| PART I |
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| ITEM 1. | Business | 5 |
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| ITEM 1A. | Risk Factors | 22 |
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| ITEM 1B. | Unresolved Staff Comments | 40 |
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| ITEM 1C. | Cybersecurity | 40 |
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| ITEM 2. | Properties | 41 |
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| ITEM 3. | Legal Proceedings | 41 |
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| ITEM 4. | Mine Safety Disclosures | 41 |
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| PART II |
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| ITEM 5. | Market for Registrant’s Common Equity, Related Shareholder Matters and Issuer Purchases of Equity Securities | 42 |
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| ITEM 6. | Selected Financial Data | 44 |
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| ITEM 7. | Management’s Discussion and Analysis of Financial Condition and Results of Operations | 44 |
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| ITEM 7A. | Quantitative and Qualitative Disclosures About Market Risk | 76 |
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| ITEM 8. | Financial Statements and Supplementary Data | 76 |
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| ITEM 9. | Changes in and Disagreements with Accountants on Accounting and Financial Disclosure | 128 |
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| ITEM 9A. | Controls and Procedures | 128 |
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| ITEM 9B. | Other Information | 129 |
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| ITEM 9C. | Disclosure Regarding Foreign Jurisdictions that Prevent Inspections | 129 |
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| PART III |
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| ITEM 10. | Directors, Executive Officers and Corporate Governance | 130 |
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| ITEM 11. | Executive Compensation | 130 |
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| ITEM 12. | Security Ownership of Certain Beneficial Owners and Management and Related Shareholder Matters | 130 |
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| ITEM 13. | Certain Relationships and Related Transactions, and Director Independence | 130 |
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| ITEM 14. | Principal Accountant Fees and Services | 130 |
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| PART IV |
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| ITEM 15. | Exhibits and Financial Statement Schedules | 131 |
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| Signatures | | 134 |
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Important Notice about Information in this Annual Report on Form 10-K
When we refer in this Annual Report to “we,” “our,” “us,” “Business First” and the “Company,” we are referring to Business First Bancshares, Inc. and its consolidated subsidiaries, including b1BANK, formerly known as Business First Bank, which we sometimes refer to as “the Bank”, unless the context indicates otherwise.
The information contained in this Annual Report on Form 10-K is accurate only as of the date of this annual report and as of the dates specified herein.
FORWARD-LOOKING STATEMENTS
This Annual Report on Form 10-K, or the “Report,” contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 (the “Securities Act”) and 21E of the Securities Exchange Act of 1934 (the “Exchange Act”). These forward-looking statements include statements that reflect the current views of our senior management with respect to our financial performance and future events with respect to our business and the banking industry in general, including, without limitation, statements relating to the anticipated benefits of our recent acquisitions. These statements are often, but not always, made through the use of words or phrases such as “may,” “should,” “could,” “predict,” “potential,” “believe,” “will likely result,” “expect,” “will continue,” “anticipate,” “seek,” “estimate,” “intend,” “plan,” “projection,” “would” and “outlook,” and similar expressions of a future or forward-looking nature. These statements involve estimates, assumptions and risks and uncertainties. Accordingly, there are or will be important factors that could cause our actual results to differ materially from those indicated in these statements.
We believe these factors include, but are not limited to, the following:
| ● | risks related to the integration of any acquired businesses, including exposure to potential asset quality and credit quality risks and unknown or contingent liabilities, risks related to entering a new geographic market, the time and costs associated with integrating systems, technology platforms, procedures and personnel, the ability to retain key employees and maintain relationships with significant customers, the need for additional capital to finance such transactions, and possible failures in realizing the anticipated benefits from acquisitions; |
| ● | changes in the strength of the United States (“U.S.”) economy in general and the local economy in our local market areas adversely affecting our customers and their ability to transact profitable business with us, including the ability of our borrowers to repay their loans according to their terms or a change in the value of the related collateral; |
| ● | economic risks posed by our geographic concentration in Louisiana, the Dallas/Fort Worth metroplex and Houston; |
| ● | the ability to sustain and continue our organic loan and deposit growth, and manage that growth effectively; |
| ● | market declines in industries to which we have exposure, such as the volatility in energy prices and downturns in the energy industry that impact certain of our borrowers and investments that operate within, or are backed by collateral associated with, the energy industry; |
| ● | volatility and direction of interest rates and market prices, which could reduce our net interest margins, asset valuations and expense expectations; |
| ● | interest rate risk associated with our business; |
| ● | changes in the levels of loan prepayments and the resulting effects on the value of our loan portfolio; |
| ● | increased competition in the financial services industry, particularly from regional and national institutions and emerging non-bank competitors; |
| ● | increased credit risk in our assets and increased operating risk caused by a material change in commercial, consumer and/or real estate loans as a percentage of our total loan portfolio; |
| ● | changes in the value of collateral securing our loans; |
| ● | deteriorating asset quality and higher loan charge-offs, and the time and effort required to resolve problem assets; |
| ● | the failure of assumptions underlying the establishment of and provisions made to our allowance for credit losses; |
| ● | changes in the availability of funds resulting in increased costs or reduced liquidity; |
| ● | our ability to maintain important deposit customer relationships and our reputation; |
| ● | a determination or downgrade in the credit quality and credit agency ratings of the securities in our securities portfolio; |
| ● | increased asset levels and changes in the composition of assets and the resulting impact on our capital levels and regulatory capital ratios; |
| ● | our ability to prudently manage our growth and execute our strategy; |
| ● | risks associated with our acquisition and de novo branching strategy; |
| ● | the loss of senior management or operating personnel and the potential inability to hire qualified personnel at reasonable compensation levels; |
| ● | legislative or regulatory developments, including changes in the laws, regulations, interpretations or policies relating to financial institutions, accounting, tax, trade, monetary and fiscal matters; |
| ● | government intervention in the U.S. financial system; |
| ● | changes in statutes and government regulations or their interpretations applicable to us, including changes in tax requirements and tax rates; |
| ● | natural disasters and adverse weather, acts of terrorism, an outbreak of hostilities or other international or domestic calamities, epidemics and pandemics such as coronavirus, and other matters beyond our control; and |
| ● | other risks and uncertainties listed from time to time in our reports and documents filed with the U.S. Securities and Exchange Commission (“SEC”). |
The foregoing factors should not be construed as exhaustive and should be read together with the other cautionary statements included in this Annual Report. If one or more events related to these or other risks or uncertainties materialize, or if our underlying assumptions prove to be incorrect, actual results may differ materially from what we anticipate. Accordingly, you should not place undue reliance on any such forward-looking statements. Any forward-looking statement speaks only as of the date on which it is made and we do not undertake any obligation to update any forward-looking statement or statements to reflect events or circumstances after the date on which such statement is made or to reflect the occurrence of unanticipated events. New factors emerge from time to time, and it is not possible for us to predict which will arise. In addition, we cannot assess the impact of each factor on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements.
Summary of Risks Factors
Risks Relating to our Business
| ● | Our business and operations may be adversely affected by weak economic conditions. |
| ● | Our geographic concentration imposes risk. |
| ● | We face significant competition to attract and retain customers. |
| ● | Our success is largely dependent upon our ability to successfully execute our business strategy. |
| ● | We rely heavily on our executive management team and other key employees, and our ability to attract and retain profitable bankers is critical to the success of our business strategy. |
| ● | We may not be able to adequately measure and limit our credit risk. |
| ● | Our loan portfolio is largely comprised of commercial loans, which may subject us to increased credit risk. |
| ● | Negative changes in the economy affecting real estate values and liquidity could impair loan collateral. |
| ● | Large loans to certain borrowers could have a significant adverse impact on our asset quality. |
| ● | Our allowance for credit losses may prove to be insufficient to absorb losses on our loan portfolio. |
| ● | Our small-to-midsized business customers have fewer resources to weather adverse developments. |
| ● | Our ability to maintain our reputation is critical to the success of our business. |
| ● | We may not be able to maintain our historical rate of growth, or we may not be able to manage the risks associated with our anticipated growth and expansion. |
| ● | Future acquisitions could expose us to financial, execution and operational risks. |
| ● | Interest rate shifts could have an adverse effect on our business. |
| ● | The markets in which we operate are susceptible to hurricanes and other natural disasters. |
| ● | Disruptions in the secondary mortgage market could reduce our ability to resell residential mortgage loans. |
| ● | New lines of business, products, product enhancements or services may subject us to additional risks. |
| ● | A lack of liquidity could impair our ability to fund operations, and our ability to raise capital or utilize alternative sources of funding may be limited. |
| ● | We have a concentration of deposit accounts with state and local municipalities. |
| ● | The fair value of our investment securities can fluctuate due to factors outside of our control. |
| ● | We need to maintain an effective system of disclosure controls and procedures and internal control over financial reporting. |
| ● | Our financial results depend on management’s selection of accounting methods, assumptions, and estimates. |
| ● | We have a continuing need for technological change. |
| ● | We rely on third parties to provide key components of our business infrastructure. |
| ● | We could be subject to losses, regulatory action or reputational harm due to fraudulent and negligent acts on the part of loan applicants, our employees and vendors. |
| ● | Unauthorized access, cyber-crime and other threats to data security. |
| ● | We are subject to environmental liability risk associated with our lending activities. |
Risks Related to the Regulation of Our Industry
| ● | We operate in a highly regulated environment, which imposes compliance costs, subjects us to stringent capital requirements and risks relating to noncompliance. |
| ● | Federal and state banking agencies periodically conduct examinations of our business. |
| ● | New activities and expansion require regulatory approvals. |
| ● | Potential limitations on incentive compensation may adversely affect our ability to attract and retain our highest performing employees. |
| ● | The Board of Governors of the Federal Reserve System (the “Federal Reserve”) may require us to commit capital resources to support the Bank. |
| ● | We are subject to laws regarding the privacy, security and protection of personal information. |
Risks Associated with our Common Stock
| ● | The market price of our common stock may be subject to substantial fluctuations, and the prevailing market price of our common stock could impair our ability to raise capital. |
| ● | The rights of our common shareholders are subordinate to the rights of other interest holders. |
| ● | Our dividend policy may change without notice. |
| ● | A takeover could be difficult due to our corporate governance documents and certain laws. |
| ● | An investment in Business First’s common stock is not an insured deposit and is subject to risk of loss. |
The above summary is subject in its entirety to the more complete discussion of risk factors set for forth in “ITEM 1A. Risk Factors”.
