What changed in this filing

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Item 8. Financial Statements and Supplementary Data

2024-03-01 compared with 2023-03-02 · 828 added, 1454 removed, 995 unchanged (70% of the section changed)

13 unchanged sentences

We have audited the accompanying consolidated balance sheets of Business First Bancshares, Inc.

(the “Company”) as of December 31, 2022 and 2021, the related consolidated statements of income, comprehensive income, shareholders’

equity, and cash flows for each of the years in the three-year period ended December 31, 2022, and the related notes (collectively referred to as the “financial statements”). 

(the “Company”) as of December 31, 2023 and 2022, the related consolidated statements of income, comprehensive income, shareholders’ equity, and cash flows for each of the years in the three-year period ended December 31, 2023, and the related notes (collectively referred to as the “financial statements”).

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2023 and 2022, and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, 2023, in conformity with accounting principles generally accepted in the United States of America.

Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated March 2, 2023, expressed an unqualified opinion thereon.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the Company’s internal control over financial reporting as of December 31, 2023, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated March 1, 2024, expressed an unqualified opinion thereon.

Change in Accounting Principle

As discussed in Notes 1 and 7 to the consolidated financial statements, effective January 1, 2023, the Company changed its method of accounting for credit losses due to the adoption of Accounting Standards Codification Topic 326, Financial Instruments – Credit Losses.

Basis for Opinion

These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits.

These financial statements are the responsibility of the Company’s management.

Our responsibility is to express an opinion on the Company’s financial statements based on our audits.

We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S.

federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud.

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures include examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matters

The critical audit matters communicated below are matters arising from the current-period audit of the financial statements that were communicated or required to be communicated to the audit committee and that:

(1) relate to accounts or disclosures that are material to the financial statements and (2) involved especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.

Allowance for Loan Losses

As of December 31, 2022, the Company’s loan portfolio was $4.6 billion and the associated allowance for loan losses was $38.2 million.

As described in Note 1 and Note 7 to the consolidated financial statements, the Company’s allowance for loan losses (“ALL”) is maintained at a level which, in management’s judgment, is adequate to absorb credit losses inherent in the loan portfolio  

The allowance for loan losses is based upon management’s review and evaluation of the loan portfolio including relevant historical loss experience.

Each period the Company considers qualitative factors that are relevant and necessary to adjust the model.

Qualitative factors considered in the establishment of the allowance for loan losses include changes in international, national, regional and local conditions;

oil and gas trends;

nature and volume of the portfolio;

volume and severity of past due loans;

quality of the loan review system;

existence and effect of any concentrations of credit or changes in the levels of such concentrations;

effect of other external factors;

changes to lending policies and procedures, including experience, depth and ability of staff, and changes in the value of the underlying collateral.

We conducted our audits in accordance with the standards of the PCAOB.

Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud.

Such procedures include examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements.

Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements.

We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matter

The critical audit matter communicated below is a matter arising from the current-period audit of the financial statements that was communicated or required to be communicated to the audit committee and that:

(1) relates to accounts or disclosures that are material to the financial statements and (2) involved especially challenging, subjective, or complex judgments.

The communication of a critical audit matter does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing separate opinions on the critical audit matter or on the accounts or disclosures to which it relates.

Allowance for Credit Losses

As described in Note 1 and Note 7 to the consolidated financial statements, the Company’s allowance for loan losses is a component of the allowance for credit losses.

and was $40.4 million as of December 31, 2023.

The allowance for loan losses is estimated utilizing forward-looking expected loss models which consider a variety of factors affecting lifetime credit losses.

Loans sharing risk characteristics are grouped into pools to estimate expected credit losses.

The Company incorporates forecasted economic scenarios over a reasonable and supportable forecast period, currently one year, which incorporates Company and peer historical losses.

Loss estimates also consider qualitative factors affecting credit losses not reflected in the model.

We identified the allowance for loan losses as a critical audit matter.

The principal considerations for that determination included the high degree of judgment and subjectivity relating to management’s identification and measurement of the qualitative factors.

This required a high degree of auditor effort and significant auditor judgment in evaluating the estimated allowance for loan losses.

Our primary audit procedures performed to address this critical audit matter included:

We obtained an understanding of the Company’s process for establishing the ALL, including the identification, basis for development and related adjustments of the qualitative factor components of the ALL.

We evaluated the design and tested the operating effectiveness of controls relating to management’s determination of the ALL, including controls over:

Management’s process for identification, basis for development and related adjustments;

including reasonableness, of the qualitative factor components of the ALL.

Management’s review of reliability and accuracy of data used to calculate and estimate the various components of the ALL, including accuracy of the calculation.

We evaluated the reasonableness of management’s application of qualitative factors to the ALL, including the comparison of factors considered by management to third party or internal sources as well as evaluated the appropriateness and level of the qualitative factor adjustments.

We evaluated the mathematical accuracy of the ALL, including the mathematical application of the qualitative adjustments on the loan segments.

We assessed the reasonableness of the qualitative portion of the ALL by comparing the components of the ALL (i.e., qualitative, specific and total reserves) to those recorded by the Company’s peer institutions.

Acquisition of Texas Citizens Bancorp, Inc.

- Fair Value of Acquired Loans  

As described further in Note 1 and Note 3 to the financial statements, the Company completed the acquisition of Texas Citizens Bancorp, Inc.

(“TCBI”) on March 1, 2022.

The Company accounted for this acquisition under the purchase method of accounting.

Purchased assets and assumed liabilities are recorded at their respective acquisition date fair values, and identifiable intangible assets are recorded at fair value.

Determination of the acquisition date fair values of the assets acquired and liabilities assumed required management to make significant estimates and assumptions.

Specifically, the fair value of a loan portfolio acquired in a business combination requires greater levels of management estimates and judgment than the remainder of purchased assets or assumed liabilities.

The fair value of the acquired loans was $338 million and required management to make estimates about discount rates, prepayment rates, expected future cash flows, and other future events that are subjective and subject to change.

We identified the determination of the acquisition date fair value of acquired loans as a critical audit matter.

The principal considerations for our determination are the extent of audit effort and level of judgment involved in evaluating the reasonableness of management’s assumptions, including the need for specialized skill to assess the development and application of the discount rates, prepayment rates and credit loss assumptions used to estimate cash flows.

Our primary audit procedures performed to address this critical audit matter included:

We obtained an understanding of the Company’s process for determining the fair value of the acquired loan portfolio.

We evaluated the design and tested the operating effectiveness of controls relating to the valuation of acquired loans, including controls addressing:

Management's credit diligence performed on the acquired loan portfolio, which impacts the credit loss assumptions used in the cash flow calculations.

Management’s review of the reasonableness of the discount rates, prepayment rates and credit loss assumptions used in the estimate of the fair value of acquired loans.

Management’s review of the results of the third-party valuation of the acquired loan portfolio, including the review of the completeness and accuracy of the data inputs used as a basis for the valuation.

We evaluated the completeness and accuracy of data inputs used as a basis for the valuation of the loan portfolio.

We evaluated, with the assistance of professionals with specialized skill and knowledge, the reasonableness of management’s discount rates, prepayment rates and credit loss assumptions used in the estimate of the fair value of the acquired loans, including, for a selected sample of loans, developing an independent expectation for comparison to management’s fair value.

We tested the mathematical accuracy of the estimated fair value, including the application of the assumptions used in the calculation.

The principal considerations for that determination included the high degree of judgment and subjectivity relating to assumptions used in the model, such as management’s determination of the reasonable and supportable economic forecast and the use of the qualitative factor adjustments.

Auditing these assumptions required a high degree of auditor effort, specialized skills and knowledge, and significant auditor judgment.

The primary procedures we performed to address this critical audit matter included:

We obtained an understanding of the Company’s model and process for determining the allowance for loan losses, and evaluated the design and tested the operating effectiveness of controls relating to the allowance for loan losses, including:

Controls over the completeness and accuracy of data input into the model used to determine the allowance for loan losses, and

Controls over management’s review and approval of the allowance for loan losses, including management’s determination of a reasonable and supportable economic forecast and qualitative factor adjustments applied within the qualitative framework to address risks not already incorporated within the model.

We evaluated management’s determination of reasonable and supportable economic forecasts, including comparing the factors to independent sources, as well as involving our internal specialists in testing the application of forecasts in the model calculation.

We evaluated the reasonableness and adequacy of management’s qualitative factor adjustment framework (including substantively testing management’s identification of risks not already incorporated within the model), the application of qualitative factor adjustments within the framework, and the completeness and accuracy of data utilized in development of the qualitative factor adjustments.

We evaluated the mathematical accuracy of the allowance for loan losses, including the mathematical application of the reasonable and supportable economic forecasts and qualitative adjustments on the loans sharing risk characteristics grouped into pools.

/s/ FORVIS, LLP

(Formerly Dixon Hughes Goodman LLP)

We have served as the Company’s auditor since 2019.

Fort Worth, Texas

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Opinion on the Internal Control over Financial Reporting

We have audited Business First Bancshares Inc.’s (the “Company”) internal control over financial reporting as of December 31, 2022, based on criteria established in Internal Control –

Integrated Framework:

We have audited Business First Bancshares Inc.’s (the “Company”) internal control over financial reporting as of December 31, 2023, based on criteria established in Internal Control – Integrated Framework:

(2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2022, based on criteria established in Internal Control –

Integrated Framework:

In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2023, based on criteria established in Internal Control – Integrated Framework:

(2013) issued by COSO.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the consolidated financial statements of the Company as of December 31, 2022 and 2021, and for each of the three years in the period ended December 31 2022, and our report dated March 2, 2023, expressed an unqualified opinion on those consolidated financial statements.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the consolidated financial statements of the Company as of December 31, 2023 and 2022, and for each of the three years in the period ended December 31 2023, and our report dated March 1, 2024, expressed an unqualified opinion on those consolidated financial statements.

Basis for Opinion

The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Annual Report on Internal Control over Financial Reporting.

Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit.

We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S.

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We believe that our audit provides a reasonable basis for our opinion.

Definitions and Limitations of Internal Control over Financial Reporting

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of reliable financial statements for external purposes in accordance with generally accepted accounting principles.

A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company;

(2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company;

and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Definitions and Limitations of Internal Control o ver Financial Reporting

A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company;

(2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company;

and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.

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/s/ FORVIS, LLP

(Formerly Dixon Hughes Goodman LLP)

Fort Worth, Texas

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(Dollars in thousands)

ASSETS  

Cash and Due from Banks

$ 152,740  

$ 68,375  

$ 226,110 $ 152,740

Federal Funds Sold

15,606  

227,044  

Securities Available for Sale, at Fair Values

890,751  

1,021,061  

151,134 15,606

Securities Available for Sale, at Fair Values (Amortized Cost of $ 963,978 at December 31, 2023 and $ 985,599 at December 31, 2022)

879,571 890,751

Mortgage Loans Held for Sale

Loans and Lease Receivable, Net of Allowance for Loan Losses of $ 40,414 and $ 38,178 at December 31, 2023 and 2022, respectively

4,567,998  

3,160,496  

4,952,371 4,567,998

Premises and Equipment, Net

63,177  

58,155  

69,480 63,177

Accrued Interest Receivable

25,666  

19,597  

29,916 25,666

Other Equity Securities

37,467  

16,619  

33,942 37,467

Other Real Estate Owned

Cash Value of Life Insurance

91,958  

60,380  

96,478 91,958

Deferred Taxes

31,194  

88,543  

59,894  

27,323 31,194

88,391 88,543

Core Deposit and Customer Intangible

14,042  

12,203  

11,105  

$ 5,990,460  

$ 4,726,378  

11,895 14,042

$ 6,584,550 $ 5,990,460

Noninterest Bearing

$ 1,549,381  

$ 1,291,036  

$ 1,299,090 $ 1,549,381

Interest Bearing

3,270,964  

2,786,247  

3,949,700 3,270,964

Total Deposits

4,820,345  

4,077,283  

5,248,790 4,820,345

Federal Funds Purchased

14,057  

Securities Sold Under Agreements to Repurchase

20,208  

19,121  

Short Term Borrowings

18,885 20,208

Bank Term Funding Program

Federal Home Loan Bank Borrowings

410,100  

82,022  

211,198 410,100

Subordinated Debt

110,749  

81,427  

99,990 110,749

Subordinated Debt - Trust Preferred Securities

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Other Liabilities

27,419  

26,783  

41,587 27,428

Total Liabilities

5,409,979  

4,293,010  

5,940,291 5,409,979

Commitments and Contingencies (See Notes 19 and 22)

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5,000,000 Shares Authorized;

72,010 and No Shares ($ 1,000 Liquidation Preference) Issued and Outstanding at December 31, 2022 and 2021, respectively

71,930  

72,010 Shares ($ 1,000 Liquidation Preference) Issued and Outstanding at both December 31, 2023 and 2022

71,930 71,930

Common Stock, $ 1 Par Value;

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25,351,809 and 25,110,313 Shares Issued and Outstanding at December 31, 2023 and 2022, respectively

25,110  

20,400  

25,352 25,110

Additional Paid-in Capital

393,690  

292,271  

397,447 393,690

Retained Earnings

163,955  

121,874  

Accumulated Other Comprehensive Income (Loss)

( 74,204 )  

216,115 163,955

Accumulated Other Comprehensive Loss

( 66,585 ) ( 74,204 )

Total Shareholders' Equity

580,481  

433,368  

644,259 580,481

Total Liabilities and Shareholders' Equity

$ 5,990,460  

$ 4,726,378  

$ 6,584,550 $ 5,990,460

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

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Net Interest Income

Provision for Loan Losses

Net Interest Income after Provision for Loan Losses

Provision for Credit Losses

Net Interest Income after Provision for Credit Losses

Other Income:

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Unrealized Gain (Loss) on AFS Investment Securities

Unrealized Gain (Loss) on Share of Equity Method Investments

Reclassification Adjustment for Gain (Loss) on Sale of AFS

Unrealized Gain (Loss) on Share of Other Equity Investments

Reclassification Adjustment for Gains (Losses) on Sales of AFS

Investment Securities Included in Net Income

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AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS ’

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS ’ EQUITY

(Dollars in thousands, except per share data)

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Balances at December 31, 2020

$ 13,279  

$ 212,505  

$ 56,700  

$ 2,613  

$ 285,097  

Comprehensive Income:

29,994  

Other Comprehensive Income

Cash Dividends Declared, $ 0.40 Per Share

( 7,520 )  

Stock Issuance

94,097  

102,044  

Stock Based Compensation Cost

Surrendered Shares of Stock Based Compensation

( 173 )  

( 4,148 )  

Stock Repurchase

( 481 )  

( 5,318 )  

Balances at December 31, 2020

20,621  

299,540  

79,174  

10,628  

409,963  

$ - $ 20,621 $ 299,540 $ 79,174 $ 10,628 $ 409,963

Comprehensive Income:

52,136  

- - - 52,136 - 52,136

Other Comprehensive Loss

( 11,805 )  

- - - - ( 11,805 ) ( 11,805 )

Cash Dividends Declared, $ 0.46 Per Share

( 9,436 )  

- - - ( 9,436 ) - ( 9,436 )

Stock Issuance

- 262 3,302 - - 3,564

Stock Based Compensation Cost

- 97 2,764 - - 2,861

Surrendered Shares of Options Exercised

( 105 )  

( 2,887 )  

- ( 105 ) ( 2,887 ) - - ( 2,992 )

Stock Repurchase

( 475 )  

( 10,448 )  

- ( 475 ) ( 10,448 ) - - ( 10,923 )

Balances at December 31, 2021

20,400  

292,271  

121,874  

( 1,177 )  

433,368  

- 20,400 292,271 121,874 ( 1,177 ) 433,368

Comprehensive Income:

54,255  

- - - 54,255 - 54,255

Other Comprehensive Loss

( 73,027 )  

- - - - ( 73,027 ) ( 73,027 )

Cash Dividends Declared on Preferred Stock, $ 18.75 Per Share

( 1,350 )  

- - - ( 1,350 ) - ( 1,350 )

Cash Dividends Declared on Common Stock, $ 0.48 Per Share

( 10,824 )  

- - - ( 10,824 ) - ( 10,824 )

Preferred Stock Issuance, Net of Issuance Costs

71,930  

71,930 - - - - 71,930

Stock Issuance, Net of Issuance Costs

98,899  

103,535  

- 4,636 98,899 - - 103,535

Stock Based Compensation Cost

- 119 3,577 - - 3,696

Surrendered Shares of Options Exercised

( 45 )  

( 1,057 )  

- ( 45 ) ( 1,057 ) - - ( 1,102 )

Balances at December 31, 2022

$ 71,930  

$ 25,110  

$ 393,690  

$ 163,955  

$ ( 74,204 )  

$ 580,481  

71,930 25,110 393,690 163,955 ( 74,204 ) 580,481

Cumulative Effect of Change in Accounting Principle for Credit Losses

- - - ( 827 ) - ( 827 )

Comprehensive Income:

- - - 71,043 - 71,043

Other Comprehensive Income

- - - - 7,619 7,619

Cash Dividends Declared on Preferred Stock, $ 75.00 Per Share

- - - ( 5,401 ) - ( 5,401 )

Cash Dividends Declared on Common Stock, $ 0.50 Per Share

- - - ( 12,655 ) - ( 12,655 )

Stock Based Compensation Cost

- 242 3,757 - - 3,999

Balances at December 31, 2023

$ 71,930 $ 25,352 $ 397,447 $ 216,115 $ ( 66,585 ) $ 644,259

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

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Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities:

Provision for Loan Losses

Provision for Credit Losses

Depreciation and Amortization

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Net Increase (Decrease) in Securities Sold Under Agreements to Repurchase

Net Increase in Federal Funds Purchased

Net Increase (Decrease) in Federal Funds Purchased

Net Advances (Repayments) on Federal Home Loan Bank Borrowings

Net Proceeds on Bank Term Funding Program

Net Proceeds (Repayments) from Short Term Borrowings

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Proceeds from Issuance of Subordinated Debt

Repayment of Subordinated Debt

Gain on Extinguishment of Debt

Proceeds from Issuance of Preferred Stock, Net of Issuance Costs

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Transfer of Loans to Other Real Estate

Transfer of Other Real Estate to Premises and Equipment

Acquisitions:

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 1 –

Nature of Operations –

Summary of Significant Accounting Policies –

Note 1 – Nature of Operations – Summary of Significant Accounting Policies –

The accounting principles followed by Business First Bancshares, Inc.

and its wholly-owned subsidiary, b1BANK (the “Bank”), and the Bank’s wholly-owned subsidiaries, Business First Insurance, LLC and Smith Shellnut Wilson, LLC (“SSW”) are those which are generally practiced within the banking industry.

The methods of applying those principles conform with generally accepted accounting principles (“GAAP”) and have been applied on a consistent basis.

The principles which significantly affect the determination of financial position, results of operations, changes in shareholders’

equity and cash flows are summarized below.

The methods of applying those principles conform with generally accepted accounting principles (“GAAP”) and have been applied on a consistent basis.

The principles which significantly affect the determination of financial position, results of operations, changes in shareholders’ equity and cash flows are summarized below.

Principles of Consolidation

The consolidated financial statements include the accounts of Business First Bancshares, Inc.

and its wholly-owned subsidiary, b1BANK, and the Bank’s wholly-owned subsidiaries, Business First Insurance, LLC and SSW (collectively, the “Company”).

All significant intercompany balances and transactions have been eliminated.

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The Bank operates out of full-service banking centers and loan production offices in markets across Louisiana, the Dallas/Fort Worth, Texas metroplex, and Houston, Texas.

As a state bank, it is subject to regulation by the Office of Financial Institutions (“OFI”), State of Louisiana, and the Federal Deposit Insurance Corporation (“FDIC”), and undergoes periodic examinations by these agencies.

The Company is also regulated by the Federal Reserve and is subject to periodic examinations.

On May 1, 2020, the Company completed the acquisition of Pedestal Bancshares, Inc.

(“Pedestal”), and its wholly-owned subsidiary, Pedestal Bank, located in Houma, Louisiana.

The Company issued 7,614,506 shares of its common stock to the former shareholders of Pedestal.

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

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

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On March 1, 2022, the Company completed the acquisition of Texas Citizens Bancorp, Inc.

(“TCBI”), and its wholly-owned subsidiary, Texas Citizens Bank, National Association, located in Pasadena, Texas.

The company issued 2,069,532 shares of its common stock to the former shareholders of TCBI.

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

COVID- 19, a global pandemic, has adversely impacted the broad economy, including most industries and sectors. 

The length and depth of the pandemic will ultimately determine the overall financial impact to the Company, but it could impair the ability of the Company’s customers to meet their financial obligations to the Company. 

Furthermore, while there has been no material impact to the Company’s employees to date, COVID- 19 could potentially create business continuity issues for the Company.

In accordance with Financial Accounting Standards Board (“FASB”) and interagency regulatory guidance issued in March 2020, loans that were modified under the terms of the Company’s COVID- 19 Deferral Assistance Program are not required to be designated as troubled debt restructurings to the extent that they meet the terms of such guidance under Section 4013 of the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”).

The Company also elected to participate in the Small Business Administration (“SBA”) Paycheck Protection Program (“PPP”) during the years ended December 31, 2022 and 2021.

Preparation of financial statements in conformity with U.S.

GAAP requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying disclosures.

These estimates are based on management’s best knowledge of current events and actions the Company may undertake in the future.

Critical accounting estimates that are particularly susceptible to significant change for the Company include the determination of the fair value and subsequent accounting for acquired loans and allowance for loan losses and purchase accounting adjustments (other than loans).

These estimates are based on management’s best knowledge of current events and actions the Company may undertake in the future.

Critical accounting estimates that are particularly susceptible to significant change for the Company include the determination of the acquired loans and allowance for credit losses and purchase accounting adjustments (other than loans).

Other estimates include goodwill, fair value of financial instruments, investment securities and the assessment of income taxes.

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Factors that may cause sensitivity to the aforementioned estimates include but are not limited to:

external market factors such as market interest rates and employment rates, changes to operating policies and procedures, economic conditions in the Company’s markets, and changes in applicable banking regulations.

Actual results may ultimately differ from estimates.

BUSINESS FIRST BANCSHARES, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The Bank’s loans are generally secured by specific items of collateral including real property, business assets, and consumer assets.

Although the Bank has a diversified loan portfolio, a substantial portion of its debtors’

ability to honor their contracts is dependent on local economic conditions in the Bank’s market area.

The Bank’s loans are generally secured by specific items of collateral including real property, business assets, and consumer assets.

Although the Bank has a diversified loan portfolio, a substantial portion of its debtors’ ability to honor their contracts is dependent on local economic conditions in the Bank’s market area.

While management uses available information to recognize losses on loans, further reductions in the carrying amounts of loans may be necessary based on changes in local economic conditions.

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However, the amount of the change that is reasonably possible cannot be estimated.

BUSINESS FIRST BANCSHARES, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Acquisition Accounting

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Securities classified as available for sale are those debt securities the Bank intends to hold for an indefinite period of time but not necessarily to maturity.

Any decision to sell a security classified as available for sale would be based on various factors, including significant movements in interest rates, changes in the maturity mix of the Bank’s assets and liabilities, liquidity needs, regulatory capital considerations, and other similar factors.

Securities available for sale are recorded at fair value.

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The Bank has no securities classified as trading at December 31, 2023 and 2022.

The Company evaluates its investment securities portfolio on a quarterly basis for indicators of other than temporary impairment (“OTTI”).

Declines in the fair value of individual available for sale or held to maturity securities below their amortized cost basis are reviewed to determine whether the declines are other than temporary.

 For securities that the Company does not expect to sell, or it is not more likely than not it will be required to sell prior to recovery of its amortized cost basis, the credit component of an OTTI is recognized in earnings and the non-credit component is recognized in other comprehensive income.

For securities that the Company does expect to sell, or it is more likely than not that it will be required to sell prior to recovery of its amortized cost basis, both the credit and non-credit component of an OTTI are recognized in earnings.

There was no OTTI taken for the years ended December 31, 2022 and 2021.

BUSINESS FIRST BANCSHARES, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Other Equity Securities

The Bank has invested in Federal Home Loan Bank (“FHLB”) stock, and other similar correspondent banks, which is reflected at cost in these financial statements.

As a member of the FHLB System, the Bank is required to purchase and maintain stock in an amount determined by the FHLB.

The FHLB stock is redeemable at par value at the discretion of the FHLB.

The Bank has invested in certain equity investments which are accounted for under the equity method of accounting, which are considered to be variable interest entities (“VIE”).

Loans are stated at principal amounts outstanding, adjusted for net deferred fees or costs, less the allowance for loan losses.

Interest on commercial and consumer loans is accrued daily based on the principal outstanding.

Net deferred fees or costs are recognized as an adjustment to yield over the life of the loan.

The Bank has invested in certain equity investments which are accounted for under the equity method of accounting, which are considered to be variable interest entities (“VIE”).

Loans, including acquired loans

Loans are stated at principal amounts outstanding, adjusted for deferred fees, costs and fair value adjustments, in the case of acquired loans, less the allowance for loan losses.

Interest on loans is accrued daily based on the principal outstanding.

Deferred fees, costs and fair value adjustments for acquired loans are recognized as an adjustment to yield over the life of the loan.

Generally, the Bank discontinues the accrual of interest income when a loan becomes 90 days past due as to principal or interest.

When a loan is placed on nonaccrual status, previously recognized but uncollected interest is generally reversed to income.

When a loan is placed on nonaccrual status, previously recognized but uncollected interest is reversed from interest income.

Subsequent cash receipts on nonaccrual loans are generally accounted for on the cost recovery method until the loans qualify for return to accrual status.

Interest income may be recognized on a cash basis as long as the remaining book balance of the loan is deemed to be collectible.

Loans are returned to accrual status when all the principal and interest amounts contractually due are brought current and future payments are reasonably assured.

The Bank classifies loans as impaired when it is probable the Bank will be unable to collect the scheduled payments of principal and interest when due according to the contractual terms of the loan agreement.

The measurement of impaired loans is based on the present value of the expected future cash flows discounted at the loan’s effective interest rate or the loan’s observable market price, or based on the fair value of the collateral if the loan is collateral dependent.

Prior to January 1, 2023, the Bank classified loans as impaired when it was probable the Bank would be unable to collect the scheduled payments of principal and interest when due according to the contractual terms of the loan agreement.

BUSINESS FIRST BANCSHARES, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Acquired Loans

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 ( “

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.

Purchased loans acquired in a business combination are initially recorded at their estimated fair value as of the acquisition date.

Subsequent to acquisition, acquired loans are accounted for based upon a determination of whether they were purchased with more-than insignificant amount of credit deterioration (“PCD”) or an insignificant (“non-PCD”) amount of credit deterioration 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.

Effective January 1, 2023, the Company adopted ASU 2016 - 13, Financial Instrument – Credit Losses (Topic 326 ).

Measurement of Credit Losses on Financial Instruments related to the impairment of financial instruments (ASU 2016 - 13 ).

Prior to the adoption of Financial Instrument – Credit Losses (Topic 324 ), Measurement of Credit Losses on Financial Instruments , commonly referred to as the Current Expected Credit Loss (“CECL”), ASU 2016 - 13, acquired performing loans were accounted for under ASC 310 - 20 , Nonrefundable Fees and Other Costs , with the related discount or premium being recognized as an adjustment to yield over the life of the loan and acquired impaired loans were accounted for according to ASC Topic 310 - 30, “ Loans and Debt Securities Acquired with Deteriorated Credit Quality ( “ASC 310 - 30” ).

Under this method, adjustments to cash flows from the original acquisition date estimates were accounted for as adjustments to accretion for these loans.

Allowance for Credit Losses

Allowance for Loan Losses

The allowance for loan losses is maintained at a level which, in management’s judgment, is adequate to absorb credit losses inherent in the loan portfolio. 

The allowance for loan losses is based upon management’s review and evaluation of the loan portfolio, including relevant historical loss experience. 

Specific allowances for impaired loans are generally determined based on collateral values or the present value of estimated cash flows. 

Management obtains independent appraisals for significant collateral in determining collateral values. 

Although management uses available information to recognize losses on loans, because of uncertainties associated with local economic conditions, collateral values, and future cash flows on impaired loans, it is reasonably possible that a material change could occur in the allowance for loan losses in the near term. 

However, the amount of the change that is reasonably possible cannot be estimated. 

Each period the Company considers qualitative factors that are relevant and necessary to adjust the model. 

Qualitative factors considered in the establishment of the allowance for loan losses include changes in international, national, regional and local conditions;

oil and gas trends;

nature and volume of the portfolio;

volume and severity of past due loans;

quality of the loan review system;

existence and effect of any concentrations of credit or changes in the levels of such concentrations;

effect of other external factors;

changes to lending policies and procedures, including experience, depth and ability of staff, and changes in the value of the underlying collateral.

Effective January 1, 2023, the allowance for credit losses is established for current expected credit losses on the Company’s loan portfolio, including unfunded credit commitments.

Upon adoption of the guidance on January 1, 2023, we recognized an $ 827,000 reduction to retained earnings, after recording the relating deferred tax asset adjustment at our adjusted tax rate.

The allowance for credit losses is increased through provisions charged to earnings and reduced by net charge-offs, inclusive of recoveries.

Management evaluates the appropriateness of the allowance for credit losses on a quarterly basis.

The allowance considers expected losses for the remaining lives of the applicable assets.

The Company subscribes to a third -party service to provide economic forecasts at both the national and state levels, including GDP and unemployment, and other relevant forecasts.

National forecasted economic scenarios are considered over a reasonable and supportable forecast period, currently one year, which incorporates Company and peer historical losses.

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.

The economic scenarios are updated at least quarterly and are designed to provide estimates that take into consideration the customer base of our loan portfolio.

Loss estimates also consider qualitative factors affecting credit losses not reflected in the model, including trends in the portfolio, credit management and underwriting practices and forecasted economic conditions affecting our operating footprint.

The allowance recorded for credit losses utilizes forward-looking expected loss models to consider a variety of factors affecting lifetime credit losses.

These factors include loan and borrower characteristics, such as internal risk ratings, delinquency status, collateral type and available valuation information, and the remaining term of the loan, adjusted for expected prepayments, with loans sharing risk characteristics grouped into pools to estimate expected losses.

Where loans do not exhibit similar risk characteristics, an individual analysis is performed to consider expected credit losses.

For each loan portfolio, model estimates are adjusted as necessary to consider any relevant qualitative factors that would affect the accuracy of the model.

The results of the analysis are evaluated quarterly to confirm the estimates are appropriate for each loan portfolio.

Expected credit loss estimates also include consideration of expected cash recoveries on loans previously charged-off, or, expected recoveries on collateral dependent loans where recovery is expected through sale of the collateral.

The allowance recorded for individually evaluated loans is based on an analysis utilizing expected cash flows discounted using the original effective interest rate, the observable market price of the loan, or, when repayment is expected through the sale of collateral, the fair value of the collateral, less selling costs, for collateral-dependent loans.

Prior to the adoption of ASU 2016 - 13, the allowance for credit losses on loans was a contra-asset valuation account established through a provision for loan losses charged to expense, which represented management’s best estimate of inherent losses that had been incurred within the existing portfolio of loans.

The allowance for credit losses on loans included allowance allocations calculated in accordance with ASC Topic 310, “Receivables” and allowance allocations calculated in accordance with ASC Topic 450, “Contingencies.”

BUSINESS FIRST BANCSHARES, INC.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

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

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

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

The allowance for loan losses is based on estimates of probable future losses, and ultimate losses may vary from the current estimates.

These estimates are reviewed periodically and as adjustments become necessary, the effect of the change in estimate is charged to operating expenses in the period incurred.

All losses are charged to the allowance for loan losses when the loss actually occurs or when management believes that the collectability of the principal is unlikely.

Recoveries are credited to the allowance at the time of recovery.

Allowance for loans acquired with credit deterioration

Beginning January 1, 2023, when a loan portfolio is purchased, an allowance is established for those loans considered purchased with more-than-insignificant credit deterioration (PCD) loans, and those not considered purchased with more-than-insignificant credit deterioration (non-PCD).

The allowance established utilizes the same risk factors discussed above for our non-acquired allowance.

The allowance established for non-PCD loans is recognized through provision expense upon acquisition, whereas the allowance established for loans considered PCD at acquisition is offset by an increase in the basis of the acquired loans.

Any subsequent increases and decreases in the allowance related to acquired loans are recognized through provision expense, with future charge-offs recorded to the allowance.

Allowance for unfunded credit commitments

The Company also assesses the credit risk associated with off-balance sheet loan commitments and letters of credit.

The liability for off-balance sheet credit exposure related to loan commitments and other credit guarantees is included in other liabilities.

Therefore business processes and credit risks associated with unfunded credit commitments are essentially the same as for loans, the Company utilizes similar processes to estimate its liability for unfunded credit commitments, adjusted for an expectation of the actual utilization of the committed credit facility.

Allowance on investment securities

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, and our ability and intent to hold the security over a period of time sufficient to recover its value up to the amortized cost basis.

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.

Accrued Interest

The Company has elected to exclude accrued interest receivable from the amortized cost basis on its loan and debt securities portfolio.

The Company has also elected to not measure an allowance for credit losses on accrued interest for loans held-for-investment or debt securities based on its policy to write off uncollectible interest in a timely manner.

For loans, this occurs when a loan is placed on nonaccrual status.

Generally, for loans, such elections are made no later than 90 days after a loan has become past due, although certain loans accrue interest after 90 days based on management’s evaluation of the borrower’s ability to continue making contractual payments.

For debt securities, the elections are made based solely on management’s evaluation of the ability of the security issuer, and any relevant entities, to continue making contractual payments.

Such write-offs are recognized as a reduction of interest income.

Accrued interest receivable for the loan and securities portfolio is included within Accrued Interest Receivable in the Consolidated Balance Sheets.

Premises and Equipment

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Costs of major additions and improvements are capitalized and expensed over their estimated depreciable lives.

BUSINESS FIRST BANCSHARES, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Other Real Estate Owned

Real estate properties acquired through or in lieu of loan foreclosure or negotiated settlement are initially recorded at the fair value less estimated selling cost at the date of acquisition.

Any write-downs based on the asset’s fair value at the date of acquisition are charged to the allowance for loan losses.

After foreclosure, valuations are periodically performed by management and property held for sale is carried at the lower of the new cost basis or fair value less cost to sell.

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If impaired, the asset is written down to its estimated fair value.

Our other intangibles include core deposit intangibles (“CDI”) representing the value of the acquired core deposit base are generally recorded in connection with business combinations involving banks and branch locations;

and customer-related intangibles representing the value of a customer list consisting of customer contact information acquired through business combination.

The Company’s policy is to amortize these intangibles on a straight-line basis over their estimated useful life.

Core deposit and customer intangibles are tested for impairment whenever events or changes in circumstances indicate the carrying amount of the assets may not be recoverable from future undiscounted cash flows.

The Company recognizes the rights to service mortgage and other loans as separate assets, which are recorded in other assets in the consolidated balance sheets, when purchased or when servicing is contractually separated from the underlying loans by sale with servicing rights retained. 

For loan sales with servicing retained, a servicing right, generally an asset, is recorded at fair value at the time of sale for the right to service the loans sold.

All servicing rights are identified by class and amortized over the remaining service life of the loan.

BUSINESS FIRST BANCSHARES, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The provision for income taxes is based on amounts reported in the statement of income after exclusion of nontaxable income such as interest on state and municipal securities.

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The Company files a consolidated federal income tax return.

Consolidated income tax expense is allocated on the basis of each entity’s income adjusted for permanent differences.

The Company evaluates all significant tax positions as required by accounting principles generally accepted in the United States of America.

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Any interest and penalties assessed by income taxing authorities are not significant, and are included in other expenses in these financial statements, as applicable.

BUSINESS FIRST BANCSHARES, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Stock Based Compensation

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The Company generally acts in a principal capacity in the performance of these services.

The Company’s performance obligations are generally satisfied as the services are rendered and typically do not extend beyond a reporting period.

Fees, which are typically billed and collected after services are rendered, are readily determinable and allocated individually to each service.

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As such, the Company does not establish provisions for estimated returns.

Accounting Standards Adopted in 2023

Effective January 1, 2023, the Company adopted ASU 2016 - 13, Financial Instrument – Credit Losses (Topic 326 ), Measurement of Credit Losses on Financial Instruments related to the impairment of financial instruments.

This guidance, commonly referred to as Current Expected Credit Loss (“CECL”), changes impairment recognition to a model that is based on expected losses rather than incurred losses.

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

Prior to January 1, 2023, the allowance for credit losses was established based on an incurred loss model.

Upon the adoption of CECL, certain loan classification and segmentation categories were changed to align with the requirements of the standard and more effectively model the CECL estimate.

The updated CECL segmentation is reflected in the disclosures beginning January 1, 2023, and prior period classifications have been adjusted to reflect CECL segmentations.

Results from periods prior to January 1, 2023, are presented using the previously applicable GAAP.

Upon adoption of the guidance on January 1, 2023, the Company recognized an $ 827,000 reduction to retained earnings, after recording the related deferred tax asset adjustment at our effective tax rate.

The Company and b1BANK are subject to various regulatory capital requirements.

Although the federal banking regulatory agencies have provided relief for an initial capital decrease at adoption of the CECL standard, the Company did not opt into the relief as the impact of adoption was not significant to the Company’s regulatory capital.

The adoption of this guidance did not have a material impact on the Company’s available-for-sale securities as most of this portfolio consists of U.S.

treasury and agency securities as well as highly rated residential agency mortgage-backed, corporate, and municipal securities.

However, any subsequent estimated credit losses are required to be recognized through an allowance for credit losses associated with the applicable securities.

BUSINESS FIRST BANCSHARES, INC.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Accounting Standards Adopted in 2022

The Company also adopted ASU 2022 - 02, Financial Instruments – Credit Losses (Topic 326 ), Troubled Debt Restructurings and Vintage Disclosures on January 1, 2023.

The standard modifies the criteria for identification of troubled debt restructurings as well as enhancing disclosure requirements.

Additionally, the guidance requires vintage table disclosures and presentation of gross write-offs during the current period by year of origination for financing receivables within scope of the standard.

The implementation of the standard did not have a material impact of the identification of troubled debt restructurings and the vintage and charge-off disclosures have been presented in the footnotes below.

Accounting Standards Not Yet Adopted

In June 2016, the FASB issued ASU 2016 - 13, Financial Instruments –

Credit Losses (Topic 326 ), Measurement of Credit Losses on Financial Instruments .

The amendments introduce an impairment model that is based on current expected credit losses (“CECL”), rather than incurred losses, to estimate credit losses on certain types of financial instruments (ex.

loans and held to maturity securities), including certain off-balance sheet financial instruments (ex.

commitments to extend credit and standby letters of credit that are not unconditionally cancellable).

The CECL should consider historical information, current information, and reasonable and supportable forecasts, including estimates of prepayments, over the contractual term.

An entity must use judgment in determining the relevant information and estimation methods that are appropriate in its circumstances.

Financial instruments with similar risk characteristics may be grouped together when estimating the CECL.

The allowance for credit losses for purchased financial assets with a more-than-insignificant amount of credit deterioration since origination that are measured at amortized cost basis is determined in a similar manner to other financial assets measured at amortized cost basis;

however, the initial estimate of expected credit loss would be recognized through an allowance for credit losses with an offset (i.e.

increase) to the purchase price at acquisition.

Only subsequent changes in the allowance for credit losses are recorded as a credit loss expense for these assets.

The ASU also amends the current impairment model for debt securities whereby estimated credit losses relating to debt securities should be recorded through an allowance for credit losses.

The amendments will be applied through a modified retrospective approach, resulting in a cumulative-effect adjustment to retained earnings as of the beginning of the first reporting period in which the guidance is effective.

On October 18, 2019, FASB approved an effective date delay until January 2023 applicable to public companies that met the definition of “smaller reporting company”

based on the most recent determination prior to October 18, 2019.

The Company met the requirements for this effective date delay and elected to delay implementation of the standard.

The Company has established an implementation team and engaged third -party consultants who have jointly developed a project plan to provide implementation oversight.

Effective 

January 

1, 2023, the Company adopted ASU 2016 - 13, Financial Instrument –

Credit Losses (Topic 326 ), Measurement of Credit Losses on Financial Instruments related to the impairment of financial instruments.

This guidance, commonly referred to as Current Expected Credit Loss (“CECL”), changes impairment recognition to a model that is based on expected losses rather than incurred losses. 

CECL requires the Company to consider all available relevant information when calculating expected credit losses including information about past events, current conditions, and reasonable and supportable forecasts.

Additionally, the Accounting Standard Update requires the recognition of an allowance for credit losses for certain debt securities as well as additional disclosures.

The ASU requires adoption on a modified retrospective basis. 

The Company has completed its parallel runs comparing the historical incurred loss model to the CECL model. 

Additionally, third -party model validation of the CECL model is complete. 

The Company is in process of finalizing its new CECL internal control and governance processes. 

The Company expects that the allowance for credit losses will increase by $ 2.7 million and the liability for unfunded commitments increase by $ 3.2 million. 

This estimate of expected credit losses is based on loan balances and commitments to lend at January 1, 2023 using a one -year reasonable a supportable forecast period.

After the forecast period, the Company reverts to long-term historical loss experience to estimate losses over the remaining life.

The Company uses both internal and external credit data in estimating the expected credit losses.

The estimated increase in the allowance for credit losses and liability for unfunded commitments at adoption is primarily due to requirement that CECL estimate losses over the remaining life of the loan.

Additionally, and as discussed further in Note 3, the Company, through previous acquisitions, has acquired loans which were recorded at their fair value on the date of acquisition. 

Certain loans, which were determined to have evidence of deterioration at acquisition, were accounted for under ASC 310 - 30 (i.e.

classified as Purchase Credit Impaired or “PCI”

 The ASU introduces a new term called Purchase Credit Deteriorated (“PCD”) which replaces the PCI accounting under ASC 310 - 30.

Although the definition of PCD asset differs from that of a PCI asset under ASC 310 - 30, the ASU requires that an entity not reassess whether any existing assets meeting the definition of PCD assets at adoption on January 1, 2023. 

Instead, an entity applies the new PCD asset gross-up approach at transition to all loans that were accounted for as PCI under ASC 310 - 30 prior to the January 1, 2023 adoption date.

Any change in the allowance for credit losses for these assets as a result of adopting the CECL standard is accounted for as an adjustment to the asset’s amortized cost basis and not as a cumulative-effect adjustment to beginning retained earnings. 

The Company’s January 1, 2023 gross-up to allowance for credit losses and amortized cost related to PCD loans from previous acquisitions is estimated to be $ 4.8 million. 

After the transition to CECL, the Company will assess purchases of assets to determine if the PCD initial recognition and measurement accounting applies.

Upon adoption of the updated guidance on January 1, 2023, the Company’s impact will be recognized as a $ 1.0  million reduction to retained earnings and a $ 221,000  increase to deferred tax assets. 

As discussed in Footnote 15, the Company and b1Bank are subject to various regulatory capital requirements. 

Although the federal banking regulatory agencies have provided relief for an initial capital decrease at adoption of the CECL standard, the Company does not intend to opt into the relief as the impact of adoption will not be significant to the Company’s regulatory capital.

The adoption of this guidance did not have a material impact on the Company’s available-for-sale securities as most of this portfolio consists of U.S.

Treasuries and agency securities as well as highly rated residential agency mortgage-backed, corporate and municipal securities. 

CECL may impact future earnings, perhaps materially, due to future credit loss expectations for loans and certain commitments to lend related to factors which may include the Company’s macroeconomic forecast.

Note 2 –

Reclassifications –

Certain reclassifications may have been made to the prior years’

financial statements in order to conform to the classifications adopted for reporting in 2022.

These reclassifications have no material effect on previously reported shareholders’

equity or net income.

2023 - 09, “ Income Taxes (Topic 740 ):

Improvements to Income Tax Disclosures.

” ASU 2023 - 09 requires public business entities to disclose additional information in specified categories with respect to the rate reconciliation for federal, state and foreign income taxes.

In addition, the updates also require more details about reconciling items in the rate reconciliation in some categories if items meet a quantitative threshold.

ASU 2023 - 09 also requires all entities to disclose income taxes paid, net of refunds, disaggregated by federal, state and foreign taxes for annual periods and to disaggregate the information by jurisdiction based on a quantitative threshold.

ASU 2023 - 09 is effective for the Company starting January 1, 2025, though early adoption is permitted.

ASU 2023 - 09 is not expected to have a significant impact on our financial statements.

Note 2 – Reclassifications –

Certain reclassifications may have been made to the prior years’ financial statements in order to conform to the classifications adopted for reporting in 2023.

Specifically for the adoption of CECL, prior to January 1, 2023, the allowance for credit losses was established based on an incurred loss model.

Upon adoption of ASU 2016 - 13 (i.e.

ASC 326 ), certain loan classification and segmentation categories were changed to align with the requirements of the standard and more effectively model the CECL estimate.

The updated CECL segmentation is reflected in the disclosures beginning January 1, 2023.

Results from periods prior to January 1, 2023 are presented using the previously applicable GAAP.

These reclassifications have no material effect on previously reported shareholders’ equity or net income.

BUSINESS FIRST BANCSHARES, INC.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 3 –

Mergers and Acquisitions –

Note 3 – Mergers and Acquisitions –

Texas Citizens Bancorp, Inc.

On March 1, 2022, the Company consummated the merger of Texas Citizens Bancorp, Inc.

(“TCBI”), headquartered in Pasadena, Texas, with and into the Company, pursuant to the terms of that certain Agreement and Plan of Reorganization (the “Reorganization Agreement”), dated as of October 20, 2021, by and between the Company and TCBI (the “Merger”).

Also on March 1, 2022, TCBI’s wholly owned banking subsidiary, Texas Citizens Bank, National Association, was merged with and into b1BANK.

Pursuant to the terms of the Reorganization Agreement, upon consummation of the Merger, the Company issued 2,069,532 shares of its common stock to the former shareholders of TCBI.

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

The following table reflects the consideration paid for TCBI’s net assets and the identifiable assets purchased and liabilities assumed at their fair values as of March 1, 2022.

The fair values are provisional estimates and may be adjusted for a period of up to one year from the date of acquisition if new information is obtained about facts and circumstances that existed as of the acquisition date that, if known, would have affected the measurement of the amounts recognized as of that date.

The following table reflects the consideration paid for TCBI’s net assets and the identifiable assets purchased and liabilities assumed at their fair values as of March 1, 2022.

Cost and Allocation of Purchase Price for Texas Citizens Bancorp, Inc.

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Goodwill Resulting from Merger

The Company has recorded approximately $ 5.2 million and $ 515,000 of acquisition-related costs within merger and conversion-related expenses and salaries and benefits for the years ended December 31, 2022 and 2021, respectively.

The Company has recorded approximately $ 236,000 and $ 5.2 million of acquisition-related costs within merger and conversion-related expenses and salaries and benefits for the years ended December 31, 2023 and 2022, respectively.

The following is a description of the methods used to determine the fair values of significant assets acquired and liabilities assumed presented above.

Cash and Cash Equivalents:

 The carrying amount of these assets was a reasonable estimate of fair value based on the short-term nature of these assets.

BUSINESS FIRST BANCSHARES, INC.

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Securities Available for Sale:

 Fair values for securities were based on quoted market prices, where available.

If quoted market prices were not available, fair value estimates were based on observable inputs including quoted market prices for similar instruments, quoted market prices that were not in an active market or other inputs that were observable in the market.

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Loans and Leases Receivable:

 Fair values for loans were based on a discounted cash flow methodology that considered factors including, but not limited to, loan type, classification status, remaining term, prepayment speed, and current discount rates.

The discount rates used for loans were based on current market rates for new originations of comparable loans and included adjustments for any liquidity concerns.

The discount rate did not include an explicit factor for credit losses, as that was included within the estimated cash flows.

Core Deposit Intangible ( “

Core Deposit Intangible ( “ CDI ” ):

The fair value for core deposit intangible assets was estimated based on a discounted cash flow methodology that gave appropriate consideration to expected customer attrition rates, net maintenance cost of the deposit base, including interest cost, and alternative cost of funds.

The CDI is being amortized over 

10 years based upon the period over which estimated economic benefits are estimated to be received.

 The fair values used for the demand and savings deposits, by definition, equal the amount payable on demand at the acquisition date.

The CDI is being amortized over 10 years based upon the period over which estimated economic benefits are estimated to be received.

The fair values used for the demand and savings deposits, by definition, equal the amount payable on demand at the acquisition date.

Fair values for time deposits were estimated using a discounted cash flow analysis, that applied interest rates currently being offered to the contractual interest rates on such time deposits.

 Fair values for borrowings were based on estimated market rates over the remaining terms of the subordinated debt issuances.

Pro forma tables for TCBI were impractical to include due to the cost versus benefit of including such disclosures.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 4 –

Earnings per Common Share –

Basic earnings per common share (“EPS”) represents income available to common shareholders divided by the weighted average number of common shares outstanding;

Note 4 – Earnings per Common Share –

Basic earnings per common share (“EPS”) represents income available to common shareholders divided by the weighted average number of common shares outstanding;

no dilution for any potentially convertible shares is included in the calculation.

Diluted EPS reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock or resulted in the issuance of common stock that then shared in the earnings of the Company.

The potential common shares that may be issued by the Company relate to outstanding stock options and unvested restricted stock awards (“RSAs”), excluding any that were antidilutive.

In addition, nonvested share-based payment awards that contain nonforfeitable rights to dividends or dividend equivalents are considered participating securities and are included in the computation of EPS pursuant to the two -class method.

1 unchanged sentence

(Dollars in thousands, except per share data)

$ 54,255  

$ 52,136  

$ 29,994  

Preferred Stock Dividends

Net Income Available to Common Shareholders

$ 52,905  

$ 52,136  

$ 29,994  

Net Income Available to Common Shares

Weighted Average Common Shares Outstanding

22,633,478  

20,502,249  

18,169,599  

Dilutive Effect of Stock Options and Restricted Stock Awards

184,015  

132,032  

73,846  

Weighted Average Dilutive Common Shares

22,817,493  

20,634,281  

18,243,445  

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

$ 2.34  

$ 2.54  

$ 1.65  

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

$ 2.32  

$ 2.53  

$ 1.64  

Note 5 –

Cash and Due From Bank –

Note 5 – Cash and Due From Bank –

The Bank is required to maintain funds in cash or on deposit with the Federal Reserve Bank.

3 unchanged sentences

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 6 –

Securities –

Note 6 – Securities –

The amortized cost and fair values of securities available for sale as of December 31, 2023 and 2022 are summarized as follows:

2 unchanged sentences

Treasury Securities

$ 32,783  

$ 2,668  

$ 30,115  

$ 17,690 $ - $ 1,451 $ 16,239

Government Agencies

50,288  

47,372  

10,258 - 848 9,410

Corporate Securities

48,475  

46,004  

49,609 - 5,770 43,839

Mortgage-Backed Securities

506,671  

55,213  

451,725  

555,148 976 49,814 506,310

Municipal Securities

347,382  

31,858  

315,535  

331,273 298 27,798 303,773

Total Securities Available for Sale

$ 985,599  

$ 95,151  

$ 890,751  

$ 963,978 $ 1,274 $ 85,681 $ 879,571

December 31, 2022

1 unchanged sentence

Treasury Securities

$ 22,751  

$ 22,314  

$ 32,783 $ - $ 2,668 $ 30,115

Government Agencies

27,867  

27,493  

50,288 - 2,916 47,372

Corporate Securities

45,876  

46,582  

48,475 25 2,496 46,004

Mortgage-Backed Securities

555,528  

552,339  

506,671 267 55,213 451,725

Municipal Securities

370,421  

372,333  

347,382 11 31,858 315,535

Total Securities Available for Sale

$ 1,022,443  

$ 8,160  

$ 9,542  

$ 1,021,061  

$ 985,599 $ 303 $ 95,151 $ 890,751

BUSINESS FIRST BANCSHARES, INC.

2 unchanged sentences

The following tables present a summary of securities with gross unrealized losses and fair values at December 31, 2023 and 2022, aggregated by investment category and length of time in a continued unrealized loss position.

Due to the nature of these investments and current prevailing market prices, these unrealized losses are considered a temporary impairment of the securities.

Due to the nature of these investments and current prevailing market prices, these unrealized losses are considered non-credit related.

December 31, 2023

3 unchanged sentences

Treasury Securities

$ 9,702  

$ 20,413  

$ 2,294  

$ 30,115  

$ 2,668  

$ - $ - $ 16,239 $ 1,451 $ 16,239 $ 1,451

Government Agencies

24,405  

22,967  

47,372  

- - 9,410 848 9,410 848

Corporate Securities

19,564  

25,949  

7,529 362 36,106 5,408 43,635 5,770

Mortgage-Backed Securities

115,692  

324,043  

47,740  

439,735  

55,213  

21,436 895 375,891 48,919 397,327 49,814

Municipal Securities

143,035  

10,206  

131,944  

21,652  

274,979  

31,858  

8,013 63 270,467 27,735 278,480 27,798

Total Securities Available for Sale

$ 312,398  

$ 20,007  

$ 505,752  

$ 75,144  

$ 818,150  

$ 95,151  

$ 36,978 $ 1,320 $ 708,113 $ 84,361 $ 745,091 $ 85,681

December 31, 2022

3 unchanged sentences

Treasury Securities

$ 22,314  

$ 9,702 $ 374 $ 20,413 $ 2,294 $ 30,115 $ 2,668

Government Agencies

24,980  

24,405 595 22,967 2,321 47,372 2,916

Corporate Securities

19,564 1,359 6,385 1,137 25,949 2,496

Mortgage-Backed Securities

407,986  

18,985  

426,971  

115,692 7,473 324,043 47,740 439,735 55,213

Municipal Securities

145,649  

10,161  

155,810  

143,035 10,206 131,944 21,652 274,979 31,858

Total Securities Available for Sale

$ 608,279  

$ 8,899  

$ 29,146  

$ 637,425  

$ 9,542  

Management evaluates securities for other than temporary impairment when economic and market conditions warrant such evaluations.

Consideration is given to the extent and length of time the fair value has been below cost, the reasons for the decline in value, and the Company’s intent to sell a security or whether it is more likely than not that the Company will be required to sell the security before the recovery of its amortized cost.

The Company developed a process to identify securities that could potentially have a credit impairment that is other than temporary.

This process involves evaluating each security for impairment by monitoring credit performance, collateral type, collateral geography, loan-to-value ratios, credit scores, loss severity levels, pricing levels, downgrades by rating agencies, cash flow projections and other factors as indicators of potential credit issues.

When the Company determines that a security is deemed to be other than temporarily impaired, an impairment loss is recognized.

$ 312,398 $ 20,007 $ 505,752 $ 75,144 $ 818,150 $ 95,151

As of December 31, 2023, no allowance for credit losses was recognized on available for sale securities in an unrealized loss position as management does not believe any of the securities are impaired due to credit quality.

This determination is based on the Company’s analysis of the underlying risk characteristics including credit ratings, historical loss experience, and other qualitative factors.

Further, the securities continue to make principal and interest payments under their contractual terms and management does not have the intent to sell any of the securities and believes that it is more likely than not that the Company will not have to sell any such securities before a recovery of amortized cost basis.

Therefore, the Company has determined the unrealized losses are due to changes in market interest rates compared to rates when the securities were acquired.

For the period ended December 31, 2022, management evaluated securities for other than temporary impairment.

Consideration was given to the extent and length of time the fair value had been below cost, the reasons for the decline in value, and the Company’s intent to sell a security or whether it was more likely than not that the Company would be required to sell the security before the recovery of its amortized cost.

The Company utilized a process to identify securities that could potentially have a credit impairment that was other than temporary.

The process involved evaluating each security for impairment by monitoring credit performance, collateral type, collateral geography, loan-to-value ratios, credit scores, loss severity levels, pricing levels, downgrades by rating agencies, cash flow projections and other factors as indicators of potential credit issues.

The Company determined no other than temporary impairment existed at December 31, 2022.

BUSINESS FIRST BANCSHARES, INC.

5 unchanged sentences

Less Than One Year

$ 18,071  

$ 17,908  

$ 17,287 $ 17,126

One to Five Years

232,550  

218,789  

181,791 171,117

Over Five to Ten Years

373,007  

336,559  

384,160 349,660

Over Ten Years

361,971  

317,495  

380,740 341,668

Total Securities Available for Sale

$ 985,599  

$ 890,751  

$ 963,978 $ 879,571

Securities available for sale with a fair value of $ 629.7 million and $ 482.7 million, respectively, were pledged as collateral on public deposits and for other purposes as required or permitted by law as of December 31, 2023 and 2022.

There were $ 9,000 , $ 593,000 and $ 293,000 realized gross gains from sales or redemptions of securities for the years ended December 31, 2022, 2021 and 2020, respectively.

There were $ 57,000 , $ 215,000 and $ 158,000 realized gross losses from sales or redemptions of securities for the years ended December 31, 2022, 2021 and 2020, respectively.

At December 31, 2023 and 2022, accrued interest receivable on securities was $ 4.7 million and $ 4.4 million, respectively, and is included within accrued interest receivable on the consolidated balance sheets.

There were $ 9,000 and $ 593,000 realized gross gains from sales or redemptions of securities for the years ended December 31, 2022 and 2021, respectively, and none for the year ended December 31, 2023.

There were $ 2.6 million, $ 57,000 and $ 215,000 realized gross losses from sales or redemptions of securities for the years ended December 31, 2023, 2022 and 2021, respectively.

BUSINESS FIRST BANCSHARES, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Other Equity Securities and VIEs

2 unchanged sentences

The Federal Home Loan Bank stock is pledged to secure advances from the Federal Home Loan Bank of Dallas at both December 31, 2023 and 2022.

The Company also has investments of $ 302,000 in TIB National Association, $ 562,000 in Bankers Insurance, LLC at both December 31, 2022 and 2021.

The Company also has investments in First National Banker's Bank of $ 2.2 million and $ 2.0 million and Senior Housing Crime Prevention Foundation stock of $ 501,000 and $ 502,000 at December 31, 2022 and 2021, respectively.

The Company also has investments of $ 302,000 in TIB National Association, $ 562,000 in Bankers Insurance, LLC, and $ 2.2 million in First National Banker’s Bank at both December 31, 2023 and 2022.

The Company also had an investment in Senior Housing Crime Prevention Foundation stock of $ 501,000 at December 31, 2022.

These investments are carried at cost, less any impairment, due to the lack of a quoted market price and a ready market for these types of investments.

2 unchanged sentences

Consolidation of a VIE is appropriate if a reporting entity holds a controlling financial interest in the VIE and is the primary beneficiary.

The Company is not the primary beneficiary and does not hold a controlling interest in the VIEs as it does not have the power to direct the activities that most significantly impact the VIEs’

economic performance.

Small Business Investment Companies (“SBIC”) and financial technology (“Fintech”) funds at December 31, 2022 and 2021 are summarized below.

The Company is not the primary beneficiary and does not hold a controlling interest in the VIEs as it does not have the power to direct the activities that most significantly impact the VIEs’ economic performance.

Small Business Investment Companies (“SBIC”) and financial technology (“Fintech”) funds at December 31, 2023 and 2022 are summarized below.

(Dollars in thousands)

McLarty Capital Partners SBIC, L.P.

$ 1,432  

McLarty Capital Partners SBIC II, L.P.

Firmament Capital Partners SBIC III, L.P.

Firmament Capital Partners SBIC IV, L.P.

Bluehenge Capital Secured Debt SBIC, L.P.

3 unchanged sentences

Valesco Fund II, LP

Valesco Fund III, LP

GP Capital Partners, LP

5 unchanged sentences

Work America Capital Fund I, LP

$ 14,242  

$ 8,005  

$ 16,024 $ 14,242

BUSINESS FIRST BANCSHARES, INC.

1 unchanged sentence

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 7 –

Loans and the Allowance for Loan Losses –

Note 7 – Loans and the Allowance for Loan Losses –

Loans receivable at December 31, 2023 and 2022 are summarized as follows:

1 unchanged sentence

Real estate loans:

Construction and land

$ 722,074  

$ 548,528  

193,587  

87,463  

1-4 family residential

557,741  

467,699  

Multi-family residential

98,637  

97,508  

Nonfarm nonresidential

1,826,819  

1,144,426  

1,090,343  

721,385  

$ 2,217,928 $ 2,020,406

669,798 722,074

682,394 656,378

Total real estate loans

3,570,120 3,398,858

1,358,838 1,153,873

Consumer and other

116,975  

122,599  

63,827 53,445

Total loans held for investment

4,606,176  

3,189,608  

4,992,785 4,606,176

Allowance for loan losses

( 38,178 )  

$ 4,567,998  

$ 3,160,496  

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

( 40,414 ) ( 38,178 )

$ 4,952,371 $ 4,567,998

The performing 1 - 4 family residential, multi-family residential, commercial real estate, and commercial loans, are pledged, under a blanket lien, as collateral securing advances from the FHLB at December 31, 2023 and 2022.

Commercial and agricultural loans are pledged against the Federal Reserve Banks’ discount window as of December 31, 2023.

Net deferred loan origination fees were $ 12.6 million and $ 13.1 million at December 31, 2023 and 2022, respectively, and are netted in their respective loan categories above.

2 unchanged sentences

The Bank is the lead lender on participations sold, without recourse, to other financial institutions which amounts are not included in the consolidated balance sheets.

The unpaid principal balances of mortgages and other loans serviced for others were approximately $ 683.3  million and $ 461.8 million at December 31, 2022 and 2021, respectively.

The unpaid principal balances of mortgages and other loans serviced for others were approximately $ 723.5 million and $ 683.3 million at December 31, 2023 and 2022, respectively.

The Company has servicing rights of $ 1.1 million and $ 1.7 million recorded at December 31, 2023 and 2022, respectively, which are recorded within other assets.

The Bank grants loans and extensions of credit to individuals and a variety of businesses and corporations located in its general market areas throughout Louisiana and Texas.

Management segregates the loan portfolio into portfolio segments which is defined as the level at which the Bank develops and documents a systematic method for determining its allowance for loan losses.

The portfolio segments are segregated based on loan types and the underlying risk factors present in each loan type.

Such risk factors are periodically reviewed by management and revised as deemed appropriate.

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

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

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

For purchased impaired credits, cash flow re-estimations are performed at least quarterly for each acquired impaired loan or loan pool.

Increases in estimated cash flows above those expected at the time of acquisition are recognized on a prospective basis as interest income over the remaining life of the loan and/or pool.

Decreases in expected cash flows subsequent to acquisition generally result in recognition of a provision for credit loss.

Portfolio Segments and Risk Factors

The loan portfolio is disaggregated into portfolio segments and then further disaggregated into classes for certain disclosures.

GAAP defines a portfolio segment as the level at which an entity develops and documents a systematic method for determining its allowance for credit losses.

A class is generally a disaggregation of a portfolio segment.

The Company's loan portfolio segments are Real Estate, Commercial, and Consumer and Other.

The classes and risk characteristics of each segment are discussed in more detail below.

The segmentation and disaggregation of the portfolio is part of the ongoing credit monitoring process.

BUSINESS FIRST BANCSHARES, INC.

1 unchanged sentence

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Total loans held for investment at December 31, 2022 includes $ 498.1  million of loans acquired in acquisitions that were recorded at fair value as of the acquisition date.

Included in the acquired balances at December 31, 2022 were acquired impaired loans accounted for under ASC 310 - 30 with a net carrying amount of $ 49.8 million and acquired performing loans not accounted for under ASC 310 - 30 totaling $ 450.0 million with a remaining purchase discount of $ 3.3 million.

Total loans held for investment at December 31, 2021 includes $ 379.0 million of loans acquired in acquisitions that were recorded at fair value as of the acquisition date.

Included in the acquired balances at December 31, 2021 were acquired impaired loans accounted for under ASC 310 - 30 with a net carrying amount of $ 51.2 million and acquired performing loans not accounted for under ASC 310 - 30 totaling $ 331.3 million with a remaining purchase discount of $ 3.5 million.

The following tables set forth, as of December 31, 2022 and 2021, the balance of the allowance for loan losses by portfolio segment, disaggregated by impairment methodology, which is then further segregated by amounts evaluated for impairment collectively and individually.

The allowance for loan losses allocated to each portfolio segment is not necessarily indicative of future losses in any particular portfolio segment and does not restrict the use of the allowance to absorb losses in other portfolio segments.

Real Estate Portfolio Segment

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.

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 the Company’s market areas.

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

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

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.

Commercial Portfolio Segment

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.

Consumer and Other Portfolio Segment

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.

BUSINESS FIRST BANCSHARES, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The following table sets forth, as of December 31, 2023, the balance of the allowance for credit losses by loan portfolio segment.

The allowance for credit losses allocated to each portfolio segment is not necessarily indicative of future losses in any particular portfolio segment and does not restrict the use of the allowance to absorb losses in other portfolio segments.

Allowance for Credit Losses and Recorded Investment in Loans Receivable

1 unchanged sentence

(Dollars in thousands)

Nonresidential

Allowance for credit losses:

Allowance for Loan Losses:

Beginning Balance

$ 4,498  

$ 3,791  

$ 9,794  

$ 8,358  

$ 1,176  

$ 29,112  

( 16 )  

( 191 )  

( 51 )  

( 2,091 )  

( 472 )  

( 43 )  

10,886  

Ending Balance

$ 5,768  

$ 1,554  

$ 4,623  

$ 13,148  

$ 11,197  

$ 1,157  

$ 38,178  

Ending Balance:

Individually evaluated for impairment

$ 2,002  

$ 2,214  

Collectively evaluated for impairment

$ 5,747  

$ 1,554  

$ 4,524  

$ 13,089  

$ 9,195  

$ 1,124  

$ 35,964  

Purchased Credit Impaired

Loans receivable:

$ 14,702 $ 5,768 $ 5,354 $ 11,721 $ 633 $ 38,178

Adoption of ASU 2016-13

4,823 933 ( 365 ) ( 2,483 ) ( 248 ) 2,660

Beginning Balance After Adoption

19,525 6,701 4,989 9,238 385 40,838

( 2,049 ) ( 36 ) ( 42 ) ( 2,813 ) ( 1,489 ) ( 6,429 )

26 1 18 672 327 1,044

Provision (Recovery)

174 ( 70 ) 520 3,327 1,010 4,961

Ending Balance

$ 722,074  

$ 193,587  

$ 557,741  

$ 98,637  

$ 1,826,819  

$ 1,090,343  

$ 116,975  

$ 4,606,176  

$ 17,676 $ 6,596 $ 5,485 $ 10,424 $ 233 $ 40,414

Reserve for Unfunded Credit Commitments:

Beginning Balance

$ 220 $ 137 $ 13 $ 229 $ 6 $ 605

Adoption of ASU 2016-13

116 2,113 190 657 121 3,197

Beginning Balance After Adoption

336 2,250 203 886 127 3,802

Provision (Recovery)

( 130 ) ( 704 ) ( 26 ) 486 ( 104 ) ( 478 )

Ending Balance

Individually evaluated for impairment

$ 4,028  

$ 3,037  

$ 6,325  

$ 14,707  

Collectively evaluated for impairment

$ 720,129  

$ 193,557  

$ 538,558  

$ 98,637  

$ 1,796,274  

$ 1,078,544  

$ 115,983  

$ 4,541,682  

Purchased Credit Impaired

$ 15,155  

$ 27,508  

$ 5,474  

$ 49,787  

$ 206 $ 1,546 $ 177 $ 1,372 $ 23 $ 3,324

Total Allowance for Credit Losses

$ 17,882 $ 8,142 $ 5,662 $ 11,796 $ 256 $ 43,738

Included within the above allowance are loans which management has individually evaluated to determine an allowance for credit losses.

The following table summarizes, by segment, the loan balance and specific allowance allocation for those loans which have been individually evaluated.

December 31, 2023

January 1, 2023

Specific Allocations

(Dollars in thousands)

Real estate loans:

$ 883 $ - $ 3,008 $ 1,915

2,334 513 1,424 513

1,533 - 1,558 3

Total real estate loans

4,750 513 5,990 2,431

- - 6,096 1,779

Consumer and other

$ 4,750 $ 513 $ 12,086 $ 4,210

BUSINESS FIRST BANCSHARES, INC.

1 unchanged sentence

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The following table sets forth, as of December 31, 2022 ( prior to the adoption of ASU 2016 - 13 ), the balance of the allowance for credit losses by portfolio segment, disaggregated by impairment methodology, which is then further segregated by amounts evaluated for impairment collectively and individually.

December 31, 2022

(Dollars in thousands)

Nonresidential

Allowance for credit losses:

Allowance for Loan Losses:

Beginning Balance

$ 3,584  

$ 3,453  

$ 7,369  

$ 5,018  

$ 1,182  

$ 22,024  

( 28 )  

( 169 )  

( 139 )  

( 830 )  

( 469 )  

( 44 )  

$ 10,515 $ 4,498 $ 4,565 $ 9,016 $ 518 $ 29,112

( 51 ) ( 16 ) ( 191 ) ( 2,139 ) ( 424 ) ( 2,821 )

50 25 20 739 167 1,001

4,188 1,261 960 4,105 372 10,886

Ending Balance

$ 4,498  

$ 3,791  

$ 9,794  

$ 8,358  

$ 1,176  

$ 29,112  

$ 14,702 $ 5,768 $ 5,354 $ 11,721 $ 633 $ 38,178

Ending Balance:

Individually Evaluated for Impairment

$ 59 $ 21 $ 99 $ 2,020 $ 15 $ 2,214

Collectively Evaluated for Impairment

$ 4,472  

$ 3,681  

$ 9,711  

$ 7,920  

$ 1,139  

$ 28,418  

$ 14,643 $ 5,747 $ 5,255 $ 9,701 $ 618 $ 35,964

Purchased Credit Impaired

$ - $ - $ - $ - $ - $ -

Loans Receivable:

Ending Balance

$ 548,528  

$ 87,463  

$ 467,699  

$ 97,508  

$ 1,144,426  

$ 721,385  

$ 122,599  

$ 3,189,608  

$ 2,020,406 $ 722,074 $ 656,378 $ 1,153,873 $ 53,445 $ 4,606,176

Ending Balance:

Individually Evaluated for Impairment

$ 1,358  

$ 3,627  

$ 2,959  

$ 5,514  

$ 13,821  

$ 3,053 $ 992 $ 4,028 $ 6,442 $ 192 $ 14,707

Collectively Evaluated for Impairment

$ 546,164  

$ 87,387  

$ 444,934  

$ 97,508  

$ 1,118,836  

$ 708,346  

$ 121,392  

$ 3,124,567  

$ 1,989,831 $ 720,129 $ 637,195 $ 1,141,957 $ 52,570 $ 4,541,682

Purchased Credit Impaired

$ 1,006  

$ 19,138  

$ 22,631  

$ 7,525  

$ 51,220  

Portfolio Segment Risk Factors

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

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

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

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

One-to- four family 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.

Multi-family residential loans are generally 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.

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

Repayment is generally relied upon from 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.

$ 27,522 $ 953 $ 15,155 $ 5,474 $ 683 $ 49,787

Credit Quality Indicators

We utilize a risk grading matrix to assign a risk grade to each of our commercial loans.

Loans are graded on a scale of 10 to 80.

Individual loan officers review updated financial information for all pass grade loans to reassess the risk grade, generally on at least an annual basis.

When a loan has a risk grade of 60, it is still considered a pass grade loan;

however, it is considered to be on management’s “watch list,” and subject to additional and more frequent monitoring by both the loan officer and senior credit and risk personnel.

When a loan has a risk grade of 70 or higher, a special assets officer monitors the loan on an on-going basis.

BUSINESS FIRST BANCSHARES, INC.

1 unchanged sentence

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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 on the basis of 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.

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.

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

As of December 31, 2022 and 2021, the credit quality indicators, disaggregated by class of loan, are as follows:

Credit Quality Indicators

The following table sets forth the credit quality indicators, disaggregated by loan segment, as of December 31, 2023:

December 31, 2023

(Risk Grade 10-45)

Special Mention

(Risk Grade 50)

(Risk Grade 60)

(Risk Grade 70)

(Risk Grade 80)

Current Period Charge- offs

(Dollars in thousands)

Real Estate Loans:

Construction and land

$ 716,071  

$ 3,496  

$ 2,157  

$ 722,074  

191,475  

193,587  

1-4 family residential

545,142  

557,741  

Multi-family residential

98,621  

98,637  

Nonfarm nonresidential

1,781,136  

32,972  

10,462  

1,826,819  

1,074,417  

1,090,343  

Originated in 2023

$ 228,902 $ - $ 84 $ - $ - $ 228,986 $ -

Originated in 2022

751,649 1,909 - - - 753,558 -

Originated in 2021

427,269 6,103 492 - - 433,864 357

Originated in 2020

151,848 3,551 8 - - 155,407 -

Originated in 2019

149,946 5,556 372 932 - 156,806 1,447

Originated Prior to 2019

379,503 1,313 7,970 335 - 389,121 245

99,723 226 237 - - 100,186 -

Revolving Loans Converted to Term

- - - - - - -

Total Real Estate:

$ 2,188,840 $ 18,658 $ 9,163 $ 1,267 $ - $ 2,217,928 $ 2,049

Originated in 2023

$ 131,617 $ - $ - $ - $ - $ 131,617 $ -

Originated in 2022

322,032 647 62 - - 322,741 -

Originated in 2021

85,438 2,601 1,229 - - 89,268 -

Originated in 2020

22,515 31 16 - - 22,562 -

Originated in 2019

19,402 - 1,675 - - 21,077 1

Originated Prior to 2019

20,180 413 588 345 - 21,526 35

60,612 395 - - - 61,007 -

Revolving Loans Converted to Term

- - - - - - -

Total Real Estate:

$ 661,796 $ 4,087 $ 3,570 $ 345 $ - $ 669,798 $ 36

Originated in 2023

$ 76,662 $ - $ - $ - $ - $ 76,662 $ -

Originated in 2022

170,229 433 410 14 - 171,086 -

Originated in 2021

98,329 - 708 - - 99,037 11

Originated in 2020

68,281 386 520 57 - 69,244 1

Originated in 2019

54,902 1,112 1,061 119 - 57,194 22

Originated Prior to 2019

97,716 1,230 6,000 299 - 105,245 7

103,252 - 654 - - 103,906 1

Revolving Loans Converted to Term

20 - - - - 20 -

Total Real Estate:

$ 669,391 $ 3,161 $ 9,353 $ 489 $ - $ 682,394 $ 42

Originated in 2023

$ 303,160 $ 1,439 $ 709 $ - $ - $ 305,308 $ -

Originated in 2022

267,678 698 1,196 - - 269,572 247

Originated in 2021

136,291 5,483 928 16 - 142,718 25

Originated in 2020

48,990 448 921 42 - 50,401 49

Originated in 2019

21,137 584 640 231 - 22,592 1,632

Originated Prior to 2019

61,166 3,843 341 251 - 65,601 658

499,642 2,128 573 28 - 502,371 202

Revolving Loans Converted to Term

275 - - - - 275 -

Total Commercial

$ 1,338,339 $ 14,623 $ 5,308 $ 568 $ - $ 1,358,838 $ 2,813

Consumer and Other

116,179  

116,975  

$ 4,523,041  

$ 48,976  

$ 27,924  

$ 6,235  

$ 4,606,176  

Originated in 2023

$ 11,245 $ - $ - $ - $ - $ 11,245 $ 8

Originated in 2022

7,219 - 27 - - 7,246 78

Originated in 2021

3,372 - 55 - - 3,427 29

Originated in 2020

1,850 - 88 - - 1,938 11

Originated in 2019

2,359 - 40 - - 2,399 18

Originated Prior to 2019

18,280 - 92 - - 18,372 61

18,814 100 160 - - 19,074 1,284

Revolving Loans Converted to Term

126 - - - - 126 -

Total Consumer and Other

$ 63,265 $ 100 $ 462 $ - $ - $ 63,827 $ 1,489

$ 4,921,631 $ 40,629 $ 27,856 $ 2,669 $ - $ 4,992,785 $ 6,429

BUSINESS FIRST BANCSHARES, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The following table sets forth the credit quality indicators, disaggregated by loan segment, as of December 31, 2022 ( prior to the adoption of ASU 2016 - 13 ):

December 31, 2022

Special Mention

(Risk Grade 10-45)

Special Mention (Risk Grade 50)

(Risk Grade 60)

(Risk Grade 70)

(Dollars in thousands)

Real Estate Loans:

Construction and land

$ 545,071  

$ 1,850  

$ 1,341  

$ 548,528  

86,063  

87,463  

1-4 family residential

456,150  

467,699  

Multi-family residential

97,485  

97,508  

Nonfarm nonresidential

1,094,782  

34,495  

1,144,426  

704,755  

721,385  

$ 1,972,611 $ 35,054 $ 10,478 $ 2,263 $ 2,020,406

716,071 3,496 2,157 350 722,074

643,763 3,780 7,925 910 656,378

Total Real Estate Loans

3,332,445 42,330 20,560 3,523 3,398,858

1,137,555 6,646 6,960 2,712 1,153,873

Consumer and Other

121,566  

122,599  

$ 3,105,872  

$ 47,430  

$ 17,803  

$ 18,503  

$ 3,189,608  

BUSINESS FIRST BANCSHARES, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

53,041 - 404 - 53,445

$ 4,523,041 $ 48,976 $ 27,924 $ 6,235 $ 4,606,176

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

8 unchanged sentences

The Bank considers all loans more than 90 days past due as nonperforming loans.

The following tables provide an analysis of the aging of loans and leases as of December 31, 2022 and December 

Past due and nonaccrual loan amounts exclude acquired impaired loans, even if contractually past due or if the Company does not expect to receive payment in full, as the Company is currently accreting interest income over the expected life of the loans.

The following tables provide an analysis of the aging of loans and leases as of December 31, 2023 and December 31, 2022.

For the year ended December 31, 2022, past due and nonaccrual loan amounts exclude acquired impaired loans, even if contractually past due or if the Company does not expect to receive payment in full, as prior to the adoption of CECL, the Company accreted interest income over the expected life of the loans.

With the adoption of CECL and deconstruction of acquired impaired accounting, those amounts are no longer excluded for the period ended December 31, 2023.

All loans greater than 90 days past due are generally placed on nonaccrual status.

BUSINESS FIRST BANCSHARES, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Aged Analysis of Past Due Loans Receivable

1 unchanged sentence

(Dollars in thousands)

Investment Over

90 Days Past Due

and Still Accruing

Real Estate Loans:

Construction and land

$ 721,075  

$ 722,074  

193,488  

193,587  

1-4 family residential

553,947  

557,741  

Multi-family residential

98,637  

Nonfarm nonresidential

1,823,536  

1,826,819  

1,085,320  

1,090,343  

Consumer and other

116,190  

116,975  

$ 4,879  

$ 2,636  

$ 6,468  

$ 13,983  

$ 4,592,193  

$ 4,606,176  

December 31, 2021

(Dollars in thousands)

Investment Over

Total Loans Receivable

Recorded Investment Over

90 Days Past Due

1 unchanged sentence

Real Estate Loans:

Construction and land

$ 1,136  

$ 547,392  

$ 548,528  

87,380  

87,463  

1-4 family residential

464,752  

467,699  

Multi-family residential

97,508  

Nonfarm nonresidential

1,141,810  

1,144,426  

716,967  

721,385  

Consumer and other

121,792  

122,599  

$ 2,352  

$ 1,376  

$ 8,279  

$ 12,007  

$ 3,177,601  

$ 3,189,608  

BUSINESS FIRST BANCSHARES, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Loan Receivables on Nonaccrual Status

(Dollars in thousands)

Real Estate Loans:

Construction and land

$ 1,341  

1-4 family residential

Multi-family residential

Nonfarm nonresidential

$ 240 $ 536 $ 2,954 $ 3,730 $ 2,214,198 $ 2,217,928 $ 44

279 1,320 3,198 4,797 665,001 669,798 -

1,792 1,207 4,058 7,057 675,337 682,394 20

Total Real Estate Loans

2,311 3,063 10,210 15,584 3,554,536 3,570,120 64

1,101 71 1,622 2,794 1,356,044 1,358,838 52

Consumer and Other

$ 11,054  

$ 12,868  

BUSINESS FIRST BANCSHARES, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The following is a summary of information pertaining to impaired loans as of December 31, 2022 and December 31, 2021.

Purchased performing loans are placed on nonaccrual status and reported as impaired using the same criteria applied to the originated portfolio.

Purchased impaired credits are excluded from this table.

The interest income recognized for impaired loans was $ 378,000 and $ 334,000 for the years ended December 31, 2022 and 2021, respectively.

280 252 188 720 63,107 63,827 11

$ 3,692 $ 3,386 $ 12,020 $ 19,098 $ 4,973,687 $ 4,992,785 $ 127

December 31, 2022

(Dollars in thousands)

With an allowance recorded:

Real Estate Loans:

Construction and land

1-4 family residential

Multi-family residential

Nonfarm nonresidential

Consumer and other

$ 6,994  

$ 7,234  

$ 2,214  

$ 3,553  

With no allowance recorded:

Real Estate Loans:

Construction and land

$ 1,000  

1-4 family residential

Multi-family residential

Nonfarm nonresidential

Consumer and other

$ 7,713  

$ 11,477  

$ 12,100  

Total Impaired Loans:

Total Loans Receivable Recorded Investment Over

90 Days Past Due and Still Accruing

Real Estate Loans:

Construction and land

$ 1,025  

1-4 family residential

Multi-family residential

Nonfarm nonresidential

$ 1,491 $ 210 $ 1,681 $ 3,382 $ 2,017,024 $ 2,020,406 $ 98

320 41 638 999 721,075 722,074 -

1,590 423 1,781 3,794 652,584 656,378 -

Total Real Estate Loans

3,401 674 4,100 8,175 3,390,683 3,398,858 98

1,183 1,934 2,186 5,303 1,148,570 1,153,873 222

Consumer and Other

$ 14,707  

$ 18,711  

$ 2,214  

$ 15,653  

295 28 182 505 52,940 53,445 15

$ 4,879 $ 2,636 $ 6,468 $ 13,983 $ 4,592,193 $ 4,606,176 $ 335

The Bank seeks to assist customers that are experiencing financial difficulty by renegotiating loans within lending regulations and guidelines.

The Bank makes loan modifications, primarily utilizing internal renegotiation programs via direct customer contact, that manage customers’ debt exposures held only by the Bank.

Additionally, the Bank makes loan modifications with customers who have elected to work with external renegotiation agencies and these modifications provide solutions to customers’ entire unsecured debt structures.

During the periods ended December 31, 2023 and 2022, the concessions granted to certain borrowers included extending the payment due dates and offering below market contractual interest rates, and were not significant to the consolidated financial statements.

BUSINESS FIRST BANCSHARES, INC.

1 unchanged sentence

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2021

Upon adoption of ASU 2016 - 13, the Company eliminated the pooling of purchased impaired credit loans.

As a result, $ 7.0 million of purchased credit deterioration loans were recognized as non-accrual loans as of January 1, 2023.

The following table presents non-accrual loans by segment as of December 31, 2023, January 1, 2023, and December 31, 2022, respectively.

(Dollars in thousands)

With an allowance recorded:

Real Estate Loans:

Construction and land

1-4 family residential

Multi-family residential

Nonfarm nonresidential

Consumer and other

$ 1,952  

$ 2,170  

$ 2,284  

With no allowance recorded:

Real Estate Loans:

Construction and land

$ 1,290  

$ 1,356  

$ 1,050  

1-4 family residential

Multi-family residential

Nonfarm nonresidential

Consumer and other

$ 11,869  

$ 13,978  

$ 11,038  

Total Impaired Loans:

Real Estate Loans:

Construction and land

$ 1,358  

$ 1,426  

$ 1,077  

1-4 family residential

Multi-family residential

Nonfarm nonresidential

$ 3,280 $ 5,847 $ 2,644

3,543 2,421 992

7,352 6,518 4,080

Total Real Estate Loans

14,175 14,786 7,716

2,395 3,045 3,150

Consumer and Other

$ 13,821  

$ 16,148  

$ 13,322  

BUSINESS FIRST BANCSHARES, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

As discussed in Note 3, the Company acquired loans with fair values of $ 338.0 million from TCBI on March 1, 2022.

Of the total $ 338.0 million of loans acquired, $ 316.5 million were determined to have no evidence of deteriorated credit quality and are accounted for under ASC Topics 310 - 10 and 310 - 20.

The unamortized discount related to the acquired performing loans totaled $ 1.7 million at March 1, 2022.

The remaining $ 21.5 million were determined to exhibit deteriorated credit quality since origination under ASC 310 - 30.

The following table presents the balances acquired on March 1, 2022 which were accounted for under ASC 310 - 30.

Impaired Credits

(Dollars in thousands)

Contractually required payments

$ 52,899  

Non-accretable difference (expected losses)

Cash flows expected to be collected at acquisition

26,096  

Accretable yield

Basis in acquired loans at acquisition

$ 21,474  

The following is a summary of changes in the accretable difference for loans accounted for under ASC 310 - 30 during the year ended December 31, 2022:

Balance at December 31, 2021

$ 20,659  

Transfers from non-accretable difference to accretable yield

Changes in expected cash flows not affecting non-accretable differences

Balance at December 31, 2022

$ 22,284  

The Bank seeks to assist customers that are experiencing financial difficulty by renegotiating loans within lending regulations and guidelines.

The Bank makes loan modifications, primarily utilizing internal renegotiation programs via direct customer contact, that manage customers’

debt exposures held only by the Bank.

Additionally, the Bank makes loan modifications with customers who have elected to work with external renegotiation agencies and these modifications provide solutions to customers’

entire unsecured debt structures.

During the periods ended December 31, 2022 and 2021, the concessions granted to certain borrowers included extending the payment due dates and offering below market contractual interest rates.

Once modified in a troubled debt restructuring, a loan is generally considered impaired until its contractual maturity.

At the time of the restructuring, the loan is evaluated for an allowance for credit losses.

The Bank continues to specifically reevaluate the loan in subsequent periods, regardless of the borrower’s performance under the modified terms.

If a borrower subsequently defaults on the loan after it is restructured, the Bank provides an allowance for credit losses for the amount of the loan that exceeds the value of the related collateral.

BUSINESS FIRST BANCSHARES, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The Company had one troubled debt restructuring that subsequently defaulted during the year ended December 31, 2022 in amount of $ 1.5 million and three during the year ended December 31, 2021 in the amount of $ 154,000 .

The Company modified one loan that was categorized as a trouble debt restructuring during the year ended December 31, 2022, with a pre-modification balance of $ 3.5 million and a post-modification balance of $ 3.2 million. 

During the year ended December 31, 2021, the Company did not modify any loans that were categorized as trouble debt restructurings.

As of December 31, 2022 and 2021, our loan portfolio included loans with outstanding principal balances of $ 425.2 million and $ 522.0 million, respectively, that had previously been granted payment deferrals due to the effects of the COVID- 19 pandemic. 

As of both December 31, 2022 and 2021, the Company had no loans with outstanding principal balances still in their pandemic-related deferral periods.

Under Section 4013 of the CARES Act, as extended by the Consolidated Appropriations Act of 2021, and based on the interpretive guidance released by the FASB and the applicable banking regulators, the Company determined that none of the modifications associated with the COVID- 19 pandemic were troubled debt restructurings at both December 31, 2022 and 2021.

Accrued interest receivable of $ 5.4 million and $ 6.0 million was outstanding as of December 31, 2022 and 2021, respectively, for all loan deferrals.

Note 8 –

Premises and Equipment –

$ 16,943 $ 18,088 $ 11,054

Accrued interest receivable of $ 4.2 million and $ 5.4 million was outstanding as of December 31, 2023, and December 31, 2022, respectively, for all loan deferrals, primarily attributable to the COVID- 19 pandemic and, to a much lesser extent, hurricanes which occurred in 2020 and 2021.

These loans are no longer within their deferral periods.

The accrued interest on the loans is due at their maturity.

At December 31, 2023 and December 31, 2022, accrued interest receivable on loans was $ 25.2 million and $ 21.2 million, respectively, and included within accrued interest receivable on the consolidated balance sheets.

Note 8 – Premises and Equipment –

Bank premises and equipment at December 31, 2023 and 2022 consist of the following:

(Dollars in thousands)

$ 7,831  

$ 6,938  

Buildings and Leasehold Improvements

52,167  

46,131  

Furniture and Equipment

33,913  

29,601  

Right of Use Asset

17,477  

14,304  

Total Bank Premises and Equipment

111,388  

96,974  

Accumulated Depreciation

( 48,211 )  

Total Bank Premises and Equipment, net

$ 63,177  

$ 58,155  

The provision for depreciation and amortization attributable to bank premises and equipment charged to operating expenses was $ 4.7 million, $ 4.8 million and $ 4.2 million for the years ended December 31, 2023, 2022 and 2021, respectively.

2 unchanged sentences

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 9 - Goodwill and Other Intangible Assets –

Goodwill was recorded as a result of acquisitions.

The carrying amount of goodwill as of December 31, 2023 and 2022 was $ 88.4 million and $ 88.5 million, respectively.

The increase of $ 28.6 in goodwill was the result of the acquisition of TCBI in 2022.

In 2021, the increase of $ 6.0 million in goodwill was the result of the acquisition of SSW in 2021 which added $ 6.5 million, offset with $ 271,000 in adjustments from the Pedestal acquisition and the sale of the Oak Grove branch which also reduced goodwill in the amount of $ 168,000 .

In 2023, goodwill was reduced by $ 153,000 due to the sale of the Leesville branch.

In 2022, the increase of $ 28.6 million in goodwill was the result of the acquisition of TCBI.

The Company performed the required annual goodwill impairment test as of October 1, 2023.

The Company’s annual test did not indicate any impairment as of the testing date.

Following the testing date, management determined no triggering event had occurred though December 31, 2023.

3 unchanged sentences

Gross Carrying Amount

$ 17,225  

$ 13,128  

Acquired in SSW Acquisition

Adjustment for Sale of Branch

1 unchanged sentence

Accumulated Amortization

( 7,058 )  

Net Carrying Amount

$ 14,042  

$ 12,203  

Amortization expense on the core deposit and customer intangible assets totaled approximately $ 2.1 million, $ 2.0 million and $ 1.6 million during the years ended December 31, 2023, 2022 and 2021, respectively.

1 unchanged sentence

(Dollars in thousands)

$ 2,100  

Total Core Deposit and Customer Intangible

$ 14,042  

BUSINESS FIRST BANCSHARES, INC.

1 unchanged sentence

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 10 –

Deposits –

Note 10 – Deposits –

Deposit accounts at December 31, 2023 and 2022 are summarized as follows:

1 unchanged sentence

Noninterest Bearing - DDA

$ 1,549,381  

$ 1,291,036  

Noninterest Bearing Deposits

1,549,381  

1,291,036  

Interest Bearing - DDA

455,117  

198,622  

NOW and Super NOW Accounts

579,789  

581,449  

Money Market Accounts

1,136,597  

995,699  

Savings Accounts

312,884  

317,821  

Certificates of Deposit Over $250,000

279,781  

197,273  

Other Certificates of Deposit

506,796  

495,383  

Interest Bearing Deposits

3,270,964  

2,786,247  

Total Deposits

$ 4,820,345  

$ 4,077,283  

Approximately 79.0 % of certificates of deposit as of December 31, 2023 have stated maturity dates during 2024 and the remaining 21.0 % have stated maturity dates during 2025 and beyond.

At December 31, 2023 and 2022, total deposits for the top three customer relationships was approximately $ 168.3 million and $ 168.9 million, respectively, which represented 3.2 % and 3.5 % of total deposits, respectively.

Brokered and reciprocal deposits were approximately $ 550.2 million and $ 282.8 million at December 31, 2022 and 2021, respectively.

Brokered and reciprocal deposits were approximately $ 1.0 billion and $ 550.2 million at December 31, 2023 and 2022, respectively.

Included in these brokered and reciprocal deposits are public fund deposits of approximately $ 145.9 million and $ 131.9 million at December 31, 2023 and 2022, respectively.

3 unchanged sentences

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 11 –

Borrowings –

Note 11 – Borrowings –

The Bank had outstanding advances from the FHLB of $ 211.2 million and $ 410.1 million at December 31, 2023 and 2022, respectively, consisting of:

One short term, seven -day, fixed rate loan of $ 262.0 million at December 31, 2022, with interest at 4.55 %.

Principal was due, paid and renewed, at maturity in January 2023.

One fixed rate loan of $ 875,000 at December 31, 2022, that was acquired during the TCBI acquisition, with interest at 4.88 % paid monthly.

One fixed rate loan with an original principal balance of $ 60.0 million.

The loan was made in 2021 and the balance at December 31, 2023 and December 31, 2022 was $ 35.3 million and $ 47.2 million, respectively, with interest at 0.89 %.

Principal and interest payments are due monthly and the loan matures in November 2026.

One fixed rate loan of $ 875,000 at both December 31, 2023, and December 31, 2022, that was acquired during the TCBI acquisition, with interest at 4.88 % paid monthly.

Principal is due at maturity in April 2025.

One fixed rate loan of $ 25.0 million at December 31, 2023, with interest at 4.89 % paid monthly.

Principal is due at maturity in July 2025.

One fixed rate loan of $ 25.0 million at December 31, 2023, with interest at 4.65 % paid monthly.

Principal is due at maturity in January 2026.

One fixed rate loan of $ 25.0 million at December 31, 2023, with interest at 4.56 % paid monthly.

Principal is due at maturity in July 2026.

One fixed rate loan of $ 25.0 million at December 31, 2023, with interest at 4.13 % paid monthly.

Principal is due at maturity in October 2028.

This advance has put options beginning in October 2024.

One fixed rate loan with an original principal balance of $ 60.0 million.

The loan was made in 2021 and the balance at December 31, 2022 and 2021 was $ 47.2 million and $ 59.0 million, respectively, with interest at 0.89 %.

Monthly principal and interest payments are due monthly and the loan matures in November 2026.

One fixed rate loan of $ 25.0 million at December 31, 2023, with interest at 3.92 % paid monthly.

Principal was due at maturity in June 2024 but was paid in full in June 2022.

These advances are collateralized by the Company’s investment in FHLB stock and a blanket lien on qualifying loans in the Bank’s loan portfolio.

Principal is due at maturity in October 2030.

This advance has put options beginning in October 2024.

One fixed rate loan of $ 25.0 million at December 31, 2023, with interest at 3.72 % paid monthly.

Principal is due at maturity in October 2033.

This advance has put options beginning in October 2024.

One fixed rate loan of $ 25.0 million at December 31, 2023, with interest at 3.57 % paid monthly.

Principal is due at maturity in October 2033.

This advance has put options beginning in October 2024.

One fixed rate loan of $ 100.0 million at December 31, 2022, with interest at 3.53 % paid monthly.

Principal is due at maturity in October 2027.

This advance had put options beginning in October 2023 and was paid off in October 2023.

One short term, seven -day, fixed rate loan of $ 262.0 million at December 31, 2022, with interest at 4.55 %.

Principal and interest was due, paid and renewed, at maturity in January 2023.

This loan was rolled into the $ 230.0 million short term, overnight, fixed rate loan outstanding at March 31, 2023, which was paid off during the second quarter of 2023.

These advances are collateralized by the Company’s investment in FHLB stock and a blanket lien on qualifying loans in the Bank’s loan portfolio.

The blanket lien totaled approximately $ 1.8 billion at December 31, 2023 with unused availability for advances and letters of credit of approximately $ 1.2 billion.

3 unchanged sentences

The Company purchased $ 14.1 million on these lines at December 31, 2022 and was not in a purchased position on these lines at December 31, 2023.

The Company had a line of credit with First National Banker’s Bank (“FNBB”) and was allowed to borrow on a revolving basis up to $ 5.0 million.

This line of credit, established on November 3, 2021, was secured by a pledge of and security interest in the common stock of the Bank and established for general corporate purposes.

2 unchanged sentences

This FNBB line was paid in full at maturity, and was not renewed, in November, 2022.

BUSINESS FIRST BANCSHARES, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

On March 12, 2023, the Federal Reserve launched the Bank Term Funding Program (“BTFP”), which offers loans to banks with a term of up to one year.

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

treasuries, agency securities, agency mortgage-backed securities, 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.

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

3 unchanged sentences

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

In the Pedestal acquisition, the Company assumed Pedestal’s junior subordinated debentures, which are associated with $ 5.0 million in trust preferred securities acquired from Pedestal.

Interest on the junior subordinated debentures is accrued at an annual rate equal to the 3 -month LIBOR, as determined in the indenture governing the debentures, plus 3.05 %.

4 unchanged sentences

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

BUSINESS FIRST BANCSHARES, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

7 unchanged sentences

On March 1, 2022, the Company assumed, in connection with the TCBI acquisition, three tranches of subordinated debt with an aggregate principal balance outstanding of $ 26.4 million.

One tranche in the amount of $ 10.0 million bears interest at a fixed rate of 6.25 % until April 11, 2023, at which point the notes become redeemable at the Company’s option, then will reset to a floating interest rate based on a benchmark rate plus 350 basis points, adjusting quarterly, until maturity on April 11, 2028.

Another tranche in the amount of $ 7.5 million bears a fixed rate of 6.38 % until December 13, 2023, at which point the notes become redeemable at the Company’s option, then will reset to a floating rate based on a benchmark rate plus 350 basis points, adjusting quarterly, until maturity on December 13, 2028.

The third tranche in the amount of $ 8.9 million bears an adjustable interest rate plus 595 basis points, based on a benchmark rate, until maturity on March 24, 2027.

The $ 8.9 million tranche is currently redeemable at the Company’s option.

These notes carry an aggregate $ 2.9 million fair value adjustment as of December 31, 2022.

Note 12 –

Securities Sold Under Agreements to Repurchase –

One tranche in the amount of $ 10.0 million bears an adjustable interest rate, based on a benchmark rate plus 350 basis points, until maturity on April 11, 2028, and was callable beginning April 11, 2023.

Another tranche in the amount of $ 7.5 million bears an adjustable interest rate, based on a benchmark rate plus 350 basis points, until maturity on December 13, 2028, and was callable beginning December 13, 2023.

The third tranche in the amount of $ 8.9 million had an adjustable interest rate plus 595 basis points, based on a benchmark rate, until maturity on March 24, 2027.

The $ 8.9 million tranche was called on May 1, 2023 by the Company and has been fully extinguished.

The Company recognized a $ 1.5 million gain on the extinguishment of this debt during 2023.

These notes carried an aggregate $ 1.1 million and $ 2.9 million fair value adjustment, respectively, as of December 31, 2023 and 2022.

Note 12 – Securities Sold Under Agreements to Repurchase –

At December 31, 2023 and 2022, the Bank had sold various investment securities with an agreement to repurchase these securities at various times within one year.

These securities generally remain under the Bank’s control and are included in securities available for sale.

These pledged securities have coupon rates ranging from 0.9 % to 8.0 % and maturity dates ranging from 2025 to 2041.

The related liability to repurchase these securities was $ 18.9 million and $ 20.2 million at December 31, 2023 and 2022, respectively.

Note 13 –

Income Taxes –

BUSINESS FIRST BANCSHARES, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 13 – Income Taxes –

The consolidated provision (credit) for income taxes consists of the following at December 31, 2023, 2022 and 2021:

1 unchanged sentence

Provision for Current Taxes - Federal

$ 12,969  

$ 13,008  

$ 6,730  

Provision (Credit) for Deferred Taxes

( 586 )  

Total Provision for Income Taxes

$ 14,337  

$ 12,422  

$ 6,788  

The provision (credit) for federal income taxes differs from the amount computed by applying federal statutory rates to income from operations as indicated in the following analysis at December 31, 2023, 2022 and 2021:

1 unchanged sentence

Federal Statutory Income Tax

$ 14,404  

$ 13,557  

$ 7,720  

Tax Exempt Income

( 690 )  

( 815 )  

Stock Based Compensation

( 220 )  

Goodwill Write-off for Branch Sale

( 135 )  

Total Provision for Income Taxes

$ 14,337  

$ 12,422  

$ 6,788  

BUSINESS FIRST BANCSHARES, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes.

1 unchanged sentence

(Dollars in thousands)

$ 2,285  

$ 1,642  

State NOL Valuation Allowance

( 2,285 )  

Net Operating Loss Carryforward

Unrealized Loss on Securities

20,040  

Acquired Loans Fair Market Value Adjustment

3 unchanged sentences

Deferred Tax Assets

42,907  

18,170  

Right of Use Asset

2 unchanged sentences

Deferred Tax Liabilities

11,713  

Net Deferred Tax Asset

$ 31,194  

$ 8,822  

The Company acquired certain deferred tax attributes and liabilities as a result of a merger during 2015, including a net operating loss (“NOL”) carryforward of $ 287,000 and alternative minimum tax (“AMT”) credit carryforwards of $ 984,000 .

The Company is limited in the amount it may deduct against current taxable income each year.

3 unchanged sentences

The amount of the NOL carryforward the Company is allowed to deduct against current taxable income each year is limited, and the Company may not offset more than 80% of taxable income in any year.

As of December 31, 2022, the NOL and charitable contribution carryforward was $ 8.3 million to be carried forward indefinitely until utilized.

Note 14 –

Accumulated Other Comprehensive Income (Loss) –

As of December 31, 2023, the NOL and charitable contribution carryforward was $ 2.7 million to be carried forward indefinitely until utilized.

BUSINESS FIRST BANCSHARES, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 14 – Accumulated Other Comprehensive Income (Loss) –

The following is a summary of the changes in the balances of each component of accumulated other comprehensive income (loss) for the years ended December 31, 2023 and 2022:

2 unchanged sentences

Balance at Beginning of Year

$ ( 1,177 )  

$ 10,628  

Other Comprehensive Income (Loss) on AFS Investment Securities

Before Reclassifications - Net of Tax

( 73,679 )  

Other Comprehensive Income (Loss) on Equity Method Investments

Other Comprehensive Income (Loss) on Equity Method Investments - Net of Tax

Reclassification Adjustment for Gains (Losses) on Sale of AFS Investment Securities

Realized - Net of Tax

( 38 )  

Other Comprehensive Income (Loss)

( 73,027 )  

Balance at End of Year

$ ( 74,204 )  

BUSINESS FIRST BANCSHARES, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 15 –

Shareholders ’

Equity and Regulatory Matters –

Shareholders’

Equity of the Company includes the undistributed earnings of the Bank.

Note 15 – Shareholders ’ Equity and Regulatory Matters –

Shareholders’ Equity of the Company includes the undistributed earnings of the Bank.

The Company pays dividends from its assets, which are provided primarily by dividends from the Bank.

Certain restrictions exist regarding the ability of the Bank to pay cash distributions.

Louisiana statutes require approval to pay distributions in excess of a bank’s earnings in the current year plus retained net profits for the preceding year.

The Company paid quarterly common stock dividends totaling $ 0.50 per share and $ 0.48 per share for the years ended December 31, 2023 and 2022, respectively, based upon quarterly financial performance.

The Company paid a dividend in the fourth quarter on preferred stock of $ 18.75 per share.

The Company paid full quarterly preferred stock dividends totaling $ 75.00 per share for the year ended December 31, 2023 and, $ 18.75 per share for the year ended December 31, 2022, following issuance of the preferred stock on September 1, 2022.

Common Stock Repurchase Plan

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.

The stock repurchase program expired on December 31, 2021.

1 unchanged sentence

The Company repurchased $ 10.9 million and $ 798,000 of shares for the years ended December 31, 2021 and 2020, respectively.

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.

The stock repurchase program expired on December 31, 2023.

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

The Company did not repurchase any shares under this plan.

Preferred Stock

On September 1, 2022, the Company entered into a securities purchase agreement with certain investors pursuant to which the Company 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 are entitled to receive, if, when, and as declared by the Company’s 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.

The preferred stock is non-convertible and dividends equivalent to $ 75.00 per share and $ 18.75 per share were paid during the years ended December 31, 2023 and 2022, respectively.

BUSINESS FIRST BANCSHARES, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Regulatory Matters

The Company and the Bank are subject to various regulatory capital requirements administered by federal and state banking agencies.

Failure to meet minimum regulatory capital requirements can initiate certain mandatory, and possible additional discretionary actions by regulators that, if undertaken, could have a direct material effect on the Company’s and the Bank’s financial statements.

Under the regulatory capital adequacy guidelines and the regulatory framework for prompt corrective action, the Company and the Bank must meet specific capital guidelines involving quantitative measures of assets, liabilities and certain off-balance-sheet items as calculated under regulatory accounting practices.

6 unchanged sentences

There are no conditions or events since the most recent notification that management believes have changed the prompt corrective action category.

BUSINESS FIRST BANCSHARES, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The following is a summary of the Company’s (consolidated) and the Bank’s actual capital amounts and ratios at December 31, 2022 and 2021.

Capitalized Under

Prompt Corrective

The following is a summary of the Company’s (consolidated) and the Bank’s actual capital amounts and ratios at December 31, 2023 and 2022.

Business First Bancshares, Inc.

1 unchanged sentence

Adequacy Purposes

Capitalized Under

Prompt Corrective

Action Provisions

December 31, 2022:

(Dollars in thousands)

December 31, 2023:

Total Capital (to Risk-Weighted Assets)

$ 704,840  

12.75 %  

$ 442,391  

8.00 %  

$ 552,988  

Tier 1 Capital (to Risk-Weighted Assets)

557,088  

10.07 %  

331,793  

6.00 %  

442,391  

Common Equity Tier 1 Capital (to Risk-Weighted Assets)

480,158  

8.68 %  

248,845  

4.50 %  

359,442  

Tier 1 Leveraged Capital (to Average Assets)

557,088  

9.49 %  

234,859  

4.00 %  

293,574  

December 31, 2022:

Total Capital (to Risk-Weighted Assets)

$ 478,794  

11.94 %  

$ 320,715  

8.00 %  

$ 400,894  

Tier 1 Capital (to Risk-Weighted Assets)

367,431  

9.17 %  

240,537  

6.00 %  

320,715  

Common Equity Tier 1 Capital (to Risk-Weighted Assets)

362,431  

9.04 %  

180,402  

4.50 %  

260,581  

Tier 1 Leveraged Capital (to Average Assets)

367,431  

8.14 %  

180,604  

4.00 %  

225,755  

BUSINESS FIRST BANCSHARES, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Capitalized Under

2 unchanged sentences

Action Provisions

December 31, 2022:

(Dollars in thousands)

December 31, 2023:

Total Capital (to Risk-Weighted Assets)

$ 657,588  

11.91 %  

$ 441,833  

8.00 %  

$ 552,292  

Tier 1 Capital (to Risk-Weighted Assets)

618,805  

11.20 %  

331,375  

6.00 %  

441,833  

Common Equity Tier 1 Capital (to Risk-Weighted Assets)

618,805  

11.20 %  

248,531  

4.50 %  

358,989  

Tier 1 Leveraged Capital (to Average Assets)

618,805  

10.55 %  

234,679  

4.00 %  

293,348  

December 31, 2022:

Total Capital (to Risk-Weighted Assets)

$ 468,834  

11.71 %  

$ 320,411  

8.00 %  

$ 400,514  

Tier 1 Capital (to Risk-Weighted Assets)

438,898  

10.96 %  

240,308  

6.00 %  

320,411  

Common Equity Tier 1 Capital (to Risk-Weighted Assets)

438,898  

10.96 %  

180,231  

4.50 %  

260,334  

Tier 1 Leveraged Capital (to Average Assets)

438,898  

9.73 %  

180,453  

4.00 %  

225,566  

BUSINESS FIRST BANCSHARES, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 16 –

Stock Based Compensation –

Note 16 – Stock Based Compensation –

Equity Incentive Plan

The Company previously granted options to its employees under its 2006 Stock Option Plan which expired on December 22, 2016.

On June 29, 2017, the Company’s shareholders approved its 2017 Equity Incentive Plan (the “Plan”).

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

On June 29, 2017, the Company’s shareholders approved its 2017 Equity Incentive Plan (the “Plan”).

During the year ended December 31, 2022, Company shareholders approved an additional 400,000 shares to be reserved for future awards under the Plan.

In addition, the number of shares issuable under the Plan were increased by 143,908 shares as a result of the assumption of options to purchase shares of TCBI common stock that were converted into options to purchase shares of Company common stock upon the TCBI acquisition on March 1, 2022.

In total, 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 is administered by the Compensation Committee of the Company’s board of directors, which determines, within the provisions of the Plan, those eligible participants to whom, and the times at which, grants and awards will be made.

As of December 31, 2022, 572,588 awards have been granted under the Plan, and 471,320  shares of common stock remain available for grant.

In total, 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, 745,620 awards have been granted under the Plan and 298,288 shares of common stock remain available for grant.

Restricted Stock Awards

2 unchanged sentences

The holders of the restricted stock receive dividends and have full voting rights with respect to those shares as of the date of grant.

The compensation expense for these awards is determined based upon the market value of the Company’s common stock at the grant date applied to the total number of shares awarded and is recognized over the requisite service period.

During the years ended December 31, 2023, 2022 and 2021, the Company issued shares of restricted stock which vest in three equal installments over the requisite service period.

2 unchanged sentences

The $ 3.7 million of unrecognized share-based compensation at December 31, 2023 is expected to be recognized over a weighted average period of 2.0 years.

BUSINESS FIRST BANCSHARES, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The table below summarizes the restricted stock award activity for the period presented.

9 unchanged sentences

Balance, at Beginning of Period

94,245  

$ 21.60  

53,756  

$ 24.49  

39,971  

$ 22.64  

141,646  

111,687  

60,635  

( 6,709 )  

( 989 )  

131,624 $ 24.45 94,245 $ 21.60 53,756 $ 24.49

280,101 20.29 141,646 26.34 111,687 20.73

( 2,738 ) 19.51 ( 6,709 ) 27.13 ( 989 ) 24.11

Earned and Issued

( 97,558 )  

( 70,209 )  

( 46,850 )  

( 177,951 ) 16.97 ( 97,558 ) 24.20 ( 70,209 ) 22.43

Balance, at End of Period

131,624  

$ 24.45  

94,245  

$ 21.60  

53,756  

$ 24.49  

During the years ended December 31, 2022, 2021 and 2020, the Company issued a total of 11,700 shares, 7,301 and 4,500 shares of common stock, respectively, to non-employee directors as compensation for their board service.

The shares were issued with weighted average grant date fair values of $ 23.08 per share for the year ended December 31, 2022, $ 23.35 per share for the year ended December 31, 2021, and $ 14.87 per share for the year ended December 31, 2020.

The total stock-based compensation expense was determined based upon the market value of the Company’s common stock at the grant date applied to the total number of shares granted.

These grants resulted in accrued director fees expense of $ 120,000 , $ 276,000 and $ 57,000 for the years ended December 31, 2022, 2021 and 2020, respectively.

BUSINESS FIRST BANCSHARES, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

231,036 $ 21.43 131,624 $ 24.45 94,245 $ 21.60

During the years ended December 31, 2022 and 2021, the Company issued a total of 11,700 and 7,301 shares of common stock, respectively, to non-employee directors as compensation for their board service.

There were 2,442 shares issued during the year ended December 31, 2023 to employees.

The shares were issued with weighted average grant date fair values of $ 20.48 per shares for the year ended December 31, 2023, $ 23.08 per share for the year ended December 31, 2022, and $ 23.35 per share for the year ended December 31, 2021.

The total stock-based compensation expense was determined based upon the market value of the Company’s common stock at the grant date applied to the total number of shares granted.

These grants resulted in an expense of $ 50,000 for the year ended December 31, 2023 and director fees expense of $ 120,000 and $ 276,000 for the years ended December 31, 2022 and 2021, respectively.

Stock Options

13 unchanged sentences

Outstanding Options, at Beginning of Period

113,547  

$ 17.06  

385,300  

$ 14.67  

725,300  

$ 12.55  

143,908  

( 67,060 )  

( 261,753 )  

( 330,000 )  

130,924 $ 18.59 113,547 $ 17.06 385,300 $ 14.67

- - 143,908 22.01 - -

( 7,500 ) 17.11 ( 67,060 ) 19.93 ( 261,753 ) 13.62

Forfeited or Expired

( 59,471 )  

( 10,000 )  

( 2,816 ) 22.38 ( 59,471 ) 22.45 ( 10,000 ) 15.00

Outstanding Options, at End of Period

130,924  

$ 18.59  

113,547  

$ 17.06  

385,300  

$ 14.67  

120,608 $ 18.59 130,924 $ 18.59 113,547 $ 17.06

Exercisable, at End of Period

118,958  

$ 18.18  

113,547  

$ 17.06  

385,300  

$ 14.67  

111,032 $ 18.24 118,958 $ 18.18 113,547 $ 17.06

At December 31, 2023, options for 111,032 shares at a weighted average exercise price of $ 18.24 were vested and exercisable.

The aggregate intrinsic value of both exercisable and outstanding awards at December 31, 2022 and 2021 is $ 472,000 and $ 1.3 million with a weighted average remaining contractual life of 2.9 years and 3.3 years, respectively.

The aggregate intrinsic value of both exercisable and outstanding awards at December 31, 2023 and 2022 is $ 731,000 and $ 472,000 with a weighted average remaining contractual life of 1.9 years and 2.9 years, respectively.

BUSINESS FIRST BANCSHARES, INC.

1 unchanged sentence

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 17 –

Employee Benefit Plans –

Note 17 – Employee Benefit Plans –

Defined Contribution Plan

6 unchanged sentences

The expense related to the deferred compensation agreements was $ 586,000 , $ 507,000 and $ 408,000 for the years ended December 31, 2023, 2022 and 2021, respectively.

Note 18 –

Other Income and Expenses –

Note 18 – Other Income and Expenses –

An analysis of Other Income is as follows for the years ended December 31, 2023, 2022 and 2021:

1 unchanged sentence

Debit Card and ATM Fee Income

$ 6,407  

$ 6,199  

$ 4,320  

Cash Value of Life Insurance Income

1 unchanged sentence

Pass-Through Income from SBIC Partnerships

Gain on Extinguishment of Debt

Gain on Sale of Branch

Swap Fee Income

Total Other Income

$ 20,512  

$ 18,474  

$ 11,474  

An analysis of Other Expenses is as follows for the years ended December 31, 2023, 2022 and 2021:

1 unchanged sentence

Advertising and Promotions

$ 3,949  

$ 2,712  

$ 1,605  

Communications

7 unchanged sentences

Merger and Conversion Costs

12,414  

11,396  

10,760  

Total Other Expenses

$ 44,820  

$ 35,486  

$ 32,219  

Note 19 –

Financial Instruments with Off-Balance-Sheet Risk –

Note 19 – Financial Instruments with Off-Balance-Sheet Risk –

In the normal course of business, the Bank is a party to financial instruments with off-balance-sheet risk to meet the financing needs of its customers.

4 unchanged sentences

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The Bank’s exposure to credit loss in the event of nonperformance by the other party to the financial instrument for commitments to extend credit and standby and commercial letters of credit is represented by the contractual amount of those instruments.

The Bank’s policy for obtaining collateral, and the nature of such collateral, is essentially the same as that involved in making commitments to extend credit.

The Bank uses the same credit policies in making such commitments and conditional obligations as it does for instruments that are included in the balance sheet.

In the normal course of business, the Bank has made commitments to extend credit of approximately $ 1.2 billion and standby and commercial letters of credit of approximately $ 45.2 million at December 31, 2023.

Note 20 –

Concentrations of Credit –

The majority of the Bank’s business activities are with customers in the Bank’s market area, which consists primarily of East and West Baton Rouge, Bossier, Caddo, St.

Tammany, Lafayette, Calcasieu, Terrebonne, Jefferson, Webster, Richland and adjacent parishes, the Dallas / Fort Worth, Texas metroplex, and Houston, Texas.

As discussed in Note 7, we have a reserve for unfunded loan commitments of $ 3.3 million and $ 605,000 at December 31, 2023 and 2022, respectively.

Note 20 – Concentrations of Credit –

The majority of the Bank’s business activities are with customers in the Bank’s market area, which consists primarily of Louisiana, the Dallas / Fort Worth, Texas metroplex, and Houston, Texas.

The majority of such customers are depositors of the Bank.

The concentrations of credit by type of loan are shown in Note 7.

The Bank, as a matter of policy, does not extend credit to any single borrower or group of related borrowers in excess of the Bank’s legal lending limits.

Most of the Bank’s credits are to individuals and businesses secured by real estate.

The Bank, as a matter of policy, does not extend credit to any single borrower or group of related borrowers in excess of the Bank’s legal lending limits.

Most of the Bank’s credits are to individuals and businesses secured by real estate.

A substantial portion of their ability to pay on their debt is dependent on the local economy and industries in the areas.

4 unchanged sentences

The Bank maintains amounts on deposit and federal funds sold with correspondent banks which may periodically exceed the federally insured amount.

Note 21 –

Leases –

Note 21 – Leases –

The Bank leases certain branch offices through non-cancelable operating leases with terms that range from one to ten years and contain various renewal options for certain of the leases.

4 unchanged sentences

(Dollars in thousands)

$ 4,135  

2029 and Thereafter

Total Future Minimum Lease Payments

19,176  

Less Imputed Interest

Present Value of Lease Liabilities

$ 17,660  

BUSINESS FIRST BANCSHARES, INC.

1 unchanged sentence

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 22 –

Commitments –

Note 22 – Commitments –

SBIC Capital Commitment

The SBIC is a program initiated by the SBA in 1958 to assist in the funding of small business loans.

The SBIC is a program initiated by the U.S.

Small Business Administration ("SBA") in 1958 to assist in the funding of small business loans.

The program is a joint venture between investors with venture capital, the SBA, and small business borrowers.

2 unchanged sentences

The Bank has agreed to participate as an investor with McLarty Capital Partners SBIC, L.P.

(“McLarty”), McLarty Capital Partners SBIC II, L.P.

(“McLarty II”), Firmament Capital Partners SBIC III, L.P.

(“Firmament”), Bluehenge Capital Secured Debt SBIC, L.P.

(“Bluehenge”), Bluehenge Capital Secured Debt SBIC II, L.P.

(“Bluehenge, II”), New Louisiana Angel Fund 2, LLC (“New Louisiana”) and Pharos Capital Partners IV-A, L.P.

(“Pharos”).

(“McLarty”), McLarty Capital Partners SBIC II, L.P.

(“McLarty II”), Firmament Capital Partners SBIC III, L.P.

(“Firmament III”), Firmament Capital Partners SBIC IV, L.P.

(“Firmament IV”), Bluehenge Capital Secured Debt SBIC, L.P.

(“Bluehenge”), Bluehenge Capital Secured Debt SBIC II, L.P.

(“Bluehenge II”), New Louisiana Angel Fund 2, LLC (“New Louisiana”) and Pharos Capital Partners IV-A, L.P.

As part of the TCBI acquisition, the Bank acquired investments in and committed to invest further in Bluehenge Capital Secured Debt SBIC, L.P.

(included with prior Bluehenge investments), Valesco Fund II, LP (“Valesco”) and GP Capital Partners, LP (“GP Capital”).

(included with prior Bluehenge investments), Valesco Fund II, LP (“Valesco II”), Valesco Fund III, LP (“Valesco III”), and GP Capital Partners, LP (“GP Capital”).

Details of these commitments at December 31, 2023 are below.

Total Capital

Remaining Unfunded

Capital Called

Capital Commitment

$ 2,000  

$ 1,802  

Bluehenge, II

Remaining Unfunded Capital Commitment

Firmament III

New Louisiana

$ 15,050  

$ 9,900  

$ 5,150  

Fintech Fund Commitment

4 unchanged sentences

Total Capital

Remaining Unfunded

Capital Called

Remaining Unfunded

Capital Commitment

5 unchanged sentences

Work America Capital Fund I, LP

$ 6,200  

$ 3,298  

$ 2,902  

BUSINESS FIRST BANCSHARES, INC.

4 unchanged sentences

The outstanding letters of credit as of December 31, 2023 are as follows:

Seven letters of credit totaling $ 146.5 million expire in January 2023.

Twelve letters of credit totaling $ 93.2 million expire in January 2024.

Four letters of credit totaling $ 162.7 million expire in February 2024.

One letter of credit of $ 403,000 expires in March 2024.

One letter of credit of $ 87,000 expires in May 2023.

One letter of credit of $ 197,000 expires in November 2023.

Eleven letters of credit totaling $ 28.9 million expire in April 2024.

Nine letters of credit totaling $ 7.1 million expire in May 2024.

Two letters of credit totaling $ 4.6 million expire in June 2024.

Two letters of credit totaling $ 3.4 million expire in August 2024.

One letter of credit of $ 251,000 expires in September 2024.

Two letters of credit totaling $ 675,000 expire in November 2024.

One letter of credit of $ 329,000 expires in December 2024.

One letter of credit of $ 22.8 million expires in April 2024.

One letter of credit totaling $ 3.3 million expires in August 2024.

Note 23 –

Related Party Transactions –

Note 23 – Related Party Transactions –

In the ordinary course of business, the Bank has granted loans to directors, officers and their affiliates.

Such loans were made on substantially the same terms as those prevailing at the time for comparable transactions with other customers.

Such loans amounted to $ 66.8  million and $ 27.8 million at December 31, 2022 and 2021, respectively.

Related party deposits totaled $ 58.0  million and $ 43.8 million as of December 31, 2022 and 2021, respectively.

Note 24 –

Fair Value of Financial Instruments –

Such loans amounted to $ 19.5 million and $ 66.8 million at December 31, 2023 and 2022, respectively.

Related party deposits totaled $ 51.2 million and $ 58.0 million as of December 31, 2023 and 2022, respectively.

Note 24 – Fair Value of Financial Instruments –

Fair Value Disclosures

3 unchanged sentences

The three levels of inputs used to measure fair value are as follows:

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

Level 2 – Includes observable inputs.

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

Level 2 – Includes observable inputs.

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

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

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

BUSINESS FIRST BANCSHARES, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Recurring Basis

3 unchanged sentences

The fair values of mortgage loans held for sale are based on commitments on hand from investors within the secondary market for loans with similar characteristics.

BUSINESS FIRST BANCSHARES, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The following tables present the balance of assets and liabilities measured on a recurring basis as of December 31, 2023 and 2022.

4 unchanged sentences

Treasury Securities

$ 30,115  

$ 16,239 $ - $ 16,239 $ -

Government Agency Securities

47,372  

9,410 - 9,410 -

Corporate Securities

46,004  

27,004  

19,000  

43,839 - 35,871 7,968

Mortgage-Backed Securities

451,725  

506,310 - 506,310 -

Municipal Securities

315,535  

280,767  

34,768  

303,773 - 282,926 20,847

Loans Held for Sale

$ 891,055  

$ 837,287  

$ 53,768  

$ 880,406 $ - $ 851,591 $ 28,815

December 31, 2022

1 unchanged sentence

Treasury Securities

$ 22,314  

$ 30,115 $ - $ 30,115 $ -

Government Agency Securities

27,493  

47,372 - 47,372 -

Corporate Securities

46,582  

26,582  

20,000  

46,004 - 27,004 19,000

Mortgage-Backed Securities

552,339  

451,725 - 451,725 -

Municipal Securities

372,333  

348,243  

24,090  

315,535 - 280,767 34,768

Loans Held for Sale

$ 1,022,261  

$ 978,171  

$ 44,090  

$ 891,055 $ - $ 837,287 $ 53,768

BUSINESS FIRST BANCSHARES, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The Company reviews fair value hierarchy classifications on a quarterly basis.

Changes in the Company’s ability to observe inputs to the valuation may cause reclassification of certain assets or liabilities within the fair value hierarchy.

The tables below provide a reconciliation for assets measured at fair value on a recurring basis using significant unobservable inputs, or Level 3 inputs, for the year ended December 31, 2023.

(Dollars in thousands)

Balance at December 31, 2022

$ 34,768 $ 19,000

Realized Gains (Losses) Included in Net Income

Unrealized Losses Included in Other Comprehensive Loss

( 2,228 ) ( 1,532 )

Maturities, Prepayments, and Calls

Transfers Into Level 3

Transfers Out of Level 3

( 9,895 ) ( 9,500 )

Balance at December 31, 2023

$ 20,847 $ 7,968

The following table provides quantitative information about significant unobservable inputs used in fair value measurements of Level 3 assets measured at fair value on a recurring basis at December 31, 2023.

(Dollars in thousands)

December 31, 2023

Municipal Securities

$ 20,847 Present Value of Expected Future Cash Flow Model

Liquidity Premium

Corporate Securities

7,968 Present Value of Expected Future Cash Flow Model

Liquidity Premium

Nonrecurring Basis

1 unchanged sentence

The Company did not record any liabilities at fair value for which measurement of the fair value was made on a nonrecurring basis.

The fair value of the impaired loans is measured at the fair value of the collateral for collateral-dependent loans.

Impaired loans are Level 3 assets measured using appraisals from external parties of the collateral less any prior liens and adjusted for estimated selling costs. 

Adjustments may be made by management based on a customized internally developed discounting matrix.  

The fair value of the impaired/individually evaluated loans is measured at the fair value of the collateral for collateral-dependent loans.

Impaired loans are Level 3 assets measured using appraisals from external parties of the collateral less any prior liens and adjusted for estimated selling costs.

Adjustments may be made by management based on a customized internally developed discounting matrix.

Repossessed assets are initially recorded at fair value less estimated cost to sell, which is generally 10 %.

1 unchanged sentence

As such, the Bank records repossessed assets as Level 3.

(Dollars in thousands)

December 31, 2022

Impaired Loans

$ 16,816  

Servicing Rights

Other Nonperforming Assets

$ 20,577  

$ 2,327  

$ 18,250  

December 31, 2021

Impaired Loans

$ 18,749  

Servicing Rights

Other Nonperforming Assets

$ 21,951  

$ 1,775  

$ 20,176  

BUSINESS FIRST BANCSHARES, INC.

1 unchanged sentence

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The following table provides quantitative information for impaired loans measured at fair value on a nonrecurring basis using Level 3 inputs as of the dates indicated.

Discounted Range (Weighted Average)

(Dollars in thousands)

December 31, 2023

Impaired/Individually Evaluated Loans

$ 4,750 $ - $ - $ 4,750

Other Nonperforming Assets

1,685 - - 1,685

$ 6,435 $ - $ - $ 6,435

December 31, 2022

Impaired Loans

Discounted Appraisals

Appraisal Adjustments

to 100 % ( 18 %) 10 %

to 100 % ( 20 %)

$ 16,816 $ - $ - $ 16,816

Other Nonperforming Assets

1,434 - - 1,434

$ 18,250 $ - $ - $ 18,250

Fair Value Financial Instruments

1 unchanged sentence

Fair value is best determined based upon quoted market prices.

However, in many instances, there are no quoted market prices for the Company’s various financial instruments.

In cases where quoted market prices are not available, fair values are based on estimates using present value or other valuation techniques.

4 unchanged sentences

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

Cash and Short-Term Investments –

For those short-term instruments, the carrying amount is a reasonable estimate of fair value.

Securities –

Fair value of securities is based on quoted market prices.

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

Securities – Fair value of securities is based on quoted market prices.

If a quoted market price is not available, fair value is estimated using quoted market prices for similar securities.

Loans –

The fair value for loans is estimated using discounted cash flow analyses, with interest rates currently being offered for similar loans to borrowers with similar credit rates.

Loans – The fair value for loans is estimated using discounted cash flow analyses, with interest rates currently being offered for similar loans to borrowers with similar credit rates.

Loans with similar classifications are aggregated for purposes of the calculations.

The allowance for loan losses, which was used to measure the credit risk, is subtracted from loans.

Cash Value of Bank-Owned Life Insurance (“BOLI") –

The carrying amount approximates its fair value.

Other Equity Securities –

The carrying amount approximates its fair value.

Deposits –

The fair value of demand deposits and certain money market deposits is the amount payable at the reporting date.

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

Other Equity Securities – The carrying amount approximates its fair value.

Deposits – The fair value of demand deposits and certain money market deposits is the amount payable at the reporting date.

The fair value of fixed-maturity certificates of deposit is estimated using discounted cash flow analyses, with interest rates currently offered for deposits of similar remaining maturities.

Borrowings –

The fair value of FHLB advances and other long-term borrowings is estimated using the rates currently offered for advances of similar maturities.

Borrowings – The fair value of FHLB advances and other long-term borrowings is estimated using the rates currently offered for advances of similar maturities.

The carrying amount of short-term borrowings maturing within ninety days approximates the fair value.

Commitments to Extend Credit and Standby and Commercial Letters of Credit –

The fair values of commitments to extend credit and standby and commercial letters of credit do not differ significantly from the commitment amount and are therefore omitted from this disclosure.

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

BUSINESS FIRST BANCSHARES, INC.

1 unchanged sentence

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The estimated approximate fair values of the Bank’s financial instruments as of December 31, 2022 and 2021 are as follows:

The estimated approximate fair values of the Bank’s financial instruments as of December 31, 2023 and 2022 are as follows:

(Dollars in thousands)

2 unchanged sentences

Cash and Short-Term Investments

$ 168,346  

890,751  

836,983  

53,768  

$ 377,244 $ 377,244 $ 377,244 $ - $ -

879,571 879,571 - 850,756 28,815

Loans Held for Sale

4,567,998  

4,443,577  

Servicing Rights

835 835 - 835 -

4,952,371 4,849,503 - - 4,849,503

Cash Value of BOLI

91,958  

96,478 96,478 - 96,478 -

Other Equity Securities

37,467  

$ 5,758,536  

$ 5,634,730  

$ 168,346  

$ 931,572  

$ 4,534,812  

33,942 33,942 - - 33,942

$ 6,340,441 $ 6,237,573 $ 377,244 $ 948,069 $ 4,912,260

Financial Liabilities:

$ 4,820,345  

$ 4,810,263  

560,123  

544,564  

$ 5,380,468  

$ 5,354,827  

$ 544,564  

$ 4,810,263  

$ 5,248,790 $ 5,243,326 $ - $ - $ 5,243,326

635,073 613,464 - 613,464 -

$ 5,883,863 $ 5,856,790 $ - $ 613,464 $ 5,243,326

December 31, 2022

1 unchanged sentence

Cash and Short-Term Investments

$ 295,419  

1,021,061  

976,971  

44,090  

$ 168,346 $ 168,346 $ 168,346 $ - $ -

890,751 890,751 - 836,983 53,768

Loans Held for Sale

3,160,496  

3,121,433  

Servicing Rights

304 304 - 304 -

4,567,998 4,443,577 - - 4,443,577

Cash Value of BOLI

60,380  

91,958 91,958 - 91,958 -

Other Equity Securities

16,619  

$ 4,556,578  

$ 4,517,887  

$ 295,419  

$ 1,040,326  

$ 3,182,142  

37,467 37,467 - - 37,467

$ 5,756,824 $ 5,632,403 $ 168,346 $ 929,245 $ 4,534,812

Financial Liabilities:

$ 4,077,283  

$ 4,078,558  

187,590  

195,998  

$ 4,264,873  

$ 4,274,556  

$ 195,998  

$ 4,078,558  

Note 25 –

Litigation and Contingencies –

$ 4,820,345 $ 4,810,263 $ - $ - $ 4,810,263

560,114 544,564 - 544,564 -

$ 5,380,459 $ 5,354,827 $ - $ 544,564 $ 4,810,263

Note 25 – Litigation and Contingencies –

In the normal course of business, the Bank is involved in various legal proceedings.

In the opinion of management and counsel, the disposition or ultimate resolution of such proceedings would not have a material adverse effect on the Bank’s financial statements.

Note 26 – Subsequent Events –

The Company acquired Waterstone LSP, LLC ("Waterstone") on January 31, 2024.

Waterstone works with community banks and small business owners to implement and manage the SBA's loan programs.

BUSINESS FIRST BANCSHARES, INC.

1 unchanged sentence

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 26 –

Financial Statements –

Parent Company Only –

Note 27 – Financial Statements – Parent Company Only –

The balance sheets and statements of income for Business First Bancshares, Inc.

3 unchanged sentences

(Dollars in thousands)

$ 35,684  

$ 1,322  

$ 12,382 $ 35,684

Investment in Subsidiaries

641,491  

509,835  

714,971 641,491

Fintech Funds

Income Taxes Receivable

$ 696,492  

$ 519,988  

$ 749,431 $ 696,492

Accrued Interest Payable

Short Term Borrowings

Subordinated Debt

110,749  

81,427  

99,990 110,749

Subordinated Debt - Trust Preferred Securities

1 unchanged sentence

Total Liabilities

116,011  

86,620  

105,172 116,011

Shareholders' Equity:

Preferred Stock

71,930  

25,110  

20,400  

71,930 71,930

25,352 25,110

Additional Paid-in Capital

393,690  

292,271  

397,447 393,690

Retained Earnings

163,955  

121,874  

216,115 163,955

Accumulated Other Comprehensive Income (Loss)

( 74,204 )  

( 66,585 ) ( 74,204 )

Total Shareholders' Equity

580,481  

433,368  

644,259 580,481

Total Liabilities and Shareholders' Equity

$ 696,492  

$ 519,988  

$ 749,431 $ 696,492

BUSINESS FIRST BANCSHARES, INC.

5 unchanged sentences

Dividend Income From Subsidiaries

$ 10,000  

$ 13,000  

$ 24,295  

Interest Income

3 unchanged sentences

Net Income of Subsidiaries

( 1,518 )  

16,222  

Income Tax Benefit

( 2,400 )  

( 1,916 )  

Income Before Equity in Undistributed Net Income of Subsidiaries

18,127  

Equity in Undistributed Net Income of Subsidiaries

53,373  

45,382  

11,867  

54,255  

52,136  

29,994  

Preferred Stock Dividends

Net Income Available to Common Shareholders

$ 52,905  

$ 52,136  

$ 29,994  

Changes In and Disagreements with Accountants on Accounting and Financial Disclosure.

1 unchanged sentence

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 8. Financial Statements and Supplementary Data