level of allowance for credit losses.

If we are required to materially increase our level of allowance for credit losses for any reason, such increase could adversely affect our business, financial condition, results of operations, and capital.

The small-to-midsized businesses that we lend to may have fewer resources to weather adverse business developments, which may impair a borrower ’

s ability to repay a loan, and such impairment could have a material adverse effect on our business, financial condition and results of operations.

We focus our business development and marketing strategy primarily on small-to-midsized businesses who frequently have smaller market shares than their competition, may be more vulnerable to economic downturns, often need substantial additional capital to expand or compete and may experience substantial volatility in operating results, any of which may impair a borrower’s ability to repay a loan.

Moreover, the CECL model is heavily dependent on macroeconomic forecasts, with changes in those forecasts potentially requiring material increases to our level of allowance for credit losses which could adversely affect our business, financial condition, results of operations, and capital.

The small-to-midsized businesses that we lend to may have fewer resources to weather adverse business developments, which may impair a borrower ’ s ability to repay a loan, and such impairment could have a material adverse effect on our business, financial condition and results of operations.

We focus our business development and marketing strategy primarily on small-to-midsized businesses, who frequently have smaller market shares than their competition, may be more vulnerable to economic downturns, often need substantial additional capital to expand or compete and may experience substantial volatility in operating results, any of which may impair a borrower’s ability to repay a loan.

In addition, the success of a small-to-midsized business often depends on the management skills, talents and efforts of one or two people or a small group of people, and the death, disability or resignation of one or more of these people could have an adverse impact on the business and its ability to repay its loan.

If general economic conditions negatively impact the markets in which we operate and small-to-midsized businesses are adversely affected or our borrowers are otherwise harmed by adverse business developments, this, in turn, could have a material adverse effect on our business, financial condition and results of operations. 

The borrowing needs of our customers may increase, especially during a challenging economic environment, which could result in increased borrowing against our contractual obligations to extend credit.

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As of December 31, 2023, we had $1.2 billion in unfunded credit commitments to our customers.

Actual borrowing needs of our customers may exceed our expectations, especially during a challenging economic environment when our customers’

companies may be more dependent on our credit commitments due to the lack of available credit elsewhere, the increasing costs of credit, or the limited availability of financings from venture firms.

Actual borrowing needs of our customers may exceed our expectations, especially during a challenging economic environment when our customers’ companies may be more dependent on our credit commitments due to the lack of available credit elsewhere, the increasing costs of credit, or the limited availability of financings from venture firms.

This could adversely affect our liquidity, which could impair our ability to fund operations and meet obligations as they become due and could have a material adverse effect on our business, financial condition and results of operations.

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As of December 31, 2023, 35.5% of our earning assets and 58.7% of our interest-bearing liabilities were variable rate.

Our interest sensitivity profile was asset sensitive as of December 31, 2022, meaning that we estimate our net interest income would increase more from rising interest rates than from falling interest rates;

however, customer and market responses to a changing interest rate environment are highly uncertain and there is no guarantee that our net interest income would increase if interest rates rise.

Interest rates increased rapidly during 2022 to levels that we have not experienced in recent history.

As of December 31, 2023, our modeled interest sensitivity was close to neutral, but slightly asset sensitive.

Should the assumptions in the model occur, we estimate our net interest income to experience a minor increase if rates rise, and a minor decrease if rates decline.

However, it is likely that customer and market responses would differ from those in the model, and there is no guarantee that actual results will match modeled results.

Interest rates increased rapidly during 2022 and 2023 to levels that we have not experienced in recent history.

Interest rates may increase further, or they may remain at current levels for some time.

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Although our asset-liability management strategy is designed to control and mitigate exposure to the risks related to changes in market interest rates, those rates are affected by many factors outside of our control, including governmental monetary policies, inflation, deflation, recession, changes in unemployment, the money supply, international disorder and instability in domestic and foreign financial markets.

The markets in which we operate are susceptible to hurricanes and other natural disasters and adverse weather, which could result in a disruption of our operations and increases in loan losses.

The markets in which we operate are susceptible to hurricanes and other natural disasters and adverse weather, which could result in a disruption of our operations and increases in credit losses.

A significant portion of our business is generated from markets that have been, and may continue to be, damaged by major hurricanes, floods, tropical storms, tornadoes and other natural disasters and adverse weather.

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Moreover, the value of real estate or other collateral that secures the loans could be materially and adversely affected by a disaster.

A disaster could, therefore, result in decreased revenue and loan losses that could have an adverse effect on our business, financial condition and results of operations.

A disaster could, therefore, result in decreased revenue and credit losses that could have an adverse effect on our business, financial condition and results of operations.

We earn income by originating residential mortgage loans for resale in the secondary mortgage market, and disruptions in that market could reduce our operating income.

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Other primary sources of funds consist of cash flows from operations, maturities and sales of investment securities, and proceeds from the issuance and sale of our equity and debt securities to investors.

Additional liquidity is provided by the ability to borrow from the Federal Reserve Bank (“FRB”) of Atlanta and the FHLB of Dallas.

We also borrow funds from third-party lenders, such as other financial institutions.

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These types of deposits are often secured and typically fluctuate on a seasonal basis due to timing differences between tax collection and expenditures.

Municipal deposits are also generally more sensitive to interest rates and may require competitive rates at placement and subsequent rollover dates, which may make it more difficult for the Bank to attract and retain public and municipal deposits.

Municipal deposits are also generally more sensitive to interest rates and may require competitive rates at placement and subsequent rollover dates, which may make it more difficult for the Bank to attract and retain public and municipal deposits.

Withdrawals of deposits or significant fluctuation in a material portion of our largest public fund depositors could force us to rely more heavily on borrowings and other sources of funding for our business and withdrawal demands, adversely affecting our net interest margin and results of operations.

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We utilize alternative sources of funding, which may become more expensive or may not be available in the future, which could have an adverse effect on our business, financial condition and results of operations.

Along with its core deposits, the Bank utilizes alternative funding methods, including brokered and wholesale time deposits, short- and long-term borrowings through a correspondent bank, FHLB advances, securities sold under agreements to repurchase and Federal Funds Purchased borrowings.

As of December 31, 2022, brokered and wholesale deposits, including reciprocal deposits, comprised 13.1% of our total deposits, and our borrowings comprised 96.5% of our total shareholders’

As a result of the rise in interest rates during 2022, these funding sources have become significantly more expensive than in past years.

Along with its core deposits, the Bank utilizes alternative funding methods, including brokered and wholesale time deposits, short- and long-term borrowings through a correspondent bank, FHLB advances, Bank Term Funding Program (“BTFP”), securities sold under agreements to repurchase and Federal Funds Purchased borrowings.

As of December 31, 2023, brokered and wholesale deposits, including reciprocal deposits, comprised 20.5% of our total deposits, and our borrowings comprised 98.6% of our total shareholders’ equity.

As a result of the rise in interest rates during 2022 and 2023, these funding sources have become significantly more expensive than in past years.

If we continue to use these alternative funding methods, our interest expense will decline.

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For example, fixed-rate securities are generally subject to decreases in market value when interest rates rise.

The Federal Open Market Committee raised the target federal funds rate several times in 2022 and is expected to continue raising the rates in 2023.

In addition to market interest rates, other factors that could cause adverse changes to the fair value of our securities include, but are not limited to, rating agency actions with respect to the securities, defaults by the issuer or with respect to the underlying securities, and continued instability in the capital markets.

The Federal Open Market Committee raised the target federal funds rate several times in 2022 and 2023.

In addition to market interest rates, other factors that could cause adverse changes to the fair value of our securities include, but are not limited to, rating agency actions with respect to the securities, defaults by the issuer with respect to the underlying securities, and continued instability in the capital markets.

Any of these factors, among others, could cause other-than-temporary impairments and realized or unrealized losses in future periods and declines in other comprehensive income, which could have an adverse effect on our business, results of operations, financial condition and future prospects.

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failure to comply with regulations related to controls and procedures could have a material adverse effect on our reputation, business, financial condition and results of operations.

Our financial results depend on management ’

s selection of accounting methods and certain assumptions and estimates.

Our financial results depend on management ’ s selection of accounting methods and certain assumptions and estimates.

Our financial condition and results of operations are based on our consolidated financial statements, which have been prepared in accordance with generally accepted accounting principles in the United States, or GAAP, and with general practices within the financial services industry.

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They require management to make subjective or complex judgments, estimates or assumptions, and changes in those estimates or assumptions could have a significant impact on our consolidated financial statements.

These critical accounting policies and estimates include acquired loans and allowance for loan losses and purchase accounting adjustments (other than loans).

Because of the uncertainty of estimates involved in these matters, we may be required to significantly increase our allowance for credit losses or sustain loan losses that are significantly higher than the reserve provided, or otherwise incur charges that could have a material adverse effect on our business, financial condition and results of operations.

These critical accounting policies and estimates include acquired loans and allowance for credit losses and purchase accounting adjustments (other than loans).

Because of the uncertainty of estimates involved in these matters, we may be required to significantly increase our allowance for credit losses or sustain credit losses that are significantly higher than the reserve provided, or otherwise incur charges that could have a material adverse effect on our business, financial condition and results of operations.

From time to time, the FASB and the SEC change the financial accounting and reporting standards or the interpretation of such standards that govern the preparation of our consolidated financial statements which could affect our critical accounting policies and critical accounting estimates and assumptions made by management.

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Even if we satisfy the objectives of our capital plan and meet minimum capital requirements, it is possible that our regulators may ask us to raise additional capital.

For additional discussion regarding our capital requirements, please see “

PART I –

Business –

Supervision and Regulation –

b1BANK –

Capital Adequacy Requirements.

For additional discussion regarding our capital requirements, please see “ PART I – ITEM 1.

Business – Supervision and Regulation – b1BANK – Capital Adequacy Requirements.

Federal and state banking agencies periodically conduct examinations of our business, including compliance with laws and regulations, and our failure to comply with any supervisory actions to which we are or become subject as a result of such examinations could have an adverse effect on our business, financial condition, results of operations and prospects.

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If, as a result of an examination, a federal or state banking agency were to determine that our financial condition, capital resources, asset quality, earnings prospects, management, liquidity or other aspects of any of our operations had become unsatisfactory, or that we or the Bank were in violation of any law or regulation, it may take a number of different remedial actions as it deems appropriate.

These actions include the power to enjoin “unsafe or unsound”

practices, to require affirmative action to correct any conditions resulting from any violation or practice, to issue an administrative order that can be judicially enforced, to direct an increase in our capital, to restrict our growth, to assess civil monetary penalties against us or the Bank or our respective officers or directors, to remove officers and directors and, if it is concluded that such conditions cannot be corrected or there is an imminent risk of loss to depositors, to terminate the Bank’s deposit insurance and place it into receivership or conservatorship.

These actions include the power to enjoin “unsafe or unsound” practices, to require affirmative action to correct any conditions resulting from any violation or practice, to issue an administrative order that can be judicially enforced, to direct an increase in our capital, to restrict our growth, to assess civil monetary penalties against us or the Bank or our respective officers or directors, to remove officers and directors and, if it is concluded that such conditions cannot be corrected or there is an imminent risk of loss to depositors, to terminate the Bank’s deposit insurance and place it into receivership or conservatorship.

Any such regulatory action could have a material adverse effect on our business, results of operations, financial condition and prospects.

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The Dodd-Frank Act required the federal banking agencies to establish stricter risk-based capital requirements and leverage limits to apply to banks and bank holding companies.

PART I –

Business –

Supervision and Regulation –

Business First Bancshares, Inc.

See “ PART I – ITEM 1.

Business – Supervision and Regulation – Business First Bancshares, Inc.

– Revised Rules on Regulatory Capital.

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Even if we satisfy the objectives of our capital plan and meet minimum capital requirements, it is possible that our regulators may ask us to raise additional capital.

For additional discussion regarding our capital requirements, please see “

PART I –

Business –

Supervision and Regulation –

b1BANK –

Capital Adequacy Requirements.

For additional discussion regarding our capital requirements, please see “ PART I – ITEM 1.

Business – Supervision and Regulation – b1BANK – Capital Adequacy Requirements.

New activities and expansion require regulatory approvals, and failure to obtain them may restrict our growth.

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financial stability.

The regulators also review current and projected capital ratios and levels, the competence, experience and integrity of management and its record of compliance with laws and regulations, the convenience and needs of the communities to be served, including the acquiring institution’s record of compliance under the CRA and the effectiveness of the acquiring institution in combating money laundering activities.

Such regulatory approvals may not be granted on terms that are acceptable to us, or at all.

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The Department of Justice and other federal agencies are responsible for enforcing these laws and regulations.

A successful regulatory challenge to an institution’s performance under the CRA or fair lending laws and regulations could result in a wide variety of sanctions, including damages and civil money penalties, injunctive relief, restrictions on mergers and acquisitions activity, restrictions on expansion, and restrictions on entering new business lines.

Private parties may also have the ability to challenge an institution’s performance under fair lending laws in private class action litigation.

Such actions could have a material adverse effect on our business, financial condition, results of operations and prospects.

The performance of a financial institution under the CRA in meeting the credit needs of its community is a factor that must be taken into consideration when the federal banking agencies evaluate applications related to mergers and acquisitions, as well as branch opening and relocations.

If we are unable to maintain at least a “satisfactory”

CRA rating, our ability to complete the acquisition of another financial institution or open a new branch will be adversely impacted.

If we receive an overall CRA rating of less than “satisfactory”, our regulators would not re-evaluate our rating until our next CRA examination, which may not occur for one or more years, and it is possible that a low CRA rating would not improve in the future.

If we are unable to maintain at least a “satisfactory” CRA rating, our ability to complete the acquisition of another financial institution or open a new branch will be adversely impacted.

Federal, state and local consumer lending laws may restrict our ability to originate certain mortgage loans, increase our risk of liability with respect to such loans, or increase the time and expense associated with the foreclosure process or prevent us from foreclosing at all.

Federal, state and local laws have been adopted that are intended to eliminate certain lending practices considered “predatory.”

These laws prohibit practices such as steering borrowers away from more affordable products, selling unnecessary insurance to borrowers, repeatedly refinancing loans and making loans without a reasonable expectation that the borrowers will be able to repay the loans irrespective of the value of the underlying property.

Federal, state and local laws have been adopted that are intended to eliminate certain lending practices considered “predatory.” These laws prohibit practices such as steering borrowers away from more affordable products, selling unnecessary insurance to borrowers, repeatedly refinancing loans and making loans without a reasonable expectation that the borrowers will be able to repay the loans irrespective of the value of the underlying property.

It is our policy not to make predatory loans, but these laws create the potential for liability with respect to our lending and loan investment activities.

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The deposits of the Bank are insured by the FDIC up to legal limits and, accordingly, subject it to the payment of FDIC deposit insurance assessments.

The Bank’s regular assessments are determined by the level of its assessment base and its risk classification, which is based on its regulatory capital levels and the level of supervisory concern that it poses.

Moreover, the FDIC has the unilateral power to change deposit insurance assessment rates and the manner in which deposit insurance is calculated and also to charge special assessments to FDIC-insured institutions.

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Any future special assessments, increases in assessment rates or premiums, or required prepayments in FDIC insurance premiums could reduce our profitability or limit our ability to pursue certain business opportunities, which could materially and adversely affect our business, financial condition, and results of operations.

We are expecting an increase in FDIC insurance premiums in 2023 due to increased regulatory rates.

We experienced an increase in FDIC insurance premiums in 2023 due to increased regulatory rates.

The Federal Reserve may require us to commit capital resources to support the Bank.

Under longstanding Federal Reserve policy which has been codified by the Dodd-Frank Act, we are expected to act as a source of financial and managerial strength to the Bank and to commit resources to support the Bank.

Under the “source of strength”

doctrine, the Federal Reserve may require us to make capital injections into the Bank at times when we may not be inclined to do so and may charge us with engaging in unsafe and unsound practices for failure to commit such resources.

Under the “source of strength” doctrine, the Federal Reserve may require us to make capital injections into the Bank at times when we may not be inclined to do so and may charge us with engaging in unsafe and unsound practices for failure to commit such resources.

Accordingly, we could be required to provide financial assistance to the Bank if it experiences financial distress.

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This guidance suggests that institutions whose commercial real estate loans exceed certain percentages of capital should implement heightened risk management practices appropriate to their concentration risk and may be required to maintain higher capital ratios than institutions with lower concentrations in commercial real estate lending.

As of December 31, 2022, we were outside the 300.0% regulatory guideline for commercial real estate, and the 100.0% regulatory guideline for construction, land development, and other land loans due to the timing of draws on several larger construction and development projects.

We have documented procedures and systems in place to manage and monitor our commercial real estate exposures in excess of regulatory guidelines. 

As of December 31, 2023, we were within the 300.0% regulatory guideline for commercial real estate, as well as the 100.0% regulatory guideline for construction, land development, and other land loans due to the timing of draws on several larger construction and development projects.

We have documented procedures and systems in place to manage and monitor our commercial real estate exposures in excess of regulatory guidelines.

It should be noted, however, that increases in our commercial real estate lending, particularly as we expand into metropolitan markets and make more of these loans, could subject us to additional supervisory analysis.

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Management has implemented controls to monitor our commercial real estate lending concentrations, but we cannot predict the extent to which this guidance will impact our operations or capital requirements.

Management has implemented controls to monitor our commercial real estate lending concentrations as well as the progress of commercial real estate construction projects with loans exceeding $1.0 million, but we cannot predict the extent to which this guidance will impact our operations or capital requirements.

We are subject to laws regarding the privacy, information security and protection of personal information and any violation of these laws or another incident involving personal, confidential or proprietary information of individuals could damage our reputation and otherwise adversely affect our operations and financial condition.

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For example, our business is subject to the Gramm-Leach-Bliley Act which, among other things:

(i) imposes certain limitations on our ability to share nonpublic personal information about our customers with nonaffiliated third parties;

(ii) requires that we provide certain disclosures to customers about our information collection, sharing and security practices and afford customers the right to “opt out”

of any information sharing by us with nonaffiliated third parties (with certain exceptions);

and (iii) requires that we develop, implement and maintain a written comprehensive information security program containing appropriate safeguards based on our size and complexity, the nature and scope of our activities, and the sensitivity of customer information we process, as well as plans for responding to data security breaches.

(i) imposes certain limitations on our ability to share nonpublic personal information about our customers with nonaffiliated third parties;

(ii) requires that we provide certain disclosures to customers about our information collection, sharing and security practices and afford customers the right to “opt out” of any information sharing by us with nonaffiliated third parties (with certain exceptions);

and (iii) requires that we develop, implement and maintain a written comprehensive information security program containing appropriate safeguards based on our size and complexity, the nature and scope of our activities, and the sensitivity of customer information we process, as well as plans for responding to data security breaches.

Various state and federal banking regulators and states have also enacted data security breach notification requirements with varying levels of individual, consumer, regulatory or law enforcement notification in certain circumstances in the event of a security breach.

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the number of securities analysts covering us;

publication of research reports about us, our competitors, or the financial services industry generally, or changes in, or failure to meet, securities analysts’ estimates of our financial and operating performance, or lack of research reports by industry analysts or ceasing of coverage;

publication of research reports about us, our competitors, or the financial services industry generally, or changes in, or failure to meet, securities analysts’ estimates of our financial and operating performance, or lack of research reports by industry analysts or ceasing of coverage;

changes in market valuations or earnings of companies that investors deem comparable to us;

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other news, announcements or disclosures (whether by us or others) related to us, our competitors, our core market or the financial services industry.

In particular, the realization of any of the risks described in this “Risk Factors”

section could have a material adverse effect on the market price of our common stock and cause the value of your investment to decline.

In particular, the realization of any of the risks described in this “Risk Factors” section could have a material adverse effect on the market price of our common stock and cause the value of your investment to decline.

The stock market and, in particular, the market for financial institution stocks have experienced substantial fluctuations in recent years, which in many cases have been unrelated to the operating performance and prospects of particular companies.

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Our articles of incorporation authorize us to issue up to 50,000,000 shares of common stock.

As of February 22, 2023, there are 25,110,313 shares of our common stock issued and outstanding.

As of February 20, 2024, there are 25,356,393 shares of our common stock issued and outstanding.

We may issue shares of our common stock or other securities from time to time for any number of reasons, including as consideration for future acquisitions and investments and under compensation and incentive plans.

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We may not pay any dividends on our common stock if we have not paid the full dividends on our outstanding Series A preferred stock for the most recent quarterly dividend period.

Our ability to pay dividends may also be limited on account of any outstanding indebtedness or preferred stock we may issue in the future, as we generally are required to make payments on any outstanding indebtedness and outstanding preferred stock before any dividends can be paid on our common stock.

Finally, because our primary asset is our investment in the stock of the Bank, we are dependent upon dividends from the Bank to pay our operating expenses, satisfy our obligations and to pay dividends on our common stock, and the Bank’s ability to pay dividends on its common stock will substantially depend upon its earnings and financial condition, liquidity and capital requirements, the general economic and regulatory climate and other factors deemed relevant by its board of directors.

There are numerous laws and banking regulations that limit our and the Bank’s ability to pay dividends. See “Dividend Policy”

PART I –

Business –

Supervision and Regulation –

Business First Bancshares, Inc.

Our ability to pay dividends may also be limited on account of any outstanding indebtedness or preferred stock we may issue in the future, as we generally are required to make payments on any outstanding indebtedness and outstanding preferred stock before any dividends can be paid on our common stock.

There are numerous laws and banking regulations that limit our and the Bank’s ability to pay dividends.

See “Dividend Policy” and “ PART I – ITEM 1.

Business – Supervision and Regulation – Business First Bancshares, Inc.

– Regulatory Restrictions on Dividends.

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enable our board of directors to issue additional shares of authorized, but unissued capital stock;

enable our board of directors, without shareholder approval, to issue “blank check” preferred stock with such designations, rights and preferences as may be determined from time to time by the board;

enable our board of directors, without shareholder approval, to issue “blank check” preferred stock with such designations, rights and preferences as may be determined from time to time by the board;

enable our board of directors to increase the size of the board and fill the vacancies created by the increase;

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require the vote of holders of at least 80% of the outstanding shares of our capital stock to modify the sections of our articles of incorporation addressing limitation of liability and indemnification of our officers and directors;

require the request of holders of at least 25% of the outstanding shares of our capital stock entitled to vote at a meeting to call a special shareholders’ meeting;

require the request of holders of at least 25% of the outstanding shares of our capital stock entitled to vote at a meeting to call a special shareholders’ meeting;

establish an advance notice procedure for director nominations and other shareholder proposals;

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These provisions may discourage potential acquisition proposals and could delay or prevent a change in control, including under circumstances in which our shareholders might otherwise receive a premium over the market price of our shares.

See “Description of our Capital Stock”

and “Supervision and Regulation.”

An investment in Business First ’

s common stock is not an insured deposit and is subject to risk of loss.

See “Description of our Capital Stock” and “Supervision and Regulation.”

An investment in Business First ’ s common stock is not an insured deposit and is subject to risk of loss.

Your investment in our common stock is not a bank deposit and is not insured or guaranteed by the FDIC or any other government agency.

Your investment is subject to investment risk, and you must be capable of affording the loss of your entire investment.

As a participating lender in the SBA PPP and Federal Reserve MSLP, we are subject to additional risks of litigation from our customers or other parties and regulatory enforcement regarding our processing of these loans, as well as risks that the SBA may not fund some or all PPP loan guaranties.

The CARES Act included a significant loan program administered through the SBA, the Paycheck Protection Program, referred to as the PPP.

Under the PPP, small businesses and other entities and individuals can apply for loans from existing SBA lenders and other approved regulated lenders that enroll in the program, subject to numerous limitations and eligibility criteria.

We participated as a lender in the PPP during 2020 and continued to participate in 2021.

Under current law, no loans may be originated under PPP after March 31, 2021.

Because of the short timeframe between the passing of the CARES Act and the opening of the PPP, there was and continues to be a significant amount of ambiguity in the laws, rules and guidance regarding requirements for eligibility, underwriting, origination, funding, and the terms for PPP loans.

This ambiguity and the speed with which we were required to implement the program expose us to regulatory and legal risks relating to noncompliance with the PPP.

Since the opening of the PPP, several other banks have been subject to litigation regarding the process and procedures that those banks used in processing applications for the PPP.

Further litigation is likely with respect to the forgiveness process and as a defense to suits by banks or the SBA seeking to enforce remedies upon defaults by PPP borrowers.

We may be exposed to the risk of similar litigation, from both customers and non-customers that approached us regarding PPP loans, and regarding our procedures for processing applications and funding PPP loans.

Litigation can be costly, regardless of the outcome.

If any such litigation is initiated against us, it may result in significant financial liability, significant litigation costs, or adversely affect our reputation.

PPP loans are also subject to the regulatory requirements that require forbearance of loan payments for a specified time and that limit our ability to pursue all available remedies in the event of a loan default.

If and to the extent that PPP borrowers fail to be approved for loan forgiveness, we will hold the remaining portion of the PPP loans at unfavorable interest rates.

We also have credit risk on PPP loans if a determination is made by the SBA that there is a deficiency in the manner in which the loan was originated, funded, or serviced by us, such as an issue with the eligibility of a borrower to receive a PPP loan.

Such deficiencies may or may not be related to the ambiguity in the laws, rules, and guidance regarding the operation of the PPP.

In the event of a loss resulting from a default on a PPP loan and a determination by the SBA that there was a deficiency in the manner in which the PPP loan was originated, funded, or serviced, the SBA may deny its liability under the guaranty, reduce the amount of the guaranty, or, if it has forgiven a portion of the loan or paid under the guaranty, seek recovery from us of any loss related to the deficiency.

Any the above-described legal, regulatory and credit risks related to our participation in the PPP could have a material adverse effect on our business, financial condition, and results of operations.

We were also a participating lender in the Federal Reserve’s MSLP.

The Federal Reserve established the Main Street Lending Program to support lending to small and midsized for profit businesses and nonprofit organizations that were in sound financial condition before the onset of the COVID-19 pandemic.

The program was terminated on January 8, 2021.

We were able to transfer/sell 95% of the originated principal loan balances to a special purpose vehicle created by the Federal Reserve;

however, we retained 5% of the originated principal balance, including the associated credit risk on such amounts.

In addition, we are subject to potential litigation risk with respect to the entire loans, including the transferred/sold portions of the loan balances.

We may experience an increase in nonperforming loans in the portion of our loan portfolio subject to modification under our COVID-19 Deferral Assistance Program.

As of December 31, 2022, loans with aggregate outstanding principal of approximately $425.2 million, or approximately 9.2% of our loans held for investment, have been modified under the terms of our COVID-19 Deferral Assistance Program, but are no longer in their deferral periods.

These modifications primarily included 90-day deferrals of principal payments or 90-day deferrals of principal and interest payments.

In certain limited circumstances, we granted a 90-day deferral using a hybrid approach in which payments of principal and interest were deferred during the first part of the deferral period followed by a period in which only principal payments were deferred.

In addition, we have granted a limited number of borrowers with additional deferral of principal and/or interest payments on a case-by-case basis.

As these deferral periods end and borrowers are required to resume normal payments of principal and interest, we expect that some of these modified loans may become nonperforming loans.

We expect that borrowers in the industries most affected by COVID-19 and the related suspension of certain business activity, including hospitality, energy, non-essential retail, and healthcare, among others, may experience the most difficulty in resuming normal payments of principal and interest. 

Except for those borrowers of modified loans who have failed to fulfill their obligations under the modifications, these modified loans are reported as performing loans as of December 31, 2022.

We will continue to monitor the performance of the portfolio as borrowers resume normal payments.

In the event borrowers are unable to continue regular payments following the expiration of their deferral periods, we may be required to increase our provision for loan losses, which would reduce our profitability and adversely affect our business, financial condition, results of operations and prospects.

Unresolved Staff Comments.

Not applicable.

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 1A. Risk Factors