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Table of Contents



 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549


FORM 10-Q


 

(Mark One)

 

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended September 30, 2023

 

or

 

 

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from              to             

 

Commission file number: 001-38447

 


 

BUSINESS FIRST BANCSHARES, INC.

(Exact name of registrant as specified in its charter)

 


 

Louisiana

20-5340628

(State or other jurisdiction of incorporation or organization)

(I.R.S. Employer Identification Number)

  

500 Laurel Street, Suite 101

Baton Rouge, Louisiana

70801

(Address of principal executive offices)

(Zip Code)

 

(225) 248-7600

(Registrants telephone number, including area code)

 

Securities registered pursuant to Section 12(b) of the Act:

 

 

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

 

Common Stock, par value $1.00 per share

 

BFST

 

NASDAQ Global Select Market

 

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  ☒    No   ☐

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes  ☒    No  ☐

 

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

    

Large accelerated filer

Accelerated filer

    

Non-accelerated filer

Smaller reporting company

    
  

Emerging growth company

 

If an emerging growth company, indicate by a check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

 

If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements. ☐

 

Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b)[]. ☐

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes      No  ☒

 

As of October 27, 2023, the issuer has outstanding 25,344,168 shares of common stock, par value $1.00 per share.

 



 

  

 
 

BUSINESS FIRST BANCSHARES, INC.

 

PART I - FINANCIAL INFORMATION

 
     

Item 1.

Financial Statements

4
     
 

Consolidated Balance Sheets as of September 30, 2023 (Unaudited) and December 31, 2022

4
     
 

Unaudited Consolidated Statements of Income for the three and nine months ended September 30, 2023, and 2022

5
     
 

Unaudited Consolidated Statements of Comprehensive Income (Loss) for the three and nine months ended September 30, 2023, and 2022

6
     
 

Unaudited Consolidated Statements of Changes in Shareholders’ Equity for the three and nine months ended September 30, 2023, and 2022

7
     
 

Unaudited Consolidated Statements of Cash Flows for the three and nine months ended September 30, 2023, and 2022

9
     
 

Notes to Unaudited Consolidated Financial Statements

11
     

Item 2.

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

33
     

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

62
     

Item 4.

Controls and Procedures

62
   

PART II - OTHER INFORMATION

 
     

Item 1.

Legal Proceedings

63
     

Item 1A.

Risk Factors

63
     

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

63
     

Item 3.

Defaults Upon Senior Securities

63
     

Item 4.

Mine Safety Disclosures

63
     

Item 5.

Other Information

63
     

Item 6.

Exhibits

64
   

Signatures

65

 

 

 

 

PART I FINANCIAL INFORMATION

 

Item  1.         Financial Statements

 

BUSINESS FIRST BANCSHARES, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(Dollars in thousands, except per share data)

 

  

September 30, 2023

  

December 31,

 
  

(Unaudited)

  

2022

 
ASSETS 

Cash and Due from Banks

 $191,461  $152,740 

Federal Funds Sold

  196,616   15,606 

Securities Available for Sale, at Fair Values (Amortized Cost of $968,498 at September 30, 2023 and $985,599 at December 31, 2022)

  849,704   890,751 

Mortgage Loans Held for Sale

  652   304 

Loans and Lease Receivable, Net of Allowance for Loan Losses of $41,129 at September 30, 2023 and $38,178 at December 31, 2022

  4,879,144   4,567,998 

Premises and Equipment, Net

  64,674   63,177 

Accrued Interest Receivable

  28,060   25,666 

Other Equity Securities

  32,591   37,467 

Other Real Estate Owned

  1,558   1,372 

Cash Value of Life Insurance

  95,906   91,958 

Deferred Taxes

  34,660   31,194 

Goodwill

  88,391   88,543 

Core Deposit and Customer Intangible

  12,418   14,042 

Other Assets

  12,946   9,642 

Total Assets

 $6,488,781  $5,990,460 

LIABILITIES

 

Deposits:

        

Noninterest Bearing

 $1,412,406  $1,549,381 

Interest Bearing

  3,778,317   3,270,964 

Total Deposits

  5,190,723   4,820,345 

Federal Funds Purchased

  -   14,057 

Securities Sold Under Agreements to Repurchase

  23,245   20,208 

Short Term Borrowings

  9   9 

Bank Term Funding Program

  300,000   - 

Federal Home Loan Bank Borrowings

  214,184   410,100 

Subordinated Debt

  100,048   110,749 

Subordinated Debt - Trust Preferred Securities

  5,000   5,000 

Accrued Interest Payable

  11,188   2,092 

Other Liabilities

  40,018   27,419 

Total Liabilities

  5,884,415   5,409,979 
         
Commitments and Contingencies (See Note 11)          
  

SHAREHOLDERS' EQUITY

 

Preferred Stock, No Par Value; 5,000,000 Shares Authorized; 72,010 Shares ($1,000 Liquidation Preference) Issued at both September 30, 2023 and December 31, 2022, respectively

  71,930   71,930 

Common Stock, $1 Par Value; 50,000,000 Shares Authorized; 25,344,168 and 25,110,313 Shares Issued and Outstanding at September 30, 2023 and December 31, 2022, respectively

  25,344   25,110 

Additional Paid-in Capital

  396,121   393,690 

Retained Earnings

  205,207   163,955 

Accumulated Other Comprehensive Loss

  (94,236)  (74,204)

Total Shareholders' Equity

  604,366   580,481 

Total Liabilities and Shareholders' Equity

 $6,488,781  $5,990,460 

 

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

 

 

 

BUSINESS FIRST BANCSHARES, INC. AND SUBSIDIARIES

UNAUDITED CONSOLIDATED STATEMENTS OF INCOME

(Dollars in thousands, except per share data)

 

   

For the Three Months Ended

   

For the Nine Months Ended

 
   

September 30,

   

September 30,

 
   

2023

   

2022

   

2023

   

2022

 

Interest Income:

                               

Interest and Fees on Loans

  $ 84,575     $ 58,846     $ 237,566     $ 148,668  

Interest and Dividends on Non-taxable Securities

    1,099       1,014       3,265       3,138  

Interest and Dividends on Taxable Securities

    3,954       3,186       11,667       9,049  

Interest on Federal Funds Sold and Due From Banks

    3,694       427       6,164       754  

Total Interest Income

    93,322       63,473       258,662       161,609  

Interest Expense:

                               

Interest on Deposits

    30,110       6,286       72,718       11,106  

Interest on Borrowings

    7,918       3,707       24,575       6,986  

Total Interest Expense

    38,028       9,993       97,293       18,092  

Net Interest Income

    55,294       53,480       161,369       143,517  

Provision for Credit Losses

    604       3,273       4,364       7,835  

Net Interest Income after Provision for Credit Losses

    54,690       50,207       157,005       135,682  

Other Income:

                               

Service Charges on Deposit Accounts

    2,540       2,116       7,234       6,007  

Loss on Sales of Securities

    -       (7 )     (62 )     (46 )

Gain on Sales of Loans

    321       264       1,426       515  

Other Income

    7,022       5,742       21,631       14,556  

Total Other Income

    9,883       8,115       30,229       21,032  

Other Expenses:

                               

Salaries and Employee Benefits

    22,487       21,906       68,002       63,017  

Occupancy and Equipment Expense

    5,445       5,122       15,558       14,449  

Other Expenses

    10,675       13,918       33,428       33,597  

Total Other Expenses

    38,607       40,946       116,988       111,063  

Income Before Income Taxes

    25,966       17,376       70,246       45,651  

Provision for Income Taxes

    5,511       3,576       15,027       9,363  

Net Income

    20,455       13,800       55,219       36,288  

Preferred Stock Dividends

    1,351       -       4,051       -  

Net Income Available to Common Shareholders

  $ 19,104     $ 13,800     $ 51,168     $ 36,288  

Earnings Per Common Share:

                               

Basic

  $ 0.76     $ 0.61     $ 2.04     $ 1.65  

Diluted

  $ 0.76     $ 0.61     $ 2.02     $ 1.64  

 

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

 

 

 

BUSINESS FIRST BANCSHARES, INC. AND SUBSIDIARIES

UNAUDITED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(Dollars in thousands)

 

   

For the Three Months Ended

   

For the Nine Months Ended

 
   

September 30,

   

September 30,

 
   

2023

   

2022

   

2023

   

2022

 

Consolidated Net Income

  $ 20,455     $ 13,800     $ 55,219     $ 36,288  
                                 

Other Comprehensive Income (Loss):

                               

Unrealized Loss on Investment Securities

    (16,398 )     (27,588 )     (24,009 )     (106,774 )

Unrealized Gain (Loss) on Share of Other Equity Investments

    (8 )     (38 )     (1,451 )     1,041  

Reclassification Adjustment for Losses on Sale of AFS Investment Securities Included in Net Income

    -       7       62       46  

Income Tax Effect

    3,466       5,683       5,366       22,194  

Other Comprehensive Loss

    (12,940 )     (21,936 )     (20,032 )     (83,493 )

Consolidated Comprehensive Income (Loss)

  $ 7,515     $ (8,136 )   $ 35,187     $ (47,205 )

 

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

 

 

 

BUSINESS FIRST BANCSHARES, INC. AND SUBSIDIARIES

UNAUDITED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS EQUITY

FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2023 AND 2022

(Dollars in thousands, except per share data)

 

                  

Accumulated

     
          

Additional

      

Other

  

Total

 
  

Preferred

  

Common

  

Paid-In

  

Retained

  

Comprehensive

  

Shareholders'

 
  

Stock

  

Stock

  

Capital

  

Earnings

  

Loss

  

Equity

 

Balances at June 30, 2022

 $-  $22,579  $346,382  $139,232  $(62,734) $445,459 

Comprehensive Income:

                        

Net Income

  -   -   -   13,800   -   13,800 

Other Comprehensive Loss

  -   -   -   -   (21,936)  (21,936)

Cash Dividends Declared on Common Stock, $0.12 Per Share

  -   -   -   (2,696)  -   (2,696)

Preferred Stock Issuance

  72,010   -   -   -   -   72,010 

Stock Issuance

  -   15   209   -   -   224 

Surrendered Shares of Options Exercised

  -   (8)  (179)  -   -   (187)

Stock Based Compensation Cost

  -   19   1,309   -   -   1,328 

Balances at September 30, 2022

 $72,010  $22,605  $347,721  $150,336  $(84,670) $508,002 
                         

Balances at June 30, 2023

 $71,930  $25,344  $395,875  $189,115  $(81,296) $600,968 

Comprehensive Income:

                        

Net Income

  -   -   -   20,455   -   20,455 

Other Comprehensive Loss

  -   -   -   -   (12,940)  (12,940)

Cash Dividends Declared on Preferred Stock, $18.75 Per Share

  -   -   -   (1,351)  -   (1,351)

Cash Dividends Declared on Common Stock, $0.12 Per Share

  -   -   -   (3,012)  -   (3,012)

Stock Based Compensation Cost

  -   -   246   -   -   246 

Balances at September 30, 2023

 $71,930  $25,344  $396,121  $205,207  $(94,236) $604,366 

 

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

 

 

BUSINESS FIRST BANCSHARES, INC. AND SUBSIDIARIES

UNAUDITED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS EQUITY

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2023 AND 2022

(Dollars in thousands, except per share data)

 

                  

Accumulated

     
          

Additional

      

Other

  

Total

 
  

Preferred

  

Common

  

Paid-In

  

Retained

  

Comprehensive

  

Shareholders'

 
  

Stock

  

Stock

  

Capital

  

Earnings

  

Loss

  

Equity

 

Balances at December 31, 2021

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

Comprehensive Income:

                        

Net Income

  -   -   -   36,288   -   36,288 

Other Comprehensive Loss

  -   -   -   -   (83,493)  (83,493)

Cash Dividends Declared on Common Stock, $0.36 Per Share

  -   -   -   (7,826)  -   (7,826)

Preferred Stock Issuance

  72,010   -   -   -   -   72,010 

Stock Issuance

  -   2,094   53,376   -   -   55,470 

Surrendered Shares of Options Exercised

  -   (8)  (179)  -   -   (187)

Stock Based Compensation Cost

  -   119   2,253   -   -   2,372 

Balances at September 30, 2022

 $72,010  $22,605  $347,721  $150,336  $(84,670) $508,002 
                         

Balances at December 31, 2022

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

Cumulative Effect of Change in Accounting Principle for Credit Losses

  -   -   -   (827)  -   (827)

Comprehensive Income:

                        

Net Income

  -   -   -   55,219   -   55,219 

Other Comprehensive Loss

  -   -   -   -   (20,032)  (20,032)

Cash Dividends Declared on Preferred Stock, $56.25 Per Share

  -   -   -   (4,051)  -   (4,051)

Cash Dividends Declared on Common Stock, $0.36 Per Share

  -   -   -   (9,089)  -   (9,089)

Stock Based Compensation Cost

  -   234   2,431   -   -   2,665 

Balances at September 30, 2023

 $71,930  $25,344  $396,121  $205,207  $(94,236) $604,366 

 

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

 

 

 

BUSINESS FIRST BANCSHARES, INC. AND SUBSIDIARIES

UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Dollars in thousands)

 

   

For the Nine Months Ended

 
   

September 30,

 
   

2023

   

2022

 

Cash Flows From Operating Activities:

               

Consolidated Net Income

  $ 55,219     $ 36,288  

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

               

Provision for Credit Losses

    4,364       7,835  

Depreciation and Amortization

    3,546       3,642  

Net Accretion of Purchase Accounting Adjustments

    (6,159 )     (4,109 )

Stock Based Compensation Cost

    2,665       2,372  

Net Amortization of Securities

    3,241       4,632  

Loss on Sales of Securities

    62       46  

Gain on Sale of Loans

    (375 )     (347 )

Income on Other Equity Securities

    (3,826 )     (792 )

(Gain) Loss on Sale of Other Real Estate Owned, Net of Writedowns

    (308 )     95  

Increase in Cash Value of Life Insurance

    (1,675 )     (1,405 )

Deferred Income Tax Expense (Benefit)

    2,121       (2,651 )

Gain on Sale of Branch

    (932 )     -  

Changes in Assets and Liabilities:

               

Increase in Accrued Interest Receivable

    (2,394 )     (254 )

(Increase) Decrease in Other Assets

    (3,313 )     6,446  

Increase (Decrease) in Accrued Interest Payable

    9,096       (550 )

Increase in Other Liabilities

    9,816       6,949  

Net Cash Provided by Operating Activities

    71,148       58,197  
                 

Cash Flows From Investing Activities:

               

Purchases of Securities Available for Sale

    (46,211 )     (82,380 )

Proceeds from Maturities / Sales of Securities Available for Sale

    17,320       35,197  

Proceeds from Paydowns of Securities Available for Sale

    42,688       72,248  

Net Cash Received in Acquisition

    -       163,460  

Net Cash Paid in Sale of Branch

    (14,506 )     -  

Purchases of Other Equity Securities

    (13,961 )     (18,076 )

Redemption of Other Equity Securities

    21,212       3,215  

Purchase of Life Insurance

    (2,273 )     (15,000 )

Proceeds from Death Benefit of Cash Value of Life Insurance

    -       188  

Net Increase in Loans

    (307,487 )     (897,943 )

Net Purchases of Premises and Equipment

    (5,718 )     (7,193 )

Loss on Disposal of Premises and Equipment

    -       717  

Proceeds from Sales of Other Real Estate

    1,240       646  

Net (Increase) Decrease in Federal Funds Sold

    (181,010 )     215,907  

Net Cash Used in Investing Activities

    (488,706 )     (529,014 )

 

(CONTINUED)

 

 

   

For the Nine Months Ended

 
   

September 30,

 
   

2023

   

2022

 

Cash Flows From Financing Activities:

               

Net Increase in Deposits

    386,713       31,587  

Net Increase in Securities Sold Under Agreements to Repurchase

    3,037       2,951  

Net Decrease in Federal Funds Purchased

    (14,057 )     -  

Net Advances (Repayments) on Federal Home Loan Bank Borrowings

    (195,916 )     451,162  

Net Proceeds on Bank Term Funding Program

    300,000       -  

Issuance of Short Term Borrowings

    -       4,989  

Repayment of Subordinated Debt

    (8,900 )     -  

Gain on Extinguishment of Debt

    (1,458 )     -  

Proceeds from Issuance of Preferred Stock

    -       72,010  

Proceeds from Issuance of Common Stock

    -       427  

Surrendered Shares of Options Exercised

    -       (187 )

Payment of Dividends on Preferred Stock

    (4,051 )     -  

Payment of Dividends on Common Stock

    (9,089 )     (7,826 )

Net Cash Provided by Financing Activities

    456,279       555,113  

Net Increase in Cash and Cash Equivalents

    38,721       84,296  

Cash and Cash Equivalents at Beginning of Period

    152,740       68,375  

Cash and Cash Equivalents at End of Period

  $ 191,461     $ 152,671  
                 

Supplemental Disclosures for Cash Flow Information:

               

Cash Payments for:

               

Interest on Deposits

  $ 71,039     $ 11,558  

Interest on Borrowings

  $ 17,158     $ 6,865  

Income Tax Payments

  $ 9,489     $ 8,065  
                 

Supplemental Schedule for Noncash Investing and Financing Activities:

               

Change in the Unrealized Loss on Securities Available for Sale

  $ (23,947 )   $ (106,728 )

Change in the Unrealized Gain (Loss) on Equity Securities

  $ (1,451 )   $ 1,041  

Change in Deferred Tax Effect on the Unrealized Loss on Securities Available for Sale

  $ 5,366     $ 22,194  

Transfer of Loans to Other Real Estate

  $ 1,118     $ 154  

Acquisitions:

               

Fair Value of Tangible Assets Acquired

  $ -     $ 531,510  

Other Intangible Assets Acquired

    -       3,875  

Liabilities Assumed

    -       508,991  

Net Identifiable Assets Acquired Over Liabilities Assumed

  $ -     $ 26,394  

 

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

  

 
10

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 and Smith Shellnut Wilson, LLC. The Bank operates out of full-service banking centers and loan production offices in markets across Louisiana, the Dallas/Fort Worth metroplex and Houston, Texas. As a state bank, it is subject to regulation by the Office of Financial Institutions (“OFI”), State of Louisiana, and the Federal Deposit Insurance Corporation (“FDIC”) and undergoes periodic examinations by these agencies. The Company is also regulated by the Federal Reserve and is subject to periodic examinations.

 

In the opinion of management, the accompanying unaudited consolidated financial statements contain all adjustments necessary to present fairly the financial results for the periods presented, and all such adjustments are of a normal recurring nature. All material intercompany transactions are eliminated. The results of operations for the interim periods are not necessarily indicative of the results to be expected for the entire year.

 

These interim consolidated financial statements have been prepared according to the rules and regulations of the Securities and Exchange Commission and, therefore, certain information and footnote disclosures normally presented in accordance with United States (“U.S.”) generally accepted accounting principles (“GAAP”) have been omitted or abbreviated.  These interim financial statements should be read in conjunction with the audited consolidated financial statements and footnote disclosures for the Company’s previously filed Form 10-K for the year ended December 31, 2022.

 

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

 

Effective January 1, 2023, the Company adopted ASU 2016-13, Financial Instrument Credit Losses (Topic 326), Measurement of Credit Losses on Financial Instruments related to the impairment of financial instruments. This guidance, commonly referred to as Current Expected Credit Loss (“CECL”), changes impairment recognition to a model that is based on expected losses rather than incurred losses. The allowance for credit losses is established for current expected credit losses on the Company’s loan portfolio, including unfunded credit commitments. Prior to January 1, 2023, the allowance for credit losses was established based on an incurred loss model. Upon the adoption of CECL, certain loan classification and segmentation categories were changed to align with the requirements of the standard and more effectively model the CECL estimate. The updated CECL segmentation is reflected in the disclosures beginning January 1, 2023, and prior period classifications have been adjusted to reflect CECL segmentations. Results from periods prior to January 1, 2023, are presented using the previously applicable GAAP.

 

Upon adoption of the guidance on  January 1, 2023, the Company recognized an $827,000 reduction to retained earnings, after recording the related deferred tax asset adjustment at our effective tax rate. The Company and b1BANK are subject to various regulatory capital requirements.  Although the federal banking regulatory agencies have provided relief for an initial capital decrease at adoption of the CECL standard, the Company does not intend to opt into the relief as the impact of adoption was not significant to the Company’s regulatory capital.

 

The adoption of this guidance did not have a material impact on the Company’s available-for-sale securities as most of this portfolio consists of U.S. treasury and agency securities as well as highly rated residential agency mortgage-backed, corporate, and municipal securities. However, any subsequent estimated credit losses are required to be recognized through an allowance for credit losses associated with the applicable securities.

 

11

BUSINESS FIRST BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
 

The Company also adopted ASU 2022-02, Financial Instruments Credit Losses (Topic 326), Troubled Debt Restructurings and Vintage Disclosures on January 1, 2023.  The standard modifies the criteria for identification of troubled debt restructurings as well as enhancing disclosure requirements. Additionally, the guidance requires vintage table disclosures and presentation of gross write-offs during the current period by year of origination for financing receivables within scope of the standard.  The implementation of the standard did not have a material impact of the identification of troubled debt restructurings and the vintage and charge-off disclosures have been presented in the footnotes below.

 

Allowance for Credit Losses

 

The Company calculates its allowance for credit losses utilizing a CECL methodology. CECL requires management’s estimate of credit losses over the full remaining expected life of loans and other financial instruments and for the Company, CECL applies to loans, unfunded commitments, and available for sale securities. The allowance for credit losses is increased through provisions charged to earnings and reduced by net charge-offs, inclusive of recoveries. Management evaluates the appropriateness of the allowance for credit losses on a quarterly basis. The allowance considers expected losses for the remaining lives of the applicable assets. Forecasted economic scenarios are considered over a reasonable and supportable forecast period, currently one year, which incorporates Company and peer historical losses. After the forecast period, the Company reverts to long-term historical loss experience on a straight-line basis over a one-year period, adjusted for the composition of the current loan portfolio, to estimate losses over the remaining lives of the portfolio. The economic scenarios are updated at least quarterly and are designed to provide estimates that take into consideration the customer base of our loan portfolio. Loss estimates also consider factors affecting credit losses not reflected in the model, including trends in the portfolio, credit management and underwriting practices and economic conditions affecting our operating footprint.

 

The allowance recorded for loan losses utilizes forward-looking expected loss models to consider a variety of factors affecting lifetime credit losses. These factors include loan and borrower characteristics, such as internal risk ratings, delinquency status, collateral type and available valuation information, and the remaining term of the loan, adjusted for expected prepayments. Where loans do not exhibit similar risk characteristics, an individual analysis is performed to consider expected credit losses. For each loan portfolio, model estimates are adjusted as necessary to consider any relevant changes in portfolio composition, lending policies, underwriting standards, risk management practices or economic conditions that would affect the accuracy of the model. The results of the analysis are evaluated quarterly to confirm the estimates are appropriate for each loan portfolio. Expected loan loss estimates also include consideration of expected cash recoveries on loans previously charged-off, or expected recoveries on collateral dependent loans where recovery is expected through sale of the collateral. The allowance recorded for individually evaluated loans is based on an analysis utilizing expected cash flows discounted using the original effective interest rate, the observable market price of the loan, or when repayment is expected through the sale of collateral, the fair value of the collateral, less selling costs, for collateral-dependent loans.

 

The Company has elected to exclude accrued interest receivable from the amortized cost basis on its loan portfolio. The Company has also elected to not measure an allowance for credit losses on accrued interest for loans held-for-investment based on its policy to write off uncollectible interest in a timely manner, which occurs when a loan is placed on nonaccrual status. Generally, such elections are made no later than 90 days after a loan has become past due, although certain loans accrue interest after 90 days based on management’s evaluation of the borrower’s ability to continue making contractual payments. Such write-offs are recognized as a reduction of interest income. Accrued interest receivable for the loan portfolio is included within accrued interest receivable in the consolidated balance sheets.

 

Purchased Loans

 

Beginning January 1, 2023, when a loan portfolio is purchased, an allowance is established for those loans considered purchased with more-than-insignificant credit deterioration (“PCD”), and those not considered purchased with more-than-insignificant credit deterioration (“non-PCD”). The allowance established utilizes the same risk factors discussed above for our non-acquired allowance. The allowance established for non-PCD loans is recognized through provision expense upon acquisition, whereas the allowance established for loans considered PCD at acquisition is offset by an increase in the basis of the acquired loans. Any subsequent increases and decreases in the allowance related to acquired loans are recognized through provision expense, with future charge-offs recorded to the allowance.

 

12

BUSINESS FIRST BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
 

Allowance for Credit Losses on Off-Balance Sheet Credit Exposures

 

The Company also assesses the credit risk associated with off-balance sheet loan commitments and letters of credit. The liability for off-balance sheet credit exposure related to loan commitments and other credit guarantees is included in other liabilities. Because business processes and credit risks associated with unfunded credit commitments are essentially the same as for loans, the Company utilizes similar processes to estimate its liability for unfunded credit commitments.

 

The adoption of this guidance did not have a material impact on the Company’s available-for-sale securities as most of this portfolio consists of U.S. treasury and agency securities as well as highly rated residential agency mortgage-backed, corporate and municipal securities. However, any subsequent estimated credit losses are required to be recognized through an allowance for credit losses associated with the applicable securities.

 

Allowance for Credit Losses on Securities

 

In conjunction with the adoption of CECL, the Company also evaluates its securities portfolio for credit losses, as the CECL update modifies the debt security credit impairment model to recognize an allowance for estimated credit losses. Similar to the election on the loan portfolio, the Company has elected to exclude accrued interest receivable from the amortized cost basis of its investment portfolio analysis. Based on our assessments, expected credit losses were negligible and therefore, no allowance for credit losses was recorded.

 

Beginning January 1, 2023, the Company evaluates its available for sale securities portfolio on a quarterly basis for potential credit-related impairment. The Company assesses potential credit impairment by comparing the fair value of a debt security to its amortized cost basis. If the fair value of a debt security is greater than the amortized cost basis, no impairment is recognized.  If the fair value is less than the amortized costs basis, the Company reviews the factors to determine if the impairment is credit-related or noncredit-related.  For debt securities the Company intends to sell or is more likely than not required to sell, before the recovery of their amortized cost basis, the difference between fair value and amortized cost is impaired and is recognized through earnings. For debt securities the Company does not intend to sell or is not more likely than not required to sell, prior to expected recovery of amortized cost basis, the credit portion of the impairment is recognized through earnings, with a corresponding entry to an allowance for credit losses, and the noncredit portion is recognized through accumulated other comprehensive income.

 

Accounting Standards Not Yet Adopted

 

None

  

 

Note 2 Reclassifications –

 

Certain reclassifications may have been made to conform to the classifications adopted for reporting in 2023. These reclassifications have no material effect on previously reported shareholders’ equity or net income.

 

13

BUSINESS FIRST BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
  
 

Note 3 Mergers and Acquisitions

 

Texas Citizens Bancorp, Inc.

 

On March 1, 2022, the Company consummated the merger of Texas Citizens Bancorp, Inc. (“TCBI”), headquartered in Pasadena, Texas, with and into the Company, pursuant to the terms of that certain Agreement and Plan of Reorganization (the “Reorganization Agreement”), dated as of October 20, 2021, by and between the Company and TCBI (the “Merger”). Also on March 1, 2022, TCBI’s wholly-owned banking subsidiary, Texas Citizens Bank, National Association, was merged with and into b1BANK. Pursuant to the terms of the Reorganization Agreement, upon consummation of the Merger, the Company issued 2,069,532 shares of its common stock to the former shareholders of TCBI. At February 28, 2022, TCBI reported $534.2 million in total assets, $349.5 million in loans and $477.2 million in deposits.

 

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

 

Cost and Allocation of Purchase Price for Texas Citizens Bancorp, Inc. (TCBI):

 

(Dollars in thousands, except per share data)

 

Purchase Price:

    

Shares Issued to TCBI's Shareholders on March 1, 2022

  2,069,532 

Closing Stock Price on February 28, 2022

 $26.19 

Total Stock Issued

 $54,201 

Other Consideration, Including Equity Awards

  842 

Total Purchase Price

 $55,043 

Net Assets Acquired:

    

Cash and Cash Equivalents

 $163,460 

Securities Available for Sale

  370 

Loans and Leases Receivable

  338,027 

Premises and Equipment, Net

  2,776 

Cash Value of Life Insurance

  12,146 

Core Deposit Intangible

  3,875 

Other Assets

  14,731 

Total Assets

  535,385 
     

Deposits

  477,277 

Borrowings

  30,708 

Other Liabilities

  1,006 

Total Liabilities

  508,991 

Net Assets Acquired

  26,394 

Goodwill Resulting from Merger

 $28,649 

 

The Company has recorded approximately $173,000 and $5.2 million of acquisition-related costs within merger and conversion-related expenses and salaries and benefits for the nine months ended September 30, 2023, and year ended December 31, 2022.

 

14

BUSINESS FIRST BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
 

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

 

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

 

Securities Available for Sale: Fair values for securities were based on quoted market prices, where available. If quoted market prices were not available, fair value estimates were based on observable inputs including quoted market prices for similar instruments, quoted market prices that were not in an active market or other inputs that were observable in the market. In the absence of observable inputs, fair value was estimated based on pricing models/estimations.

 

Loans and Leases Receivable: Fair values for loans were based on a discounted cash flow methodology that considered factors including, but not limited to, loan type, classification status, remaining term, prepayment speed, and current discount rates. The discount rates used for loans were based on current market rates for new originations of comparable loans and included adjustments for any liquidity concerns. The discount rate did not include an explicit factor for credit losses, as that was included within the estimated cash flows.

 

Core Deposit Intangible (CDI): The fair value for core deposit intangible assets was estimated based on a discounted cash flow methodology that gave appropriate consideration to expected customer attrition rates, net maintenance cost of the deposit base, including interest cost, and alternative cost of funds. The CDI is being amortized over 10 years based upon the period over which estimated economic benefits are estimated to be received.

 

Deposits: The fair values used for the demand and savings deposits, by definition, equal the amount payable on demand at the acquisition date. Fair values for time deposits were estimated using a discounted cash flow analysis, that applied interest rates currently being offered to the contractual interest rates on such time deposits.

 

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

 

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

 

15

BUSINESS FIRST BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
  
 

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

   

For the Nine Months Ended

 
   

September 30,

   

September 30,

 
   

2023

   

2022

   

2023

   

2022

 
   

(Dollars in thousands, except per share data)

 

Numerator:

                               

Net Income

  $ 20,455     $ 13,800     $ 55,219     $ 36,288  

Less: Preferred Stock Dividends

    1,351       -       4,051       -  

Net Income Available to Common Shares

  $ 19,104     $ 13,800     $ 51,168     $ 36,288  

Denominator:

                               

Weighted Average Common Shares Outstanding

    25,111,548       22,468,939       25,064,856       21,990,273  

Dilutive Effect of Stock Options and RSAs

    177,112       181,701       217,052       173,679  

Weighted Average Dilutive Common Shares

    25,288,660       22,650,640       25,281,908       22,163,952  
                                 

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

  $ 0.76     $ 0.61     $ 2.04     $ 1.65  
                                 

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

  $ 0.76     $ 0.61     $ 2.02     $ 1.64  

 

16

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 September 30, 2023, and December 31, 2022 are summarized as follows:

 

  

September 30, 2023

 
  

(Dollars in thousands)

 
      

Gross

  

Gross

     
  

Amortized

  

Unrealized

  

Unrealized

  

Fair

 
  

Cost

  

Gains

  

Losses

  

Value

 

U.S. Treasury Securities

 $32,704  $-  $2,531  $30,173 

U.S. Government Agencies

  50,237   -   2,762   47,475 

Corporate Securities

  49,405   -   6,831   42,574 

Mortgage-Backed Securities

  497,388   -   65,676   431,712 

Municipal Securities

  338,764   1   40,995   297,770 

Total Securities Available for Sale

 $968,498  $1  $118,795  $849,704 

 

  

December 31, 2022

 
  

(Dollars in thousands)

 
      

Gross

  

Gross

     
  

Amortized

  

Unrealized

  

Unrealized

  

Fair

 
  

Cost

  

Gains

  

Losses

  

Value

 

U.S. Treasury Securities

 $32,783  $-  $2,668  $30,115 

U.S. Government Agencies

  50,288   -   2,916   47,372 

Corporate Securities

  48,475   25   2,496   46,004 

Mortgage-Backed Securities

  506,671   267   55,213   451,725 

Municipal Securities

  347,382   11   31,858   315,535 

Total Securities Available for Sale

 $985,599  $303  $