Business First Bancshares, Inc. 10-Q

Item 1. Financial Statements BUSINESS FIRST BANCSHARES, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (Dollars in thousands, except per share data) September 30, 2024 (Unaudited) December 31, 2023 ASSETS Cash and Due from Banks $ 213,199 $ 226,110 Federal Funds Sold 169,980 151,134 Securities Purchased Under Agreements to Resell 25,879 - Securities Available for Sale, at Fair Values (Amortized Cost of $ 974,596 at September 30, 2024 and $ 963,978 at December 31, 2023) 916,091 879,571 Mortgage Loans Held for Sale - 835 Loans and Lease Receivable, Net of Allowance for Loan Losses of $ 42,154 at September 30, 2024 and $ 40,414 at December 31, 2023 5,177,964 4,952,371 Premises and Equipment, Net 67,617 69,480 Accrued Interest Receivable 32,547 29,916 Other Equity Securities 39,555 33,942 Other Real Estate Owned 1,787 1,685 Cash Value of Life Insurance 101,362 96,478 Deferred Taxes 20,852 27,323 Goodwill 91,527 88,391 Core Deposit and Customer Intangible 10,326 11,895 Other Assets 19,963 15,419 Total Assets $ 6,888,649 $ 6,584,550 LIABILITIES Deposits: Noninterest Bearing $ 1,190,942 $ 1,299,090 Interest Bearing 4,450,004 3,949,700 Total Deposits 5,640,946 5,248,790 Securities Sold Under Agreements to Repurchase 21,529 18,885 Bank Term Funding Program - 300,000 Federal Home Loan Bank Borrowings 367,202 211,198 Subordinated Debt 99,818 99,990 Subordinated Debt - Trust Preferred Securities 5,000 5,000 Accrued Interest Payable 3,752 14,841 Other Liabilities 50,878 41,587 Total Liabilities 6,189,125 5,940,291 Commitments and Contingencies (See Note 11) SHAREHOLDERS' EQUITY Preferred Stock, No Par Value; 5,000,000 Shares Authorized; 72,010 Shares ($ 1,000 Liquidation Preference) Issued at both September 30, 2024 and December 31, 2023, respectively 71,930 71,930 Common Stock, $ 1 Par Value; 50,000,000 Shares Authorized; 25,519,501 and 25,351,809 Shares Issued and Outstanding at September 30, 2024 and December 31, 2023, respectively 25,520 25,352 Additional Paid-in Capital 398,237 397,447 Retained Earnings 249,981 216,115 Accumulated Other Comprehensive Loss ( 46,144 ) ( 66,585 ) Total Shareholders' Equity 699,524 644,259 Total Liabilities and Shareholders' Equity $ 6,888,649 $ 6,584,550 The accompanying notes are an integral part of these financial statements. 4 Table of Contents BUSINESS FIRST BANCSHARES, INC. AND SUBSIDIARIES UNAUDITED CONSOLIDATED STATEMENTS OF INCOME (Dollars in thousands, except per share data) For the Three Months Ended September 30, For the Nine Months Ended September 30, 2024 2023 2024 2023 Interest Income: Interest and Fees on Loans $ 93,307 $ 84,575 $ 269,858 $ 237,566 Interest and Dividends on Non-taxable Securities 1,050 1,099 3,200 3,265 Interest and Dividends on Taxable Securities 5,367 3,954 14,749 11,667 Interest on Federal Funds Sold and Due From Banks 3,017 3,694 10,815 6,164 Total Interest Income 102,741 93,322 298,622 258,662 Interest Expense: Interest on Deposits 41,303 30,110 120,232 72,718 Interest on Borrowings 5,324 7,918 16,736 24,575 Total Interest Expense 46,627 38,028 136,968 97,293 Net Interest Income 56,114 55,294 161,654 161,369 Provision for Credit Losses 1,665 604 4,161 4,364 Net Interest Income after Provision for Credit Losses 54,449 54,690 157,493 157,005 Other Income: Service Charges on Deposit Accounts 2,723 2,540 7,699 7,234 Loss on Sales of Securities ( 13 ) - ( 14 ) ( 62 ) Gain on Sales of Loans 122 321 2,721 1,426 Other Income 7,942 7,022 21,930 21,631 Total Other Income 10,774 9,883 32,336 30,229 Other Expenses: Salaries and Employee Benefits 24,877 22,487 75,816 68,002 Occupancy and Equipment Expense 5,828 5,445 16,902 15,558 Other Expenses 11,745 10,675 35,364 33,428 Total Other Expenses 42,450 38,607 128,082 116,988 Income Before Income Taxes 22,773 25,966 61,747 70,246 Provision for Income Taxes 4,930 5,511 13,128 15,027 Net Income 17,843 20,455 48,619 55,219 Preferred Stock Dividends 1,351 1,351 4,051 4,051 Net Income Available to Common Shareholders $ 16,492 $ 19,104 $ 44,568 $ 51,168 Earnings Per Common Share: Basic $ 0.65 $ 0.76 $ 1.77 $ 2.04 Diluted $ 0.65 $ 0.76 $ 1.75 $ 2.02 The accompanying notes are an integral part of these financial statements. 5 Table of Contents BUSINESS FIRST BANCSHARES, INC. AND SUBSIDIARIES UNAUDITED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Dollars in thousands) For the Three Months Ended September 30, For the Nine Months Ended September 30, 2024 2023 2024 2023 Consolidated Net Income $ 17,843 $ 20,455 $ 48,619 $ 55,219 Other Comprehensive Income (Loss): Unrealized Gain (Loss) on Investment Securities 27,424 ( 16,398 ) 25,888 ( 24,009 ) Unrealized Gain (Loss) on Share of Other Equity Investments - ( 8 ) 14 ( 1,451 ) Reclassification Adjustment for Losses on Sale of AFS Investment Securities Included in Net Income 13 - 14 62 Income Tax Effect ( 5,797 ) 3,466 ( 5,475 ) 5,366 Other Comprehensive Income (Loss) 21,640 ( 12,940 ) 20,441 ( 20,032 ) Consolidated Comprehensive Income $ 39,483 $ 7,515 $ 69,060 $ 35,187 The accompanying notes are an integral part of these financial statements. 6 Table of Contents BUSINESS FIRST BANCSHARES, INC. AND SUBSIDIARIES UNAUDITED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS ’ EQUITY FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2024 AND 2023 (Dollars in thousands, except per share data) Preferred Stock Common Stock Additional Paid-In Capital Retained Earnings Accumulated Other Comprehensive Income (Loss) Total Shareholders' Equity Balances at June 30, 2023 $ 71,930 $ 25,344 $ 395,875 $ 189,115 $ ( 81,296 ) $ 600,968 Comprehensive Income: Net Income - - - 20,455 - 20,455 Other Comprehensive Loss - - - - ( 12,940 ) ( 12,940 ) Cash Dividends Declared on Preferred Stock, $ 18.75 Per Share - - - ( 1,351 ) - ( 1,351 ) Cash Dividends Declared on Common Stock, $ 0.12 Per Share - - - ( 3,012 ) - ( 3,012 ) Stock Based Compensation Cost - - 246 - - 246 Balances at September 30, 2023 $ 71,930 $ 25,344 $ 396,121 $ 205,207 $ ( 94,236 ) $ 604,366 Balances at June 30, 2024 $ 71,930 $ 25,502 $ 397,851 $ 237,031 $ ( 67,784 ) $ 664,530 Comprehensive Income: Net Income - - - 17,843 - 17,843 Other Comprehensive Income - - - - 21,640 21,640 Cash Dividends Declared on Preferred Stock, $ 18.75 Per Share - - - ( 1,351 ) - ( 1,351 ) Cash Dividends Declared on Common Stock, $ 0.14 Per Share - - - ( 3,542 ) - ( 3,542 ) Stock Based Compensation Cost - 18 386 - - 404 Balances at September 30, 2024 $ 71,930 $ 25,520 $ 398,237 $ 249,981 $ ( 46,144 ) $ 699,524 The accompanying notes are an integral part of these financial statements 7 Table of Contents BUSINESS FIRST BANCSHARES, INC. AND SUBSIDIARIES UNAUDITED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS ’ EQUITY FOR THE SIX MONTHS ENDED SEPTEMBER 30, 2024 AND 2023 (Dollars in thousands, except per share data) Preferred Stock Common Stock Additional Paid-In Capital Retained Earnings Accumulated Other Comprehensive Income (Loss) Total Shareholders' Equity Balances at December 31, 2022 $ 71,930 $ 25,110 $ 393,690 $ 163,955 $ ( 74,204 ) $ 580,481 Cumulative Effect of Change in Accounting Principle for Credit Losses - - - ( 827 ) - ( 827 ) Comprehensive Income: Net Income - - - 55,219 - 55,219 Other Comprehensive Loss - - - - ( 20,032 ) ( 20,032 ) Cash Dividends Declared on Preferred Stock, $ 56.25 Per Share - - - ( 4,051 ) - ( 4,051 ) Cash Dividends Declared on Common Stock, $ 0.36 Per Share - - - ( 9,089 ) - ( 9,089 ) Stock Based Compensation Cost - 234 2,431 - - 2,665 Balances at September 30, 2023 71,930 25,344 396,121 205,207 ( 94,236 ) 604,366 Balances at December 31, 2023 $ 71,930 $ 25,352 $ 397,447 $ 216,115 $ ( 66,585 ) $ 644,259 Comprehensive Income: Net Income - - - 48,619 - 48,619 Other Comprehensive Income - - - - 20,441 20,441 Cash Dividends Declared on Preferred Stock, $ 56.25 Per Share - - - ( 4,051 ) - ( 4,051 ) Cash Dividends Declared on Common Stock, $ 0.42 Per Share - - - ( 10,702 ) - ( 10,702 ) Stock Issuance - - ( 31 ) - - ( 31 ) Stock Based Compensation Cost - 168 821 - - 989 Balances at September 30, 2024 $ 71,930 $ 25,520 $ 398,237 $ 249,981 $ ( 46,144 ) $ 699,524 The accompanying notes are an integral part of these financial statements. 8 Table of Contents BUSINESS FIRST BANCSHARES, INC. AND SUBSIDIARIES UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS (Dollars in thousands) For the Nine Months Ended September 30, 2024 2023 Cash Flows From Operating Activities: Consolidated Net Income $ 48,619 $ 55,219 Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities: Provision for Credit Losses 4,161 4,364 Depreciation and Amortization 3,693 3,546 Net Accretion of Purchase Accounting Adjustments ( 1,788 ) ( 6,159 ) Stock Based Compensation Cost 989 2,665 Net Amortization of Securities 1,738 3,241 Loss on Sales of Securities 14 62 Gain on Sale of Loans ( 2,299 ) ( 375 ) Income on Other Equity Securities ( 1,723 ) ( 3,826 ) Gain on Sale of Other Real Estate Owned, Net of Writedowns ( 49 ) ( 308 ) Increase in Cash Value of Life Insurance ( 1,884 ) ( 1,675 ) Deferred Income Tax Expense 996 2,121 Gain on Sale of Branch - ( 932 ) Changes in Assets and Liabilities: Increase in Accrued Interest Receivable ( 2,631 ) ( 2,394 ) Increase in Other Assets ( 4,339 ) ( 3,313 ) Increase (Decrease) in Accrued Interest Payable ( 11,089 ) 9,096 Increase in Other Liabilities 9,664 9,816 Net Cash Provided by Operating Activities 44,072 71,148 Cash Flows From Investing Activities: Purchases of Securities Available for Sale ( 92,345 ) ( 46,211 ) Proceeds from Maturities / Sales of Securities Available for Sale 27,964 17,320 Proceeds from Paydowns of Securities Available for Sale 52,011 42,688 Net Cash Paid in Acquisition ( 3,279 ) - Net Cash Paid in Sale of Branch - ( 14,506 ) Purchases of Other Equity Securities ( 4,539 ) ( 13,961 ) Redemption of Other Equity Securities 663 21,212 Purchase of Life Insurance ( 3,000 ) ( 2,273 ) Net Increase in Loans ( 224,512 ) ( 307,487 ) Net Purchases of Premises and Equipment ( 1,837 ) ( 5,718 ) Loss on Disposal of Premises and Equipment 7 - Proceeds from Sales of Other Real Estate 589 1,240 Net Increase in Securities Purchased Under Agreements to Resell ( 25,879 ) - Net Increase in Federal Funds Sold ( 18,846 ) ( 181,010 ) Net Cash Used in Investing Activities ( 293,003 ) ( 488,706 ) (CONTINUED) 9 Table of Contents For the Nine Months Ended September 30, 2024 2023 Cash Flows From Financing Activities: Net Increase in Deposits 392,156 386,713 Net Increase in Securities Sold Under Agreements to Repurchase 2,644 3,037 Net Decrease in Federal Funds Purchased - ( 14,057 ) Net Advances (Repayments) on Federal Home Loan Bank Borrowings 156,004 ( 195,916 ) Net Proceeds (Repayments) on Bank Term Funding Program ( 300,000 ) 300,000 Repayment of Subordinated Debt - ( 8,900 ) Gain on Extinguishment of Debt - ( 1,458 ) Costs from Issuance of Common Stock ( 31 ) - Payment of Dividends on Preferred Stock ( 4,051 ) ( 4,051 ) Payment of Dividends on Common Stock ( 10,702 ) ( 9,089 ) Net Cash Provided by Financing Activities 236,020 456,279 Net Increase (Decrease) in Cash and Cash Equivalents ( 12,911 ) 38,721 Cash and Cash Equivalents at Beginning of Period 226,110 152,740 Cash and Cash Equivalents at End of Period $ 213,199 $ 191,461 Supplemental Disclosures for Cash Flow Information: Cash Payments for: Interest on Deposits $ 121,562 $ 71,039 Interest on Borrowings $ 26,495 $ 17,158 Income Tax Payments $ 11,101 $ 9,489 Supplemental Schedule for Noncash Investing and Financing Activities: Change in the Unrealized Gain (Loss) on Securities Available for Sale $ 25,902 $ ( 23,947 ) Change in the Unrealized Gain (Loss) on Equity Securities $ 14 $ ( 1,451 ) Change in Deferred Tax Effect on the Unrealized (Gain) Loss on Securities Available for Sale $ ( 5,475 ) $ 5,366 Transfer of Loans to Other Real Estate $ 642 $ 1,118 The accompanying notes are an integral part of these financial statements. 10 Table of Contents BUSINESS FIRST BANCSHARES, INC. AND SUBSIDIARIES NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS Note 1 – Basis of Presentation – The unaudited consolidated financial statements include the accounts of Business First Bancshares, Inc. (the “Company”) and its two direct, wholly-owned subsidiaries, b1BANK (the “Bank”), and Coastal Commerce Statutory Trust I; and the Bank’s wholly-owned subsidiaries, Business First Insurance, LLC, Smith Shellnut Wilson, LLC, Waterstone LSP, LLC ("Waterstone"), and b1 Securities, LLC. The Bank operates out of full-service banking centers and loan production offices in markets across Louisiana, the Dallas/Fort Worth metroplex and Houston, Texas. As a state bank, it is subject to regulation by the Office of Financial Institutions (“OFI”), State of Louisiana, and the Federal Deposit Insurance Corporation (“FDIC”) and undergoes periodic examinations by these agencies. The Company is also regulated by the Federal Reserve and is subject to periodic examinations. In the opinion of management, the accompanying unaudited consolidated financial statements contain all adjustments necessary to present fairly the financial results for the periods presented, and all such adjustments are of a normal recurring nature. All material intercompany transactions are eliminated. The results of operations for the interim periods are not necessarily indicative of the results to be expected for the entire year. These interim consolidated financial statements have been prepared according to the rules and regulations of the Securities and Exchange Commission and, therefore, certain information and footnote disclosures normally presented in accordance with United States (“U.S.”) generally accepted accounting principles (“GAAP”) have been omitted or abbreviated. These interim financial statements should be read in conjunction with the audited consolidated financial statements and footnote disclosures for the Company’s previously filed Form 10-K for the year ended December 31, 2023. Preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying disclosures. These estimates are based on management’s best knowledge of current events and actions the Company may undertake in the future. Critical accounting estimates that are particularly susceptible to significant change for the Company include the determination of the acquired loans and allowance for credit losses and purchase accounting adjustments (other than loans). Other estimates include goodwill, fair value of financial instruments, investment securities and the assessment of income taxes. Management does not anticipate any material changes to estimates in the near term. Factors that may cause sensitivity to the aforementioned estimates include but are not limited to: external market factors such as market interest rates and employment rates, changes to operating policies and procedures, economic conditions in the Company’s markets, and changes in applicable banking regulations. Actual results may ultimately differ from estimates. Accounting Standards Adopted in Current Period None Accounting Standards Not Yet Adopted ASU No. 2023-07, "Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures." ASU 2023-07 requires public business entities, including those with one reportable segment, to disclose additional disaggregated information about a reportable segment’s income and expenses in both interim and annual periods. The standard requires disclosure of the title and position of the chief operating decision maker and an explanation of how the reported measure(s) of segment profit or loss are utilized in assessing segment performance allocating resources. The update permits disclosure of additional measures of a segment’s profit and losses, if multiple measures are utilized by the chief operating decision maker to allocate resources and evaluate profitability. Such measures, to the extent they are relevant but not in accordance with GAAP, shall be accompanied by appropriate disclosures and reconciliations to the appropriate reported GAAP amounts. ASU 2023-07 became effective for the Company on January 1, 2024. Retrospective application is required upon adoption. The Company is still evaluating the impact of the ASU on the consolidated financial statements and disclosures. 11 Table of Contents BUSINESS FIRST BANCSHARES, INC. AND SUBSIDIARIES NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS ASU No. 2023-09, "Income Taxes (Topic 740): Improvements to Income Tax Disclosures." ASU 2023-09 requires public business entities to disclose additional information in specified categories with respect to the rate reconciliation for federal, state and foreign income taxes. In addition, the updates also require more details about reconciling items in the rate reconciliation in some categories if items meet a quantitative threshold. ASU 2023-09 also requires all entities to disclose income taxes paid, net of refunds, disaggregated by federal, state and foreign taxes for annual periods and to disaggregate the information by jurisdiction based on a quantitative threshold. ASU 2023-09 is effective for the Company starting January 1, 2025, though early adoption is permitted. ASU 2023-09 is not expected to have a significant impact on our financial statements. Note 2 – Reclassifications – Certain reclassifications may have been made to conform to reporting in 2024. These reclassifications have no material effect on previously reported shareholders’ equity or net income. Note 3 – Mergers and Acquisitions – Waterstone, LSP, LLP On January 31, 2024, the Company consummated the acquisition, through b1BANK, of Waterstone LSP, LLC (“Waterstone”), headquartered in Katy, Texas. Upon consummation of the acquisition, the Company paid $ 3.3 million in cash to the former owners of Waterstone. As part of the acquisition, the Company recorded $ 3.1 million in goodwill. The Company has recorded approximately $ 1.5 million and $ 236,000 of acquisition-related costs within merger and conversion-related expenses and salaries and benefits for the nine months ended September 30, 2024, and year ended December 31, 2023, respectively. Note 4 – Earnings per Common Share – Basic earnings per share (“EPS”) represents income available to common shareholders divided by the weighted average number of common shares outstanding; no dilution for any potentially convertible shares is included in the calculation. Diluted EPS reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock or resulted in the issuance of common stock that then shared in the earnings of the Company. The potential common shares that may be issued by the Company relate to outstanding stock options and unvested restricted stock awards (“RSAs”), excluding any that were antidilutive. In addition, 12 Table of Contents BUSINESS FIRST BANCSHARES, INC. AND SUBSIDIARIES NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS nonvested share-based payment awards that contain nonforfeitable rights to dividends or dividend equivalents are considered participating securities and are included in the computation of EPS pursuant to the two-class method. For the Three Months Ended September 30, For the Nine Months Ended September 30, 2024 2023 2024 2023 (Dollars in thousands, except per share data) Numerator: Net Income $ 17,843 $ 20,455 $ 48,619 $ 55,219 Less: Preferred Stock Dividends 1,351 1,351 4,051 4,051 Net Income Available to Common Shares $ 16,492 $ 19,104 $ 44,568 $ 51,168 Denominator: Weighted Average Common Shares Outstanding 25,289,094 25,111,548 25,227,319 25,064,856 Dilutive Effect of Stock Options and RSAs 151,153 177,112 194,427 217,052 Weighted Average Dilutive Common Shares 25,440,247 25,288,660 25,421,746 25,281,908 Basic Earnings Per Common Share From Net Income Available to Common Shares $ 0.65 $ 0.76 $ 1.77 $ 2.04 Diluted Earnings Per Common Share From Net Income Available to Common Shares $ 0.65 $ 0.76 $ 1.75 $ 2.02 Note 5 – Securities – The amortized cost and fair values of securities available for sale as of September 30, 2024, and December 31, 2023 are summarized as follows: September 30, 2024 (Dollars in thousands) Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Fair Value U.S. Treasury Securities $ 17,646 $ - $ 880 $ 16,766 U.S. Government Agencies 10,188 - 517 9,671 Corporate Securities 48,209 26 3,754 44,481 Mortgage-Backed Securities 590,034 4,724 34,692 560,066 Municipal Securities 308,519 378 23,790 285,107 Total Securities Available for Sale $ 974,596 $ 5,128 $ 63,633 $ 916,091 13 Table of Contents BUSINESS FIRST BANCSHARES, INC. AND SUBSIDIARIES NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS December 31, 2023 (Dollars in thousands) Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Fair Value U.S. Treasury Securities $ 17,690 $ - $ 1,451 $ 16,239 U.S. Government Agencies 10,258 - 848 9,410 Corporate Securities 49,609 - 5,770 43,839 Mortgage-Backed Securities 555,148 976 49,814 506,310 Municipal Securities 331,273 298 27,798 303,773 Total Securities Available for Sale $ 963,978 $ 1,274 $ 85,681 $ 879,571 The following tables present a summary of securities with gross unrealized losses and fair values at September 30, 2024 and December 31, 2023, aggregated by investment category and length of time in a continued unrealized loss position. Due to the nature of these investments and current prevailing market prices, these unrealized losses are considered non-credit related. September 30, 2024 Less Than 12 Months 12 Months or Greater Total (Dollars in thousands) Fair Value Gross Unrealized Losses Fair Value Gross Unrealized Losses Fair Value Gross Unrealized Losses U.S. Treasury Securities $ - $ - $ 16,766 $ 880 $ 16,766 $ 880 U.S. Government Agencies - - 9,671 517 9,671 517 Corporate Securities - - 41,527 3,754 41,527 3,754 Mortgage-Backed Securities 1,765 11 360,330 34,681 362,095 34,692 Municipal Securities 4,144 16 251,079 23,774 255,223 23,790 Total Securities Available for Sale $ 5,909 $ 27 $ 679,373 $ 63,606 $ 685,282 $ 63,633 December 31, 2023 Less Than 12 Months 12 Months or Greater Total (Dollars in thousands) Fair Value Gross Unrealized Losses Fair Value Gross Unrealized Losses Fair Value Gross Unrealized Losses U.S. Treasury Securities $ - $ - $ 16,239 $ 1,451 $ 16,239 $ 1,451 U.S. Government Agencies - - 9,410 848 9,410 848 Corporate Securities 7,529 362 36,106 5,408 43,635 5,770 Mortgage-Backed Securities 21,436 895 375,891 48,919 397,327 49,814 Municipal Securities 8,013 63 270,467 27,735 278,480 27,798 Total Securities Available for Sale $ 36,978 $ 1,320 $ 708,113 $ 84,361 $ 745,091 $ 85,681 As of September 30, 2024, and December 31, 2023, respectively, no allowance for credit losses was recognized on available for sale securities in an unrealized loss position as management does not believe any of the securities are impaired due to credit quality. This determination is based on the Company’s analysis of the underlying risk characteristics including credit ratings, historical loss experience, and other qualitative factors. Further, the securities 14 Table of Contents BUSINESS FIRST BANCSHARES, INC. AND SUBSIDIARIES NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS continue to make principal and interest payments under their contractual terms and management does not have the intent to sell any of the securities and believes that it is more likely than not that the Company will not have to sell any such securities before a recovery of amortized cost basis. Therefore, the Company has determined the unrealized losses are due to changes in market interest rates compared to rates when the securities were acquired. The amortized cost and fair values of securities available for sale as of September 30, 2024, by contractual maturity are shown below. Actual maturities may differ from contractual maturities in mortgage-backed securities because the mortgages underlying the securities may be called or repaid without any penalties. Amortized Cost Fair Value (Dollars in thousands) Less Than One Year $ 26,315 $ 26,048 One to Five Years 193,423 183,972 Over Five to Ten Years 353,833 330,029 Over Ten Years 401,025 376,042 Total Securities Available for Sale $ 974,596 $ 916,091 Securities available for sale with a fair value of $ 347.2 million and $ 629.7 million, were pledged as collateral on public deposits and for other purposes as required or permitted by law as of September 30, 2024, and December 31, 2023, respectively. At September 30, 2024 and December 31, 2023, accrued interest receivable on securities was $ 3.8 million and $ 4.7 million, respectively, and is included within accrued interest receivable on the consolidated balance sheets. Note 6 – Loans and the Allowance for Loan Losses – Loans receivable at September 30, 2024 and December 31, 2023 are summarized as follows: September 30, 2024 December 31, 2023 (Dollars in thousands) Real Estate Loans: Commercial $ 2,256,370 $ 2,217,928 Construction 654,353 669,798 Residential 743,878 682,394 Total Real Estate Loans 3,654,601 3,570,120 Commercial 1,496,480 1,358,838 Consumer and Other 69,037 63,827 Total Loans Held for Investment 5,220,118 4,992,785 Less: Allowance for Loan Losses ( 42,154 ) ( 40,414 ) Net Loans $ 5,177,964 $ 4,952,371 The performing 1-4 family residential, multi-family residential, commercial real estate, and commercial loans, are pledged, under a blanket lien, as collateral securing advances from the FHLB at September 30, 2024 and December 31, 2023. Commercial and agricultural loans are pledged against the Federal Reserve Banks’ (“FRB”) discount window as of September 30, 2024 and December 31, 2023. 15 Table of Contents BUSINESS FIRST BANCSHARES, INC. AND SUBSIDIARIES NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS Net deferred loan origination fees were $ 12.8 million and $ 12.6 million at September 30, 2024 and December 31, 2023, respectively, and are netted in their respective loan categories above. In addition to loans issued in the normal course of business, the Company considers overdrafts on customer deposit accounts to be loans and reclassifies overdrafts as loans in its consolidated balance sheets. At September 30, 2024 and December 31, 2023, overdrafts of $ 6.1 million and $ 2.2 million, respectively, have been reclassified to loans. The Bank is the lead lender on participations sold, without recourse, to other financial institutions which amounts are not included in the consolidated balance sheets. The unpaid principal balances of mortgages and other loans serviced for others were approximately $ 743.3 million and $ 723.5 million at September 30, 2024 and December 31, 2023, respectively. The Company had servicing rights of $ 954,000 and $ 1.1 million recorded at both September 30, 2024, and December 31, 2023, respectively, which are recorded within other assets. The Bank grants loans and extensions of credit to individuals and a variety of businesses and corporations located in its general market areas throughout Louisiana and Texas. Management segregates the loan portfolio into portfolio segments which is defined as the level at which the Bank develops and documents a systematic method for determining its allowance for credit losses. The portfolio segments are segregated based on loan types and the underlying risk factors present in each loan type. Such risk factors are periodically reviewed by management and revised as deemed appropriate. Portfolio Segments and Risk Factors The loan portfolio is disaggregated into portfolio segments and then further disaggregated into classes for certain disclosures. GAAP defines a portfolio segment as the level at which an entity develops and documents a systematic method for determining its allowance for credit losses. A class is generally a disaggregation of a portfolio segment. The Company's loan portfolio segments are Real Estate, Commercial, and Consumer and Other. The classes and risk characteristics of each segment are discussed in more detail below. The segmentation and disaggregation of the portfolio is part of the ongoing credit monitoring process. Real Estate Portfolio Segment Real Estate: 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. Real Estate: 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. Real Estate: 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. 16 Table of Contents BUSINESS FIRST BANCSHARES, INC. AND SUBSIDIARIES NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS 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. The following tables set forth, as of September 30, 2024, and December 31, 2023, the balance of the allowance for credit losses by loan portfolio segment. The allowance for credit losses allocated to each portfolio segment is not necessarily indicative of future losses in any particular portfolio segment and does not restrict the use of the allowance to absorb losses in other portfolio segments. Allowance for Credit Losses and Recorded Investment in Loans Receivable September 30, 2024 (Dollars in thousands) Real Estate: Commercial Real Estate: Construction Real Estate: Residential Commercial Consumer and Other Total Allowance for Loan Losses: Beginning Balance $ 17,676 $ 6,596 $ 5,485 $ 10,424 $ 233 $ 40,414 Charge-offs ( 1 ) ( 672 ) ( 293 ) ( 859 ) ( 1,558 ) ( 3,383 ) Recoveries 15 - 12 264 236 527 Provision (Recovery) 394 ( 267 ) 1,118 1,756 1,595 4,596 Ending Balance $ 18,084 $ 5,657 $ 6,322 $ 11,585 $ 506 $ 42,154 Reserve for Unfunded Loan Commitments: Beginning Balance $ 206 $ 1,546 $ 177 $ 1,372 $ 23 $ 3,324 Provision (Recovery) 54 ( 720 ) 5 222 4 ( 435 ) Ending Balance $ 260 $ 826 $ 182 $ 1,594 $ 27 $ 2,889 Total Allowance for Credit Losses $ 18,344 $ 6,483 $ 6,504 $ 13,179 $ 533 $ 45,043 17 Table of Contents BUSINESS FIRST BANCSHARES, INC. AND SUBSIDIARIES NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS December 31, 2023 (Dollars in thousands) Real Estate: Commercial Real Estate: Construction Real Estate: Residential Commercial Consumer and Other Total Allowance for Loan Losses: Beginning Balance $ 14,702 $ 5,768 $ 5,354 $ 11,721 $ 633 $ 38,178 Adoption of ASU 2016-13 4,823 933 ( 365 ) ( 2,483 ) ( 248 ) 2,660 Beginning Balance After Adoption 19,525 6,701 4,989 9,238 385 40,838 Charge-offs ( 2,049 ) ( 36 ) ( 42 ) ( 2,813 ) ( 1,489 ) ( 6,429 ) Recoveries 26 1 18 672 327 1,044 Provision (Recovery) 174 ( 70 ) 520 3,327 1,010 4,961 Ending Balance $ 17,676 $ 6,596 $ 5,485 $ 10,424 $ 233 $ 40,414 Reserve for Unfunded Loan Commitments: Beginning Balance $ 220 $ 137 $ 13 $ 229 $ 6 $ 605 Adoption of ASU 2016-13 116 2,113 190 657 121 3,197 Beginning Balance After Adoption 336 2,250 203 886 127 3,802 Provision (Recovery) ( 130 ) ( 704 ) ( 26 ) 486 ( 104 ) ( 478 ) Ending Balance $ 206 $ 1,546 $ 177 $ 1,372 $ 23 $ 3,324 Total Allowance for Credit Losses $ 17,882 $ 8,142 $ 5,662 $ 11,796 $ 256 $ 43,738 Included within the above allowance, in the tables above, are loans which management has individually evaluated to determine an allowance for credit losses. The following table summarizes, by segment, the loan balance and specific allowance allocation for those loans which have been individually evaluated. September 30, 2024 December 31, 2023 Loan Balance Specific Allocations Loan Balance Specific Allocations (Dollars in thousands) Real Estate Loans: Commercial $ 7,375 $ - $ 883 $ - Construction 4,124 142 2,334 513 Residential - - 1,533 - Total Real Estate Loans 11,499 142 4,750 513 Commercial - - - - Consumer and Other - - - - Total $ 11,499 $ 142 $ 4,750 $ 513 18 Table of Contents BUSINESS FIRST BANCSHARES, INC. AND SUBSIDIARIES NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS Credit Quality Indicators We utilize a risk grading matrix to assign a risk grade to each of our commercial loans. Loans are graded on a scale of 10 to 80. Individual loan officers review updated financial information for all pass grade loans to reassess the risk grade, generally on at least an annual basis. When a loan has a risk grade of 60, it is still considered a pass grade loan; however, it is considered to be on management’s “watch list,” and subject to additional and more frequent monitoring by both the loan officer and senior credit and risk personnel. When a loan has a risk grade of 70 or higher, a special assets officer monitors the loan on an on-going basis. The following tables set forth the credit quality indicators, disaggregated by loan segment, as of September 30, 2024, and December 31, 2023: 19 Table of Contents BUSINESS FIRST BANCSHARES, INC. AND SUBSIDIARIES NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS September 30, 2024 Criticized Pass (Risk Grade 10-45) Special Mention (Risk Grade 50) Substandard (Risk Grade 60) Doubtful (Risk Grade 70) Loss (Risk Grade 80) Total Current Period Charge- offs (Dollars in thousands) Real Estate: Commercial Originated in 2024 $ 198,896 $ - $ - $ - $ - $ 198,896 $ - Originated in 2023 190,774 22,185 139 - - 213,098 - Originated in 2022 718,376 38,881 3,353 - - 760,610 2 Originated in 2021 390,941 5,910 473 - - 397,324 - Originated in 2020 126,015 1,967 446 - - 128,428 4 Originated Prior to 2020 471,558 4,342 6,765 879 - 483,544 ( 5 ) Revolving 73,370 440 660 - - 74,470 - Revolving Loans Converted to Term - - - - - - - Total Real Estate: Commercial $ 2,169,930 $ 73,725 $ 11,836 $ 879 $ - $ 2,256,370 $ 1 Real Estate: Construction Originated in 2024 $ 140,112 $ - $ 403 $ - $ - $ 140,515 $ - Originated in 2023 117,290 - 701 - - 117,991 46 Originated in 2022 198,474 - 1,258 - - 199,732 278 Originated in 2021 67,395 - 3,005 - - 70,400 348 Originated in 2020 25,524 - 15 - - 25,539 - Originated Prior to 2020 28,172 101 2,004 - - 30,277 - Revolving 69,502 397 - - - 69,899 - Revolving Loans Converted to Term - - - - - - - Total Real Estate: Construction $ 646,469 $ 498 $ 7,386 $ - $ - $ 654,353 $ 672 Real Estate: Residential Originated in 2024 $ 62,319 $ - $ 231 $ - $ - $ 62,550 $ 2 Originated in 2023 74,311 - 148 - - 74,459 1 Originated in 2022 203,168 1,162 1,158 10 - 205,498 10 Originated in 2021 94,188 116 207 - - 94,511 1 Originated in 2020 62,259 384 503 41 - 63,187 2 Originated Prior to 2020 132,326 1,687 5,968 251 - 140,232 73 Revolving 102,013 148 1,053 - - 103,214 204 Revolving Loans Converted to Term 227 - - - - 227 - Total Real Estate: Residential $ 730,811 $ 3,497 $ 9,268 $ 302 $ - $ 743,878 $ 293 Commercial Originated in 2024 $ 274,743 $ 1,737 $ 8,155 $ - $ - $ 284,635 $ - Originated in 2023 258,892 2,555 1,104 - - 262,551 19 Originated in 2022 205,033 1,029 9,441 - - 215,503 450 Originated in 2021 98,866 2,743 1,657 - - 103,266 271 Originated in 2020 29,771 45 576 - - 30,392 43 Originated Prior to 2020 59,768 1,933 524 329 - 62,554 76 Revolving 529,754 5,779 2,029 - - 537,562 - Revolving Loans Converted to Term 17 - - - - 17 - Total Commercial $ 1,456,844 $ 15,821 $ 23,486 $ 329 $ - $ 1,496,480 $ 859 Consumer and Other Originated in 2024 $ 8,487 $ - $ - $ - $ - $ 8,487 $ 24 Originated in 2023 6,775 - 21 - - 6,796 59 Originated in 2022 5,181 - 13 - - 5,194 38 Originated in 2021 2,273 - 46 - - 2,319 4 Originated in 2020 1,219 - 67 - - 1,286 31 Originated Prior to 2020 25,657 - 65 - - 25,722 40 Revolving 18,803 - 407 - - 19,210 1,362 Revolving Loans Converted to Term 23 - - - - 23 - Total Consumer and Other $ 68,418 $ - $ 619 $ - $ - $ 69,037 $ 1,558 Total Loans $ 5,072,472 $ 93,541 $ 52,595 $ 1,510 $ - $ 5,220,118 $ 3,383 20 Table of Contents BUSINESS FIRST BANCSHARES, INC. AND SUBSIDIARIES NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS December 31, 2023 Criticized Pass (Risk Grade 10-45) Special Mention (Risk Grade 50) Substandard (Risk Grade 60) Doubtful (Risk Grade 70) Loss (Risk Grade 80) Total Current Period Charge- offs (Dollars in thousands) Real Estate: Commercial Originated in 2023 $ 228,902 $ - $ 84 $ - $ - $ 228,986 $ - Originated in 2022 751,649 1,909 - - - 753,558 - Originated in 2021 427,269 6,103 492 - - 433,864 357 Originated in 2020 151,848 3,551 8 - - 155,407 - Originated in 2019 149,946 5,556 372 932 - 156,806 1,447 Originated Prior to 2019 379,503 1,313 7,970 335 - 389,121 245 Revolving 99,723 226 237 - - 100,186 - Revolving Loans Converted to Term - - - - - - - Total Real Estate: Commercial $ 2,188,840 $ 18,658 $ 9,163 $ 1,267 $ - $ 2,217,928 $ 2,049 Real Estate: Construction Originated in 2023 $ 131,617 $ - $ - $ - $ - $ 131,617 $ - Originated in 2023 322,032 647 62 - - 322,741 - Originated in 2021 85,438 2,601 1,229 - - 89,268 - Originated in 2020 22,515 31 16 - - 22,562 - Originated in 2019 19,402 - 1,675 - - 21,077 1 Originated Prior to 2019 20,180 413 588 345 - 21,526 35 Revolving 60,612 395 - - - 61,007 - Revolving Loans Converted to Term - - - - - - - Total Real Estate: Construction $ 661,796 $ 4,087 $ 3,570 $ 345 $ - $ 669,798 $ 36 Real Estate: Residential Originated in 2023 $ 76,662 $ - $ - $ - $ - $ 76,662 $ - Originated in 2022 170,229 433 410 14 - 171,086 - Originated in 2021 98,329 - 708 - - 99,037 11 Originated in 2020 68,281 386 520 57 - 69,244 1 Originated in 2019 54,902 1,112 1,061 119 - 57,194 22 Originated Prior to 2019 97,716 1,230 6,000 299 - 105,245 7 Revolving 103,252 - 654 - - 103,906 1 Revolving Loans Converted to Term 20 - - - - 20 - Total Real Estate: Residential $ 669,391 $ 3,161 $ 9,353 $ 489 $ - $ 682,394 $ 42 Commercial Originated in 2023 $ 303,160 $ 1,439 $ 709 $ - $ - $ 305,308 $ - Originated in 2022 267,678 698 1,196 - - 269,572 247 Originated in 2021 136,291 5,483 928 16 - 142,718 25 Originated in 2020 48,990 448 921 42 - 50,401 49 Originated in 2019 21,137 584 640 231 - 22,592 1,632 Originated Prior to 2019 61,166 3,843 341 251 - 65,601 658 Revolving 499,642 2,128 573 28 - 502,371 202 Revolving Loans Converted to Term 275 - - - - 275 - Total Commercial $ 1,338,339 $ 14,623 $ 5,308 $ 568 $ - $ 1,358,838 $ 2,813 Consumer and Other Originated in 2023 $ 11,245 $ - $ - $ - $ - $ 11,245 $ 8 Originated in 2022 7,219 - 27 - - 7,246 78 Originated in 2021 3,372 - 55 - - 3,427 29 Originated in 2020 1,850 - 88 - - 1,938 11 Originated in 2019 2,359 - 40 - - 2,399 18 Originated Prior to 2019 18,280 - 92 - - 18,372 61 Revolving 18,814 100 160 - - 19,074 1,284 Revolving Loans Converted to Term 126 - - - - 126 - Total Consumer and Other $ 63,265 $ 100 $ 462 $ - $ - $ 63,827 $ 1,489 Total Loans $ 4,921,631 $ 40,629 $ 27,856 $ 2,669 $ - $ 4,992,785 $ 6,429 21 Table of Contents BUSINESS FIRST BANCSHARES, INC. AND SUBSIDIARIES NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS The above classifications follow regulatory guidelines and can generally be described as follows: • Pass loans are of satisfactory quality. • Special mention loans have an existing weakness that could cause future impairment, including the deterioration of financial ratios, past due status, questionable management capabilities and possible reduction in the collateral values. • Substandard loans have an existing specific and well-defined weakness that may include poor liquidity and deterioration of financial ratios. The loan may be past due and related deposit accounts experiencing overdrafts. Immediate corrective action is necessary. • Doubtful loans have specific weaknesses that are severe enough to make collection or liquidation in full highly questionable and improbable. As of September 30, 2024, and December 31, 2023, loan balances outstanding more than 90 days past due and still accruing interest amounted to $ 185,000 and $ 127,000 , respectively. As of September 30, 2024 and December 31, 2023, loan balances outstanding on nonaccrual status amounted to $ 25.9 million and $ 16.9 million, respectively. The Bank considers all loans more than 90 days past due as nonperforming loans. The following tables provide an analysis of the aging of loans and leases as of September 30, 2024, and December 31, 2023. All loans greater than 90 days past due are generally placed on nonaccrual status. Aged Analysis of Past Due Loans Receivable September 30, 2024 (Dollars in thousands) 30-59 Days Past Due 60-89 Days Past Due Greater Than 90 Days Past Due Total Past Due Current Total Loans Receivable Recorded Investment Over 90 Days Past Due and Still Accruing Real Estate Loans: Commercial $ 3,745 $ 77 $ 6,751 $ 10,573 $ 2,245,797 $ 2,256,370 $ - Construction 7,511 - 5,171 12,682 641,671 654,353 56 Residential 804 1,246 4,865 6,915 736,963 743,878 - Total Real Estate Loans 12,060 1,323 16,787 30,170 3,624,431 3,654,601 56 Commercial 6,365 522 5,346 12,233 1,484,247 1,496,480 103 Consumer and Other 151 41 520 712 68,325 69,037 26 Total $ 18,576 $ 1,886 $ 22,653 $ 43,115 $ 5,177,003 $ 5,220,118 $ 185 22 Table of Contents BUSINESS FIRST BANCSHARES, INC. AND SUBSIDIARIES NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS December 31, 2023 (Dollars in thousands) 30-59 Days Past Due 60-89 Days Past Due Greater Than 90 Days Past Due Total Past Due Current Total Loans Receivable Recorded Investment Over 90 Days Past Due and Still Accruing Real Estate Loans: Commercial $ 240 $ 536 $ 2,954 $ 3,730 $ 2,214,198 $ 2,217,928 $ 44 Construction 279 1,320 3,198 4,797 665,001 669,798 - Residential 1,792 1,207 4,058 7,057 675,337 682,394 20 Total Real Estate Loans 2,311 3,063 10,210 15,584 3,554,536 3,570,120 64 Commercial 1,101 71 1,622 2,794 1,356,044 1,358,838 52 Consumer and Other 280 252 188 720 63,107 63,827 11 Total $ 3,692 $ 3,386 $ 12,020 $ 19,098 $ 4,973,687 $ 4,992,785 $ 127 The following table presents non-accrual loans by segment as of September 30, 2024, and December 31, 2023, respectively. September 30, 2024 December 31, 2023 (Dollars in thousands) Real Estate Loans: Commercial $ 7,100 $ 3,280 Construction 5,736 3,543 Residential 6,909 7,352 Total Real Estate Loans 19,745 14,175 Commercial 5,581 2,395 Consumer and Other 548 373 Total $ 25,874 $ 16,943 The Bank seeks to assist customers that are experiencing financial difficulty by renegotiating loans within lending regulations and guidelines. The Bank makes loan modifications, primarily utilizing internal renegotiation programs via direct customer contact, that manage customers’ debt exposures held only by the Bank. Additionally, the Bank makes loan modifications with customers who have elected to work with external renegotiation agencies and these modifications provide solutions to customers’ entire unsecured debt structures. During the periods ended September 30, 2024, and December 31, 2023, the concessions granted to certain borrowers included extending the payment due dates and offering below market contractual interest rates, and were not significant to the consolidated financial statement Accrued interest receivable of $ 4.0 million and $ 4.2 million was outstanding at September 30, 2024, and December 31, 2023, respectively, for all loan deferrals, primarily attributable to the COVID-19 pandemic and, to a much lesser extent, hurricanes which occurred in 2020 and 2021. These loans are no longer within their deferral periods. The accrued interest on the loans is due at their maturity. At September 30, 2024 and December 31, 2023, accrued interest receivable on loans was $ 28.8 million and $ 25.2 million, respectively, and is included within accrued interest receivable on the consolidated balance sheets. 23 Table of Contents BUSINESS FIRST BANCSHARES, INC. AND SUBSIDIARIES NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS Note 7 – Long Term Debt – On March 1, 2022, the Company assumed, in connection with the TCBI acquisition, three tranches of subordinated debt with an aggregate principal balance outstanding of $ 26.4 million. One tranche in the amount of $ 10.0 million bears an adjustable interest rate, based on a benchmark rate plus 350 basis points, until maturity on April 11, 2028. This tranche is currently redeemable at the Company’s option. Another tranche in the amount of $ 7.5 million bears an adjustable interest rate, based on a benchmark rate plus 350 basis points, until maturity on December 13, 2028. This tranche is currently redeemable at the Company's option. The third tranche in the amount of $ 8.9 million had an adjustable interest rate plus 595 basis points, based on a benchmark rate, until maturity on March 24, 2027. The $ 8.9 million tranche was called on May 1, 2023, by the Company and has been fully extinguished. The Company recognized a $ 1.5 million gain on the extinguishment of this debt during 2023. These notes carried an aggregate $ 890,000 and $ 1.1 million fair value adjustment as of September 30, 2024, and December 31, 2023, respectively. Note 8 – Bank Term Funding Program ( “ BTFP ” ) – On March 12, 2023, the Federal Reserve Board developed the BTFP, which offered loans to banks with a term of up to one year . The loans were secured by pledging the banks’ U.S. treasuries, agency securities, agency mortgage-backed securities, and any other qualifying assets. These pledged securities were valued at par for collateral purposes. The Bank participated in the BTFP and had outstanding debt of $ 300.0 million at December 31, 2023. These loans bore a fixed rate of 4.38 % and matured on March 22, 2024, at which time the Bank repaid them in full. Note 9 – Federal Home Loan Bank ( “ FHLB ” ) Borrowings – The Company had outstanding advances from the FHLB of $ 367.2 million and $ 211.2 million as of September 30, 2024, and December 31, 2023, respectively, consisting of: One fixed rate loan with an original principal balance of $ 60.0 million. The loan was made in 2021 and the balance at September 30, 2024 and December 31, 2023 was $ 26.3 million and $ 35.3 million, respectively, with interest at 0.89 %. Principal and interest payments are due monthly and the loan matures in November 2026. One fixed rate loan of $ 875,000 at both September 30, 2024, and December 31, 2023, that was acquired during the TCBI acquisition, with interest at 4.88 % paid monthly. Principal is due at maturity in April 2025. One fixed rate loan of $ 25.0 million at both September 30, 2024, and December 31, 2023, with interest at 4.89 % paid monthly. Principal is due at maturity in July 2025. One fixed rate loan of $ 25.0 million at both September 30, 2024, and December 31, 2023, with interest at 4.65 % paid monthly. Principal is due at maturity in January 2026. One fixed rate loan of $ 25.0 million at both September 30, 2024, and December 31, 2023, with interest at 4.56 % paid monthly. Principal is due at maturity in July 2026. One fixed rate loan of $ 25.0 million at both September 30, 2024, and December 31, 2023, with interest at 4.13 % paid monthly. Principal is due at maturity in October 2028. This advance has put options beginning in October 2024. One fixed rate loan of $ 25.0 million at both September 30, 2024, and December 31, 2023, with interest at 3.92 % paid monthly. Principal is due at maturity in October 2030. This advance has put options beginning in October 2024. One fixed rate loan of $ 25.0 million at both September 30, 2024, and December 31, 2023, with interest at 3.72 %paid monthly. Principal is due at maturity in October 2033. This advance has put options beginning in October 2024. One fixed rate loan of $ 25.0 million at both September 30, 2024, and December 31, 2023, with interest at 3.57 % paid monthly. Principal is due at maturity in October 2033. This advance has put options beginning in October 2024. One fixed rate loan of $ 25.0 million at September 30, 2024, with interest at 4.84 % paid monthly. Principal is due at maturity in December 2026. 24 Table of Contents BUSINESS FIRST BANCSHARES, INC. AND SUBSIDIARIES NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS One fixed rate loan of $ 25.0 million at September 30, 2024, with interest at 4.78 % paid monthly. Principal is due at maturity in September 2027. One fixed rate loan of $ 25.0 million at September 30, 2024, with interest at 4.73 % paid monthly. Principal is due at maturity in March 2028. One fixed rate loan of $ 25.0 million at September 30, 2024, with interest at 4.69 % paid monthly. Principal is due at maturity in September 2028. One short-term fixed rate loan of $ 65.0 million at September 30, 2024, with interest at 4.88 % paid monthly. Principal and interest was due, and paid, at maturity in October 2024. The Company had an additional $ 1.2 billion remaining on the FHLB line availability at September 30, 2024. Note 10 – Leases – The Bank leases certain branch offices through non-cancelable operating leases with terms that range from one to ten years and contain various renewal options for certain of the leases. Certain leases provide for increases in minimum monthly rental payments as defined by the lease agreement. Rental expense under these agreements was $ 4.5 million and $ 4.2 million for the nine months ended September 30, 2024, and 2023, respectively. At September 30, 2024, the Company had a weighted average lease term of 6.1 years and a weighted average discount rate of 3.44 %. Future minimum lease payments under these leases are as follows: (Dollars in thousands) October 1, 2024 through December 31, 2024 $ 1,293 January 1, 2025 through December 31, 2025 4,232 January 1, 2026 through December 31, 2026 3,969 January 1, 2027 through December 31, 2027 3,573 January 1, 2028 through December 31, 2028 3,077 January 1, 2029 and Thereafter 5,539 Total Future Minimum Lease Payments 21,683 Less Imputed Interest ( 2,095 ) Present Value of Lease Liabilities $ 19,588 Note 11 – Commitments and Contingencies – In the normal course of business, the Bank is a party to financial instruments with off-balance sheet risk to meet the financing needs of its customers. These financial instruments include commitments to extend credit and standby and commercial letters of credit which are not included in the accompanying financial statements. These instruments involve, to varying degrees, elements of credit risk in excess of the amount recognized in the balance sheet. The Bank’s exposure to credit loss in the event of nonperformance by the other party to the financial instrument for commitments to extend credit and standby and commercial letters of credit is represented by the contractual amount of those instruments. The Bank’s policy for obtaining collateral, and the nature of such collateral, is essentially the same as that involved in making commitments to extend credit. The Bank uses the same credit policies in making such commitments and conditional obligations as it does for instruments that are included in the balance sheet. In the normal course of business, the Bank has made commitments to extend credit of approximately $ 1.2 billion at both September 30, 2024, and December 31, 2023, and standby and commercial letters of credit of approximately $ 47.9 million and $ 45.2 million at September 30, 2024 and December 31, 2023, respectively. As discussed in Note 6, we have a reserve for unfunded loan commitments of $ 2.9 million and $ 3.3 million at September 30, 2024 and December 31, 2023, respectively. 25 Table of Contents BUSINESS FIRST BANCSHARES, INC. AND SUBSIDIARIES NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS In the normal course of business, the Bank is involved in various legal proceedings. In the opinion of management and counsel, the disposition or ultimate resolution of such proceedings would not have a material adverse effect on the Bank’s financial statements. Note 12– Fair Value of Financial Instruments – Fair Value Disclosures The Company groups its financial assets and liabilities measured at fair value in three levels. Fair value should be based on the assumptions market participants would use when pricing the asset or liability and establishes a fair value hierarchy that prioritizes the inputs used to develop those assumptions and measure fair value. The hierarchy requires companies to maximize the use of observable inputs and minimize the use of unobservable inputs. The three levels of inputs used to measure fair value are as follows: • Level 1 – Includes the most reliable sources and includes quoted prices in active markets for identical assets or liabilities. • Level 2 – Includes observable inputs. Observable inputs include inputs other than quoted prices that are observable for the asset or liability (for example, interest rates and yield curves at commonly quoted intervals, volatilities, prepayment speeds, loss severities, credit risks, and default rates) as well as inputs that are derived principally from or corroborated by observable market data by correlation or other means (market-corroborated inputs). • Level 3 – Includes unobservable inputs and should be used only when observable inputs are unavailable. Recurring Basis Fair values of investment securities available for sale were primarily measured using information from a third-party pricing service. This pricing service provides information by utilizing evaluated pricing models supported with market data information. Standard inputs include benchmark yields, reported trades, broker/dealer quotes, issuer spreads, benchmark securities, bids, offers, and reference data from market research publications. The fair values of mortgage loans held for sale are based on commitments on hand from investors within the secondary market for loans with similar characteristics. 26 Table of Contents BUSINESS FIRST BANCSHARES, INC. AND SUBSIDIARIES NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS The following tables present the balance of assets and liabilities measured on a recurring basis as of September 30, 2024, and December 31, 2023. The Company did not record any liabilities at fair value for which measurement of the fair value was made on a recurring basis. Fair Value Level 1 Level 2 Level 3 (Dollars in thousands) September 30, 2024 Available for Sale: U.S. Treasury Securities $ 16,766 $ - $ 16,766 $ - U.S. Government Agency Securities 9,671 - 9,671 - Corporate Securities 44,481 - 36,040 8,441 Mortgage-Backed Securities 560,066 - 560,066 - Municipal Securities 285,107 - 259,881 25,226 Loans Held for Sale — - — - Total $ 916,091 $ - $ 882,424 $ 33,667 December 31, 2023 Available for Sale: U.S. Treasury Securities $ 16,239 $ - $ 16,239 $ - U.S. Government Agency Securities 9,410 - 9,410 - Corporate Securities 43,839 - 35,871 7,968 Mortgage-Backed Securities 506,310 - 506,310 - Municipal Securities 303,773 - 282,926 20,847 Loans Held for Sale 835 - 835 - Total $ 880,406 $ - $ 851,591 $ 28,815 The Company reviews fair value hierarchy classifications on a quarterly basis. Changes in the Company's ability to observe inputs to the valuation may cause reclassification of certain assets or liabilities within the fair value hierarchy. 27 Table of Contents BUSINESS FIRST BANCSHARES, INC. AND SUBSIDIARIES NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS The table below provides a reconciliation for assets measured at fair value on a recurring basis using significant unobservable inputs, or Level 3 inputs, as of September 30, 2024, and December 31, 2023. Corporate Municipal Bonds Securities (Dollars in thousands) Balance at December 31, 2022 $ 19,000 $ 34,768 Realized Gains (Losses) Included in Net Income - - Unrealized Losses Included in Other Comprehensive Loss ( 1,532 ) ( 2,228 ) Purchases - - Sales - - Maturities, Prepayments, and Calls - ( 1,798 ) Transfers Into Level 3 - - Transfers Out of Level 3 ( 9,500 ) ( 9,895 ) Balance at December 31, 2023 7,968 20,847 Realized Gains (Losses) Included in Net Income - - Unrealized Gains (Losses) Included in Other Comprehensive Loss 473 ( 1,841 ) Purchases - 9,938 Sales - - Maturities, Prepayments, and Calls - ( 3,718 ) Transfers Into Level 3 - - Transfers Out of Level 3 - - Balance at June 30, 2024 $ 8,441 $ 25,226 The following table provides quantitative information about significant unobservable inputs used in fair value measurements of Level 3 assets measured at fair value on a recurring basis at September 30, 2024. Estimated Valuation Unobservable Range of Fair Value Technique Inputs Discounts (Dollars in thousands) September 30, 2024 Corporate Securities $ 8,441 Present Value of Expected Future Cash Flow Model Liquidity Premium 2 % Municipal Securities 25,226 Present Value of Expected Future Cash Flow Model Liquidity Premium 1 % Nonrecurring Basis The Company has segregated all financial assets and liabilities that are measured at fair value on a nonrecurring basis into the most appropriate level within the fair value hierarchy based on the inputs used to determine the fair value at the measurement date in the table below. The Company did not record any liabilities at fair value for which measurement of the fair value was made on a nonrecurring basis. The fair value of the individually evaluated loans is measured at the fair value of the collateral for collateral-dependent loans. Individually evaluated loans are Level 3 assets measured using appraisals from external parties of the collateral less any prior liens and adjusted for estimated selling costs. Adjustments may be made by management based on a customized internally developed discounting matrix. Repossessed assets are initially recorded at fair value less 28 Table of Contents BUSINESS FIRST BANCSHARES, INC. AND SUBSIDIARIES NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS estimated cost to sell, which is generally 10 %. The fair value of repossessed assets is based on property appraisals and an analysis of similar properties available. As such, the Bank records repossessed assets as Level 3. Fair Value Level 1 Level 2 Level 3 (Dollars in thousands) September 30, 2024 Assets: Individually Evaluated Loans $ 11,499 $ - $ - $ 11,499 Other Nonperforming Assets 1,787 - - 1,787 Total $ 13,286 $ - $ - $ 13,286 December 31, 2023 Assets: Individually Evaluated Loans $ 4,750 $ - $ - $ 4,750 Other Nonperforming Assets 1,685 - - 1,685 Total $ 6,435 $ - $ - $ 6,435 Fair Value Financial Instruments The fair value of a financial instruments is the current amount that would be exchanged between willing parties, other than in a forced liquidation. Fair value is best determined based upon quoted market prices. However, in many instances, there are no quoted market prices for the Company’s various financial instruments. In cases where quoted market prices are not available, fair values are based on estimates using present value or other valuation techniques. Those techniques are significantly affected by the assumptions used, including the discount rate and estimates of future cash flows. Accordingly, the fair value estimates may not be realized in an immediate settlement of the instrument. In accordance with GAAP, certain financial instruments and all non-financial instruments are excluded from these disclosure requirements. Accordingly, the aggregate fair value amounts presented may not necessarily represent the underlying fair value of the Company. The following methods and assumptions were used to estimate the fair value of each class of financial instruments for which it is practicable to estimate that value: Cash and Short-Term Investments – For those short-term instruments, the carrying amount is a reasonable estimate of fair value. Securities – Fair value of securities is based on quoted market prices. If a quoted market price is not available, fair value is estimated using quoted market prices for similar securities. Loans – The fair value for loans is estimated using discounted cash flow analyses, with interest rates currently being offered for similar loans to borrowers with similar credit rates. Loans with similar classifications are aggregated for purposes of the calculations. The allowance for loan losses, which was used to measure the credit risk, is subtracted from loans. Cash Value of Bank-Owned Life Insurance (“BOLI”) – The carrying amount approximates its fair value. Other Equity Securities – The carrying amount approximates its fair value. Deposits – The fair value of demand deposits and certain money market deposits is the amount payable at the reporting date. The fair value of fixed-maturity certificates of deposit is estimated using discounted cash flow analyses, with interest rates currently offered for deposits of similar remaining maturities. 29 Table of Contents BUSINESS FIRST BANCSHARES, INC. AND SUBSIDIARIES NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS Borrowings – The fair value of FHLB advances and other long-term borrowings is estimated using the rates currently offered for advances of similar maturities. The carrying amount of short-term borrowings maturing within ninety days approximates the fair value. Commitments to Extend Credit and Standby and Commercial Letters of Credit – The fair values of commitments to extend credit and standby and commercial letters of credit do not differ significantly from the commitment amount and are therefore omitted from this disclosure. The estimated approximate fair values of the Bank’s financial instruments as of September 30, 2024, and December 31, 2023 are as follows: Carrying Amount Total Fair Value Level 1 Level 2 Level 3 (Dollars in thousands) September 30, 2024 Financial Assets: Cash and Short-Term Investments $ 383,179 $ 383,179 $ 383,179 $ - $ - Securities Purchased Under Agreements to Resell 25,879 25,879 - 25,879 - Securities 916,091 916,091 - 882,424 33,667 Loans Held for Sale - - - - - Loans - Net 5,177,964 5,122,452 - - 5,122,452 Cash Value of BOLI 101,362 101,362 - 101,362 - Other Equity Securities 39,555 39,555 - - 39,555 Total $ 6,644,030 $ 6,588,518 $ 383,179 $ 1,009,665 $ 5,195,674 Financial Liabilities: Deposits $ 5,640,946 $ 5,640,442 $ - $ - $ 5,640,442 Borrowings 493,549 480,092 - 480,092 - Total $ 6,134,495 $ 6,120,534 $ - $ 480,092 $ 5,640,442 30 Table of Contents BUSINESS FIRST BANCSHARES, INC. AND SUBSIDIARIES NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS Carrying Amount Total Fair Value Level 1 Level 2 Level 3 (Dollars in thousands) December 31, 2023 Financial Assets: Cash and Short-Term Investments $ 377,244 $ 377,244 $ 377,244 $ - $ - Securities 879,571 879,571 - 850,756 28,815 Loans Held for Sale 835 835 - 835 - Loans - Net 4,952,371 4,849,503 - - 4,849,503 Cash Value of BOLI 96,478 96,478 - 96,478 - Other Equity Securities 33,942 33,942 - - 33,942 Total $ 6,340,441 $ 6,237,573 $ 377,244 $ 948,069 $ 4,912,260 Financial Liabilities: Deposits $ 5,248,790 $ 5,243,326 $ - $ - $ 5,243,326 Borrowings 635,073 613,464 - 613,464 - Total $ 5,883,863 $ 5,856,790 $ - $ 613,464 $ 5,243,326 Note 13– Subsequent Events – On October 1, 2024, the Company consummated the merger of Oakwood Bancshares, Inc. ("Oakwood"), the parent bank holding company for Oakwood Bank, with and into the Company, with the Company continuing as the surviving corporation (the “Oakwood Merger”) pursuant to the terms of that certain Agreement and Plan of Reorganization (the “Reorganization Agreement”), dated as of April 25, 2024, by and between the Company and Oakwood. Immediately, following consummation of the Oakwood Merger, Oakwood Bank merged with and into the Bank, with the Bank surviving the merger. Pursuant to the terms of the Reorganization Agreement, upon consummation of the Oakwood Merger, the Company issued 3,914,012 shares of its common stock to the former shareholders of Oakwood. As of September 30, 2024, Oakwood had total assets of $ 863.6 million, $ 700.2 million in loans and $ 741.3 million in deposits. 31 Table of Contents