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Item 2. Management’s Discussion and Analysis

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 
 
 FORWARD-LOOKING STATEMENTS 
 When we refer in this Form 10-Q to “we,” “our,” “us,” the “Company” and “Business First,” we are referring to Business First Bancshares, Inc. and its consolidated subsidiaries, including b1BANK, which we sometimes refer to as “the Bank,” unless the context indicates otherwise. 
 The information contained in this Form 10-Q is accurate only as of the date of this form and the dates specified herein. 
 All statements other than statements of historical fact contained in this Quarterly Report on Form 10-Q (this “Report”) and other periodic reports filed by the Company, and other written or oral statements made by us or on our behalf, are “forward-looking statements,” as defined by (and subject to the “safe harbor” protections under) the federal securities laws. These forward-looking statements include statements that reflect the current views of our senior management with respect to our financial performance and future events with respect to our business and the banking industry in general. These statements are often, but not always, made through the use of words or phrases such as “may,” “should,” “could,” “predict,” “potential,” “believe,” “will likely result,” “expect,” “will continue,” “anticipate,” “seek,” “estimate,” “intend,” “plan,” “projection,” “would” and “outlook,” and similar expressions of a future or forward-looking nature. These statements involve estimates, assumptions, and risks and uncertainties. Accordingly, there are or will be important factors that could cause our actual results to differ materially from those indicated in these statements. 
 We believe these factors include, but are not limited to, the following: 
 
 
 • risks relating to the Oakwood Merger and Oakwood Bank Merger (each as defined herein); unexpected costs associated with the integration of operations; the risks that the businesses will not be integrated successfully or such integration may be more difficult, time-consuming or costly than expected; the potential failure to fully or timely realize expected revenues and revenue synergies, including as the result of revenues following the merger being lower than expected; the risk of deposit and customer attrition; any changes in deposit mix; unexpected operating and other costs, which may differ or change from expectation; the risk of customer and employee loss and business disruptions, including, without limitation, as the result of difficulties in maintaining relationships with employees and; increased competitive pressures on solicitations of customers by competitors; 
 • risks related to the integration of any other acquired businesses, including exposure to potential asset quality and credit quality risks and unknown or contingent liabilities, risks related to entering a new geographic market, the time and costs associated with integrating systems, technology platforms, procedures and personnel, the ability to retain key employees and maintain relationships with significant customers, the need for additional capital to finance such transactions, and possible failures in realizing the anticipated benefits from acquisitions; 
 • changes in the strength of the United States (“U.S.”) economy in general and the local economy in our local market areas adversely affecting our customers and their ability to transact profitable business with us, including the ability of our borrowers to repay their loans according to their terms or a change in the value of the related collateral; 
 • economic risks posed by our geographic concentration in Louisiana, the Dallas/Fort Worth metroplex and Houston; 
 • the ability to sustain and continue our organic loan and deposit growth, and manage that growth effectively; 
 • market declines in industries to which we have exposure, such as the volatility in oil prices and downturn in the energy industry that impact certain of our borrowers and investments that operate within, or are backed by collateral associated with, the energy industry; 
 • volatility and direction of interest rates and market prices, which could reduce our net interest margins, asset valuations and expense expectations; 
 • interest rate risk associated with our business; 
 
 
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 • changes in the levels of loan prepayments and the resulting effects on the value of our loan portfolio; 
 • increased competition in the financial services industry, particularly from regional and national institutions and emerging non-bank competitors; 
 • increased credit risk in our assets and increased operating risk caused by a material change in commercial, consumer and/or real estate loans as a percentage of our total loan portfolio; 
 • changes in the value of collateral securing our loans; 
 • deteriorating asset quality and higher loan charge-offs, and the time and effort required to resolve problem assets; 
 • the failure of assumptions underlying the establishment of and provisions made to our allowance for credit losses; 
 • changes in the availability of funds resulting in increased costs or reduced liquidity; 
 • our ability to maintain important deposit customer relationships and our reputation; 
 • a determination or downgrade in the credit quality and credit agency ratings of the securities in our securities portfolio; 
 • increased asset levels and changes in the composition of assets and the resulting impact on our capital levels and regulatory capital ratios; 
 • our ability to prudently manage our growth and execute our strategy; 
 • risks associated with our acquisition and de novo branching strategy; 
 • the loss of senior management or operating personnel and the potential inability to hire qualified personnel at reasonable compensation levels; 
 • legislative or regulatory developments, including changes in the laws, regulations, interpretations or policies relating to financial institutions, accounting, tax, trade, monetary and fiscal matters; 
 • government intervention in the U.S. financial system; 
 • changes in statutes and government regulations or their interpretations applicable to us, including changes in tax requirements and tax rates; 
 • natural disasters and adverse weather, acts of terrorism, an outbreak of hostilities or other international or domestic calamities, epidemics and pandemics such as coronavirus, and other matters beyond our control; and 
 • other risks and uncertainties listed from time to time in our reports and documents filed with the U.S. Securities and Exchange Commission (“SEC”). 
 The foregoing factors should not be construed as exhaustive and should be read together with the other cautionary statements included in this Report. Additional information on these and other risk factors can be found in Item 1A. “Risk Factors” of this Report and in Item 1A. “Risk Factors” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2023, filed with the SEC. 
 In the event that one or more events related to these or other risks or uncertainties materialize, or if our underlying assumptions prove to be incorrect, actual results may differ materially from what we anticipate. Accordingly, you should not place undue reliance on any such forward-looking statements. Any forward-looking statement speaks only as of the date on which it is made and we do not undertake any obligation to update any forward-looking statement or statements to reflect events or circumstances after the date on which such statement is made or to reflect the occurrence of unanticipated 
 
 
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 events. New factors emerge from time to time, and it is not possible for us to predict which will arise. In addition, we cannot assess the impact of each factor on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements. 
 
 
 
 MANAGEMENT’S DISCUSSION AND ANALYSIS OF 
 FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF BUSINESS FIRST 
 
 
 The following discussion and analysis focuses on significant changes in the financial condition of Business First and its subsidiaries from December 31, 2023 to September 30, 2024, and its results of operations for the three and nine months ended September 30, 2024. This discussion and analysis is intended to highlight and supplement information presented elsewhere in this report and should be read in conjunction with (i) the accompanying unaudited consolidated financial statements and the notes thereto (the “Notes”) and (ii) our Annual Report on Form 10-K for the year ended December 31, 2023 , including the audited consolidated financial statements and notes thereto, management’s discussion and analysis, and the risk factor disclosures contained therein. This discussion and analysis contains forward-looking statements that are subject to certain risks and uncertainties and are based on certain assumptions that Business First believes are reasonable but may prove to be inaccurate. Certain risks, uncertainties and other factors, including those set forth under “Forward-Looking Statements,” “Risk Factors” and elsewhere in this report, may cause actual results to differ materially from those projected results discussed in the forward-looking statements appearing in this discussion and analysis. Business First assumes no obligation to update any of these forward-looking statements. 
 
 
 
 Overview 
 We are a registered financial holding company headquartered in Baton Rouge, Louisiana. Through our wholly-owned subsidiary, b1BANK, a Louisiana state chartered bank, we provide a broad range of financial services tailored to meet the needs of small-to-midsized businesses and professionals. Since our inception in 2006, our priority has been and continues to be creating shareholder value through the establishment of an attractive commercial banking franchise in Louisiana and across our region. We consider our primary market to include the State of Louisiana, the Dallas/Fort Worth metroplex, and Houston. We currently operate out of banking centers and loan production offices across Louisiana and Texas. As of September 30, 2024, we had total assets of $6.9 billion, total loans of $5.2 billion, total deposits of $5.6 billion, and total shareholders’ equity of $699.5 million. 
 As a financial holding company operating through one reportable operating segment, community banking, we generate most of our revenues from interest income on loans, customer service and loan fees, and interest income from securities. We incur interest expense on deposits and other borrowed funds and noninterest expense, such as salaries and employee benefits and occupancy expenses. We analyze our ability to maximize income generated from interest-earning assets and expense of our liabilities through our net interest margin. Net interest margin is a ratio calculated as net interest income divided by average interest-earning assets. Net interest income is the difference between interest income on interest-earning assets, such as loans and securities, and interest expense on interest-bearing liabilities, such as deposits and borrowings, which are used to fund those assets. 
 Changes in the market interest rates and the interest rates we earn on interest-earning assets or pay on interest-bearing liabilities, as well as the volume and types of interest-earning assets, interest-bearing and noninterest-bearing liabilities and shareholders’ equity, are usually the largest drivers of periodic changes in net interest spread, net interest margin and net interest income. Fluctuations in market interest rates are driven by many factors, including governmental monetary policies, inflation, deflation, macroeconomic developments, changes in unemployment, the money supply, political and international conditions, and conditions in domestic and foreign financial markets. Periodic changes in the volume and types of loans in our loan portfolio are affected by, among other factors, economic and competitive conditions in our markets and across our region, as well as developments affecting the real estate, technology, financial services, insurance, transportation, manufacturing and energy sectors within our markets. 
 
 Other Developments 
 Bank Term Funding Program ( “ BTFP ” ) 
 On March 12, 2023, the Federal Reserve developed the BTFP, which offered 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, 
 
 
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 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. The loans bore a fixed rate of 4.38% and matured on March 22,2024, at which time we repaid them in full. 
 Federal Reserve Bank ’ s Discount Window 
 On April 11, 2023, the Bank opened two new lines of credit for additional contingent liquidity, totaling $921.9 million and $1.0 billion as of September 30, 2024, and December 31, 2023, respectively, through the Federal Reserve discount window. The Bank has not yet drawn on either of the lines of credit as of the date of this report. 
 Sale of Leesville Banking Center 
 On August 31, 2023, we sold the Leesville banking center, located in Leesville, Louisiana, to Merchants & Farmers Bank & Trust Company headquartered in Leesville, Louisiana, in accordance with the Branch Purchase and Assumption Agreement dated May 11, 2023. We maintained the loan portfolio and transferred those loans to other nearby banking centers. The sale included total deposits of $16.3 million and a pre-tax gain of $945,000. 
 Acquisition of Waterstone LSP, LLC ("Waterstone") 
 On January 31, 2024, we consummated the acquisition, through b1BANK, of Waterstone, headquartered in Katy, Texas. Waterstone offers community banks and small businesses a range of SBA lending services including planning, pre-qualification, packaging, closing and disbursements, servicing, and liquidations. Upon consummation of the acquisition, we paid $3.3 million in cash to the former owners of Waterstone. 
 Acquisition of Oakwood Bancshares, Inc. ("Oakwood") 
 
 
 On October 1, 2024, we consummated the merger of Oakwood Bancshares, Inc. (“Oakwood”), the parent bank holding company for Oakwood Bank, with and into us, with us 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 us and Oakwood. Immediately, following consummation of the Oakwood Merger, Oakwood Bank merged with and into the us, with us surviving the merger. Pursuant to the terms of the Reorganization Agreement, upon consummation of the Oakwood Merger, we issued 3,914,012 shares of our common stock to the former shareholders of Oakwood. As of September 30, 2024, Oakwood had $863.6 million of total assets, $700.2 million in loans and $741.3 million in deposits. 
 
 Financial Highlights 
 The financial highlights as of and for the nine months ended September 30, 2024, include: 
 • Total assets of $6.9 billion, a $304.1 million, or 4.6%, increase from December 31, 2023. 
 • Total loans held for investment of $5.2 billion, a $227.3 million, or 4.6%, increase from December 31, 2023. 
 • Total deposits of $5.6 billion, a $392.2 million, or 7.5%, increase from December 31, 2023. 
 • Net income available to common shareholders of $44.6 million for the nine months ended September 30, 2024, a $6.6 million, or 12.9%, decrease from the nine months ended September 30, 2023. 
 • Net interest income of $161.7 million for the nine months ended September 30, 2024, an increase of $285,000, or 0.2%, from the nine months ended September 30, 2023. 
 • Allowance for credit losses of 0.86% of total loans held for investment, compared to 0.88% as of December 31, 2023, and a ratio of nonperforming loans to total loans held for investment of 0.50%, compared to 0.34% as of December 31, 2023. 
 • Earnings per common share for the first nine months of 2024 of $1.77 per basic common share and $1.75 per diluted common share, compared to $2.04 per basic common share and $2.02 per diluted common share for the first nine months of 2023. 
 
 
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 • Return on average assets of 0.89% over the first nine months of 2024, compared to 1.09% for the first nine months of 2023. 
 • Return on average common equity of 10.08% over the first nine months of 2024, compared to 13.00% for the first nine months of 2023. 
 • Capital ratios for Tier 1 Leverage, Common Equity Tier 1, Tier 1 Risk-based and Total Risk-based Capital of 9.61%, 9.42%, 10.69% and 12.99%, respectively, compared to 9.52%, 9.15%, 10.46% and 12.85% at December 31, 2023. 
 • Book value per common share of $24.59, an increase of 8.9% from $22.58 at December 31, 2023. 
 
 Results of Operations for the Three and Nine Months Ended September 30, 2024, and 2023 
 Performance Summary 
 For the three months ended September 30, 2024, net income available to common shareholders was $16.5 million, or $0.65 per basic and diluted common share, compared to net income of $19.1 million, or $0.76 per basic and diluted common share, for the three months ended September 30, 2023. Return on average assets, on an annualized basis, decreased to 0.97% for the three months ended September 30, 2024, from 1.17% for the three months ended September 30, 2023. Return on average equity, on an annualized basis, decreased to 10.76% for the three months ended September 30, 2024, as compared to 14.16% for the three months ended September 30, 2023. 
 For the nine months ended September 30, 2024, net income available to common shareholders was $44.6 million, or $1.77 per basic common share and $1.75 per diluted common share, compared to net income of $51.2 million, or $2.04 per basic common share and $2.02 per diluted common share, for the nine months ended September 30, 2023. Return on average assets, on an annualized basis, decreased to 0.89% for the nine months ended September 30, 2024, from 1.09% for the nine months ended September 30, 2023. Return on average equity, on an annualized basis, decreased to 10.08% for the nine months ended September 30, 2024, as compared to 13.00% for the nine months ended September 30, 2023. 
 Net Interest Income 
 Our operating results depend primarily on our net interest income, calculated as the difference between interest income on interest-earning assets, such as loans and securities, and interest expense on interest-bearing liabilities, such as deposits and borrowings. Fluctuations in market interest rates impact the yield and rates paid on interest sensitive assets and liabilities. Changes in the amount and type of interest-earning assets and interest-bearing liabilities also impact net interest income. The variance driven by the changes in the amount and mix of interest-earning assets and interest-bearing liabilities is referred to as a “volume change.” Changes in yields earned on interest-earning assets and rates paid on interest-bearing deposits and other borrowed funds are referred to as a “rate change.” 
 To evaluate net interest income, we measure and monitor (1) yields on our loans and other interest-earning assets, (2) the costs of our deposits and other funding sources, (3) our net interest spread and (4) our net interest margin. Net interest spread is the difference between rates earned on interest-earning assets and rates paid on interest-bearing liabilities. Net interest margin is calculated as net interest income divided by average interest-earning assets. Because noninterest-bearing sources of funds, such as noninterest-bearing deposits and shareholders’ equity also fund interest-earning assets, net interest margin includes the benefit of these noninterest-bearing sources. We calculate average assets, liabilities, and equity using a daily average, and average yield/rate utilizing an actual day count convention. 
 For the three months ended September 30, 2024, net interest income totaled $56.1 million, and net interest margin and net interest spread were 3.51% and 2.54%, respectively, compared to $55.3 million, 3.61%, and 2.68%, respectively, for the three months ended September 30, 2023. The average yield on the loan portfolio was 7.12% for the three months ended September 30, 2024, compared to 6.84% for the three months ended September 30, 2023, and the average yield on total interest-earning assets was 6.42% for the three months ended September 30, 2024, compared to 6.10% for the three months ended September 30, 2023. For the three months ended September 30, 2024, overall cost of funds (which includes noninterest-bearing deposits) increased 48 basis points compared to the three months ended September 30, 2023, primarily due to the Federal Reserve increasing rates during 2023. 
 
 
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 For the nine months ended September 30, 2024, net interest income totaled $161.7 million, and net interest margin and net interest spread were 3.43% and 2.46%, respectively, compared to $161.4 million, 3.66%, and 2.79%, respectively, for the nine months ended September 30, 2023. The average yield on the loan portfolio was 7.02% for the nine months ended September 30, 2024, compared to 6.58% for the nine months ended September 30, 2023, and the average yield on total interest-earning assets was 6.33% for the nine months ended September 30, 2024, compared to 5.87% for the nine months ended September 30, 2023. For the nine months ended September 30, 2024, overall cost of funds (which includes noninterest-bearing deposits) increased 74 basis points compared to the nine months ended September 30, 2023, primarily due to the Federal Reserve increasing rates during 2023. 
 The following tables present, for the periods indicated, an analysis of net interest income by each major category of interest-earning assets and interest-bearing liabilities, the average amounts outstanding and the interest earned or paid on such amounts. The table also sets forth the average rate earned on interest-earning assets, the average rate paid on interest-bearing liabilities, and the net interest margin on average total interest-earning assets for the same periods. Interest earned on loans that are classified as nonaccrual is not recognized in income; however, the balances are reflected in average outstanding balances for the period. For the three and nine months ended September 30, 2024, and 2023, interest income not recognized on nonaccrual loans was not material. Any nonaccrual loans have been included in the table as loans carrying a zero yield. The average total loans reflected below are net of deferred loan fees and discounts. Acquired loans were recorded at fair value at acquisition and accrete/amortize discounts and premiums as an adjustment to yield. 
 
 
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 For the Three Months Ended September 30, 
 2024 2023 
 Average 
Outstanding 
Balance Interest 
Earned/Interest 
Paid Average Yield/Rate Average 
Outstanding 
Balance Interest 
Earned/Interest 
Paid Average Yield/Rate 
 (Dollars in thousands) (Unaudited) 
 Assets 
 Interest-earning assets: 
 Total loans $ 5,212,948 $ 93,307 7.12 % $ 4,906,917 $ 84,575 6.84 % 
 Securities 924,012 6,417 2.76 885,792 5,053 2.26 
 Interest-bearing deposits in other banks 227,035 3,017 5.29 278,420 3,694 5.26 
 Total interest-earning assets 6,363,995 102,741 6.42 6,071,129 93,322 6.10 
 Allowance for loan losses (41,554) (42,120) 
 Noninterest-earning assets 466,203 445,926 
 Total assets $ 6,788,644 $ 102,741 $ 6,474,935 $ 93,322 
 Liabilities and Shareholders' Equity 
 Interest-bearing liabilities: 
 Interest-bearing deposits $ 4,308,780 $ 41,303 3.81 % $ 3,703,682 $ 30,110 3.23 % 
 Subordinated debt 99,854 1,353 5.39 100,400 1,363 5.39 
 Subordinated debt - trust preferred securities 5,000 114 9.07 5,000 111 8.81 
 Bank Term Funding Program - - - 300,000 3,422 4.53 
 Advances from FHLB 347,476 3,723 4.26 284,930 2,875 4.00 
 Other borrowings 20,971 134 2.54 23,542 147 2.48 
 Total interest-bearing liabilities 4,782,081 46,627 3.88 4,417,554 38,028 3.42 
 Noninterest-bearing liabilities: 
 Noninterest-bearing deposits 1,269,282 1,399,293 
 Other liabilities 55,333 50,947 
 Total noninterest-bearing liabilities 1,324,615 1,450,240 
 Shareholders' equity: 
 Common shareholders' equity 610,018 535,211 
 Preferred equity 71,930 71,930 
 Total shareholders' equity 681,948 607,141 
 Total liabilities and shareholders' equity $ 6,788,644 $ 6,474,935 
 Net interest rate spread (1) 2.54 % 2.68 % 
 Net interest income $ 56,114 $ 55,294 
 Net interest margin (2) 3.51 % 3.61 % 
 Overall cost of funds 3.07 % 2.59 % 

 ____________________________ 
 (1) Net interest spread is the average yield on interest-earning assets minus the average rate on interest-bearing liabilities. 
 (2) Net interest margin is equal to net interest income divided by average interest-earning assets. 
 
 
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 For the Nine Months Ended September 30, 
 2024 2023 
 Average 
Outstanding 
Balance Interest 
Earned/Interest 
Paid Average Yield/Rate Average 
Outstanding 
Balance Interest 
Earned/Interest 
Paid Average Yield/Rate 
 (Dollars in thousands) (Unaudited) 
 Assets 
 Interest-earning assets: 
 Total loans $ 5,131,474 $ 269,858 7.02 % $ 4,829,537 $ 237,566 6.58 % 
 Securities 901,525 17,949 2.66 909,901 14,932 2.19 
 Interest-bearing deposits in other banks 267,815 10,815 5.39 150,995 6,164 5.46 
 Total interest-earning assets 6,300,814 298,622 6.33 5,890,433 258,662 5.87 
 Allowance for loan losses (41,178) (41,888) 
 Noninterest-earning assets 463,080 442,341 
 Total assets $ 6,722,716 $ 298,622 $ 6,290,886 $ 258,662 
 Liabilities and Shareholders' Equity 
 Interest-bearing liabilities: 
 Interest-bearing deposits $ 4,216,866 $ 120,232 3.81 % $ 3,482,797 $ 72,718 2.79 % 
 Subordinated debt 99,913 4,063 5.43 106,555 4,003 5.02 
 Subordinated debt - trust preferred securities 5,000 340 9.08 5,000 317 8.48 
 Bank Term Funding Program 86,496 2,788 4.31 238,274 8,111 4.55 
 Advances from FHLB 298,735 9,189 4.11 368,542 11,755 4.26 
 Other borrowings 18,758 356 2.54 22,177 389 2.35 
 Total interest-bearing liabilities 4,725,768 136,968 3.87 4,223,345 97,293 3.08 
 Noninterest-bearing liabilities: 
 Noninterest-bearing deposits 1,283,035 1,427,821 
 Other liabilities 51,629 41,392 
 Total noninterest-bearing liabilities 1,334,664 1,469,213 
 Shareholders' equity: 
 Common shareholders' equity 590,354 526,398 
 Preferred equity 71,930 71,930 
 Total shareholders' equity 662,284 598,328 
 Total liabilities and shareholders' equity $ 6,722,716 $ 6,290,886 
 Net interest rate spread (1) 2.46 % 2.79 % 
 Net interest income $ 161,654 $ 161,369 
 Net interest margin (2) 3.43 % 3.66 % 
 Overall cost of funds 3.04 % 2.30 % 

 ___________________________ 
 (1) Net interest spread is the average yield on interest-earning assets minus the average rate on interest-bearing liabilities. 
 (2) Net interest margin is equal to net interest income divided by average interest-earning assets. 
 
 
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 The following tables present information regarding the dollar amount of changes in interest income and interest expense for the periods indicated for each major component of interest-earning assets and interest-bearing liabilities and distinguishes between the changes attributable to changes in volume and changes attributable to changes in interest rates. For the purposes of these tables, changes attributable to both rate and volume that cannot be segregated have been allocated to rate. 
 
 For the Three Months Ended September 30, 2024 compared to the 
Three Months Ended September 30, 2023 
 Increase (Decrease) due to change in 
 Volume Rate Total 
 (Dollars in thousands) (Unaudited) 
 Interest-earning assets: 
 Total loans $ 5,478 $ 3,254 $ 8,732 
 Securities 265 1,099 1,364 
 Interest-bearing deposits in other banks (683) 6 (677) 
 Total increase in interest income $ 5,060 $ 4,359 $ 9,419 
 Interest-bearing liabilities: 
 Interest-bearing deposits $ 5,800 $ 5,393 $ 11,193 
 Subordinated debt (7) (3) (10) 
 Subordinated debt - trust preferred securities - 3 3 
 Bank Term Funding Program - (3,422) (3,422) 
 Advances from FHLB 670 178 848 
 Other borrowings (16) 3 (13) 
 Total increase in interest expense $ 6,447 $ 2,152 $ 8,599 
 Increase (decrease) in net interest income $ (1,387) $ 2,207 $ 820 

 
 
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 For the Nine Months Ended September 30, 2024 compared to the 
Nine Months Ended September 30, 2023 
 Increase (Decrease) due to change in 
 Volume Rate Total 
 (Dollars in thousands) (Unaudited) 
 Interest-earning assets: 
 Total loans $ 15,879 $ 16,413 $ 32,292 
 Securities (167) 3,184 3,017 
 Interest-bearing deposits in other banks 4,717 (66) 4,651 
 Total increase in interest income $ 20,429 $ 19,531 $ 39,960 
 Interest-bearing liabilities: 
 Interest-bearing deposits $ 20,930 $ 26,584 $ 47,514 
 Subordinated debt (270) 330 60 
 Subordinated debt - trust preferred securities - 23 23 
 Bank Term Funding Program (4,892) (431) (5,323) 
 Advances from FHLB (2,147) (419) (2,566) 
 Other borrowings (65) 32 (33) 
 Total increase in interest expense $ 13,556 $ 26,119 $ 39,675 
 Increase (decrease) in net interest income $ 6,873 $ (6,588) $ 285 

 Provision for Credit Losses 
 Our provision for credit losses is a charge to income in order to bring our allowance for credit losses to a level deemed appropriate by management. For a description of the factors taken into account by management in determining the allowance for credit losses see “— Financial Condition—Allowance for Credit Losses .” The provision for credit losses was $1.7 million for the three months ended September 30, 2024, and $604,000 for the same period in 2023. For the nine months ended September 30, 2024, and 2023, the provision for credit losses was $4.2 million and $4.4 million, respectively. The higher provision for the three months ended September 30, 2024, compared to the same period in 2023 relates primarily to deterioration in the economic forecast in the current period, as compared to the prior period. Additionally, during the three months ended September 30, 2023, certain nonperforming loans were resolved through charge-offs, with the remaining portfolio requiring a lower reserve replenishment rate. The lower provision for the nine months ended September 30, 2024, compared to the same period in 2023 relates primarily to an improved macro-economic and market outlook in the current nine-month period. Additionally, net charge-offs were elevated during the nine months ended September 30, 2023 due to the resolution of certain acquired credit deteriorated loans. 
 
 
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 Noninterest Income ( “ Other Income ” ) 
 Our primary sources of noninterest income are service charges on deposit accounts, debit card and automated teller machine (“ATM”) fee income, income from bank-owned life insurance, fees and brokerage commissions and pass-through income from other investments (small business investment company (“SBIC”) partnerships and financial technology (“Fintech”) funds. The following tables present, for the periods indicated, the major categories of noninterest income: 
 
 For the Three Months Ended September 30, 
 2024 2023 Increase (Decrease) 
 (Dollars in thousands) (Unaudited) 
 Noninterest income: 
 Service charges on deposit accounts $ 2,723 $ 2,540 $ 183 
 Debit card and ATM fee income 1,864 1,581 283 
 Bank-owned life insurance income 679 604 75 
 Gain on sales of loans 122 321 (199) 
 Loss on sales of investment securities (13) - (13) 
 Fees and brokerage commissions 1,968 1,933 35 
 Mortgage origination income 98 108 (10) 
 Correspondent bank income 217 137 80 
 Gain (loss) on sales of other real estate owned (16) 85 (101) 
 Gain on sale of branch - 932 (932) 
 Gain on extinguishment of debt - 517 (517) 
 Swap fee income 937 8 929 
 Pass-through income (loss) from other investments 336 (11) 347 
 Other 1,859 1,128 731 
 Total noninterest income $ 10,774 $ 9,883 $ 891 

 
 
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 For the Nine Months Ended September 30, 
 2024 2023 Increase (Decrease) 
 (Dollars in thousands) (Unaudited) 
 Noninterest income: 
 Service charges on deposit accounts $ 7,699 $ 7,234 $ 465 
 Debit card and ATM fee income 5,590 4,797 793 
 Bank-owned life insurance income 1,885 1,675 210 
 Gain on sales of loans 2,721 1,426 1,295 
 Loss on sales of investment securities (14) (62) 48 
 Fees and brokerage commissions 5,780 5,537 243 
 Mortgage origination income 202 238 (36) 
 Correspondent bank income 631 268 363 
 Gain on sales of other real estate owned 49 308 (259) 
 Gain on sale of branch - 932 (932) 
 Gain on extinguishment of debt - 1,458 (1,458) 
 Swap fee income 1,451 21 1,430 
 Pass-through income from other investments 1,022 2,974 (1,952) 
 Other 5,320 3,423 1,897 
 Total noninterest income $ 32,336 $ 30,229 $ 2,107 

 Total noninterest income increased $891,000, or 9.0%, for the three months ended September 30, 2024 from the same period in 2023. The increase is primarily due to the increases in other income of $731,000, debit card and ATM fee income of $283,000, swap fee income of $929,000, and pass-through income from other investments of $347,000, offset with the gain on the sale of a branch of $932,000 and a gain on the extinguishment of debt of $517,000 which occurred in the same period in 2023. 
 Total noninterest income increased $2.1 million, or 7.0%, for the nine months ended September 30, 2024 from the same period in 2023. The increase is primarily due to the increases in the gains on sales of loans of $1.3 million, other income of $1.9 million and swap fee income of $1.4 million, offset with the gain on the extinguishment of debt of $1.5 million and the gain on the sale of a branch of $932,000 which occurred in the same period in 2023 and $2.0 million less in pass-through income from other investments from the same period in 2023. 
 Noninterest Expense ( “ Other Expense ” ) 
 Generally, noninterest expense is composed of all employee expenses and costs associated with operating our facilities, obtaining and retaining customer relationships, and providing bank services. The largest component of noninterest expense is salaries and employee benefits. Noninterest expense also includes operational expenses, such as occupancy expenses, depreciation and amortization, professional and regulatory fees, including Federal Deposit Insurance Corporation (“FDIC”) assessments, data processing expenses, and advertising and promotion expenses, among others. 
 
 
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 The following tables present, for the periods indicated, the major categories of noninterest expense: 
 
 For the Three Months Ended September 30, 
 2024 2023 Increase (Decrease) 
 (Dollars in thousands) (Unaudited) 
 Salaries and employee benefits $ 24,877 $ 22,487 $ 2,390 
 Non-staff expenses: 
 Occupancy of bank premises 2,630 2,428 202 
 Depreciation and amortization 1,844 1,690 154 
 Data processing 2,881 2,024 857 
 FDIC assessment fees 887 779 108 
 Legal and professional fees 873 766 107 
 Advertising and promotions 1,057 1,202 (145) 
 Utilities and communications 716 758 (42) 
 Ad valorem shares tax 900 965 (65) 
 Directors' fees 245 278 (33) 
 Other real estate owned expenses and write-downs 11 14 (3) 
 Merger and conversion related expenses 319 2 317 
 Other 5,210 5,214 (4) 
 Total noninterest expense $ 42,450 $ 38,607 $ 3,843 

 
 For the Nine Months Ended September 30, 
 2024 2023 Increase (Decrease) 
 (Dollars in thousands) (Unaudited) 
 Salaries and employee benefits $ 75,816 $ 68,002 $ 7,814 
 Non-staff expenses: 
 Occupancy of bank premises 7,778 7,131 647 
 Depreciation and amortization 5,262 5,120 142 
 Data processing 8,101 6,544 1,557 
 FDIC assessment fees 2,589 2,804 (215) 
 Legal and professional fees 2,781 2,340 441 
 Advertising and promotions 3,168 3,576 (408) 
 Utilities and communications 2,108 2,199 (91) 
 Ad valorem shares tax 2,700 2,895 (195) 
 Directors' fees 795 817 (22) 
 Other real estate owned expenses and write-downs 119 183 (64) 
 Merger and conversion related expenses 1,068 173 895 
 Other 15,797 15,204 593 
 Total noninterest expense $ 128,082 $ 116,988 $ 11,094 

 For the three months ended September 30, 2024, total noninterest expense increased $3.8 million, or 10.0%, from the three months ended September 30, 2023, primarily attributed to the increase in salaries and employee benefits of $2.4 million, or 10.6%. 
 
 
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 For the nine months ended September 30, 2024, total noninterest expense increased $11.1 million, or 9.5%, from the nine months ended September 30, 2023, primarily attributed to the increase in salaries and employee benefits of $7.8 million, or 11.5%. 
 Income Tax Expense 
 The amount of income tax expense is influenced by the amounts of our pre-tax income, tax-exempt income and other nondeductible expenses. Deferred tax assets and liabilities are reflected at currently enacted income tax rates in effect for the period in which the deferred tax assets and liabilities are expected to be realized or settled. As changes in tax laws or rates are enacted, deferred tax assets and liabilities are adjusted through the provision for income taxes. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized. 
 For the three months ended September 30, 2024, income tax expense totaled $4.9 million, a decrease of $581,000, or 10.5%, compared to $5.5 million for the same period in 2023. Our effective tax rates for the three months ended September 30, 2024, and 2023 were 21.6% and 21.2%, respectively. 
 For the nine months ended September 30, 2024, income tax expense totaled $13.1 million, a decrease of $1.9 million, or 12.6%, compared to $15.0 million for the same period in 2023. Our effective tax rates for the nine months ended September 30, 2024, and 2023 were 21.3% and 21.4%, respectively. 
 
 Financial Condition 
 Our total assets increased $304.1 million, or 4.6%, from December 31, 2023, to September 30, 2024, due primarily from the increase in our loan portfolio. 
 Loan Portfolio 
 Our primary source of income is interest on loans to individuals, professionals and small-to-midsized businesses located in our markets. Our loan portfolio consists primarily of commercial loans and real estate loans secured by commercial real estate properties located in our primary market areas. Our loan portfolio represents the highest yielding component of our earning asset base. 
 As of September 30, 2024, total loans, excluding mortgage loans held for sale, were $5.2 billion, an increase of $227.3 million, or 4.6%, compared to $5.0 billion as of December 31, 2023. Additionally, $835,000 in loans were classified as loans held for sale as of December 31, 2023, and none at September 30, 2024. 
 Total loans held for investment as a percentage of total deposits were 92.5% and 95.1% as of September 30, 2024, and December 31, 2023, respectively. Total loans held for investment as a percentage of total assets were 75.8% as of both September 30, 2024, and December 31, 2023, respectively. 
 
 
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 The following table summarizes our loan portfolio by type of loan as of the dates indicated: 
 
 As of September 30, 2024 (Unaudited) As of December 31, 2023 
 Amount Percent Amount Percent 
 (Dollars in thousands) 
 Real Estate Loans: 
 Commercial 
 Retail and Wholesale $ 550,064 10.5 % $ 573,725 11.5 % 
 Hospitality 285,129 5.5 249,027 5.0 
 Healthcare 216,294 4.1 201,098 4.0 
 Services 149,000 2.9 155,283 3.1 
 Energy 98,643 1.9 100,523 2.0 
 Other 957,240 18.3 938,272 18.8 
 Total Commercial 2,256,370 43.2 2,217,928 44.4 
 Construction 654,353 12.5 669,798 13.4 
 Residential 743,878 14.3 682,394 13.7 
 Total Real Estate Loans 3,654,601 70.0 3,570,120 71.5 
 Commercial 1,496,480 28.7 1,358,838 27.2 
 Consumer and Other 69,037 1.3 63,827 1.3 
 Total loans held for investment $ 5,220,118 100.0 % $ 4,992,785 100.0 % 

 The following table summarizes our commercial real estate portfolio broken down into the geographic regions we operate in. 
 
 As of September 30, 2024 As of December 31, 2023 
 Amount Percent Amount Percent 
 (Dollars in thousands) (Unaudited) 
 Commercial real estate: 
 Dallas Region $ 581,862 25.8 % $ 618,608 27.9 % 
 New Orleans Region 456,300 20.2 439,087 19.8 
 North Louisiana Region 446,431 19.8 418,510 18.9 
 Capitol Region 236,593 10.5 213,492 9.6 
 Houston Region 231,204 10.3 243,097 10.9 
 Southwest Louisiana Region 221,816 9.8 201,538 9.1 
 Bayou Region 82,164 3.6 83,596 3.8 
 Total commercial real estate 2,256,370 100.0 % 2,217,928 100.0 % 

 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: Commercial loans increased $38.4 million or 1.7%, to $2.3 billion as of September 30, 2024, from $2.2 billion as of December 31, 2023. 
 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 
 
 
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 extent, loans to individual clients for construction of single-family homes in our market areas. Risks associated with these loans include fluctuations in the value of real estate, project completion risk and changes in market trends. We are also exposed to risk based on the ability of the construction loan borrower to finance the loan or sell the property upon completion of the project, which may be affected by changes in secondary market terms and criteria for permanent financing since the time we funded the loan. 
 Real Estate: Construction loans decreased $15.4 million, or 2.3%, to $654.4 million as of September 30, 2024, from $669.8 million as of December 31, 2023. 
 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. 
 Real Estate: Residential loans increased $61.5 million, or 9.0%, to $743.9 million as of September 30, 2024, from $682.4 million as of December 31, 2023. 
 Commercial loans include general commercial and industrial, or C&I, loans, including commercial lines of credit, working capital loans, term loans, equipment financing, asset acquisition, expansion, and development loans, borrowing base loans, letters of credit and other loan products, primarily in the Company’s target markets that are underwritten based on the borrower’s ability to service the debt from income. Commercial loan risk is derived from the expectation that such loans generally are serviced principally from the operations of the business, and those operations may not be successful. Any interruption or discontinuance of operating cash flows from the business, which may be influenced by events not under the control of the borrower such as economic events and changes in governmental regulations, could materially affect the ability of the borrower to repay the loan. 
 Commercial loans increased $137.6 million, or 10.1%, to $1.5 billion as of September 30, 2024, from $1.4 billion as of December 31, 2023. 
 Consumer and other loans include a variety of loans to individuals for personal, family and household purposes, including secured and unsecured installment and term loans. The risk is based on changes in the borrower’s financial condition, which could be affected by numerous factors, including divorce, job loss, illness or other personal hardship, and fluctuations in the value of the real estate or personal property securing the consumer loan, if any. 
 Consumer and other loans increased $5.2 million, or 8.2%, to $69.0 million as of September 30, 2024, from $63.8 million as of December 31, 2023. 
 
 
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 The contractual maturity ranges of loans in our loan portfolio and the amount of such loans with fixed and floating interest rates in each maturity range as of the date indicated are summarized in the following tables: 
 
 As of September 30, 2024 
 One Year or Less One Through Five 
Years Five Through
Fifteen Years After Fifteen Years Total 
 (Dollars in thousands) (Unaudited) 
 
 Real Estate Loans: 
 Commercial $ 289,715 $ 1,372,631 $ 511,631 $ 82,393 $ 2,256,370 
 Construction 308,995 289,537 37,798 18,023 654,353 
 Residential 102,387 428,210 141,042 72,239 743,878 
 Total Real Estate Loans 701,097 2,090,378 690,471 172,655 3,654,601 
 Commercial 627,891 621,459 242,955 4,175 1,496,480 
 Consumer and Other 41,121 24,237 3,524 155 69,037 
 Total loans held for investment $ 1,370,109 $ 2,736,074 $ 936,950 $ 176,985 $ 5,220,118 
 
 Fixed rate loans: 
 Real Estate Loans: 
 Commercial $ 134,153 $ 1,097,292 $ 350,433 $ 12,924 $ 1,594,802 
 Construction 85,783 157,519 11,086 10,354 264,742 
 Residential 62,294 375,106 92,026 20,409 549,835 
 Total Real Estate Loans 282,230 1,629,917 453,545 43,687 2,409,379 
 Commercial 179,976 334,175 133,291 - 647,442 
 Consumer and Other 32,013 18,403 2,962 155 53,533 
 Total fixed rate loans $ 494,219 $ 1,982,495 $ 589,798 $ 43,842 $ 3,110,354 
 
 Floating rate loans: 
 Real Estate Loans: 
 Commercial $ 155,562 $ 275,339 $ 161,198 $ 69,469 $ 661,568 
 Construction 223,212 132,018 26,712 7,669 389,611 
 Residential 40,093 53,104 49,016 51,830 194,043 
 Total Real Estate Loans 418,867 460,461 236,926 128,968 1,245,222 
 Commercial 447,915 287,284 109,664 4,175 849,038 
 Consumer and Other 9,108 5,834 562 - 15,504 
 Total floating rate loans $ 875,890 $ 753,579 $ 347,152 $ 133,143 $ 2,109,764 

 
 
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 As of December 31, 2023 
 One Year or Less One Through Five 
Years Five Through 
Fifteen Years After Fifteen Years Total 
 (Dollars in thousands) 
 
 Real Estate Loans: 
 Commercial $ 251,365 $ 1,256,655 $ 620,029 $ 89,879 $ 2,217,928 
 Construction 325,883 278,039 45,910 19,966 669,798 
 Residential 79,357 401,852 137,283 63,902 682,394 
 Total Real Estate Loans 656,605 1,936,546 803,222 173,747 3,570,120 
 Commercial 520,058 594,274 243,744 762 1,358,838 
 Consumer and Other 35,971 23,520 4,134 202 63,827 
 Total loans held for investment $ 1,212,634 $ 2,554,340 $ 1,051,100 $ 174,711 $ 4,992,785 
 
 Fixed rate loans: 
 Real Estate Loans: 
 Commercial $ 156,227 $ 1,067,124 $ 450,884 $ 17,470 $ 1,691,705 
 Construction 96,020 187,970 16,388 13,866 314,244 
 Residential 49,434 344,549 85,731 14,952 494,666 
 Total Real Estate Loans 301,681 1,599,643 553,003 46,288 2,500,615 
 Commercial 134,242 331,029 147,388 - 612,659 
 Consumer and Other 26,867 17,373 3,260 159 47,659 
 Total fixed rate loans $ 462,790 $ 1,948,045 $ 703,651 $ 46,447 $ 3,160,933 
 
 Floating rate loans: 
 Real Estate Loans: 
 Commercial $ 95,138 $ 189,531 $ 169,145 $ 72,409 $ 526,223 
 Construction 229,863 90,069 29,522 6,100 355,554 
 Residential 29,923 57,303 51,552 48,950 187,728 
 Total Real Estate Loans 354,924 336,903 250,219 127,459 1,069,505 
 Commercial 385,816 263,245 96,356 762 746,179 
 Consumer and Other 9,104 6,147 874 43 16,168 
 Total floating rate loans $ 749,844 $ 606,295 $ 347,449 $ 128,264 $ 1,831,852 

 Nonperforming Assets 
 Loans are considered past due if the required principal and interest payments have not been received as of the date such payments were due. Loans are placed on nonaccrual status when, in management’s opinion, the borrower may be unable to meet payment obligations as they become due, as well as when required by regulatory provisions. Loans may be placed on nonaccrual status regardless of whether or not such loans are considered past due. When interest accrual is discontinued, all unpaid accrued interest is generally reversed. Interest income is subsequently recognized only to the extent cash payments are received in excess of principal due, or interest may be recognized on a cash basis as long as the remaining book balance of the loan is deemed 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. 
 We have several procedures in place to assist in maintaining the overall quality of our loan portfolio. We have established underwriting guidelines to be followed by our bankers, and we also monitor our delinquency levels for any negative or adverse trends. There can be no assurance, however, that our loan portfolio will not become subject to increasing pressures from deteriorating borrower credit due to general economic conditions. 
 
 
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 We believe our conservative lending approach and focused management of nonperforming assets has resulted in sound asset quality and the timely resolution of problem assets. We had $27.8 million and$18.8 million in nonperforming assets as of September 30, 2024, and December 31, 2023, respectively. We had $26.1 million in nonperforming loans as of September 30, 2024, compared to $17.1 million as of December 31, 2023. The increase in nonperforming assets from December 31, 2023, to September 30, 2024, is primarily due to two lending relationships secured by residential real estate, one secured by commercial real estate, and one commercial loan that is unsecured. 
 The following tables present information regarding nonperforming assets at the dates indicated: 
 
 As of September 30,
2024 (Unaudited) As of December 31,
2023 
 (Dollars in thousands) 
 Nonaccrual loans $ 25,874 $ 16,943 
 Accruing loans 90 or more days past due 185 127 
 Total nonperforming loans 26,059 17,070 
 Other nonperforming assets - - 
 Other real estate owned: 
 Commercial real estate, construction, land and land development 1,495 1,326 
 Residential real estate 292 359 
 Total other real estate owned 1,787 1,685 
 Total nonperforming assets $ 27,846 $ 18,755 
 Ratio of nonperforming loans to total loans held for investment 0.50 % 0.34 % 
 Ratio of nonperforming assets to total assets 0.40 0.28 
 Ratio of nonaccrual loans to total loans held for investment 0.50 0.34 

 
 As of September 30, 2024 (Unaudited) As of December 31, 2023 
 (Dollars in thousands) 
 Nonaccrual loans by category: 
 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 

 Potential Problem Loans 
 From a credit risk standpoint, we classify loans in one of four categories: pass, special mention, substandard or doubtful. Loans classified as loss are charged-off. The classifications of loans reflect a judgment about the risks of default and loss associated with the loan. Ratings are adjusted to reflect the degree of risk and loss that is believed to be inherent in each credit. Our methodology is structured so that specific allocations are increased in accordance with deterioration in credit quality (and a corresponding increase in risk of loss) or decreased in accordance with improvement in credit quality (and a corresponding decrease in risk of loss). 
 
 
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 Credits rated special mention show clear signs of financial weaknesses or deterioration in credit worthiness; however, such concerns are not so pronounced that we generally expect to experience significant loss within the short-term. Such credits typically maintain the ability to perform within standard credit terms and credit exposure is not as prominent as credits with a lower rating. 
 Credits rated substandard are those in which the normal repayment of principal and interest may be, or has been, jeopardized by reason of adverse trends or developments of a financial, managerial, economic or political nature, or important weaknesses which exist in collateral. A protracted workout on these credits is a distinct possibility. Prompt corrective action is therefore required to reduce exposure and to assure that adequate remedial measures are taken by the borrower. Credit exposure becomes more likely in such credits and a serious evaluation of the secondary support to the credit is performed. 
 Credits rated doubtful have all the weaknesses inherent in those rated substandard, with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions, and values, highly questionable and improbable. 
 The following tables summarize our internal ratings of loans held for investment as of the dates indicated. See Note 6 of the consolidated financial statements for the presentation of loans in their credit quality categories that is in compliance with the CECL standard. 
 
 As of September 30, 2024 
 Pass Special Mention Substandard Doubtful Total 
 (Dollars in thousands) (Unaudited) 
 Real Estate Loans: 
 Commercial $ 2,169,930 $ 73,725 $ 11,836 $ 879 $ 2,256,370 
 Construction 646,469 498 7,386 - 654,353 
 Residential 730,811 3,497 9,268 302 743,878 
 Total Real Estate Loans 3,547,210 77,720 28,490 1,181 3,654,601 
 Commercial 1,456,844 15,821 23,486 329 1,496,480 
 Consumer and Other 68,418 - 619 - 69,037 
 Total $ 5,072,472 $ 93,541 $ 52,595 $ 1,510 $ 5,220,118 

 
 As of December 31, 2023 
 Pass Special Mention Substandard Doubtful Total 
 (Dollars in thousands) 
 Real Estate Loans: 
 Commercial $ 2,188,840 $ 18,658 $ 9,163 $ 1,267 $ 2,217,928 
 Construction 661,796 4,087 3,570 345 669,798 
 Residential 669,391 3,161 9,353 489 682,394 
 Total Real Estate Loans 3,520,027 25,906 22,086 2,101 3,570,120 
 Commercial 1,338,339 14,623 5,308 568 1,358,838 
 Consumer and Other 63,265 100 462 - 63,827 
 Total $ 4,921,631 $ 40,629 $ 27,856 $ 2,669 $ 4,992,785 

 Allowance for Credit Losses 
 We maintain an allowance for credit losses, which includes both our allowance for loan losses and reserves for unfunded commitments, that represents management’s best estimate of the credit losses and risks inherent in the loan portfolio. In determining the allowance for credit losses, we estimate losses on specific loans, or groups of loans, where the probable loss can be identified and reasonably determined. The balance of the allowance for credit losses is based on 
 
 
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 internally assigned risk classifications of loans, changes in the nature of the loan portfolio, overall portfolio quality, industry concentrations, delinquency trends, current economic factors and the estimated impact of current economic conditions on certain historical credit loss rates. For additional information, see Note 6 to the consolidated financial statements. 
 In connection with our review of the loan portfolio, we consider risk elements attributable to particular loan types or categories in assessing the quality of individual loans. Some of the risk elements we consider include: 
 • for Real Estate: Commercial loans, the debt service coverage ratio (income from the property in excess of operating expenses compared to loan payment requirements), operating results of the owner in the case of owner-occupied properties, the loan to value ratio, the age and condition of the collateral, and the volatility of income, property value and future operating results typical for properties of that type; 
 • for Real Estate: Construction loans, the perceived feasibility of the project including the ability to sell developed lots or improvements constructed for resale or the ability to lease property constructed for lease, the quality and nature of contracts for presale or prelease, if any, the experience and ability of the developer, and the loan to value ratio; 
 • for Real Estate: Residential real estate loans, the borrower’s ability to repay the loan, including a consideration of the debt to income ratio and employment and income stability, the loan to value ratio, and the age, condition and marketability of the collateral; and 
 • for Commercial loans, the operating results of the commercial, industrial or professional enterprise, the borrower’s business, professional and financial ability and expertise, the specific risks and volatility of income and operating results typical for businesses in that category, and the value, nature and marketability of collateral; 
 As of September 30, 2024, the allowance for credit losses totaled $45.0 million, or 0.86%, of total loans held for investment. As of December 31, 2023, the allowance for credit losses totaled $43.7 million, or 0.88%, of total loans held for investment. 
 The following tables present, as of and for the periods indicated, an analysis of the allowance for credit losses and other related data: 
 
 
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 As of and For the Nine Months Ended
September 30, 2024 (Unaudited) As of and For the Year Ended December
31, 2023 
 (Dollars in thousands) 
 Average loans outstanding $ 5,131,474 $ 4,859,637 
 Gross loans held for investment outstanding end of period $ 5,220,118 $ 4,992,785 
 Allowance for credit losses at beginning of period $ 43,738 $ 38,783 
 Adoption of ASU 2016-13 - 5,857 
 Provision for credit losses 4,161 4,483 
 Charge-offs: 
 Real Estate: 
 Commercial 1 2,049 
 Construction 672 36 
 Residential 293 42 
 Total Real Estate 966 2,127 
 Commercial 859 2,813 
 Consumer and other 1,558 1,489 
 Total charge-offs 3,383 6,429 
 Recoveries: 
 Real Estate: 
 Commercial 15 26 
 Construction - 1 
 Residential 12 18 
 Total Real Estate 27 45 
 Commercial 264 672 
 Consumer and other 236 327 
 Total recoveries 527 1,044 
 Net charge-offs 2,856 5,385 
 Allowance for credit losses at end of period $ 45,043 $ 43,738 
 Ratio of allowance for credit losses to end of period loans held for investment 0.86 % 0.88 % 
 Ratio of net charge-offs to average loans 0.06 0.11 
 Ratio of allowance for credit losses to nonaccrual loans 174.09 258.15 

 
 
 
 
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 As of and For the Nine Months Ended
September 30, 2024 (Unaudited) As of and For the Year Ended 
December 31, 2023 As of and For the Nine Months Ended 
September 30, 2023 (Unaudited) 
 Net Charge-offs
(Recoveries) Percent of Average 
Loans Net Charge-offs
(Recoveries) Percent of Average
Loans Net Charge-offs 
(Recoveries) Percent of Average 
Loans 
 (Dollars in thousands) 
 
 Real estate: 
 Commercial $ (14) 0.00 % $ 2,023 0.04 % $ 1,806 0.04 % 
 Construction 672 0.01 % 35 0.00 % - 0.00 % 
 Residential 281 0.01 % 24 0.00 % 33 0.00 % 
 Total Real Estate Loans 939 0.02 % 2,082 0.04 % 1,839 0.04 % 
 Commercial 595 0.01 % 2,141 0.05 % 1,752 0.03 % 
 Consumer and Other 1,322 0.03 % 1,162 0.02 % 907 0.02 % 
 Total net charge-offs (recoveries) $ 2,856 0.06 % $ 5,385 0.11 % $ 4,498 0.09 % 

 Although we believe that we have established our allowance for credit losses in accordance with U.S. generally accepted accounting principles (“GAAP”) and that the allowance for credit losses was adequate to provide for known and estimated losses in the portfolio at all times shown above, future provisions will be subject to ongoing evaluations of the risks in our loan portfolio. If we experience economic declines or if asset quality deteriorates, material additional provisions could be required. 
 The following table shows the allocation of the allowance for credit losses among loan categories and certain other information as of the dates indicated. The allocation of the allowance for credit losses as shown in the table should neither be interpreted as an indication of future charge-offs, nor as an indication that charge-offs in future periods will necessarily occur in these amounts or in the indicated proportions. The total allowance is available to absorb losses from any loan category. 
 
 As of September 30, 2024 (Unaudited) As of December 31, 2023 As of September 30, 2023 (Unaudited) 
 Amount Percent to Total Amount Percent to Total Amount Percent to Total 
 (Dollars in thousands) 
 Real estate: 
 Commercial $ 18,344 40.7 % $ 17,882 40.9 % $ 18,832 42.3 % 
 Construction 6,483 14.4 8,142 18.6 9,869 22.2 
 Residential 6,504 14.4 5,662 12.9 5,632 12.6 
 Total real estate 31,331 69.5 31,686 72.4 34,333 77.1 
 Commercial 13,179 29.3 11,796 27.0 9,737 21.9 
 Consumer and Other 533 1.2 256 0.6 436 1.0 
 Total allowance for credit losses $ 45,043 100.0 % $ 43,738 100.0 % $ 44,506 100.0 % 

 Securities 
 We use our securities portfolio to provide a source of liquidity, an appropriate return on funds invested, manage interest rate risk, meet collateral requirements, and meet regulatory capital requirements. As of September 30, 2024, the carrying amount of investment securities totaled $916.1 million, an increase of $36.5 million, or 4.2%, compared to $879.6 million as of December 31, 2023. The increase was primarily due to unrealized gains in the first nine months of 2024. Securities represented 13.3% and 13.4% of total assets as of September 30, 2024, and December 31, 2023, respectively. 
 Our investment portfolio consists entirely of securities classified as available for sale. As a result, the carrying values of our investment securities are adjusted for unrealized gain or loss, and any gain or loss is reported on an after-tax 
 
 
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 basis as a component of other comprehensive income in shareholders’ equity. The following tables summarize the amortized cost and estimated fair value of investment securities as of the dates shown: 
 
 As of September 30, 2024 
 Amortized Cost Gross Unrealized 
Gains Gross Unrealized
Losses Fair Value 
 (Dollars in thousands) (Unaudited) 
 U.S. treasury securities $ 17,646 $ - $ 880 $ 16,766 
 U.S. government agencies 10,188 - 517 9,671 
 Corporate bonds 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 $ 974,596 $ 5,128 $ 63,633 $ 916,091 

 
 As of December 31, 2023 
 Amortized Cost Gross Unrealized 
Gains Gross Unrealized 
Losses Fair Value 
 (Dollars in thousands) 
 U.S. treasury securities $ 17,690 $ - $ 1,451 $ 16,239 
 U.S. government agencies 10,258 - 848 9,410 
 Corporate bonds 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 $ 963,978 $ 1,274 $ 85,681 $ 879,571 

 All of our mortgage-backed securities are agency securities. We do not hold any Fannie Mae or Freddie Mac preferred stock, corporate equity, collateralized debt obligations, collateralized loan obligations, private label collateralized mortgage obligations, subprime, Alt-A, or second lien elements in our investment portfolio as of September 30, 2024. 
 
 
 The allowance for credit losses encompasses potential expected credit losses related to the securities portfolio. In order to develop an estimate of credit losses expected for the current securities portfolio, we perform an assessment that includes reviewing historical loss data for both our portfolio and similar types of investment securities. Additionally, our review of the securities portfolio for expected credit losses includes an evaluation of factors including the security issuer bond ratings, delinquency status, insurance or other available credit support, as well as our expectations of the forecasted economic outlook relevant to these securities. The results of the analysis are evaluated quarterly to confirm that credit loss estimates are appropriate for the securities portfolio. Based on our assessments, expected credit losses on the investment securities portfolio as of both September 30, 2024 and December 31, 2023, was negligible and therefore, no allowance for credit loss was recorded related to our investment securities. 
 
 
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 The following tables set forth the fair value, maturities and approximated weighted average yield based on estimated annual income divided by the average amortized cost of the securities portfolio as of the dates indicated. The contractual maturity of a mortgage-backed security is the date at which the last underlying mortgage matures. 
 
 As of September 30, 2024 
 Within One Year After One Year but Within Five Years After Five Years but Within Ten Years After Ten Years Total 
 Amount Yield Amount Yield Amount Yield Amount Yield Total Yield 
 (Dollars in thousands) (Unaudited) 
 U.S. treasury securities $ - - % $ 16,766 0.80 % $ - - % $ - - % $ 16,766 0.80 % 
 U.S. government agencies - - % 9,671 0.92 % - - % - - % 9,671 0.92 % 
 Corporate bonds - - % 13,037 7.14 % 31,444 4.32 % - - % 44,481 5.15 % 
 Mortgage-backed securities 4,108 2.03 % 49,174 2.06 % 188,434 2.97 % 318,350 3.25 % 560,066 3.04 % 
 Municipal securities 21,940 1.54 % 95,324 1.68 % 110,151 1.94 % 57,692 2.81 % 285,107 2.00 % 
 Total $ 26,048 1.62 % $ 183,972 2.05 % $ 330,029 2.76 % $ 376,042 3.18 % $ 916,091 2.76 % 

 
 As of December 31, 2023 
 Within One Year After One Year but Within Five Years After Five Years but Within Ten Years After Ten Years Total 
 Amount Yield Amount Yield Amount Yield Amount Yield Total Yield 
 (Dollars in thousands) 
 U.S. treasury securities $ - - % $ 16,239 0.80 % $ - - % $ - - % $ 16,239 0.80 % 
 U.S. government agencies - - % 9,410 0.92 % - - % - - % 9,410 0.92 % 
 Corporate bonds 213 - % 2,390 4.78 % 41,236 4.61 % - - % 43,839 4.60 % 
 Mortgage-backed securities 147 1.28 % 46,339 2.06 % 191,332 2.68 % 268,492 2.73 % 506,310 2.65 % 
 Municipal securities 16,766 1.56 % 96,739 1.55 % 117,092 1.91 % 73,176 2.38 % 303,773 1.89 % 
 Total $ 17,126 1.54 % $ 171,117 1.63 % $ 349,660 2.65 % $ 341,668 2.66 % $ 879,571 2.43 % 

 The contractual maturity of mortgage-backed securities, collateralized mortgage obligations and asset-backed securities is not a reliable indicator of their expected life because borrowers have the right to prepay their obligations at any time. Mortgage-backed securities and asset-backed securities are typically issued with stated principal amounts and are backed by pools of mortgage loans and other loans with varying maturities. The term of the underlying mortgages and loans may vary significantly due to the ability of a borrower to prepay. Monthly paydowns on mortgage-backed securities tend to cause the average life of the securities to be much different than the stated contractual maturity. During a period of increasing interest rates, fixed rate mortgage-backed securities do not tend to experience heavy prepayments of principal and, consequently, the average life of this security will be lengthened. If interest rates begin to fall, prepayments may increase, thereby shortening the estimated life of this security. The weighted average life of our investment portfolio was 4.49 years with an estimated effective duration of 3.77 years as of September 30, 2024. 
 As of September 30, 2024, and December 31, 2023, we did not own securities of any one issuer for which aggregate adjusted cost exceeded 10% of our consolidated shareholders’ equity as of such respective dates. 
 As of September 30, 2024, and December 31, 2023, the Company held other equity securities of $39.6 million and $33.9 million, respectively, comprised mainly of FHLB stock, small business investment companies (“SBICs”) and financial technology (“Fintech”) fund investments. 
 Deposits 
 We offer a variety of deposit accounts having a wide range of interest rates and terms including demand, savings, money market and time accounts. We rely primarily on competitive pricing policies, convenient locations and personalized service to attract and retain these deposits. 
 
 
 Total deposits as of September 30, 2024, were $5.6 billion, an increase of $392.2 million, or 7.5%, compared to $5.2 billion as of December 31, 2023. Total uninsured deposits were $2.4 billion, or 42.4%, of total deposits as of September 30, 2024 compared to $2.0 billion, or 38.9%, of total deposits as of December 31, 2023. Since it is not reasonably practical to 
 
 
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 provide a precise measure of uninsured deposits, the amounts are estimated and are based on the same methodologies and assumptions that are used for regulatory reporting requirements for the call report. 
 Noninterest-bearing deposits as of September 30, 2024, were $1.2 billion compared to $1.3 billion as of December 31, 2023, a decrease of $108.1 million, or 8.3%. 
 Average deposits for the nine months ended September 30, 2024, were $5.5 billion, an increase of $520.7 million, or 10.5%, over the full year average for the year ended December 31, 2023, of $5.0 billion. The average rate paid on total interest-bearing deposits increased over this period from 3.00% for the year ended December 31, 2023, to 3.81% for the nine months ended September 30, 2024. The increase in average rates was driven by the Federal Reserve raising rates during the year ended December 31, 2023 and consumer demand for higher earning interest bearing accounts. The cost of deposits increased to 2.92% for the nine months ended September 30, 2024, compared to 2.15% for the year ended December 31, 2023. 
 The following table presents the daily average balances and weighted average rates paid on deposits for the periods indicated: 
 
 For the Nine Months Ended 
September 30, 2024 (Unaudited) For the Year Ended 
December 31, 2023 
 Average Balance Average Rate Average Balance Average Rate 
 (Dollars in thousands) 
 Interest-bearing demand accounts $ 551,135 3.68 % $ 507,782 3.40 % 
 Negotiable order of withdrawal ("NOW") accounts 434,366 2.00 % 468,094 1.33 % 
 Limited access money market accounts and savings 2,022,853 3.87 % 1,441,836 2.77 % 
 Certificates and other time deposits > $250k 605,478 4.57 % 498,054 4.01 % 
 Certificates and other time deposits < $250k 
 603,034 4.27 % 650,450 3.61 % 
 Total interest-bearing deposits 4,216,866 3.81 % 3,566,216 3.00 % 
 Noninterest-bearing demand accounts 1,283,035 - % 1,412,979 - % 
 Total deposits $ 5,499,901 2.92 % $ 4,979,195 2.15 % 

 The ratio of average noninterest-bearing deposits to average total deposits for the nine months ended September 30, 2024, and the year ended December 31, 2023, was 23.3% and 28.4%, respectively. 
 The following table sets forth the contractual maturities of certain certificates of deposit at September 30, 2024: 
 
 Certificates of 
Deposit More Than
$250,000 Certificates of 
Deposit of 
$100,000 Through
$250,000 
 (Dollars in thousands) (Unaudited) 
 3 months or less $ 133,314 $ 115,502 
 More than 3 months but less than 6 months 53,784 96,089 
 More than 6 months but less than 12 months 166,743 86,528 
 12 months or more 276,984 57,961 
 Total $ 630,825 $ 356,080 

 
 
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 Federal Funds Purchased Lines of Credit Relationships 
 We maintain Federal Funds Purchased Lines of Credit Relationships with the following correspondent banks and limits as of September 30, 2024: 
 
 Fed Funds Purchase
Limits 
 (Dollars in thousands) 
 TIB National Association $ 45,000 
 PNC Bank 38,000 
 FNBB 35,000 
 First Horizon Bank 17,000 
 ServisFirst Bank 10,000 
 Total $ 145,000 

 We had no outstanding balances on these lines at September 30, 2024 and December 31, 2023. 
 
 Liquidity and Capital Resources 
 Liquidity 
 Liquidity involves our ability to utilize funds to support asset growth and acquisitions or reduce assets to meet deposit withdrawals and other payment obligations, to maintain reserve requirements and otherwise to operate on an ongoing basis and manage unexpected events. For the nine months ended September 30, 2024, and the year ended December 31, 2023, liquidity needs were primarily met by core deposits, security and loan maturities, and amortizing investment and loan portfolios. In addition, we also utilize, or have available, brokered deposits, purchased funds from correspondent banks, the Federal Reserve discount window, and overnight advances from the FHLB. As of September 30, 2024, and December 31, 2023, we maintained five federal funds purchased lines of credit with correspondent banks which provided for extensions of credit with an availability to borrow up to an aggregate of $145.0 million. There were no funds drawn under these lines of credit at September 30, 2024, and December 31, 2023. We had an additional $1.2 billion of availability through the FHLB at both September 30, 2024, and December 31, 2023. As of September 30, 2024 and December 31, 2023, we had $921.9 million and $1.0 billion, respectively, of availability through the Federal Reserve Discount Window. 
 The following table illustrates, during the periods presented, the mix of our funding sources and the average assets in which those funds are invested as a percentage of average total assets for the periods indicated. Average total assets equaled $6.7 billion and $6.3 billion for the nine months ended September 30, 2024, and the year ended December 31, 2023, respectively. 
 
 
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 For the Nine 
Months Ended 
September 30,
2024 (Unaudited) For the Year Ended 
December 31, 
2023 
 Source of Funds: 
 Deposits: 
 Noninterest-bearing 19.1 % 22.3 % 
 Interest-bearing 62.7 56.2 
 Subordinated debt (excluding trust preferred securities) 1.5 1.7 
 Advances from FHLB 4.4 5.2 
 Other borrowings 0.4 0.4 
 Bank Term Funding Program 1.3 4.0 
 Other liabilities 0.7 0.7 
 Shareholders' equity 9.9 9.5 
 Total 100.0 % 100.0 % 
 Uses of Funds: 
 Loans, net of allowance for loan losses 75.7 % 76.0 % 
 Securities available for sale 13.4 14.2 
 Interest-bearing deposits in other banks 4.0 2.8 
 Other noninterest-earning assets 6.9 7.0 
 Total 100.0 % 100.0 % 
 Average noninterest-bearing deposits to average deposits 23.3 % 28.4 % 
 Average loans to average deposits 93.3 97.6 

 Our primary source of funds is deposits, and our primary use of funds is loans. We do not expect a change in the primary source or use of our funds in the foreseeable future. Our average net loans increased 6.3% for the nine months ended September 30, 2024, compared to the same period in 2023. We predominantly invest excess deposits in overnight deposits with the Federal Reserve, securities, interest-bearing deposits at other banks or other short-term liquid investments until needed to fund loan growth. Our securities portfolio had a weighted average life of 4.49 years and an effective duration of 3.77 years as of September 30, 2024. As of December 31, 2023, our securities portfolio had a weighted average life of 4.57 years and an effective duration of 3.81 years. 
 As of September 30, 2024, we had outstanding $1.2 billion in commitments to extend credit and $47.9 million in commitments associated with outstanding standby and commercial letters of credit. As of December 31, 2023, we had outstanding $1.2 billion in commitments to extend credit and $45.2 million in commitments associated with outstanding standby and commercial letters of credit. Because commitments associated with letters of credit and commitments to extend credit may expire unused, the total outstanding may not necessarily reflect the actual future cash funding requirements. See “ Off Balance Sheet Items ” below for additional information. 
 As of September 30, 2024, and December 31, 2023 we had cash and cash equivalents, including federal funds sold, of $383.2 million and $377.2 million, respectively. We had no exposure to future cash requirements associated with known uncertainties or capital expenditures of a material nature for either period. 
 Capital Resources 
 Total shareholders’ equity increased to $699.5 million as of September 30, 2024, compared to $644.3 million as of December 31, 2023, an increase of $55.3 million, or 8.6%. This increase was primarily due to net income of $48.6 million and other comprehensive income of $20.4 million resulting from the after-tax effect of unrealized gains in our investment securities portfolio offset with dividends paid on preferred stock and common stock of $14.8 million. 
 
 
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 On October 24, 2024, our Board declared a quarterly dividend in the amount of $18.75 per preferred share to the preferred shareholders of record as of November 15, 2024. The dividend is to be paid on November 30, 2024, or as soon as practicable thereafter. 
 On October 24, 2024, our Board declared a quarterly dividend based upon our financial performance for the three months ended September 30, 2024, in the amount of $0.14 per common share to the common shareholders of record as of November 15, 2024. The dividend is to be paid on November 30, 2024, or as soon as practicable thereafter. 
 The declaration and payment of dividends to our shareholders, as well as the amounts thereof, are subject to the discretion of the Board and depend upon our results of operations, financial condition, capital levels, cash requirements, future prospects and other factors deemed relevant by the Board. As a holding company, our ability to pay dividends is largely dependent upon the receipt of dividends from our subsidiary, b1BANK. There can be no assurance that we will declare and pay any dividends to our shareholders. 
 Capital management consists of providing equity to support current and future operations. Banking regulators view capital levels as important indicators of an institution’s financial soundness. As a general matter, FDIC-insured depository institutions and their holding companies are required to maintain minimum capital relative to the amount and types of assets they hold. We are subject to regulatory capital requirements at the holding company and bank levels. As of September 30, 2024, and December 31, 2023, we and b1BANK were in compliance with all applicable regulatory capital requirements, and b1BANK was classified as “well-capitalized,” for purposes of prompt corrective action regulations. As we employ our capital and continue to grow our operations, our regulatory capital levels may decrease depending on our level of earnings. However, we expect to monitor and control our growth in order to remain in compliance with all applicable regulatory capital standards applicable to us. 
 The following table presents the actual capital amounts and regulatory capital ratios for us and b1BANK as of the dates indicated. 
 
 As of September 30, 2024 (Unaudited) As of December 31, 2023 
 Amount Ratio Amount Ratio 
 (Dollars in thousands) 
 Business First 
 Total capital (to risk weighted assets) $ 787,847 12.99 % $ 754,990 12.85 % 
 Tier 1 capital (to risk weighted assets) 648,759 10.69 % 614,975 10.46 % 
 Common Equity Tier 1 capital (to risk weighted assets) 571,829 9.42 % 538,045 9.15 % 
 Tier 1 Leverage capital (to average assets) 648,759 9.61 % 614,975 9.52 % 
 
 b1BANK 
 Total capital (to risk weighted assets) $ 772,529 12.74 % $ 730,117 12.43 % 
 Tier 1 capital (to risk weighted assets) 727,486 12.00 % 686,379 11.69 % 
 Common Equity Tier 1 capital (to risk weighted assets) 727,486 12.00 % 686,379 11.69 % 
 Tier 1 Leverage capital (to average assets) 727,486 10.79 % 686,379 10.63 % 

 FHLB Advances 
 Advances from the FHLB totaled approximately $367.2 million and $211.2 million at September 30, 2024 and December 31, 2023, respectively. As of September 30, 2024, and December 31, 2023, the FHLB advances were collateralized by a blanket floating lien on certain securities and loans, had a weighted average stated rate of 4.24% and 3.65%, respectively, and mature within ten years. 
 
 
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 Bank Term Funding Program ( “ BTFP ” ) 
 On March 12, 2023, the Federal Reserve launched 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. The loans bore a fixed rate of 4.38% and matured on March 22, 2024, at which time we repaid them in full. 
 Contractual Obligations 
 The following tables summarize contractual obligations and other commitments to make future payments as of September 30, 2024, and December 31, 2023 (other than non-maturity deposit obligations), which consist of future cash payments associated with our contractual obligations pursuant to our FHLB advances, subordinated debt, revolving line of credit, and non-cancelable future operating leases. Payments related to leases are based on actual payments specified in underlying contracts. Advances from the FHLB totaled approximately $367.2 million and $211.2 million at September 30, 2024 and December 31, 2023, respectively. As of September 30, 2024, and December 31, 2023, the FHLB advances were collateralized by a blanket floating lien on certain securities and loans, had a weighted average stated rate of 4.24% and 3.65%, respectively, and mature within ten years. We participated in the BTFP in March 2023 and as of December 31, 2023, had outstanding debt of $300.0 million, at a fixed rate of 4.38% and set to mature on March 22, 2024. We repaid this debt in full at the time of maturity. The subordinated debt totaled $99.8 million and $100.0 million at September 30, 2024 and December 31, 2023, respectively, including premium. Of this subordinated debt, $25.0 million bears interest at a fixed rate of 6.75% through December 31, 2028 and a floating rate, based on a benchmark rate plus 369 basis points, thereafter through maturity in 2033, $52.5 million of this subordinated debt bears interest at a fixed rate of 4.25% through March 31, 2026 and a floating rate, based on a benchmark rate plus 354 basis points, thereafter through maturity in 2031, $3.9 million of this subordinated debt bears interest at a fixed rate of 4.75% through April 1, 2026 and a floating rate, based on a benchmark rate plus 442 basis points, thereafter through maturity in 2031. We acquired three separate notes as part of the TCBI acquisition totaling $26.4 million. Of those notes, $10.0 million bears an adjustable interest rate plus 350 basis points, based on a benchmark rate, adjusting quarterly until maturity on April 11, 2028, and callable beginning April 11, 2023, $7.5 million bears an adjustable interest rate plus 350 basis points, based on a benchmark rate, adjusting quarterly, until maturity on December 13, 2028, and callable beginning December 13, 2023, and $8.9 million, which was called on May 1, 2023 and ceased bearing interest as of such date. As part of valuing these three subordinated notes from TCBI, we incurred a fair value adjustment premium of $3.4 million that will accrete over five-to-seven years, with $890,000 and $1.1 million remaining at September 30, 2024 and December 31, 2023, respectively. We recognized $1.5 million in gains on the extinguishment of this debt during the year ended December 31, 2023. 
 
 As of September 30, 2024 
 1 year or less More than 1 year
but less than 3
years 3 years or more 
but less than 5 
years 5 years or more Total 
 (Dollars in thousands) (Unaudited) 
 Non-cancelable future operating leases $ 4,444 $ 7,744 $ 5,828 $ 3,667 $ 21,683 
 Time deposits 770,244 350,838 31,760 21 1,152,863 
 Subordinated debt - - 17,500 81,427 98,927 
 Advances from FHLB 90,875 126,327 75,000 75,000 367,202 
 
 Subordinated debt - trust preferred securities - - - 5,000 5,000 
 Securities sold under agreements to repurchase 21,529 - - - 21,529 
 Standby and commercial letters of credit 44,372 2,833 651 16 47,872 
 Commitments to extend credit 679,328 292,873 119,048 101,253 1,192,502 
 Total $ 1,610,792 $ 780,615 $ 249,787 $ 266,384 $ 2,907,578 

 
 
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 As of December 31, 2023 
 1 year or less More than 1 year 
but less than 3
years 3 years or more
but less than 5
years 5 years or more Total 
 (Dollars in thousands) 
 Non-cancelable future operating leases $ 4,429 $ 7,166 $ 6,426 $ 5,617 $ 23,638 
 Time deposits 1,027,366 238,222 35,490 21 1,301,099 
 Subordinated debt - - 17,500 81,427 98,927 
 Advances from FHLB - 111,198 25,000 75,000 211,198 
 BTFP 300,000 - - - 300,000 
 Subordinated debt - trust preferred securities - - - 5,000 5,000 
 Securities sold under agreements to repurchase 18,885 - - - 18,885 
 Standby and commercial letters of credit 43,704 927 546 - 45,177 
 Commitments to extend credit 625,521 330,138 106,171 112,477 1,174,307 
 Total $ 2,019,905 $ 687,651 $ 191,133 $ 279,542 $ 3,178,231 

 Off-Balance Sheet Items 
 In the normal course of business, we enter into various transactions which, in accordance with GAAP, are not included in our consolidated balance sheets. We enter into these transactions to meet the financing needs of our customers. These transactions include commitments to extend credit and standby and commercial letters of credit which involve, to varying degrees, elements of credit risk and interest rate risk in excess of the amounts recognized in the consolidated balance sheets. 
 Our commitments associated with outstanding standby and commercial letters of credit and commitments to extend credit expiring by period as of the date indicated are summarized in the tables above. Because commitments associated with letters of credit and commitments to extend credit may expire unused, the amounts shown do not necessarily reflect the actual future cash funding requirements. 
 Standby and commercial letters of credit are conditional commitments issued by us to guarantee the performance of a customer to a third party. In the event of nonperformance by the customer, we have rights to the underlying collateral, which can include commercial real estate, physical plant and property, inventory, receivables, cash and/or marketable securities. The credit risk to us in issuing letters of credit is essentially the same as that involved in extending loan facilities to our customers. 
 Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Because many of the commitments are expected to expire without being fully drawn upon, the total commitment amounts disclosed above do not necessarily represent future cash requirements. We evaluate each customer’s creditworthiness on a case-by-case basis. The amount of collateral obtained, if considered necessary by us, upon extension of credit, is based on management’s credit evaluation of the customer. 
 
 Interest Rate Sensitivity and Market Risk 
 As a financial institution, our primary component of market risk is sensitivity to movement in interest rates. Our asset and liability management policy provides management with the guidelines for effective interest rate risk management, and we have established a measurement system for monitoring our net interest rate sensitivity position. We manage our sensitivity position within our established guidelines. 
 Fluctuations in interest rates will ultimately impact both the level of income and expense recorded on most of our assets and liabilities, and the market value of all interest-earning assets and interest-bearing liabilities. Interest rate risk is the potential of economic losses due to future interest rate changes. These economic losses can be reflected as a loss of future net interest income and/or a loss of current fair market value of equity. The objective interest rate risk management 
 
 
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 is to measure the effect on net interest income and fair value of equity and to position the balance sheet to minimize the risk of losses and maximize the amount of income without taking on unnecessary earning volatility. 
 We seek to manage our exposure to interest rates by structuring our balance sheet in the ordinary course of business; however, we may enter into derivative contracts to hedge interest rate risk if it is appropriate given our risk profile and policy guidelines. Based upon the nature of our operations, we are not subject to foreign exchange or commodity price risk. We do not own any trading assets. 
 Our exposure to interest rate risk is managed by the asset-liability committee ("ALCO") of b1BANK, in accordance with policies approved by our board of directors. In determining the appropriate level of interest rate risk, the committee considers the impact on earnings and capital of the current outlook on interest rates, potential changes in interest rates, regional economies, liquidity, business strategies and other factors. The committee meets regularly to review, among other things, the sensitivity of assets and liabilities to interest rate changes, the book and market values of assets and liabilities, unrealized gains and losses, purchase and sale activities, commitments to originate loans and the maturities of investments and borrowings. Additionally, the committee reviews liquidity, cash flow flexibility, maturities of deposits and consumer and commercial deposit activity. Management employs methodologies to manage interest rate risk which include an analysis of relationships between interest-earning assets and interest-bearing liabilities, and an interest rate shock simulation model. 
 We use interest rate risk simulation models and shock analysis to test the interest rate sensitivity of net interest income and fair value of equity, and the impact of changes in interest rates on other financial metrics. Contractual maturities and re-pricing opportunities of loans are incorporated in the model as prepayment assumptions, maturity data and optionality. Deposit assumptions such as repricing betas and non-maturity balance decay rates are also incorporated into the model. Model assumptions are revised and updated on a regular basis as directed by policy, and more frequently if conditions merit. The assumptions used are inherently uncertain and, as a result, the model cannot precisely measure future net interest income or precisely predict the impact of fluctuations in market interest rates on net interest income. Actual results will differ from the model’s simulated results due to timing, magnitude, and frequency of interest rate changes, as well as changes in market conditions, customer behavior, and the application and timing of various management strategies. 
 On at least a quarterly basis, we run simulation models to calculate potential impacts to net interest income and the fair value of equity. Specific details of the simulations are reflected in policy as directed by ALCO. 
 The following table summarizes the simulated change in net interest income and fair value of equity over a 12-month horizon as of the dates indicated: 
 
 As of September 30, 2024 As of December 31, 2023 
 Change in Interest Rates (Basis Points) Percent Change in
Net Interest 
Income Percent Change in
Fair Value of 
Equity Percent Change in 
Net Interest
Income Percent Change in 
Fair Value of 
Equity 
 +300 (2.30 %) (3.65 %) (5.50 %) (5.59 %) 
 +200 1.56 % (2.25 %) (3.20 %) (3.47 %) 
 +100 0.67 % (1.00 %) (1.10 %) (1.39 %) 
 Base - % - % - % - % 
 -100 (1.18 %) 0.38 % 0.30 % 1.40 % 
 -200 (2.43 %) (0.99 %) 0.50 % 2.67 % 

 The results of the simulations are primarily driven by the contractual characteristics of all balance sheet instruments and customer behavior. 
 Impact of Inflation 
 Our consolidated financial statements and related notes included elsewhere in this statement have been prepared in accordance with GAAP. These require the measurement of financial position and operating results in terms of historical dollars, without considering changes in the relative value of money over time due to inflation or recession. 
 
 
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 Unlike many industrial companies, substantially all of our assets and liabilities are monetary in nature. As a result, interest rates have a more significant impact on our performance than the effects of general levels of inflation. Interest rates may not necessarily move in the same direction or in the same magnitude as the prices of goods and services. However, other operating expenses do reflect general levels of inflation. 
 
 Non-GAAP Financial Measures 
 Our accounting and reporting policies conform to GAAP, and the prevailing practices in the banking industry. However, we also evaluate our performance based on certain additional non-GAAP financial measures. We classify a financial measure as being a non-GAAP financial measure if that financial measure excludes or includes amounts, or is subject to adjustments that have the effect of excluding or including amounts, that are included or excluded, as the case may be, in the most directly comparable measure calculated and presented in accordance with GAAP as in effect from time to time in the United States in our statements of income, balance sheets or statements of cash flows. Non-GAAP financial measures do not include operating and other statistical measures or ratios or statistical measures calculated using exclusively either financial measures calculated in accordance with GAAP, operating measures or other measures that are not non-GAAP financial measures or both. 
 This discussion and analysis section includes certain non-GAAP financial measures (e.g., referenced as “core” or “tangible”) intended to supplement, not substitute for, comparable GAAP measures. These measures typically adjust income available to common shareholders for certain significant activities or transactions that in management’s opinion can distort period-to-period comparisons of Business First’s performance. Transactions that are typically excluded from non-GAAP measures include realized and unrealized gains/losses on former bank premises and equipment, gains/losses on sales of securities, and acquisition-related expenses (including, but not limited to, legal costs, system conversion costs, severance and retention payments, etc.). The measures also typically adjust goodwill and certain intangible assets from book value and shareholders’ equity. 
 Management believes presentations of these non-GAAP financial measures provide useful supplemental information that is essential to a proper understanding of the operating results of the Company’s core business. These non-GAAP disclosures are not necessarily comparable to non-GAAP measures that may be presented by other companies. You should understand how such other banking organizations calculate their financial metrics or with names similar to the non-GAAP financial measures we have discussed in this statement when comparing such non-GAAP financial measures. 
 Core Net Income . Core net income available to common shareholders, which excludes certain income and expenses, for the three months ended September 30, 2024, was $17.2 million, or $0.68 per diluted common share, compared to core net income available to common shareholders of $18.0 million, or $0.71 per diluted common share, for the three months ended September 30, 2023. Notable noncore events impacting earnings for the three months ended September 30, 2024, included $319,000 in acquisition-related expenses and $511,000 in core conversion expenses, compared to $932,000 in a gain on the sale of our Leesville, Louisiana banking center and $517,000 in a gain on the extinguishment of debt due to the premium associated with the debt from the TCBI acquisition in 2022, which was attributed to the remaining $3.2 million subordinated debt redemption, for the same period in 2023. 
 For the nine months ended September 30, 2024, core net income available to common shareholders, was $46.3 million, or $1.82 per diluted common share, compared to core net income available to common shareholders of $49.5 million, or $1.96 per diluted common share, for the nine months ended September 30, 2023. Notable noncore events impacting earnings for the nine months ended September 30, 2024, $1.5 million in acquisition-related expenses and $511,000 in core conversion expenses, compared to $932,000 in a gain on the sale of our Leesville, Louisiana banking center, $1.5 million in a gain on the extinguishment of debt due to the premium associated with the debt from the TCBI acquisition in 2022, which was attributed to the $8.9 million subordinated debt redemption, and $173,000 in acquisition-related expenses for the same period in 2023. 
 
 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) (Unaudited) 
 Interest Income: 
 Interest income $ 102,741 $ 93,322 $ 298,622 $ 258,662 
 Core interest income 102,741 93,322 298,622 258,662 

 
 
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 Interest Expense: 
 Interest expense 46,627 38,028 136,968 97,293 
 Core interest expense 46,627 38,028 136,968 97,293 
 Provision for Credit Losses: 
 Provision for credit losses 1,665 604 4,161 4,364 
 Core provision expense 1,665 604 4,161 4,364 
 Other Income: 
 Other income 10,774 9,883 32,336 30,229 
 Gains on former bank premises and equipment - - (50) - 
 Losses on sale of securities 13 - 14 62 
 
 Gain on sale of branch - (932) - (932) 
 Gain on extinguishment of debt - (517) - (1,458) 
 Core other income 10,787 8,434 32,300 27,901 
 Other Expense: 
 Other expense 42,450 38,607 128,082 116,988 
 Acquisition-related expenses (2) (319) (2) (1,453) (173) 
 Core conversion expenses (511) - (511) - 
 Core other expense 41,620 38,605 126,118 116,815 
 Pre-Tax Income: 
 Pre-tax income 22,773 25,966 61,747 70,246 
 Gains on former bank premises and equipment - - (50) - 
 Losses on sale of securities 13 - 14 62 
 
 Gain on sale of branch - (932) - (932) 
 Gain on extinguishment of debt - (517) - (1,458) 
 Acquisition-related expenses (2) 319 2 1,453 173 
 Core conversion expenses 511 - 511 - 
 Core pre-tax income 23,616 24,519 63,675 68,091 
 Provision for Income Taxes: (1) 
 Provision for income taxes 4,930 5,511 13,128 15,027 
 Tax on gains on former bank premises and equipment - - (11) - 
 Tax on losses on sale of securities 3 - 3 13 
 
 Tax on gain on sale of branch - (197) - (197) 
 Tax on gain on extinguishment of debt - (109) - (308) 
 Tax on acquisition-related expenses (2) - - 91 20 
 Tax on core conversion expenses 108 - 108 - 
 Core provision for income taxes 5,041 5,205 13,319 14,555 
 Preferred Dividends 
 Preferred dividends 1,351 1,351 4,051 4,051 
 Core preferred dividends 1,351 1,351 4,051 4,051 
 Net Income Available to Common Shareholders: 
 Net income available to common shareholders 16,492 19,104 44,568 51,168 
 Gains on former bank premises and equipment , net of tax - - (39) - 

 
 
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 Losses on sale of securities, net of tax 10 - 11 49 
 
 Gain on sale of branch, net of tax - (735) - (735) 
 Gain on extinguishment of debt, net of tax - (408) - (1,150) 
 Acquisition-related expenses (2), net of tax 319 2 1,362 153 
 Core conversion expenses, net of tax 403 - 403 - 
 Core net income available to common shareholders $ 17,224 $ 17,963 $ 46,305 $ 49,485 
 Diluted Earnings Per Common Share: 
 Diluted earnings per common share $ 0.65 $ 0.76 $ 1.75 $ 2.02 
 Gains on former bank premises and equipment , net of tax - - - - 
 Losses on sale of securities, net of tax - - - - 
 
 Gain on sale of branch, net of tax - (0.03) - (0.03) 
 Gain on extinguishment of debt, net of tax - (0.02) - (0.04) 
 Acquisition-related expenses (2), net of tax 0.01 - 0.05 0.01 
 Core conversion expenses, net of tax 0.02 - 0.02 - 
 Core diluted earnings per common share $ 0.68 $ 0.71 $ 1.82 $ 1.96 

 ____________________________ 
 (1) Tax rates, exclusive of certain nondeductible acquisition-related expenses and goodwill, utilized were 21.129% for both 2024 and 2023. These rates approximate the marginal tax rates for the applicable periods. 
 (2) Includes merger and conversion-related expenses and salary and employee benefits. 
 Tangible Book Value Per Common Share . Tangible book value per common share is a non-GAAP measure generally used by financial analysts and investment bankers to evaluate financial institutions. We calculate (1) tangible common equity as shareholders’ equity less preferred stock, goodwill, and core deposit and customer intangible assets, net of accumulated amortization, and (2) tangible book value per common share as tangible common equity divided by shares of common stock outstanding. The most directly comparable GAAP financial measure for tangible book value per common share is book value per common share. 
 
 
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 The following table reconciles, as of the dates set forth below, total shareholders’ equity to tangible common equity and presents tangible book value per common share compared to book value per common share: 
 
 As of September
30, 2024 As of December 31, 
2023 
 (Dollars in thousands, except per share data) (Unaudited) 
 Tangible Common Equity 
 Total shareholders' equity $ 699,524 $ 644,259 
 Preferred stock (71,930) (71,930) 
 Total common shareholders' equity 627,594 572,329 
 Adjustments: 
 Goodwill (91,527) (88,391) 
 Core deposit and customer intangibles (10,326) (11,895) 
 Total tangible common equity $ 525,741 $ 472,043 
 Common shares outstanding (1) 25,519,501 25,351,809 
 Book value per common shares (1) $ 24.59 $ 22.58 
 Tangible book value per common shares (1) 20.60 18.62 

 ____________________________ 
 (1) Excludes the dilutive effect, if any, of 194,427 and 217,094 shares of common stock issuable upon exercise of outstanding stock options and restricted stock awards as of September 30, 2024 and December 31, 2023, respectively. 
 Tangible Common Equity to Tangible Assets . Tangible common equity to tangible assets is a non-GAAP measure generally used by financial analysts and investment bankers to evaluate financial institutions. We calculate tangible common equity, as described above, and tangible assets as total assets less goodwill, core deposit and customer intangible assets, net of accumulated amortization. The most directly comparable GAAP financial measure for tangible common equity to tangible assets is total common shareholders’ equity to total assets. 
 
 
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 The following table reconciles, as of the dates set forth below, total shareholders’ equity to tangible common equity and total assets to tangible assets: 
 
 As of September
30, 2024 As of December 31,
2023 
 (Dollars in thousands, except per share data)
(Unaudited) 
 Tangible Common Equity 
 Total shareholders' equity $ 699,524 $ 644,259 
 Preferred stock (71,930) (71,930) 
 Total common shareholders' equity 627,594 572,329 
 Adjustments: 
 Goodwill (91,527) (88,391) 
 Core deposit and customer intangibles (10,326) (11,895) 
 Total tangible common equity $ 525,741 $ 472,043 
 Tangible Assets 
 Total Assets $ 6,888,649 $ 6,584,550 
 Adjustments: 
 Goodwill (91,527) (88,391) 
 Core deposit and customer intangibles (10,326) (11,895) 
 Total tangible assets $ 6,786,796 $ 6,484,264 
 Common Equity to Total Assets 9.1 % 8.7 % 
 Tangible Common Equity to Tangible Assets 7.7 7.3
Text extracted from the filing as submitted to EDGAR. Formatting, tables and exhibits are simplified for reading; the original document is authoritative for anything you rely on.
Business First Bancshares, Inc. 10-Q

Item 2. Management’s Discussion and Analysis
