Business First Bancshares, Inc. 10-Q

Item 1. Financial Statements BUSINESS FIRST BANCSHARES, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (Dollars in thousands, except per share data) March 31, 2024 (Unaudited) December 31, 2023 ASSETS Cash and Due from Banks $ 185,906 $ 226,110 Federal Funds Sold 211,292 151,134 Securities Available for Sale, at Fair Values (Amortized Cost of $ 963,726 at March 31, 2024 and $ 963,978 at December 31, 2023) 872,903 879,571 Mortgage Loans Held for Sale 77 835 Loans and Lease Receivable, Net of Allowance for Loan Losses of $ 41,165 at March 31, 2024 and $ 40,414 at December 31, 2023 5,047,674 4,952,371 Premises and Equipment, Net 68,716 69,480 Accrued Interest Receivable 29,326 29,916 Other Equity Securities 34,940 33,942 Other Real Estate Owned 1,339 1,685 Cash Value of Life Insurance 100,056 96,478 Deferred Taxes 26,800 27,323 Goodwill 91,527 88,391 Core Deposit and Customer Intangible 11,372 11,895 Other Assets 13,630 15,419 Total Assets $ 6,695,558 $ 6,584,550 LIABILITIES Deposits: Noninterest Bearing $ 1,295,050 $ 1,299,090 Interest Bearing 4,277,700 3,949,700 Total Deposits 5,572,750 5,248,790 Securities Sold Under Agreements to Repurchase 17,207 18,885 Bank Term Funding Program - 300,000 Federal Home Loan Bank Borrowings 308,206 211,198 Subordinated Debt 99,933 99,990 Subordinated Debt - Trust Preferred Securities 5,000 5,000 Accrued Interest Payable 3,930 14,841 Other Liabilities 39,498 41,587 Total Liabilities 6,046,524 5,940,291 Commitments and Contingencies (See Note 11) SHAREHOLDERS' EQUITY Preferred Stock, No Par Value; 5,000,000 Shares Authorized; 72,010 Shares ($ 1,000 Liquidation Preference) Issued at both March 31, 2024 and December 31, 2023, respectively 71,930 71,930 Common Stock, $ 1 Par Value; 50,000,000 Shares Authorized; 25,485,383 and 25,351,809 Shares Issued and Outstanding at March 31, 2024 and December 31, 2023, respectively 25,485 25,352 Additional Paid-in Capital 398,511 397,447 Retained Earnings 224,742 216,115 Accumulated Other Comprehensive Loss ( 71,634 ) ( 66,585 ) Total Shareholders' Equity 649,034 644,259 Total Liabilities and Shareholders' Equity $ 6,695,558 $ 6,584,550 The accompanying notes are an integral part of these financial statements. 4 Table of Contents BUSINESS FIRST BANCSHARES, INC. AND SUBSIDIARIES UNAUDITED CONSOLIDATED STATEMENTS OF INCOME (Dollars in thousands, except per share data) For the Three Months Ended March 31, 2024 2023 Interest Income: Interest and Fees on Loans $ 85,947 $ 73,768 Interest and Dividends on Non-taxable Securities 1,074 1,065 Interest and Dividends on Taxable Securities 4,525 3,717 Interest on Federal Funds Sold and Due From Banks 4,465 942 Total Interest Income 96,011 79,492 Interest Expense: Interest on Deposits 38,029 18,928 Interest on Borrowings 6,451 7,815 Total Interest Expense 44,480 26,743 Net Interest Income 51,531 52,749 Provision for Credit Losses 1,186 3,222 Net Interest Income after Provision for Credit Losses 50,345 49,527 Other Income: Service Charges on Deposit Accounts 2,439 2,281 Loss on Sales of Securities ( 1 ) ( 1 ) Gain on Sales of Loans 139 611 Other Income 6,809 5,497 Total Other Income 9,386 8,388 Other Expenses: Salaries and Employee Benefits 25,416 23,176 Occupancy and Equipment Expense 5,357 5,001 Other Expenses 11,749 10,502 Total Other Expenses 42,522 38,679 Income Before Income Taxes 17,209 19,236 Provision for Income Taxes 3,639 4,211 Net Income 13,570 15,025 Preferred Stock Dividends 1,350 1,350 Net Income Available to Common Shareholders $ 12,220 $ 13,675 Earnings Per Common Share: Basic $ 0.49 $ 0.55 Diluted $ 0.48 $ 0.54 The accompanying notes are an integral part of these financial statements. 5 Table of Contents BUSINESS FIRST BANCSHARES, INC. AND SUBSIDIARIES UNAUDITED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (Dollars in thousands) For the Three Months Ended March 31, 2024 2023 Consolidated Net Income $ 13,570 $ 15,025 Other Comprehensive Income (Loss): Unrealized Gain (Loss) on Investment Securities ( 6,417 ) 8,001 Unrealized Gain (Loss) on Share of Other Equity Investments 14 ( 134 ) Reclassification Adjustment for Losses on Sale of AFS Investment Securities Included in Net Income 1 1 Income Tax Effect 1,353 ( 1,662 ) Other Comprehensive Income (Loss) ( 5,049 ) 6,206 Consolidated Comprehensive Income $ 8,521 $ 21,231 The accompanying notes are an integral part of these financial statements. 6 Table of Contents BUSINESS FIRST BANCSHARES, INC. AND SUBSIDIARIES UNAUDITED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS ’ EQUITY FOR THE THREE MONTHS ENDED MARCH 31, 2024 AND 2023 (Dollars in thousands, except per share data) Preferred Stock Common Stock Additional Paid-In Capital Retained Earnings Accumulated Other Comprehensive Income (Loss) Total Shareholders' Equity Balances at December 31, 2022 $ 71,930 $ 25,110 $ 393,690 $ 163,955 $ ( 74,204 ) $ 580,481 Cumulative Effect of Change in Accounting Principle for Credit Losses - - - ( 827 ) - ( 827 ) Comprehensive Income: Net Income - - - 15,025 - 15,025 Other Comprehensive Income - - - - 6,206 6,206 Cash Dividends Declared on Preferred Stock, $ 18.75 Per Share - - - ( 1,350 ) - ( 1,350 ) Cash Dividends Declared on Common Stock, $ 0.12 Per Share - - - ( 3,042 ) - ( 3,042 ) Stock Based Compensation Cost - 210 987 - - 1,197 Balances at March 31, 2023 $ 71,930 $ 25,320 $ 394,677 $ 173,761 $ ( 67,998 ) $ 597,690 Balances at December 31, 2023 $ 71,930 $ 25,352 $ 397,447 $ 216,115 $ ( 66,585 ) $ 644,259 Comprehensive Income: Net Income - - - 13,570 - 13,570 Other Comprehensive Loss - - - - ( 5,049 ) ( 5,049 ) Cash Dividends Declared on Preferred Stock, $ 18.75 Per Share - - - ( 1,350 ) - ( 1,350 ) Cash Dividends Declared on Common Stock, $ 0.14 Per Share - - - ( 3,593 ) - ( 3,593 ) Stock Based Compensation Cost - 133 1,064 - - 1,197 Balances at March 31, 2024 $ 71,930 $ 25,485 $ 398,511 $ 224,742 $ ( 71,634 ) $ 649,034 The accompanying notes are an integral part of these financial statements 7 Table of Contents BUSINESS FIRST BANCSHARES, INC. AND SUBSIDIARIES UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS (Dollars in thousands) For the Three Months Ended March 31, 2024 2023 Cash Flows From Operating Activities: Consolidated Net Income $ 13,570 $ 15,025 Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities: Provision for Credit Losses 1,186 3,222 Depreciation and Amortization 1,153 1,187 Net Accretion of Purchase Accounting Adjustments ( 319 ) ( 2,540 ) Stock Based Compensation Cost 1,197 1,197 Net Amortization of Securities 634 1,160 Loss on Sales of Securities 1 1 Gain on Sale of Loans ( 24 ) ( 161 ) Income on Other Equity Securities ( 509 ) ( 420 ) Gain on Sale of Other Real Estate Owned, Net of Writedowns ( 63 ) ( 209 ) Increase in Cash Value of Life Insurance ( 578 ) ( 524 ) Deferred Income Tax Expense 1,876 1,073 Changes in Assets and Liabilities: Decrease in Accrued Interest Receivable 590 220 Decrease in Other Assets 1,994 2,386 Increase (Decrease) in Accrued Interest Payable ( 10,911 ) 1,421 Decrease in Other Liabilities ( 2,194 ) ( 100 ) Net Cash Provided by Operating Activities 7,603 22,938 Cash Flows From Investing Activities: Purchases of Securities Available for Sale ( 24,333 ) ( 30,236 ) Proceeds from Maturities / Sales of Securities Available for Sale 7,663 6,625 Proceeds from Paydowns of Securities Available for Sale 16,287 17,258 Net Cash Paid in Acquisition ( 3,279 ) - Purchases of Other Equity Securities ( 713 ) ( 11,351 ) Redemption of Other Equity Securities 238 12,365 Purchase of Life Insurance ( 3,000 ) ( 2,273 ) Net Increase in Loans ( 94,879 ) ( 192,107 ) Net Purchases of Premises and Equipment ( 389 ) ( 2,075 ) Proceeds from Sales of Other Real Estate 409 1,026 Net Increase in Federal Funds Sold ( 60,158 ) ( 88,644 ) Net Cash Used in Investing Activities ( 162,154 ) ( 289,412 ) (CONTINUED) 8 Table of Contents For the Three Months Ended March 31, 2024 2023 Cash Flows From Financing Activities: Net Increase (Decrease) in Deposits 323,960 ( 14,167 ) Net Decrease in Securities Sold Under Agreements to Repurchase ( 1,678 ) ( 3,539 ) Net Increase in Federal Funds Purchased - 565 Net Advances (Repayments) on Federal Home Loan Bank Borrowings 97,008 ( 14,966 ) Net Proceeds (Repayments) on Bank Term Funding Program ( 300,000 ) 310,000 Payment of Dividends on Preferred Stock ( 1,350 ) ( 1,350 ) Payment of Dividends on Common Stock ( 3,593 ) ( 3,042 ) Net Cash Provided by Financing Activities 114,347 273,501 Net Increase (Decrease) in Cash and Cash Equivalents ( 40,204 ) 7,027 Cash and Cash Equivalents at Beginning of Period 226,110 152,740 Cash and Cash Equivalents at End of Period $ 185,906 $ 159,767 Supplemental Disclosures for Cash Flow Information: Cash Payments for: Interest on Deposits $ 38,852 $ 18,015 Interest on Borrowings $ 16,539 $ 7,307 Income Tax Payments $ - $ - Supplemental Schedule for Noncash Investing and Financing Activities: Change in the Unrealized Gain (Loss) on Securities Available for Sale $ ( 6,416 ) $ 8,002 Change in the Unrealized Gain (Loss) on Equity Securities $ 14 $ ( 134 ) Change in Deferred Tax Effect on the Unrealized (Gain) Loss on Securities Available for Sale $ 1,353 $ ( 1,662 ) Transfer of Loans to Other Real Estate $ - $ 810 The accompanying notes are an integral part of these financial statements. 9 Table of Contents BUSINESS FIRST BANCSHARES, INC. AND SUBSIDIARIES NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS Note 1 – Basis of Presentation – The unaudited consolidated financial statements include the accounts of Business First Bancshares, Inc. (the “Company”) and its two direct, wholly-owned subsidiaries, b1BANK (the “Bank”), and Coastal Commerce Statutory Trust I; and the Bank’s wholly-owned subsidiaries, Business First Insurance, LLC, Smith Shellnut Wilson, LLC, and Waterstone LSP, LLC ("Waterstone"). The Bank operates out of full-service banking centers and loan production offices in markets across Louisiana, the Dallas/Fort Worth metroplex and Houston, Texas. As a state bank, it is subject to regulation by the Office of Financial Institutions (“OFI”), State of Louisiana, and the Federal Deposit Insurance Corporation (“FDIC”) and undergoes periodic examinations by these agencies. The Company is also regulated by the Federal Reserve and is subject to periodic examinations. In the opinion of management, the accompanying unaudited consolidated financial statements contain all adjustments necessary to present fairly the financial results for the periods presented, and all such adjustments are of a normal recurring nature. All material intercompany transactions are eliminated. The results of operations for the interim periods are not necessarily indicative of the results to be expected for the entire year. These interim consolidated financial statements have been prepared according to the rules and regulations of the Securities and Exchange Commission and, therefore, certain information and footnote disclosures normally presented in accordance with United States (“U.S.”) generally accepted accounting principles (“GAAP”) have been omitted or abbreviated. These interim financial statements should be read in conjunction with the audited consolidated financial statements and footnote disclosures for the Company’s previously filed Form 10-K for the year ended December 31, 2023. Preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying disclosures. These estimates are based on management’s best knowledge of current events and actions the Company may undertake in the future. Critical accounting estimates that are particularly susceptible to significant change for the Company include the determination of the acquired loans and allowance for credit losses and purchase accounting adjustments (other than loans). Other estimates include goodwill, fair value of financial instruments, investment securities and the assessment of income taxes. Management does not anticipate any material changes to estimates in the near term. Factors that may cause sensitivity to the aforementioned estimates include but are not limited to: external market factors such as market interest rates and employment rates, changes to operating policies and procedures, economic conditions in the Company’s markets, and changes in applicable banking regulations. Actual results may ultimately differ from estimates. Accounting Standards Adopted in Current Period None Accounting Standards Not Yet Adopted ASU No. 2023-09, "Income Taxes (Topic 740): Improvements to Income Tax Disclosures." ASU 2023-09 requires public business entities to disclose additional information in specified categories with respect to the rate reconciliation for federal, state and foreign income taxes. In addition, the updates also require more details about reconciling items in the rate reconciliation in some categories if items meet a quantitative threshold. ASU 2023-09 also requires all entities to disclose income taxes paid, net of refunds, disaggregated by federal, state and foreign taxes for annual periods and to disaggregate the information by jurisdiction based on a quantitative threshold. ASU 2023-09 is effective for the Company starting January 1, 2025, though early adoption is permitted. ASU 2023-09 is not expected to have a significant impact on our financial statements. Note 2 – Reclassifications – Certain reclassifications may have been made to conform to reporting in 2024. These reclassifications have no material effect on previously reported shareholders’ equity or net income. 10 Table of Contents BUSINESS FIRST BANCSHARES, INC. AND SUBSIDIARIES NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS Note 3 – Mergers and Acquisitions – Waterstone, LSP, LLP On January 31, 2024, the Company consummated the acquisition, through b1BANK, of Waterstone LSP, LLC (“Waterstone”), headquartered in Katy, Texas. Upon consummation of the acquisition, the Company paid $ 3.3 million in cash to the former owners of Waterstone. As part of the acquisition, the Company recorded $ 3.1 million in goodwill. The Company has recorded approximately $ 715,000 and $ 236,000 of acquisition-related costs within merger and conversion-related expenses and salaries and benefits for the three months ended March 31, 2024, and year ended December 31, 2023, respectively. Note 4 – Earnings per Common Share – Basic earnings per share (“EPS”) represents income available to common shareholders divided by the weighted average number of common shares outstanding; no dilution for any potentially convertible shares is included in the calculation. Diluted EPS reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock or resulted in the issuance of common stock that then shared in the earnings of the Company. The potential common shares that may be issued by the Company relate to outstanding stock options and unvested restricted stock awards (“RSAs”), excluding any that were antidilutive. In addition, nonvested share-based payment awards that contain nonforfeitable rights to dividends or dividend equivalents are considered participating securities and are included in the computation of EPS pursuant to the two-class method. For the Three Months Ended March 31, 2024 2023 (Dollars in thousands, except per share data) Numerator: Net Income $ 13,570 $ 15,025 Less: Preferred Stock Dividends 1,350 1,350 Net Income Available to Common Shares $ 12,220 $ 13,675 Denominator: Weighted Average Common Shares Outstanding 25,127,187 24,979,955 Dilutive Effect of Stock Options and RSAs 302,007 242,353 Weighted Average Dilutive Common Shares 25,429,194 25,222,308 Basic Earnings Per Common Share From Net Income Available to Common Shares $ 0.49 $ 0.55 Diluted Earnings Per Common Share From Net Income Available to Common Shares $ 0.48 $ 0.54 11 Table of Contents BUSINESS FIRST BANCSHARES, INC. AND SUBSIDIARIES NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS Note 5 – Securities – The amortized cost and fair values of securities available for sale as of March 31, 2024, and December 31, 2023 are summarized as follows: March 31, 2024 (Dollars in thousands) Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Fair Value U.S. Treasury Securities $ 17,676 $ - $ 1,460 $ 16,216 U.S. Government Agencies 10,235 - 858 9,377 Corporate Securities 49,453 12 5,292 44,173 Mortgage-Backed Securities 563,406 446 52,235 511,617 Municipal Securities 322,956 62 31,498 291,520 Total Securities Available for Sale $ 963,726 $ 520 $ 91,343 $ 872,903 December 31, 2023 (Dollars in thousands) Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Fair Value U.S. Treasury Securities $ 17,690 $ - $ 1,451 $ 16,239 U.S. Government Agencies 10,258 - 848 9,410 Corporate Securities 49,609 - 5,770 43,839 Mortgage-Backed Securities 555,148 976 49,814 506,310 Municipal Securities 331,273 298 27,798 303,773 Total Securities Available for Sale $ 963,978 $ 1,274 $ 85,681 $ 879,571 The following tables present a summary of securities with gross unrealized losses and fair values at March 31, 2024 and December 31, 2023, aggregated by investment category and length of time in a continued unrealized loss position. Due to the nature of these investments and current prevailing market prices, these unrealized losses are considered non-credit related. March 31, 2024 Less Than 12 Months 12 Months or Greater Total (Dollars in thousands) Fair Value Gross Unrealized Losses Fair Value Gross Unrealized Losses Fair Value Gross Unrealized Losses U.S. Treasury Securities $ - $ - $ 16,216 $ 1,460 $ 16,216 $ 1,460 U.S. Government Agencies - - 9,377 858 9,377 858 Corporate Securities 7,675 218 35,458 5,074 43,133 5,292 Mortgage-Backed Securities 112,492 1,025 375,877 51,210 488,369 52,235 Municipal Securities 19,761 193 261,986 31,305 281,747 31,498 Total Securities Available for Sale $ 139,928 $ 1,436 $ 698,914 $ 89,907 $ 838,842 $ 91,343 12 Table of Contents BUSINESS FIRST BANCSHARES, INC. AND SUBSIDIARIES NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS December 31, 2023 Less Than 12 Months 12 Months or Greater Total (Dollars in thousands) Fair Value Gross Unrealized Losses Fair Value Gross Unrealized Losses Fair Value Gross Unrealized Losses U.S. Treasury Securities $ - $ - $ 16,239 $ 1,451 $ 16,239 $ 1,451 U.S. Government Agencies - - 9,410 848 9,410 848 Corporate Securities 7,529 362 36,106 5,408 43,635 5,770 Mortgage-Backed Securities 21,436 895 375,891 48,919 397,327 49,814 Municipal Securities 8,013 63 270,467 27,735 278,480 27,798 Total Securities Available for Sale $ 36,978 $ 1,320 $ 708,113 $ 84,361 $ 745,091 $ 85,681 As of March 31, 2024, and December 31, 2023, respectively, no allowance for credit losses was recognized on available for sale securities in an unrealized loss position as management does not believe any of the securities are impaired due to credit quality. This determination is based on the Company’s analysis of the underlying risk characteristics including credit ratings, historical loss experience, and other qualitative factors. Further, the securities continue to make principal and interest payments under their contractual terms and management does not have the intent to sell any of the securities and believes that it is more likely than not that the Company will not have to sell any such securities before a recovery of amortized cost basis. Therefore, the Company has determined the unrealized losses are due to changes in market interest rates compared to rates when the securities were acquired. The amortized cost and fair values of securities available for sale as of March 31, 2024, by contractual maturity are shown below. Actual maturities may differ from contractual maturities in mortgage-backed securities because the mortgages underlying the securities may be called or repaid without any penalties. Amortized Cost Fair Value (Dollars in thousands) Less Than One Year $ 24,719 $ 24,324 One to Five Years 181,104 168,917 Over Five to Ten Years 377,532 341,398 Over Ten Years 380,371 338,264 Total Securities Available for Sale $ 963,726 $ 872,903 Securities available for sale with a fair value of $ 612.2 million and $ 629.7 million, were pledged as collateral on public deposits and for other purposes as required or permitted by law as of March 31, 2024, and December 31, 2023, respectively. At March 31, 2024 and December 31, 2023, accrued interest receivable on securities was $ 3.7 million and $ 4.7 million, respectively, and included within accrued interest receivable on the consolidated balance sheets. 13 Table of Contents BUSINESS FIRST BANCSHARES, INC. AND SUBSIDIARIES NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS Note 6 – Loans and the Allowance for Loan Losses – Loans receivable at March 31, 2024 and December 31, 2023 are summarized as follows: March 31, 2024 December 31, 2023 (Dollars in thousands) Real Estate Loans: Commercial $ 2,215,889 $ 2,217,928 Construction 662,013 669,798 Residential 717,007 682,394 Total Real Estate Loans 3,594,909 3,570,120 Commercial 1,426,957 1,358,838 Consumer and Other 66,973 63,827 Total Loans Held for Investment 5,088,839 4,992,785 Less: Allowance for Loan Losses ( 41,165 ) ( 40,414 ) Net Loans $ 5,047,674 $ 4,952,371 The performing 1-4 family residential, multi-family residential, commercial real estate, and commercial loans, are pledged, under a blanket lien, as collateral securing advances from the FHLB at March 31, 2024 and December 31, 2023. Commercial and agricultural loans are pledged against the Federal Reserve Banks’ (“FRB”) discount window as of March 31, 2024, and December 31, 2023. Net deferred loan origination fees were $ 12.8 million and $ 12.6 million at March 31, 2024 and December 31, 2023, respectively, and are netted in their respective loan categories above. In addition to loans issued in the normal course of business, the Company considers overdrafts on customer deposit accounts to be loans and reclassifies overdrafts as loans in its consolidated balance sheets. At March 31, 2024 and December 31, 2023, overdrafts of $ 4.5 million and $ 2.2 million, respectively, have been reclassified to loans. The Bank is the lead lender on participations sold, without recourse, to other financial institutions which amounts are not included in the consolidated balance sheets. The unpaid principal balances of mortgages and other loans serviced for others were approximately $ 693.0 million and $ 723.5 million at March 31, 2024 and December 31, 2023, respectively. The Company had servicing rights of $ 928,000 and $ 1.1 million recorded as of March 31, 2024, and December 31, 2023, respectively, and is recorded within other assets. The Bank grants loans and extensions of credit to individuals and a variety of businesses and corporations located in its general market areas throughout Louisiana and Texas. Management segregates the loan portfolio into portfolio segments which is defined as the level at which the Bank develops and documents a systematic method for determining its allowance for credit losses. The portfolio segments are segregated based on loan types and the underlying risk factors present in each loan type. Such risk factors are periodically reviewed by management and revised as deemed appropriate. Portfolio Segments and Risk Factors The loan portfolio is disaggregated into portfolio segments and then further disaggregated into classes for certain disclosures. GAAP defines a portfolio segment as the level at which an entity develops and documents a systematic method for determining its allowance for credit losses. A class is generally a disaggregation of a portfolio segment. The Company's loan portfolio segments are Real Estate, Commercial, and Consumer and Other. The classes and risk characteristics of each segment are discussed in more detail below. The segmentation and disaggregation of the portfolio is part of the ongoing credit monitoring process. 14 Table of Contents BUSINESS FIRST BANCSHARES, INC. AND SUBSIDIARIES NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS Real Estate Portfolio Segment Real Estate: Commercial loans are extensions of credit secured by owner-occupied and non-owner-occupied collateral. Repayment is generally dependent on the successful operations of the property. General economic conditions may impact the performance of these types of loans, including fluctuations in the value of real estate, vacancy rates, and unemployment trends. Real estate commercial loans also include farmland loans that can be, or are, used for agricultural purposes. These loans are usually repaid through refinancing, cash flow from the borrower’s ongoing operations, development of the property, or sale of the property. Real Estate: Construction loans include loans to small-to-midsized businesses to construct owner-occupied properties, loans to developers of commercial real estate investment properties and residential developments and, to a lesser extent, loans to individual clients for construction of single-family homes in the Company’s market areas. Risks associated with these loans include fluctuations in the value of real estate, project completion risk and changes in market trends. The Company is also exposed to risk based on the ability of the construction loan borrower to finance the loan or sell the property upon completion of the project, which may be affected by changes in secondary market terms and criteria for permanent financing since the time that the Company funded the loan. Real Estate: Residential loans include first and second lien 1-4 family mortgage loans, as well as home equity lines of credit, in each case primarily on owner-occupied primary residences. The Company is exposed to risk based on fluctuations in the value of the real estate collateral securing the loan, as well as changes in the borrower’s financial condition, which could be affected by numerous factors, including divorce, job loss, illness, or other personal hardship. Real estate residential loans also include multi-family residential loans originated to provide permanent financing for multi-family residential income producing properties. Repayment of these loans primarily relies on successful rental and management of the property. Commercial Portfolio Segment Commercial loans include general commercial and industrial, or C&I, loans, including commercial lines of credit, working capital loans, term loans, equipment financing, asset acquisition, expansion, and development loans, borrowing base loans, letters of credit and other loan products, primarily in the Company’s target markets that are underwritten based on the borrower’s ability to service the debt from income. Commercial loan risk is derived from the expectation that such loans generally are serviced principally from the operations of the business, and those operations may not be successful. Any interruption or discontinuance of operating cash flows from the business, which may be influenced by events not under the control of the borrower such as economic events and changes in governmental regulations, could materially affect the ability of the borrower to repay the loan. Consumer and Other Portfolio Segment Consumer and other loans include a variety of loans to individuals for personal, family and household purposes, including secured and unsecured installment and term loans. The risk is based on changes in the borrower’s financial condition, which could be affected by numerous factors, including divorce, job loss, illness or other personal hardship, and fluctuations in the value of the real estate or personal property securing the consumer loan, if any. The following table sets forth, as of March 31, 2024, and December 31, 2023, the balance of the allowance for credit losses by loan portfolio segment. The allowance for credit losses allocated to each portfolio segment is not necessarily indicative of future losses in any particular portfolio segment and does not restrict the use of the allowance to absorb losses in other portfolio segments. 15 Table of Contents BUSINESS FIRST BANCSHARES, INC. AND SUBSIDIARIES NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS Allowance for Credit Losses and Recorded Investment in Loans Receivable March 31, 2024 (Dollars in thousands) Real Estate: Commercial Real Estate: Construction Real Estate: Residential Commercial Consumer and Other Total Allowance for Loan Losses: Beginning Balance $ 17,676 $ 6,596 $ 5,485 $ 10,424 $ 233 $ 40,414 Charge-offs 16 ( 49 ) ( 71 ) 1 ( 430 ) ( 533 ) Recoveries 5 - 3 40 93 141 Provision (Recovery) 83 ( 58 ) 616 ( 98 ) 600 1,143 Ending Balance $ 17,780 $ 6,489 $ 6,033 $ 10,367 $ 496 $ 41,165 Reserve for Unfunded Loan Commitments: Beginning Balance $ 206 $ 1,546 $ 177 $ 1,372 $ 23 $ 3,324 Provision (Recovery) 57 ( 213 ) ( 24 ) 209 14 43 Ending Balance $ 263 $ 1,333 $ 153 $ 1,581 $ 37 $ 3,367 Total Allowance for Credit Losses $ 18,043 $ 7,822 $ 6,186 $ 11,948 $ 533 $ 44,532 16 Table of Contents BUSINESS FIRST BANCSHARES, INC. AND SUBSIDIARIES NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS December 31, 2023 (Dollars in thousands) Real Estate: Commercial Real Estate: Construction Real Estate: Residential Commercial Consumer and Other Total Allowance for Loan Losses: Beginning Balance $ 14,702 $ 5,768 $ 5,354 $ 11,721 $ 633 $ 38,178 Adoption of ASU 2016-13 4,823 933 ( 365 ) ( 2,483 ) ( 248 ) 2,660 Beginning Balance After Adoption 19,525 6,701 4,989 9,238 385 40,838 Charge-offs ( 2,049 ) ( 36 ) ( 42 ) ( 2,813 ) ( 1,489 ) ( 6,429 ) Recoveries 26 1 18 672 327 1,044 Provision (Recovery) 174 ( 70 ) 520 3,327 1,010 4,961 Ending Balance $ 17,676 $ 6,596 $ 5,485 $ 10,424 $ 233 $ 40,414 Reserve for Unfunded Loan Commitments: Beginning Balance $ 220 $ 137 $ 13 $ 229 $ 6 $ 605 Adoption of ASU 2016-13 116 2,113 190 657 121 3,197 Beginning Balance After Adoption 336 2,250 203 886 127 3,802 Provision (Recovery) ( 130 ) ( 704 ) ( 26 ) 486 ( 104 ) ( 478 ) Ending Balance $ 206 $ 1,546 $ 177 $ 1,372 $ 23 $ 3,324 Total Allowance for Credit Losses $ 17,882 $ 8,142 $ 5,662 $ 11,796 $ 256 $ 43,738 Included within the above allowance, in the tables above, are loans which management has individually evaluated to determine an allowance for credit losses. The following table summarizes, by segment, the loan balance and specific allowance allocation for those loans which have been individually evaluated. March 31, 2024 December 31, 2023 Loan Balance Specific Allocations Loan Balance Specific Allocations (Dollars in thousands) Real Estate Loans: Commercial $ 1,719 $ 38 $ 883 $ - Construction 5,345 569 2,334 513 Residential 1,500 - 1,533 - Total Real Estate Loans 8,564 607 4,750 513 Commercial - - - - Consumer and Other - - - - Total $ 8,564 $ 607 $ 4,750 $ 513 17 Table of Contents BUSINESS FIRST BANCSHARES, INC. AND SUBSIDIARIES NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS Credit Quality Indicators We utilize a risk grading matrix to assign a risk grade to each of our commercial loans. Loans are graded on a scale of 10 to 80. Individual loan officers review updated financial information for all pass grade loans to reassess the risk grade, generally on at least an annual basis. When a loan has a risk grade of 60, it is still considered a pass grade loan; however, it is considered to be on management’s “watch list,” and subject to additional and more frequent monitoring by both the loan officer and senior credit and risk personnel. When a loan has a risk grade of 70 or higher, a special assets officer monitors the loan on an on-going basis. The following tables set forth the credit quality indicators, disaggregated by loan segment, as of March 31, 2024, and December 31, 2023: 18 Table of Contents BUSINESS FIRST BANCSHARES, INC. AND SUBSIDIARIES NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS March 31, 2024 Criticized Pass (Risk Grade 10-45) Special Mention (Risk Grade 50) Substandard (Risk Grade 60) Doubtful (Risk Grade 70) Loss (Risk Grade 80) Total Current Period Charge- offs (Dollars in thousands) Real Estate: Commercial Originated in 2024 $ 59,026 $ - $ - $ - $ - $ 59,026 $ - Originated in 2023 231,816 - 82 - - 231,898 - Originated in 2022 741,590 17,577 - - - 759,167 - Originated in 2021 406,928 14,704 490 - - 422,122 - Originated in 2020 131,068 3,514 189 - - 134,771 3 Originated Prior to 2020 513,710 10,803 2,591 1,235 - 528,339 ( 19 ) Revolving 79,679 644 243 - - 80,566 - Revolving Loans Converted to Term - - - - - - - Total Real Estate: Commercial $ 2,163,817 $ 47,242 $ 3,595 $ 1,235 $ - $ 2,215,889 $ ( 16 ) Real Estate: Construction Originated in 2024 $ 34,427 $ - $ - $ - $ - $ 34,427 $ - Originated in 2023 138,845 241 419 - - 139,505 7 Originated in 2022 272,528 - 706 - - 273,234 9 Originated in 2021 77,592 - 3,594 - - 81,186 33 Originated in 2020 37,257 - 16 - - 37,273 - Originated Prior to 2020 32,672 444 2,284 345 - 35,745 - Revolving 60,247 396 - - - 60,643 - Revolving Loans Converted to Term - - - - - - - Total Real Estate: Construction $ 653,568 $ 1,081 $ 7,019 $ 345 $ - $ 662,013 $ 49 Real Estate: Residential Originated in 2024 $ 19,660 $ - $ 197 $ - $ - $ 19,857 $ - Originated in 2023 72,599 - 25 - - 72,624 - Originated in 2022 196,817 338 403 13 - 197,571 - Originated in 2021 96,888 - 729 - - 97,617 - Originated in 2020 67,233 386 501 52 - 68,172 2 Originated Prior to 2020 143,811 2,223 7,490 328 - 153,852 62 Revolving 106,580 - 444 - - 107,024 7 Revolving Loans Converted to Term 290 - - - - 290 - Total Real Estate: Residential $ 703,878 $ 2,947 $ 9,789 $ 393 $ - $ 717,007 $ 71 Commercial Originated in 2024 $ 92,339 $ 203 $ 37 $ - $ - $ 92,579 $ - Originated in 2023 284,207 1,675 49 - - 285,931 3 Originated in 2022 258,119 1,043 1,476 - - 260,638 - Originated in 2021 124,903 2,297 4,261 16 - 131,477 16 Originated in 2020 46,538 224 901 - - 47,663 39 Originated Prior to 2020 74,052 3,739 1,718 451 - 79,960 ( 59 ) Revolving 524,442 2,724 1,515 28 - 528,709 - Revolving Loans Converted to Term - - - - - - - Total Commercial $ 1,404,600 $ 11,905 $ 9,957 $ 495 $ - $ 1,426,957 $ ( 1 ) Consumer and Other Originated in 2024 $ 2,916 $ - $ - $ - $ - $ 2,916 $ - Originated in 2023 8,931 - 56 - - 8,987 1 Originated in 2022 6,465 - 17 - - 6,482 13 Originated in 2021 2,852 - 52 - - 2,904 4 Originated in 2020 1,533 - 79 - - 1,612 29 Originated Prior to 2020 24,854 - 123 - - 24,977 - Revolving 18,835 - 260 - - 19,095 383 Revolving Loans Converted to Term - - - - - - - Total Consumer and Other $ 66,386 $ - $ 587 $ - $ - $ 66,973 $ 430 Total Loans $ 4,992,249 $ 63,175 $ 30,947 $ 2,468 $ - $ 5,088,839 $ 533 19 Table of Contents BUSINESS FIRST BANCSHARES, INC. AND SUBSIDIARIES NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS December 31, 2023 Criticized Pass (Risk Grade 10-45) Special Mention (Risk Grade 50) Substandard (Risk Grade 60) Doubtful (Risk Grade 70) Loss (Risk Grade 80) Total Current Period Charge- offs (Dollars in thousands) Real Estate: Commercial Originated in 2023 $ 228,902 $ - $ 84 $ - $ - $ 228,986 $ - Originated in 2022 751,649 1,909 - - - 753,558 - Originated in 2021 427,269 6,103 492 - - 433,864 357 Originated in 2020 151,848 3,551 8 - - 155,407 - Originated in 2019 149,946 5,556 372 932 - 156,806 1,447 Originated Prior to 2019 379,503 1,313 7,970 335 - 389,121 245 Revolving 99,723 226 237 - - 100,186 - Revolving Loans Converted to Term - - - - - - - Total Real Estate: Commercial $ 2,188,840 $ 18,658 $ 9,163 $ 1,267 $ - $ 2,217,928 $ 2,049 Real Estate: Construction Originated in 2023 $ 131,617 $ - $ - $ - $ - $ 131,617 $ - Originated in 2023 322,032 647 62 - - 322,741 - Originated in 2021 85,438 2,601 1,229 - - 89,268 - Originated in 2020 22,515 31 16 - - 22,562 - Originated in 2019 19,402 - 1,675 - - 21,077 1 Originated Prior to 2019 20,180 413 588 345 - 21,526 35 Revolving 60,612 395 - - - 61,007 - Revolving Loans Converted to Term - - - - - - - Total Real Estate: Construction $ 661,796 $ 4,087 $ 3,570 $ 345 $ - $ 669,798 $ 36 Real Estate: Residential Originated in 2023 $ 76,662 $ - $ - $ - $ - $ 76,662 $ - Originated in 2022 170,229 433 410 14 - 171,086 - Originated in 2021 98,329 - 708 - - 99,037 11 Originated in 2020 68,281 386 520 57 - 69,244 1 Originated in 2019 54,902 1,112 1,061 119 - 57,194 22 Originated Prior to 2019 97,716 1,230 6,000 299 - 105,245 7 Revolving 103,252 - 654 - - 103,906 1 Revolving Loans Converted to Term 20 - - - - 20 - Total Real Estate: Residential $ 669,391 $ 3,161 $ 9,353 $ 489 $ - $ 682,394 $ 42 Commercial Originated in 2023 $ 303,160 $ 1,439 $ 709 $ - $ - $ 305,308 $ - Originated in 2022 267,678 698 1,196 - - 269,572 247 Originated in 2021 136,291 5,483 928 16 - 142,718 25 Originated in 2020 48,990 448 921 42 - 50,401 49 Originated in 2019 21,137 584 640 231 - 22,592 1,632 Originated Prior to 2019 61,166 3,843 341 251 - 65,601 658 Revolving 499,642 2,128 573 28 - 502,371 202 Revolving Loans Converted to Term 275 - - - - 275 - Total Commercial $ 1,338,339 $ 14,623 $ 5,308 $ 568 $ - $ 1,358,838 $ 2,813 Consumer and Other Originated in 2023 $ 11,245 $ - $ - $ - $ - $ 11,245 $ 8 Originated in 2022 7,219 - 27 - - 7,246 78 Originated in 2021 3,372 - 55 - - 3,427 29 Originated in 2020 1,850 - 88 - - 1,938 11 Originated in 2019 2,359 - 40 - - 2,399 18 Originated Prior to 2019 18,280 - 92 - - 18,372 61 Revolving 18,814 100 160 - - 19,074 1,284 Revolving Loans Converted to Term 126 - - - - 126 - Total Consumer and Other $ 63,265 $ 100 $ 462 $ - $ - $ 63,827 $ 1,489 Total Loans $ 4,921,631 $ 40,629 $ 27,856 $ 2,669 $ - $ 4,992,785 $ 6,429 20 Table of Contents BUSINESS FIRST BANCSHARES, INC. AND SUBSIDIARIES NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS The above classifications follow regulatory guidelines and can generally be described as follows: • Pass loans are of satisfactory quality. • Special mention loans have an existing weakness that could cause future impairment, including the deterioration of financial ratios, past due status, questionable management capabilities and possible reduction in the collateral values. • Substandard loans have an existing specific and well-defined weakness that may include poor liquidity and deterioration of financial ratios. The loan may be past due and related deposit accounts experiencing overdrafts. Immediate corrective action is necessary. • Doubtful loans have specific weaknesses that are severe enough to make collection or liquidation in full highly questionable and improbable. As of March 31, 2024, and December 31, 2023, loan balances outstanding more than 90 days past due and still accruing interest amounted to $ 855,000 and $ 127,000 , respectively. As of March 31, 2024, and December 31, 2023, loan balances outstanding on nonaccrual status amounted to $ 20.8 million and $ 16.9 million, respectively. The Bank considers all loans more than 90 days past due as nonperforming loans. The following tables provide an analysis of the aging of loans and leases as of March 31, 2024, and December 31, 2023. All loans greater than 90 days past due are generally placed on nonaccrual status. Aged Analysis of Past Due Loans Receivable March 31, 2024 (Dollars in thousands) 30-59 Days Past Due 60-89 Days Past Due Greater Than 90 Days Past Due Total Past Due Current Total Loans Receivable Recorded Investment Over 90 Days Past Due and Still Accruing Real Estate Loans: Commercial $ 1,071 $ 10,932 $ 2,901 $ 14,904 $ 2,200,985 $ 2,215,889 $ 662 Construction 12 594 5,811 6,417 655,596 662,013 - Residential 1,724 946 4,556 7,226 709,781 717,007 123 Total Real Estate Loans 2,807 12,472 13,268 28,547 3,566,362 3,594,909 785 Commercial 2,239 909 3,277 6,425 1,420,532 1,426,957 70 Consumer and Other 247 34 470 751 66,222 66,973 - Total $ 5,293 $ 13,415 $ 17,015 $ 35,723 $ 5,053,116 $ 5,088,839 $ 855 21 Table of Contents BUSINESS FIRST BANCSHARES, INC. AND SUBSIDIARIES NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS December 31, 2023 (Dollars in thousands) 30-59 Days Past Due 60-89 Days Past Due Greater Than 90 Days Past Due Total Past Due Current Total Loans Receivable Recorded Investment Over 90 Days Past Due and Still Accruing Real Estate Loans: Commercial $ 240 $ 536 $ 2,954 $ 3,730 $ 2,214,198 $ 2,217,928 $ 44 Construction 279 1,320 3,198 4,797 665,001 669,798 - Residential 1,792 1,207 4,058 7,057 675,337 682,394 20 Total Real Estate Loans 2,311 3,063 10,210 15,584 3,554,536 3,570,120 64 Commercial 1,101 71 1,622 2,794 1,356,044 1,358,838 52 Consumer and Other 280 252 188 720 63,107 63,827 11 Total $ 3,692 $ 3,386 $ 12,020 $ 19,098 $ 4,973,687 $ 4,992,785 $ 127 The following table presents non-accrual loans by segment as of March 31, 2024, and December 31, 2023, respectively. March 31, 2024 December 31, 2023 (Dollars in thousands) Real Estate Loans: Commercial $ 2,523 $ 3,280 Construction 6,790 3,543 Residential 7,653 7,352 Total Real Estate Loans 16,966 14,175 Commercial 3,297 2,395 Consumer and Other 515 373 Total $ 20,778 $ 16,943 The Bank seeks to assist customers that are experiencing financial difficulty by renegotiating loans within lending regulations and guidelines. The Bank makes loan modifications, primarily utilizing internal renegotiation programs via direct customer contact, that manage customers’ debt exposures held only by the Bank. Additionally, the Bank makes loan modifications with customers who have elected to work with external renegotiation agencies and these modifications provide solutions to customers’ entire unsecured debt structures. During the periods ended March 31, 2024, and December 31, 2023, the concessions granted to certain borrowers included extending the payment due dates and offering below market contractual interest rates, and were not significant to the consolidated financial statement Accrued interest receivable of $ 3.9 million and $ 4.2 million was outstanding as of March 31, 2024, and December 31, 2023, respectively, for all loan deferrals, primarily attributable to the COVID-19 pandemic and, to a much lesser extent, hurricanes which occurred in 2020 and 2021. These loans are no longer within their deferral periods. The accrued interest on the loans is due at their maturity. At March 31, 2024 and December 31, 2023, accrued interest receivable on loans was $ 25.6 million and $ 25.2 million, respectively, and included within accrued interest receivable on the consolidated balance sheets. 22 Table of Contents BUSINESS FIRST BANCSHARES, INC. AND SUBSIDIARIES NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS Note 7 – Long Term Debt – On March 1, 2022, the Company assumed, in connection with the TCBI acquisition, three tranches of subordinated debt with an aggregate principal balance outstanding of $ 26.4 million. One tranche in the amount of $ 10.0 million bears an adjustable interest rate, based on a benchmark rate plus 350 basis points, until maturity on April 11, 2028. This tranche is currently redeemable at the Company’s option. Another tranche in the amount of $ 7.5 million bears an adjustable interest rate, based on a benchmark rate plus 350 basis points, until maturity on December 13, 2028. This tranche is currently redeemable at the Company's option. The third tranche in the amount of $ 8.9 million had an adjustable interest rate plus 595 basis points, based on a benchmark rate, until maturity on March 24, 2027. The $ 8.9 million tranche was called on May 1, 2023, by the Company and has been fully extinguished. The Company recognized a $ 1.5 million gain on the extinguishment of this debt during 2023. These notes carried an aggregate $ 1.0 million and $ 1.1 million fair value adjustment as of March 31, 2024, and December 31, 2023, respectively. Note 8 – Bank Term Funding Program ( “ BTFP ” ) – On March 12, 2023, the Federal Reserve Board developed the BTFP, which offered loans to banks with a term of up to one year . The loans were secured by pledging the banks’ U.S. treasuries, agency securities, agency mortgage-backed securities, and any other qualifying assets. These pledged securities were valued at par for collateral purposes. The Bank participated in the BTFP and had outstanding debt of $ 300.0 million at December 31, 2023. These loans bore a fixed rate of 4.38 % and matured on March 22, 2024, at which time the Bank repaid them in full.. Note 9 – Federal Home Loan Bank ( “ FHLB ” ) Borrowings – The Company had outstanding advances from the FHLB of $ 308.2 million and $ 211.2 million as of March 31, 2024, and December 31, 2023, respectively, consisting of: One fixed rate loan with an original principal balance of $ 60.0 million. The loan was made in 2021 and the balance at March 31, 2024 and December 31, 2023 was $ 32.3 million and $ 35.3 million, respectively, with interest at 0.89 %. Principal and interest payments are due monthly and the loan matures in November 2026. One fixed rate loan of $ 875,000 at both March 31, 2024, and December 31, 2023, that was acquired during the TCBI acquisition, with interest at 4.88 % paid monthly. Principal is due at maturity in April 2025. One fixed rate loan of $ 25.0 million at both March 31, 2024, and December 31, 2023, with interest at 4.89 % paid monthly. Principal is due at maturity in July 2025. One fixed rate loan of $ 25.0 million at both March 31, 2024, and December 31, 2023, with interest at 4.65 % paid monthly. Principal is due at maturity in January 2026. One fixed rate loan of $ 25.0 million at both March 31, 2024, and December 31, 2023, with interest at 4.56 % paid monthly. Principal is due at maturity in July 2026. One fixed rate loan of $ 25.0 million at both March 31, 2024, and December 31, 2023, with interest at 4.13 % paid monthly. Principal is due at maturity in October 2028. This advance has put options beginning in October 2024. One fixed rate loan of $ 25.0 million at both March 31, 2024, and December 31, 2023, with interest at 3.92 % paid monthly. Principal is due at maturity in October 2030. This advance has put options beginning in October 2024. One fixed rate loan of $ 25.0 million at both March 31, 2024, and December 31, 2023, with interest at 3.72 %paid monthly. Principal is due at maturity in October 2033. This advance has put options beginning in October 2024. One fixed rate loan of $ 25.0 million at both March 31, 2024, and December 31, 2023, with interest at 3.57 % paid monthly. Principal is due at maturity in October 2033. This advance has put options beginning in October 2024. One fixed rate loan of $ 25.0 million at March 31, 2024, with interest at 4.84 % paid monthly. Principal is due at maturity in December 2026. 23 Table of Contents BUSINESS FIRST BANCSHARES, INC. AND SUBSIDIARIES NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS One fixed rate loan of $ 25.0 million at March 31, 2024, with interest at 4.78 % paid monthly. Principal is due at maturity in September 2027. One fixed rate loan of $ 25.0 million at March 31, 2024, with interest at 4.73 % paid monthly. Principal is due at maturity in March 2028. One fixed rate loan of $ 25.0 million at March 31, 2024, with interest at 4.69 % paid monthly. Principal is due at maturity in September 2028. The Company had an additional $ 1.2 billion remaining on the FHLB line availability at March 31, 2024. Note 10 – Leases – The Bank leases certain branch offices through non-cancelable operating leases with terms that range from one to ten years and contain various renewal options for certain of the leases. Certain leases provide for increases in minimum monthly rental payments as defined by the lease agreement. Rental expense under these agreements was $ 1.5 million and $ 1.4 million for the three months ended March 31, 2024, and 2023, respectively. At March 31, 2024, the Company had a weighted average lease term of 6.3 years and a weighted average discount rate of 3.28 %. Future minimum lease payments under these leases are as follows: (Dollars in thousands) April 1, 2024 through December 31, 2024 $ 3,432 January 1, 2025 through December 31, 2025 3,777 January 1, 2026 through December 31, 2026 3,558 January 1, 2027 through December 31, 2027 3,449 January 1, 2028 through December 31, 2028 3,153 January 1, 2029 and Thereafter 5,624 Total Future Minimum Lease Payments 22,993 Less Imputed Interest ( 2,350 ) Present Value of Lease Liabilities $ 20,643 Note 11 – Commitments and Contingencies – In the normal course of business, the Bank is a party to financial instruments with off-balance sheet risk to meet the financing needs of its customers. These financial instruments include commitments to extend credit and standby and commercial letters of credit which are not included in the accompanying financial statements. These instruments involve, to varying degrees, elements of credit risk in excess of the amount recognized in the balance sheet. The Bank’s exposure to credit loss in the event of nonperformance by the other party to the financial instrument for commitments to extend credit and standby and commercial letters of credit is represented by the contractual amount of those instruments. The Bank’s policy for obtaining collateral, and the nature of such collateral, is essentially the same as that involved in making commitments to extend credit. The Bank uses the same credit policies in making such commitments and conditional obligations as it does for instruments that are included in the balance sheet. In the normal course of business, the Bank has made commitments to extend credit of approximately $ 1.2 billion at both March 31, 2024, and December 31, 2023, and standby and commercial letters of credit of approximately $ 48.9 million and $ 45.2 million at March 31, 2024 and December 31, 2023, respectively. As discussed in Note 6, we have a reserve for unfunded loan commitments of $ 3.4 million and $ 3.3 million at March 31, 2024 and December 31, 2023, respectively. In the normal course of business, the Bank is involved in various legal proceedings. In the opinion of management and counsel, the disposition or ultimate resolution of such proceedings would not have a material adverse effect on the Bank’s financial statements. 24 Table of Contents BUSINESS FIRST BANCSHARES, INC. AND SUBSIDIARIES NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS Note 12– Fair Value of Financial Instruments – Fair Value Disclosures The Company groups its financial assets and liabilities measured at fair value in three levels. Fair value should be based on the assumptions market participants would use when pricing the asset or liability and establishes a fair value hierarchy that prioritizes the inputs used to develop those assumptions and measure fair value. The hierarchy requires companies to maximize the use of observable inputs and minimize the use of unobservable inputs. The three levels of inputs used to measure fair value are as follows: • Level 1 – Includes the most reliable sources and includes quoted prices in active markets for identical assets or liabilities. • Level 2 – Includes observable inputs. Observable inputs include inputs other than quoted prices that are observable for the asset or liability (for example, interest rates and yield curves at commonly quoted intervals, volatilities, prepayment speeds, loss severities, credit risks, and default rates) as well as inputs that are derived principally from or corroborated by observable market data by correlation or other means (market-corroborated inputs). • Level 3 – Includes unobservable inputs and should be used only when observable inputs are unavailable. Recurring Basis Fair values of investment securities available for sale were primarily measured using information from a third-party pricing service. This pricing service provides information by utilizing evaluated pricing models supported with market data information. Standard inputs include benchmark yields, reported trades, broker/dealer quotes, issuer spreads, benchmark securities, bids, offers, and reference data from market research publications. The fair values of mortgage loans held for sale are based on commitments on hand from investors within the secondary market for loans with similar characteristics. 25 Table of Contents BUSINESS FIRST BANCSHARES, INC. AND SUBSIDIARIES NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS The following tables present the balance of assets and liabilities measured on a recurring basis as of March 31, 2024, and December 31, 2023. The Company did not record any liabilities at fair value for which measurement of the fair value was made on a recurring basis. Fair Value Level 1 Level 2 Level 3 (Dollars in thousands) March 31, 2024 Available for Sale: U.S. Treasury Securities $ 16,216 $ - $ 16,216 $ - U.S. Government Agency Securities 9,377 - 9,377 - Corporate Securities 44,173 - 36,186 7,987 Mortgage-Backed Securities 511,617 - 511,617 - Municipal Securities 291,520 - 265,213 26,307 Loans Held for Sale 77 - 77 - Total $ 872,980 $ - $ 838,686 $ 34,294 December 31, 2023 Available for Sale: U.S. Treasury Securities $ 16,239 $ - $ 16,239 $ - U.S. Government Agency Securities 9,410 - 9,410 - Corporate Securities 43,839 - 35,871 7,968 Mortgage-Backed Securities 506,310 - 506,310 - Municipal Securities 303,773 - 282,926 20,847 Loans Held for Sale 835 - 835 - Total $ 880,406 $ - $ 851,591 $ 28,815 The Company reviews fair value hierarchy classifications on a quarterly basis. Changes in the Company's ability to observe inputs to the valuation may cause reclassification of certain assets or liabilities within the fair value hierarchy. 26 Table of Contents BUSINESS FIRST BANCSHARES, INC. AND SUBSIDIARIES NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS The table below provides a reconciliation for assets measured at fair value on a recurring basis using significant unobservable inputs, or Level 3 inputs, as of March 31, 2024, and December 31, 2023. Corporate Municipal Bonds Securities (Dollars in thousands) Balance at December 31, 2022 $ 19,000 $ 34,768 Realized Gains (Losses) Included in Net Income - - Unrealized Losses Included in Other Comprehensive Loss ( 1,532 ) ( 2,228 ) Purchases - - Sales - - Maturities, Prepayments, and Calls - ( 1,798 ) Transfers Into Level 3 - - Transfers Out of Level 3 ( 9,500 ) ( 9,895 ) Balance at December 31, 2023 7,968 20,847 Realized Gains (Losses) Included in Net Income - - Unrealized Gains (Losses) Included in Other Comprehensive Loss 19 ( 3,398 ) Purchases - 9,938 Sales - - Maturities, Prepayments, and Calls - ( 1,080 ) Transfers Into Level 3 - - Transfers Out of Level 3 - - Balance at March 31, 2024 $ 7,987 $ 26,307 The following table provides quantitative information about significant unobservable inputs used in fair value measurements of Level 3 assets measured at fair value on a recurring basis at March 31, 2024. Estimated Valuation Unobservable Range of Fair Value Technique Inputs Discounts (Dollars in thousands) March 31, 2024 Corporate Securities $ 7,987 Present Value of Expected Future Cash Flow Model Liquidity Premium 2 % Municipal Securities 26,307 Present Value of Expected Future Cash Flow Model Liquidity Premium 1 % Nonrecurring Basis The Company has segregated all financial assets and liabilities that are measured at fair value on a nonrecurring basis into the most appropriate level within the fair value hierarchy based on the inputs used to determine the fair value at the measurement date in the table below. The Company did not record any liabilities at fair value for which measurement of the fair value was made on a nonrecurring basis. The fair value of the individually evaluated loans is measured at the fair value of the collateral for collateral-dependent loans. Individually evaluated loans are Level 3 assets measured using appraisals from external parties of the collateral less any prior liens and adjusted for estimated selling costs. Adjustments may be made by management based on a customized internally developed discounting matrix. Repossessed assets are initially recorded at fair value less 27 Table of Contents BUSINESS FIRST BANCSHARES, INC. AND SUBSIDIARIES NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS estimated cost to sell, which is generally 10 %. The fair value of repossessed assets is based on property appraisals and an analysis of similar properties available. As such, the Bank records repossessed assets as Level 3. Fair Value Level 1 Level 2 Level 3 (Dollars in thousands) March 31, 2024 Assets: Individually Evaluated Loans $ 8,564 $ - $ - $ 8,564 Other Nonperforming Assets 1,339 - - 1,339 Total $ 9,903 $ - $ - $ 9,903 December 31, 2023 Assets: Individually Evaluated Loans $ 4,750 $ - $ - $ 4,750 Other Nonperforming Assets 1,685 - - 1,685 Total $ 6,435 $ - $ - $ 6,435 Fair Value Financial Instruments The fair value of a financial instruments is the current amount that would be exchanged between willing parties, other than in a forced liquidation. Fair value is best determined based upon quoted market prices. However, in many instances, there are no quoted market prices for the Company’s various financial instruments. In cases where quoted market prices are not available, fair values are based on estimates using present value or other valuation techniques. Those techniques are significantly affected by the assumptions used, including the discount rate and estimates of future cash flows. Accordingly, the fair value estimates may not be realized in an immediate settlement of the instrument. In accordance with GAAP, certain financial instruments and all non-financial instruments are excluded from these disclosure requirements. Accordingly, the aggregate fair value amounts presented may not necessarily represent the underlying fair value of the Company. The following methods and assumptions were used to estimate the fair value of each class of financial instruments for which it is practicable to estimate that value: Cash and Short-Term Investments – For those short-term instruments, the carrying amount is a reasonable estimate of fair value. Securities – Fair value of securities is based on quoted market prices. If a quoted market price is not available, fair value is estimated using quoted market prices for similar securities. Loans – The fair value for loans is estimated using discounted cash flow analyses, with interest rates currently being offered for similar loans to borrowers with similar credit rates. Loans with similar classifications are aggregated for purposes of the calculations. The allowance for loan losses, which was used to measure the credit risk, is subtracted from loans. Cash Value of Bank-Owned Life Insurance (“BOLI”) – The carrying amount approximates its fair value. Other Equity Securities – The carrying amount approximates its fair value. Deposits – The fair value of demand deposits and certain money market deposits is the amount payable at the reporting date. The fair value of fixed-maturity certificates of deposit is estimated using discounted cash flow analyses, with interest rates currently offered for deposits of similar remaining maturities. 28 Table of Contents BUSINESS FIRST BANCSHARES, INC. AND SUBSIDIARIES NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS Borrowings – The fair value of FHLB advances and other long-term borrowings is estimated using the rates currently offered for advances of similar maturities. The carrying amount of short-term borrowings maturing within ninety days approximates the fair value. Commitments to Extend Credit and Standby and Commercial Letters of Credit – The fair values of commitments to extend credit and standby and commercial letters of credit do not differ significantly from the commitment amount and are therefore omitted from this disclosure. The estimated approximate fair values of the Bank’s financial instruments as of March 31, 2024, and December 31, 2023 are as follows: Carrying Amount Total Fair Value Level 1 Level 2 Level 3 (Dollars in thousands) March 31, 2024 Financial Assets: Cash and Short-Term Investments $ 397,198 $ 397,198 $ 397,198 $ - $ - Securities 872,903 872,903 - 838,609 34,294 Loans Held for Sale 77 77 - 77 - Loans - Net 5,047,674 4,933,670 - - 4,933,670 Cash Value of BOLI 100,056 100,056 - 100,056 - Other Equity Securities 34,940 34,940 - - 34,940 Total $ 6,452,848 $ 6,338,844 $ 397,198 $ 938,742 $ 5,002,904 Financial Liabilities: Deposits $ 5,572,750 $ 5,567,623 $ - $ - $ 5,567,623 Borrowings 430,346 408,524 - 408,524 - Total $ 6,003,096 $ 5,976,147 $ - $ 408,524 $ 5,567,623 29 Table of Contents BUSINESS FIRST BANCSHARES, INC. AND SUBSIDIARIES NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS Carrying Amount Total Fair Value Level 1 Level 2 Level 3 (Dollars in thousands) December 31, 2023 Financial Assets: Cash and Short-Term Investments $ 377,244 $ 377,244 $ 377,244 $ - $ - Securities 879,571 879,571 - 850,756 28,815 Loans Held for Sale 835 835 - 835 - Loans - Net 4,952,371 4,849,503 - - 4,849,503 Cash Value of BOLI 96,478 96,478 - 96,478 - Other Equity Securities 33,942 33,942 - - 33,942 Total $ 6,340,441 $ 6,237,573 $ 377,244 $ 948,069 $ 4,912,260 Financial Liabilities: Deposits $ 5,248,790 $ 5,243,326 $ - $ - $ 5,243,326 Borrowings 635,073 613,464 - 613,464 - Total $ 5,883,863 $ 5,856,790 $ - $ 613,464 $ 5,243,326 Note 13– Subsequent Events – On April 25, 2024, the Company and Oakwood Bancshares, Inc., a Texas corporation ("Oakwood"), entered into an Agreement and Plan of Reorganization, providing for the acquisition by the Company of Oakwood. Oakwood had approximately $ 843.0 million of total assets, including $ 732.0 million of deposits and $ 654.0 million of loans, as of December 31, 2023. 30 Table of Contents