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Item 5. Market for Registrant’s Common Equity

2024-03-01 compared with 2023-03-02 · 359 added, 486 removed, 732 unchanged (54% of the section changed)

Market for Registrant ’

s Common Equity, Related Shareholder Matters and Issuer Purchases of Equity Securities.

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

Market for Registrant ’ s Common Equity, Related Shareholder Matters and Issuer Purchases of Equity Securities.

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

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

As of February 20, 2024, there were 25,356,393 issued and outstanding shares of our common stock held of record by approximately 937 shareholders.

We also had outstanding 120,608 options to purchase shares of our common stock issued under our equity compensation plans, as described below.

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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.

For additional discussion of legal and regulatory restrictions on the payment of dividends, see “

PART I - ITEM 1.

Business –

Supervision and Regulation –

Business First Bancshares, Inc.

For additional discussion of legal and regulatory restrictions on the payment of dividends, see “ PART I - ITEM 1.

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

– Regulatory Restrictions on Dividends.

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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 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.

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, 2023, there were 745,620 common shares issued under this Plan to our employees, directors or consultants.

The following table summarizes information as of December 31, 2023 relating to the number of securities to be issued upon the exercise of the outstanding options and warrants and their weighted-average exercise price.

Number of Securities to

Be Issued Upon Exercise

of Outstanding Options

Number of Securities to Be Issued Upon Exercise of Outstanding Options

Weighted-Average

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Outstanding Options

Number of Securities

Remaining Available

Number of Securities Remaining Available

For Future Issuance

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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 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.

On May 23, 2023, 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.

This 2023 stock repurchase program was effective until December 31, 2023.

The 2023 stock repurchase program did not obligate the Company to repurchase any shares of its common stock.

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

The Company did not repurchase any shares under this plan.

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 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 following assumes $100 invested on January 1, 2019 in our common stock at the closing price of $24.23 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.

Selected Financial Data.

Management ’

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

This discussion presents management’s analysis of our results of operations and financial condition over each of the last two most recent fiscal years.

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

This discussion presents management’s analysis of our results of operations and financial condition over each of the last two most recent fiscal years.

The discussion should be read in conjunction with our financial statements and the notes related thereto which appear elsewhere in this Report.

The following discussion and analysis is to focus on significant changes in the financial condition of Business First and its subsidiaries from December  

31, 2021 to December 31, 2022 and its results of operations for the year ended December  

This discussion and analysis is intended to highlight and supplement information presented elsewhere in this Report, particularly the consolidated financial statements and related notes appearing in Item  

The following discussion and analysis is to focus on significant changes in the financial condition of Business First and its subsidiaries from December 31, 2022 to December 31, 2023 and its results of operations for the year ended December 31, 2023.

This discussion and analysis contains forward-looking statements that are subject to certain risks and uncertainties and are based on certain assumptions that Business First believes are reasonable but may prove to be inaccurate.

Certain risks, uncertainties and other factors, including those set forth under “

Forward-Looking Statements, ”

Risk Factors ”

and elsewhere in this statement, may cause actual results to differ materially from those projected results discussed in the forward-looking statements appearing in this discussion and analysis.

Certain risks, uncertainties and other factors, including those set forth under “ Forward-Looking Statements, ” “ Risk Factors ” and elsewhere in this statement, may cause actual results to differ materially from those projected results discussed in the forward-looking statements appearing in this discussion and analysis.

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

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.

A discussion regarding significant changes in the financial condition of Business First and its subsidiaries from December 31, 2021 to December 31, 2022 and its results of operations for the year ended December 31, 2022 can be found under “ Item 7.

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, 2022, filed with the SEC on March 2, 2023, as amended, 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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We currently operate out of banking centers and loan production offices in markets across Louisiana and Texas.

As of December 31, 2022, we had total assets of $6.0 billion, total loans of $4.6 billion, total deposits of $4.8 billion, and total shareholders’

equity of $580.5 million.

As of December 31, 2023, we had total assets of $6.6 billion, total loans of $5.0 billion, total deposits of $5.2 billion, and total shareholders’ equity of $644.3 million.

As a financial holding company operating through one reportable operating segment, community banking, we generate most of our revenues from interest income on loans, customer service and loan fees, and interest income from securities.

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Net interest income is the difference between interest income on interest-earning assets, such as loans and securities, and interest expense on interest-bearing liabilities, such as deposits and borrowings, which are used to fund those assets.

equity, are usually the largest drivers of periodic changes in net interest spread, net interest margin and net interest income.

Changes in the market interest rates and the interest rates we earn on interest-earning assets or pay on interest-bearing liabilities, as well as the volume and types of interest-earning assets, interest-bearing and noninterest-bearing liabilities and shareholders’ equity, are usually the largest drivers of periodic changes in net interest spread, net interest margin and net interest income.

Fluctuations in market interest rates are driven by many factors, including governmental monetary policies, inflation, deflation, macroeconomic developments, changes in unemployment, the money supply, political and international conditions, and conditions in domestic and foreign financial markets.

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Below is a summary of recent transactions that have contributed to our growth.

For additional information about these transactions, See “

Note 3 –

Mergers and Acquisitions ”

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

Acquisition of Pedestal Bancshares, Inc.

On January 22, 2020, we entered into an agreement and plan of reorganization to acquire Pedestal Bancshares, Inc., and its banking subsidiary Pedestal Bank.

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

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

On March 22, 2021, we, through b1BANK, entered into a definitive agreement to acquire SSW, a registered investment advisor with approximately $3.5 billion in assets under managements, specializing in managing investment portfolios for corporations, foundations and individuals.

The acquisition of SSW was consummated on April 1, 2021.

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

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.

For additional information about these transactions, See “ Note 3 – Mergers and Acquisitions ” in our audited consolidated financial statements included in Item 8 of this Report.

Acquisition of Texas Citizens Bancorp, Inc.

On October 20, 2021, we entered into a definitive agreement to acquire Texas Citizens Bancshares, Inc.

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

The acquisition was consummated on March 1, 2022.

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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.

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

Bank Term Funding Program ( “ BTFP ” )

On March 12, 2023, the Federal Reserve developed the BTFP, which offers loans to banks with a term of up to one year.

The loans are secured by pledging participating banks’ U.S.

treasuries, agency securities, agency mortgage-backed securities, and other qualifying assets.

These pledged securities are valued at par for collateral purposes.

The Bank participated in the BTFP and pledged securities with a remaining par value of $333.3 million as of December 31, 2023.

The Bank had outstanding BTFP debt of $300.0 million at December 31, 2023.

These loans bear a fixed rate of 4.38% and mature on March 22, 2024.

Federal Reserve Bank ’ s Discount Window

On April 11, 2023, the Bank opened two new lines of credit for additional contingent liquidity, totaling $1.0 billion as of December 31, 2023, through the Federal Reserve discount window.

The Bank has not yet drawn on either of the lines of credit as of the date of this report.

Sale of Leesville Banking Center

On August 31, 2023, we sold the Leesville banking center, located in Leesville, Louisiana, to Merchants & Farmers Bank & Trust Company headquartered in Leesville, Louisiana, in accordance with the Branch Purchase and Assumption Agreement dated May 11, 2023.

We maintained the loan portfolio and transferred those loans to other nearby banking centers.

The sale included total deposits of $16.3 million and a pre-tax gain of $945,000.

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.

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

As of December 31, 2023, we had deferrals remaining on 930 loans with an aggregate outstanding balance of $341.4 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

As of December 31, 2022, we held 16 PPP loans (including both round 1 and round 2 PPP loans) with an aggregate balance of $2.8 million and an average loan balance of $175,000.

In June 2021, we sold approximately 2,000 PPP loans with an aggregate balance of $243.6 million at a gain of $9.2 million.

MSLP Participation

For the year ended December 31, 2020, we funded approximately 45 loans with an aggregate originated loan principal balance of $327.8 million.

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, 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, 2023 include:

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 assets of $6.6 billion, a $594.1 million, or 9.9%, increase from December 31, 2022.

Total loans held for investment of $5.0 billion, a $386.6 million, or 8.4%, increase from December 31, 2022.

Total deposits of $5.2 billion, a $428.4 million, or 8.9%, increase from December 31, 2022.

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 income available to common shareholders of $65.6 million, a $12.8 million, or 24.1%, increase from the year ended December 31, 2022.

Net interest income of $215.1 million, a $15.6 million, or 7.8%, increase from the year ended December 31, 2022.

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.

An allowance for credit losses of 0.88% of total loans held for investment, compared to 0.84% as of December 31, 2022, and a ratio of nonperforming loans to total loans held for investment of 0.34%, compared to 0.25% as of December 31, 2022.

Earnings per common share for the year ended December 31, 2023 of $2.62 per basic common share and $2.59 per diluted common share, compared to $2.34 per basic common share and $2.32 per diluted common share for the year ended December 31, 2022.

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Capital Ratios included Tier 1 Leverage, Common Equity Tier 1, Tier 1 Risk-based and Total Risk-based Capital of 9.52%, 9.15%, 10.46% and 12.85%, respectively, compared to 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% for the year ended December 31, 2022.

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  

31, 2022 and 2021

Book value per common share of $22.58, an increase of 11.5% from $20.25 at December 31, 2022.

Results of Operations for the Years Ended December 31, 2023 and 2022

Performance Summary

For the year ended December 31, 2023, net income available to common shareholders was $65.6 million, or $2.62 per basic common share and $2.59 per diluted common share, compared to net income available to common shareholders of $52.9 million, or $2.34 per basic common share and $2.32 per diluted common share, for the year ended December 31, 2022.

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.

Return to common shareholders on average assets increased to 1.04% for the year ended December 31, 2023 from 0.97% for the year ended December 31, 2022.

Return to common shareholders on average common equity increased to 12.36% for the year ended December 31, 2023, as compared to 11.59% for the year ended December 31, 2022.

Net Interest Income

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Changes in the amount and type of interest-earning assets and interest-bearing liabilities also impact net interest income.

The variance driven by the changes in the amount and mix of interest-earning assets and interest-bearing liabilities is referred to as a “volume change.”

Changes in yields earned on interest-earning assets and rates paid on interest-bearing deposits and other borrowed funds are referred to as a “rate change.”

To evaluate net interest income, we measure and monitor (1) yields on our loans and other interest-earning assets, (2) the costs of our deposits and other funding sources, (3) our net interest spread and (4) our net interest margin.

The variance driven by the changes in the amount and mix of interest-earning assets and interest-bearing liabilities is referred to as a “volume change.” Changes in yields earned on interest-earning assets and rates paid on interest-bearing deposits and other borrowed funds are referred to as a “rate change.”

To evaluate net interest income, we measure and monitor (1) yields on our loans and other interest-earning assets, (2) the costs of our deposits and other funding sources, (3) our net interest spread and (4) our net interest margin.

Net interest spread is the difference between rates earned on interest-earning assets and rates paid on interest-bearing liabilities.

Net interest margin is calculated as net interest income divided by average interest-earning assets.

Because noninterest-bearing sources of funds, such as noninterest-bearing deposits and shareholders’

equity also fund interest-earning assets, net interest margin includes the benefit of these noninterest-bearing sources.

Because noninterest-bearing sources of funds, such as noninterest-bearing deposits and shareholders’ equity also fund interest-earning assets, net interest margin includes the benefit of these noninterest-bearing sources.

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

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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.

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, 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 average yield on the loan portfolio was 6.65%, for the year ended December 31, 2023, compared to 5.42% for the year ended December 31, 2022, and the average yield on total interest-earning assets was 5.95% for the year ended December 31, 2023, compared to 4.64% for the year ended December 31, 2022.

For the year ended December 31, 2023, overall cost of funds (which includes noninterest-bearing deposits) increased 169 basis points compared to the year ended December 31, 2022, primarily due to the federal reserve continuing to increase rates during the first part of 2023 and full impact of the 2022 increases.

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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however, the balances are reflected in average outstanding balances for the period.

For the years ended December 31, 2022, 2021 and 2020, interest income not recognized on nonaccrual loans was not material.

For the years ended December 31, 2023, 2022 and 2021, interest income not recognized on nonaccrual loans was not material.

Any nonaccrual loans have been included in the table as loans carrying a zero yield.

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For the Years Ended December 31,

Earned/Interest

Average Outstanding Balance

Interest Earned/Interest Paid

Average Yield/Rate

Earned/Interest

Average Outstanding Balance

Interest Earned/Interest Paid

Average Yield/Rate

Earned/Interest

Average Outstanding Balance

Interest Earned/Interest Paid

Average Yield/Rate

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Interest-earning assets:

Total loans (excluding SBA PPP loans)

SBA PPP loans

Interest-bearing deposits in other banks

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Subordinated debt - trust preferred securities

Bank Term Funding Program

Advances from FHLB

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

Paycheck Protection Program Liquidity Facility ("PPPLF")

First National Bankers Bank ("FNBB") Line of Credit

Other borrowings

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Interest-earning assets:

Total loans (excluding SBA PPP loans)

SBA PPP loans

Interest-bearing deposits in other banks

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Subordinated debt - trust preferred securities

Bank Term Funding Program

Advances from FHLB

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Interest-earning assets:

Total loans (excluding SBA PPP loans)

SBA PPP loans

Interest-bearing deposits in other banks

Total increase (decrease) in interest income

Total increase in interest income

Interest-bearing liabilities:

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Advances from FHLB

FNBB Line of Credit

Other borrowings

Total increase (decrease) in interest expense

Total increase in interest expense

Increase (decrease) in net interest income

Provision for Loan Losses

Our provision for loan losses is a charge to income in order to bring our allowance for loan losses to a level deemed appropriate by management.

For a description of the factors taken into account by management in determining the allowance for loan losses see “—

Financial Condition —

Allowance for Loan Losses .”

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

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 other investments (small business investment company (“SBIC”) partnerships and fintech technology (“Fintech”) funds).

Provision for Credit Losses

Our provision for credit losses is a charge to income in order to bring our allowance for credit losses to a level deemed appropriate by management.

For a description of the factors taken into account by management in determining the allowance for credit losses see “— Financial Condition — Allowance for Credit Losses .” The provision for credit losses was $4.5 million and $10.9 million for the years ended December 31, 2023 and 2022, respectively.

The lower provision during the year ended December 31, 2023 compared to 2022 relates primarily to lower loan growth in 2023, as well as improvements in the macroeconomic environment and continued resolution of acquired PCD loans in our portfolio.

Noninterest Income ( “ Other Income ” )

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

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Gain on sales of loans

Gain (loss) on sales of investment securities

Loss on sales of investment securities

Fees and brokerage commissions

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Correspondent bank income

Gain (loss) on sales of other real estate owned

Gain on sales of other real estate owned

Loss on sales of other assets

Gain on sale of banking center

Gain (loss) on sales / disposals of other assets

Gain on extinguishment of debt

Swap Fee Income

Pass-through income from other investments

Total noninterest income

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.

Noninterest income for the year ended December 31, 2023 increased $7.3 million, or 25.0%, to $36.6 million compared to noninterest income of $29.3 million for the same period in 2022.

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

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We earn fees from our customers for deposit-related services, and these fees constitute a significant and predictable component of our noninterest income.

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

Service charges on deposit accounts were $9.7 million for the year ended December 31, 2023, compared to $8.3 million for the 2022, an increase of $1.4 million, or 17.3%.

Gain on sales of loans.

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

We had gains on sales of loans of $2.0 million in 2023, compared to $574,000 in 2022, an increase of $1.4 million, or 243.6%, primarily due to increased SBA loan sale activity.

Loss on sales of investment securities.

We had losses on the sales of investment securities of $2.6 million in 2023, compared to $48,000 in 2022, an additional loss of $2.5 million.

During the fourth quarter of 2023, we sold $71.5 million in securities at a loss, with a weighted average book yield of 1.98% and reinvested the funds into high yielding investments with an average book yield of 5.17%, locking in higher yields and keeping consistent, the duration and overall portfolio weighted average life.

As of December 31, 2023, we expect to recoup our losses within 1.1 years.

Gain on sales of other real estate owned.

We had net gains on the sales or other real estate owned of $646,000 in 2023, compared to $33,000 in 2022, an increase of $613,000.

The majority of the gains on sale of other real estate in 2023 resulted from the sale of two properties at a total gain of $511,000.

Loss on sales / disposals of other assets.

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

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

Noninterest Expense ( “

Other Expense ”

We sold a banking center located in Leesville, Louisiana that resulted in a gain of $945,000 during 2023.

Gain on extinguishment of debt.

We extinguished $8.9 million in subordinated debt resulting in a gain on the extinguishment of debt of $1.5 million during 2023.

Swap fee income.

We had swap fee income from back-to-back interest rate swaps in the amount of $964,000 during 2023.

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

Other income increased $860,000, or 22.0%, for the year ended December 31, 2023, compared to the same period in 2022.

Noninterest Expense ( “ Other Expense ” )

Generally, noninterest expense is composed of all employee expenses and costs associated with operating our facilities, obtaining and retaining customer relationships and providing bank services.

The largest component of noninterest expense is salaries and employee benefits.

Noninterest expense also includes operational expenses, such as occupancy expenses, depreciation and amortization, professional and regulatory fees, including Federal Deposit Insurance Corporation (“FDIC”) assessments, data processing expenses, and advertising and promotion expenses, among others.

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

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Salaries and employee benefits were $90.6 million for the year ended December 31, 2023, an increase of $5.4 million, or 6.3%, compared to the same period in 2022.

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.

The increase was primarily due to additional hires for new positions and our merit increase cycle.

As of December 31, 2023, we had 761 full-time equivalent employees, compared to 742 full-time equivalents as of December 31, 2022.

Salaries and employee benefits included stock-based compensation expense of $4.4 million and $4.0 million for the years ended December 31, 2023 and 2022, respectively.

Occupancy of bank premises.

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 $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.

Depreciation and amortization costs were $6.9 million and $5.8 million for the years ended December 31, 2022 and 2021, respectively.

This category includes leasehold, furniture, fixtures and equipment depreciation totaling $4.8 million and $4.2 million for the years ended December 31, 2022 and 2021, respectively.

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 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 $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.

Advertising and promotions cost were $3.9 million and $2.7 million for the years ended December 30, 2022 and 2021, respectively, an increase of $1.2 million, or 45.6%.

The increase for the year ended December 31, 2022, compared to the same period in 2021, is due primarily to additional advertising we engaged in during 2022.

Data processing fees were $9.0 million and $8.4 million for the years ended December 31, 2023 and 2022, respectively, an increase of $676,000, or 8.1%.

FDIC assessment fees .

FDIC assessment fees were $3.6 million and $2.9 million for the years ended December 31, 2023 and 2022, respectively, an increase of $791,000, or 27.7%, mainly due to the increased regulatory rates by the FDIC.

Other real estate owned expenses and write-downs.

Other real estate owned expenses and write-downs increased to $687,000 compared to $193,000 for the years ended December 31, 2023 and 2022, respectively.

An increase of $494,000, or 256.0%, resulted mainly from the write-down of $432,000 on one property that we were holding for future expansion.

Merger and conversion related expenses.

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.

Merger and conversion related expenses for the years ended December 31, 2022 was primarily to the acquisition of TCBI in 2022.

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

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For the years ended December 31, 2023 and 2022, our effective tax rates were 21.6% and 20.9%, respectively.

Our income tax rate expense for both years was affected primarily by tax-exempt income generated by municipal securities, bank-owned life insurance and by other nondeductible expenses (including acquisition-related expenses).

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 income tax rate expense increased in 2023 largely due to the Section 291 of the Tax Equity an Fiscal Responsibility Act of 1982 (“TEFRA”) disallowance calculation.

Financial Condition

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.

Our total assets increased $594.1 million, or 9.9%, from $6.0 billion as of December 31, 2022 to $6.6 billion as of December 31, 2023, due primarily from the increases in our loan portfolio, as well as our cash and cash equivalents due to our increase in deposits.

Loan Portfolio

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

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.

As of December 31, 2023, total loans, excluding mortgage loans held for sale, were $5.0 billion, an increase of $386.6 million or 8.4%, compared to $4.6 billion as of December 31, 2022.

The increase was primarily due to the growth in our Dallas/Fort Worth metroplex, North Louisiana and New Orleans regions, offset by a reduction in the Bayou region.

Additionally, $835,000 and $304,000 in mortgage loans were classified as loans held for sale as of December 31, 2023 and 2022, respectively.

Total loans held for investment as a percentage of deposits were 95.1% and 95.6% as of December 31, 2023 and 2022, respectively.

Total loans held for investment as a percentage of assets were 75.8% and 76.9% as of December 31, 2023 and 2022, respectively.

3 unchanged sentences

(Dollars in thousands)

Construction and land

1-4 family residential

Multi-family residential

Nonfarm nonresidential

Real Estate Loans:

Total Real Estate Loans

Consumer and Other

Total loans held for investment

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.

Commercial loans are underwritten after evaluating and understanding the borrower’s ability to operate profitably and effectively.

These loans are made based primarily on the identified cash flows of the borrower and, secondarily, on the underlying collateral provided by the borrower.

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

Commercial loans increased $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 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.

Our 1-4 family residential loan portfolio is comprised of loans secured by single family homes, which are both owner-occupied and investor owned.

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 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.

Nonfarm nonresidential loans are underwritten primarily based on projected cash flows and, secondarily, as loans secured by real estate.

These loans may be more adversely affected by conditions in the real estate markets or in the general economy.

The properties securing the portfolio are located throughout Louisiana and Texas and are generally diverse in terms of type.

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

Nonfarm nonresidential loans increased $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 and other loans.

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

Commercial loans are extensions of credit secured by owner-occupied and non-owner-occupied collateral.

Repayment is generally dependent on the successful operations of the property.

General economic conditions may impact the performance of these types of loans, including fluctuations in the value of real estate, vacancy rates, and unemployment trends.

Real estate commercial loans also include farmland loans that can be, or are, used for agricultural purposes.

These loans are usually repaid through refinancing, cash flow from the borrower’s ongoing operations, development of the property, or sale of the property.

Commercial loans increased $197.5 million, or 9.8%, to $2.2 billion as of December 31, 2023, from $2.0 billion as of December 31, 2022.

Construction loans include loans to small-to-midsized businesses to construct owner-occupied properties, loans to developers of commercial real estate investment properties and residential developments and, to a lesser extent, loans to individual clients for construction of single-family homes in our market areas.

Risks associated with these loans include fluctuations in the value of real estate, project completion risk and changes in market trends.

We are also exposed to risk based on the ability of the construction loan borrower to finance the loan or sell the property upon completion of the project, which may be affected by changes in secondary market terms and criteria for permanent financing since the time we funded the loan.

Construction loans decreased $52.3 million, or 7.2%, to $669.8 million as of December 31, 2023, from $722.1 million as of December 31, 2022.

Residential loans include first and second lien 1-4 family mortgage loans, as well as home equity lines of credit, in each case primarily on owner-occupied primary residences.

The Company is exposed to risk based on fluctuations in the value of the real estate collateral securing the loan, as well as changes in the borrower’s financial condition, which could be affected by numerous factors, including divorce, job loss, illness, or other personal hardship.

Real estate residential loans also include multi-family residential loans originated to provide permanent financing for multi-family residential income producing properties.

Repayment of these loans primarily relies on successful rental and management of the property.

Residential loans increased $26.0 million, or 4.0%, to $682.4 million as of December 31, 2023, from $656.4 million as of December 31, 2022.

Commercial loans include general commercial and industrial, or C&I, loans, including commercial lines of credit, working capital loans, term loans, equipment financing, asset acquisition, expansion, and development loans, borrowing base loans, letters of credit and other loan products, primarily in the Company’s target markets that are underwritten based on the borrower’s ability to service the debt from income.

Commercial loan risk is derived from the expectation that such loans generally are serviced principally from the operations of the business, and those operations may not be successful.

Any interruption or discontinuance of operating cash flows from the business, which may be influenced by events not under the control of the borrower such as economic events and changes in governmental regulations, could materially affect the ability of the borrower to repay the loan.

Commercial loans increased $205.0 million, or 17.8%, to $1.4 billion as of December 31, 2023, from $1.2 billion as of December 31, 2022.

Consumer and other loans include a variety of loans to individuals for personal, family and household purposes, including secured and unsecured installment and term loans.

The risk is based on changes in the borrower’s financial condition, which could be affected by numerous factors, including divorce, job loss, illness or other personal hardship, and fluctuations in the value of the real estate or personal property securing the consumer loan, if any.

Consumer and other loans increased $10.4 million, or 19.4%, to $63.8 million as of December 31, 2023, from $53.4 million as of December 31, 2022.

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:

2 unchanged sentences

One Through Five

Fifteen Years

Five Through Fifteen Years

After Fifteen Years

(Dollars in thousands)

Construction and land

1-4 family residential

Multi-family residential

Nonfarm nonresidential

Real Estate Loans:

Total Real Estate Loans

Consumer and Other

1 unchanged sentence

Fixed rate loans:

Construction and land

1-4 family residential

Multi-family residential

Nonfarm nonresidential

Real Estate Loans:

Total Real Estate Loans

Consumer and Other

1 unchanged sentence

Floating rate loans:

Construction and land

1-4 family residential

Multi-family residential

Nonfarm nonresidential

Real Estate Loans:

Total Real Estate Loans

Consumer and Other

3 unchanged sentences

One Through Five

Fifteen Years

Five Through Fifteen Years

After Fifteen Years

(Dollars in thousands)

Construction and land

1-4 family residential

Multi-family residential

Nonfarm nonresidential

Real Estate Loans:

Total Real Estate Loans

Consumer and Other

1 unchanged sentence

Fixed rate loans:

Construction and land

1-4 family residential

Multi-family residential

Nonfarm nonresidential

Real Estate Loans:

Total Real Estate Loans

Consumer and Other

1 unchanged sentence

Floating rate loans:

Construction and land

1-4 family residential

Multi-family residential

Nonfarm nonresidential

Real Estate Loans:

Total Real Estate Loans

Consumer and Other

2 unchanged sentences

Loans are considered past due if the required principal and interest payments have not been received as of the date such payments were due.

Loans are placed on nonaccrual status when, in management’s opinion, the borrower may be unable to meet payment obligations as they become due, as well as when required by regulatory provisions.

Loans may be placed on nonaccrual status regardless of whether or not such loans are considered past due.

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We believe our conservative lending approach and focused management of nonperforming assets has resulted in sound asset quality and the timely resolution of problem assets.

We had $12.8 million and $14.5 million in nonperforming assets as of December 31, 2022 and 2021, respectively.

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, 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.

We had $18.8 million and $12.8 million in nonperforming assets as of December 31, 2023 and 2022, respectively.

We had $17.1 million in nonperforming loans as of December 31, 2023 compared to $11.4 million as of December 31, 2022.

The increase in nonperforming assets from December 31, 2022 to December 31, 2023 is primarily due to the adoption of CECL and the elimination of ASC 310-30 which excluded purchased impaired loans accreting interest income from nonperforming loans.

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

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Total nonperforming assets

Restructured loans-nonaccrual

Restructured loans-accruing

Ratio of nonperforming loans to total loans held for investment

4 unchanged sentences

Nonaccrual loans by category:

Construction and land

1-4 family residential

Multi-family residential

Nonfarm nonresidential

Real Estate Loans:

Total Real Estate Loans

Consumer and Other

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, 2023, our loan portfolio included 930 loans with an aggregate outstanding balance of $341.4 million that had previously been granted temporary payment deferrals of principal and/or interest due to the effect of the COVID-19 pandemic.

As of December 31, 2022, our loan portfolio included 1,164 loans with an aggregate outstanding balance of $425.2 million that had previously been granted temporary payment deferrals.

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Credits rated doubtful have all the weaknesses inherent in those rated substandard, with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions, and values, highly questionable and improbable.

The following tables summarize our internal ratings of our loans held for investment as of the dates indicated.

The following tables summarize our internal ratings of loans held for investment as of the dates indicated.

See Note 7 of the consolidated financial statements for the presentation of loans in their credit quality categories that is in compliance with the CECL standard.

As of December 31, 2023

1 unchanged sentence

(Dollars in thousands)

Construction and land

1-4 family residential

Multi-family residential

Nonfarm nonresidential

Real Estate Loans:

Total Real Estate Loans

Consumer and Other

2 unchanged sentences

(Dollars in thousands)

Construction and land

1-4 family residential

Multi-family residential

Nonfarm nonresidential

Real Estate Loans:

Total Real Estate Loans

Consumer and Other

Allowance for Loan Losses

We maintain an allowance for loan losses that represents management’s best estimate of the loan losses and risks inherent in the loan portfolio.

In determining the allowance for loan losses, we estimate losses on specific loans, or groups of loans, where the probable loss can be identified and reasonably determined.

The balance of the allowance for loan losses is based on internally assigned risk classifications of loans, historical loan loss rates, changes in the nature of the loan portfolio, overall portfolio quality, industry concentrations, delinquency trends, current economic factors and the estimated impact of current economic conditions on certain historical loan loss rates.

For additional discussion of our methodology, please refer to “—

Critical Accounting Estimates —

Allowance for Loan Losses.

Allowance for Credit Losses

We maintain an allowance for credit losses, which includes both our allowance for loan losses and reserves for unfunded commitments, that represents management’s best estimate of the credit losses and risks inherent in the loan portfolio.

In determining the allowance for credit losses, we estimate losses on specific loans, or groups of loans, where the probable loss can be identified and reasonably determined.

The balance of the allowance for credit losses is based on internally assigned risk classifications of loans, changes in the nature of the loan portfolio, overall portfolio quality, industry concentrations, delinquency trends, current economic factors and the estimated impact of current economic conditions on certain historical credit loss rates.

For additional discussion of our methodology, please refer to “— Critical Accounting Estimates — Allowance for Credit Losses.

In connection with our review of the loan portfolio, we consider risk elements attributable to particular loan types or categories in assessing the quality of individual loans.

Some of the risk elements we consider include:

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

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

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

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

As of December 31, 2022, the allowance for loan losses totaled $38.2 million, or 0.83%, of total loans held for investment.

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

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 Real Estate:

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

for Real Estate:

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

for Real Estate:

Residential real estate loans, the borrower’s ability to repay the loan, including a consideration of the debt to income ratio and employment and income stability, the loan to value ratio, and the age, condition and marketability of the collateral;

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

As of December 31, 2023, the allowance for credit losses totaled $43.7 million, or 0.88%, of total loans held for investment.

As of December 31, 2022, the allowance for credit losses totaled $38.8 million, or 0.84%, of total loans held for investment.

As of December 31, 2021, the allowance for credit losses totaled $29.9 million, or 0.94%, of total loans held for investment.

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

For the Years Ended December 31,

2 unchanged sentences

Gross loans held for investment outstanding end of period

Allowance for loan losses at beginning of period

Provision for loan losses

Construction, land and farmland

Nonfarm nonresidential

Allowance for credit losses at beginning of period

Adoption of ASU 2016-13

Provision for credit losses

Total Real Estate

Consumer and other

Total charge-offs

Construction, land and farmland

Nonfarm nonresidential

Total Real Estate

Consumer and other

1 unchanged sentence

Net charge-offs

Allowance for loan losses at end of period

Ratio of allowance to end of period loans held for investment

Allowance for credit losses at end of period

Ratio of allowance for credit losses to end of period loans held for investment

Ratio of net charge-offs to average loans

Ratio of allowance to nonaccrual loans

(1) Excluding loans held for sale

Ratio of allowance for credit losses to nonaccrual loans

For the Years Ended December 31,

Net Charge-offs

Percent of Average

Net Charge-offs

Percent of Average

Net Charge-offs

Percent of Average

Net Charge-offs (Recoveries)

Percent of Average Loans

Net Charge-offs (Recoveries)

Percent of Average Loans

Net Charge-offs (Recoveries)

Percent of Average Loans

(Dollars in thousands)

Construction and land

1-4 family residential

Multi-family residential

Nonfarm nonresidential

Total Real Estate Loans

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.

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 estimated losses in the portfolio at all times shown above, future provisions will be subject to ongoing evaluations of the risks in our loan portfolio.

If we experience economic declines or if asset quality deteriorates, material additional provisions could be required.

The following table shows the allocation of the allowance for loan losses among loan categories and certain other information as of the dates indicated.

The allocation of the allowance for loan losses as shown in the table should neither be interpreted as an indication of future charge-offs, nor as an indication that charge-offs in future periods will necessarily occur in these amounts or in the indicated proportions.

The following table shows the allocation of the allowance for credit losses among loan categories and certain other information as of the dates indicated.

The allocation of the allowance for credit losses as shown in the table should neither be interpreted as an indication of future charge-offs, nor as an indication that charge-offs in future periods will necessarily occur in these amounts or in the indicated proportions.

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

4 unchanged sentences

(Dollars in thousands)

Construction and land

1-4 family residential

Multi-family residential

Nonfarm nonresidential

Total real estate

Consumer and Other

Total allowance for loan losses

Total allowance for credit losses

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, 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.

As of December 31, 2023, the carrying amount of investment securities totaled $879.6 million, a decrease of $11.2 million, or 1.3%, compared to $890.8 million as of December 31, 2022.

Securities represented 13.4% and 14.9% of total assets as of December 31, 2023 and 2022, respectively.

Our investment portfolio consists entirely of securities classified as available for sale.

As a result, the carrying values of our investment securities are adjusted for unrealized gain or loss, and any gain or loss is reported on an after-tax basis as a component of other comprehensive income in shareholders’

The following tables summarize the amortized cost and estimated fair value of investment securities as of the dates shown:

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All of our mortgage-backed securities are agency securities.

We do not hold any Fannie Mae or Freddie Mac preferred stock, corporate equity, collateralized debt obligations, collateralized loan obligations, structured investment vehicles, private label collateralized mortgage obligations, subprime, Alt-A, or second lien elements in our investment portfolio as of December 31, 2022.

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

We do not hold any Fannie Mae or Freddie Mac preferred stock, corporate equity, collateralized debt obligations, collateralized loan obligations, private label collateralized mortgage obligations, subprime, Alt-A, or second lien elements in our investment portfolio as of December 31, 2023.

The allowance for credit losses encompasses potential expected credit losses related to the securities portfolio for credit losses.

The assessment includes reviewing historical loss data for both our portfolio and similar types of investment securities to develop an estimate for the current securities portfolio.

Additionally, our review of the securities portfolio for expected credit losses includes an evaluation of factors including the security issuer bond ratings, delinquency status, insurance or other available credit support, as well as our expectations of the forecasted economic outlook relevant to these securities.

The results of the analysis are evaluated quarterly to confirm that credit loss estimates are appropriate for the securities portfolio.

Based on our assessments, expected credit losses on the investment securities portfolio as of December 31, 2023, was negligible and therefore, no allowance for credit loss was recorded related to our investment securities.

Prior to the adoption of ASU 2016-13, declines in the fair value of available-for-sale securities below their cost that were deemed to be other than temporary were reflected in earnings as realized losses.

In estimating other-than-temporary impairment losses prior to January 1, 2023, management considered, among other things, (i) the length of time and the extent to which the fair value had been less than cost, (ii) the financial condition and near-term prospects of the issuer and (iii) the intent and our ability to retain our investment in the issuer for a period of time sufficient to allow for any anticipated recovery in fair value.

The following tables set forth the fair value, maturities and approximated weighted average yield based on estimated annual income divided by the average amortized cost of the securities portfolio as of the dates indicated.

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If interest rates begin to fall, prepayments may increase, thereby shortening the estimated life of this security.

The weighted average life of our investment portfolio was 5.92 years with an estimated effective duration of 54.07 months as of December 31, 2022.

As of December 31, 2022 and 2021, we did not own securities of any one issuer for which aggregate adjusted cost exceeded 10% of the consolidated shareholders’

equity as of such respective dates.

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.

The weighted average life of our investment portfolio was 4.57 years with an estimated effective duration of 3.81 years as of December 31, 2023.

As of December 31, 2023 and 2022, we did not own securities of any one issuer for which aggregate adjusted cost exceeded 10% of the consolidated shareholders’ equity as of such respective dates.

As of December 31, 2023 and 2022, the Company held other equity securities of $33.9 million and $37.5 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.

We rely primarily on competitive pricing policies, convenient locations and personalized service to attract and retain these deposits.

Total deposits as of December 31, 2022 were $4.8 billion, an increase of $743.1 million, or 18.2%, compared to $4.1 billion as of December 31, 2021.

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, 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.

Total deposits as of December 31, 2023 were $5.2 billion, an increase of $428.4 million, or 8.9%, compared to $4.8 billion as of December 31, 2022.

Total uninsured deposits were $2.0 billion, or 38.9% of deposits as of December 31, 2023 compared to $1.5 billion, or 31.9%, or total deposits as of December 31, 2022.

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.

Noninterest-bearing deposits as of December 31, 2023 were $1.3 billion compared to $1.5 billion as of December 31, 2022, a decrease of $250.3 million, or 16.2%.

Average deposits for the year ended December 31, 2023 were $5.0 billion, an increase of $431.4 million, or 9.5%, compared to the year ended December 31, 2022 of $4.5 billion.

The average rate paid on total interest-bearing deposits increased over this period from 0.81% for the year ended December 31, 2022 to 3.00% for the year ended December 31, 2023.

The increase in average rates was driven by the federal reserve raising interest rates during the years ended December 31, 2023 and 2022.

In addition, the stability and the continued growth of noninterest-bearing demand accounts served to reduce the cost of deposits to 2.15% for the year ended December 31, 2023 and 0.54% for the year ended December 31, 2022.

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

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Total deposits

The ratio of average noninterest-bearing deposits to average total deposits for the years ended December 31, 2021 and 2020 was 33.9% and 31.5%, respectively.

The ratio of average noninterest-bearing deposits to average total deposits for the years ended December 31, 2023 and 2022 was 28.4% and 33.9%, respectively.

The following table sets forth the contractual maturities of certain certificates of deposit at December 31, 2023:

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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.

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

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The FHLB allows us to borrow on a blanket floating lien status collateralized by certain securities and loans.

As of December 31, 2022 and 2021, total borrowing capacity of $1.8 billion and $1.3 billion, respectively, was available under this arrangement and $410.1 million and $82.0 million, respectively, was outstanding with a weighted average stated interest rate of 3.88% as of December 31, 2022 and 1.08% as of December 31, 2021.

Our current FHLB advances mature within five years.

As of December 31, 2023 and 2022, total borrowing capacity of $1.8 billion, for both periods, was available under this arrangement and $211.2 million and $410.1 million, respectively, was outstanding with a weighted average stated interest rate of 3.65% as of December 31, 2023 and 3.88% as of December 31, 2022.

Our current longest dated FHLB advance matures within ten years.

We utilize these borrowings to meet liquidity needs and to fund certain fixed rate loans in our portfolio.

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Weighted average interest rate during the year

Subordinated Note Purchase Agreement ( “

Subordinated Debt ”

Bank Term Funding Program ( “ BTFP ” ) .

On March 12, 2023, the Federal Reserve launched the BTFP, which offers loans to banks with a term of up to one year.

The loans are secured by pledging participating banks’ U.S.

treasuries, agency securities, agency mortgage-backed securities, and any other qualifying assets.

These pledged securities will be valued at par for collateral purposes.

The Bank participated in the BTFP and had outstanding debt of $300.0 million at December 31, 2023.

These loans bear a fixed interest rate of 4.38% and mature on March 22, 2024.

The following table presents our Bank Term Funding Program borrowings at the date indicated.

(Dollars in Thousands)

December 31, 2023

Amount outstanding at year-end

Weighted average stated interest rate at year-end

Maximum month-end balance during the year

Average balance outstanding during the year

Weighted average interest rate during the year

Subordinated Note Purchase Agreement ( “ Subordinated Debt ” ) .

In December 2018 we issued subordinated notes in the amount of $25.0 million.

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The balance outstanding at both December 31, 2023 and 2022 was $52.5 million.

The subordinated notes are redeemable by the Company at its option beginning in 2026.

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

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The balance outstanding at both December 31, 2023 and 2022 was $3.9 million.

The subordinated notes are redeemable by the Company at its option beginning in 2026.

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.

Of those notes, $10.0 million bears an adjustable interest rate plus 350 basis points, based on a benchmark rate, adjusting quarterly until maturity on April 11, 2028, and was callable beginning April 11, 2023, $7.5 million bears an adjustable interest rate plus 350 basis points, based on a benchmark rate, adjusting quarterly, until maturity on December 13, 2028, and was callable beginning December 13, 2023, $8.9 million was called on May 1, 2023 and ceased bearing interest as of such date.

This $8.9 million note was fully extinguished during the year ended December 31, 2023.

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 $1.1 million and $2.9 million remaining at December 31, 2023 and December 31, 2022, respectively.

We recognized $1.5 million in gains on the extinguishment of this debt during the year ended December 31, 2023.

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

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

FNBB note payable .

We acquired a $7.0 million note payable with FNBB from Pedestal of which $6.0 million was outstanding at December 31, 2020.

The note was payable in annual installments of $1.0 million with a maturity date in August 2026.

The note carried a variable interest rate equal to the Wall Street Journal Prime rate, with a minimum rate of 4.00%, and adjusted quarterly.

Interest payments were due quarterly.

This note was paid in full in March 2021.

Trust preferred securities .

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Federal Funds Purchased Lines of Credit Relationships

We maintain Federal Funds Purchased Lines of Credit Relationships with the following correspondent banks and limits as of December 31, 2022:

Fed Funds Purchase

We maintain Federal Funds Purchased Lines of Credit Relationships with the following correspondent banks and limits as of December 31, 2023:

Fed Funds Purchase Limits

(Dollars in thousands)

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ServisFirst Bank

South State Bank

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

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Liquidity involves our ability to utilize funds to support asset growth and acquisitions or reduce assets to meet deposit withdrawals and other payment obligations, to maintain reserve requirements and otherwise to operate on an ongoing basis and manage unexpected events.

For the years ended December 31, 2022 and 2021, liquidity needs were primarily met by core deposits, security and loan maturities, and amortizing investment and loan portfolios.

Although access to brokered deposits, purchased funds from correspondent banks and overnight advances from the FHLB 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, 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.

For the years ended December 31, 2023 and 2022, liquidity needs were primarily met by core deposits, security and loan maturities, and amortizing investment and loan portfolios.

In addition, we utilize, or have available, brokered deposits, purchased funds from correspondent banks, the Bank Term Funding Program (while available), the Federal Reserve discount window, and overnight advances from the FHLB.

As of December 31, 2023 and 2022, we maintained five and six lines of credit, respectively, with correspondent banks which provided for extensions of credit with an availability to borrow up to an aggregate of $145.0 million and $154.0 million as of December 31, 2023 and 2022, 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.

There were no funds under these lines of credit outstanding as of December 31, 2023.

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.

Average assets totaled $6.3 billion and $5.5 billion for the years ended December 31, 2023 and 2022, respectively.

For the Years Ended December 31,

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Other borrowings

Bank Term Funding Program

Other liabilities

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

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.

Our average loans increased 20.9% for the year ended December 31, 2023 compared to the same period in 2022.

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, 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.

Our securities portfolio had a weighted average life of 4.57 years and an effective duration of 3.81 years as of December 31, 2023 and a weighted average life of 4.88 years and an effective duration of 4.09 years as of December 31, 2022.

As of December 31, 2023, we had outstanding $1.2 billion in commitments to extend credit and $45.2 million in commitments associated with outstanding standby and commercial letters of credit.

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.

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.

-Off Balance Sheet Items ”

below for additional information.

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

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.

See “ -Off Balance Sheet Items ” below for additional information.

As of December 31, 2023, we had no exposure to future cash requirements associated with known uncertainties or capital expenditures of a material nature.

We had cash and cash equivalents, including federal funds sold, of $377.2 million and $168.3 million as of December 31, 2023 and 2022, respectively.

Capital Resources

Total shareholders’

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 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.

Total shareholders’ equity increased to $644.3 million as of December 31, 2023, compared to $580.5 million as of December 31, 2022, an increase of $63.8 million, or 11.0%.

This increase was primarily due to net income available to common shareholders of $65.6 million, other comprehensive income of $7.6 million resulting from the after tax effect of unrealized gains in our investment securities portfolio, and offset by dividends paid on common shares of $12.7 million.

On January 23, 2024, 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, 2024.

The dividend was paid on February 28, 2024.

On January 23, 2024, our board of directors declared a quarterly dividend based upon our financial performance for the three months ended December 31, 2023 in the amount of $0.14 per common share to the common shareholders of record as of February 15, 2024.

The dividend was paid on February 28, 2024.

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.

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Capital management consists of providing equity to support current and future operations.

Banking regulators view capital levels as important indicators of an institution’s financial soundness.

As a general matter, FDIC-insured depository institutions and their holding companies are required to maintain minimum capital relative to the amount and types of assets they hold.

We are subject to regulatory capital requirements at the holding company and bank levels.

As of December 31, 2022 and December 31, 2021, we and b1BANK were in compliance with all applicable regulatory capital requirements, and b1BANK was classified as “well-capitalized,”

for purposes of prompt corrective action regulations.

As of December 31, 2023 and December 31, 2022, we and b1BANK were in compliance with all applicable regulatory capital requirements, and b1BANK was classified as “well-capitalized,” for purposes of prompt corrective action regulations.

As we employ our capital and continue to grow our operations, our regulatory capital levels may decrease depending on our level of earnings.

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

The 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.

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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.

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.

Long Term Debt

For information on our subordinated debt, please refer to “Borrowings”.

FHLB Advances

Advances from the FHLB totaled approximately $211.2 million and $410.1 million at December 31, 2023 and 2022, respectively.

As of December 31, 2023, and 2022, the FHLB advances were collateralized by a blanket floating lien on certain securities and loans, had a weighted average stated rate of 3.65% and 3.88%, respectively, and mature within ten years.

At December 31, 2022, $262.0 million in advances were short term with a rate of 4.55% and none at December 31, 2023.

Bank Term Funding Program ( “ BTFP ” )

On March 12, 2023, the Federal Reserve launched the BTFP, which offers loans to banks with a term of up to one year.

The loans are secured by pledging participating banks’ U.S.

treasuries, agency securities, agency mortgage-backed securities, and any other qualifying assets.

These pledged securities will be valued at par for collateral purposes.

The Bank participated in the BTFP and had outstanding debt of $300.0 million at December 31, 2023.

These loans bear a fixed interest rate of 4.38% and mature on March 22, 2024.

Contractual Obligations

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.

The following tables summarize contractual obligations and other commitments to make future payments as of December 31, 2023 and 2022 (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 $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.

Advances from the FHLB totaled approximately $211.2 million and $410.1 million as of December 31, 2023 and 2022, respectively.

As of December 31, 2023 and 2022, the FHLB advances were collateralized by a blanket floating lien on certain securities and loans, had a weighted average stated rate of 3.65% and 3.88%, respectively, and maturing within ten years.

We participated in the BTFP in March 2023 and as of December 31, 2023, had outstanding debt of $300.0 million, at a fixed rate of 4.38% and set to mature on March 22, 2024.

We expect to either refinance the debt or pay it off with additional funding sources of which we have sufficient borrowing capacity as of December 31, 2023.

The subordinated debt totaled $100.0 million and $110.7 million as of December 31, 2023 and 2022.

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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 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.

Of those notes, $10.0 million bears an adjustable interest rate plus 350 basis points, based on a benchmark rate, adjusting quarterly until maturity on April 11, 2028, and callable beginning April 11, 2023, $7.5 million bears an adjustable interest rate plus 350 basis points, based on a benchmark rate, adjusting quarterly, until maturity on December 13, 2028, and callable beginning December 13, 2023, $8.9 million was called on May 1, 2023 and ceased bearing interest as of such date.

This $8.9 million note was fully extinguished during the year ended December 31, 2023.

We recognized $1.5 million in gains on the extinguishment of this debt during the year ended December 31, 2023.

As of December 31, 2023

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Time deposits

Subordinated debt (including premium)

Subordinated debt

Advances from FHLB

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Because many of the commitments are expected to expire without being fully drawn upon, the total commitment amounts disclosed above do not necessarily represent future cash requirements.

We evaluate each customer’s creditworthiness on a case-by-case basis.

The amount of collateral obtained, if considered necessary by us, upon extension of credit, is based on management’s credit evaluation of the customer.

We evaluate each customer’s creditworthiness on a case-by-case basis.

The amount of collateral obtained, if considered necessary by us, upon extension of credit, is based on management’s credit evaluation of the customer.

Interest Rate Sensitivity and Market Risk

As a financial institution, our primary component of market risk is interest rate volatility.

Our asset liability and funds management policy provides management with the guidelines for effective funds management, and we have established a measurement system for monitoring our net interest rate sensitivity position.

As a financial institution, our primary component of market risk is sensitivity to movement in interest rates.

Our asset and liability management policy provides management with the guidelines for effective interest rate risk management, and we have established a measurement system for monitoring our interest rate sensitivity position.

We manage our sensitivity position within our established guidelines.

Fluctuations in interest rates will ultimately impact both the level of income and expense recorded on most of our assets and liabilities, and the market value of all interest-earning assets and interest-bearing liabilities, other than those which have a short term to maturity.

Interest rate risk is the potential of economic losses due to future interest rate changes.

These economic losses can be reflected as a loss of future net interest income and/or a loss of current fair market values.

The objective is to measure the effect on net interest income and to adjust the balance sheet to minimize the inherent risk while at the same time maximizing income.

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, excluded back-to-back customer interest rate swaps.

Fluctuations in interest rates will ultimately impact the level of income and expense recorded on many of our assets and liabilities and the market value of all interest-earning assets and interest-bearing liabilities.

Interest rate risk is the potential of economic losses due to interest rate changes.

These economic losses can be reflected as a loss of future net interest income and/or a loss of the current fair market value of our equity.

The objective of interest rate risk management is to measure the effect on net interest income and economic value of equity and to position the balance sheet to minimize the risk of losses and maximize the amount of income without taking on unnecessary earning volatility.

We seek to manage our exposure to interest rates by structuring our balance sheet in the ordinary course of business however we may enter into derivatives contracts to hedge interest rate risk if it is appropriate given our risk profile and policy guidelines.

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

We do not own any trading assets.

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

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

In determining the appropriate level of interest rate risk, the committee considers the impact on earnings and capital of the current outlook on interest rates, potential changes in interest rates, regional economies, liquidity, business strategies and other factors.

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Additionally, the committee reviews liquidity, cash flow flexibility, maturities of deposits and consumer and commercial deposit activity.

Management employs methodologies to manage interest rate risk which include an analysis of relationships between interest-earning assets and interest-bearing liabilities, and an interest rate shock simulation model.

Management employs methodologies to manage interest rate risk which include an analysis of relationships between interest-earning assets and interest-bearing liabilities, and an interest rate shock simulation model.

We use interest rate risk simulation models and shock analysis to test the interest rate sensitivity of net interest income and fair value of equity, and the impact of changes in interest rates on other financial metrics.

Contractual maturities and re-pricing opportunities of loans are incorporated in the model as are prepayment assumptions, maturity data and call options within the investment portfolio.

Average lives of non-maturity deposit accounts are based on standard regulatory decay assumptions and are also incorporated into the model.

Model assumptions are revised and updated as more accurate information becomes available.

Contractual maturities and re-pricing opportunities of loans are incorporated into the model as are prepayment assumptions, maturity data and optionality.

Deposit assumptions such as repricing betas and non-maturity balance decay rates are also incorporated into the model.

Model assumptions are revised and updated on a regular basis as directed by policy, and more frequently if conditions merit.

The assumptions used are inherently uncertain and, as a result, the model cannot precisely measure future net interest income or precisely predict the impact of fluctuations in market interest rates on net interest income.

Actual results will differ from the model’s simulated results due to timing, magnitude and frequency of interest rate changes, as well as changes in market conditions and the application and timing of various management strategies.

On at least a quarterly basis, we run two simulation models including a static balance sheet and dynamic growth balance sheet.

These models test the impact on net interest income and fair value of equity from changes in market interest rates under various scenarios.

Under the static and dynamic growth models, rates are shocked instantaneously based upon parallel and non-parallel yield curve shifts.

Parallel shock scenarios assume instantaneous parallel movements in the yield curve compared to a flat yield curve scenario.

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 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.

Actual results will differ from the model’s simulated results due to timing, magnitude and frequency of interest rate changes, as well as changes in market conditions, customer behavior, and the application and timing of various management strategies.

On at least a quarterly basis, we run simulation models to calculate potential impacts to net interest income and the economic value of equity.

Specific details of the simulations are reflected in policy as directed by ALCO.

The following table summarizes the simulated change in net interest income and fair value of equity over a 12-month horizon as of the dates indicated:

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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.

This assumption is incorporated into the simulation model and is generally not fully reflected in a gap analysis.

The assumptions incorporated into the model are inherently uncertain and, as a result, the model cannot precisely measure future net interest income or precisely predict the impact of fluctuations in market interest rates on net interest income.

The results of the simulations are primarily driven by the contractual characteristics of all balance sheet instruments and customer behavior.

Impact of Inflation

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Non-GAAP financial measures do not include operating and other statistical measures or ratios or statistical measures calculated using exclusively either financial measures calculated in accordance with GAAP, operating measures or other measures that are not non-GAAP financial measures or both.

This discussion and analysis section includes certain non-GAAP financial measures (e.g., referenced as “core”

or “tangible”) intended to supplement, not substitute for, comparable GAAP measures.

These measures typically adjust income available to common shareholders for certain significant activities or transactions that in management’s opinion can distort period-to-period comparisons of Business First’s performance.

This discussion and analysis section includes certain non-GAAP financial measures (e.g., referenced as “core” or “tangible”) intended to supplement, not substitute for, comparable GAAP measures.

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 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.

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

These non-GAAP disclosures are not necessarily comparable to non-GAAP measures that may be presented by other companies.

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Core net income available to common shareholders for the year ended December 31, 2023 was $66.3 million, or $2.62 per diluted common share, compared to core net income available to common shareholders of $57.6 million, or $2.52 per diluted common share, for the year ended December 31, 2022.

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.

Core net income available to common shareholders for the year ended December 31, 2023 included an adjustment for $2.5 million in losses on sales of securities, $945,000 in a gain on the sale of our Leesville, Louisiana banking center, $1.5 million in a gain on the extinguishment of debt associated with the TCBI acquisition in 2022, which was attributed to the $8.9 million subordinated debt redemption, $236,000 in acquisition-related expenses, and a $432,000 write-down on former bank premises, compared to $48,000 in losses on the 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 for the year ended December 31, 2022.

For the Years Ended December 31,

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Core interest expense

Provision for Loan Losses:

Provision for loan losses

Provision for Credit Losses:

Provision for credit losses

Core provision expense

2 unchanged sentences

(Gains) losses on sale of securities

Gain on sale of branch

Insurance reimbursement of storm expenditures

Gain on sale of branch

Gain on extinguishment of debt

Core other income

2 unchanged sentences

Acquisition-related expenses (2)

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

Occupancy and bank premises - hurricane repair

Write-down of former bank premises

Occupancy and bank premises - storm repair

Core other expense

3 unchanged sentences

(Gains) losses on sale of securities

Gain on sale of branch

Insurance reimbursement of storm expenditures

Gain on sale of branch

Gain on extinguishment of debt

Acquisition-related expenses (2)

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

Occupancy and bank premises - hurricane repair

Write-down of former bank premises

Occupancy and bank premises - storm repair

Core pre-tax income

3 unchanged sentences

Tax on (gains) losses on sale of securities

Tax on gain on sale of branch

Tax on insurance reimbursement of storm expenditures

Tax on gain on sale of branch

Tax on gain on extinguishment of debt

Tax on acquisition-related expenses (2)

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

Tax on occupancy and bank premises - hurricane repair

Tax on write-down of former bank premises

Tax on occupancy and bank premises - storm repair

Core provision for income taxes

6 unchanged sentences

(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

Gain on sale of branch, net of tax

Gain on extinguishment of debt, net of tax

Acquisition-related expenses (2), net of tax

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

Occupancy and bank premises - hurricane repair, net of tax

Write-down of former bank premises, net of tax

Occupancy and bank premises - storm repair, net of tax

Core net income available to common shareholders

3 unchanged sentences

(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

Gain on sale of branch, net of tax

Gain on extinguishment of debt, net of tax

Acquisition-related expenses (2), net of tax

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

Occupancy and bank premises - hurricane repair, net of tax

Write-down of former bank premises, net of tax

Occupancy and bank premises - storm repair, net of tax

Core diluted earnings per common share

4 unchanged sentences

Tangible book value per common share is a non-GAAP measure generally used by financial analysts and investment bankers to evaluate financial institutions.

We calculate (1) tangible common equity as shareholders’

equity less preferred stock, goodwill, and core deposit and customer intangible assets, net of accumulated amortization, and (2) tangible book value per common share as tangible common equity divided by shares of common stock outstanding.

We calculate (1) tangible common equity as shareholders’ equity less preferred stock, goodwill, and core deposit and customer intangible assets, net of accumulated amortization, and (2) tangible book value per common share as tangible common equity divided by shares of common stock outstanding.

The most directly comparable GAAP financial measure for tangible book value per common share is book value per common share.

The following table reconciles, as of the dates set forth below, total shareholders’

equity to tangible common equity and presents tangible book value per common share compared to book value per common share:

The following table reconciles, as of the dates set forth below, total shareholders’ equity to tangible common equity and presents tangible book value per common share compared to book value per common share:

As of December 31,

(Dollars in thousands, except per share

data) (Unaudited)

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

Tangible Common Equity

11 unchanged sentences

We calculate tangible common equity, as described above, and tangible assets as total assets less goodwill, core deposit and customer intangible assets, net of accumulated amortization.

The most directly comparable GAAP financial measure for tangible common equity to tangible assets is total common shareholders’

equity to total assets.

The following table reconciles, as of the dates set forth below, total shareholders’

equity to tangible common equity and total assets to tangible assets:

The most directly comparable GAAP financial measure for tangible common equity to tangible assets is total common shareholders’ equity to total assets.

The following table reconciles, as of the dates set forth below, total shareholders’ equity to tangible common equity and total assets to tangible assets:

As of December 31,

22 unchanged sentences

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.

Methods utilized to estimate any subsequently required allowance for loan losses for acquired loans not deemed credit impaired at acquisition are similar to originated loans;

however, the estimate of losses is based on the unpaid principal balance and then compared to any remaining unaccreted purchase discount.

To the extent the calculated loss is greater than the remaining unaccreted discount, an allowance is recorded for such amount.

These loans are stated at the amount of unpaid principal, reduced by any purchase discount or allowance for loan loss, and increased by any purchase premium.

Certain acquired impaired loans, where there is evidence of credit deterioration since origination and it is probable we will be unable to collect all contractually required payments, are accounted for in accordance with FASB ASC 310-30 Loans and Debt Securities Acquired with Deteriorated Credit Quality .

The expected cash flows for each loan meeting this criteria are estimated to determine the excess of the contractually required principal and interest at acquisition as an amount that should not be accreted (nonaccretable difference).

The expected cash flows for the purchased impaired credits approximated fair value as of the merger date.

A discount was recorded on these loans at acquisition to record them at their estimated fair values.

As a result, the purchased impaired credits are excluded from the calculation of the allowance for loan losses as of the acquisition date.

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.

Management’s periodic evaluation of the allowance is based on general economic conditions, the financial condition of borrowers, the value and liquidity of collateral, delinquency, prior loan loss experience, and the results of periodic reviews of the portfolio.

The allowance for loan losses is comprised of two components.

The first component, the general reserve, is determined in accordance with current authoritative accounting guidance that considers historical loss rates and is adjusted for qualitative factors based upon general economic conditions and other qualitative risk factors both internal and external to us to estimate probable incurred losses.

Such qualitative factors include current local economic conditions and trends including unemployment, changes in lending staff, policies and procedures, changes in credit concentrations, changes in the trends and severity of problem loans, and changes in trends in volume and terms of loans.

These qualitative factors serve to compensate for additional areas of uncertainty inherent in the portfolio that are not reflected in our historical loss factors.

For purposes of determining the general reserve, the loan portfolio, less cash secured loans, government guaranteed loans and impaired loans, is multiplied by our adjusted historical loss rate.

The second component of the allowance for loan losses, the specific reserve, is determined in accordance with current authoritative accounting guidance based on probable losses on specific impaired loans.

Due to our growth over the past several years, a portion of the loans in our portfolio and our lending relationships are of relatively recent origin.

The new loan portfolios have limited delinquency and credit loss history and have not yet exhibited an observable loss trend.

The credit quality of loans in these loan portfolios are impacted by delinquency status and debt service coverage generated by the borrowers’

business, and fluctuations in the value of real estate collateral.

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.

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.

If delinquencies and defaults increase, we may be required to increase our provision for loan losses, which would adversely affect our results of operations and financial condition.

Delinquency statistics are updated at least monthly.

Internal risk ratings are considered the most meaningful indicator of credit quality for new commercial, construction, and commercial real estate loans.

Internal risk ratings are a key factor in identifying loans that are individually evaluated for impairment and impact management’s estimates of loss factors used in determining the amount of the allowance for loan losses.

Internal risk ratings are updated on a continuous basis.

Our policy requires measurement of the allowance for an impaired collateral dependent loan based on the fair value of the collateral.

Other loan impairments are measured based on the present value of expected future cash flows or the loan’s observable market price.

From time to time, we modify our loan agreement with a borrower.

A modified loan is considered a troubled debt restructuring when two conditions are met:

(i) the borrower is experiencing financial difficulty and (ii) concessions are made by us that would not otherwise be considered for a borrower with similar credit risk characteristics.

Modifications to loan terms may include a lower interest rate, a reduction of principal, or a longer term to maturity.

We review each troubled debt restructured loan and determine on a case by case basis if the loan is subject to impairment and the need for a specific allowance for loan loss allocation.

An allowance for loan loss allocation is based on either the present value of estimated future cash flows or the estimated fair value of the underlying collateral.

We have certain lending policies and procedures in place that are designed to maximize loan income with an acceptable level of risk.

Management reviews and approves these policies and procedures on a regular basis and makes changes as appropriate.

Management receives frequent reports related to loan originations, quality, concentrations, delinquencies, nonperforming and potential problem loans.

Diversification in the loan portfolio is a means of managing risk associated with fluctuations in economic conditions, both by type of loan and geography.

Commercial loans are underwritten after evaluating and understanding the borrower’s ability to operate profitably and effectively.

Underwriting standards are designed to determine whether the borrower possesses sound business ethics and practices and to evaluate current and projected cash flows to determine the ability of the borrower to repay their obligations as agreed.

Commercial loans are primarily made based on the identified cash flows of the borrower and, secondarily, on the underlying collateral provided by the borrower.

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

Real estate loans are also subject to underwriting standards and processes similar to commercial loans.

These loans are underwritten primarily based on projected cash flows and, secondarily, as loans secured by real estate.

The repayment of real estate loans is generally largely dependent on the successful operation of the property securing the loans or the business conducted on the property securing the loan.

Real estate loans may be more adversely affected by conditions in the real estate markets or in the general economy.

The properties securing our real estate portfolio are generally diverse in terms of type and geographic location, throughout the state of Louisiana and Texas.

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

We utilize methodical credit standards and analysis to supplement our policies and procedures in underwriting consumer loans.

Our loan policy addresses types of consumer loans that may be originated and the collateral, if secured, which must be perfected.

The relatively smaller individual dollar amounts of consumer loans that are spread over numerous individual borrowers also minimize risk.

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.

Acquired loans are accounted for based upon a determination of whether they were purchased with more-than insignificant amount of credit deterioration (“PCD” loans) or an insignificant amount of credit deterioration (“non-PCD” loans), in either case as compared to origination.

In either case, the difference between the estimated fair value of the acquired loan related to non-credit deterioration is treated as an adjustment to the contractual yield and accreted into interest income over the remaining life of the loan.

Allowance for Credit Losses on Loans and Unfunded Commitments

The allowance for credit losses is established for current expected credit losses on the Company’s loan portfolio, including unfunded credit commitments.

The allowance for credit losses is recorded against outstanding loan balances and unfunded credit commitments and represents an estimate of the expected losses within the portfolio at the end of the relevant reporting period.

As further discussed in the consolidated financial statements in Note 1 – Summary of Significant Accounting Policies, our policies for the allowance for credit losses were modified on January 1, 2023, to reflect the adoption of Accounting Standards Codification (“ASC”) Topic 326 (“ASC 326”) Financial Instruments – Credit Losses.

Management estimates the allowance for credit losses by considering forecast macroeconomic conditions, trends in the portfolio, credit management and underwriting practices and economic conditions affecting our operating footprint.

After the forecast period, the Company reverts to long-term historical loss experience on a straight-line basis over a one-year period, adjusted for the composition of the current loan portfolio, to estimate losses over the remaining lives of the portfolio.

Development of the estimate is dependent on reported peer losses.

Individual loan loss estimates are generally dependent on the fair value of collateral, as well as estimates of the cost to market and sell collateral associated with an individual loan.

These estimates are sensitive specific individual collateral markets and can change significantly based on the specific collateral.

To a lesser extent, individual reserve estimates reflect specific loan cash flow amounts, which are dependent on borrower specific repayment expectations.

The results of our estimated allowance for credit losses also incorporate the reserve for unfunded lending commitments.

This reserve methodology is similar to the methodology for loans, however, an added estimate of the expected use of unfunded credit commitments is included in the estimate.

Overall, the allowance for credit losses is based upon management’s best estimate using available information at the time.

The estimate can be significantly impacted by unexpected changes in the macroeconomic environment, borrower behavior, credit management practices or other relevant credit information.

Purchase Accounting Adjustments (other than loans)

The Company accounts for acquisitions using the acquisition method of accounting.

Under this method, the Company records the assets acquired, including identified intangible assets, and liabilities assumed, at their respective fair values, which generally involves estimates based on third party valuations, such as appraisals, discounted cash flow analyses or other valuation techniques, as well as internal valuations for certain instruments. 

Core deposit intangibles, deposit premiums, securities, properties, and borrowings are some of the more subjective instruments which are generally fair valued by the Company during acquisitions. 

Further, the determination of the useful lives as well as the appropriate amortization method of other intangible assets is also subjective.

Quantitative and Qualitative Disclosures about Market Risk.

Reference is made to the subheading entitled “Interest Rate Sensitivity and Market Risk”

of the Management’s Discussion and Analysis of Financial Condition and Results of Operations section of this report.

Reference is made to the subheading entitled “Interest Rate Sensitivity and Market Risk” of the Management’s Discussion and Analysis of Financial Condition and Results of Operations section of this report.

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