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Business First Bancshares Inc

For the period ended Mar 31, 2024. Filed May 2, 2024.

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A company's report for each of its first three quarters. The financial statements are not audited. It shows how the business has moved since the last annual report, and what management says changed.

Mar 31, 2024 · Filed May 2, 2024

BFST$32.20-0.2%Stored close · as of Nov 6, 2026

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Notes to Unaudited Consolidated Financial Statements

Note 1– Basis of Presentation–

The unaudited consolidated financial statements include the accounts of Business First Bancshares, Inc. (the “Company”) and itstwo direct, wholly-owned subsidiaries, b1BANK (the “Bank”), and Coastal Commerce Statutory Trust I; and the Bank’s wholly-owned subsidiaries, Business First Insurance, LLC, Smith Shellnut Wilson, LLC, and Waterstone LSP, LLC ("Waterstone"). The Bank operates out of full-service banking centers and loan production offices in markets across Louisiana, the Dallas/Fort Worth metroplex and Houston, Texas. As a state bank, it is subject to regulation by the Office of Financial Institutions (“OFI”), State of Louisiana, and the Federal Deposit Insurance Corporation (“FDIC”) and undergoes periodic examinations by these agencies. The Company is also regulated by the Federal Reserve and is subject to periodic examinations.

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

These interim consolidated financial statements have been prepared according to the rules and regulations of the Securities and Exchange Commission and, therefore, certain information and footnote disclosures normally presented in accordance with United States (“U.S.”) generally accepted accounting principles (“GAAP”) have been omitted or abbreviated. These interim financial statements should be read in conjunction with the audited consolidated financial statements and footnote disclosures for the Company’s previously filed Form 10-K for the year ended December 31, 2023.

Preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying disclosures. These estimates are based on management’s best knowledge of current events and actions the Company may undertake in the future. Critical accounting estimates that are particularly susceptible to significant change for the Company include the determination of the acquired loans and allowance for credit losses and purchase accounting adjustments (other than loans). Other estimates include goodwill, fair value of financial instruments, investment securities and the assessment of income taxes. Management does not anticipate any material changes to estimates in the near term. Factors that may cause sensitivity to the aforementioned estimates include but are not limited to: external market factors such as market interest rates and employment rates, changes to operating policies and procedures, economic conditions in the Company’s markets, and changes in applicable banking regulations. Actual results may ultimately differ from estimates.

Accounting Standards Adopted in Current Period

None

Accounting Standards Not Yet Adopted

ASU No. 2023-09, "Income Taxes (Topic 740): Improvements to Income Tax Disclosures." ASU 2023-09 requires public business entities to disclose additional information in specified categories with respect to the rate reconciliation for federal, state and foreign income taxes. In addition, the updates also require more details about reconciling items in the rate reconciliation in some categories if items meet a quantitative threshold. ASU 2023-09 also requires all entities to disclose income taxes paid, net of refunds, disaggregated by federal, state and foreign taxes for annual periods and to disaggregate the information by jurisdiction based on a quantitative threshold. ASU 2023-09 is effective for the Company starting January 1, 2025, though early adoption is permitted. ASU 2023-09 is not expected to have a significant impact on our financial statements.

Note 2– Reclassifications –

Certain reclassifications may have been made to conform to reporting in 2024. These reclassifications have no material effect on previously reported shareholders’ equity or net income.

Note 3– Mergers and Acquisitions–

Waterstone, LSP, LLP

On January 31, 2024, the Company consummated the acquisition, through b1BANK, of Waterstone LSP, LLC (“Waterstone”), headquartered in Katy, Texas. Upon consummation of the acquisition, the Company paid $3.3 million in cash to the former owners of Waterstone. As part of the acquisition, the Company recorded $3.1 million in goodwill.

The Company has recorded approximately $715,000 and $236,000 of acquisition-related costs within merger and conversion-related expenses and salaries and benefits for the three months ended March 31, 2024, and year ended December 31, 2023, respectively.

Note 4– Earnings per Common Share–

Basic earnings per share (“EPS”) represents income available to common shareholders divided by the weighted average number of common shares outstanding; no dilution for any potentially convertible shares is included in the calculation. Diluted EPS reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock or resulted in the issuance of common stock that then shared in the earnings of the Company. The potential common shares that may be issued by the Company relate to outstanding stock options and unvested restricted stock awards (“RSAs”), excluding any that were antidilutive. In addition, nonvested share-based payment awards that contain nonforfeitable rights to dividends or dividend equivalents are considered participating securities and are included in the computation of EPS pursuant to the two-class method.

For the Three Months EndedMarch 31,
20242023
(Dollars in thousands, except per share data)
Numerator:
Net Income$13,570$15,025
Less: Preferred Stock Dividends1,3501,350
Net Income Available to Common Shares$12,220$13,675
Denominator:
Weighted Average Common Shares Outstanding25,127,18724,979,955
Dilutive Effect of Stock Options and RSAs302,007242,353
Weighted Average Dilutive Common Shares25,429,19425,222,308
Basic Earnings Per Common Share From Net Income Available to Common Shares$0.49$0.55
Diluted Earnings Per Common Share From Net Income Available to Common Shares$0.48$0.54

Note 5– Securities–

The amortized cost and fair values of securities available for sale as of March 31, 2024, and December 31, 2023 are summarized as follows:

March 31, 2024
(Dollars in thousands)
AmortizedCost · GrossUnrealizedGains · GrossUnrealizedLosses · FairValue
U.S. Treasury Securities$17,676$-$1,460$16,216
U.S. Government Agencies10,235-8589,377
Corporate Securities49,453125,29244,173
Mortgage-Backed Securities563,40644652,235511,617
Municipal Securities322,9566231,498291,520
Total Securities Available for Sale$963,726$520$91,343$872,903
December 31, 2023
(Dollars in thousands)
AmortizedCost · GrossUnrealizedGains · GrossUnrealizedLosses · FairValue
U.S. Treasury Securities$17,690$-$1,451$16,239
U.S. Government Agencies10,258-8489,410
Corporate Securities49,609-5,77043,839
Mortgage-Backed Securities555,14897649,814506,310
Municipal Securities331,27329827,798303,773
Total Securities Available for Sale$963,978$1,274$85,681$879,571

The following tables present a summary of securities with gross unrealized losses and fair values at March 31, 2024 and December 31, 2023, aggregated by investment category and length of time in a continued unrealized loss position. Due to the nature of these investments and current prevailing market prices, these unrealized losses are considered non-credit related.

March 31, 2024
Less Than 12 Months · 12 Months or Greater · Total
(Dollars in thousands)
FairValue · GrossUnrealizedLosses · FairValue · GrossUnrealizedLosses · FairValue · GrossUnrealizedLosses
U.S. Treasury Securities$-$-$16,216$1,460$16,216$1,460
U.S. Government Agencies--9,3778589,377858
Corporate Securities7,67521835,4585,07443,1335,292
Mortgage-Backed Securities112,4921,025375,87751,210488,36952,235
Municipal Securities19,761193261,98631,305281,74731,498
Total Securities Available for Sale$139,928$1,436$698,914$89,907$838,842$91,343
December 31, 2023
Less Than 12 Months · 12 Months or Greater · Total
(Dollars in thousands)
FairValue · GrossUnrealizedLosses · FairValue · GrossUnrealizedLosses · FairValue · GrossUnrealizedLosses
U.S. Treasury Securities$-$-$16,239$1,451$16,239$1,451
U.S. Government Agencies--9,4108489,410848
Corporate Securities7,52936236,1065,40843,6355,770
Mortgage-Backed Securities21,436895375,89148,919397,32749,814
Municipal Securities8,01363270,46727,735278,48027,798
Total Securities Available for Sale$36,978$1,320$708,113$84,361$745,091$85,681

As of March 31, 2024, and December 31, 2023, respectively, no allowance for credit losses was recognized on available for sale securities in an unrealized loss position as management does not believe any of the securities are impaired due to credit quality. This determination is based on the Company’s analysis of the underlying risk characteristics including credit ratings, historical loss experience, and other qualitative factors. Further, the securities continue to make principal and interest payments under their contractual terms and management does not have the intent to sell any of the securities and believes that it is more likely than not that the Company will not have to sell any such securities before a recovery of amortized cost basis. Therefore, the Company has determined the unrealized losses are due to changes in market interest rates compared to rates when the securities were acquired.

The amortized cost and fair values of securities available for sale as of March 31, 2024, by contractual maturity are shown below. Actual maturities may differ from contractual maturities in mortgage-backed securities because the mortgages underlying the securities may be called or repaid without any penalties.

AmortizedCostFairValue
(Dollars in thousands)
Less Than One Year$24,719$24,324
One to Five Years181,104168,917
Over Five to Ten Years377,532341,398
Over Ten Years380,371338,264
Total Securities Available for Sale$963,726$872,903

Securities available for sale with a fair value of $612.2 million and $629.7 million, were pledged as collateral on public deposits and for other purposes as required or permitted by law as of March 31, 2024, and December 31, 2023, respectively.

At March 31, 2024 and December 31, 2023, accrued interest receivable on securities was $3.7 million and $4.7 million, respectively, and included within accrued interest receivable on the consolidated balance sheets.

Note 6– Loans and the Allowance for Loan Losses–

Loans receivable at March 31, 2024 and December 31, 2023 are summarized as follows:

March 31,2024December 31,2023
(Dollars in thousands)
Real Estate Loans:
Commercial$2,215,889$2,217,928
Construction662,013669,798
Residential717,007682,394
Total Real Estate Loans3,594,9093,570,120
Commercial1,426,9571,358,838
Consumer and Other66,97363,827
Total Loans Held for Investment5,088,8394,992,785
Less:
Allowance for Loan Losses(41,165)(40,414)
Net Loans$5,047,674$4,952,371

The performing 1-4 family residential, multi-family residential, commercial real estate, and commercial loans, are pledged, under a blanket lien, as collateral securing advances from the FHLB at March 31, 2024 and December 31, 2023. Commercial and agricultural loans are pledged against the Federal Reserve Banks’ (“FRB”) discount window as of March 31, 2024, and December 31, 2023.

Net deferred loan origination fees were $12.8 million and $12.6 million at March 31, 2024 and December 31, 2023, respectively, and are netted in their respective loan categories above. In addition to loans issued in the normal course of business, the Company considers overdrafts on customer deposit accounts to be loans and reclassifies overdrafts as loans in its consolidated balance sheets. At March 31, 2024 and December 31, 2023, overdrafts of $4.5 million and $2.2 million, respectively, have been reclassified to loans.

The Bank is the lead lender on participations sold, without recourse, to other financial institutions which amounts are not included in the consolidated balance sheets. The unpaid principal balances of mortgages and other loans serviced for others were approximately $693.0 million and $723.5 million at March 31, 2024 and December 31, 2023, respectively. The Company had servicing rights of $928,000 and $1.1 million recorded as of March 31, 2024, and December 31, 2023, respectively, and is recorded within other assets.

The Bank grants loans and extensions of credit to individuals and a variety of businesses and corporations located in its general market areas throughout Louisiana and Texas. Management segregates the loan portfolio into portfolio segments which is defined as the level at which the Bank develops and documents a systematic method for determining its allowance for credit losses. The portfolio segments are segregated based on loan types and the underlying risk factors present in each loan type. Such risk factors are periodically reviewed by management and revised as deemed appropriate.

Portfolio Segments and Risk Factors

The loan portfolio is disaggregated into portfolio segments and then further disaggregated into classes for certain disclosures. GAAP defines a portfolio segment as the level at which an entity develops and documents a systematic method for determining its allowance for credit losses. A class is generally a disaggregation of a portfolio segment. The Company's loan portfolio segments are Real Estate, Commercial, and Consumer and Other. The classes and risk characteristics of each segment are discussed in more detail below. The segmentation and disaggregation of the portfolio is part of the ongoing credit monitoring process.

Real Estate Portfolio Segment

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

Real Estate: Construction loans include loans to small-to-midsized businesses to construct owner-occupied properties, loans to developers of commercial real estate investment properties and residential developments and, to a lesser extent, loans to individual clients for construction of single-family homes in the Company’s market areas. Risks associated with these loans include fluctuations in the value of real estate, project completion risk and changes in market trends. The Company is also exposed to risk based on the ability of the construction loan borrower to finance the loan or sell the property upon completion of the project, which may be affected by changes in secondary market terms and criteria for permanent financing since the time that the Company funded the loan.

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

Commercial Portfolio Segment

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

Consumer and Other Portfolio Segment

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

The following table sets forth, as of March 31, 2024, and December 31, 2023, the balance of the allowance for credit losses by loan portfolio segment. The allowance for credit losses allocated to each portfolio segment is not necessarily indicative of future losses in any particular portfolio segment and does not restrict the use of the allowance to absorb losses in other portfolio segments.

Allowance for Credit Losses and Recorded Investment in Loans Receivable

March 31, 2024
(Dollars in thousands)
Real Estate:CommercialReal Estate:ConstructionReal Estate:ResidentialCommercialConsumerand OtherTotal
Allowance for Loan Losses:
Beginning Balance$17,676$6,596$5,485$10,424$233$40,414
Charge-offs16(49)(71)1(430)(533)
Recoveries5-34093141
Provision (Recovery)83(58)616(98)6001,143
Ending Balance$17,780$6,489$6,033$10,367$496$41,165
Reserve for Unfunded Loan Commitments:
Beginning Balance$206$1,546$177$1,372$23$3,324
Provision (Recovery)57(213)(24)2091443
Ending Balance$263$1,333$153$1,581$37$3,367
Total Allowance for Credit Losses$18,043$7,822$6,186$11,948$533$44,532
December 31, 2023
(Dollars in thousands)
Real Estate:CommercialReal Estate:ConstructionReal Estate:ResidentialCommercialConsumerand OtherTotal
Allowance for Loan Losses:
Beginning Balance$14,702$5,768$5,354$11,721$633$38,178
Adoption of ASU 2016-134,823933(365)(2,483)(248)2,660
Beginning Balance After Adoption19,5256,7014,9899,23838540,838
Charge-offs(2,049)(36)(42)(2,813)(1,489)(6,429)
Recoveries261186723271,044
Provision (Recovery)174(70)5203,3271,0104,961
Ending Balance$17,676$6,596$5,485$10,424$233$40,414
Reserve for Unfunded Loan Commitments:
Beginning Balance$220$137$13$229$6$605
Adoption of ASU 2016-131162,1131906571213,197
Beginning Balance After Adoption3362,2502038861273,802
Provision (Recovery)(130)(704)(26)486(104)(478)
Ending Balance$206$1,546$177$1,372$23$3,324
Total Allowance for Credit Losses$17,882$8,142$5,662$11,796$256$43,738

Included within the above allowance, in the tables above, are loans which management has individually evaluated to determine an allowance for credit losses. The following table summarizes, by segment, the loan balance and specific allowance allocation for those loans which have been individually evaluated.

March 31, 2024 · December 31, 2023
Loan Balance · Specific Allocations · Loan Balance · Specific Allocations
(Dollars in thousands)
Real Estate Loans:
Commercial$1,719$38$883$-
Construction5,3455692,334513
Residential1,500-1,533-
Total Real Estate Loans8,5646074,750513
Commercial----
Consumer and Other----
Total$8,564$607$4,750$513

Credit Quality Indicators

We utilize a risk grading matrix to assign a risk grade to each of our commercial loans. Loans are graded on a scale of 10 to 80. Individual loan officers review updated financial information for all pass grade loans to reassess the risk grade, generally on at least an annual basis. When a loan has a risk grade of 60, it is still considered a pass grade loan; however, it is considered to be on management’s “watch list,” and subject to additional and more frequent monitoring by both the loan officer and senior credit and risk personnel. When a loan has a risk grade of 70 or higher, a special assets officer monitors the loan on an on-going basis.

The following tables set forth the credit quality indicators, disaggregated by loan segment, as of March 31, 2024, and December 31, 2023:

March 31, 2024
Criticized
Pass(Risk Grade 10-45) · Special Mention(Risk Grade 50) · Substandard(Risk Grade 60) · Doubtful(Risk Grade 70) · Loss(Risk Grade 80) · Total · Current Period Charge-offs
(Dollars in thousands)
Real Estate: Commercial
Originated in 2024$59,026$-$-$-$-$59,026$-
Originated in 2023231,816-82--231,898-
Originated in 2022741,59017,577---759,167-
Originated in 2021406,92814,704490--422,122-
Originated in 2020131,0683,514189--134,7713
Originated Prior to 2020513,71010,8032,5911,235-528,339(19)
Revolving79,679644243--80,566-
Revolving Loans Converted to Term-------
Total Real Estate: Commercial$2,163,817$47,242$3,595$1,235$-$2,215,889$(16)
Real Estate: Construction
Originated in 2024$34,427$-$-$-$-$34,427$-
Originated in 2023138,845241419--139,5057
Originated in 2022272,528-706--273,2349
Originated in 202177,592-3,594--81,18633
Originated in 202037,257-16--37,273-
Originated Prior to 202032,6724442,284345-35,745-
Revolving60,247396---60,643-
Revolving Loans Converted to Term-------
Total Real Estate: Construction$653,568$1,081$7,019$345$-$662,013$49
Real Estate: Residential
Originated in 2024$19,660$-$197$-$-$19,857$-
Originated in 202372,599-25--72,624-
Originated in 2022196,81733840313-197,571-
Originated in 202196,888-729--97,617-
Originated in 202067,23338650152-68,1722
Originated Prior to 2020143,8112,2237,490328-153,85262
Revolving106,580-444--107,0247
Revolving Loans Converted to Term290----290-
Total Real Estate: Residential$703,878$2,947$9,789$393$-$717,007$71
Commercial
Originated in 2024$92,339$203$37$-$-$92,579$-
Originated in 2023284,2071,67549--285,9313
Originated in 2022258,1191,0431,476--260,638-
Originated in 2021124,9032,2974,26116-131,47716
Originated in 202046,538224901--47,66339
Originated Prior to 202074,0523,7391,718451-79,960(59)
Revolving524,4422,7241,51528-528,709-
Revolving Loans Converted to Term-------
Total Commercial$1,404,600$11,905$9,957$495$-$1,426,957$(1)
Consumer and Other
Originated in 2024$2,916$-$-$-$-$2,916$-
Originated in 20238,931-56--8,9871
Originated in 20226,465-17--6,48213
Originated in 20212,852-52--2,9044
Originated in 20201,533-79--1,61229
Originated Prior to 202024,854-123--24,977-
Revolving18,835-260--19,095383
Revolving Loans Converted to Term-------
Total Consumer and Other$66,386$-$587$-$-$66,973$430
Total Loans$4,992,249$63,175$30,947$2,468$-$5,088,839$533
December 31, 2023
Criticized
Pass(Risk Grade 10-45) · Special Mention(Risk Grade 50) · Substandard(Risk Grade 60) · Doubtful(Risk Grade 70) · Loss(Risk Grade 80) · Total · Current Period Charge-offs
(Dollars in thousands)
Real Estate: Commercial
Originated in 2023$228,902$-$84$-$-$228,986$-
Originated in 2022751,6491,909---753,558-
Originated in 2021427,2696,103492--433,864357
Originated in 2020151,8483,5518--155,407-
Originated in 2019149,9465,556372932-156,8061,447
Originated Prior to 2019379,5031,3137,970335-389,121245
Revolving99,723226237--100,186-
Revolving Loans Converted to Term-------
Total Real Estate: Commercial$2,188,840$18,658$9,163$1,267$-$2,217,928$2,049
Real Estate: Construction
Originated in 2023$131,617$-$-$-$-$131,617$-
Originated in 2023322,03264762--322,741-
Originated in 202185,4382,6011,229--89,268-
Originated in 202022,5153116--22,562-
Originated in 201919,402-1,675--21,0771
Originated Prior to 201920,180413588345-21,52635
Revolving60,612395---61,007-
Revolving Loans Converted to Term-------
Total Real Estate: Construction$661,796$4,087$3,570$345$-$669,798$36
Real Estate: Residential
Originated in 2023$76,662$-$-$-$-$76,662$-
Originated in 2022170,22943341014-171,086-
Originated in 202198,329-708--99,03711
Originated in 202068,28138652057-69,2441
Originated in 201954,9021,1121,061119-57,19422
Originated Prior to 201997,7161,2306,000299-105,2457
Revolving103,252-654--103,9061
Revolving Loans Converted to Term20----20-
Total Real Estate: Residential$669,391$3,161$9,353$489$-$682,394$42
Commercial
Originated in 2023$303,160$1,439$709$-$-$305,308$-
Originated in 2022267,6786981,196--269,572247
Originated in 2021136,2915,48392816-142,71825
Originated in 202048,99044892142-50,40149
Originated in 201921,137584640231-22,5921,632
Originated Prior to 201961,1663,843341251-65,601658
Revolving499,6422,12857328-502,371202
Revolving Loans Converted to Term275----275-
Total Commercial$1,338,339$14,623$5,308$568$-$1,358,838$2,813
Consumer and Other
Originated in 2023$11,245$-$-$-$-$11,245$8
Originated in 20227,219-27--7,24678
Originated in 20213,372-55--3,42729
Originated in 20201,850-88--1,93811
Originated in 20192,359-40--2,39918
Originated Prior to 201918,280-92--18,37261
Revolving18,814100160--19,0741,284
Revolving Loans Converted to Term126----126-
Total Consumer and Other$63,265$100$462$-$-$63,827$1,489
Total Loans$4,921,631$40,629$27,856$2,669$-$4,992,785$6,429

The above classifications follow regulatory guidelines and can generally be described as follows:

Pass loans are of satisfactory quality.

Special mention loans have an existing weakness that could cause future impairment, including the deterioration of financial ratios, past due status, questionable management capabilities and possible reduction in the collateral values.

Substandard loans have an existing specific and well-defined weakness that may include poor liquidity and deterioration of financial ratios. The loan may be past due and related deposit accounts experiencing overdrafts. Immediate corrective action is necessary.

Doubtful loans have specific weaknesses that are severe enough to make collection or liquidation in full highly questionable and improbable.

As of March 31, 2024, and December 31, 2023, loan balances outstanding more than 90 days past due and still accruing interest amounted to $855,000 and $127,000, respectively. As of March 31, 2024, and December 31, 2023, loan balances outstanding on nonaccrual status amounted to $20.8 million and $16.9 million, respectively. The Bank considers all loans more than 90 days past due as nonperforming loans.

The following tables provide an analysis of the aging of loans and leases as of March 31, 2024, and December 31, 2023. All loans greater than 90 days past due are generally placed on nonaccrual status.

Aged Analysis of Past Due Loans Receivable

March 31, 2024
(Dollars in thousands)
30-59 DaysPast Due60-89 DaysPast DueGreaterThan 90 DaysPast DueTotalPast DueCurrentTotal LoansReceivableRecordedInvestment Over90 Days Past Dueand Still Accruing
Real Estate Loans:
Commercial$1,071$10,932$2,901$14,904$2,200,985$2,215,889$662
Construction125945,8116,417655,596662,013-
Residential1,7249464,5567,226709,781717,007123
Total Real Estate Loans2,80712,47213,26828,5473,566,3623,594,909785
Commercial2,2399093,2776,4251,420,5321,426,95770
Consumer and Other2473447075166,22266,973-
Total$5,293$13,415$17,015$35,723$5,053,116$5,088,839$855
December 31, 2023
(Dollars in thousands)
30-59 DaysPast Due60-89 DaysPast DueGreaterThan 90 DaysPast DueTotalPast DueCurrentTotal LoansReceivableRecordedInvestment Over90 Days Past Dueand Still Accruing
Real Estate Loans:
Commercial$240$536$2,954$3,730$2,214,198$2,217,928$44
Construction2791,3203,1984,797665,001669,798-
Residential1,7921,2074,0587,057675,337682,39420
Total Real Estate Loans2,3113,06310,21015,5843,554,5363,570,12064
Commercial1,101711,6222,7941,356,0441,358,83852
Consumer and Other28025218872063,10763,82711
Total$3,692$3,386$12,020$19,098$4,973,687$4,992,785$127

The following table presents non-accrual loans by segment as of March 31, 2024, and December 31, 2023, respectively.

March 31,2024December 31,2023
(Dollars in thousands)
Real Estate Loans:
Commercial$2,523$3,280
Construction6,7903,543
Residential7,6537,352
Total Real Estate Loans16,96614,175
Commercial3,2972,395
Consumer and Other515373
Total$20,778$16,943

The Bank seeks to assist customers that are experiencing financial difficulty by renegotiating loans within lending regulations and guidelines. The Bank makes loan modifications, primarily utilizing internal renegotiation programs via direct customer contact, that manage customers’ debt exposures held only by the Bank. Additionally, the Bank makes loan modifications with customers who have elected to work with external renegotiation agencies and these modifications provide solutions to customers’ entire unsecured debt structures. During the periods ended March 31, 2024, and December 31, 2023, the concessions granted to certain borrowers included extending the payment due dates and offering below market contractual interest rates, and were not significant to the consolidated financial statement

Accrued interest receivable of $3.9 million and $4.2 million was outstanding as of March 31, 2024, and December 31, 2023, respectively, for all loan deferrals, primarily attributable to the COVID-19 pandemic and, to a much lesser extent, hurricanes which occurred in 2020 and 2021. These loans are no longer within their deferral periods. The accrued interest on the loans is due at their maturity.

At March 31, 2024 and December 31, 2023, accrued interest receivable on loans was $25.6 million and $25.2 million, respectively, and included within accrued interest receivable on the consolidated balance sheets.

Note 7– Long Term Debt–

On March 1, 2022, the Company assumed, in connection with the TCBI acquisition, three tranches of subordinated debt with an aggregate principal balance outstanding of $26.4 million. One tranche in the amount of $10.0 million bears an adjustable interest rate, based on a benchmark rate plus 350 basis points, until maturity on April 11, 2028. This tranche is currently redeemable at the Company’s option. Another tranche in the amount of $7.5 million bears an adjustable interest rate, based on a benchmark rate plus 350 basis points, until maturity on December 13, 2028. This tranche is currently redeemable at the Company's option. The third tranche in the amount of $8.9 million had an adjustable interest rate plus 595 basis points, based on a benchmark rate, until maturity on March 24, 2027. The $8.9 million tranche was called on May 1, 2023, by the Company and has been fully extinguished. The Company recognized a $1.5 million gain on the extinguishment of this debt during 2023. These notes carried an aggregate $1.0 million and $1.1 million fair value adjustment as of March 31, 2024, and December 31, 2023, respectively.

Note 8– Bank Term Funding Program (“BTFP”)–

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

Note 9– Federal Home Loan Bank (“FHLB”) Borrowings–

The Company had outstanding advances from the FHLB of $308.2 million and $211.2 million as of March 31, 2024, and December 31, 2023, respectively, consisting of:

One fixed rate loan with an original principal balance of $60.0 million. The loan was made in 2021 and the balance at March 31, 2024 and December 31, 2023 was $32.3 million and $35.3 million, respectively, with interest at 0.89%. Principal and interest payments are due monthly and the loan matures in November 2026.

One fixed rate loan of $875,000 at both March 31, 2024, and December 31, 2023, that was acquired during the TCBI acquisition, with interest at 4.88% paid monthly. Principal is due at maturity in April 2025.

One fixed rate loan of $25.0 million at both March 31, 2024, and December 31, 2023, with interest at 4.89% paid monthly. Principal is due at maturity in July 2025.

One fixed rate loan of $25.0 million at both March 31, 2024, and December 31, 2023, with interest at 4.65% paid monthly. Principal is due at maturity in January 2026.

One fixed rate loan of $25.0 million at both March 31, 2024, and December 31, 2023, with interest at 4.56% paid monthly. Principal is due at maturity in July 2026.

One fixed rate loan of $25.0 million at both March 31, 2024, and December 31, 2023, with interest at 4.13% paid monthly. Principal is due at maturity in October 2028. This advance has put options beginning in October 2024.

One fixed rate loan of $25.0 million at both March 31, 2024, and December 31, 2023, with interest at 3.92% paid monthly. Principal is due at maturity in October 2030. This advance has put options beginning in October 2024.

One fixed rate loan of $25.0 million at both March 31, 2024, and December 31, 2023, with interest at 3.72%paid monthly. Principal is due at maturity in October 2033. This advance has put options beginning in October 2024.

One fixed rate loan of $25.0 million at both March 31, 2024, and December 31, 2023, with interest at 3.57% paid monthly. Principal is due at maturity in October 2033. This advance has put options beginning in October 2024.

One fixed rate loan of $25.0 million at March 31, 2024, with interest at 4.84% paid monthly. Principal is due at maturity in December 2026.

One fixed rate loan of $25.0 million at March 31, 2024, with interest at 4.78% paid monthly. Principal is due at maturity in September 2027.

One fixed rate loan of $25.0 million at March 31, 2024, with interest at 4.73% paid monthly. Principal is due at maturity in March 2028.

One fixed rate loan of $25.0 million at March 31, 2024, with interest at 4.69% paid monthly. Principal is due at maturity in September 2028.

The Company had an additional $1.2 billion remaining on the FHLB line availability at March 31, 2024.

Note 10– Leases–

The Bank leases certain branch offices through non-cancelable operating leases with terms that range fromone toten years and contain various renewal options for certain of the leases. Certain leases provide for increases in minimum monthly rental payments as defined by the lease agreement. Rental expense under these agreements was $1.5 million and $1.4 million for the three months ended March 31, 2024, and 2023, respectively. At March 31, 2024, the Company had a weighted average lease term of 6.3 years and a weighted average discount rate of 3.28%.

Future minimum lease payments under these leases are as follows:

(Dollars in thousands)
April 1, 2024 through December 31, 2024$3,432
January 1, 2025 through December 31, 20253,777
January 1, 2026 through December 31, 20263,558
January 1, 2027 through December 31, 20273,449
January 1, 2028 through December 31, 20283,153
January 1, 2029 and Thereafter5,624
Total Future Minimum Lease Payments22,993
Less Imputed Interest(2,350)
Present Value of Lease Liabilities$20,643

Note 11– Commitments and Contingencies–

In the normal course of business, the Bank is a party to financial instruments with off-balance sheet risk to meet the financing needs of its customers. These financial instruments include commitments to extend credit and standby and commercial letters of credit which are not included in the accompanying financial statements. These instruments involve, to varying degrees, elements of credit risk in excess of the amount recognized in the balance sheet.

The Bank’s exposure to credit loss in the event of nonperformance by the other party to the financial instrument for commitments to extend credit and standby and commercial letters of credit is represented by the contractual amount of those instruments. The Bank’s policy for obtaining collateral, and the nature of such collateral, is essentially the same as that involved in making commitments to extend credit. The Bank uses the same credit policies in making such commitments and conditional obligations as it does for instruments that are included in the balance sheet. In the normal course of business, the Bank has made commitments to extend credit of approximately $1.2 billion at both March 31, 2024, and December 31, 2023, and standby and commercial letters of credit of approximately $48.9 million and $45.2 million at March 31, 2024 and December 31, 2023, respectively. As discussed in Note 6, we have a reserve for unfunded loan commitments of $3.4 million and $3.3 million at March 31, 2024 and December 31, 2023, respectively.

In the normal course of business, the Bank is involved in various legal proceedings. In the opinion of management and counsel, the disposition or ultimate resolution of such proceedings would not have a material adverse effect on the Bank’s financial statements.

Note 12–Fair Value of Financial Instruments –

Fair Value Disclosures

The Company groups its financial assets and liabilities measured at fair value in three levels. Fair value should be based on the assumptions market participants would use when pricing the asset or liability and establishes a fair value hierarchy that prioritizes the inputs used to develop those assumptions and measure fair value. The hierarchy requires companies to maximize the use of observable inputs and minimize the use of unobservable inputs. The three levels of inputs used to measure fair value are as follows:

Level 1 – Includes the most reliable sources and includes quoted prices in active markets for identical assets or liabilities.

Level 2 – Includes observable inputs. Observable inputs include inputs other than quoted prices that are observable for the asset or liability (for example, interest rates and yield curves at commonly quoted intervals, volatilities, prepayment speeds, loss severities, credit risks, and default rates) as well as inputs that are derived principally from or corroborated by observable market data by correlation or other means (market-corroborated inputs).

Level 3 – Includes unobservable inputs and should be used only when observable inputs are unavailable.

Recurring Basis

Fair values of investment securities available for sale were primarily measured using information from a third-party pricing service. This pricing service provides information by utilizing evaluated pricing models supported with market data information. Standard inputs include benchmark yields, reported trades, broker/dealer quotes, issuer spreads, benchmark securities, bids, offers, and reference data from market research publications.

The fair values of mortgage loans held for sale are based on commitments on hand from investors within the secondary market for loans with similar characteristics.

The following tables present the balance of assets and liabilities measured on a recurring basis as of March 31, 2024, and December 31, 2023. The Company didnot 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)
Available for Sale:
U.S. Treasury Securities$16,216$-$16,216$-
U.S. Government Agency Securities9,377-9,377-
Corporate Securities44,173-36,1867,987
Mortgage-Backed Securities511,617-511,617-
Municipal Securities291,520-265,21326,307
Loans Held for Sale77-77-
Total$872,980$-$838,686$34,294
Available for Sale:
U.S. Treasury Securities$16,239$-$16,239$-
U.S. Government Agency Securities9,410-9,410-
Corporate Securities43,839-35,8717,968
Mortgage-Backed Securities506,310-506,310-
Municipal Securities303,773-282,92620,847
Loans Held for Sale835-835-
Total$880,406$-$851,591$28,815

The Company reviews fair value hierarchy classifications on a quarterly basis. Changes in the Company's ability to observe inputs to the valuation may cause reclassification of certain assets or liabilities within the fair value hierarchy.

The table below provides a reconciliation for assets measured at fair value on a recurring basis using significant unobservable inputs, or Level 3 inputs, as of March 31, 2024, and December 31, 2023.

CorporateMunicipal
BondsSecurities
(Dollars in thousands)
Balance at December 31, 2022$19,000$34,768
Realized Gains (Losses) Included in Net Income--
Unrealized Losses Included in Other Comprehensive Loss(1,532)(2,228)
Purchases--
Sales--
Maturities, Prepayments, and Calls-(1,798)
Transfers Into Level 3--
Transfers Out of Level 3(9,500)(9,895)
Balance at December 31, 20237,96820,847
Realized Gains (Losses) Included in Net Income--
Unrealized Gains (Losses) Included in Other Comprehensive Loss19(3,398)
Purchases-9,938
Sales--
Maturities, Prepayments, and Calls-(1,080)
Transfers Into Level 3--
Transfers Out of Level 3--
Balance at March 31, 2024$7,987$26,307

The following table provides quantitative information about significant unobservable inputs used in fair value measurements of Level 3 assets measured at fair value on a recurring basis at March 31, 2024.

EstimatedValuationUnobservableRange of
Fair ValueTechniqueInputsDiscounts
(Dollars in thousands)
Corporate Securities$7,987Present Value of Expected Future Cash Flow ModelLiquidity Premium2%
Municipal Securities26,307Present Value of Expected Future Cash Flow ModelLiquidity Premium1%

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 didnot record any liabilities at fair value for which measurement of the fair value was made on a nonrecurring basis.

The fair value of the individually evaluated loans is measured at the fair value of the collateral for collateral-dependent loans. Individually evaluated loans are Level 3 assets measured using appraisals from external parties of the collateral less any prior liens and adjusted for estimated selling costs. Adjustments may be made by management based on a customized internally developed discounting matrix. Repossessed assets are initially recorded at fair value less 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)
Assets:
Individually Evaluated Loans$8,564$-$-$8,564
Other Nonperforming Assets1,339--1,339
Total$9,903$-$-$9,903
Assets:
Individually Evaluated Loans$4,750$-$-$4,750
Other Nonperforming Assets1,685--1,685
Total$6,435$-$-$6,435

Fair Value Financial Instruments

The fair value of a financial instruments is the current amount that would be exchanged between willing parties, other than in a forced liquidation. Fair value is best determined based upon quoted market prices. However, in many instances, there are no quoted market prices for the Company’s various financial instruments. In cases where quoted market prices are not available, fair values are based on estimates using present value or other valuation techniques. Those techniques are significantly affected by the assumptions used, including the discount rate and estimates of future cash flows. Accordingly, the fair value estimates may not be realized in an immediate settlement of the instrument. In accordance with GAAP, certain financial instruments and all non-financial instruments are excluded from these disclosure requirements. Accordingly, the aggregate fair value amounts presented may not necessarily represent the underlying fair value of the Company.

The following methods and assumptions were used to estimate the fair value of each class of financial instruments for which it is practicable to estimate that value:

Cash and Short-Term Investments – For those short-term instruments, the carrying amount is a reasonable estimate of fair value.

Securities – Fair value of securities is based on quoted market prices. If a quoted market price is not available, fair value is estimated using quoted market prices for similar securities.

Loans – The fair value for loans is estimated using discounted cash flow analyses, with interest rates currently being offered for similar loans to borrowers with similar credit rates. Loans with similar classifications are aggregated for purposes of the calculations. The allowance for loan losses, which was used to measure the credit risk, is subtracted from loans.

Cash Value of Bank-Owned Life Insurance (“BOLI”) – The carrying amount approximates its fair value.

Other Equity Securities – The carrying amount approximates its fair value.

Deposits – The fair value of demand deposits and certain money market deposits is the amount payable at the reporting date. The fair value of fixed-maturity certificates of deposit is estimated using discounted cash flow analyses, with interest rates currently offered for deposits of similar remaining maturities.

Borrowings – The fair value of FHLB advances and other long-term borrowings is estimated using the rates currently offered for advances of similar maturities. The carrying amount of short-term borrowings maturing within ninety days approximates the fair value.

Commitments to Extend Credit and Standby and Commercial Letters of Credit – The fair values of commitments to extend credit and standby and commercial letters of credit do not differ significantly from the commitment amount and are therefore omitted from this disclosure.

The estimated approximate fair values of the Bank’s financial instruments as of March 31, 2024, and December 31, 2023 are as follows:

CarryingAmount · TotalFair Value · Level 1 · Level 2 · Level 3
(Dollars in thousands)
Financial Assets:
Cash and Short-Term Investments$397,198$397,198$397,198$-$-
Securities872,903872,903-838,60934,294
Loans Held for Sale7777-77-
Loans - Net5,047,6744,933,670--4,933,670
Cash Value of BOLI100,056100,056-100,056-
Other Equity Securities34,94034,940--34,940
Total$6,452,848$6,338,844$397,198$938,742$5,002,904
Financial Liabilities:
Deposits$5,572,750$5,567,623$-$-$5,567,623
Borrowings430,346408,524-408,524-
Total$6,003,096$5,976,147$-$408,524$5,567,623
CarryingAmount · TotalFair Value · Level 1 · Level 2 · Level 3
(Dollars in thousands)
Financial Assets:
Cash and Short-Term Investments$377,244$377,244$377,244$-$-
Securities879,571879,571-850,75628,815
Loans Held for Sale835835-835-
Loans - Net4,952,3714,849,503--4,849,503
Cash Value of BOLI96,47896,478-96,478-
Other Equity Securities33,94233,942--33,942
Total$6,340,441$6,237,573$377,244$948,069$4,912,260
Financial Liabilities:
Deposits$5,248,790$5,243,326$-$-$5,243,326
Borrowings635,073613,464-613,464-
Total$5,883,863$5,856,790$-$613,464$5,243,326

Note 13–Subsequent Events –

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

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