The accompanying notes are an integral part of these financial statements.
The accompanying notes are an integral part of these financial statements.
The accompanying notes are an integral part of these financial statements.
The accompanying notes are an integral part of these financial statements.
The accompanying notes are an integral part of these financial statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1 – Nature of Operations – Summary of Significant Accounting Policies –
The accounting principles followed by Business First Bancshares, Inc. and its wholly-owned subsidiary, b1BANK (the “Bank”), and the Bank’s wholly-owned subsidiaries, Business First Insurance, LLC and Smith Shellnut Wilson, LLC (“SSW”) are those which are generally practiced within the banking industry. The methods of applying those principles conform with generally accepted accounting principles (“GAAP”) and have been applied on a consistent basis. The principles which significantly affect the determination of financial position, results of operations, changes in shareholders’ equity and cash flows are summarized below.
Principles of Consolidation
The consolidated financial statements include the accounts of Business First Bancshares, Inc. and its wholly-owned subsidiary, b1BANK, and the Bank’s wholly-owned subsidiaries, Business First Insurance, LLC and SSW (collectively, the “Company”). All significant intercompany balances and transactions have been eliminated.
Nature of Operations
The Bank operates out of full-service banking centers and loan production offices in markets across Louisiana, the Dallas/Fort Worth, Texas 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.
On May 1, 2020, the Company completed the acquisition of Pedestal Bancshares, Inc. (“Pedestal”), and its wholly-owned subsidiary, Pedestal Bank, located in Houma, Louisiana. The Company issued 7,614,506 shares of its common stock to the former shareholders of Pedestal. At April 30, 2020, Pedestal reported $1.4 billion in total assets, $935.8 million in loans, and $1.2 billion in total deposits.
On March 22, 2021, the Company, through b1BANK, entered into a definitive agreement to acquire SSW, a registered investment advisor with approximately $3.5 billion in assets under management, specializing in managing investment portfolios for corporations, foundations and individuals. The acquisition of SSW was consummated on April 1, 2021. At March 31, 2021, SSW reported $3.6 million in total assets and $2.3 million in total liabilities.
On March 1, 2022, the Company completed the acquisition of Texas Citizens Bancorp, Inc. (“TCBI”), and its wholly-owned subsidiary, Texas Citizens Bank, National Association, located in Pasadena, Texas. The company issued 2,069,532 shares of its common stock to the former shareholders of TCBI. At February 28, 2022, TCBI reported $534.2 million in total assets, $349.5 million in loans and $477.2 million in deposits.
COVID-19, a global pandemic, has adversely impacted the broad economy, including most industries and sectors. The length and depth of the pandemic will ultimately determine the overall financial impact to the Company, but it could impair the ability of the Company’s customers to meet their financial obligations to the Company. Furthermore, while there has been no material impact to the Company’s employees to date, COVID-19 could potentially create business continuity issues for the Company.
In accordance with Financial Accounting Standards Board (“FASB”) and interagency regulatory guidance issued in March 2020, loans that were modified under the terms of the Company’s COVID-19 Deferral Assistance Program are not required to be designated as troubled debt restructurings to the extent that they meet the terms of such guidance under Section 4013 of the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”). The Company also elected to participate in the Small Business Administration (“SBA”) Paycheck Protection Program (“PPP”) during the years ended December 31, 2022 and 2021.
Estimates
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 fair value and subsequent accounting for acquired loans and allowance for loan 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.
BUSINESS FIRST BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Bank’s loans are generally secured by specific items of collateral including real property, business assets, and consumer assets. Although the Bank has a diversified loan portfolio, a substantial portion of its debtors’ ability to honor their contracts is dependent on local economic conditions in the Bank’s market area.
While management uses available information to recognize losses on loans, further reductions in the carrying amounts of loans may be necessary based on changes in local economic conditions. In addition, regulatory agencies, as an integral part of their examination process, periodically review the estimated losses on loans. Such agencies may require the Bank to recognize additional losses based on their judgments about information available to them at the time of their examination.
Because of these factors, it is reasonably possible that the estimated losses on loans may change materially in the near term. However, the amount of the change that is reasonably possible cannot be estimated.
Acquisition Accounting
Acquisitions are accounted for under the purchase method of accounting. Purchased assets and assumed liabilities are recorded at their respective acquisition date fair values, and identifiable intangible assets are recorded at fair value. If the consideration given exceeds the fair value of the net assets received, goodwill is recognized. The Company generally records provisional amounts of fair value at the time of acquisition based on the information available. The provisional fair values are subject to refinement for up to one year after the closing date of an acquisition as information relative to closing date fair values becomes available.
Securities
Management determines the appropriate classification of debt securities (held to maturity, available for sale or trading) at the time of purchase and re-evaluates this classification quarterly. Securities classified as available for sale are those debt securities the Bank intends to hold for an indefinite period of time but not necessarily to maturity. Any decision to sell a security classified as available for sale would be based on various factors, including significant movements in interest rates, changes in the maturity mix of the Bank’s assets and liabilities, liquidity needs, regulatory capital considerations, and other similar factors. Securities available for sale are recorded at fair value. Unrealized gains or losses are reported as a component of comprehensive income. Realized gains or losses, determined on the basis of the cost of specific securities sold, are included in earnings.
Securities classified as held to maturity are those debt securities the Bank has both the intent and ability to hold to maturity regardless of changes in market conditions, liquidity needs or changes in general economic conditions. These securities are recorded at cost adjusted for amortization of premium and accretion of discount, computed by various methods approximating the interest method over their contractual lives. The Bank has no securities classified as held to maturity at December 31, 2022 and 2021.
Securities classified as trading are those securities held for resale in anticipation of short-term market movements. These securities are recorded at market value with any market adjustments included in earnings. The Bank has no securities classified as trading at December 31, 2022 and 2021.
The Company evaluates its investment securities portfolio on a quarterly basis for indicators of other than temporary impairment (“OTTI”). Declines in the fair value of individual available for sale or held to maturity securities below their amortized cost basis are reviewed to determine whether the declines are other than temporary. For securities that the Company does not expect to sell, or it is not more likely than not it will be required to sell prior to recovery of its amortized cost basis, the credit component of an OTTI is recognized in earnings and the non-credit component is recognized in other comprehensive income. For securities that the Company does expect to sell, or it is more likely than not that it will be required to sell prior to recovery of its amortized cost basis, both the credit and non-credit component of an OTTI are recognized in earnings. There was no OTTI taken for the years ended December 31, 2022 and 2021.
BUSINESS FIRST BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Other Equity Securities
The Bank has invested in Federal Home Loan Bank (“FHLB”) stock, and other similar correspondent banks, which is reflected at cost in these financial statements. As a member of the FHLB System, the Bank is required to purchase and maintain stock in an amount determined by the FHLB. The FHLB stock is redeemable at par value at the discretion of the FHLB. The Bank has invested in certain equity investments which are accounted for under the equity method of accounting, which are considered to be variable interest entities (“VIE”).
Loans
Loans are stated at principal amounts outstanding, adjusted for net deferred fees or costs, less the allowance for loan losses. Interest on commercial and consumer loans is accrued daily based on the principal outstanding. Net deferred fees or costs are recognized as an adjustment to yield over the life of the loan.
Generally, the Bank discontinues the accrual of interest income when a loan becomes 90 days past due as to principal or interest. When a loan is placed on nonaccrual status, previously recognized but uncollected interest is generally reversed to income. Subsequent cash receipts on nonaccrual loans are generally accounted for on the cost recovery method until the loans qualify for return to accrual status. Interest income may be recognized on a cash basis as long as the remaining book balance of the loan is deemed to be 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.
The Bank classifies loans as impaired when it is probable the Bank will be unable to collect the scheduled payments of principal and interest when due according to the contractual terms of the loan agreement. The measurement of impaired loans is based on the present value of the expected future cash flows discounted at the loan’s effective interest rate or the loan’s observable market price, or based on the fair value of the collateral if the loan is collateral dependent.
Acquired Loans
Purchased loans acquired in a business combination are recorded at their estimated fair value as of the acquisition date and there is no carryover of the seller’s allowance for loan losses.
The Company accounts for acquired impaired loans in accordance with ASC 310-30, Loans and Debt Securities Acquired with Deteriorated Credit Quality (“ASC 310-30”). An acquired loan is considered impaired when there is evidence of credit deterioration since origination and it is probable at the date of acquisition that the Company will be unable to collect all contractually required payments. Purchased impaired credits (i.e., loans) are accounted for individually or aggregated into loan pools with similar risk characteristics, which include: the loan type by regulatory guidelines, nature of the collateral/loan, relative amount of fair value discount to credit, amongst other factors.. The Company estimates the amount and timing of undiscounted expected cash flows for each loan, and the expected cash flows in excess of fair value is recorded as interest income over the remaining life of the loan (accretable yield). The excess of the loan’s contractual principal and interest over the expected cash flows is not recorded (nonaccretable difference). Over the life of the loan, expected cash flows continue to be estimated. If the expected cash flows decrease, a provision for loan losses and the establishment of an allowance for loan losses with respect to the acquired impaired loan is recorded. If the expected cash flows increase, it is recognized as part of future interest income.
The performing loans are accounted for under ASC 310-20, Nonrefundable Fees and Other Costs (“ASC 310-20”), with the related discount or premium being recognized as an adjustment to yield over the life of the loan.
Allowance for Loan Losses
The allowance for loan losses is maintained at a level which, in management’s judgment, is adequate to absorb credit losses inherent in the loan portfolio. The allowance for loan losses is based upon management’s review and evaluation of the loan portfolio, including relevant historical loss experience. Specific allowances for impaired loans are generally determined based on collateral values or the present value of estimated cash flows. Management obtains independent appraisals for significant collateral in determining collateral values. Although management uses available information to recognize losses on loans, because of uncertainties associated with local economic conditions, collateral values, and future cash flows on impaired loans, it is reasonably possible that a material change could occur in the allowance for loan losses in the near term. However, the amount of the change that is reasonably possible cannot be estimated. Each period the Company considers qualitative factors that are relevant and necessary to adjust the model. Qualitative factors considered in the establishment of the allowance for loan losses include changes in international, national, regional and local conditions; oil and gas trends; nature and volume of the portfolio; volume and severity of past due loans; quality of the loan review system; existence and effect of any concentrations of credit or changes in the levels of such concentrations; effect of other external factors; changes to lending policies and procedures, including experience, depth and ability of staff, and changes in the value of the underlying collateral.
BUSINESS FIRST BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Loans acquired in business combinations are initially recorded at fair value, which includes an estimate of credit losses expected to be realized over the remaining lives of the loans and, therefore, no corresponding allowance for loan losses is recorded for these loans at acquisition. Methods utilized to estimate any subsequently required allowance for loan losses for acquired loans not deemed credit-impaired at acquisition are similar to originated loans; however, the estimate of loss is based on the unpaid principal balance and then compared to any remaining unaccreted purchase discount. To the extent the calculated loss is greater than the remaining unaccreted discount, an allowance is recorded for such difference.
The allowance for loan losses is based on estimates of probable future losses, and ultimate losses may vary from the current estimates. These estimates are reviewed periodically and as adjustments become necessary, the effect of the change in estimate is charged to operating expenses in the period incurred. All losses are charged to the allowance for loan losses when the loss actually occurs or when management believes that the collectability of the principal is unlikely. Recoveries are credited to the allowance at the time of recovery.
Premises and Equipment
Premises and equipment are stated at cost less accumulated depreciation. Depreciation is provided at rates based upon estimated useful service lives using the straight-line method for financial reporting purposes.
The costs of assets retired or otherwise disposed of and the related accumulated depreciation are eliminated from the accounts in the year of disposal and the resulting gains or losses are included in current operations. Expenditures for maintenance and repairs are charged to operations as incurred. Costs of major additions and improvements are capitalized and expensed over their estimated depreciable lives.
Other Real Estate Owned
Real estate properties acquired through or in lieu of loan foreclosure or negotiated settlement are initially recorded at the fair value less estimated selling cost at the date of acquisition. Any write-downs based on the asset’s fair value at the date of acquisition are charged to the allowance for loan losses. After foreclosure, valuations are periodically performed by management and property held for sale is carried at the lower of the new cost basis or fair value less cost to sell. Impairment losses on property to be held and used are measured as the amount by which the carrying amount of a property exceeds its fair value. Costs of significant property improvements are capitalized, whereas costs relating to holding property are expensed. Valuations are periodically performed by management, and any subsequent write-downs are recorded as a charge to operations, if necessary, to reduce the carrying value of a property to the lower of its cost or fair value less cost to sell.
Goodwill and Other Intangible Assets
Goodwill represents the excess of the purchase price over the fair value of the net identifiable assets acquired in a business combination. Goodwill and other intangible assets deemed to have an indefinite useful life are not amortized but instead are subject to review for impairment annually, or more frequently if deemed necessary.
Intangible assets with estimable useful lives are amortized over their respective estimated useful lives and reviewed for impairment. If impaired, the asset is written down to its estimated fair value. Our other intangibles include core deposit intangibles (“CDI”) representing the value of the acquired core deposit base are generally recorded in connection with business combinations involving banks and branch locations; and customer-related intangibles representing the value of a customer list consisting of customer contact information acquired through business combination. The Company’s policy is to amortize these intangibles on a straight-line basis over their estimated useful life. Core deposit and customer intangibles are tested for impairment whenever events or changes in circumstances indicate the carrying amount of the assets may not be recoverable from future undiscounted cash flows.
The Company recognizes the rights to service mortgage and other loans as separate assets, which are recorded in other assets in the consolidated balance sheets, when purchased or when servicing is contractually separated from the underlying loans by sale with servicing rights retained. For loan sales with servicing retained, a servicing right, generally an asset, is recorded at fair value at the time of sale for the right to service the loans sold. All servicing rights are identified by class and amortized over the remaining service life of the loan.
BUSINESS FIRST BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Income Taxes
The provision for income taxes is based on amounts reported in the statement of income after exclusion of nontaxable income such as interest on state and municipal securities. Also, certain items of income and expense are recognized in different time periods for financial statement purposes than for income tax purposes. Thus, provisions for deferred taxes are recorded in recognition of such temporary differences.
Deferred taxes are provided utilizing a liability method whereby deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the reported amounts of existing assets and liabilities and their respective tax basis. Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date of enactment.
The Company files a consolidated federal income tax return. Consolidated income tax expense is allocated on the basis of each entity’s income adjusted for permanent differences.
The Company evaluates all significant tax positions as required by accounting principles generally accepted in the United States of America. As of December 31, 2022 and 2021, the Company does not believe it has taken any positions that would require the recording of any additional tax liability, nor does it believe there are any unrealized tax benefits that would either increase or decrease within the next year.
The Company files income tax returns in the U.S. federal jurisdiction and applicable states. With few exceptions, the Company is no longer subject to federal and state income tax examinations by tax authorities for years before 2019. Any interest and penalties assessed by income taxing authorities are not significant, and are included in other expenses in these financial statements, as applicable.
Stock Based Compensation
As described in Note 16, the Company has issued stock options, stock grants and restricted stock awards which incorporate stock based compensation. The Company has adopted a fair value based method of accounting for these awards. The compensation cost is measured at the grant date based on the value of the award and is recognized over the requisite service period, which is usually the vesting period. Forfeitures are recognized as they occur.
Statements of Cash Flows
For purposes of reporting cash flows, cash and cash equivalents include cash on hand and due from banks.
Comprehensive Income
Accounting principles generally require that recognized revenue, expenses, gains and losses be included in net income. Although certain changes in assets and liabilities, such as unrealized gains and losses on available for sale securities or other equity investments, are reported as a separate component of the equity section of the balance sheet, such items, along with net income, are components of comprehensive income. The components of comprehensive income are disclosed on the Consolidated Statements of Comprehensive Income for all periods presented.
Advertising
The Company expenses all costs of advertising and promotion the first time the advertising or promotion takes place. For the years ended December 31, 2022, 2021 and 2020, the Company expensed costs of $3.9 million, $2.7 million and $1.6 million, respectively.
Recognition of Revenue from Contracts with Customers
Service charges on deposit accounts, fee and broker commissions, ATM/debit card fee income (including interchange), and transactional income from traditional banking services, are the significant noninterest income sources of revenue from contracts with customers. The Company generally acts in a principal capacity in the performance of these services. The Company’s performance obligations are generally satisfied as the services are rendered and typically do not extend beyond a reporting period. Fees, which are typically billed and collected after services are rendered, are readily determinable and allocated individually to each service. In the normal course of business, the Company does not generally grant refunds for services provided. As such, the Company does not establish provisions for estimated returns.
BUSINESS FIRST BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Accounting Standards Adopted in 2022
None
Accounting Standards Not Yet Adopted
In June 2016, the FASB issued ASU 2016-13, Financial Instruments – Credit Losses (Topic 326), Measurement of Credit Losses on Financial Instruments. The amendments introduce an impairment model that is based on current expected credit losses (“CECL”), rather than incurred losses, to estimate credit losses on certain types of financial instruments (ex. loans and held to maturity securities), including certain off-balance sheet financial instruments (ex. commitments to extend credit and standby letters of credit that are not unconditionally cancellable). The CECL should consider historical information, current information, and reasonable and supportable forecasts, including estimates of prepayments, over the contractual term. An entity must use judgment in determining the relevant information and estimation methods that are appropriate in its circumstances. Financial instruments with similar risk characteristics may be grouped together when estimating the CECL. The allowance for credit losses for purchased financial assets with a more-than-insignificant amount of credit deterioration since origination that are measured at amortized cost basis is determined in a similar manner to other financial assets measured at amortized cost basis; however, the initial estimate of expected credit loss would be recognized through an allowance for credit losses with an offset (i.e. increase) to the purchase price at acquisition. Only subsequent changes in the allowance for credit losses are recorded as a credit loss expense for these assets. The ASU also amends the current impairment model for debt securities whereby estimated credit losses relating to debt securities should be recorded through an allowance for credit losses. The amendments will be applied through a modified retrospective approach, resulting in a cumulative-effect adjustment to retained earnings as of the beginning of the first reporting period in which the guidance is effective. On October 18, 2019, FASB approved an effective date delay until January 2023 applicable to public companies that met the definition of “smaller reporting company” based on the most recent determination prior to October 18, 2019. The Company met the requirements for this effective date delay and elected to delay implementation of the standard. The Company has established an implementation team and engaged third-party consultants who have jointly developed a project plan to provide implementation oversight.
Effective January 1, 2023, the Company adopted ASU 2016-13, Financial Instrument – Credit Losses (Topic 326), Measurement of Credit Losses on Financial Instruments related to the impairment of financial instruments. This guidance, commonly referred to as Current Expected Credit Loss (“CECL”), changes impairment recognition to a model that is based on expected losses rather than incurred losses. CECL requires the Company to consider all available relevant information when calculating expected credit losses including information about past events, current conditions, and reasonable and supportable forecasts. Additionally, the Accounting Standard Update requires the recognition of an allowance for credit losses for certain debt securities as well as additional disclosures. The ASU requires adoption on a modified retrospective basis.
The Company has completed its parallel runs comparing the historical incurred loss model to the CECL model. Additionally, third-party model validation of the CECL model is complete. The Company is in process of finalizing its new CECL internal control and governance processes.
The Company expects that the allowance for credit losses will increase by $2.7 million and the liability for unfunded commitments increase by $3.2 million. This estimate of expected credit losses is based on loan balances and commitments to lend at January 1, 2023 using a one-year reasonable a supportable forecast period. After the forecast period, the Company reverts to long-term historical loss experience to estimate losses over the remaining life. The Company uses both internal and external credit data in estimating the expected credit losses. The estimated increase in the allowance for credit losses and liability for unfunded commitments at adoption is primarily due to requirement that CECL estimate losses over the remaining life of the loan.
Additionally, and as discussed further in Note 3, the Company, through previous acquisitions, has acquired loans which were recorded at their fair value on the date of acquisition. Certain loans, which were determined to have evidence of deterioration at acquisition, were accounted for under ASC 310-30 (i.e. classified as Purchase Credit Impaired or “PCI” assets). The ASU introduces a new term called Purchase Credit Deteriorated (“PCD”) which replaces the PCI accounting under ASC 310-30. Although the definition of PCD asset differs from that of a PCI asset under ASC 310- 30, the ASU requires that an entity not reassess whether any existing assets meeting the definition of PCD assets at adoption on January 1, 2023. Instead, an entity applies the new PCD asset gross-up approach at transition to all loans that were accounted for as PCI under ASC 310-30 prior to the January 1, 2023 adoption date. Any change in the allowance for credit losses for these assets as a result of adopting the CECL standard is accounted for as an adjustment to the asset’s amortized cost basis and not as a cumulative-effect adjustment to beginning retained earnings. The Company’s January 1, 2023 gross-up to allowance for credit losses and amortized cost related to PCD loans from previous acquisitions is estimated to be $4.8 million. After the transition to CECL, the Company will assess purchases of assets to determine if the PCD initial recognition and measurement accounting applies.
Upon adoption of the updated guidance on January 1, 2023, the Company’s impact will be recognized as a $1.0 million reduction to retained earnings and a $221,000 increase to deferred tax assets. As discussed in Footnote 15, the Company and b1Bank are subject to various regulatory capital requirements. Although the federal banking regulatory agencies have provided relief for an initial capital decrease at adoption of the CECL standard, the Company does not intend to opt into the relief as the impact of adoption will not be significant to the Company’s regulatory capital.
The adoption of this guidance did not have a material impact on the Company’s available-for-sale securities as most of this portfolio consists of U.S. Treasuries and agency securities as well as highly rated residential agency mortgage-backed, corporate and municipal securities. CECL may impact future earnings, perhaps materially, due to future credit loss expectations for loans and certain commitments to lend related to factors which may include the Company’s macroeconomic forecast.
Note 2 – Reclassifications –
Certain reclassifications may have been made to the prior years’ financial statements in order to conform to the classifications adopted for reporting in 2022. These reclassifications have no material effect on previously reported shareholders’ equity or net income.
BUSINESS FIRST BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 3 – Mergers and Acquisitions –
Texas Citizens Bancorp, Inc.
On March 1, 2022, the Company consummated the merger of Texas Citizens Bancorp, Inc. (“TCBI”), headquartered in Pasadena, Texas, with and into the Company, pursuant to the terms of that certain Agreement and Plan of Reorganization (the “Reorganization Agreement”), dated as of October 20, 2021, by and between the Company and TCBI (the “Merger”). Also on March 1, 2022, TCBI’s wholly owned banking subsidiary, Texas Citizens Bank, National Association, was merged with and into b1BANK. Pursuant to the terms of the Reorganization Agreement, upon consummation of the Merger, the Company issued 2,069,532 shares of its common stock to the former shareholders of TCBI. At February 28, 2022, TCBI reported $534.2 million in total assets, $349.5 million in loans and $477.2 million in deposits.
The following table reflects the consideration paid for TCBI’s net assets and the identifiable assets purchased and liabilities assumed at their fair values as of March 1, 2022. The fair values are provisional estimates and may be adjusted for a period of up to one year from the date of acquisition if new information is obtained about facts and circumstances that existed as of the acquisition date that, if known, would have affected the measurement of the amounts recognized as of that date.
Cost and Allocation of Purchase Price for Texas Citizens Bancorp, Inc. (TCBI): |
(Dollars in thousands, except per share data) |
Purchase Price: |
|
|
|
|
Shares Issued to TCBI's Shareholders on March 1, 2022 |
|
|
2,069,532 |
|
Closing Stock Price on February 28, 2022 |
|
$ |
26.19 |
|
Total Stock Issued |
|
$ |
54,201 |
|
Other Consideration, Including Equity Awards |
|
|
842 |
|
Total Purchase Price |
|
$ |
55,043 |
|
Net Assets Acquired: |
|
|
|
|
Cash and Cash Equivalents |
|
$ |
163,460 |
|
Securities Available for Sale |
|
|
370 |
|
Loans and Leases Receivable |
|
|
338,027 |
|
Premises and Equipment, Net |
|
|
2,776 |
|
Cash Value of Life Insurance |
|
|
12,146 |
|
Core Deposit Intangible |
|
|
3,875 |
|
Other Assets |
|
|
14,731 |
|
Total Assets |
|
|
535,385 |
|
|
|
|
|
|
Deposits |
|
|
477,277 |
|
Borrowings |
|
|
30,708 |
|
Other Liabilities |
|
|
1,006 |
|
Total Liabilities |
|
|
508,991 |
|
Net Assets Acquired |
|
|
26,394 |
|
Goodwill Resulting from Merger |
|
$ |
28,649 |
|
The Company has recorded approximately $5.2 million and $515,000 of acquisition-related costs within merger and conversion-related expenses and salaries and benefits for the years ended December 31, 2022 and 2021, respectively.
The following is a description of the methods used to determine the fair values of significant assets acquired and liabilities assumed presented above.
Cash and Cash Equivalents: The carrying amount of these assets was a reasonable estimate of fair value based on the short-term nature of these assets.
BUSINESS FIRST BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Securities Available for Sale: Fair values for securities were based on quoted market prices, where available. If quoted market prices were not available, fair value estimates were based on observable inputs including quoted market prices for similar instruments, quoted market prices that were not in an active market or other inputs that were observable in the market. In the absence of observable inputs, fair value was estimated based on pricing models/estimations.
Loans and Leases Receivable: Fair values for loans were based on a discounted cash flow methodology that considered factors including, but not limited to, loan type, classification status, remaining term, prepayment speed, and current discount rates. The discount rates used for loans were based on current market rates for new originations of comparable loans and included adjustments for any liquidity concerns. The discount rate did not include an explicit factor for credit losses, as that was included within the estimated cash flows.
Core Deposit Intangible (“CDI”): The fair value for core deposit intangible assets was estimated based on a discounted cash flow methodology that gave appropriate consideration to expected customer attrition rates, net maintenance cost of the deposit base, including interest cost, and alternative cost of funds. The CDI is being amortized over 10 years based upon the period over which estimated economic benefits are estimated to be received.
Deposits: The fair values used for the demand and savings deposits, by definition, equal the amount payable on demand at the acquisition date. Fair values for time deposits were estimated using a discounted cash flow analysis, that applied interest rates currently being offered to the contractual interest rates on such time deposits.
Borrowings: Fair values for borrowings were based on estimated market rates over the remaining terms of the subordinated debt issuances.
Pro forma tables for TCBI were impractical to include due to the cost versus benefit of including such disclosures.
Smith Shellnut Wilson, LLC
On April 1, 2021, the Company consummated the acquisition, through b1BANK, of SSW, headquartered in Ridgeland, Mississippi, pursuant to the terms of the definitive agreement dated as of March 22, 2021. Pursuant to the terms of the agreement, upon consummation of the acquisition, the Company paid $7.3 million in cash and issued $3.9 million in subordinated debt, which is further described in Note 11, to the former owners of SSW. At March 31, 2021, SSW reported $3.6 million in total assets and $2.3 million in total liabilities. As part of the acquisition, the Company recorded $6.5 million in goodwill and $4.3 million in customer intangibles to be amortized over a 10 year period.
BUSINESS FIRST BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 4 – Earnings per Common Share –
Basic earnings per common 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.
| | Years Ended December 31, | |
| | 2022 | | | 2021 | | | 2020 | |
| | (Dollars in thousands, except per share data) | |
Numerator: | | | | | | | | | | | | |
Net Income | | $ | 54,255 | | | $ | 52,136 | | | $ | 29,994 | |
Less: Preferred Stock Dividends | | | 1,350 | | | | - | | | | - | |
Net Income Available to Common Shareholders | | $ | 52,905 | | | $ | 52,136 | | | $ | 29,994 | |
| | | | | | | | | | | | |
Denominator: | | | | | | | | | | | | |
Weighted Average Common Shares Outstanding | | | 22,633,478 | | | | 20,502,249 | | | | 18,169,599 | |
Dilutive Effect of Stock Options and Restricted Stock Awards | | | 184,015 | | | | 132,032 | | | | 73,846 | |
Weighted Average Dilutive Common Shares | | | 22,817,493 | | | | 20,634,281 | | | | 18,243,445 | |
| | | | | | | | | | | | |
Basic Earnings Per Common Share From Net Income Available to Common Shares | | $ | 2.34 | | | $ | 2.54 | | | $ | 1.65 | |
| | | | | | | | | | | | |
Diluted Earnings Per Common Share From Net Income Available to Common Shares | | $ | 2.32 | | | $ | 2.53 | | | $ | 1.64 | |
Note 5 – Cash and Due From Bank –
The Bank is required to maintain funds in cash or on deposit with the Federal Reserve Bank. The Bank had no required reserves as of December 31, 2022 and 2021.
BUSINESS FIRST BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 6 – Securities –
The amortized cost and fair values of securities available for sale as of December 31, 2022 and 2021 are summarized as follows:
| | December 31, 2022 | |
| | (Dollars in thousands) | |
| | | | | | Gross | | | Gross | | | | | |
| | Amortized | | | Unrealized | | | Unrealized | | | Fair | |
| | Cost | | | Gains | | | Losses | | | Value | |
U.S. Treasury Securities | | $ | 32,783 | | | $ | - | | | $ | 2,668 | | | $ | 30,115 | |
U.S. Government Agencies | | | 50,288 | | | | - | | | | 2,916 | | | | 47,372 | |
Corporate Securities | | | 48,475 | | | | 25 | | | | 2,496 | | | | 46,004 | |
Mortgage-Backed Securities | | | 506,671 | | | | 267 | | | | 55,213 | | | | 451,725 | |
Municipal Securities | | | 347,382 | | | | 11 | | | | 31,858 | | | | 315,535 | |
| | | | | | | | | | | | | | | | |
Total Securities Available for Sale | | $ | 985,599 | | | $ | 303 | | | $ | 95,151 | | | $ | 890,751 | |
| | December 31, 2021 | |
| | (Dollars in thousands) | |
| | | | | | Gross | | | Gross | | | | | |
| | Amortized | | | Unrealized | | | Unrealized | | | Fair | |
| | Cost | | | Gains | | | Losses | | | Value | |
U.S. Treasury Securities | | $ | 22,751 | | | $ | - | | | $ | 437 | | | $ | 22,314 | |
U.S. Government Agencies | | | 27,867 | | | | 2 | | | | 376 | | | | 27,493 | |
Corporate Securities | | | 45,876 | | | | 812 | | | | 106 | | | | 46,582 | |
Mortgage-Backed Securities | | | 555,528 | | | | 3,246 | | | | 6,435 | | | | 552,339 | |
Municipal Securities | | | 370,421 | | | | 4,100 | | | | 2,188 | | | | 372,333 | |
| | | | | | | | | | | | | | | | |
Total Securities Available for Sale | | $ | 1,022,443 | | | $ | 8,160 | | | $ | 9,542 | | | $ | 1,021,061 | |
BUSINESS FIRST BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following tables present a summary of securities with gross unrealized losses and fair values at December 31, 2022 and 2021, 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 a temporary impairment of the securities.
| | December 31, 2022 | |
| | Less Than 12 Months | | | 12 Months or Greater | | | Total | |
| | (Dollars in thousands) | |
| | | | | | Gross | | | | | | | Gross | | | | | | | Gross | |
| | Fair | | | Unrealized | | | Fair | | | Unrealized | | | Fair | | | Unrealized | |
| | Value | | | Losses | | | Value | | | Losses | | | Value | | | Losses | |
U.S. Treasury Securities | | $ | 9,702 | | | $ | 374 | | | $ | 20,413 | | | $ | 2,294 | | | $ | 30,115 | | | $ | 2,668 | |
U.S. Government Agencies | | | 24,405 | | | | 595 | | | | 22,967 | | | | 2,321 | | | | 47,372 | | | | 2,916 | |
Corporate Securities | | | 19,564 | | | | 1,359 | | | | 6,385 | | | | 1,137 | | | | 25,949 | | | | 2,496 | |
Mortgage-Backed Securities | | | 115,692 | | | | 7,473 | | | | 324,043 | | | | 47,740 | | | | 439,735 | | | | 55,213 | |
Municipal Securities | | | 143,035 | | | | 10,206 | | | | 131,944 | | | | 21,652 | | | | 274,979 | | | | 31,858 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Total Securities Available for Sale | | $ | 312,398 | | | $ | 20,007 | | | $ | 505,752 | | | $ | 75,144 | | | $ | 818,150 | | | $ | 95,151 | |
| | December 31, 2021 | |
| | Less Than 12 Months | | | 12 Months or Greater | | | Total | |
| | (Dollars in thousands) | |
| | | | | | Gross | | | | | | | Gross | | | | | | | Gross | |
| | Fair | | | Unrealized | | | Fair | | | Unrealized | | | Fair | | | Unrealized | |
| | Value | | | Losses | | | Value | | | Losses | | | Value | | | Losses | |
U.S. Treasury Securities | | $ | 22,314 | | | $ | 437 | | | $ | - | | | $ | - | | | $ | 22,314 | | | $ | 437 | |
U.S. Government Agencies | | | 24,980 | | | | 376 | | | | - | | | | - | | | | 24,980 | | | | 376 | |
Corporate Securities | | | 7,350 | | | | 106 | | | | - | | | | - | | | | 7,350 | | | | 106 | |
Mortgage-Backed Securities | | | 407,986 | | | | 6,108 | | | | 18,985 | | | | 327 | | | | 426,971 | | | | 6,435 | |
Municipal Securities | | | 145,649 | | | | 1,872 | | | | 10,161 | | | | 316 | | | | 155,810 | | | | 2,188 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Total Securities Available for Sale | | $ | 608,279 | | | $ | 8,899 | | | $ | 29,146 | | | $ | 643 | | | $ | 637,425 | | | $ | 9,542 | |
Management evaluates securities for other than temporary impairment when economic and market conditions warrant such evaluations. Consideration is given to the extent and length of time the fair value has been below cost, the reasons for the decline in value, and the Company’s intent to sell a security or whether it is more likely than not that the Company will be required to sell the security before the recovery of its amortized cost. The Company developed a process to identify securities that could potentially have a credit impairment that is other than temporary. This process involves evaluating each security for impairment by monitoring credit performance, collateral type, collateral geography, loan-to-value ratios, credit scores, loss severity levels, pricing levels, downgrades by rating agencies, cash flow projections and other factors as indicators of potential credit issues. When the Company determines that a security is deemed to be other than temporarily impaired, an impairment loss is recognized.
BUSINESS FIRST BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The amortized cost and fair values of securities available for sale as of December 31, 2022 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 | | | Fair | |
| | Cost | | | Value | |
| | (Dollars in thousands) | |
Less Than One Year | | $ | 18,071 | | | $ | 17,908 | |
One to Five Years | | | 232,550 | | | | 218,789 | |
Over Five to Ten Years | | | 373,007 | | | | 336,559 | |
Over Ten Years | | | 361,971 | | | | 317,495 | |
| | | | | | | | |
Total Securities Available for Sale | | $ | 985,599 | | | $ | 890,751 | |
Securities available for sale with a fair value of $482.7 million and $373.4 million, respectively, were pledged as collateral on public deposits and for other purposes as required or permitted by law as of December 31, 2022 and 2021.
There were $9,000, $593,000 and $293,000 realized gross gains from sales or redemptions of securities for the years ended December 31, 2022, 2021 and 2020, respectively. There were $57,000, $215,000 and $158,000 realized gross losses from sales or redemptions of securities for the years ended December 31, 2022, 2021 and 2020, respectively.
Other Equity Securities and VIEs
The Company has invested in the Federal Home Loan Bank of Dallas which is included in other equity securities and reflected at cost in these financial statements. The cost of these securities was $19.7 million and $5.3 million, respectively, at December 31, 2022 and 2021. The Federal Home Loan Bank stock is pledged to secure advances from the Federal Home Loan Bank of Dallas at both December 31, 2022 and 2021. The Company also has investments of $302,000 in TIB National Association, $562,000 in Bankers Insurance, LLC at both December 31, 2022 and 2021. The Company also has investments in First National Banker's Bank of $2.2 million and $2.0 million and Senior Housing Crime Prevention Foundation stock of $501,000 and $502,000 at December 31, 2022 and 2021, respectively. These investments are carried at cost, less any impairment, due to the lack of a quoted market price and a ready market for these types of investments.
VIEs are legal entities that either do not have sufficient equity to finance their activities without the support from other parties or whose equity investors lack a controlling financial interest. The Company has investments in certain partnerships and limited liability entities that have been evaluated and determined to be VIEs. Consolidation of a VIE is appropriate if a reporting entity holds a controlling financial interest in the VIE and is the primary beneficiary. The Company is not the primary beneficiary and does not hold a controlling interest in the VIEs as it does not have the power to direct the activities that most significantly impact the VIEs’ economic performance.
Small Business Investment Companies (“SBIC”) and financial technology (“Fintech”) funds at December 31, 2022 and 2021 are summarized below.
| | December 31, | |
| | 2022 | | | 2021 | |
| | (Dollars in thousands) | |
| | | | | | | | |
McLarty Capital Partners SBIC, L.P. | | $ | 878 | | | $ | 1,432 | |
McLarty Capital Partners SBIC II, L.P. | | | 2,437 | | | | 2,246 | |
Firmament Capital Partners SBIC III, L.P. | | | 1,787 | | | | 1,033 | |
Bluehenge Capital Secured Debt SBIC, L.P. | | | 3,934 | | | | 1,682 | |
Bluehenge Capital Secured Debt SBIC II, L.P. | | | 296 | | | | - | |
New Louisiana Agnel Fund 2, LLC | | | 49 | | | | 37 | |
Pharos Capital Partners IV-A, L.P. | | | 356 | | | | 211 | |
Valesco Fund II, LP | | | 1,147 | | | | - | |
GP Capital Partners, LP | | | 277 | | | | - | |
BankTech Ventures, LP | | | 77 | | | | 60 | |
Jam Fintop BankTech, LP | | | 340 | | | | 161 | |
Ledyard Capital Managers, LLC | | | 928 | | | | 989 | |
Mendon Ventures Banktech Fund I, LP | | | 896 | | | | 154 | |
Castle Creek Launchpad Fund I, LP | | | 211 | | | | - | |
Work America Capital Fund I, LP | | | 629 | | | | - | |
| | | | | | | | |
| | $ | 14,242 | | | $ | 8,005 | |
BUSINESS FIRST BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 7 – Loans and the Allowance for Loan Losses –
Loans receivable at December 31, 2022 and 2021 are summarized as follows:
| | December 31, | |
| | 2022 | | | 2021 | |
| | (Dollars in thousands) | |
Real estate loans: | | | | | | | | |
Construction and land | | $ | 722,074 | | | $ | 548,528 | |
Farmland | | | 193,587 | | | | 87,463 | |
1-4 family residential | | | 557,741 | | | | 467,699 | |
Multi-family residential | | | 98,637 | | | | 97,508 | |
Nonfarm nonresidential | | | 1,826,819 | | | | 1,144,426 | |
Commercial | | | 1,090,343 | | | | 721,385 | |
Consumer and other | | | 116,975 | | | | 122,599 | |
| | | | | | | | |
Total loans held for investment | | | 4,606,176 | | | | 3,189,608 | |
| | | | | | | | |
Less: | | | | | | | | |
Allowance for loan losses | | | (38,178 | ) | | | (29,112 | ) |
| | | | | | | | |
Net loans | | $ | 4,567,998 | | | $ | 3,160,496 | |
SBA PPP loans accounted for $2.8 million and $5.4 million of the commercial loan portfolio as of December 31, 2022 and 2021, respectively.
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 December 31, 2022 and 2021.
Net deferred loan origination fees were $13.1 million and $7.7 million at December 31, 2022 and 2021, 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 December 31, 2022 and 2021, overdrafts of $2.0 million and $2.4 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 $683.3 million and $461.8 million at December 31, 2022 and 2021, respectively. The Company has servicing rights of $1.7 million and $1.4 million recorded at December 31, 2022 and 2021, respectively, which are recorded within other assets.
The Bank grants loans and extensions of credit to individuals and a variety of businesses and corporations located in its general market areas throughout Louisiana and Texas. Management segregates the loan portfolio into portfolio segments which is defined as the level at which the Bank develops and documents a systematic method for determining its allowance for loan 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.
Loans acquired in business combinations are initially recorded at fair value, which includes an estimate of credit losses expected to be realized over the remaining lives of the loans and, therefore, no corresponding allowance for loan losses is recorded for these loans at acquisition. Methods utilized to estimate any subsequently required allowance for loan losses for acquired loans not deemed credit-impaired at acquisition are similar to originated loans; however, the estimate of loss is based on the unpaid principal balance and then compared to any remaining net unaccreted purchase discount. To the extent the calculated loss is greater than the remaining net unaccreted discount, an allowance is recorded for such difference. For purchased impaired credits, cash flow re-estimations are performed at least quarterly for each acquired impaired loan or loan pool. Increases in estimated cash flows above those expected at the time of acquisition are recognized on a prospective basis as interest income over the remaining life of the loan and/or pool. Decreases in expected cash flows subsequent to acquisition generally result in recognition of a provision for credit loss.
BUSINESS FIRST BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Total loans held for investment at December 31, 2022 includes $498.1 million of loans acquired in acquisitions that were recorded at fair value as of the acquisition date. Included in the acquired balances at December 31, 2022 were acquired impaired loans accounted for under ASC 310-30 with a net carrying amount of $49.8 million and acquired performing loans not accounted for under ASC 310-30 totaling $450.0 million with a remaining purchase discount of $3.3 million.
Total loans held for investment at December 31, 2021 includes $379.0 million of loans acquired in acquisitions that were recorded at fair value as of the acquisition date. Included in the acquired balances at December 31, 2021 were acquired impaired loans accounted for under ASC 310-30 with a net carrying amount of $51.2 million and acquired performing loans not accounted for under ASC 310-30 totaling $331.3 million with a remaining purchase discount of $3.5 million.
The following tables set forth, as of December 31, 2022 and 2021, the balance of the allowance for loan losses by portfolio segment, disaggregated by impairment methodology, which is then further segregated by amounts evaluated for impairment collectively and individually. The allowance for loan losses allocated to each portfolio segment is not necessarily indicative of future losses in any particular portfolio segment and does not restrict the use of the allowance to absorb losses in other portfolio segments.
Allowance for Credit Losses and Recorded Investment in Loans Receivable
| | December 31, 2022 | |
| | (Dollars in thousands) | |
| | Real Estate: | | | | | | | Real Estate: | | | Real Estate: | | | Real Estate: | | | | | | | | | | | | | |
| | Construction | | | Real Estate: | | | 1-4 Family | | | Multi-family | | | Nonfarm | | | | | | | Consumer | | | | | |
| | and Land | | | Farmland | | | Residential | | | Residential | | | Nonresidential | | | Commercial | | | and Other | | | Total | |
Allowance for credit losses: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Beginning Balance | | $ | 4,498 | | | $ | 721 | | | $ | 3,791 | | | $ | 774 | | | $ | 9,794 | | | $ | 8,358 | | | $ | 1,176 | | | $ | 29,112 | |
Charge-offs | | | (16 | ) | | | - | | | | (191 | ) | | | - | | | | (51 | ) | | | (2,091 | ) | | | (472 | ) | | | (2,821 | ) |
Recoveries | | | 25 | | | | - | | | | 20 | | | | - | | | | 50 | | | | 697 | | | | 209 | | | | 1,001 | |
Provision | | | 1,261 | | | | 833 | | | | 1,003 | | | | (43 | ) | | | 3,355 | | | | 4,233 | | | | 244 | | | | 10,886 | |
Ending Balance | | $ | 5,768 | | | $ | 1,554 | | | $ | 4,623 | | | $ | 731 | | | $ | 13,148 | | | $ | 11,197 | | | $ | 1,157 | | | $ | 38,178 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Ending Balance: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Individually evaluated for impairment | | $ | 21 | | | $ | - | | | $ | 99 | | | $ | - | | | $ | 59 | | | $ | 2,002 | | | $ | 33 | | | $ | 2,214 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Collectively evaluated for impairment | | $ | 5,747 | | | $ | 1,554 | | | $ | 4,524 | | | $ | 731 | | | $ | 13,089 | | | $ | 9,195 | | | $ | 1,124 | | | $ | 35,964 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Purchased Credit Impaired | | $ | - | | | $ | - | | | $ | - | | | $ | - | | | $ | - | | | $ | - | | | $ | - | | | $ | - | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Loans receivable: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Ending Balance | | $ | 722,074 | | | $ | 193,587 | | | $ | 557,741 | | | $ | 98,637 | | | $ | 1,826,819 | | | $ | 1,090,343 | | | $ | 116,975 | | | $ | 4,606,176 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Ending Balance: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Individually evaluated for impairment | | $ | 992 | | | $ | 16 | | | $ | 4,028 | | | $ | - | | | $ | 3,037 | | | $ | 6,325 | | | $ | 309 | | | $ | 14,707 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Collectively evaluated for impairment | | $ | 720,129 | | | $ | 193,557 | | | $ | 538,558 | | | $ | 98,637 | | | $ | 1,796,274 | | | $ | 1,078,544 | | | $ | 115,983 | | | $ | 4,541,682 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Purchased Credit Impaired | | $ | 953 | | | $ | 14 | | | $ | 15,155 | | | $ | - | | | $ | 27,508 | | | $ | 5,474 | | | $ | 683 | | | $ | 49,787 | |
112
BUSINESS FIRST BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
| | December 31, 2021 | |
| | (Dollars in thousands) | |
| | Real Estate: | | | | | | | Real Estate: | | | Real Estate: | | | Real Estate: | | | | | | | | | | | | | |
| | Construction | | | Real Estate: | | | 1-4 Family | | | Multi-family | | | Nonfarm | | | | | | | Consumer | | | | | |
| | and Land | | | Farmland | | | Residential | | | Residential | | | Nonresidential | | | Commercial | | | and Other | | | Total | |
Allowance for credit losses: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Beginning balance | | $ | 3,584 | | | $ | 600 | | | $ | 3,453 | | | $ | 818 | | | $ | 7,369 | | | $ | 5,018 | | | $ | 1,182 | | | $ | 22,024 | |
Charge-offs | | | (28 | ) | | | (1 | ) | | | (169 | ) | | | - | | | | (139 | ) | | | (830 | ) | | | (469 | ) | | | (1,636 | ) |
Recoveries | | | 1 | | | | 2 | | | | 39 | | | | - | | | | 99 | | | | 417 | | | | 119 | | | | 677 | |
Provision | | | 941 | | | | 120 | | | | 468 | | | | (44 | ) | | | 2,465 | | | | 3,753 | | | | 344 | | | | 8,047 | |
Ending Balance | | $ | 4,498 | | | $ | 721 | | | $ | 3,791 | | | $ | 774 | | | $ | 9,794 | | | $ | 8,358 | | | $ | 1,176 | | | $ | 29,112 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Ending Balance: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Individually evaluated for impairment | | $ | 26 | | | $ | - | | | $ | 110 | | | $ | - | | | $ | 83 | | | $ | 438 | | | $ | 37 | | | $ | 694 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Collectively evaluated for impairment | | $ | 4,472 | | | $ | 721 | | | $ | 3,681 | | | $ | 774 | | | $ | 9,711 | | | $ | 7,920 | | | $ | 1,139 | | | $ | 28,418 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Purchased Credit Impaired | | $ | - | | | $ | - | | | $ | - | | | $ | - | | | $ | - | | | $ | - | | | $ | - | | | $ | - | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Loans receivable: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Ending Balance | | $ | 548,528 | | | $ | 87,463 | | | $ | 467,699 | | | $ | 97,508 | | | $ | 1,144,426 | | | $ | 721,385 | | | $ | 122,599 | | | $ | 3,189,608 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Ending Balance: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Individually evaluated for impairment | | $ | 1,358 | | | $ | 74 | | | $ | 3,627 | | | $ | - | | | $ | 2,959 | | | $ | 5,514 | | | $ | 289 | | | $ | 13,821 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Collectively evaluated for impairment | | $ | 546,164 | | | $ | 87,387 | | | $ | 444,934 | | | $ | 97,508 | | | $ | 1,118,836 | | | $ | 708,346 | | | $ | 121,392 | | | $ | 3,124,567 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Purchased Credit Impaired | | $ | 1,006 | | | $ | 2 | | | $ | 19,138 | | | $ | - | | | $ | 22,631 | | | $ | 7,525 | | | $ | 918 | | | $ | 51,220 | |
Portfolio Segment Risk Factors
Construction and land include loans to small-to-midsized businesses to construct owner-user 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 change 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.
Farmland loans are loans that can be, or are, used for agricultural purposes. These loans are usually repaid through permanent financing, cash flow from the borrower’s ongoing operations, development of the property, or sale of the property.
One-to-four family 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.
Multi-family residential loans are generally 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.
Nonfarm nonresidential loans are extensions of credit secured by owner-occupied and non-owner occupied collateral. Repayment is generally relied upon from 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.
BUSINESS FIRST BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 on the basis of 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 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.
Management further disaggregates the loan portfolio segments into classes of loans, which are based on the initial measurement of the loan, risk characteristics of the loan and the method for monitoring and assessing the credit risk of the loan.
As of December 31, 2022 and 2021, the credit quality indicators, disaggregated by class of loan, are as follows:
Credit Quality Indicators
| | December 31, 2022 | |
| | Pass | | | Special Mention | | | Substandard | | | Doubtful | | | Total | |
| | (Dollars in thousands) | |
Real Estate Loans: | | | | | | | | | | | | | | | | | | | | |
Construction and land | | $ | 716,071 | | | $ | 3,496 | | | $ | 2,157 | | | $ | 350 | | | $ | 722,074 | |
Farmland | | | 191,475 | | | | 2,082 | | | | 16 | | | | 14 | | | | 193,587 | |
1-4 family residential | | | 545,142 | | | | 3,780 | | | | 7,909 | | | | 910 | | | | 557,741 | |
Multi-family residential | | | 98,621 | | | | - | | | | 16 | | | | - | | | | 98,637 | |
Nonfarm nonresidential | | | 1,781,136 | | | | 32,972 | | | | 10,462 | | | | 2,249 | | | | 1,826,819 | |
Commercial | | | 1,074,417 | | | | 6,520 | | | | 6,761 | | | | 2,645 | | | | 1,090,343 | |
Consumer and other | | | 116,179 | | | | 126 | | | | 603 | | | | 67 | | | | 116,975 | |
Total | | $ | 4,523,041 | | | $ | 48,976 | | | $ | 27,924 | | | $ | 6,235 | | | $ | 4,606,176 | |
| | December 31, 2021 | |
| | Pass | | | Special Mention | | | Substandard | | | Doubtful | | | Total | |
| | (Dollars in thousands) | |
Real Estate Loans: | | | | | | | | | | | | | | | | | | | | |
Construction and land | | $ | 545,071 | | | $ | 266 | | | $ | 1,850 | | | $ | 1,341 | | | $ | 548,528 | |
Farmland | | | 86,063 | | | | 1,324 | | | | - | | | | 76 | | | | 87,463 | |
1-4 family residential | | | 456,150 | | | | 3,109 | | | | 2,801 | | | | 5,639 | | | | 467,699 | |
Multi-family residential | | | 97,485 | | | | - | | | | 23 | | | | - | | | | 97,508 | |
Nonfarm nonresidential | | | 1,094,782 | | | | 34,495 | | | | 9,735 | | | | 5,414 | | | | 1,144,426 | |
Commercial | | | 704,755 | | | | 7,886 | | | | 3,137 | | | | 5,607 | | | | 721,385 | |
Consumer and other | | | 121,566 | | | | 350 | | | | 257 | | | | 426 | | | | 122,599 | |
Total | | $ | 3,105,872 | | | $ | 47,430 | | | $ | 17,803 | | | $ | 18,503 | | | $ | 3,189,608 | |
BUSINESS FIRST BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The above classifications follow regulatory guidelines and can generally be described as follows:
| ● | Pass loans are of satisfactory quality. |
| ● | Special mention loans have an existing weakness that could cause future impairment, including the deterioration of financial ratios, past due status, questionable management capabilities and possible reduction in the collateral values. |
| ● | Substandard loans have an existing specific and well-defined weakness that may include poor liquidity and deterioration of financial ratios. The loan may be past due and related deposit accounts experiencing overdrafts. Immediate corrective action is necessary. |
| ● | Doubtful loans have specific weaknesses that are severe enough to make collection or liquidation in full highly questionable and improbable. |
As of December 31, 2022 and 2021, loan balances outstanding more than 90 days past due and still accruing interest amounted to $335,000 and $222,000, respectively. As of December 31, 2022 and 2021, loan balances outstanding on nonaccrual status amounted to $11.1 million and $12.9 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 December 31, 2022 and December 31, 2021. Past due and nonaccrual loan amounts exclude acquired impaired loans, even if contractually past due or if the Company does not expect to receive payment in full, as the Company is currently accreting interest income over the expected life of the loans. All loans greater than 90 days past due are generally placed on nonaccrual status.
Aged Analysis of Past Due Loans Receivable
| | December 31, 2022 | |
| | (Dollars in thousands) | |
| | | | | | | | | | | | | | | | | | | | | | | | | | Recorded | |
| | | | | | | | | | Greater | | | | | | | | | | | | | | | Investment Over | |
| | 30-59 Days | | | 60-89 Days | | | Than 90 Days | | | Total | | | | | | | Total Loans | | | 90 Days Past Due | |
| | Past Due | | | Past Due | | | Past Due | | | Past Due | | | Current | | | Receivable | | | and Still Accruing | |
Real Estate Loans: | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Construction and land | | $ | 320 | | | $ | 41 | | | $ | 638 | | | $ | 999 | | | $ | 721,075 | | | $ | 722,074 | | | $ | - | |
Farmland | | | 49 | | | | - | | | | 50 | | | | 99 | | | | 193,488 | | | | 193,587 | | | | 50 | |
1-4 family residential | | | 1,590 | | | | 423 | | | | 1,781 | | | | 3,794 | | | | 553,947 | | | | 557,741 | | | | - | |
Multi-family residential | | | - | | | | - | | | | - | | | | - | | | | 98,637 | | | | 98,637 | | | | - | |
Nonfarm nonresidential | | | 1,442 | | | | 210 | | | | 1,631 | | | | 3,283 | | | | 1,823,536 | | | | 1,826,819 | | | | 48 | |
Commercial | | | 1,035 | | | | 1,919 | | | | 2,069 | | | | 5,023 | | | | 1,085,320 | | | | 1,090,343 | | | | 222 | |
Consumer and other | | | 443 | | | | 43 | | | | 299 | | | | 785 | | | | 116,190 | | | | 116,975 | | | | 15 | |
Total | | $ | 4,879 | | | $ | 2,636 | | | $ | 6,468 | | | $ | 13,983 | | | $ | 4,592,193 | | | $ | 4,606,176 | | | $ | 335 | |
| | December 31, 2021 | |
| | (Dollars in thousands) | |
| | | | | | | | | | | | | | | | | | | | | | | | | | Recorded | |
| | | | | | | | | | Greater | | | | | | | | | | | | | | | Investment Over | |
| | 30-59 Days | | | 60-89 Days | | | Than 90 Days | | | Total | | | | | | | Total Loans | | | 90 Days Past Due | |
| | Past Due | | | Past Due | | | Past Due | | | Past Due | | | Current | | | Receivable | | | and Still Accruing | |
Real Estate Loans: | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Construction and land | | $ | 632 | | | $ | 16 | | | $ | 488 | | | $ | 1,136 | | | $ | 547,392 | | | $ | 548,528 | | | $ | - | |
Farmland | | | 83 | | | | - | | | | - | | | | 83 | | | | 87,380 | | | | 87,463 | | | | - | |
1-4 family residential | | | 917 | | | | 534 | | | | 1,496 | | | | 2,947 | | | | 464,752 | | | | 467,699 | | | | 107 | |
Multi-family residential | | | - | | | | - | | | | - | | | | - | | | | 97,508 | | | | 97,508 | | | | - | |
Nonfarm nonresidential | | | 222 | | | | 627 | | | | 1,767 | | | | 2,616 | | | | 1,141,810 | | | | 1,144,426 | | | | - | |
Commercial | | | 106 | | | | 55 | | | | 4,257 | | | | 4,418 | | | | 716,967 | | | | 721,385 | | | | 97 | |
Consumer and other | | | 392 | | | | 144 | | | | 271 | | | | 807 | | | | 121,792 | | | | 122,599 | | | | 18 | |
Total | | $ | 2,352 | | | $ | 1,376 | | | $ | 8,279 | | | $ | 12,007 | | | $ | 3,177,601 | | | $ | 3,189,608 | | | $ | 222 | |
BUSINESS FIRST BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Loan Receivables on Nonaccrual Status
| | December 31, | |
| | 2022 | | | 2021 | |
| | (Dollars in thousands) | |
Real Estate Loans: | | | | | | | | |
Construction and land | | $ | 992 | | | $ | 1,341 | |
Farmland | | | 16 | | | | 76 | |
1-4 family residential | | | 4,080 | | | | 3,601 | |
Multi-family residential | | | - | | | | - | |
Nonfarm nonresidential | | | 2,628 | | | | 2,614 | |
Commercial | | | 3,033 | | | | 4,947 | |
Consumer and other | | | 305 | | | | 289 | |
Total | | $ | 11,054 | | | $ | 12,868 | |
BUSINESS FIRST BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following is a summary of information pertaining to impaired loans as of December 31, 2022 and December 31, 2021. Purchased performing loans are placed on nonaccrual status and reported as impaired using the same criteria applied to the originated portfolio. Purchased impaired credits are excluded from this table. The interest income recognized for impaired loans was $378,000 and $334,000 for the years ended December 31, 2022 and 2021, respectively.
| | December 31, 2022 | |
| | (Dollars in thousands) | |
| | | | | | Unpaid | | | | | | | Average | |
| | Recorded | | | Principal | | | Related | | | Recorded | |
| | Investment | | | Balance | | | Allowance | | | Investment | |
With an allowance recorded: | | | | | | | | | | | | | | | | |
Real Estate Loans: | | | | | | | | | | | | | | | | |
Construction and land | | $ | 21 | | | $ | 25 | | | $ | 21 | | | $ | 131 | |
Farmland | | | - | | | | - | | | | - | | | | - | |
1-4 family residential | | | 663 | | | | 700 | | | | 99 | | | | 402 | |
Multi-family residential | | | - | | | | - | | | | - | | | | - | |
Nonfarm nonresidential | | | 729 | | | | 778 | | | | 59 | | | | 707 | |
Other Loans: | | | | | | | | | | | | | | | | |
Commercial | | | 5,507 | | | | 5,656 | | | | 2,002 | | | | 2,246 | |
Consumer and other | | | 74 | | | | 75 | | | | 33 | | | | 67 | |
Total | | $ | 6,994 | | | $ | 7,234 | | | $ | 2,214 | | | $ | 3,553 | |
| | | | | | | | | | | | | | | | |
With no allowance recorded: | | | | | | | | | | | | | | | | |
Real Estate Loans: | | | | | | | | | | | | | | | | |
Construction and land | | $ | 971 | | | $ | 1,000 | | | $ | - | | | $ | 828 | |
Farmland | | | 16 | | | | 19 | | | | - | | | | 71 | |
1-4 family residential | | | 3,365 | | | | 4,295 | | | | - | | | | 3,341 | |
Multi-family residential | | | - | | | | - | | | | - | | | | - | |
Nonfarm nonresidential | | | 2,309 | | | | 2,832 | | | | - | | | | 4,031 | |
Other Loans: | | | | | | | | | | | | | | | | |
Commercial | | | 817 | | | | 2,896 | | | | - | | | | 3,662 | |
Consumer and other | | | 235 | | | | 435 | | | | - | | | | 167 | |
Total | | $ | 7,713 | | | $ | 11,477 | | | $ | - | | | $ | 12,100 | |
| | | | | | | | | | | | | | | | |
Total Impaired Loans: | | | | | | | | | | | | | | | | |
Real Estate Loans: | | | | | | | | | | | | | | | | |
Construction and land | | $ | 992 | | | $ | 1,025 | | | $ | 21 | | | $ | 959 | |
Farmland | | | 16 | | | | 19 | | | | - | | | | 71 | |
1-4 family residential | | | 4,028 | | | | 4,995 | | | | 99 | | | | 3,743 | |
Multi-family residential | | | - | | | | - | | | | - | | | | - | |
Nonfarm nonresidential | | | 3,038 | | | | 3,610 | | | | 59 | | | | 4,738 | |
Other Loans: | | | | | | | | | | | | | | | | |
Commercial | | | 6,324 | | | | 8,552 | | | | 2,002 | | | | 5,908 | |
Consumer and other | | | 309 | | | | 510 | | | | 33 | | | | 234 | |
Total | | $ | 14,707 | | | $ | 18,711 | | | $ | 2,214 | | | $ | 15,653 | |
BUSINESS FIRST BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
| | December 31, 2021 | |
| | (Dollars in thousands) | |
| | | | | | Unpaid | | | | | | | Average | |
| | Recorded | | | Principal | | | Related | | | Recorded | |
| | Investment | | | Balance | | | Allowance | | | Investment | |
With an allowance recorded: | | | | | | | | | | | | | | | | |
Real Estate Loans: | | | | | | | | | | | | | | | | |
Construction and land | | $ | 68 | | | $ | 70 | | | $ | 26 | | | $ | 27 | |
Farmland | | | - | | | | - | | | | - | | | | 12 | |
1-4 family residential | | | 314 | | | | 371 | | | | 110 | | | | 325 | |
Multi-family residential | | | - | | | | - | | | | - | | | | - | |
Nonfarm nonresidential | | | 784 | | | | 801 | | | | 83 | | | | 623 | |
Other Loans: | | | | | | | | | | | | | | | | |
Commercial | | | 695 | | | | 836 | | | | 438 | | | | 1,217 | |
Consumer and other | | | 91 | | | | 92 | | | | 37 | | | | 80 | |
Total | | $ | 1,952 | | | $ | 2,170 | | | $ | 694 | | | $ | 2,284 | |
| | | | | | | | | | | | | | | | |
With no allowance recorded: | | | | | | | | | | | | | | | | |
Real Estate Loans: | | | | | | | | | | | | | | | | |
Construction and land | | $ | 1,290 | | | $ | 1,356 | | | $ | - | | | $ | 1,050 | |
Farmland | | | 74 | | | | 82 | | | | - | | | | 150 | |
1-4 family residential | | | 3,313 | | | | 4,171 | | | | - | | | | 2,835 | |
Multi-family residential | | | - | | | | - | | | | - | | | | 48 | |
Nonfarm nonresidential | | | 2,175 | | | | 2,691 | | | | - | | | | 2,889 | |
Other Loans: | | | | | | | | | | | | | | | | |
Commercial | | | 4,819 | | | | 5,211 | | | | - | | | | 3,882 | |
Consumer and other | | | 198 | | | | 467 | | | | - | | | | 184 | |
Total | | $ | 11,869 | | | $ | 13,978 | | | $ | - | | | $ | 11,038 | |
| | | | | | | | | | | | | | | | |
Total Impaired Loans: | | | | | | | | | | | | | | | | |
Real Estate Loans: | | | | | | | | | | | | | | | | |
Construction and land | | $ | 1,358 | | | $ | 1,426 | | | $ | 26 | | | $ | 1,077 | |
Farmland | | | 74 | | | | 82 | | | | - | | | | 162 | |
1-4 family residential | | | 3,627 | | | | 4,542 | | | | 110 | | | | 3,160 | |
Multi-family residential | | | - | | | | - | | | | - | | | | 48 | |
Nonfarm nonresidential | | | 2,959 | | | | 3,492 | | | | 83 | | | | 3,512 | |
Other Loans: | | | | | | | | | | | | | | | | |
Commercial | | | 5,514 | | | | 6,047 | | | | 438 | | | | 5,099 | |
Consumer and other | | | 289 | | | | 559 | | | | 37 | | | | 264 | |
Total | | $ | 13,821 | | | $ | 16,148 | | | $ | 694 | | | $ | 13,322 | |
BUSINESS FIRST BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
As discussed in Note 3, the Company acquired loans with fair values of $338.0 million from TCBI on March 1, 2022. Of the total $338.0 million of loans acquired, $316.5 million were determined to have no evidence of deteriorated credit quality and are accounted for under ASC Topics 310-10 and 310-20. The unamortized discount related to the acquired performing loans totaled $1.7 million at March 1, 2022. The remaining $21.5 million were determined to exhibit deteriorated credit quality since origination under ASC 310-30.
The following table presents the balances acquired on March 1, 2022 which were accounted for under ASC 310-30.
| | Purchased | |
| | Impaired Credits | |
| | (Dollars in thousands) | |
| | | | |
Contractually required payments | | $ | 52,899 | |
Non-accretable difference (expected losses) | | | (26,803 | ) |
Cash flows expected to be collected at acquisition | | | 26,096 | |
Accretable yield | | | (4,622 | ) |
Basis in acquired loans at acquisition | | $ | 21,474 | |
The following is a summary of changes in the accretable difference for loans accounted for under ASC 310-30 during the year ended December 31, 2022:
Balance at December 31, 2021 | | $ | 20,659 | |
Additions | | | 4,622 | |
Transfers from non-accretable difference to accretable yield | | | 8,400 | |
Accretion | | | (7,739 | ) |
Changes in expected cash flows not affecting non-accretable differences | | | (3,658 | ) |
Balance at December 31, 2022 | | $ | 22,284 | |
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 December 31, 2022 and 2021, the concessions granted to certain borrowers included extending the payment due dates and offering below market contractual interest rates.
Once modified in a troubled debt restructuring, a loan is generally considered impaired until its contractual maturity. At the time of the restructuring, the loan is evaluated for an allowance for credit losses. The Bank continues to specifically reevaluate the loan in subsequent periods, regardless of the borrower’s performance under the modified terms. If a borrower subsequently defaults on the loan after it is restructured, the Bank provides an allowance for credit losses for the amount of the loan that exceeds the value of the related collateral.
BUSINESS FIRST BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Company had one troubled debt restructuring that subsequently defaulted during the year ended December 31, 2022 in amount of $1.5 million and three during the year ended December 31, 2021 in the amount of $154,000. The Company modified one loan that was categorized as a trouble debt restructuring during the year ended December 31, 2022, with a pre-modification balance of $3.5 million and a post-modification balance of $3.2 million. During the year ended December 31, 2021, the Company did not modify any loans that were categorized as trouble debt restructurings.
As of December 31, 2022 and 2021, our loan portfolio included loans with outstanding principal balances of $425.2 million and $522.0 million, respectively, that had previously been granted payment deferrals due to the effects of the COVID-19 pandemic. As of both December 31, 2022 and 2021, the Company had no loans with outstanding principal balances still in their pandemic-related deferral periods. Under Section 4013 of the CARES Act, as extended by the Consolidated Appropriations Act of 2021, and based on the interpretive guidance released by the FASB and the applicable banking regulators, the Company determined that none of the modifications associated with the COVID-19 pandemic were troubled debt restructurings at both December 31, 2022 and 2021.
Accrued interest receivable of $5.4 million and $6.0 million was outstanding as of December 31, 2022 and 2021, respectively, for all loan deferrals.
Note 8 – Premises and Equipment –
Bank premises and equipment at December 31, 2022 and 2021 consist of the following:
| | 2022 | | | 2021 | |
| | (Dollars in thousands) | |
Land | | $ | 7,831 | | | $ | 6,938 | |
Buildings and Leasehold Improvements | | | 52,167 | | | | 46,131 | |
Furniture and Equipment | | | 33,913 | | | | 29,601 | |
Right of Use Asset | | | 17,477 | | | | 14,304 | |
| | | | | | | | |
Total Bank Premises and Equipment | | | 111,388 | | | | 96,974 | |
| | | | | | | | |
Less: Accumulated Depreciation | | | (48,211 | ) | | | (38,819 | ) |
| | | | | | | | |
Total Bank Premises and Equipment, net | | $ | 63,177 | | | $ | 58,155 | |
The provision for depreciation and amortization attributable to bank premises and equipment charged to operating expenses was $4.8 million, $4.2 million and $3.2 million for the years ended December 31, 2022, 2021 and 2020, respectively.
BUSINESS FIRST BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 9 - Goodwill and Other Intangible Assets –
Goodwill was recorded as a result of acquisitions. The carrying amount of goodwill as of December 31, 2022 and 2021 was $88.5 million and $59.9 million, respectively. The increase of $28.6 in goodwill was the result of the acquisition of TCBI in 2022. In 2021, the increase of $6.0 million in goodwill was the result of the acquisition of SSW in 2021 which added $6.5 million, offset with $271,000 in adjustments from the Pedestal acquisition and the sale of the Oak Grove branch which also reduced goodwill in the amount of $168,000. The Company performed the required annual goodwill impairment test as of October 1, 2022. The Company’s annual test did not indicate any impairment as of the testing date. Following the testing date, management determined no triggering event had occurred though December 31, 2022.
Core deposit and customer intangible assets were acquired in conjunction with the business combinations. A summary of the core deposit and customer intangible assets as of December 31, 2022 and 2021 is as follows:
| | 2022 | | | 2021 | |
| | (Dollars in thousands) | |
| | | | | | | | |
Gross Carrying Amount | | $ | 17,225 | | | $ | 13,128 | |
Acquired in SSW Acquisition | | | - | | | | 4,300 | |
Adjustment for Sale of Branch | | | - | | | | (203 | ) |
Acquired in TCBI Acquisition | | | 3,875 | | | | - | |
Less: Accumulated Amortization | | | (7,058 | ) | | | (5,022 | ) |
| | | | | | | | |
Net Carrying Amount | | $ | 14,042 | | | $ | 12,203 | |
Amortization expense on the core deposit and customer intangible assets totaled approximately $2.0 million, $1.6 million and $1.2 million during the years ended December 31, 2022, 2021 and 2020, respectively. The following table presents the estimated aggregate amortization expense for the periods indicated:
December 31, | | | | |
| | (Dollars in thousands) | |
| | | | |
2023 | | $ | 2,100 | |
2024 | | | 2,100 | |
2025 | | | 1,893 | |
2026 | | | 1,824 | |
2027 | | | 1,824 | |
Thereafter | | | 4,301 | |
| | | | |
Total Core Deposit and Customer Intangible | | $ | 14,042 | |
BUSINESS FIRST BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 10 – Deposits –
Deposit accounts at December 31, 2022 and 2021 are summarized as follows:
| | 2022 | | | 2021 | |
| | (Dollars in thousands) | |
Noninterest Bearing - DDA | | $ | 1,549,381 | | | $ | 1,291,036 | |
Noninterest Bearing Deposits | | | 1,549,381 | | | | 1,291,036 | |
| | | | | | | | |
Interest Bearing - DDA | | | 455,117 | | | | 198,622 | |
NOW and Super NOW Accounts | | | 579,789 | | | | 581,449 | |
Money Market Accounts | | | 1,136,597 | | | | 995,699 | |
Savings Accounts | | | 312,884 | | | | 317,821 | |
Certificates of Deposit Over $250,000 | | | 279,781 | | | | 197,273 | |
Other Certificates of Deposit | | | 506,796 | | | | 495,383 | |
Interest Bearing Deposits | | | 3,270,964 | | | | 2,786,247 | |
| | | | | | | | |
Total Deposits | | $ | 4,820,345 | | | $ | 4,077,283 | |
Approximately 76.5% of certificates of deposit as of December 31, 2022 have stated maturity dates during 2023 and the remaining 23.5% have stated maturity dates during 2024 and beyond.
At December 31, 2022 and 2021, total deposits for the top three customer relationships was approximately $168.9 million and $162.0 million, respectively, which represented 3.5% and 4.0% of total deposits, respectively. Brokered and reciprocal deposits were approximately $550.2 million and $282.8 million at December 31, 2022 and 2021, respectively. Included in these brokered and reciprocal deposits are public fund deposits of approximately $131.9 million and $92.6 million at December 31, 2022 and 2021, respectively. Other public fund deposits were approximately $504.1 million and $493.2 million at December 31, 2022 and 2021, respectively.
BUSINESS FIRST BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 11 – Borrowings –
The Bank had outstanding advances from the FHLB of $410.1 million and $82.0 million at December 31, 2022 and 2021, respectively, consisting of:
One short term, seven-day, fixed rate loan of $262.0 million at December 31, 2022, with interest at 4.55%. Principal was due, paid and renewed, at maturity in January 2023.
One fixed rate loan of $875,000 at December 31, 2022, 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 $100.0 million at December 31, 2022, with interest at 3.53% paid monthly. Principal is due at maturity in October 2027. This advance has put options beginning in October 2023.
One fixed rate loan with an original principal balance of $60.0 million. The loan was made in 2021 and the balance at December 31, 2022 and 2021 was $47.2 million and $59.0 million, respectively, with interest at 0.89%. Monthly principal and interest payments are due monthly and the loan matures in November 2026.
One fixed rate loan of $23.0 million at December 31, 2021, with interest at 1.59% paid monthly. Principal was due at maturity in June 2024 but was paid in full in June 2022.
These advances are collateralized by the Company’s investment in FHLB stock and a blanket lien on qualifying loans in the Bank’s loan portfolio. The blanket lien totaled approximately $1.8 billion at December 31, 2022 with unused availability for advances and letters of credit of approximately $1.3 billion.
The Company has outstanding lines of credit with several of its correspondent banks available to assist in the management of short-term liquidity. These agreements provide for interest based upon the federal funds rate on the outstanding balance. Total available lines of credit as of December 31, 2022 and 2021 were $154.0 million and $154.0 million, respectively. The Company purchased $14.1 million on these lines at December 31, 2022 and was not in a purchased position on these lines at December 31, 2021.
The Company had a line of credit with First National Banker’s Bank (“FNBB”) and was allowed to borrow on a revolving basis up to $5.0 million. This line of credit, established on November 3, 2021, was secured by a pledge of and security interest in the common stock of the Bank and established for general corporate purposes. The Company drew down the full amount in 2022 and did not have a balance on the line of credit at December 31, 2021. The line of credit carried a variable interest rate equal to the Wall Street Journal Prime Rate with a minimum rate of 3.50%, and matured in November 2022. This FNBB line was paid in full at maturity, and was not renewed, in November, 2022.
In December 2018, the Company issued subordinated notes in the amount of $25.0 million. The subordinated notes bear a fixed rate of interest at 6.75% until December 31, 2028 and a floating rate thereafter through maturity in 2033. The balance outstanding at both December 31, 2022 and 2021 was $25.0 million. The subordinated notes were issued for the purpose of paying off the long term advance and line of credit with FNBB, for general corporate purposes and to provide Tier 2 capital. The subordinated notes are redeemable by the Company at its option beginning in 2028.
In the Pedestal acquisition, the Company assumed Pedestal’s junior subordinated debentures, which are associated with $5.0 million in trust preferred securities acquired from Pedestal. Interest on the junior subordinated debentures is accrued at an annual rate equal to the 3-month LIBOR, as determined in the indenture governing the debentures, plus 3.05%. Interest is payable quarterly. The indenture allows the Company to defer interest payments for up to 20 consecutive quarterly periods without resulting in a default. The trust preferred securities do not have a stated maturity date, however, they are subject to mandatory redemption on September 17, 2033, or upon earlier redemption. The Company has guaranteed, on a subordinated basis, distributions and other payments due on the trust preferred securities subject to the guarantee agreement and the indenture. Principal and interest payments on the junior subordinated debentures are in a superior position to the liquidation rights of holders of common stock.
BUSINESS FIRST BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
On March 26, 2021, the Company issued $52.5 million in subordinated debt. 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. The subordinated notes were issued to provide additional capital support to the Bank, to support growth, to better position the Company to take advantage of strategic opportunities that may arise from time to time, repayment of existing Company borrowings, and for other general corporate purposes. The subordinated notes are redeemable by the Company at its option beginning in 2026.
On April 1, 2021, the Company, through b1BANK, consummated the acquisition of SSW as discussed in Note 3. Under the terms of the acquisition, the Company issued $3.9 million in subordinated debt to the former owners of SSW. 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. The subordinated notes are redeemable by the Company at its option beginning in 2026.
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 interest at a fixed rate of 6.25% until April 11, 2023, at which point the notes become redeemable at the Company’s option, then will reset to a floating interest rate based on a benchmark rate plus 350 basis points, adjusting quarterly, until maturity on April 11, 2028. Another tranche in the amount of $7.5 million bears a fixed rate of 6.38% until December 13, 2023, at which point the notes become redeemable at the Company’s option, then will reset to a floating rate based on a benchmark rate plus 350 basis points, adjusting quarterly, until maturity on December 13, 2028. The third tranche in the amount of $8.9 million bears an adjustable interest rate plus 595 basis points, based on a benchmark rate, until maturity on March 24, 2027. The $8.9 million tranche is currently redeemable at the Company’s option. These notes carry an aggregate $2.9 million fair value adjustment as of December 31, 2022.
Note 12 – Securities Sold Under Agreements to Repurchase –
At December 31, 2022 and 2021, the Bank had sold various investment securities with an agreement to repurchase these securities at various times within one year. These securities generally remain under the Bank’s control and are included in securities available for sale. These pledged securities have coupon rates ranging from 0.7% to 8.0% and maturity dates ranging from 2024 to 2041. The related liability to repurchase these securities was $20.2 million and $19.1 million at December 31, 2022 and 2021, respectively.
Note 13 – Income Taxes –
The consolidated provision (credit) for income taxes consists of the following at December 31, 2022, 2021 and 2020:
| | 2022 | | | 2021 | | | 2020 | |
| | (Dollars in thousands) | |
Provision for Current Taxes - Federal | | $ | 12,969 | | | $ | 13,008 | | | $ | 6,730 | |
Provision (Credit) for Deferred Taxes | | | 1,368 | | | | (586 | ) | | | 58 | |
| | | | | | | | | | | | |
Total Provision for Income Taxes | | $ | 14,337 | | | $ | 12,422 | | | $ | 6,788 | |
The provision (credit) for federal income taxes differs from the amount computed by applying federal statutory rates to income from operations as indicated in the following analysis at December 31, 2022, 2021 and 2020:
| | 2022 | | | 2021 | | | 2020 | |
| | (Dollars in thousands) | |
Federal Statutory Income Tax | | $ | 14,404 | | | $ | 13,557 | | | $ | 7,720 | |
Tax Exempt Income | | | (690 | ) | | | (815 | ) | | | (608 | ) |
Stock Based Compensation | | | 16 | | | | (220 | ) | | | (730 | ) |
Goodwill Write-off for Branch Sale | | | - | | | | 35 | | | | - | |
Other - Net | | | 607 | | | | (135 | ) | | | 406 | |
| | | | | | | | | | | | |
Total Provision for Income Taxes | | $ | 14,337 | | | $ | 12,422 | | | $ | 6,788 | |
BUSINESS FIRST BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes.
The components of the deferred tax assets and liabilities are as follows:
| | 2022 | | | 2021 | |
| | (Dollars in thousands) | |
State NOL | | $ | 2,285 | | | $ | 1,642 | |
State NOL Valuation Allowance | | | (2,285 | ) | | | (1,642 | ) |
Net Operating Loss Carryforward | | | 1,700 | | | | 18 | |
Unrealized Loss on Securities | | | 20,040 | | | | 290 | |
Acquired Loans Fair Market Value Adjustment | | | 5,705 | | | | 5,790 | |
Allowance for Loan Losses | | | 8,067 | | | | 6,114 | |
Lease Liability | | | 3,731 | | | | 3,004 | |
Deferred Compensation | | | 1,589 | | | | 1,346 | |
Stock Awards | | | 1,135 | | | | 791 | |
Other | | | 940 | | | | 817 | |
| | | | | | | | |
Deferred Tax Assets | | | 42,907 | | | | 18,170 | |
| | | | | | | | |
| | | | | | | | |
Right of Use Asset | | | 3,693 | | | | 3,004 | |
Core Deposit Intangible | | | 2,967 | | | | 2,562 | |
Depreciation | | | 2,512 | | | | 1,802 | |
Acquired Securities Difference in Basis | | | 1,477 | | | | 1,716 | |
Other | | | 1,064 | | | | 264 | |
| | | | | | | | |
Deferred Tax Liabilities | | | 11,713 | | | | 9,348 | |
| | | | | | | | |
Net Deferred Tax Asset | | $ | 31,194 | | | $ | 8,822 | |
The Company acquired certain deferred tax attributes and liabilities as a result of a merger during 2015, including a net operating loss (“NOL”) carryforward of $287,000 and alternative minimum tax (“AMT”) credit carryforwards of $984,000. The Company is limited in the amount it may deduct against current taxable income each year. As of December 31, 2022 the NOL carryforward was $57,475 and expires in 2033. The AMT credit carryforward was exhausted in 2019. Additionally, the Company acquired certain deferred tax attributes and liabilities as a result of the 2022 TCBI acquisition, including a federal NOL carryforward of $8.8 million and a federal charitable contribution carryforward of $229,000. The amount of the NOL carryforward the Company is allowed to deduct against current taxable income each year is limited, and the Company may not offset more than 80% of taxable income in any year. As of December 31, 2022, the NOL and charitable contribution carryforward was $8.3 million to be carried forward indefinitely until utilized.
Note 14 – Accumulated Other Comprehensive Income (Loss) –
The following is a summary of the changes in the balances of each component of accumulated other comprehensive income (loss) for the years ended December 31, 2022 and 2021:
| | 2022 | | | 2021 | |
| | (Dollars in thousands) | |
Unrealized Gains (Losses) on AFS Investment Securities and Equity Method Investments: | | | | | | | | |
| | | | | | | | |
Balance at Beginning of Year | | $ | (1,177 | ) | | $ | 10,628 | |
| | | | | | | | |
Other Comprehensive Income (Loss) on AFS Investment Securities | | | | | | | | |
Before Reclassifications - Net of Tax | | | (73,679 | ) | | | (11,838 | ) |
Other Comprehensive Income (Loss) on Equity Method Investments | | | 690 | | | | (266 | ) |
Reclassification Adjustment for Gains (Losses) on Sale of AFS Investment Securities | | | | | | | | |
Realized - Net of Tax | | | (38 | ) | | | 299 | |
| | | | | | | | |
Other Comprehensive Income (Loss) | | | (73,027 | ) | | | (11,805 | ) |
| | | | | | | | |
Balance at End of Year | | $ | (74,204 | ) | | $ | (1,177 | ) |
BUSINESS FIRST BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 15 – Shareholders’ Equity and Regulatory Matters –
Shareholders’ Equity of the Company includes the undistributed earnings of the Bank. The Company pays dividends from its assets, which are provided primarily by dividends from the Bank. Certain restrictions exist regarding the ability of the Bank to pay cash distributions. Louisiana statutes require approval to pay distributions in excess of a bank’s earnings in the current year plus retained net profits for the preceding year. The Company paid quarterly common stock dividends totaling $0.48 per share and $0.46 per share for the years ended December 31, 2022 and 2021, respectively, based upon quarterly financial performance. The Company paid a dividend in the fourth quarter on preferred stock of $18.75 per share.
Common Stock Repurchase Plan
On October 22, 2020, the Company’s board of directors approved a resolution authorizing management to repurchase shares of its common stock with an aggregate purchase price of up to $30.0 million from time to time, subject to certain limitations and conditions. The stock repurchase program expired on December 31, 2021. The stock repurchase program did not obligate the Company to repurchase any shares of its common stock. The Company repurchased $10.9 million and $798,000 of shares for the years ended December 31, 2021 and 2020, respectively.
Preferred Stock
On September 1, 2022, the Company entered into a securities purchase agreement with certain investors pursuant to which the Company offered and sold shares of its 7.50% fixed-to-floating rate non-cumulative perpetual preferred stock, with no par value, for an aggregate purchase price of $72.0 million. Holders of the preferred stock are entitled to receive, if, when, and as declared by the Company’s board of directors, non-cumulative cash dividends at a rate of 7.50% per share for the first five years following issuance and thereafter at a variable rate equal to the then current 3-month secured overnight financing rate (“SOFR”), reset quarterly, plus 470 basis points. The preferred stock has a perpetual term and may not be redeemed, except under certain circumstances, under the first five years of issuance. The preferred stock is non-convertible and dividends equivalent to $18.75 per share were paid during the year ended December 31, 2022.
Regulatory Matters
The Company and the Bank are subject to various regulatory capital requirements administered by federal and state banking agencies. Failure to meet minimum regulatory capital requirements can initiate certain mandatory, and possible additional discretionary actions by regulators that, if undertaken, could have a direct material effect on the Company’s and the Bank’s financial statements.
Under the regulatory capital adequacy guidelines and the regulatory framework for prompt corrective action, the Company and the Bank must meet specific capital guidelines involving quantitative measures of assets, liabilities and certain off-balance-sheet items as calculated under regulatory accounting practices. The capital amounts and classification under the prompt corrective action guidelines are also subject to qualitative judgments by the regulators about components, risk weightings and other factors. Prompt corrective action provisions are not applicable to bank holding companies.
Quantitative measures established by regulation to ensure capital adequacy require the Company and the Bank to maintain minimum amounts and ratios. As detailed below, as of December 31, 2022 and 2021, the Bank met all of the capital adequacy requirements to which it is subject.
As of December 31, 2022 and 2021, each of the Company and the Bank was categorized as well capitalized under the regulatory framework for prompt corrective action. For the years ended December 31, 2022 and 2021, each of the Company and the Bank was required to maintain minimum total capital, Tier 1 capital, risk-based common equity Tier 1, and Tier 1 leverage ratios at the levels disclosed in the table below to be categorized as well capitalized. There are no conditions or events since the most recent notification that management believes have changed the prompt corrective action category.
BUSINESS FIRST BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following is a summary of the Company’s (consolidated) and the Bank’s actual capital amounts and ratios at December 31, 2022 and 2021.
| | | | | | | | | | | | | | | | | | To Be Well | |
| | | | | | | | | | | | | | | | | | Capitalized Under | |
| | | | | | | | | | For Capital | | | Prompt Corrective | |
Business First Bancshares, Inc. (Consolidated) | | Actual | | | Adequacy Purposes | | | Action Provisions | |
| | Amount | | | Ratio | | | Amount | | | Ratio | | | Amount | | | Ratio | |
December 31, 2022: | | (Dollars in thousands) | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Total Capital (to Risk-Weighted Assets) | | $ | 704,840 | | | | 12.75 | % | | $ | 442,391 | | | | 8.00 | % | | $ | 552,988 | | | | 10.00 | % |
Tier 1 Capital (to Risk-Weighted Assets) | | | 557,088 | | | | 10.07 | % | | | 331,793 | | | | 6.00 | % | | | 442,391 | | | | 8.00 | % |
Common Equity Tier 1 Capital (to Risk-Weighted Assets) | | | 480,158 | | | | 8.68 | % | | | 248,845 | | | | 4.50 | % | | | 359,442 | | | | N/A | |
Tier 1 Leveraged Capital (to Average Assets) | | | 557,088 | | | | 9.49 | % | | | 234,859 | | | | 4.00 | % | | | 293,574 | | | | N/A | |
| | | | | | | | | | | | | | | | | | | | | | | | |
December 31, 2021: | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Total Capital (to Risk-Weighted Assets) | | $ | 478,794 | | | | 11.94 | % | | $ | 320,715 | | | | 8.00 | % | | $ | 400,894 | | | | 10.00 | % |
Tier 1 Capital (to Risk-Weighted Assets) | | | 367,431 | | | | 9.17 | % | | | 240,537 | | | | 6.00 | % | | | 320,715 | | | | 8.00 | % |
Common Equity Tier 1 Capital (to Risk-Weighted Assets) | | | 362,431 | | | | 9.04 | % | | | 180,402 | | | | 4.50 | % | | | 260,581 | | | | N/A | |
Tier 1 Leveraged Capital (to Average Assets) | | | 367,431 | | | | 8.14 | % | | | 180,604 | | | | 4.00 | % | | | 225,755 | | | | N/A | |
| | | | | | | | | | | | | | | | | | To Be Well | |
| | | | | | | | | | | | | | | | | | Capitalized Under | |
| | | | | | | | | | For Capital | | | Prompt Corrective | |
b1BANK | | Actual | | | Adequacy Purposes | | | Action Provisions | |
| | Amount | | | Ratio | | | Amount | | | Ratio | | | Amount | | | Ratio | |
December 31, 2022: | | (Dollars in thousands) | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Total Capital (to Risk-Weighted Assets) | | $ | 657,588 | | | | 11.91 | % | | $ | 441,833 | | | | 8.00 | % | | $ | 552,292 | | | | 10.00 | % |
Tier 1 Capital (to Risk-Weighted Assets) | | | 618,805 | | | | 11.20 | % | | | 331,375 | | | | 6.00 | % | | | 441,833 | | | | 8.00 | % |
Common Equity Tier 1 Capital (to Risk-Weighted Assets) | | | 618,805 | | | | 11.20 | % | | | 248,531 | | | | 4.50 | % | | | 358,989 | | | | 6.50 | % |
Tier 1 Leveraged Capital (to Average Assets) | | | 618,805 | | | | 10.55 | % | | | 234,679 | | | | 4.00 | % | | | 293,348 | | | | 5.00 | % |
| | | | | | | | | | | | | | | | | | | | | | | | |
December 31, 2021: | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Total Capital (to Risk-Weighted Assets) | | $ | 468,834 | | | | 11.71 | % | | $ | 320,411 | | | | 8.00 | % | | $ | 400,514 | | | | 10.00 | % |
Tier 1 Capital (to Risk-Weighted Assets) | | | 438,898 | | | | 10.96 | % | | | 240,308 | | | | 6.00 | % | | | 320,411 | | | | 8.00 | % |
Common Equity Tier 1 Capital (to Risk-Weighted Assets) | | | 438,898 | | | | 10.96 | % | | | 180,231 | | | | 4.50 | % | | | 260,334 | | | | 6.50 | % |
Tier 1 Leveraged Capital (to Average Assets) | | | 438,898 | | | | 9.73 | % | | | 180,453 | | | | 4.00 | % | | | 225,566 | | | | 5.00 | % |
BUSINESS FIRST BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 16 – Stock Based Compensation –
Equity Incentive Plan
The Company previously granted options to its employees under its 2006 Stock Option Plan which expired on December 22, 2016. On June 29, 2017, the Company’s shareholders approved its 2017 Equity Incentive Plan (the “Plan”). The Plan provides for the grant of various types of equity grants and awards, including incentive stock options, nonstatutory stock options, stock appreciation rights, restricted stock, restricted stock units, performance units, performance shares and other stock-based awards to eligible participants, which includes the Company’s employees, directors and consultants. During the year ended December 31, 2022, Company shareholders approved an additional 400,000 shares to be reserved for future awards under the Plan. In addition, the number of shares issuable under the Plan were increased by 143,908 shares as a result of the assumption of options to purchase shares of TCBI common stock that were converted into options to purchase shares of Company common stock upon the TCBI acquisition on March 1, 2022. In total, the Plan has reserved 1,043,908 shares of common stock for grant, award or issuance to eligible participants, all of which may be subject to incentive stock option treatment. The Plan is administered by the Compensation Committee of the Company’s board of directors, which determines, within the provisions of the Plan, those eligible participants to whom, and the times at which, grants and awards will be made. As of December 31, 2022, 572,588 awards have been granted under the Plan, and 471,320 shares of common stock remain available for grant.
Restricted Stock Awards
The Company issues restricted stock under various plans for certain officers and other key employees. The restricted stock awards may not be sold or otherwise transferred until certain restrictions have lapsed. The holders of the restricted stock receive dividends and have full voting rights with respect to those shares as of the date of grant. The compensation expense for these awards is determined based upon the market value of the Company’s common stock at the grant date applied to the total number of shares awarded and is recognized over the requisite service period.
During the years ended December 31, 2022, 2021 and 2020, the Company issued shares of restricted stock which vest in three equal installments over the requisite service period. For the years ended December 31, 2022, 2021 and 2020, respectively, the Company recognized $4.3 million, $2.6 million and $2.4 million in compensation costs related to restricted stock awards. At December 31, 2022, 2021 and 2020, respectively, unrecognized share-based compensation associated with these awards totaled $3.7 million, $2.4 million and $1.6 million. The $3.7 million of unrecognized share-based compensation at December 31, 2022 is expected to be recognized over a weighted average period of 2.0 years.
The table below summarizes the restricted stock award activity for the period presented.
| | Year Ended December 31, 2022 | | | Year Ended December 31, 2021 | | | Year Ended December 31, 2020 | |
| | | | | | Weighted Average | | | | | | | Weighted Average | | | | | | | Weighted Average | |
| | Shares | | | Grant Date Fair Value | | | Shares | | | Grant Date Fair Value | | | Shares | | | Grant Date Fair Value | |
Balance, at Beginning of Period | | | 94,245 | | | $ | 21.60 | | | | 53,756 | | | $ | 24.49 | | | | 39,971 | | | $ | 22.64 | |
Granted | | | 141,646 | | | | 26.34 | | | | 111,687 | | | | 20.73 | | | | 60,635 | | | | 24.79 | |
Forfeited | | | (6,709 | ) | | | 27.13 | | | | (989 | ) | | | 24.11 | | | | - | | | | - | |
Earned and Issued | | | (97,558 | ) | | | 24.20 | | | | (70,209 | ) | | | 22.43 | | | | (46,850 | ) | | | 23.09 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Balance, at End of Period | | | 131,624 | | | $ | 24.45 | | | | 94,245 | | | $ | 21.60 | | | | 53,756 | | | $ | 24.49 | |
Stock Grants
During the years ended December 31, 2022, 2021 and 2020, the Company issued a total of 11,700 shares, 7,301 and 4,500 shares of common stock, respectively, to non-employee directors as compensation for their board service. The shares were issued with weighted average grant date fair values of $23.08 per share for the year ended December 31, 2022, $23.35 per share for the year ended December 31, 2021, and $14.87 per share for the year ended December 31, 2020. The total stock-based compensation expense was determined based upon the market value of the Company’s common stock at the grant date applied to the total number of shares granted. These grants resulted in accrued director fees expense of $120,000, $276,000 and $57,000 for the years ended December 31, 2022, 2021 and 2020, respectively.
BUSINESS FIRST BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Stock Options
In 2006, the Company established a stock option plan with 1,500,000 shares available to be granted as options under the plan. Under the provisions of the plan, the option price cannot be less than the fair value of the underlying common stock as of the option grant date, and the maximum option term cannot exceed ten years. The 2006 Stock Option Plan expired on December 22, 2016 and the Company is no longer permitted to issue additional stock options under this plan. However, the Company did grant 143,908 stock option awards under the 2017 Equity Incentive Plan to former TCBI employees in conjunction with the acquisition during the year ended December 31, 2022.
The Company used the Black-Scholes option pricing model to estimate the calculated value of the various share-based awards for the year ended December 31, 2022.
The following is an analysis of the activity related to the stock options:
| | Years Ended December 31, | |
| | 2022 | | | 2021 | | | 2020 | |
| | Number of | | | Weighted Average | | | Number of | | | Weighted Average | | | Number of | | | Weighted Average | |
| | Options | | | Exercise Price | | | Options | | | Exercise Price | | | Options | | | Exercise Price | |
Outstanding Options, at Beginning of Period | | | 113,547 | | | $ | 17.06 | | | | 385,300 | | | $ | 14.67 | | | | 725,300 | | | $ | 12.55 | |
Granted | | | 143,908 | | | | 22.01 | | | | - | | | | - | | | | - | | | | - | |
Exercised | | | (67,060 | ) | | | 19.93 | | | | (261,753 | ) | | | 13.62 | | | | (330,000 | ) | | | 10.00 | |
Forfeited or Expired | | | (59,471 | ) | | | 22.45 | | | | (10,000 | ) | | | 15.00 | | | | (10,000 | ) | | | 15.00 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Outstanding Options, at End of Period | | | 130,924 | | | $ | 18.59 | | | | 113,547 | | | $ | 17.06 | | | | 385,300 | | | $ | 14.67 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Exercisable, at End of Period | | | 118,958 | | | $ | 18.18 | | | | 113,547 | | | $ | 17.06 | | | | 385,300 | | | $ | 14.67 | |
At December 31, 2022, options for 118,958 shares at a weighted average exercise price of $18.18 were vested and exercisable. The aggregate intrinsic value of both exercisable and outstanding awards at December 31, 2022 and 2021 is $472,000 and $1.3 million with a weighted average remaining contractual life of 2.9 years and 3.3 years, respectively.
BUSINESS FIRST BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 17 – Employee Benefit Plans –
Defined Contribution Plan
The Bank has a defined contribution plan qualified under Internal Revenue Code 401(K) for those employees who meet the eligibility requirements. Contributions may be made by eligible employees subject to Internal Revenue Service limits. The Bank contributes a matching contribution up to 4% of wages which totaled $2.3 million, $1.8 million and $1.4 million and is included in salaries and employee benefits for the years ended December 31, 2022, 2021 and 2020, respectively.
Deferred Compensation
The Company has established certain unfunded nonqualified deferred compensation agreements for the purpose of providing deferred compensation as retirement benefits for a select group of management. At December 31, 2022 and 2021, the Company had recorded accrued liabilities of $3.0 million and $2.6 million, respectively. The expense related to the deferred compensation agreements was $507,000, $408,000 and $285,000 for the years ended December 31, 2022, 2021 and 2020, respectively.
Note 18 – Other Income and Expenses –
An analysis of Other Income is as follows for the years ended December 31, 2022, 2021 and 2020:
| | 2022 | | | 2021 | | | 2020 | |
| | (Dollars in thousands) | |
Debit Card and ATM Fee Income | | $ | 6,407 | | | $ | 6,199 | | | $ | 4,320 | |
Cash Value of Life Insurance Income | | | 1,931 | | | | 1,396 | | | | 940 | |
Fees and Brokerage Commissions | | | 6,964 | | | | 5,015 | | | | 970 | |
Pass-Through Income from SBIC Partnerships | | | 1,347 | | | | 2,615 | | | | 2,538 | |
Other | | | 3,863 | | | | 3,249 | | | | 2,706 | |
| | | | | | | | | | | | |
Total Other Income | | $ | 20,512 | | | $ | 18,474 | | | $ | 11,474 | |
An analysis of Other Expenses is as follows for the years ended December 31, 2022, 2021 and 2020:
| | 2022 | | | 2021 | | | 2020 | |
| | (Dollars in thousands) | |
Advertising and Promotions | | $ | 3,949 | | | $ | 2,712 | | | $ | 1,605 | |
Communications | | | 2,561 | | | | 1,976 | | | | 1,969 | |
Ad Valorem Shares Tax | | | 3,400 | | | | 2,499 | | | | 2,348 | |
Data Processing Fees | | | 8,358 | | | | 8,137 | | | | 5,506 | |
Directors' Fees | | | 972 | | | | 790 | | | | 464 | |
Insurance | | | 1,655 | | | | 1,091 | | | | 718 | |
Legal and Professional Fees | | | 2,359 | | | | 2,679 | | | | 2,118 | |
Office Supplies and Printing | | | 1,159 | | | | 1,131 | | | | 884 | |
Regulatory Assessments | | | 3,124 | | | | 2,440 | | | | 1,785 | |
Taxes and Licenses | | | 61 | | | | 120 | | | | 84 | |
Merger and Conversion Costs | | | 4,808 | | | | 515 | | | | 3,978 | |
Other | | | 12,414 | | | | 11,396 | | | | 10,760 | |
| | | | | | | | | | | | |
Total Other Expenses | | $ | 44,820 | | | $ | 35,486 | | | $ | 32,219 | |
Note 19 – Financial Instruments with Off-Balance-Sheet Risk –
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.
BUSINESS FIRST BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 $1.3 billion and standby and commercial letters of credit of approximately $45.5 million at December 31, 2022.
Note 20 – Concentrations of Credit –
The majority of the Bank’s business activities are with customers in the Bank’s market area, which consists primarily of East and West Baton Rouge, Bossier, Caddo, St. Tammany, Lafayette, Calcasieu, Terrebonne, Jefferson, Webster, Richland and adjacent parishes, the Dallas / Fort Worth, Texas metroplex, and Houston, Texas. The majority of such customers are depositors of the Bank. The concentrations of credit by type of loan are shown in Note 7. The Bank, as a matter of policy, does not extend credit to any single borrower or group of related borrowers in excess of the Bank’s legal lending limits. Most of the Bank’s credits are to individuals and businesses secured by real estate. A substantial portion of their ability to pay on their debt is dependent on the local economy and industries in the areas.
Within the loan portfolio, the Bank has a concentration of credits secured by real estate. The Bank had extended credit secured by non-farm non-residential real estate totaling approximately $1.8 billion and $1.1 billion, which accounted for 39.7% and 35.9% of total loans held for investment at December 31, 2022 and 2021, respectively. Additionally, the Bank had extended credit secured by construction and land development totaling approximately $722.1 million and $548.5 million, respectively; these loans represented 15.7% and 17.2% of total loans held for investment at December 31, 2022 and 2021, respectively.
The Bank maintains amounts on deposit and federal funds sold with correspondent banks which may periodically exceed the federally insured amount.
Note 21 – Leases –
The Bank leases certain branch offices through non-cancelable operating leases with terms that range from one to ten years and contain various renewal options for certain of the leases. Certain leases provide for increases in minimum monthly rental payments as defined by the lease agreement. Rental expense under these agreements was $4.9 million, $2.8 million and $2.6 million for the years ended December 31, 2022, 2021 and 2020, respectively. The Company had a weighted average lease term of 6.0 years and 7.2 years and a weighted average discount rate of 2.63% and 2.64% as of December 31, 2022 and 2021, respectively.
Future minimum lease payments under these leases are as follows:
December 31, | | | | |
| | (Dollars in thousands) | |
2023 | | $ | 4,135 | |
2024 | | | 3,761 | |
2025 | | | 2,735 | |
2026 | | | 2,182 | |
2027 | | | 2,065 | |
2028 and Thereafter | | | 4,298 | |
| | | | |
Total Future Minimum Lease Payments | | | 19,176 | |
| | | | |
Less Imputed Interest | | | (1,516 | ) |
| | | | |
Present Value of Lease Liabilities | | $ | 17,660 | |
BUSINESS FIRST BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 22 – Commitments –
SBIC Capital Commitment
The SBIC is a program initiated by the SBA in 1958 to assist in the funding of small business loans. The program is a joint venture between investors with venture capital, the SBA, and small business borrowers. Investors are responsible for funding the first portion of the capital requirements, with the remaining requirement being funded by the SBA. The funds are then lent to small business borrowers.
The Bank has agreed to participate as an investor with McLarty Capital Partners SBIC, L.P. (“McLarty”), McLarty Capital Partners SBIC II, L.P. (“McLarty II”), Firmament Capital Partners SBIC III, L.P. (“Firmament”), Bluehenge Capital Secured Debt SBIC, L.P. (“Bluehenge”), Bluehenge Capital Secured Debt SBIC II, L.P. (“Bluehenge, II”), New Louisiana Angel Fund 2, LLC (“New Louisiana”) and Pharos Capital Partners IV-A, L.P. (“Pharos”). As part of the TCBI acquisition, the Bank acquired investments in and committed to invest further in Bluehenge Capital Secured Debt SBIC, L.P. (included with prior Bluehenge investments), Valesco Fund II, LP (“Valesco”) and GP Capital Partners, LP (“GP Capital”). Details of these commitments at December 31, 2022 are below.
| | Total Capital | | | | | | | Remaining Unfunded | |
| | Commitment | | | Capital Called | | | Capital Commitment | |
McLarty | | $ | 2,000 | | | $ | 1,802 | | | $ | 198 | |
McLarty II | | | 2,500 | | | | 2,222 | | | | 278 | |
Firmament | | | 2,500 | | | | 1,707 | | | | 793 | |
Bluehenge | | | 2,500 | | | | 2,312 | | | | 188 | |
Bluehenge, II | | | 2,500 | | | | 359 | | | | 2,141 | |
New Louisiana | | | 50 | | | | 50 | | | | - | |
Pharos | | | 1,000 | | | | 395 | | | | 605 | |
Valesco | | | 1,000 | | | | 737 | | | | 263 | |
GP Capital | | | 1,000 | | | | 316 | | | | 684 | |
| | $ | 15,050 | | | $ | 9,900 | | | $ | 5,150 | |
Fintech Fund Commitment
The Company has agreed to invest in certain Fintech funds. As part of the TCBI acquisition, the Company acquired investments in and committed to invest further in any remaining unfunded capital commitments in Work America Capital Fund I, LP and SBRE I, LLC. During the year ended December 31, 2022, SBRE I, LLC was fully redeemed. Details of these commitments at December 31, 2022 are below.
| | Total Capital | | | | | | | Remaining Unfunded | |
| | Commitment | | | Capital Called | | | Capital Commitment | |
BankTech Ventures, LP | | $ | 500 | | | $ | 110 | | | $ | 390 | |
Jam Fintop BankTech, LP | | | 1,000 | | | | 348 | | | | 652 | |
Ledyard Capital Managers, LLC | | | 1,000 | | | | 1,000 | | | | - | |
Mendon Ventures Banktech Fund I, LP | | | 1,500 | | | | 904 | | | | 596 | |
Castle Creek Launchpad Fund I, LP | | | 1,500 | | | | 236 | | | | 1,264 | |
Work America Capital Fund I, LP | | | 700 | | | | 700 | | | | - | |
| | $ | 6,200 | | | $ | 3,298 | | | $ | 2,902 | |
BUSINESS FIRST BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Federal Home Loan Bank Letters of Credit
The Bank had outstanding letters of credit on behalf of others from the FHLB of $173.7 million and $223.9 million at December 31, 2022 and 2021, respectively. The outstanding letters of credit as of December 31, 2022 are as follows:
Seven letters of credit totaling $146.5 million expire in January 2023.
One letter of credit of $403,000 expires in March 2023.
One letter of credit of $87,000 expires in May 2023.
One letter of credit of $197,000 expires in November 2023.
One letter of credit of $329,000 expires in December 2023.
One letter of credit of $22.8 million expires in April 2024.
One letter of credit totaling $3.3 million expires in August 2024.
Note 23 – Related Party Transactions –
In the ordinary course of business, the Bank has granted loans to directors, officers and their affiliates. Such loans were made on substantially the same terms as those prevailing at the time for comparable transactions with other customers. Such loans amounted to $66.8 million and $27.8 million at December 31, 2022 and 2021, respectively.
Related party deposits totaled $58.0 million and $43.8 million as of December 31, 2022 and 2021, respectively.
Note 24 – 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.
BUSINESS FIRST BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following tables present the balance of assets and liabilities measured on a recurring basis as of December 31, 2022 and 2021. 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) | |
December 31, 2022 | | | | | | | | | | | | | | | | |
Available for Sale: | | | | | | | | | | | | | | | | |
U.S. Treasury Securities | | $ | 30,115 | | | $ | - | | | $ | 30,115 | | | $ | - | |
U.S. Government Agency Securities | | | 47,372 | | | | - | | | | 47,372 | | | | - | |
Corporate Securities | | | 46,004 | | | | - | | | | 27,004 | | | | 19,000 | |
Mortgage-Backed Securities | | | 451,725 | | | | - | | | | 451,725 | | | | - | |
Municipal Securities | | | 315,535 | | | | - | | | | 280,767 | | | | 34,768 | |
Loans Held for Sale | | | 304 | | | | - | | | | 304 | | | | - | |
| | | | | | | | | | | | | | | | |
Total | | $ | 891,055 | | | $ | - | | | $ | 837,287 | | | $ | 53,768 | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
December 31, 2021 | | | | | | | | | | | | | | | | |
Available for Sale: | | | | | | | | | | | | | | | | |
U.S. Treasury Securities | | $ | 22,314 | | | $ | - | | | $ | 22,314 | | | $ | - | |
U.S. Government Agency Securities | | | 27,493 | | | | - | | | | 27,493 | | | | - | |
Corporate Securities | | | 46,582 | | | | - | | | | 26,582 | | | | 20,000 | |
Mortgage-Backed Securities | | | 552,339 | | | | - | | | | 552,339 | | | | - | |
Municipal Securities | | | 372,333 | | | | - | | | | 348,243 | | | | 24,090 | |
Loans Held for Sale | | | 1,200 | | | | - | | | | 1,200 | | | | - | |
| | | | | | | | | | | | | | | | |
Total | | $ | 1,022,261 | | | $ | - | | | $ | 978,171 | | | $ | 44,090 | |
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 impaired loans is measured at the fair value of the collateral for collateral-dependent loans. Impaired 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 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) | |
December 31, 2022 | | | | | | | | | | | | | | | | |
Assets: | | | | | | | | | | | | | | | | |
Impaired Loans | | $ | 16,816 | | | $ | - | | | $ | - | | | $ | 16,816 | |
Servicing Rights | | | 2,327 | | | | - | | | | 2,327 | | | | - | |
Other Nonperforming Assets | | | 1,434 | | | | - | | | | - | | | | 1,434 | |
| | | | | | | | | | | | | | | | |
Total | | $ | 20,577 | | | $ | - | | | $ | 2,327 | | | $ | 18,250 | |
| | | | | | | | | | | | | | | | |
December 31, 2021 | | | | | | | | | | | | | | | | |
Assets: | | | | | | | | | | | | | | | | |
Impaired Loans | | $ | 18,749 | | | $ | - | | | $ | - | | | $ | 18,749 | |
Servicing Rights | | | 1,775 | | | | - | | | | 1,775 | | | | - | |
Other Nonperforming Assets | | | 1,427 | | | | - | | | | - | | | | 1,427 | |
| | | | | | | | | | | | | | | | |
Total | | $ | 21,951 | | | $ | - | | | $ | 1,775 | | | $ | 20,176 | |
BUSINESS FIRST BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following table provides quantitative information for impaired loans measured at fair value on a nonrecurring basis using Level 3 inputs as of the dates indicated.
| Valuation | Unobservable | Discounted Range (Weighted Average) |
| Technique | Input | December 31, 2022 | December 31, 2021 |
Impaired Loans | Discounted Appraisals | Appraisal Adjustments | 10% | to | 100% | (18%) | 10% | to | 100% | (20%) |
Fair Value Financial Instruments
The fair value of a financial instrument 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.
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.
BUSINESS FIRST BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The estimated approximate fair values of the Bank’s financial instruments as of December 31, 2022 and 2021 are as follows:
| | Carrying | | | Total | | | | | | | | | | | | | |
| | Amount | | | Fair Value | | | Level 1 | | | Level 2 | | | Level 3 | |
| | | | | | | | | | | | | | | | | | | | |
| | (Dollars in thousands) | |
December 31, 2022 | | | | | | | | | | | | | | | | | | | | |
Financial Assets: | | | | | | | | | | | | | | | | | | | | |
Cash and Short-Term Investments | | $ | 168,346 | | | $ | 168,346 | | | $ | 168,346 | | | $ | - | | | $ | - | |
Securities | | | 890,751 | | | | 890,751 | | | | - | | | | 836,983 | | | | 53,768 | |
Loans Held for Sale | | | 304 | | | | 304 | | | | - | | | | 304 | | | | - | |
Loans - Net | | | 4,567,998 | | | | 4,443,577 | | | | - | | | | - | | | | 4,443,577 | |
Servicing Rights | | | 1,712 | | | | 2,327 | | | | - | | | | 2,327 | | | | - | |
Cash Value of BOLI | | | 91,958 | | | | 91,958 | | | | - | | | | 91,958 | | | | - | |
Other Equity Securities | | | 37,467 | | | | 37,467 | | | | - | | | | - | | | | 37,467 | |
| | | | | | | | | | | | | | | | | | | | |
Total | | $ | 5,758,536 | | | $ | 5,634,730 | | | $ | 168,346 | | | $ | 931,572 | | | $ | 4,534,812 | |
| | | | | | | | | | | | | | | | | | | | |
Financial Liabilities: | | | | | | | | | | | | | | | | | | | | |
Deposits | | $ | 4,820,345 | | | $ | 4,810,263 | | | $ | - | | | $ | - | | | $ | 4,810,263 | |
Borrowings | | | 560,123 | | | | 544,564 | | | | - | | | | 544,564 | | | | - | |
| | | | | | | | | | | | | | | | | | | | |
Total | | $ | 5,380,468 | | | $ | 5,354,827 | | | $ | - | | | $ | 544,564 | | | $ | 4,810,263 | |
| | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | |
December 31, 2021 | | | | | | | | | | | | | | | | | | | | |
Financial Assets: | | | | | | | | | | | | | | | | | | | | |
Cash and Short-Term Investments | | $ | 295,419 | | | $ | 295,419 | | | $ | 295,419 | | | $ | - | | | $ | - | |
Securities | | | 1,021,061 | | | | 1,021,061 | | | | - | | | | 976,971 | | | | 44,090 | |
Loans Held for Sale | | | 1,200 | | | | 1,200 | | | | - | | | | 1,200 | | | | - | |
Loans - Net | | | 3,160,496 | | | | 3,121,433 | | | | - | | | | - | | | | 3,121,433 | |
Servicing Rights | | | 1,403 | | | | 1,775 | | | | - | | | | 1,775 | | | | - | |
Cash Value of BOLI | | | 60,380 | | | | 60,380 | | | | - | | | | 60,380 | | | | - | |
Other Equity Securities | | | 16,619 | | | | 16,619 | | | | - | | | | - | | | | 16,619 | |
| | | | | | | | | | | | | | | | | | | | |
Total | | $ | 4,556,578 | | | $ | 4,517,887 | | | $ | 295,419 | | | $ | 1,040,326 | | | $ | 3,182,142 | |
| | | | | | | | | | | | | | | | | | | | |
Financial Liabilities: | | | | | | | | | | | | | | | | | | | | |
Deposits | | $ | 4,077,283 | | | $ | 4,078,558 | | | $ | - | | | $ | - | | | $ | 4,078,558 | |
Borrowings | | | 187,590 | | | | 195,998 | | | | - | | | | 195,998 | | | | - | |
| | | | | | | | | | | | | | | | | | | | |
Total | | $ | 4,264,873 | | | $ | 4,274,556 | | | $ | - | | | $ | 195,998 | | | $ | 4,078,558 | |
Note 25 – Litigation and Contingencies –
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.
BUSINESS FIRST BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 26 – Financial Statements – Parent Company Only –
The balance sheets and statements of income for Business First Bancshares, Inc. (Parent Company) are as follows:
BALANCE SHEETS
AS OF DECEMBER 31, 2022 AND 2021
(Dollars in thousands)
| | 2022 | | | 2021 | |
Assets: | | | | | | | | |
Cash | | $ | 35,684 | | | $ | 1,322 | |
Investment in Subsidiaries | | | 641,491 | | | | 509,835 | |
Fintech Funds | | | 3,080 | | | | 1,364 | |
Goodwill | | | 5,704 | | | | - | |
Income Taxes Receivable | | | 8,739 | | | | 6,464 | |
Other Assets | | | 1,794 | | | | 1,003 | |
| | | | | | | | |
Total Assets | | $ | 696,492 | | | $ | 519,988 | |
| | | | | | | | |
Liabilities: | | | | | | | | |
Accrued Interest Payable | | $ | 80 | | | $ | - | |
Short Term Borrowings | | | 9 | | | | 20 | |
Subordinated Debt | | | 110,749 | | | | 81,427 | |
Subordinated Debt - Trust Preferred Securities | | | 5,155 | | | | 5,155 | |
Other Liabilities | | | 18 | | | | 18 | |
| | | | | | | | |
Total Liabilities | | | 116,011 | | | | 86,620 | |
| | | | | | | | |
Shareholders' Equity: | | | | | | | | |
Preferred Stock | | | 71,930 | | | | - | |
Common Stock | | | 25,110 | | | | 20,400 | |
Additional Paid-in Capital | | | 393,690 | | | | 292,271 | |
Retained Earnings | | | 163,955 | | | | 121,874 | |
Accumulated Other Comprehensive Income (Loss) | | | (74,204 | ) | | | (1,177 | ) |
| | | | | | | | |
Total Shareholders' Equity | | | 580,481 | | | | 433,368 | |
| | | | | | | | |
Total Liabilities and Shareholders' Equity | | $ | 696,492 | | | $ | 519,988 | |
BUSINESS FIRST BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 2022, 2021 AND 2020
(Dollars in thousands)
| | 2022 | | | 2021 | | | 2020 | |
Income: | | | | | | | | | | | | |
Dividend Income From Subsidiaries | | $ | 10,000 | | | $ | 13,000 | | | $ | 24,295 | |
Interest Income | | | 13 | | | | 5 | | | | 5 | |
Other Income | | | 43 | | | | - | | | | - | |
Expenses: | | | | | | | | | | | | |
Interest Expense | | | 5,477 | | | | 3,793 | | | | 2,135 | |
Other Operating Expenses | | | 6,097 | | | | 4,374 | | | | 5,943 | |
| | | | | | | | | | | | |
Income (Loss) Before Income Taxes and Equity in Undistributed | | | | | | | | | | | | |
Net Income of Subsidiaries | | | (1,518 | ) | | | 4,838 | | | | 16,222 | |
| | | | | | | | | | | | |
Income Tax Benefit | | | (2,400 | ) | | | (1,916 | ) | | | (1,905 | ) |
| | | | | | | | | | | | |
Income Before Equity in Undistributed Net Income of Subsidiaries | | | 882 | | | | 6,754 | | | | 18,127 | |
| | | | | | | | | | | | |
Equity in Undistributed Net Income of Subsidiaries | | | 53,373 | | | | 45,382 | | | | 11,867 | |
| | | | | | | | | | | | |
Net Income | | | 54,255 | | | | 52,136 | | | | 29,994 | |
| | | | | | | | | | | | |
Preferred Stock Dividends | | | 1,350 | | | | - | | | | - | |
| | | | | | | | | | | | |
Net Income Available to Common Shareholders | | $ | 52,905 | | | $ | 52,136 | | | $ | 29,994 | |