Equibles

10-Q

Business First Bancshares, Inc. (BFST)

10-Q 2024-05-02 For: 2024-03-31
View Original
Added on April 04, 2026

Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

_______________________________________________________________________

FORM 10-Q

_______________________________________________________________________

(Mark One)

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

For the quarterly period ended March 31, 2024

or

o 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<br><br>Baton Rouge, Louisiana 70801
(Address of principal executive offices) (Zip Code)

(225) 248-7600

(Registrant’s 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 x   No o

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 x   No o

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 o Accelerated filer x
Non-accelerated filer o Smaller reporting company o
Emerging growth company o

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. o

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. o

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)[]. o

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

As of April 26, 2024, the issuer has outstanding 25,485,273 shares of common stock, par value $1.00 per share.

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BUSINESS FIRST BANCSHARES, INC.

PART I - FINANCIAL INFORMATION
Item 1. Financial Statements 4
Consolidated Balance Sheets as ofMarch31, 2024(Unaudited) and December 31, 2023 4
Unaudited Consolidated Statements of Income for the threemonths endedMarch31, 2024, and 2023 5
Unaudited Consolidated Statements of Comprehensive Income (Loss) for the threemonths endedMarch31, 2024, and 2023 6
Unaudited Consolidated Statements of Changes in Shareholders’ Equity for the threemonths endedMarch31, 2024, and 2023 7
Unaudited Consolidated Statements of Cash Flows for the threemonths endedMarch31, 2024, and 2023 8
Notes to Unaudited Consolidated Financial Statements 10
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 31
Item 3. Quantitative and Qualitative Disclosures About Market Risk 61
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

Table of Contents

PART I – FINANCIAL INFORMATION

Item 1.    Financial Statements

BUSINESS FIRST BANCSHARES, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(Dollars in thousands, except per share data)

March 31, 2024 <br>(Unaudited) December 31,<br>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.

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BUSINESS FIRST BANCSHARES, INC. AND SUBSIDIARIES

UNAUDITED CONSOLIDATED STATEMENTS OF INCOME

(Dollars in thousands, except per share data)

For the Three Months Ended<br>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.

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BUSINESS FIRST BANCSHARES, INC. AND SUBSIDIARIES

UNAUDITED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(Dollars in thousands)

For the Three Months Ended<br>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.

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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<br>Stock Common<br>Stock Additional<br>Paid-In<br>Capital Retained<br>Earnings Accumulated<br>Other<br>Comprehensive<br>Income (Loss) Total<br>Shareholders'<br>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

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BUSINESS FIRST BANCSHARES, INC. AND SUBSIDIARIES

UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Dollars in thousands)

For the Three Months Ended<br>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)

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For the Three Months Ended<br>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.

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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.

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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<br>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

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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<br>Cost Gross<br>Unrealized<br>Gains Gross<br>Unrealized<br>Losses Fair<br>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<br>Cost Gross<br>Unrealized<br>Gains Gross<br>Unrealized<br>Losses Fair<br>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<br>Value Gross<br>Unrealized<br>Losses Fair<br>Value Gross<br>Unrealized<br>Losses Fair<br>Value Gross<br>Unrealized<br>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

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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<br>Value Gross<br>Unrealized<br>Losses Fair<br>Value Gross<br>Unrealized<br>Losses Fair<br>Value Gross<br>Unrealized<br>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<br>Cost Fair<br>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.

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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,<br>2024 December 31,<br>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.

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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.

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Allowance for Credit Losses and Recorded Investment in Loans Receivable

March 31, 2024
(Dollars in thousands)
Real Estate:<br>Commercial Real Estate:<br>Construction Real Estate:<br>Residential Commercial Consumer<br>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

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December 31, 2023
(Dollars in thousands)
Real Estate:<br>Commercial Real Estate:<br>Construction Real Estate:<br>Residential Commercial Consumer<br>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

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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:

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March 31, 2024
Criticized
Pass<br>(Risk Grade 10-45) Special Mention<br>(Risk Grade 50) Substandard<br>(Risk Grade 60) Doubtful<br>(Risk Grade 70) Loss<br>(Risk Grade 80) Total Current Period Charge-<br>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

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December 31, 2023
Criticized
Pass<br>(Risk Grade 10-45) Special Mention<br>(Risk Grade 50) Substandard<br>(Risk Grade 60) Doubtful<br>(Risk Grade 70) Loss<br>(Risk Grade 80) Total Current Period Charge-<br>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

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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<br>Past Due 60-89 Days<br>Past Due Greater<br>Than 90 Days<br>Past Due Total<br>Past Due Current Total Loans<br>Receivable Recorded<br>Investment Over<br>90 Days Past Due<br>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

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December 31, 2023
(Dollars in thousands)
30-59 Days<br>Past Due 60-89 Days<br>Past Due Greater<br>Than 90 Days<br>Past Due Total<br>Past Due Current Total Loans<br>Receivable Recorded<br>Investment Over<br>90 Days Past Due<br>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,<br>2024 December 31,<br>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.

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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.

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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.

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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.

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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.

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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

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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.

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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<br>Amount Total<br>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

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BUSINESS FIRST BANCSHARES, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

Carrying<br>Amount Total<br>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.

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Item 2.    Management’s Discussion and Analysis of Financial Condition and Results of Operations

FORWARD-LOOKING STATEMENTS

When we refer in this Form 10-Q to “we,” “our,” “us,” the “Company” and “Business First,” we are referring to Business First Bancshares, Inc. and its consolidated subsidiaries, including b1BANK, which we sometimes refer to as “the Bank,” unless the context indicates otherwise.

The information contained in this Form 10-Q is accurate only as of the date of this form and the dates specified herein.

All statements other than statements of historical fact contained in this Quarterly Report on Form 10-Q (this “Report”) and other periodic reports filed by the Company, and other written or oral statements made by us or on our behalf, are “forward-looking statements,” as defined by (and subject to the “safe harbor” protections under) the federal securities laws. These forward-looking statements include statements that reflect the current views of our senior management with respect to our financial performance and future events with respect to our business and the banking industry in general. These statements are often, but not always, made through the use of words or phrases such as “may,” “should,” “could,” “predict,” “potential,” “believe,” “will likely result,” “expect,” “will continue,” “anticipate,” “seek,” “estimate,” “intend,” “plan,” “projection,” “would” and “outlook,” and similar expressions of a future or forward-looking nature. These statements involve estimates, assumptions, and risks and uncertainties. Accordingly, there are or will be important factors that could cause our actual results to differ materially from those indicated in these statements.

We believe these factors include, but are not limited to, the following:

•risks related to the integration of any other acquired businesses, including exposure to potential asset quality and credit quality risks and unknown or contingent liabilities, risks related to entering a new geographic market, the time and costs associated with integrating systems, technology platforms, procedures and personnel, the ability to retain key employees and maintain relationships with significant customers, the need for additional capital to finance such transactions, and possible failures in realizing the anticipated benefits from acquisitions;

•changes in the strength of the United States (“U.S.”) economy in general and the local economy in our local market areas adversely affecting our customers and their ability to transact profitable business with us, including the ability of our borrowers to repay their loans according to their terms or a change in the value of the related collateral;

•economic risks posed by our geographic concentration in Louisiana, the Dallas/Fort Worth metroplex and Houston;

•the ability to sustain and continue our organic loan and deposit growth, and manage that growth effectively;

•market declines in industries to which we have exposure, such as the volatility in oil prices and downturn in the energy industry that impact certain of our borrowers and investments that operate within, or are backed by collateral associated with, the energy industry;

•volatility and direction of interest rates and market prices, which could reduce our net interest margins, asset valuations and expense expectations;

•interest rate risk associated with our business;

•changes in the levels of loan prepayments and the resulting effects on the value of our loan portfolio;

•increased competition in the financial services industry, particularly from regional and national institutions and emerging non-bank competitors;

•increased credit risk in our assets and increased operating risk caused by a material change in commercial, consumer and/or real estate loans as a percentage of our total loan portfolio;

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•changes in the value of collateral securing our loans;

•deteriorating asset quality and higher loan charge-offs, and the time and effort required to resolve problem assets;

•the failure of assumptions underlying the establishment of and provisions made to our allowance for credit losses;

•changes in the availability of funds resulting in increased costs or reduced liquidity;

•our ability to maintain important deposit customer relationships and our reputation;

•a determination or downgrade in the credit quality and credit agency ratings of the securities in our securities portfolio;

•increased asset levels and changes in the composition of assets and the resulting impact on our capital levels and regulatory capital ratios;

•our ability to prudently manage our growth and execute our strategy;

•risks associated with our acquisition and de novo branching strategy;

•the loss of senior management or operating personnel and the potential inability to hire qualified personnel at reasonable compensation levels;

•legislative or regulatory developments, including changes in the laws, regulations, interpretations or policies relating to financial institutions, accounting, tax, trade, monetary and fiscal matters;

•government intervention in the U.S. financial system;

•changes in statutes and government regulations or their interpretations applicable to us, including changes in tax requirements and tax rates;

•natural disasters and adverse weather, acts of terrorism, an outbreak of hostilities or other international or domestic calamities, epidemics and pandemics such as coronavirus, and other matters beyond our control; and

•other risks and uncertainties listed from time to time in our reports and documents filed with the U.S. Securities and Exchange Commission (“SEC”).

The foregoing factors should not be construed as exhaustive and should be read together with the other cautionary statements included in this Report. Additional information on these and other risk factors can be found in Item 1A. “Risk Factors” of this Report and in Item 1A. “Risk Factors” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2023, filed with the SEC.

In the event that one or more events related to these or other risks or uncertainties materialize, or if our underlying assumptions prove to be incorrect, actual results may differ materially from what we anticipate. Accordingly, you should not place undue reliance on any such forward-looking statements. Any forward-looking statement speaks only as of the date on which it is made and we do not undertake any obligation to update any forward-looking statement or statements to reflect events or circumstances after the date on which such statement is made or to reflect the occurrence of unanticipated events. New factors emerge from time to time, and it is not possible for us to predict which will arise. In addition, we cannot assess the impact of each factor on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements.

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF BUSINESS FIRST

The following discussion and analysis focuses on significant changes in the financial condition of Business First and its subsidiaries from December 31, 2023 to March 31, 2024, and its results of operations for the three months ended March 31, 2024. This discussion and analysis is intended to highlight and supplement information presented elsewhere in this report and should be read in conjunction with (i) the accompanying unaudited consolidated financial statements and the notes thereto (the “Notes”) and (ii) our Annual Report on Form 10-K for the year ended December 31, 2023, including the audited consolidated financial statements and notes thereto, management’s discussion and analysis, and the risk factor disclosures contained therein. This discussion and analysis contains forward-looking statements that are subject to certain risks and uncertainties and are based on certain assumptions that Business First believes are reasonable but may prove to be inaccurate. Certain risks, uncertainties and other factors, including those set forth under “Forward-Looking Statements,” “Risk Factors” and elsewhere in this report, may cause actual results to differ materially from those projected results discussed in the forward-looking statements appearing in this discussion and analysis. Business First assumes no obligation to update any of these forward-looking statements.

Overview

We are a registered financial holding company headquartered in Baton Rouge, Louisiana. Through our wholly-owned subsidiary, b1BANK, a Louisiana state chartered bank, we provide a broad range of financial services tailored to meet the needs of small-to-midsized businesses and professionals. Since our inception in 2006, our priority has been and continues to be creating shareholder value through the establishment of an attractive commercial banking franchise in Louisiana and across our region. We consider our primary market to include the State of Louisiana, the Dallas/Fort Worth metroplex, and Houston. We currently operate out of banking centers and loan production offices across Louisiana and Texas. As of March 31, 2024, we had total assets of $6.7 billion, total loans of $5.1 billion, total deposits of $5.6 billion, and total shareholders’ equity of $649.0 million.

As a financial holding company operating through one reportable operating segment, community banking, we generate most of our revenues from interest income on loans, customer service and loan fees, and interest income from securities. We incur interest expense on deposits and other borrowed funds and noninterest expense, such as salaries and employee benefits and occupancy expenses. We analyze our ability to maximize income generated from interest-earning assets and expense of our liabilities through our net interest margin. Net interest margin is a ratio calculated as net interest income divided by average interest-earning assets. Net interest income is the difference between interest income on interest-earning assets, such as loans and securities, and interest expense on interest-bearing liabilities, such as deposits and borrowings, which are used to fund those assets.

Changes in the market interest rates and the interest rates we earn on interest-earning assets or pay on interest-bearing liabilities, as well as the volume and types of interest-earning assets, interest-bearing and noninterest-bearing liabilities and shareholders’ equity, are usually the largest drivers of periodic changes in net interest spread, net interest margin and net interest income. Fluctuations in market interest rates are driven by many factors, including governmental monetary policies, inflation, deflation, macroeconomic developments, changes in unemployment, the money supply, political and international conditions, and conditions in domestic and foreign financial markets. Periodic changes in the volume and types of loans in our loan portfolio are affected by, among other factors, economic and competitive conditions in our markets and across our region, as well as developments affecting the real estate, technology, financial services, insurance, transportation, manufacturing and energy sectors within our markets.

Other Developments

Bank Term Funding Program (“BTFP”)

On March 12, 2023, the Federal Reserve developed the BTFP, which offered loans to banks with a term of up to one year. The loans are secured by pledging the banks’ U.S. treasuries, agency securities, agency mortgage-backed securities, and any other qualifying assets. These pledged securities were valued at par for collateral purposes. The Bank participated in the BTFP and had outstanding debt of $300.0 million at December 31, 2023. The loans bore a fixed rate of 4.38% and matured on March 22,2024, at which time we repaid them in full.

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Federal Reserve Bank’s Discount Window

On April 11, 2023, the Bank opened two new lines of credit for additional contingent liquidity, totaling $726.2 million and $1.0 billion as of March 31, 2024, and December 31, 2023, respectively, through the Federal Reserve discount window. The Bank has not yet drawn on either of the lines of credit as of the date of this report.

Sale of Leesville Banking Center

On August 31, 2023, we sold the Leesville banking center, located in Leesville, Louisiana, to Merchants & Farmers Bank & Trust Company headquartered in Leesville, Louisiana, in accordance with the Branch Purchase and Assumption Agreement dated May 11, 2023. We maintained the loan portfolio and transferred those loans to other nearby banking centers. The sale included total deposits of $16.3 million and a pre-tax gain of $945,000.

Acquisition of Waterstone LSP, LLC ("Waterstone")

On January 31, 2024, we consummated the acquisition, through b1BANK, of Waterstone, headquartered in Katy, Texas. Waterstone offers community banks and small businesses a range of SBA lending services including planning, pre-qualification, packaging, closing and disbursements, servicing, and liquidations. Upon consummation of the acquisition, we paid $3.3 million in cash to the former owners of Waterstone.

Acquisition of Oakwood Bancshares, Inc. ("Oakwood")

On April 25, 2024, we, and Oakwood Bancshares, Inc. a Texas corporation ("Oakwood"), entererd into an Agreement and Plan of Reorganization, providing for the acquisition by us, of Oakwood. Oakwood had $843.0 million of total assets, including $732.0 million of deposits and $654.0 million of loans, as of December 31, 2023.

Financial Highlights

The financial highlights as of and for the three months ended March 31, 2024, include:

•Total assets of $6.7 billion, a $111.0 million, or 1.7%, increase from December 31, 2023.

•Total loans held for investment of $5.1 billion, a $96.1 million, or 1.9%, increase from December 31, 2023.

•Total deposits of $5.6 billion, a $324.0 million, or 6.2%, increase from December 31, 2023.

•Net income available to common shareholders of $12.2 million for the three months ended March 31, 2024, a $1.5 million, or 10.6%, decrease from the three months ended March 31, 2023.

•Net interest income of $51.5 million for the three months ended March 31, 2024, a decrease of $1.2 million, or 2.3%, from the three months ended March 31, 2023.

•Allowance for credit losses of 0.88% of total loans held for investment, compared to 0.88% as of December 31, 2023, and a ratio of nonperforming loans to total loans held for investment of 0.43%, compared to 0.34% as of December 31, 2023.

•Earnings per common share for the first three months of 2024 of $0.49 per basic common share and $0.48 per diluted common share, compared to $0.55 per basic common share and $0.54 per diluted common share for the first three months of 2023.

•Return on average assets of 0.74% over the first three months of 2024, compared to 0.91% for the first three months of 2023.

•Return on average common equity of 8.51% over the first three months of 2024, compared to 10.73% for the first three months of 2023.

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•Capital ratios for Tier 1 Leverage, Common Equity Tier 1, Tier 1 Risk-based and Total Risk-based Capital of 9.38%, 9.14%, 10.42% and 12.78%, respectively, compared to 9.52%, 9.15%, 10.46% and 12.85% at December 31, 2023.

•Book value per common share of $22.64, an increase of 0.3% from $22.58 at December 31, 2023.

Results of Operations for the Three Months Ended March 31, 2024, and 2023

Performance Summary

For the three months ended March 31, 2024, net income available to common shareholders was $12.2 million, or $0.49 per basic common share and $0.48 per diluted common share, compared to net income of $13.7 million, or $0.55 per basic common share and $0.54 per diluted common share, for the three months ended March 31, 2023. Return on average assets, on an annualized basis, decreased to 0.74% for the three months ended March 31, 2024, from 0.91% for the three months ended March 31, 2023. Return on average equity, on an annualized basis, decreased to 8.51% for the three months ended March 31, 2024, as compared to 10.73% for the three months ended March 31, 2023.

Net Interest Income

Our operating results depend primarily on our net interest income, calculated as the difference between interest income on interest-earning assets, such as loans and securities, and interest expense on interest-bearing liabilities, such as deposits and borrowings. Fluctuations in market interest rates impact the yield and rates paid on interest sensitive assets and liabilities. Changes in the amount and type of interest-earning assets and interest-bearing liabilities also impact net interest income. The variance driven by the changes in the amount and mix of interest-earning assets and interest-bearing liabilities is referred to as a “volume change.” Changes in yields earned on interest-earning assets and rates paid on interest-bearing deposits and other borrowed funds are referred to as a “rate change.”

To evaluate net interest income, we measure and monitor (1) yields on our loans and other interest-earning assets, (2) the costs of our deposits and other funding sources, (3) our net interest spread and (4) our net interest margin. Net interest spread is the difference between rates earned on interest-earning assets and rates paid on interest-bearing liabilities. Net interest margin is calculated as net interest income divided by average interest-earning assets. Because noninterest-bearing sources of funds, such as noninterest-bearing deposits and shareholders’ equity also fund interest-earning assets, net interest margin includes the benefit of these noninterest-bearing sources. We calculate average assets, liabilities, and equity using a daily average, and average yield/rate utilizing an actual day count convention.

For the three months ended March 31, 2024, net interest income totaled $51.5 million, and net interest margin and net interest spread were 3.32% and 2.36%, respectively, compared to $52.7 million, 3.75%, and 2.96%, respectively, for the three months ended March 31, 2023. The average yield on the loan portfolio was 6.88% for the three months ended March 31, 2024, compared to 6.34% for the three months ended March 31, 2023, and the average yield on total interest-earning assets was 6.18% for the three months ended March 31, 2024, compared to 5.65% for the three months ended March 31, 2023. For the three months ended March 31, 2024, overall cost of funds (which includes noninterest-bearing deposits) increased 103 basis points compared to the three months ended March 31, 2023, primarily due to the federal reserve increasing rates during 2023.

The following table presents, for the periods indicated, an analysis of net interest income by each major category of interest-earning assets and interest-bearing liabilities, the average amounts outstanding and the interest earned or paid on such amounts. The table also sets forth the average rate earned on interest-earning assets, the average rate paid on interest-bearing liabilities, and the net interest margin on average total interest-earning assets for the same periods. Interest earned on loans that are classified as nonaccrual is not recognized in income; however, the balances are reflected in average outstanding balances for the period. For the three months ended March 31, 2024, and 2023, interest income not recognized on nonaccrual loans was not material. Any nonaccrual loans have been included in the table as loans carrying a zero yield. The average total loans reflected below are net of deferred loan fees and discounts. Acquired loans were recorded at fair value at acquisition and accrete/amortize discounts and premiums as an adjustment to yield. Averages presented in the table below, and throughout this report, are month-end averages.

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For the Three Months Ended March 31,
2024 2023
Average <br>Outstanding <br>Balance Interest <br>Earned/Interest <br>Paid Average Yield/Rate Average <br>Outstanding <br>Balance Interest <br>Earned/Interest <br>Paid Average Yield/Rate
(Dollars in thousands) (Unaudited)
Assets
Interest-earning assets:
Total loans $ 5,026,937 $ 85,947 6.88 % $ 4,719,906 $ 73,768 6.34 %
Securities 888,933 5,599 2.53 927,491 4,782 2.09
Interest-bearing deposits in other banks 330,260 4,465 5.44 57,478 942 6.65
Total interest-earning assets 6,246,130 96,011 6.18 5,704,875 79,492 5.65
Allowance for loan losses (40,526) (41,533)
Noninterest-earning assets 461,923 459,721
Total assets $ 6,667,527 $ 96,011 $ 6,123,063 $ 79,492
Liabilities and Shareholders' Equity
Interest-bearing liabilities:
Interest-bearing deposits $ 4,072,600 $ 38,029 3.76 % $ 3,339,493 $ 18,928 2.30 %
Subordinated debt 99,972 1,356 5.46 110,647 1,389 5.09
Subordinated debt - trust preferred securities 5,000 113 9.09 5,000 98 7.95
Bank Term Funding Program 260,440 2,788 4.31 34,444 380 4.47
Advances from FHLB 223,501 2,094 3.77 517,934 5,842 4.57
Other borrowings 16,116 100 2.50 20,895 106 2.06
Total interest-bearing liabilities 4,677,629 44,480 3.82 4,028,413 26,743 2.69
Noninterest-bearing liabilities:
Noninterest-bearing deposits 1,282,815 1,473,186
Other liabilities 57,510 32,875
Total noninterest-bearing liabilities 1,340,325 1,506,061
Shareholders' equity:
Common shareholders' equity 577,643 516,659
Preferred equity 71,930 71,930
Total shareholders' equity 649,573 588,589
Total liabilities and shareholders' equity $ 6,667,527 $ 6,123,063
Net interest rate spread (1) 2.36 % 2.96 %
Net interest income $ 51,531 $ 52,749
Net interest margin (2) 3.32 % 3.75 %
Overall cost of funds 3.00 % 1.97 %

____________________________

(1)Net interest spread is the average yield on interest-earning assets minus the average rate on interest-bearing liabilities.

(2)Net interest margin is equal to net interest income divided by average interest-earning assets.

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The following table presents information regarding the dollar amount of changes in interest income and interest expense for the periods indicated for each major component of interest-earning assets and interest-bearing liabilities and distinguishes between the changes attributable to changes in volume and changes attributable to changes in interest rates. For the purposes of this table, changes attributable to both rate and volume that cannot be segregated have been allocated to rate.

For the Three Months Ended March 31, 2024 compared to the <br>Three Months Ended March 31, 2023
Increase (Decrease) due to change in
Volume Rate Total
(Dollars in thousands) (Unaudited)
Interest-earning assets:
Total loans $ 5,249 $ 6,930 $ 12,179
Securities (243) 1,060 817
Interest-bearing deposits in other banks 3,688 (165) 3,523
Total increase in interest income $ 8,694 $ 7,825 $ 16,519
Interest-bearing liabilities:
Interest-bearing deposits $ 6,846 $ 12,255 $ 19,101
Subordinated debt (145) 112 (33)
Subordinated debt - trust preferred securities - 15 15
Bank Term Funding Program 2,419 (11) 2,408
Advances from FHLB (2,759) (989) (3,748)
Other borrowings (30) 24 (6)
Total increase in interest expense $ 6,331 $ 11,406 $ 17,737
Increase (decrease) in net interest income $ 2,363 $ (3,581) $ (1,218)

Provision for Credit Losses

Our provision for credit losses is a charge to income in order to bring our allowance for credit losses to a level deemed appropriate by management. For a description of the factors taken into account by management in determining the allowance for credit losses see “—Financial Condition—Allowance for Credit Losses.” The provision for credit losses was $1.2 million for the three months ended March 31, 2024, and $3.2 million for the same period in 2023. The lower provision for the three months ended March 31, 2024, compared to the same period in 2023 relates primarily to higher loan growth in 2023 as well as the application of qualitative factors within the CECL model.

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Noninterest Income (“Other Income”)

Our primary sources of noninterest income are service charges on deposit accounts, debit card and automated teller machine (“ATM”) fee income, income from bank-owned life insurance, fees and brokerage commissions and pass-through income from other investments (small business investment company (“SBIC”) partnerships and fintech technology (“Fintech”) funds. The following table presents, for the periods indicated, the major categories of noninterest income:

For the Three Months Ended March 31,
2024 2023 Increase (Decrease)
(Dollars in thousands) (Unaudited)
Noninterest income:
Service charges on deposit accounts $ 2,439 $ 2,281 $ 158
Debit card and ATM fee income 1,776 1,570 206
Bank-owned life insurance income 579 524 55
Gain on sales of loans 139 611 (472)
Loss on sales of investment securities (1) (1) -
Fees and brokerage commissions 1,937 1,813 124
Mortgage origination income 69 74 (5)
Correspondent bank income 196 37 159
Gain on sales of other real estate owned 63 209 (146)
Swap fee income 229 6 223
Pass-through income from other investments 294 173 121
Other 1,666 1,091 575
Total noninterest income $ 9,386 $ 8,388 $ 998

Total noninterest income increased $1.0 million, or 11.9%, from the three months ended March 31, 2023.

Noninterest Expense (“Other Expense”)

Generally, noninterest expense is composed of all employee expenses and costs associated with operating our facilities, obtaining and retaining customer relationships, and providing bank services. The largest component of noninterest expense is salaries and employee benefits. Noninterest expense also includes operational expenses, such as occupancy expenses, depreciation and amortization, professional and regulatory fees, including Federal Deposit Insurance Corporation (“FDIC”) assessments, data processing expenses, and advertising and promotion expenses, among others.

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The following table presents, for the periods indicated, the major categories of noninterest expense:

For the Three Months Ended March 31,
2024 2023 Increase (Decrease)
(Dollars in thousands) (Unaudited)
Salaries and employee benefits $ 25,416 $ 23,176 $ 2,240
Non-staff expenses:
Occupancy of bank premises 2,514 2,297 217
Depreciation and amortization 1,676 1,710 (34)
Data processing 2,579 1,485 1,094
FDIC assessment fees 828 933 (105)
Legal and professional fees 866 613 253
Advertising and promotions 1,145 1,148 (3)
Utilities and communications 674 721 (47)
Ad valorem shares tax 900 965 (65)
Directors' fees 282 269 13
Other real estate owned expenses and write-downs 37 130 (93)
Merger and conversion related expenses 340 103 237
Other 5,265 5,129 136
Total noninterest expense $ 42,522 $ 38,679 $ 3,843

Total noninterest expense increased $3.8 million, or 9.9%, from the three months ended March 31, 2023, primarily attributed to the increase in salaries and employee benefits of $2.2 million, or 9.7%, and an increase in data processing of $1.1 million, or 73.7%. Data processing for the three months ended March 31, 2023 was impacted by an accrual adjustment.

Income Tax Expense

The amount of income tax expense is influenced by the amounts of our pre-tax income, tax-exempt income and other nondeductible expenses. Deferred tax assets and liabilities are reflected at currently enacted income tax rates in effect for the period in which the deferred tax assets and liabilities are expected to be realized or settled. As changes in tax laws or rates are enacted, deferred tax assets and liabilities are adjusted through the provision for income taxes. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized.

For the three months ended March 31, 2024, income tax expense totaled $3.6 million, a decrease of $572,000, or 13.6%, compared to $4.2 million for the same period in 2023. Our effective tax rates for the three months ended March 31, 2024, and 2023 were 21.1% and 21.9%, respectively.

Financial Condition

Our total assets increased $111.0 million, or 1.7%, from December 31, 2023, to March 31, 2024, due primarily from the increase in our loan portfolio.

Loan Portfolio

Our primary source of income is interest on loans to individuals, professionals and small-to-midsized businesses located in our markets. Our loan portfolio consists primarily of commercial loans and real estate loans secured by commercial real estate properties located in our primary market areas. Our loan portfolio represents the highest yielding component of our earning asset base.

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As of March 31, 2024, total loans, excluding mortgage loans held for sale, were $5.1 billion, an increase of $96.1 million, or 1.9%, compared to $5.0 billion as of December 31, 2023. Additionally, $77,000, and $835,000 in loans were classified as loans held for sale as of March 31, 2024, and December 31, 2023, respectively.

Total loans held for investment as a percentage of total deposits were 91.3% and 95.1% as of March 31, 2024, and December 31, 2023, respectively. Total loans held for investment as a percentage of total assets were 76.0% and 75.8% as of March 31, 2024, and December 31, 2023, respectively.

The following table summarizes our loan portfolio by type of loan as of the dates indicated:

As of March 31, 2024 (Unaudited) As of December 31, 2023
Amount Percent Amount Percent
(Dollars in thousands)
Real Estate Loans:
Commercial $ 2,215,889 43.6 % $ 2,217,928 44.4 %
Construction 662,013 13.0 669,798 13.4
Residential 717,007 14.1 682,394 13.7
Total Real Estate Loans 3,594,909 70.7 3,570,120 71.5
Commercial 1,426,957 28.0 1,358,838 27.2
Consumer and Other 66,973 1.3 63,827 1.3
Total loans held for investment $ 5,088,839 100.0 % $ 4,992,785 100.0 %

Real Estate: Commercial loans are extensions of credit secured by owner-occupied and non-owner-occupied collateral. Repayment is generally dependent on the successful operations of the property. General economic conditions may impact the performance of these types of loans, including fluctuations in the value of real estate, vacancy rates, and unemployment trends. Real estate commercial loans also include farmland loans that can be, or are, used for agricultural purposes. These loans are usually repaid through refinancing, cash flow from the borrower’s ongoing operations, development of the property, or sale of the property.

Real Estate: Commercial loans decreased slightly, by $2.0 million or 0.1%, remaining at $2.2 billion as of March 31, 2024.

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 our market areas. Risks associated with these loans include fluctuations in the value of real estate, project completion risk and changes in market trends. We are also exposed to risk based on the ability of the construction loan borrower to finance the loan or sell the property upon completion of the project, which may be affected by changes in secondary market terms and criteria for permanent financing since the time we funded the loan.

Real Estate: Construction loans decreased $7.8 million, or 1.2%, to $662.0 million as of March 31, 2024, from $669.8 million as of December 31, 2023.

Real Estate: Residential loans include first and second lien 1-4 family mortgage loans, as well as home equity lines of credit, in each case primarily on owner-occupied primary residences. The Company is exposed to risk based on fluctuations in the value of the real estate collateral securing the loan, as well as changes in the borrower’s financial condition, which could be affected by numerous factors, including divorce, job loss, illness, or other personal hardship. Real estate residential loans also include multi-family residential loans originated to provide permanent financing for multi-family residential income producing properties. Repayment of these loans primarily relies on successful rental and management of the property.

Real Estate: Residential loans increased $34.6 million, or 5.1%, to $717.0 million as of March 31, 2024, from $682.4 million as of December 31, 2023.

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Commercial loans include general commercial and industrial, or C&I, loans, including commercial lines of credit, working capital loans, term loans, equipment financing, asset acquisition, expansion, and development loans, borrowing base loans, letters of credit and other loan products, primarily in the Company’s target markets that are underwritten based on the borrower’s ability to service the debt from income. Commercial loan risk is derived from the expectation that such loans generally are serviced principally from the operations of the business, and those operations may not be successful. Any interruption or discontinuance of operating cash flows from the business, which may be influenced by events not under the control of the borrower such as economic events and changes in governmental regulations, could materially affect the ability of the borrower to repay the loan.

Commercial loans increased $68.1 million, or 5.0%, to $1.4 billion as of March 31, 2024, from $1.4 billion as of December 31, 2023.

Consumer and other loans include a variety of loans to individuals for personal, family and household purposes, including secured and unsecured installment and term loans. The risk is based on changes in the borrower’s financial condition, which could be affected by numerous factors, including divorce, job loss, illness or other personal hardship, and fluctuations in the value of the real estate or personal property securing the consumer loan, if any.

Consumer and other loans increased $3.1 million, or 4.9%, to $67.0 million as of March 31, 2024, from $63.8 million as of December 31, 2023.

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The contractual maturity ranges of loans in our loan portfolio and the amount of such loans with fixed and floating interest rates in each maturity range as of the date indicated are summarized in the following tables:

As of March 31, 2024
One Year or Less One Through Five <br>Years Five Through<br>Fifteen Years After Fifteen Years Total
(Dollars in thousands) (Unaudited)
Real Estate Loans:
Commercial $ 248,113 $ 1,267,115 $ 611,851 $ 88,810 $ 2,215,889
Construction 307,233 297,492 39,262 18,026 662,013
Residential 84,213 424,153 143,239 65,402 717,007
Total Real Estate Loans 639,559 1,988,760 794,352 172,238 3,594,909
Commercial 531,449 647,218 247,416 874 1,426,957
Consumer and Other 39,460 23,024 4,312 177 66,973
Total loans held for investment $ 1,210,468 $ 2,659,002 $ 1,046,080 $ 173,289 $ 5,088,839
Fixed rate loans:
Real Estate Loans:
Commercial $ 156,987 $ 1,081,841 $ 436,631 $ 14,936 $ 1,690,395
Construction 87,092 186,630 20,615 12,268 306,605
Residential 51,447 362,689 92,303 17,335 523,774
Total Real Estate Loans 295,526 1,631,160 549,549 44,539 2,520,774
Commercial 140,266 355,519 140,092 - 635,877
Consumer and Other 30,761 17,311 3,468 158 51,698
Total fixed rate loans $ 466,553 $ 2,003,990 $ 693,109 $ 44,697 $ 3,208,349
Floating rate loans:
Real Estate Loans:
Commercial $ 91,126 $ 185,274 $ 175,220 $ 73,874 $ 525,494
Construction 220,141 110,862 18,647 5,758 355,408
Residential 32,766 61,464 50,936 48,067 193,233
Total Real Estate Loans 344,033 357,600 244,803 127,699 1,074,135
Commercial 391,183 291,699 107,324 874 791,080
Consumer and Other 8,699 5,713 844 19 15,275
Total floating rate loans $ 743,915 $ 655,012 $ 352,971 $ 128,592 $ 1,880,490

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

Nonperforming Assets

Loans are considered past due if the required principal and interest payments have not been received as of the date such payments were due. Loans are placed on nonaccrual status when, in management’s opinion, the borrower may be unable to meet payment obligations as they become due, as well as when required by regulatory provisions. Loans may be placed on nonaccrual status regardless of whether or not such loans are considered past due. When interest accrual is discontinued, all unpaid accrued interest is generally reversed. Interest income is subsequently recognized only to the extent cash payments are received in excess of principal due, or interest may be recognized on a cash basis as long as the remaining book balance of the loan is deemed collectible. Loans are returned to accrual status when all the principal and interest amounts contractually due are brought current and future payments are reasonably assured.

We have several procedures in place to assist in maintaining the overall quality of our loan portfolio. We have established underwriting guidelines to be followed by our bankers, and we also monitor our delinquency levels for any negative or adverse trends. There can be no assurance, however, that our loan portfolio will not become subject to increasing pressures from deteriorating borrower credit due to general economic conditions.

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We believe our conservative lending approach and focused management of nonperforming assets has resulted in sound asset quality and the timely resolution of problem assets. We had $23.0 million and$18.8 million in nonperforming assets as of March 31, 2024, and December 31, 2023, respectively. We had $21.6 million in nonperforming loans as of March 31, 2024, compared to $17.1 million as of December 31, 2023. The increase in nonperforming assets from December 31, 2023, to March 31, 2024, is primarily due to two lending relationships secured by residential real estate.

The following tables present information regarding nonperforming assets at the dates indicated:

As of March 31,<br>2024 (Unaudited) As of December 31,<br>2023
(Dollars in thousands)
Nonaccrual loans $ 20,778 $ 16,943
Accruing loans 90 or more days past due 855 127
Total nonperforming loans 21,633 17,070
Other nonperforming assets - -
Other real estate owned:
Commercial real estate, construction, land and land development 1,047 1,326
Residential real estate 292 359
Total other real estate owned 1,339 1,685
Total nonperforming assets $ 22,972 $ 18,755
Ratio of nonperforming loans to total loans held for investment 0.43 % 0.34 %
Ratio of nonperforming assets to total assets 0.34 0.28
Ratio of nonaccrual loans to total loans held for investment 0.41 0.34 As of March 31, 2024 (Unaudited) As of December 31, 2023
--- --- --- --- ---
(Dollars in thousands)
Nonaccrual loans by category:
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

Potential Problem Loans

From a credit risk standpoint, we classify loans in one of four categories: pass, special mention, substandard or doubtful. Loans classified as loss are charged-off. The classifications of loans reflect a judgment about the risks of default and loss associated with the loan. Ratings are adjusted to reflect the degree of risk and loss that is believed to be inherent in each credit. Our methodology is structured so that specific allocations are increased in accordance with deterioration in credit quality (and a corresponding increase in risk of loss) or decreased in accordance with improvement in credit quality (and a corresponding decrease in risk of loss).

Credits rated special mention show clear signs of financial weaknesses or deterioration in credit worthiness; however, such concerns are not so pronounced that we generally expect to experience significant loss within the short-term.

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Such credits typically maintain the ability to perform within standard credit terms and credit exposure is not as prominent as credits with a lower rating.

Credits rated substandard are those in which the normal repayment of principal and interest may be, or has been, jeopardized by reason of adverse trends or developments of a financial, managerial, economic or political nature, or important weaknesses which exist in collateral. A protracted workout on these credits is a distinct possibility. Prompt corrective action is therefore required to reduce exposure and to assure that adequate remedial measures are taken by the borrower. Credit exposure becomes more likely in such credits and a serious evaluation of the secondary support to the credit is performed.

Credits rated doubtful have all the weaknesses inherent in those rated substandard, with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions, and values, highly questionable and improbable.

The following tables summarize our internal ratings of loans held for investment as of the dates indicated. See Note 6 of the consolidated financial statements for the presentation of loans in their credit quality categories that is in compliance with the CECL standard.

As of March 31, 2024
Pass Special Mention Substandard Doubtful Total
(Dollars in thousands) (Unaudited)
Real Estate Loans:
Commercial $ 2,163,817 $ 47,242 $ 3,595 $ 1,235 $ 2,215,889
Construction 653,568 1,081 7,019 345 662,013
Residential 703,878 2,947 9,789 393 717,007
Total Real Estate Loans 3,521,263 51,270 20,403 1,973 3,594,909
Commercial 1,404,600 11,905 9,957 495 1,426,957
Consumer and Other 66,386 - 587 - 66,973
Total $ 4,992,249 $ 63,175 $ 30,947 $ 2,468 $ 5,088,839 As of December 31, 2023
--- --- --- --- --- --- --- --- --- --- ---
Pass Special Mention Substandard Doubtful Total
(Dollars in thousands)
Real Estate Loans:
Commercial $ 2,188,840 $ 18,658 $ 9,163 $ 1,267 $ 2,217,928
Construction 661,796 4,087 3,570 345 669,798
Residential 669,391 3,161 9,353 489 682,394
Total Real Estate Loans 3,520,027 25,906 22,086 2,101 3,570,120
Commercial 1,338,339 14,623 5,308 568 1,358,838
Consumer and Other 63,265 100 462 - 63,827
Total $ 4,921,631 $ 40,629 $ 27,856 $ 2,669 $ 4,992,785

Allowance for Credit Losses

We maintain an allowance for credit losses, which includes both our allowance for loan losses and reserves for unfunded commitments, that represents management’s best estimate of the credit losses and risks inherent in the loan portfolio. In determining the allowance for credit losses, we estimate losses on specific loans, or groups of loans, where the probable loss can be identified and reasonably determined. The balance of the allowance for credit losses is based on internally assigned risk classifications of loans, changes in the nature of the loan portfolio, overall portfolio quality, industry concentrations, delinquency trends, current economic factors and the estimated impact of current economic

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conditions on certain historical credit loss rates. For additional information, see Note 6 to the consolidated financial statements.

In connection with our review of the loan portfolio, we consider risk elements attributable to particular loan types or categories in assessing the quality of individual loans. Some of the risk elements we consider include:

•for Real Estate: Commercial loans, the debt service coverage ratio (income from the property in excess of operating expenses compared to loan payment requirements), operating results of the owner in the case of owner-occupied properties, the loan to value ratio, the age and condition of the collateral, and the volatility of income, property value and future operating results typical for properties of that type;

•for Real Estate: Construction loans, the perceived feasibility of the project including the ability to sell developed lots or improvements constructed for resale or the ability to lease property constructed for lease, the quality and nature of contracts for presale or prelease, if any, the experience and ability of the developer, and the loan to value ratio;

•for Real Estate: Residential real estate loans, the borrower’s ability to repay the loan, including a consideration of the debt to income ratio and employment and income stability, the loan to value ratio, and the age, condition and marketability of the collateral; and

•for Commercial loans, the operating results of the commercial, industrial or professional enterprise, the borrower’s business, professional and financial ability and expertise, the specific risks and volatility of income and operating results typical for businesses in that category, and the value, nature and marketability of collateral;

As of March 31, 2024, the allowance for credit losses totaled $44.5 million, or 0.88%, of total loans held for investment. As of December 31, 2023, the allowance for credit losses totaled $43.7 million, or 0.88%, of total loans held for investment.

The following tables present, as of and for the periods indicated, an analysis of the allowance for credit losses and other related data:

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As of and For the Three Months Ended<br>March 31, 2024 (Unaudited) As of and For the Year Ended December<br>31, 2023
(Dollars in thousands)
Average loans outstanding $ 5,026,937 $ 4,859,637
Gross loans held for investment outstanding end of period $ 5,088,839 $ 4,992,785
Allowance for credit losses at beginning of period $ 43,738 $ 38,783
Adoption of ASU 2016-13 - 5,857
Provision for credit losses 1,186 4,483
Charge-offs:
Real Estate:
Commercial (16) 2,049
Construction 49 36
Residential 71 42
Total Real Estate 104 2,127
Commercial (1) 2,813
Consumer and other 430 1,489
Total charge-offs 533 6,429
Recoveries:
Real Estate:
Commercial 5 26
Construction - 1
Residential 3 18
Total Real Estate 8 45
Commercial 40 672
Consumer and other 93 327
Total recoveries 141 1,044
Net charge-offs 392 5,385
Allowance for credit losses at end of period $ 44,532 $ 43,738
Ratio of allowance for credit losses to end of period loans held for investment 0.88 % 0.88 %
Ratio of net charge-offs to average loans 0.01 0.11
Ratio of allowance for credit losses to nonaccrual loans 214.32 258.15

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As of and For the Three Months Ended<br>March 31, 2024 (Unaudited) As of and For the Year Ended <br>December 31, 2023 As of and For the Three Months Ended <br>March 31, 2023 (Unaudited)
Net Charge-offs<br>(Recoveries) Percent of Average <br>Loans Net Charge-offs<br>(Recoveries) Percent of Average<br>Loans Net Charge-offs <br>(Recoveries) Percent of Average <br>Loans
(Dollars in thousands)
Real estate:
Commercial $ (21) 0.00 % $ 2,023 0.04 % $ 1,797 0.04 %
Construction 49 0.00 % 35 0.00 % 1 0.00 %
Residential 68 0.00 % 24 0.00 % 4 0.00 %
Total Real Estate Loans 96 0.00 % 2,082 0.04 % 1,802 0.04 %
Commercial (41) 0.00 % 2,141 0.05 % 201 0.01 %
Consumer and Other 337 0.01 % 1,162 0.02 % 172 0.00 %
Total net charge-offs (recoveries) $ 392 0.01 % $ 5,385 0.11 % $ 2,175 0.05 %

Although we believe that we have established our allowance for credit losses in accordance with U.S. generally accepted accounting principles (“GAAP”) and that the allowance for credit losses was adequate to provide for known and estimated losses in the portfolio at all times shown above, future provisions will be subject to ongoing evaluations of the risks in our loan portfolio. If we experience economic declines or if asset quality deteriorates, material additional provisions could be required.

The following table shows the allocation of the allowance for credit losses among loan categories and certain other information as of the dates indicated. The allocation of the allowance for credit losses as shown in the table should neither be interpreted as an indication of future charge-offs, nor as an indication that charge-offs in future periods will necessarily occur in these amounts or in the indicated proportions. The total allowance is available to absorb losses from any loan category.

As of March 31, 2024 (Unaudited) As of December 31, 2023 As of March 31, 2023 (Unaudited)
Amount Percent to Total Amount Percent to Total Amount Percent to Total
(Dollars in thousands)
Real estate:
Commercial $ 18,043 40.5 % $ 17,882 40.9 % $ 18,485 40.5 %
Construction 7,822 17.6 8,142 18.6 10,608 23.2
Residential 6,186 13.9 5,662 12.9 5,235 11.4
Total real estate 32,051 72.0 31,686 72.4 34,328 75.1
Commercial 11,948 26.8 11,796 27.0 11,124 24.4
Consumer and Other 533 1.2 256 0.6 235 0.5
Total allowance for credit losses $ 44,532 100.0 % $ 43,738 100.0 % $ 45,687 100.0 %

Securities

We use our securities portfolio to provide a source of liquidity, an appropriate return on funds invested, manage interest rate risk, meet collateral requirements, and meet regulatory capital requirements. As of March 31, 2024, the carrying amount of investment securities totaled $872.9 million, a decrease of $6.7 million, or 0.8%, compared to $879.6 million as of December 31, 2023. The decrease was primarily due to unrealized losses in the first three months of 2024. Securities represented 13.0% and 13.4% of total assets as of March 31, 2024, and December 31, 2023, respectively.

Our investment portfolio consists entirely of securities classified as available for sale. As a result, the carrying values of our investment securities are adjusted for unrealized gain or loss, and any gain or loss is reported on an after-tax

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basis as a component of other comprehensive income in shareholders’ equity. The following tables summarize the amortized cost and estimated fair value of investment securities as of the dates shown:

As of March 31, 2024
Amortized Cost Gross Unrealized <br>Gains Gross Unrealized<br>Losses Fair Value
(Dollars in thousands) (Unaudited)
U.S. treasury securities $ 17,676 $ - $ 1,460 $ 16,216
U.S. government agencies 10,235 - 858 9,377
Corporate bonds 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 $ 963,726 $ 520 $ 91,343 $ 872,903 As of December 31, 2023
--- --- --- --- --- --- --- --- ---
Amortized Cost Gross Unrealized <br>Gains Gross Unrealized <br>Losses Fair Value
(Dollars in thousands)
U.S. treasury securities $ 17,690 $ - $ 1,451 $ 16,239
U.S. government agencies 10,258 - 848 9,410
Corporate bonds 49,609 - 5,770 43,839
Mortgage-backed securities 555,148 976 49,814 506,310
Municipal securities 331,273 298 27,798 303,773
Total $ 963,978 $ 1,274 $ 85,681 $ 879,571

All of our mortgage-backed securities are agency securities. We do not hold any Fannie Mae or Freddie Mac preferred stock, corporate equity, collateralized debt obligations, collateralized loan obligations, private label collateralized mortgage obligations, subprime, Alt-A, or second lien elements in our investment portfolio as of March 31, 2024.

The allowance for credit losses encompasses potential expected credit losses related to the securities portfolio. In order to develop an estimate of credit losses expected for the current securities portfolio, we perform an assessment that includes reviewing historical loss data for both our portfolio and similar types of investment securities. Additionally, our review of the securities portfolio for expected credit losses includes an evaluation of factors including the security issuer bond ratings, delinquency status, insurance or other available credit support, as well as our expectations of the forecasted economic outlook relevant to these securities. The results of the analysis are evaluated quarterly to confirm that credit loss estimates are appropriate for the securities portfolio. Based on our assessments, expected credit losses on the investment securities portfolio as of both March 31, 2024 and December 31, 2023, was negligible and therefore, no allowance for credit loss was recorded related to our investment securities.

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The following tables set forth the fair value, maturities and approximated weighted average yield based on estimated annual income divided by the average amortized cost of the securities portfolio as of the dates indicated. The contractual maturity of a mortgage-backed security is the date at which the last underlying mortgage matures.

As of March 31, 2024
Within One Year After One Year but Within Five Years After Five Years but Within Ten Years After Ten Years Total
Amount Yield Amount Yield Amount Yield Amount Yield Total Yield
(Dollars in thousands) (Unaudited)
U.S. treasury securities $ - - % $ 16,216 0.80 % $ - - % $ - - % $ 16,216 0.80 %
U.S. government agencies - - % 9,377 0.92 % - - % - - % 9,377 0.92 %
Corporate bonds 35 - % 3,412 5.67 % 40,726 4.48 % - - % 44,173 4.57 %
Mortgage-backed securities 2,610 0.89 % 46,113 2.13 % 189,438 2.79 % 273,456 2.80 % 511,617 2.73 %
Municipal securities 21,679 1.40 % 93,799 1.61 % 111,234 1.97 % 64,808 2.35 % 291,520 1.90 %
Total $ 24,324 1.34 % $ 168,917 1.72 % $ 341,398 2.72 % $ 338,264 2.71 % $ 872,903 2.49 % As of December 31, 2023
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Within One Year After One Year but Within Five Years After Five Years but Within Ten Years After Ten Years Total
Amount Yield Amount Yield Amount Yield Amount Yield Total Yield
(Dollars in thousands)
U.S. treasury securities $ - - % $ 16,239 0.80 % $ - - % $ - - % $ 16,239 0.80 %
U.S. government agencies - - % 9,410 0.92 % - - % - - % 9,410 0.92 %
Corporate bonds 213 - % 2,390 4.78 % 41,236 4.61 % - - % 43,839 4.60 %
Mortgage-backed securities 147 1.28 % 46,339 2.06 % 191,332 2.68 % 268,492 2.73 % 506,310 2.65 %
Municipal securities 16,766 1.56 % 96,739 1.55 % 117,092 1.91 % 73,176 2.38 % 303,773 1.89 %
Total $ 17,126 1.54 % $ 171,117 1.63 % $ 349,660 2.65 % $ 341,668 2.66 % $ 879,571 2.43 %

The contractual maturity of mortgage-backed securities, collateralized mortgage obligations and asset-backed securities is not a reliable indicator of their expected life because borrowers have the right to prepay their obligations at any time. Mortgage-backed securities and asset-backed securities are typically issued with stated principal amounts and are backed by pools of mortgage loans and other loans with varying maturities. The term of the underlying mortgages and loans may vary significantly due to the ability of a borrower to prepay. Monthly paydowns on mortgage-backed securities tend to cause the average life of the securities to be much different than the stated contractual maturity. During a period of increasing interest rates, fixed rate mortgage-backed securities do not tend to experience heavy prepayments of principal and, consequently, the average life of this security will be lengthened. If interest rates begin to fall, prepayments may increase, thereby shortening the estimated life of this security. The weighted average life of our investment portfolio was 4.53 years with an estimated effective duration of 3.71 years as of March 31, 2024.

As of March 31, 2024, and December 31, 2023, we did not own securities of any one issuer for which aggregate adjusted cost exceeded 10% of our consolidated shareholders’ equity as of such respective dates.

As of March 31, 2024, and December 31, 2023, the Company held other equity securities of $34.9 million and $33.9 million, respectively, comprised mainly of FHLB stock, small business investment companies (“SBICs”) and financial technology (“Fintech”) fund investments.

Deposits

We offer a variety of deposit accounts having a wide range of interest rates and terms including demand, savings, money market and time accounts. We rely primarily on competitive pricing policies, convenient locations and personalized service to attract and retain these deposits.

Total deposits as of March 31, 2024, were $5.6 billion, an increase of $324.0 million, or 6.2%, compared to $5.2 billion as of December 31, 2023. Total uninsured deposits were $2.2 billion, or 39.8%, of total deposits as of March 31, 2024 compared to $2.0 billion, or 38.9%, of total deposits as of December 31, 2023. Since it is not reasonably practical to

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provide a precise measure of uninsured deposits, the amounts are estimated and are based on the same methodologies and assumptions that are used for regulatory reporting requirements for the call report.

Noninterest-bearing deposits as of March 31, 2024, were $1.3 billion compared to $1.3 billion as of December 31, 2023, a decrease of $4.0 million, or 0.3%.

Average deposits for the three months ended March 31, 2024, were $5.4 billion, an increase of $376.2 million, or 7.6%, over the full year average for the year ended December 31, 2023, of $5.0 billion. The average rate paid on total interest-bearing deposits increased over this period from 3.00% for the year ended December 31, 2023, to 3.76% for the three months ended March 31, 2024. The increase in average rates was driven by the federal reserve raising rates during the year ended December 31, 2023. In addition, the stability of noninterest-bearing demand accounts served to reduce the cost of deposits to 2.86% for the three months ended March 31, 2024, compared to 2.15% for the year ended December 31, 2023.

The following table presents the daily average balances and weighted average rates paid on deposits for the periods indicated:

For the Three Months Ended <br>March 31, 2024 (Unaudited) For the Year Ended <br>December 31, 2023
Average Balance Average Rate Average Balance Average Rate
(Dollars in thousands)
Interest-bearing demand accounts $ 525,653 3.66 % $ 507,782 3.40 %
Negotiable order of withdrawal ("NOW") accounts 476,872 1.92 % 468,094 1.33 %
Limited access money market accounts and savings 1,819,380 3.80 % 1,441,836 2.77 %
Certificates and other time deposits > $250k 608,368 4.55 % 498,054 4.01 %
Certificates and other time deposits < $250k 642,327 4.31 % 650,450 3.61 %
Total interest-bearing deposits 4,072,600 3.76 % 3,566,216 3.00 %
Noninterest-bearing demand accounts 1,282,815 - % 1,412,979 - %
Total deposits $ 5,355,415 2.86 % $ 4,979,195 2.15 %

The ratio of average noninterest-bearing deposits to average total deposits for the three months ended March 31, 2024, and the year ended December 31, 2023, was 24.0% and 28.4%, respectively.

The following table sets forth the contractual maturities of certain certificates of deposit at March 31, 2024:

Certificates of Deposit More Than250,000 Certificates of Deposit of 100,000 Through250,000
(Dollars in thousands) (Unaudited)
3 months or less
More than 3 months but less than 6 months 144,704 212,855
More than 6 months but less than 12 months 135,627 98,349
12 months or more 270,726 39,151
Total

All values are in US Dollars.

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Federal Funds Purchased Lines of Credit Relationships

We maintain Federal Funds Purchased Lines of Credit Relationships with the following correspondent banks and limits as of March 31, 2024:

Fed Funds Purchase<br>Limits
(Dollars in thousands)
TIB National Association $ 45,000
PNC Bank 38,000
FNBB 35,000
First Horizon Bank 17,000
ServisFirst Bank 10,000
Total $ 145,000

We had no outstanding balances on these lines at March 31, 2024 and December 31, 2023.

Liquidity and Capital Resources

Liquidity

Liquidity involves our ability to utilize funds to support asset growth and acquisitions or reduce assets to meet deposit withdrawals and other payment obligations, to maintain reserve requirements and otherwise to operate on an ongoing basis and manage unexpected events. For the three months ended March 31, 2024, and the year ended December 31, 2023, liquidity needs were primarily met by core deposits, security and loan maturities, and amortizing investment and loan portfolios. In addition, we also utilize, or have available, brokered deposits, purchased funds from correspondent banks, the Federal Reserve discount window, and overnight advances from the FHLB. As of March 31, 2024, and December 31, 2023, we maintained five federal funds purchased lines of credit with correspondent banks which provided for extensions of credit with an availability to borrow up to an aggregate of $145.0 million. There were no funds drawn under these lines of credit at March 31, 2024, and December 31, 2023. We had an additional $1.2 billion of availability through the FHLB at both March 31, 2024, and December 31, 2023. As of March 31, 2024 and December 31, 2023, we had $726.2 million and $1.0 billion, respectively, of availability through the Federal Reserve Discount Window.

The following table illustrates, during the periods presented, the mix of our funding sources and the average assets in which those funds are invested as a percentage of average total assets for the periods indicated. Average total assets equaled $6.7 billion and $6.3 billion for the three months ended March 31, 2024, and the year ended December 31, 2023, respectively.

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For the Three <br>Months Ended <br>March 31,<br>2024 (Unaudited) For the Year Ended <br>December 31, <br>2023
Source of Funds:
Deposits:
Noninterest-bearing 19.2 % 22.3 %
Interest-bearing 61.1 56.2
Subordinated debt (excluding trust preferred securities) 1.5 1.7
Advances from FHLB 3.4 5.2
Other borrowings 0.3 0.4
Bank Term Funding Program 3.9 4.0
Other liabilities 0.9 0.7
Shareholders' equity 9.7 9.5
Total 100.0 % 100.0 %
Uses of Funds:
Loans, net of allowance for loan losses 74.8 % 76.0 %
Securities available for sale 13.3 14.2
Interest-bearing deposits in other banks 5.0 2.8
Other noninterest-earning assets 6.9 7.0
Total 100.0 % 100.0 %
Average noninterest-bearing deposits to average deposits 24.0 % 28.4 %
Average loans to average deposits 93.9 97.6

Our primary source of funds is deposits, and our primary use of funds is loans. We do not expect a change in the primary source or use of our funds in the foreseeable future. Our average net loans increased 8.9% for the three months ended March 31, 2024, compared to the same period in 2023. We predominantly invest excess deposits in overnight deposits with the Federal Reserve, securities, interest-bearing deposits at other banks or other short-term liquid investments until needed to fund loan growth. Our securities portfolio had a weighted average life of 4.53 years and an effective duration of 3.71 years as of March 31, 2024. As of December 31, 2023, our securities portfolio had a weighted average life of 4.57 years and an effective duration of 3.81 years.

As of March 31, 2024, we had outstanding $1.2 billion in commitments to extend credit and $48.9 million in commitments associated with outstanding standby and commercial letters of credit. As of December 31, 2023, we had outstanding $1.2 billion in commitments to extend credit and $45.2 million in commitments associated with outstanding standby and commercial letters of credit. Because commitments associated with letters of credit and commitments to extend credit may expire unused, the total outstanding may not necessarily reflect the actual future cash funding requirements. See “Off Balance Sheet Items” below for additional information.

As of March 31, 2024, and December 31, 2023 we had cash and cash equivalents, including federal funds sold, of $397.2 million and $377.2 million, respectively. We had no exposure to future cash requirements associated with known uncertainties or capital expenditures of a material nature for either period.

Capital Resources

Total shareholders’ equity increased to $649.0 million as of March 31, 2024, compared to $644.3 million as of December 31, 2023, an increase of $4.8 million, or 0.7%. This increase was primarily due to net income of $13.6 million offset with other comprehensive losses of $5.0 million resulting from the after-tax effect of unrealized losses in our investment securities portfolio, and dividends paid on preferred stock and common stock of $4.9 million.

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On April 25, 2024, our Board declared a quarterly dividend in the amount of $18.75 per preferred share to the preferred shareholders of record as of May 15, 2024. The dividend is to be paid on May 31, 2024, or as soon as practicable thereafter.

On April 25, 2024, our Board declared a quarterly dividend based upon our financial performance for the three months ended March 31, 2024, in the amount of $0.14 per common share to the common shareholders of record as of May 15, 2024. The dividend is to be paid on May 31, 2024, or as soon as practicable thereafter.

The declaration and payment of dividends to our shareholders, as well as the amounts thereof, are subject to the discretion of the Board and depend upon our results of operations, financial condition, capital levels, cash requirements, future prospects and other factors deemed relevant by the Board. As a holding company, our ability to pay dividends is largely dependent upon the receipt of dividends from our subsidiary, b1BANK. There can be no assurance that we will declare and pay any dividends to our shareholders.

Capital management consists of providing equity to support current and future operations. Banking regulators view capital levels as important indicators of an institution’s financial soundness. As a general matter, FDIC-insured depository institutions and their holding companies are required to maintain minimum capital relative to the amount and types of assets they hold. We are subject to regulatory capital requirements at the holding company and bank levels. As of March 31, 2024, and December 31, 2023, we and b1BANK were in compliance with all applicable regulatory capital requirements, and b1BANK was classified as “well-capitalized,” for purposes of prompt corrective action regulations. As we employ our capital and continue to grow our operations, our regulatory capital levels may decrease depending on our level of earnings. However, we expect to monitor and control our growth in order to remain in compliance with all applicable regulatory capital standards applicable to us.

The following table presents the actual capital amounts and regulatory capital ratios for us and b1BANK as of the dates indicated.

As of March 31, 2024 (Unaudited) As of December 31, 2023
Amount Ratio Amount Ratio
(Dollars in thousands)
Business First
Total capital (to risk weighted assets) $ 763,096 12.78 % $ 754,990 12.85 %
Tier 1 capital (to risk weighted assets) 622,332 10.42 % 614,975 10.46 %
Common Equity Tier 1 capital (to risk weighted assets) 545,402 9.14 % 538,045 9.15 %
Tier 1 Leverage capital (to average assets) 622,332 9.38 % 614,975 9.52 %
b1BANK
Total capital (to risk weighted assets) $ 744,471 12.48 % $ 730,117 12.43 %
Tier 1 capital (to risk weighted assets) 699,939 11.73 % 686,379 11.69 %
Common Equity Tier 1 capital (to risk weighted assets) 699,939 11.73 % 686,379 11.69 %
Tier 1 Leverage capital (to average assets) 699,939 10.56 % 686,379 10.63 %

FHLB Advances

Advances from the FHLB totaled approximately $308.2 million and $211.2 million at March 31, 2024 and December 31, 2023, respectively. As of March 31, 2024, and December 31, 2023, the FHLB advances were collateralized by a blanket floating lien on certain securities and loans, had a weighted average stated rate of 4.04% and 3.65%, respectively, and mature within ten years.

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Bank Term Funding Program (“BTFP”)

On March 12, 2023, the Federal Reserve launched the BTFP, which offered loans to banks with a term of up to one year. The loans were secured by pledging the banks’ U.S. treasuries, agency securities, agency mortgage-backed securities, and any other qualifying assets. These pledged securities were valued at par for collateral purposes. The Bank participated in the BTFP and had outstanding debt of $300.0 million at December 31, 2023. The loans bore a fixed rate of 4.38% and matured on March 22, 2024, at which time we repaid them in full.

Contractual Obligations

The following tables summarize contractual obligations and other commitments to make future payments as of March 31, 2024, and December 31, 2023 (other than non-maturity deposit obligations), which consist of future cash payments associated with our contractual obligations pursuant to our FHLB advances, subordinated debt, revolving line of credit, and non-cancelable future operating leases. Payments related to leases are based on actual payments specified in underlying contracts. Advances from the FHLB totaled approximately $308.2 million and $211.2 million at March 31, 2024 and December 31, 2023, respectively. As of March 31, 2024, and December 31, 2023, the FHLB advances were collateralized by a blanket floating lien on certain securities and loans, had a weighted average stated rate of 4.04% and 3.65%, respectively, and mature within ten years. We participated in the BTFP in March 2023 and as of December 31, 2023, had outstanding debt of $300.0 million, at a fixed rate of 4.38% and set to mature on March 22, 2024. We paid this debt off in full at the time of maturity. The subordinated debt totaled $99.9 million and $100.0 million at March 31, 2024 and December 31, 2023, respectively, including premium. Of this subordinated debt, $25.0 million bears interest at a fixed rate of 6.75% through December 31, 2028 and a floating rate, based on a benchmark rate plus 369 basis points, thereafter through maturity in 2033, $52.5 million of this subordinated debt bears interest at a fixed rate of 4.25% through March 31, 2026 and a floating rate, based on a benchmark rate plus 354 basis points, thereafter through maturity in 2031, $3.9 million of this subordinated debt bears interest at a fixed rate of 4.75% through April 1, 2026 and a floating rate, based on a benchmark rate plus 442 basis points, thereafter through maturity in 2031. We acquired three separate notes as part of the TCBI acquisition totaling $26.4 million. Of those notes, $10.0 million bears an adjustable interest rate plus 350 basis points, based on a benchmark rate, adjusting quarterly until maturity on April 11, 2028, and callable beginning April 11, 2023, $7.5 million bears an adjustable interest rate plus 350 basis points, based on a benchmark rate, adjusting quarterly, until maturity on December 13, 2028, and callable beginning December 13, 2023, and $8.9 million, which was called on May 1, 2023 and ceased bearing interest as of such date. As part of valuing these three subordinated notes from TCBI, we incurred a fair value adjustment premium of $3.4 million that will accrete over five-to-seven years, with $1.0 million and $1.1 million remaining at March 31, 2024 and December 31, 2023, respectively. We recognized $1.5 million in gains on the extinguishment of this debt during the year ended December 31, 2023.

As of March 31, 2024
1 year or less More than 1 year<br>but less than 3<br>years 3 years or more <br>but less than 5 <br>years 5 years or more Total
(Dollars in thousands) (Unaudited)
Non-cancelable future operating leases $ 4,385 $ 7,232 $ 6,433 $ 4,943 $ 22,993
Time deposits 925,174 300,852 43,689 27 1,269,742
Subordinated debt - - 17,500 81,427 98,927
Advances from FHLB - 133,206 100,000 75,000 308,206
Subordinated debt - trust preferred securities - - - 5,000 5,000
Securities sold under agreements to repurchase 17,207 - - - 17,207
Standby and commercial letters of credit 44,745 3,548 581 - 48,874
Commitments to extend credit 630,202 351,384 102,535 118,483 1,202,604
Total $ 1,621,713 $ 796,222 $ 270,738 $ 284,880 $ 2,973,553

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

Off-Balance Sheet Items

In the normal course of business, we enter into various transactions which, in accordance with GAAP, are not included in our consolidated balance sheets. We enter into these transactions to meet the financing needs of our customers. These transactions include commitments to extend credit and standby and commercial letters of credit which involve, to varying degrees, elements of credit risk and interest rate risk in excess of the amounts recognized in the consolidated balance sheets.

Our commitments associated with outstanding standby and commercial letters of credit and commitments to extend credit expiring by period as of the date indicated are summarized in the tables above. Because commitments associated with letters of credit and commitments to extend credit may expire unused, the amounts shown do not necessarily reflect the actual future cash funding requirements.

Standby and commercial letters of credit are conditional commitments issued by us to guarantee the performance of a customer to a third party. In the event of nonperformance by the customer, we have rights to the underlying collateral, which can include commercial real estate, physical plant and property, inventory, receivables, cash and/or marketable securities. The credit risk to us in issuing letters of credit is essentially the same as that involved in extending loan facilities to our customers.

Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Because many of the commitments are expected to expire without being fully drawn upon, the total commitment amounts disclosed above do not necessarily represent future cash requirements. We evaluate each customer’s creditworthiness on a case-by-case basis. The amount of collateral obtained, if considered necessary by us, upon extension of credit, is based on management’s credit evaluation of the customer.

Interest Rate Sensitivity and Market Risk

As a financial institution, our primary component of market risk is sensitivity to movement in interest rates. Our asset and liability management policy provides management with the guidelines for effective interest rate risk management, and we have established a measurement system for monitoring our net interest rate sensitivity position. We manage our sensitivity position within our established guidelines.

Fluctuations in interest rates will ultimately impact both the level of income and expense recorded on most of our assets and liabilities, and the market value of all interest-earning assets and interest-bearing liabilities. Interest rate risk is the potential of economic losses due to future interest rate changes. These economic losses can be reflected as a loss of future net interest income and/or a loss of current fair market value of equity. The objective interest rate risk management

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is to measure the effect on net interest income and fair value of equity and to position the balance sheet to minimize the risk of losses and maximize the amount of income without taking on unnecessary earning volatility.

We seek to manage our exposure to interest rates by structuring our balance sheet in the ordinary course of business; however, we may enter into derivative contracts to hedge interest rate risk if it is appropriate given our risk profile and policy guidelines. Based upon the nature of our operations, we are not subject to foreign exchange or commodity price risk. We do not own any trading assets.

Our exposure to interest rate risk is managed by the asset-liability committee ("ALCO") of b1BANK, in accordance with policies approved by our board of directors. In determining the appropriate level of interest rate risk, the committee considers the impact on earnings and capital of the current outlook on interest rates, potential changes in interest rates, regional economies, liquidity, business strategies and other factors. The committee meets regularly to review, among other things, the sensitivity of assets and liabilities to interest rate changes, the book and market values of assets and liabilities, unrealized gains and losses, purchase and sale activities, commitments to originate loans and the maturities of investments and borrowings. Additionally, the committee reviews liquidity, cash flow flexibility, maturities of deposits and consumer and commercial deposit activity. Management employs methodologies to manage interest rate risk which include an analysis of relationships between interest-earning assets and interest-bearing liabilities, and an interest rate shock simulation model.

We use interest rate risk simulation models and shock analysis to test the interest rate sensitivity of net interest income and fair value of equity, and the impact of changes in interest rates on other financial metrics. Contractual maturities and re-pricing opportunities of loans are incorporated in the model as prepayment assumptions, maturity data and optionality. Deposit assumptions such as repricing betas and non-maturity balance decay rates are also incorporated into the model. Model assumptions are revised and updated on a regular basis as directed by policy, and more frequently if conditions merit. The assumptions used are inherently uncertain and, as a result, the model cannot precisely measure future net interest income or precisely predict the impact of fluctuations in market interest rates on net interest income. Actual results will differ from the model’s simulated results due to timing, magnitude, and frequency of interest rate changes, as well as changes in market conditions, customer behavior, and the application and timing of various management strategies.

On at least a quarterly basis, we run simulation models to calculate potential impacts to net interest income and the fair value of equity. Specific details of the simulations are reflected in policy as directed by ALCO.

The following table summarizes the simulated change in net interest income and fair value of equity over a 12-month horizon as of the dates indicated:

As of March 31, 2024 As of December 31, 2023
Change in Interest Rates (Basis Points) Percent Change in<br>Net Interest <br>Income Percent Change in<br>Fair Value of <br>Equity Percent Change in <br>Net Interest<br>Income Percent Change in <br>Fair Value of <br>Equity
+300 (1.50 %) (3.63 %) (5.50 %) (5.59 %)
+200 0.40 % (2.19 %) (3.20 %) (3.47 %)
+100 2.00 % (0.84 %) (1.10 %) (1.39 %)
Base - % - % - % - %
-100 2.60 % 0.83 % 0.30 % 1.40 %
-200 2.50 % 1.44 % 0.50 % 2.67 %

The results of the simulations are primarily driven by the contractual characteristics of all balance sheet instruments and customer behavior.

Impact of Inflation

Our consolidated financial statements and related notes included elsewhere in this statement have been prepared in accordance with GAAP. These require the measurement of financial position and operating results in terms of historical dollars, without considering changes in the relative value of money over time due to inflation or recession.

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Unlike many industrial companies, substantially all of our assets and liabilities are monetary in nature. As a result, interest rates have a more significant impact on our performance than the effects of general levels of inflation. Interest rates may not necessarily move in the same direction or in the same magnitude as the prices of goods and services. However, other operating expenses do reflect general levels of inflation.

Non-GAAP Financial Measures

Our accounting and reporting policies conform to GAAP, and the prevailing practices in the banking industry. However, we also evaluate our performance based on certain additional non-GAAP financial measures. We classify a financial measure as being a non-GAAP financial measure if that financial measure excludes or includes amounts, or is subject to adjustments that have the effect of excluding or including amounts, that are included or excluded, as the case may be, in the most directly comparable measure calculated and presented in accordance with GAAP as in effect from time to time in the United States in our statements of income, balance sheets or statements of cash flows. Non-GAAP financial measures do not include operating and other statistical measures or ratios or statistical measures calculated using exclusively either financial measures calculated in accordance with GAAP, operating measures or other measures that are not non-GAAP financial measures or both.

This discussion and analysis section includes certain non-GAAP financial measures (e.g., referenced as “core” or “tangible”) intended to supplement, not substitute for, comparable GAAP measures. These measures typically adjust income available to common shareholders for certain significant activities or transactions that in management’s opinion can distort period-to-period comparisons of Business First’s performance. Transactions that are typically excluded from non-GAAP measures include realized and unrealized gains/losses on former bank premises and equipment, gains/losses on sales of securities, and acquisition-related expenses (including, but not limited to, legal costs, system conversion costs, severance and retention payments, etc.). The measures also typically adjust goodwill and certain intangible assets from book value and shareholders’ equity.

Management believes presentations of these non-GAAP financial measures provide useful supplemental information that is essential to a proper understanding of the operating results of the Company’s core business. These non-GAAP disclosures are not necessarily comparable to non-GAAP measures that may be presented by other companies. You should understand how such other banking organizations calculate their financial metrics or with names similar to the non-GAAP financial measures we have discussed in this statement when comparing such non-GAAP financial measures.

Core Net Income. Core net income available to common shareholders, which excludes certain income and expenses, for the three months ended March 31, 2024, was $12.8 million, or $0.50 per diluted common share, compared to core net income available to common shareholders of $13.8 million, or $0.55 per diluted common share, for the three months ended March 31, 2023. Notable noncore events impacting earnings for the three months ended March 31, 2024, included $50,000 in a gain on the sale of a former bank premises and $715,000 in acquisition-related expenses, compared to $103,000 in acquisition-related expenses for the same period in 2023.

For the Three Months Ended March 31,
2024 2023
(Dollars in thousands, except per share data) (Unaudited)
Interest Income:
Interest income $ 96,011 $ 79,492
Core interest income 96,011 79,492
Interest Expense:
Interest expense 44,480 26,743
Core interest expense 44,480 26,743
Provision for Credit Losses:
Provision for credit losses 1,186 3,222
Core provision expense 1,186 3,222
Other Income:
Other income 9,386 8,388

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Gains on former bank premises and equipment (50) -
Losses on sale of securities 1 1
Core other income 9,337 8,389
Other Expense:
Other expense 42,522 38,679
Acquisition-related expenses (2) (715) (103)
Core other expense 41,807 38,576
Pre-Tax Income:
Pre-tax income 17,209 19,236
Gains on former bank premises and equipment (50) -
Losses on sale of securities 1 1
Acquisition-related expenses (2) 715 103
Core pre-tax income 17,875 19,340
Provision for Income Taxes: (1)
Provision for income taxes 3,639 4,211
Tax on gains on former bank premises and equipment (11) -
Tax on losses on sale of securities - -
Tax on acquisition-related expenses (2) 89 6
Core provision for income taxes 3,717 4,217
Preferred Dividends
Preferred dividends 1,350 1,350
Core preferred dividends 1,350 1,350
Net Income Available to Common Shareholders:
Net income available to common shareholders 12,220 13,675
Gains on former bank premises and equipment , net of tax (39) -
Losses on sale of securities, net of tax 1 1
Acquisition-related expenses (2), net of tax 626 97
Core net income available to common shareholders $ 12,808 $ 13,773
Diluted Earnings Per Common Share:
Diluted earnings per common share $ 0.48 $ 0.54
Gains on former bank premises and equipment , net of tax - -
Losses on sale of securities, net of tax - -
Acquisition-related expenses (2), net of tax 0.02 0.01
Core diluted earnings per common share $ 0.50 $ 0.55

____________________________

(1)Tax rates, exclusive of certain nondeductible acquisition-related expenses and goodwill, utilized were 21.129% for both 2024 and 2023. These rates approximate the marginal tax rates for the applicable periods.

(2)Includes merger and conversion-related expenses and salary and employee benefits.

Tangible Book Value Per Common Share. Tangible book value per common share is a non-GAAP measure generally used by financial analysts and investment bankers to evaluate financial institutions. We calculate (1) tangible common equity as shareholders’ equity less preferred stock, goodwill, and core deposit and customer intangible assets, net of accumulated amortization, and (2) tangible book value per common share as tangible common equity divided by shares of common stock outstanding. The most directly comparable GAAP financial measure for tangible book value per common share is book value per common share.

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The following table reconciles, as of the dates set forth below, total shareholders’ equity to tangible common equity and presents tangible book value per common share compared to book value per common share:

As of March<br>31, 2024 As of December 31, <br>2023
(Dollars in thousands, except per share data) (Unaudited)
Tangible Common Equity
Total shareholders' equity $ 649,034 $ 644,259
Preferred stock (71,930) (71,930)
Total common shareholders' equity 577,104 572,329
Adjustments:
Goodwill (91,527) (88,391)
Core deposit and customer intangibles (11,372) (11,895)
Total tangible common equity $ 474,205 $ 472,043
Common shares outstanding (1) 25,485,383 25,351,809
Book value per common shares (1) $ 22.64 $ 22.58
Tangible book value per common shares (1) 18.61 18.62

____________________________

(1)Excludes the dilutive effect, if any, of 302,007 and 217,094 shares of common stock issuable upon exercise of outstanding stock options and restricted stock awards as of March 31, 2024 and December 31, 2023, respectively.

Tangible Common Equity to Tangible Assets. Tangible common equity to tangible assets is a non-GAAP measure generally used by financial analysts and investment bankers to evaluate financial institutions. We calculate tangible common equity, as described above, and tangible assets as total assets less goodwill, core deposit and customer intangible assets, net of accumulated amortization. The most directly comparable GAAP financial measure for tangible common equity to tangible assets is total common shareholders’ equity to total assets.

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The following table reconciles, as of the dates set forth below, total shareholders’ equity to tangible common equity and total assets to tangible assets:

As of March<br>31, 2024 As of December 31,<br>2023
(Dollars in thousands, except per share data)<br>(Unaudited)
Tangible Common Equity
Total shareholders' equity $ 649,034 $ 644,259
Preferred stock (71,930) (71,930)
Total common shareholders' equity 577,104 572,329
Adjustments:
Goodwill (91,527) (88,391)
Core deposit and customer intangibles (11,372) (11,895)
Total tangible common equity $ 474,205 $ 472,043
Tangible Assets
Total Assets $ 6,695,558 $ 6,584,550
Adjustments:
Goodwill (91,527) (88,391)
Core deposit and customer intangibles (11,372) (11,895)
Total tangible assets $ 6,592,659 $ 6,484,264
Common Equity to Total Assets 8.6 % 8.7 %
Tangible Common Equity to Tangible Assets 7.2 7.3

Item 3.    Quantitative and Qualitative Disclosures about Market Risk

Risk identification and management are essential elements for the successful management of our business. In the normal course of business, we are subject to various types of risk, including interest rate, credit, and liquidity risk. We control and monitor these risks with policies, procedures, and various levels of managerial and board oversight. Our objective is to optimize profitability while managing and controlling risk within board approved policy limits. Interest rate risk is the sensitivity of net interest income and the market value of financial instruments to the magnitude, direction, and frequency of changes in interest rates. Interest rate risk results from various repricing frequencies and the maturity structure of assets and liabilities. We use our asset liability management policy to control and manage interest rate risk. See Item 2. “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Interest Rate Sensibility and Market Risk” for additional discussion of interest rate risk.

Liquidity risk represents the inability to generate cash or otherwise obtain funds at reasonable rates to satisfy commitments to borrowers, as well as, the obligations to depositors. We use our asset liability management policy and contingency funding plan to control and manage liquidity risk.

Credit risk represents the possibility that a customer may not perform in accordance with contractual terms. Credit risk results from extending credit to customers, purchasing securities, and entering into certain off-balance sheet loan funding commitments. Our primary credit risk is directly related to our loan portfolio. We use our credit policy and disciplined approach to evaluate the adequacy of our allowance for credit losses to control and manage credit risk. Our investment policy limits the degree of the amount of credit risk that we may assume in our investment portfolio. Our principal financial market risks are liquidity risks and exposures to interest rate movements.

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Item 4.    Controls and Procedures

Evaluation of Disclosure Controls and Procedures

Under the supervision and with the participation of our principal executive officer and principal financial officer, we have evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a – 15(e) and 15d – 15(e) under the Securities Exchange Act of 1934, as amended) as of the end of the period covered by this Report. Based on such evaluation, our principal executive officer and principal financial officer concluded our disclosure controls and procedures were effective as of the end of the period covered by this Report to provide reasonable assurance that the information we are required to disclose in reports that are filed or furnished under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC, including to ensure that such information is accumulated and communicated to management, including our principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure. The effectiveness of our, or any, system of disclosure controls and procedures is subject to certain limitations, including the exercise of judgment in designing, implementing and evaluating the controls and procedures, the assumptions used in identifying the likelihood of future events, and the inability to eliminate misconduct completely. As a result, we cannot assure you that our disclosure controls and procedures will detect all errors or fraud.

Changes in Internal Controls over Financial Reporting

There were no changes in our internal control over financial reporting during the period covered by this Report that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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PART II. OTHER INFORMATION

Item 1.    Legal Proceedings

From time to time, we are a party to claims and legal proceedings arising in the ordinary course of business. Management evaluates our exposure to these claims and proceedings individually, and in the aggregate, and provides for potential losses on such litigation if the amount of the loss is estimable and the loss is probable. We are not currently involved in any pending legal proceedings other than routine, nonmaterial proceedings occurring in the ordinary course of business.

Item 1A.    Risk Factors

In addition to the other information set forth in this Report, we refer you to Item 1A. “Risk Factors” of our Annual Report on Form 10-K for December 31, 2023, filed with the SEC. Other than the risk factors set forth below, there have been no material changes in the risk factors disclosed in our Annual Report on Form 10-K for December 31, 2023.

Adverse developments affecting the financial services industry.

Recent bank failures involving Silicon Valley Bank and Signature Bank have resulted in negative market volatility, especially in the financial services sector, which could continue to negatively impact the market price of our stock in the foreseeable future. The failures have also adversely impacted customer confidence in the soundness of smaller community and regional banks. In response, customers may choose to maintain deposits with larger financial institutions or invest their excess cash elsewhere. Significant withdrawals of deposits could stress our liquidity, funding capacity, earnings, and capital. These factors could also limit our access to capital markets and/or significantly increase the pricing of such sources. In addition, these events may result in adverse changes in laws or regulations that govern our operations.

Item 2.    Unregistered Sales of Equity Securities and Use of Proceeds

(a)Not applicable.

(b)Not applicable.

(c)Not applicable.

Item 3.    Defaults upon Senior Securities

Not applicable.

Item 4.    Mine Safety Disclosures

Not applicable.

Item 5.    Other Information

(a)Not applicable.

(b)Not applicable.

(c)During the three months ended March 31, 2024, no director or officer of the Company adopted or terminated a “Rule 10b5-1 trading arrangement” or “non-Rule 10b5-1 trading agreement,” as each term is defined in Item 408(a) of Regulation S-K.

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Item 6.    Exhibits

Number Description
3.1 Restated Articles of Incorporation of Business First Bancshares, Inc., adopted October 27, 2022 (incorporated by reference to Exhibit 3.1 of the Quarterly Report on Form 10-Q for the quarter ended September 30, 2022, filed by Business First Bancshares, Inc. on November 3, 2022).
3.2 Amended and Restated Bylaws of Business First Bancshares, Inc., adopted April 23, 2020 (incorporated by reference to Exhibit 3.2 to the Current Report on Form 8-K filed by Business First Bancshares, Inc. on April 28, 2020).
4.1 Specimen Common Stock Certificate (incorporated by reference to Exhibit 4.1 to the Registration Statement on Form S-4 filed by Business First Bancshares, Inc. on November 12, 2014).
4.2 Form of Series A Preferred Stock (incorporated by reference to Exhibit A to Exhibit 10.1 to the Current Report on Form 8-K filed by Business First Bancshares, Inc. on September 1, 2022).
31.1 Certification of Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002*
31.2 Certification of Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002*
32.1 Certifications of Principal Executive Officer and Principal Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002*
101.INS Inline XBRL Instance Document*
101.SCH Inline XBRL Taxonomy Extension Schema Document*
101.CAL Inline XBRL Taxonomy Extension Calculation Linkbase Document*
101.DEF Inline XBRL Taxonomy Extension Definition Linkbase Document*
101.LAB Inline XBRL Taxonomy Extension Label Linkbase Document*
101.PRE Inline XBRL Taxonomy Extension Presentation Linkbase Document*
104 Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)

____________

*Filed herewith.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant hereby duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized.

BUSINESS FIRST BANCSHARES, INC.
May 2, 2024 /s/ David R. Melville, III
David R. Melville, III
President and Chief Executive Officer
May 2, 2024 /s/ Gregory Robertson
Gregory Robertson
Chief Financial Officer

65

Document

EXHIBIT 31.1

CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER

I, David R. Melville, III, certify that:

1.I have reviewed this Quarterly Report on Form 10-Q (this “Report”) of Business First Bancshares, Inc.;

2.Based on my knowledge, this Report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this Report;

3.Based on my knowledge, the financial statements, and other financial information included in this Report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this Report;

4.The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and have:

a)designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this Report is being prepared;

b)designed such internal controls over financial reporting, or caused such internal controls over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c)evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this Report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this Report based on such evaluation; and

d)disclosed in this Report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting.

5.The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or person performing the equivalent functions):

a)all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b)any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: May 2, 2024

/s/ David R. Melville, III
David R. Melville, III
President and Chief Executive Officer

Document

EXHIBIT 31.2

CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER

I, Gregory Robertson, certify that:

1.I have reviewed this Quarterly Report on Form 10-Q (this “Report”) of Business First Bancshares, Inc.;

2.Based on my knowledge, this Report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this Report;

3.Based on my knowledge, the financial statements, and other financial information included in this Report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this Report;

4.The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and have:

a)designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this Report is being prepared;

b)designed such internal controls over financial reporting, or caused such internal controls over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c)evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this Report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this Report based on such evaluation; and

d)disclosed in this Report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting.

5.The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or person performing the equivalent functions):

a)all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b)any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: May 2, 2024

/s/ Gregory Robertson
Gregory Robertson
Chief Financial Officer

Document

EXHIBIT 32.1

CERTIFICATION PURSUANT TO RULE 13A-14(B) 18 U.S.C. SECTION 1350,

As adopted pursuant to

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report on Form 10-Q of Business First Bancshares, Inc. (“Business First”) for the three month period ended March 31, 2024 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), we, David R. Melville, III, as President and Chief Executive Officer of Business First, and Gregory Robertson, as Chief Financial Officer of Business First, hereby certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to §906 of the Sarbanes-Oxley Act of 2002, that, to the best of our knowledge:

(1)the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2)the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of Business First, as of, and for the period covered by the Report.

Date: May 2, 2024
/s/ David R. Melville, III
David R. Melville, III
President and Chief Executive Officer
/s/ Gregory Robertson
Gregory Robertson
Chief Financial Officer

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