Business First Bancshares Inc
For the period ended Dec 31, 2023. Filed Mar 1, 2024.
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FY2023 · Filed Mar 1, 2024
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Notes to Consolidated Financial Statements
Note1 – 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* March 22, 2021,the Company, throughb1BANK,* 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.
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* mayundertake 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 doesnot* anticipate any material changes to estimates in the near term. Factors that* maycause sensitivity to the aforementioned estimates include but arenot* 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.
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* maybe 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.
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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 toone 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 butnot 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 hasno securities classified as held to maturity at* December 31, 2023and2022.*
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 hasno securities classified as trading at* December 31, 2023and2022.*
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, including acquired loans
Loans
Loans are stated at principal amounts outstanding, adjusted for deferred fees, costs and fair value adjustments, in the case of acquired loans, less the allowance for loan losses. Interest on loans is accrued daily based on the principal outstanding. Deferred fees, costs and fair value adjustments for acquired loans 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 becomes90 days past due as to principal or interest. When a loan is placed on nonaccrual status, previously recognized but uncollected interest is reversed from interest 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. Loans are returned to accrual status when all the principal and interest amounts contractually due are brought current and future payments are reasonably assured.
Prior to* January 1, 2023,*the Bank classified loans as impaired when it was probable the Bank would be unable to collect the scheduled payments of principal and interest when due according to the contractual terms of the loan agreement.
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Acquired Loans
Purchased loans acquired in a business combination are initially recorded at their estimated fair value as of the acquisition date.
Subsequent to acquisition, acquired loans are accounted for based upon a determination of whether they were purchased with more-than insignificant amount of credit deterioration (“PCD”) or an insignificant (“non-PCD”) amount of credit deterioration compared to origination. In either case, the difference between the estimated fair value of the acquired loan related to non-credit deterioration is treated as an adjustment to the contractual yield and accreted into interest income over the remaining life of the loan.
Effective* January 1, 2023,the Company adopted ASU2016*-13, Financial Instrument–* Credit Losses (Topic326). Measurement of Credit Losses on Financial Instruments related to the impairment of financial instruments*(ASU2016-13). Prior to the adoption ofFinancial Instrument–* Credit Losses (Topic324), Measurement of Credit Losses on Financial Instruments*, commonly referred to as the Current Expected Credit Loss (“CECL”), ASU2016-13, acquired performing loans were accounted for under ASC310**-20, Nonrefundable Fees and Other Costs, with the related discount or premium being recognized as an adjustment to yield over the life of the loan and acquired impaired loans were accounted for according to ASC Topic310-30, “Loans and Debt Securities Acquired with Deteriorated Credit Quality (“ASC*310**-30”).*Under this method, adjustments to cash flows from the original acquisition date estimates were accounted for as adjustments to accretion for these loans.
Allowance for Credit Losses
Allowance for Loan Losses
Effective* January 1, 2023,the allowance for credit losses is established for current expected credit losses on the Company’s loan portfolio, including unfunded credit commitments. Upon adoption of the guidance on January 1, 2023,*we recognized an $827,000 reduction to retained earnings, after recording the relating deferred tax asset adjustment at our adjusted tax rate.
The allowance for credit losses is increased through provisions charged to earnings and reduced by net charge-offs, inclusive of recoveries. Management evaluates the appropriateness of the allowance for credit losses on a quarterly basis. The allowance considers expected losses for the remaining lives of the applicable assets. The Company subscribes to athird-party service to provide economic forecasts at both the national and state levels, including GDP and unemployment, and other relevant forecasts. National forecasted economic scenarios are considered over a reasonable and supportable forecast period, currentlyone year, which incorporates Company and peer historical losses. After the forecast period, the Company reverts to long-term historical loss experience on a straight-line basis over aone-year period, adjusted for the composition of the current loan portfolio, to estimate losses over the remaining lives of the portfolio. The economic scenarios are updated at least quarterly and are designed to provide estimates that take into consideration the customer base of our loan portfolio. Loss estimates also consider qualitative factors affecting credit lossesnot reflected in the model, including trends in the portfolio, credit management and underwriting practices and forecasted economic conditions affecting our operating footprint.
The allowance recorded for credit losses utilizes forward-looking expected loss models to consider a variety of factors affecting lifetime credit losses. These factors include loan and borrower characteristics, such as internal risk ratings, delinquency status, collateral type and available valuation information, and the remaining term of the loan, adjusted for expected prepayments, with loans sharing risk characteristics grouped into pools to estimate expected losses. Where loans donot exhibit similar risk characteristics, an individual analysis is performed to consider expected credit losses. For each loan portfolio, model estimates are adjusted as necessary to consider any relevant qualitative factors that would affect the accuracy of the model. The results of the analysis are evaluated quarterly to confirm the estimates are appropriate for each loan portfolio. Expected credit loss estimates also include consideration of expected cash recoveries on loans previously charged-off, or, expected recoveries on collateral dependent loans where recovery is expected through sale of the collateral.
The allowance recorded for individually evaluated loans is based on an analysis utilizing expected cash flows discounted using the original effective interest rate, the observable market price of the loan, or, when repayment is expected through the sale of collateral, the fair value of the collateral, less selling costs, for collateral-dependent loans.
Prior to the adoption of ASU2016-13, the allowance for credit losses on loans was a contra-asset valuation account established through a provision for loan losses charged to expense, which represented management’s best estimate of inherent losses that had been incurred within the existing portfolio of loans. The allowance for credit losses on loans included allowance allocations calculated in accordance with ASC Topic310, “Receivables” and allowance allocations calculated in accordance with ASC Topic450, “Contingencies.”
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Allowance for loans acquired with credit deterioration
Beginning* January**1,* 2023, when a loan portfolio is purchased, an allowance is established for those loans considered purchased with more-than-insignificant credit deterioration (PCD) loans, and thosenot considered purchased with more-than-insignificant credit deterioration (non-PCD). The allowance established utilizes the same risk factors discussed above for our non-acquired allowance. The allowance established for non-PCD loans is recognized through provision expense upon acquisition, whereas the allowance established for loans considered PCD at acquisition is offset by an increase in the basis of the acquired loans. Any subsequent increases and decreases in the allowance related to acquired loans are recognized through provision expense, with future charge-offs recorded to the allowance.
Allowance for unfunded credit commitments
The Company also assesses the credit risk associated with off-balance sheet loan commitments and letters of credit. The liability for off-balance sheet credit exposure related to loan commitments and other credit guarantees is included in other liabilities. Therefore business processes and credit risks associated with unfunded credit commitments are essentially the same as for loans, the Company utilizes similar processes to estimate its liability for unfunded credit commitments, adjusted for an expectation of the actual utilization of the committed credit facility.
Allowance on investment securities
The allowance for credit losses encompasses potential expected credit losses related to the securities portfolio for credit losses. The assessment includes reviewing historical loss data for both our portfolio and similar types of investment securities to develop an estimate for the current securities portfolio. Additionally, our review of the securities portfolio for expected credit losses includes an evaluation of factors including the security issuer bond ratings, delinquency status, insurance or other available credit support, as well as our expectations of the forecasted economic outlook relevant to these securities, and our ability and intent to hold the security over a period of time sufficient to recover its value up to the amortized cost basis. The results of the analysis are evaluated quarterly to confirm that credit loss estimates are appropriate for the securities portfolio.
Based on our assessments, expected credit losses on the investment securities portfolio as of* December 31, 2023,*was negligible and therefore,no allowance for credit loss was recorded related to our investment securities.
Prior to the adoption of ASU2016-13, declines in the fair value of available-for-sale securities below their cost that were deemed to be other than temporary were reflected in earnings as realized losses. In estimating other-than-temporary impairment losses prior to* January**1,* 2023, management considered, among other things, (i) the length of time and the extent to which the fair value had been less than cost, (ii) the financial condition and near-term prospects of the issuer and (iii) the intent and our ability to retain our investment in the issuer for a period of time sufficient to allow for any anticipated recovery in fair value.
Accrued Interest
The Company has elected to exclude accrued interest receivable from the amortized cost basis on its loan and debt securities portfolio. The Company has also elected tonot measure an allowance for credit losses on accrued interest for loans held-for-investment or debt securities based on its policy to write off uncollectible interest in a timely manner. For loans, this occurs when a loan is placed on nonaccrual status. Generally, for loans, such elections are madeno later than90 days after a loan has become past due, although certain loans accrue interest after90 days based on management’s evaluation of the borrower’s ability to continue making contractual payments. For debt securities, the elections are made based solely on management’s evaluation of the ability of the security issuer, and any relevant entities, to continue making contractual payments. Such write-offs are recognized as a reduction of interest income. Accrued interest receivable for the loan and securities portfolio is included within Accrued Interest Receivable in the Consolidated Balance Sheets.
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.
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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 arenot 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.
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, 2023and2022,* the Company doesnot 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 isno longer subject to federal and state income tax examinations by tax authorities for years before 2020. Any interest and penalties assessed by income taxing authorities arenot significant, and are included in other expenses in these financial statements, as applicable.
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Stock Based Compensation
As described in Note16, 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 thefirst time the advertising or promotion takes place. For the years ended* December 31, 2023,*2022 and2021, the Company expensed costs of $4.6 million, $3.9 million and $2.7 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 donot 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 doesnot generally grant refunds for services provided. As such, the Company doesnot establish provisions for estimated returns.
Accounting Standards Adopted in2023
Effective* January 1, 2023,the Company adopted ASU2016*-13, Financial Instrument–* Credit Losses (Topic326), Measurement of Credit Losses on Financial Instrumentsrelated to the impairment of financial instruments. This guidance, commonly referred to as Current Expected Credit Loss (“CECL”), changes impairment recognition to a model that is based on expected losses rather than incurred losses. The allowance for credit losses is established for current expected credit losses on the Company’s loan portfolio, including unfunded credit commitments. Prior to January 1, 2023,the allowance for credit losses was established based on an incurred loss model. Upon the adoption of CECL, certain loan classification and segmentation categories were changed to align with the requirements of the standard and more effectively model the CECL estimate. The updated CECL segmentation is reflected in the disclosures beginning January 1, 2023,and prior period classifications have been adjusted to reflect CECL segmentations. Results from periods prior to January 1, 2023,*are presented using the previously applicable GAAP.
Upon adoption of the guidance on* January 1, 2023,the Company recognized an $827,000 reduction to retained earnings, after recording the related deferred tax asset adjustment at our effective tax rate. The Company andb1BANK* 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 didnot opt into the relief as the impact of adoption wasnot significant to the Company’s regulatory capital.
The adoption of this guidance didnot have a material impact on the Company’s available-for-sale securities as most of this portfolio consists of U.S. treasury and agency securities as well as highly rated residential agency mortgage-backed, corporate, and municipal securities. However, any subsequent estimated credit losses are required to be recognized through an allowance for credit losses associated with the applicable securities.
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The Company also adopted ASU2022-02, Financial Instruments–* Credit Losses (Topic326),* Troubled Debt Restructurings and Vintage Disclosures on* January 1, 2023.The standard modifies the criteria for identification of troubled debt restructurings as well as enhancing disclosure requirements. Additionally, the guidance requires vintage table disclosures and presentation of gross write-offs during the current period by year of origination for financing receivables within scope of the standard. The implementation of the standard didnot* have a material impact of the identification of troubled debt restructurings and the vintage and charge-off disclosures have been presented in the footnotes below.
Accounting StandardsNot Yet Adopted
ASUNo.* 2023-09, “Income Taxes (Topic740): Improvements to Income Tax Disclosures.” ASU2023*-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. ASU2023-09 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. ASU2023-09 is effective for the Company starting* January 1, 2025,though early adoption is permitted. ASU2023*-09 isnot expected to have a significant impact on our financial statements.
Note2 – Reclassifications–
Certain reclassifications* mayhave been made to the prior years’ financial statements in order to conform to the classifications adopted for reporting in2023.*
Specifically for the adoption of CECL, prior to* January 1, 2023,the allowance for credit losses was established based on an incurred loss model. Upon adoption of ASU2016*-13 (i.e. ASC326), certain loan classification and segmentation categories were changed to align with the requirements of the standard and more effectively model the CECL estimate. The updated CECL segmentation is reflected in the disclosures beginning* January 1, 2023.Results from periods prior to January 1, 2023*are presented using the previously applicable GAAP.
These reclassifications haveno material effect on previously reported shareholders’ equity or net income.
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Note3 – 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 intob1BANK.* Pursuant to the terms of the Reorganization Agreement, upon consummation of the Merger, the Company issued 2,069,532 shares of its common stock to the former shareholders of TCBI. At* February 28, 2022,*TCBI reported $534.2 million in total assets, $349.5 million in loans and $477.2 million in deposits.
The following table reflects the consideration paid for TCBI’s net assets and the identifiable assets purchased and liabilities assumed at their fair values as of* March 1, 2022.*
| Cost and Allocation of Purchase Price for Texas Citizens Bancorp, Inc. (TCBI): | |
|---|---|
| (Dollars in thousands, except per share data) | |
| Purchase Price: | |
| Shares Issued to TCBI's Shareholders on March 1, 2022 | 2,069,532 |
| Closing Stock Price on February 28, 2022 | $26.19 |
| Total Stock Issued | $54,201 |
| Other Consideration, Including Equity Awards | 842 |
| Total Purchase Price | $55,043 |
| Net Assets Acquired: | |
| Cash and Cash Equivalents | $163,460 |
| Securities Available for Sale | 370 |
| Loans and Leases Receivable | 338,027 |
| Premises and Equipment, Net | 2,776 |
| Cash Value of Life Insurance | 12,146 |
| Core Deposit Intangible | 3,875 |
| Other Assets | 14,731 |
| Total Assets | 535,385 |
| Deposits | 477,277 |
| Borrowings | 30,708 |
| Other Liabilities | 1,006 |
| Total Liabilities | 508,991 |
| Net Assets Acquired | 26,394 |
| Goodwill Resulting from Merger | $28,649 |
The Company has recorded approximately $236,000 and $5.2 million of acquisition-related costs within merger and conversion-related expenses and salaries and benefits for the years ended* December 31, 2023and2022,* 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.
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Securities Available for Sale: Fair values for securities were based on quoted market prices, where available. If quoted market prices werenot available, fair value estimates were based on observable inputs including quoted market prices for similar instruments, quoted market prices that werenot 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, butnot 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 didnot 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, throughb1BANK,* 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 Note11,* 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.
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Note4 – 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* maybe 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 thetwo*-class method.
| Years Ended December 31, | |||
|---|---|---|---|
| 2023 | 2022 | 2021 | |
| (Dollars in thousands, except per share data) | |||
| Numerator: | |||
| Net Income | $71,043 | $54,255 | $52,136 |
| Less: Preferred Stock Dividends | 5,401 | 1,350 | - |
| Net Income Available to Common Shares | $65,642 | $52,905 | $52,136 |
| Denominator: | |||
| Weighted Average Common Shares Outstanding | 25,079,106 | 22,633,478 | 20,502,249 |
| Dilutive Effect of Stock Options and Restricted Stock Awards | 217,094 | 184,015 | 132,032 |
| Weighted Average Dilutive Common Shares | 25,296,200 | 22,817,493 | 20,634,281 |
| Basic Earnings Per Common Share From Net Income Available to Common Shares | $2.62 | $2.34 | $2.54 |
| Diluted Earnings Per Common Share From Net Income Available to Common Shares | $2.59 | $2.32 | $2.53 |
Note5 – Cash and Due From Bank–
The Bank is required to maintain funds in cash or on deposit with the Federal Reserve Bank. The Bank hadno required reserves as of* December 31, 2023and2022.*
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Note6 – Securities–** **
The amortized cost and fair values of securities available for sale as of* December 31, 2023and2022* are summarized as follows:
| (Dollars in thousands) | |||||
|---|---|---|---|---|---|
| Gross · Gross | |||||
| Amortized · Unrealized · Unrealized · Fair | |||||
| Cost · Gains · Losses · Value | |||||
| U.S. Treasury Securities | $17,690 | $ | - | $1,451 | $16,239 |
| U.S. Government Agencies | 10,258 | - | 848 | 9,410 | |
| Corporate Securities | 49,609 | - | 5,770 | 43,839 | |
| Mortgage-Backed Securities | 555,148 | 976 | 49,814 | 506,310 | |
| Municipal Securities | 331,273 | 298 | 27,798 | 303,773 | |
| Total Securities Available for Sale | $963,978 | $1,274 | $85,681 | $879,571 | |
| (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 | |
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The following tables present a summary of securities with gross unrealized losses and fair values at* December 31, 2023and2022,* 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.
| 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 | $ | - | $ | - | $16,239 | $1,451 | $16,239 | $1,451 |
| U.S. Government Agencies | - | - | 9,410 | 848 | 9,410 | 848 | ||
| Corporate Securities | 7,529 | 362 | 36,106 | 5,408 | 43,635 | 5,770 | ||
| Mortgage-Backed Securities | 21,436 | 895 | 375,891 | 48,919 | 397,327 | 49,814 | ||
| Municipal Securities | 8,013 | 63 | 270,467 | 27,735 | 278,480 | 27,798 | ||
| Total Securities Available for Sale | $36,978 | $1,320 | $708,113 | $84,361 | $745,091 | $85,681 | ||
| 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 |
As of* December**31,* 2023, no allowance for credit losses was recognized on available for sale securities in an unrealized loss position as management doesnot 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 doesnot have the intent to sell any of the securities and believes that it is more likely thannot that the Company willnot 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.
For the period ended* December 31, 2022,management evaluated securities for other than temporary impairment. Consideration was given to the extent and length of time the fair value had been below cost, the reasons for the decline in value, and the Company’s intent to sell a security or whether it was more likely thannot* that the Company would be required to sell the security before the recovery of its amortized cost. The Company utilized a process to identify securities that could potentially have a credit impairment that was other than temporary. The process involved 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. The Company determinedno other than temporary impairment existed at* December 31, 2022.*
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The amortized cost and fair values of securities available for sale as of* December 31, 2023by contractual maturity are shown below. Actual maturities maydiffer 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 | $17,287 | $17,126 |
| One to Five Years | 181,791 | 171,117 |
| Over Five to Ten Years | 384,160 | 349,660 |
| Over Ten Years | 380,740 | 341,668 |
| Total Securities Available for Sale | $963,978 | $879,571 |
Securities available for sale with a fair value of $629.7 million and $482.7 million, respectively, were pledged as collateral on public deposits and for other purposes as required or permitted by law as of* December 31, 2023and2022.*
At* December 31, 2023and2022,* accrued interest receivable on securities was $4.7 million and $4.4 million, respectively, and is included within accrued interest receivable on the consolidated balance sheets.
There were $9,000 and $593,000 realized gross gains from sales or redemptions of securities for the years ended* December 31, 2022and2021,* respectively, andnone for the year ended* December 31, 2023.There were $2.6 million, $57,000 and $215,000 realized gross losses from sales or redemptions of securities for the years ended December 31, 2023,*2022 and2021, respectively.
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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 $14.8 million and $19.7 million, respectively, at* December 31, 2023and2022.* The Federal Home Loan Bank stock is pledged to secure advances from the Federal Home Loan Bank of Dallas at both* December 31, 2023and2022.* The Company also has investments of $302,000 in TIB National Association, $562,000 in Bankers Insurance, LLC, and $2.2 million in First National Banker’s Bank at both* December 31, 2023and2022.* The Company also had an investment in Senior Housing Crime Prevention Foundation stock of $501,000 at* December 31, 2022.*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 donot 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 isnot the primary beneficiary and doesnot hold a controlling interest in the VIEs as it doesnot 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, 2023and2022* are summarized below.
| December 31, | ||
|---|---|---|
| 2023 | 2022 | |
| (Dollars in thousands) | ||
| McLarty Capital Partners SBIC, L.P. | $457 | $878 |
| McLarty Capital Partners SBIC II, L.P. | 2,520 | 2,437 |
| Firmament Capital Partners SBIC III, L.P. | 1,870 | 1,787 |
| Firmament Capital Partners SBIC IV, L.P. | 493 | - |
| Bluehenge Capital Secured Debt SBIC, L.P. | 3,220 | 3,934 |
| Bluehenge Capital Secured Debt SBIC II, L.P. | 1,146 | 296 |
| New Louisiana Agnel Fund 2, LLC | 49 | 49 |
| Pharos Capital Partners IV-A, L.P. | 457 | 356 |
| Valesco Fund II, LP | 1,227 | 1,147 |
| Valesco Fund III, LP | 37 | - |
| GP Capital Partners, LP | 624 | 277 |
| BankTech Ventures, LP | 284 | 77 |
| Jam Fintop BankTech, LP | 531 | 340 |
| Ledyard Capital Managers, LLC | 769 | 928 |
| Mendon Ventures Banktech Fund I, LP | 1,308 | 896 |
| Castle Creek Launchpad Fund I, LP | 607 | 211 |
| Work America Capital Fund I, LP | 425 | 629 |
| $16,024 | $14,242 | |
100
Note7 – Loans and the Allowance for Loan Losses–** **
Loans receivable at* December 31, 2023and2022* are summarized as follows:
| December 31, | ||
|---|---|---|
| 2023 | 2022 | |
| (Dollars in thousands) | ||
| Real estate loans: | ||
| Commercial | $2,217,928 | $2,020,406 |
| Construction | 669,798 | 722,074 |
| Residential | 682,394 | 656,378 |
| Total real estate loans | 3,570,120 | 3,398,858 |
| Commercial | 1,358,838 | 1,153,873 |
| Consumer and other | 63,827 | 53,445 |
| Total loans held for investment | 4,992,785 | 4,606,176 |
| Less: | ||
| Allowance for loan losses | (40,414) | (38,178) |
| Net loans | $4,952,371 | $4,567,998 |
The performing1-4 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, 2023and2022.* Commercial and agricultural loans are pledged against the Federal Reserve Banks’ discount window as of* December 31, 2023.*
Net deferred loan origination fees were $12.6 million and $13.1 million at* December 31, 2023and2022,* 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, 2023and2022,* overdrafts of $2.2 million and $2.0 million, respectively, have been reclassified to loans.
The Bank is the lead lender on participations sold, without recourse, to other financial institutions which amounts arenot included in the consolidated balance sheets. The unpaid principal balances of mortgages and other loans serviced for others were approximately $723.5 million and $683.3 million at* December 31, 2023and2022,* respectively. The Company has servicing rights of $1.1 million and $1.7 million recorded at* December 31, 2023and2022,* 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 credit losses. The portfolio segments are segregated based on loan types and the underlying risk factors present in each loan type. Such risk factors are periodically reviewed by management and revised as deemed appropriate.
Portfolio Segments and Risk Factors
The loan portfolio is disaggregated into portfolio segments and then further disaggregated into classes for certain disclosures. GAAP defines a portfolio segment as the level at which an entity develops and documents a systematic method for determining its allowance for credit losses. A class is generally a disaggregation of a portfolio segment. The Company's loan portfolio segments are Real Estate, Commercial, and Consumer and Other. The classes and risk characteristics of each segment are discussed in more detail below. The segmentation and disaggregation of the portfolio is part of the ongoing credit monitoring process.
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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 includefirst andsecond lien1-4 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* maybe influenced by eventsnot* 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.
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The following table sets forth, as of* 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 isnot* necessarily indicative of future losses in any particular portfolio segment and doesnot restrict the use of the allowance to absorb losses in other portfolio segments.
Allowance for Credit Losses and Recorded Investment in Loans Receivable
| (Dollars in thousands) | ||||||
|---|---|---|---|---|---|---|
| Real Estate: · Real Estate: · Real Estate: · Consumer | ||||||
| Commercial | Construction | Residential | Commercial | and Other | Total | |
| Allowance for Loan Losses: | ||||||
| Beginning Balance | $14,702 | $5,768 | $5,354 | $11,721 | $633 | $38,178 |
| Adoption of ASU 2016-13 | 4,823 | 933 | (365) | (2,483) | (248) | 2,660 |
| Beginning Balance After Adoption | 19,525 | 6,701 | 4,989 | 9,238 | 385 | 40,838 |
| Charge-offs | (2,049) | (36) | (42) | (2,813) | (1,489) | (6,429) |
| Recoveries | 26 | 1 | 18 | 672 | 327 | 1,044 |
| Provision (Recovery) | 174 | (70) | 520 | 3,327 | 1,010 | 4,961 |
| Ending Balance | $17,676 | $6,596 | $5,485 | $10,424 | $233 | $40,414 |
| Reserve for Unfunded Credit Commitments: | ||||||
| Beginning Balance | $220 | $137 | $13 | $229 | $6 | $605 |
| Adoption of ASU 2016-13 | 116 | 2,113 | 190 | 657 | 121 | 3,197 |
| Beginning Balance After Adoption | 336 | 2,250 | 203 | 886 | 127 | 3,802 |
| Provision (Recovery) | (130) | (704) | (26) | 486 | (104) | (478) |
| Ending Balance | $206 | $1,546 | $177 | $1,372 | $23 | $3,324 |
| Total Allowance for Credit Losses | $17,882 | $8,142 | $5,662 | $11,796 | $256 | $43,738 |
Included within the above allowance 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.
| December 31, 2023 · January 1, 2023 | |||||
|---|---|---|---|---|---|
| Loan Balance · Specific Allocations · Loan Balance · Specific Allocations | |||||
| (Dollars in thousands) | |||||
| Real estate loans: | |||||
| Commercial | $883 | $ | - | $3,008 | $1,915 |
| Construction | 2,334 | 513 | 1,424 | 513 | |
| Residential | 1,533 | - | 1,558 | 3 | |
| Total real estate loans | 4,750 | 513 | 5,990 | 2,431 | |
| Commercial | - | - | 6,096 | 1,779 | |
| Consumer and other | - | - | - | - | |
| Total | $4,750 | $513 | $12,086 | $4,210 | |
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The following table sets forth, as of* December 31, 2022 (prior to the adoption of ASU2016*-13), the balance of the allowance for credit losses by portfolio segment, disaggregated by impairment methodology, which is then further segregated by amounts evaluated for impairment collectively and individually. The allowance for credit losses allocated to each portfolio segment isnot necessarily indicative of future losses in any particular portfolio segment and doesnot restrict the use of the allowance to absorb losses in other portfolio segments.
| (Dollars in thousands) | ||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Real Estate: · Real Estate: · Real Estate: · Consumer | ||||||||||||
| Commercial · Construction · Residential · Commercial · and Other · Total | ||||||||||||
| Allowance for Loan Losses: | ||||||||||||
| Beginning Balance | $10,515 | $4,498 | $4,565 | $9,016 | $518 | $29,112 | ||||||
| Charge-offs | (51) | (16) | (191) | (2,139) | (424) | (2,821) | ||||||
| Recoveries | 50 | 25 | 20 | 739 | 167 | 1,001 | ||||||
| Provision | 4,188 | 1,261 | 960 | 4,105 | 372 | 10,886 | ||||||
| Ending Balance | $14,702 | $5,768 | $5,354 | $11,721 | $633 | $38,178 | ||||||
| Ending Balance: | ||||||||||||
| Individually Evaluated for Impairment | $59 | $21 | $99 | $2,020 | $15 | $2,214 | ||||||
| Collectively Evaluated for Impairment | $14,643 | $5,747 | $5,255 | $9,701 | $618 | $35,964 | ||||||
| Purchased Credit Impaired | $ | - | $ | - | $ | - | $ | - | $ | - | $ | - |
| Loans Receivable: | ||||||||||||
| Ending Balance | $2,020,406 | $722,074 | $656,378 | $1,153,873 | $53,445 | $4,606,176 | ||||||
| Ending Balance: | ||||||||||||
| Individually Evaluated for Impairment | $3,053 | $992 | $4,028 | $6,442 | $192 | $14,707 | ||||||
| Collectively Evaluated for Impairment | $1,989,831 | $720,129 | $637,195 | $1,141,957 | $52,570 | $4,541,682 | ||||||
| Purchased Credit Impaired | $27,522 | $953 | $15,155 | $5,474 | $683 | $49,787 | ||||||
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 of10 to80. 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 of60, 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 of70 or higher, a special assets officer monitors the loan on an on-going basis.
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The following table sets forth the credit quality indicators, disaggregated by loan segment, as of* 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 2022 | 751,649 | 1,909 | - | - | - | 753,558 | - | |||||
| Originated in 2021 | 427,269 | 6,103 | 492 | - | - | 433,864 | 357 | |||||
| Originated in 2020 | 151,848 | 3,551 | 8 | - | - | 155,407 | - | |||||
| Originated in 2019 | 149,946 | 5,556 | 372 | 932 | - | 156,806 | 1,447 | |||||
| Originated Prior to 2019 | 379,503 | 1,313 | 7,970 | 335 | - | 389,121 | 245 | |||||
| Revolving | 99,723 | 226 | 237 | - | - | 100,186 | - | |||||
| Revolving Loans Converted to Term | - | - | - | - | - | - | - | |||||
| Total Real Estate: Commercial | $2,188,840 | $18,658 | $9,163 | $1,267 | $ | - | $2,217,928 | $2,049 | ||||
| Real Estate: Construction | ||||||||||||
| Originated in 2023 | $131,617 | $ | - | $ | - | $ | - | $ | - | $131,617 | $ | - |
| Originated in 2022 | 322,032 | 647 | 62 | - | - | 322,741 | - | |||||
| Originated in 2021 | 85,438 | 2,601 | 1,229 | - | - | 89,268 | - | |||||
| Originated in 2020 | 22,515 | 31 | 16 | - | - | 22,562 | - | |||||
| Originated in 2019 | 19,402 | - | 1,675 | - | - | 21,077 | 1 | |||||
| Originated Prior to 2019 | 20,180 | 413 | 588 | 345 | - | 21,526 | 35 | |||||
| Revolving | 60,612 | 395 | - | - | - | 61,007 | - | |||||
| Revolving Loans Converted to Term | - | - | - | - | - | - | - | |||||
| Total Real Estate: Construction | $661,796 | $4,087 | $3,570 | $345 | $ | - | $669,798 | $36 | ||||
| Real Estate: Residential | ||||||||||||
| Originated in 2023 | $76,662 | $ | - | $ | - | $ | - | $ | - | $76,662 | $ | - |
| Originated in 2022 | 170,229 | 433 | 410 | 14 | - | 171,086 | - | |||||
| Originated in 2021 | 98,329 | - | 708 | - | - | 99,037 | 11 | |||||
| Originated in 2020 | 68,281 | 386 | 520 | 57 | - | 69,244 | 1 | |||||
| Originated in 2019 | 54,902 | 1,112 | 1,061 | 119 | - | 57,194 | 22 | |||||
| Originated Prior to 2019 | 97,716 | 1,230 | 6,000 | 299 | - | 105,245 | 7 | |||||
| Revolving | 103,252 | - | 654 | - | - | 103,906 | 1 | |||||
| Revolving Loans Converted to Term | 20 | - | - | - | - | 20 | - | |||||
| Total Real Estate: Residential | $669,391 | $3,161 | $9,353 | $489 | $ | - | $682,394 | $42 | ||||
| Commercial | ||||||||||||
| Originated in 2023 | $303,160 | $1,439 | $709 | $ | - | $ | - | $305,308 | $ | - | ||
| Originated in 2022 | 267,678 | 698 | 1,196 | - | - | 269,572 | 247 | |||||
| Originated in 2021 | 136,291 | 5,483 | 928 | 16 | - | 142,718 | 25 | |||||
| Originated in 2020 | 48,990 | 448 | 921 | 42 | - | 50,401 | 49 | |||||
| Originated in 2019 | 21,137 | 584 | 640 | 231 | - | 22,592 | 1,632 | |||||
| Originated Prior to 2019 | 61,166 | 3,843 | 341 | 251 | - | 65,601 | 658 | |||||
| Revolving | 499,642 | 2,128 | 573 | 28 | - | 502,371 | 202 | |||||
| Revolving Loans Converted to Term | 275 | - | - | - | - | 275 | - | |||||
| Total Commercial | $1,338,339 | $14,623 | $5,308 | $568 | $ | - | $1,358,838 | $2,813 | ||||
| Consumer and Other | ||||||||||||
| Originated in 2023 | $11,245 | $ | - | $ | - | $ | - | $ | - | $11,245 | $8 | |
| Originated in 2022 | 7,219 | - | 27 | - | - | 7,246 | 78 | |||||
| Originated in 2021 | 3,372 | - | 55 | - | - | 3,427 | 29 | |||||
| Originated in 2020 | 1,850 | - | 88 | - | - | 1,938 | 11 | |||||
| Originated in 2019 | 2,359 | - | 40 | - | - | 2,399 | 18 | |||||
| Originated Prior to 2019 | 18,280 | - | 92 | - | - | 18,372 | 61 | |||||
| Revolving | 18,814 | 100 | 160 | - | - | 19,074 | 1,284 | |||||
| Revolving Loans Converted to Term | 126 | - | - | - | - | 126 | - | |||||
| Total Consumer and Other | $63,265 | $100 | $462 | $ | - | $ | - | $63,827 | $1,489 | |||
| Total Loans | $4,921,631 | $40,629 | $27,856 | $2,669 | $ | - | $4,992,785 | $6,429 | ||||
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The following table sets forth the credit quality indicators, disaggregated by loan segment, as of* December 31, 2022 (prior to the adoption of ASU2016*-13):
| Pass (Risk Grade 10-45) | Special Mention (Risk Grade 50) | Substandard (Risk Grade 60) | Doubtful (Risk Grade 70) | Total | |
|---|---|---|---|---|---|
| (Dollars in thousands) | |||||
| Real Estate Loans: | |||||
| Commercial | $1,972,611 | $35,054 | $10,478 | $2,263 | $2,020,406 |
| Construction | 716,071 | 3,496 | 2,157 | 350 | 722,074 |
| Residential | 643,763 | 3,780 | 7,925 | 910 | 656,378 |
| Total Real Estate Loans | 3,332,445 | 42,330 | 20,560 | 3,523 | 3,398,858 |
| Commercial | 1,137,555 | 6,646 | 6,960 | 2,712 | 1,153,873 |
| Consumer and Other | 53,041 | - | 404 | - | 53,445 |
| Total | $4,523,041 | $48,976 | $27,924 | $6,235 | $4,606,176 |
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, 2023and2022,* loan balances outstanding more than90 days past due and still accruing interest amounted to $127,000 and $335,000, respectively. As of* December 31, 2023and2022,* loan balances outstanding on nonaccrual status amounted to $16.9 million and $11.1 million, respectively. The Bank considers all loans more than90 days past due as nonperforming loans.
The following tables provide an analysis of the aging of loans and leases as of* December 31, 2023and December**31,* 2022. For the year ended* December 31, 2022,past due and nonaccrual loan amounts exclude acquired impaired loans, even if contractually past due or if the Company doesnot* expect to receive payment in full, as prior to the adoption of CECL, the Company accreted interest income over the expected life of the loans. With the adoption of CECL and deconstruction of acquired impaired accounting, those amounts areno longer excluded for the period ended* December 31, 2023.All loans greater than90* days past due are generally placed on nonaccrual status.
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Aged Analysis of Past Due Loans Receivable
| (Dollars in thousands) | |||||||
|---|---|---|---|---|---|---|---|
| 30-59 Days Past Due | 60-89 Days Past Due | Greater Than 90 Days Past Due | Total Past Due | Current | Total Loans Receivable | Recorded Investment Over 90 Days Past Due and Still Accruing | |
| Real Estate Loans: | |||||||
| Commercial | $240 | $536 | $2,954 | $3,730 | $2,214,198 | $2,217,928 | $44 |
| Construction | 279 | 1,320 | 3,198 | 4,797 | 665,001 | 669,798 | - |
| Residential | 1,792 | 1,207 | 4,058 | 7,057 | 675,337 | 682,394 | 20 |
| Total Real Estate Loans | 2,311 | 3,063 | 10,210 | 15,584 | 3,554,536 | 3,570,120 | 64 |
| Commercial | 1,101 | 71 | 1,622 | 2,794 | 1,356,044 | 1,358,838 | 52 |
| Consumer and Other | 280 | 252 | 188 | 720 | 63,107 | 63,827 | 11 |
| Total | $3,692 | $3,386 | $12,020 | $19,098 | $4,973,687 | $4,992,785 | $127 |
| (Dollars in thousands) | |||||||
|---|---|---|---|---|---|---|---|
| 30-59 Days Past Due | 60-89 Days Past Due | Greater Than 90 Days Past Due | Total Past Due | Current | Total Loans Receivable | Recorded Investment Over 90 Days Past Due and Still Accruing | |
| Real Estate Loans: | |||||||
| Commercial | $1,491 | $210 | $1,681 | $3,382 | $2,017,024 | $2,020,406 | $98 |
| Construction | 320 | 41 | 638 | 999 | 721,075 | 722,074 | - |
| Residential | 1,590 | 423 | 1,781 | 3,794 | 652,584 | 656,378 | - |
| Total Real Estate Loans | 3,401 | 674 | 4,100 | 8,175 | 3,390,683 | 3,398,858 | 98 |
| Commercial | 1,183 | 1,934 | 2,186 | 5,303 | 1,148,570 | 1,153,873 | 222 |
| Consumer and Other | 295 | 28 | 182 | 505 | 52,940 | 53,445 | 15 |
| Total | $4,879 | $2,636 | $6,468 | $13,983 | $4,592,193 | $4,606,176 | $335 |
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, 2023and2022,* the concessions granted to certain borrowers included extending the payment due dates and offering below market contractual interest rates, and werenot significant to the consolidated financial statements.
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Upon adoption of ASU2016-13, the Company eliminated the pooling of purchased impaired credit loans. As a result, $7.0 million of purchased credit deterioration loans were recognized as non-accrual loans as of* January 1, 2023.The following table presents non-accrual loans by segment as of December 31, 2023,** January 1, 2023,and December 31, 2022,*respectively.
| December 31, | January 1, | December 31, | |
|---|---|---|---|
| 2023 | 2023 | 2022 | |
| (Dollars in thousands) | |||
| Real Estate Loans: | |||
| Commercial | $3,280 | $5,847 | $2,644 |
| Construction | 3,543 | 2,421 | 992 |
| Residential | 7,352 | 6,518 | 4,080 |
| Total Real Estate Loans | 14,175 | 14,786 | 7,716 |
| Commercial | 2,395 | 3,045 | 3,150 |
| Consumer and Other | 373 | 257 | 188 |
| Total | $16,943 | $18,088 | $11,054 |
Accrued interest receivable of $4.2 million and $5.4 million was outstanding as of* December 31, 2023,and December 31, 2022,respectively, for all loan deferrals, primarily attributable to the COVID-19 pandemic and, to a much lesser extent, hurricanes which occurred in2020* and2021. These loans areno longer within their deferral periods. The accrued interest on the loans is due at their maturity.
At* December 31, 2023and December 31, 2022,*accrued interest receivable on loans was $25.2 million and $21.2 million, respectively, and included within accrued interest receivable on the consolidated balance sheets.
Note8 – Premises and Equipment–
Bank premises and equipment at* December 31, 2023and2022* consist of the following:
| 2023 | 2022 | |
|---|---|---|
| (Dollars in thousands) | ||
| Land | $7,545 | $7,831 |
| Buildings and Leasehold Improvements | 56,513 | 52,167 |
| Furniture and Equipment | 35,252 | 33,913 |
| Right of Use Asset | 20,836 | 17,477 |
| Total Bank Premises and Equipment | 120,146 | 111,388 |
| Less: Accumulated Depreciation | (50,666) | (48,211) |
| Total Bank Premises and Equipment, net | $69,480 | $63,177 |
The provision for depreciation and amortization attributable to bank premises and equipment charged to operating expenses was $4.7 million, $4.8 million and $4.2 million for the years ended* December 31, 2023,*2022 and2021, respectively.
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Note9 - Goodwill and Other Intangible Assets–** **
Goodwill was recorded as a result of acquisitions. The carrying amount of goodwill as of* December 31, 2023and2022* was $88.4 million and $88.5 million, respectively. In2023, goodwill was reduced by $153,000 due to the sale of the Leesville branch. In2022, the increase of $28.6 million in goodwill was the result of the acquisition of TCBI. The Company performed the required annual goodwill impairment test as of* October 1, 2023.The Company’s annual test didnot indicate any impairment as of the testing date. Following the testing date, management determinedno* triggering event had occurred though* December 31, 2023.*
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, 2023and2022* is as follows:
| 2023 | 2022 | |
|---|---|---|
| (Dollars in thousands) | ||
| Gross Carrying Amount | $21,100 | $17,225 |
| Adjustment for Sale of Branch | (50) | - |
| Acquired in TCBI Acquisition | - | 3,875 |
| Less: Accumulated Amortization | (9,155) | (7,058) |
| Net Carrying Amount | $11,895 | $14,042 |
Amortization expense on the core deposit and customer intangible assets totaled approximately $2.1 million, $2.0 million and $1.6 million during the years ended* December 31, 2023,*2022 and2021, respectively. The following table presents the estimated aggregate amortization expense for the periods indicated:
| December 31, | |
|---|---|
| (Dollars in thousands) | |
| 2024 | $2,093 |
| 2025 | 1,885 |
| 2026 | 1,816 |
| 2027 | 1,816 |
| 2028 | 1,539 |
| Thereafter | 2,746 |
| Total Core Deposit and Customer Intangible | $11,895 |
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Note10 – Deposits–
Deposit accounts at* December 31, 2023and2022* are summarized as follows:
| 2023 | 2022 | |
|---|---|---|
| (Dollars in thousands) | ||
| Noninterest Bearing - DDA | $1,299,090 | $1,549,381 |
| Noninterest Bearing Deposits | 1,299,090 | 1,549,381 |
| Interest Bearing - DDA | 502,077 | 455,117 |
| NOW and Super NOW Accounts | 496,845 | 579,789 |
| Money Market Accounts | 1,425,808 | 1,136,597 |
| Savings Accounts | 223,871 | 312,884 |
| Certificates of Deposit Over $250,000 | 623,336 | 279,781 |
| Other Certificates of Deposit | 677,763 | 506,796 |
| Interest Bearing Deposits | 3,949,700 | 3,270,964 |
| Total Deposits | $5,248,790 | $4,820,345 |
Approximately 79.0% of certificates of deposit as of* December 31, 2023have stated maturity dates during2024* and the remaining 21.0% have stated maturity dates during2025 and beyond.
At* December 31, 2023and2022,* total deposits for the topthree customer relationships was approximately $168.3 million and $168.9 million, respectively, which represented 3.2% and 3.5% of total deposits, respectively. Brokered and reciprocal deposits were approximately $1.0 billion and $550.2 million at* December 31, 2023and2022,* respectively. Included in these brokered and reciprocal deposits are public fund deposits of approximately $145.9 million and $131.9 million at* December 31, 2023and2022,* respectively. Other public fund deposits were approximately $511.6 million and $504.1 million at* December 31, 2023and2022,* respectively.
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Note11 – Borrowings–
The Bank had outstanding advances from the FHLB of $211.2 million and $410.1 million at* December 31, 2023and2022,* respectively, consisting of:
One fixed rate loan with an original principal balance of $60.0 million. The loan was made in2021 and the balance at* December 31, 2023and December 31, 2022was $35.3 million and $47.2 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* December 31, 2023,and 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 $25.0 million at* 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* 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* 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* 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* 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* 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* 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 $100.0 million at* December 31, 2022,with interest at 3.53% paid monthly. Principal is due at maturity in October 2027.This advance had put options beginning in October 2023and was paid off in October 2023.*
One short term, seven-day, fixed rate loan of $262.0 million at* December 31, 2022,with interest at 4.55%. Principal and interest was due, paid and renewed, at maturity in January 2023.This loan was rolled into the $230.0 million short term, overnight, fixed rate loan outstanding at March 31, 2023,which was paid off during thesecond* quarter of2023.
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, 2023*with unused availability for advances and letters of credit of approximately $1.2 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, 2023and2022* were $145.0 million and $154.0 million, respectively. The Company purchased $14.1 million on these lines at* December 31, 2022and wasnot in a purchased position on these lines at December 31, 2023.*
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 in2022* and didnot 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 wasnot* renewed, in* November, 2022.*
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On* March 12, 2023,the Federal Reserve launched the Bank Term Funding Program (“BTFP”), which offers loans to banks with a term of up toone year. The loans are secured by pledging the banks’ U.S. treasuries, agency securities, agency mortgage-backed securities, and any other qualifying assets. These pledged securities will be 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 bear a fixed interest rate of 4.38% and mature on March 22, 2024.*
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, 2028and a floating rate thereafter through maturity in2033.* The balance outstanding at both* December 31, 2023and2022* 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 Tier2 capital. The subordinated notes are redeemable by the Company at its option beginning in2028.
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 the3-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 to20 consecutive quarterly periods without resulting in a default. The trust preferred securities donot 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.
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, 2026and a floating rate, based on a benchmark rate plus 354 basis points, thereafter through maturity in2031.* 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* mayarise 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 in2026.*
On* April 1, 2021,the Company, throughb1BANK,* consummated the acquisition of SSW as discussed in Note3. 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, 2026and a floating rate, based on a benchmark rate plus 442 basis points, thereafter through maturity in2031.* The subordinated notes are redeemable by the Company at its option beginning in2026.
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,and was callable beginning April 11, 2023.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,and was callable beginning December 13, 2023.Thethird* 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, 2023by the Company and has been fully extinguished. The Company recognized a $1.5 million gain on the extinguishment of this debt during2023.* These notes carried an aggregate $1.1 million and $2.9 million fair value adjustment, respectively, as of* December 31, 2023and2022.*
Note12 – Securities Sold Under Agreements to Repurchase–** **
At* December 31, 2023and2022,* the Bank had sold various investment securities with an agreement to repurchase these securities at various times withinone 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 0.9% to 8.0% and maturity dates ranging from2025 to2041. The related liability to repurchase these securities was $18.9 million and $20.2 million at* December 31, 2023and2022,* respectively.
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Note13 – Income Taxes–
The consolidated provision (credit) for income taxes consists of the following at* December 31, 2023,*2022 and2021:
| 2023 | 2022 | 2021 | |
|---|---|---|---|
| (Dollars in thousands) | |||
| Provision for Current Taxes - Federal | $17,491 | $12,969 | $13,008 |
| Provision (Credit) for Deferred Taxes | 2,052 | 1,368 | (586) |
| Total Provision for Income Taxes | $19,543 | $14,337 | $12,422 |
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, 2023,*2022 and2021:
| 2023 | 2022 | 2021 | |
|---|---|---|---|
| (Dollars in thousands) | |||
| Federal Statutory Income Tax | $19,023 | $14,404 | $13,557 |
| Tax Exempt Income | (188) | (690) | (815) |
| Stock Based Compensation | 197 | 16 | (220) |
| Goodwill Write-off for Branch Sale | 32 | - | 35 |
| Other - Net | 479 | 607 | (135) |
| Total Provision for Income Taxes | $19,543 | $14,337 | $12,422 |
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:
| 2023 | 2022 | |
|---|---|---|
| (Dollars in thousands) | ||
| State NOL | $2,885 | $2,285 |
| State NOL Valuation Allowance | (2,885) | (2,285) |
| Net Operating Loss Carryforward | 583 | 1,700 |
| Unrealized Loss on Securities | 17,835 | 20,040 |
| Acquired Loans Fair Market Value Adjustment | 2,596 | 5,705 |
| Allowance for Loan Losses | 8,539 | 8,067 |
| Lease Liability | 4,472 | 3,731 |
| Deferred Compensation | 2,231 | 1,589 |
| Stock Awards | 1,277 | 1,135 |
| Other | 1,156 | 940 |
| Deferred Tax Assets | 38,689 | 42,907 |
| Right of Use Asset | 4,402 | 3,693 |
| Core Deposit Intangible | 2,513 | 2,967 |
| Depreciation | 2,409 | 2,512 |
| Acquired Securities Difference in Basis | 1,209 | 1,477 |
| Other | 833 | 1,064 |
| Deferred Tax Liabilities | 11,366 | 11,713 |
| Net Deferred Tax Asset | $27,323 | $31,194 |
The Company acquired certain deferred tax attributes and liabilities as a result of a merger during2015, 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* maydeduct against current taxable income each year. As of December 31, 2023the NOL carryforward was $28,737 and expires in 2033. The AMT credit carryforward was exhausted in2019.* Additionally, the Company acquired certain deferred tax attributes and liabilities as a result of the2022 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 than80% of taxable income in any year. As of* December 31, 2023,*the NOL and charitable contribution carryforward was $2.7 million to be carried forward indefinitely until utilized.
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Note14 – 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, 2023and2022:*
| 2023 | 2022 | |
|---|---|---|
| (Dollars in thousands) | ||
| Unrealized Gains (Losses) on AFS Investment Securities and Equity Method Investments: | ||
| Balance at Beginning of Year | $(74,204) | $(1,177) |
| Other Comprehensive Income (Loss) on AFS Investment Securities | ||
| Before Reclassifications - Net of Tax | 10,258 | (73,679) |
| Other Comprehensive Income (Loss) on Equity Method Investments - Net of Tax | (616) | 690 |
| Reclassification Adjustment for Gains (Losses) on Sale of AFS Investment Securities | ||
| Realized - Net of Tax | (2,023) | (38) |
| Other Comprehensive Income (Loss) | 7,619 | (73,027) |
| Balance at End of Year | $(66,585) | $(74,204) |
Note15 – 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 $0.50 per share and $0.48 per share for the years ended* December 31, 2023and2022,* respectively, based upon quarterly financial performance. The Company paid full quarterly preferred stock dividends totaling $75.00 per share for the year ended* December 31, 2023and, $18.75 per share for the year ended December 31, 2022,following issuance of the preferred stock on September 1, 2022.*
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 didnot* 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, 2021and2020,* respectively.
On* May 23, 2023,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, 2023.The stock repurchase program didnot* obligate the Company to repurchase any shares of its common stock. The Company didnot repurchase any shares under this plan.
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, withno* 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 thefirst five years following issuance and thereafter at a variable rate equal to the then current3-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 thefirst five years of issuance. The preferred stock is non-convertible and dividends equivalent to $75.00 per share and $18.75 per share were paid during the years ended* December 31, 2023and2022,* respectively.
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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 arenot 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, 2023and2022,* the Bank met all of the capital adequacy requirements to which it is subject.
As of* December 31, 2023and2022,* 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, 2023and2022,* each of the Company and the Bank was required to maintain minimum total capital, Tier1 capital, risk-based common equity Tier1, and Tier1 leverage ratios at the levels disclosed in the table below to be categorized as well capitalized. There areno conditions or events since the most recent notification that management believes have changed the prompt corrective action category.
The following is a summary of the Company’s (consolidated) and the Bank’s actual capital amounts and ratios at* December 31, 2023and2022.*
| Business First Bancshares, Inc. (Consolidated) | Actual | For Capital Adequacy Purposes | To Be Well Capitalized Under Prompt Corrective Action Provisions | |||
|---|---|---|---|---|---|---|
| Amount | Ratio | Amount | Ratio | Amount | Ratio | |
| (Dollars in thousands) | ||||||
| December 31, 2023: | ||||||
| Total Capital (to Risk-Weighted Assets) | $754,990 | 12.85% | $470,215 | 8.00% | $587,769 | 10.00% |
| Tier 1 Capital (to Risk-Weighted Assets) | 614,975 | 10.46% | 352,661 | 6.00% | 470,215 | 8.00% |
| Common Equity Tier 1 Capital (to Risk-Weighted Assets) | 538,045 | 9.15% | 264,496 | 4.50% | 382,050 | 6.50% |
| Tier 1 Leveraged Capital (to Average Assets) | 614,975 | 9.52% | 258,407 | 4.00% | 323,008 | 5.00% |
| December 31, 2022: | ||||||
| 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 | 6.50% |
| Tier 1 Leveraged Capital (to Average Assets) | 557,088 | 9.49% | 234,859 | 4.00% | 293,574 | 5.00% |
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| To Be Well | ||||||
|---|---|---|---|---|---|---|
| Capitalized Under | ||||||
| For Capital · Prompt Corrective | ||||||
| b1BANK | Actual | Adequacy Purposes | Action Provisions | |||
| Amount | Ratio | Amount | Ratio | Amount | Ratio | |
| (Dollars in thousands) | ||||||
| December 31, 2023: | ||||||
| Total Capital (to Risk-Weighted Assets) | $730,117 | 12.43% | $469,751 | 8.00% | $587,188 | 10.00% |
| Tier 1 Capital (to Risk-Weighted Assets) | 686,379 | 11.69% | 352,313 | 6.00% | 469,751 | 8.00% |
| Common Equity Tier 1 Capital (to Risk-Weighted Assets) | 686,379 | 11.69% | 264,235 | 4.50% | 381,672 | 6.50% |
| Tier 1 Leveraged Capital (to Average Assets) | 686,379 | 10.63% | 258,203 | 4.00% | 322,754 | 5.00% |
| December 31, 2022: | ||||||
| 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% |
Note16 – Stock Based Compensation–
Equity Incentive Plan
The Company previously granted options to its employees under its2006 Stock Option Plan which expired on* December 22, 2016.On June 29, 2017,the Company’s shareholders approved its2017* 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 maybe 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, 2023,*745,620 awards have been granted under the Plan and 298,288 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, 2023,2022 and2021, the Company issued shares of restricted stock which vest inthree equal installments over the requisite service period. For the years ended December 31, 2023,2022 and2021, respectively, the Company recognized $4.7 million, $4.3 million and $2.6 million in compensation costs related to restricted stock awards. At December 31, 2023,2022 and2021, respectively, unrecognized share-based compensation associated with these awards totaled $3.4 million, $3.7 million and $2.4 million. The $3.7 million of unrecognized share-based compensation at December 31, 2023*is expected to be recognized over a weighted average period of 2.0 years.
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The table below summarizes the restricted stock award activity for the period presented.
| Year Ended December 31, 2023 · Year Ended December 31, 2022 · Year Ended December 31, 2021 | ||||||
|---|---|---|---|---|---|---|
| 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 | 131,624 | $24.45 | 94,245 | $21.60 | 53,756 | $24.49 |
| Granted | 280,101 | 20.29 | 141,646 | 26.34 | 111,687 | 20.73 |
| Forfeited | (2,738) | 19.51 | (6,709) | 27.13 | (989) | 24.11 |
| Earned and Issued | (177,951) | 16.97 | (97,558) | 24.20 | (70,209) | 22.43 |
| Balance, at End of Period | 231,036 | $21.43 | 131,624 | $24.45 | 94,245 | $21.60 |
Stock Grants
During the years ended* December 31, 2022and2021,* the Company issued a total of 11,700 and 7,301 shares of common stock, respectively, to non-employee directors as compensation for their board service. There were 2,442 shares issued during the year ended* December 31, 2023to employees. The shares were issued with weighted average grant date fair values of $20.48 per shares for the year ended December 31, 2023,$23.08 per share for the year ended December 31, 2022,and $23.35 per share for the year ended December 31, 2021.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 an expense of $50,000 for the year ended December 31, 2023and director fees expense of $120,000 and $276,000 for the years ended December 31, 2022and2021,* respectively.
Stock Options
In2006, 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 exceedten years. The2006 Stock Option Plan expired on* December 22, 2016and the Company isno* longer permitted to issue additional stock options under this plan. However, the Company did grant 143,908 stock option awards under the2017 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, 2023.*
The following is an analysis of the activity related to the stock options:
| Years Ended December 31, | ||||||
|---|---|---|---|---|---|---|
| 2023 | 2022 | 2021 | ||||
| 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 | 130,924 | $18.59 | 113,547 | $17.06 | 385,300 | $14.67 |
| Granted | - | - | 143,908 | 22.01 | - | - |
| Exercised | (7,500) | 17.11 | (67,060) | 19.93 | (261,753) | 13.62 |
| Forfeited or Expired | (2,816) | 22.38 | (59,471) | 22.45 | (10,000) | 15.00 |
| Outstanding Options, at End of Period | 120,608 | $18.59 | 130,924 | $18.59 | 113,547 | $17.06 |
| Exercisable, at End of Period | 111,032 | $18.24 | 118,958 | $18.18 | 113,547 | $17.06 |
At* December 31, 2023,options for 111,032 shares at a weighted average exercise price of $18.24 were vested and exercisable. The aggregate intrinsic value of both exercisable and outstanding awards at December 31, 2023and2022* is $731,000 and $472,000 with a weighted average remaining contractual life of 1.9 years and 2.9 years, respectively.
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Note17 – Employee Benefit Plans–
Defined Contribution Plan
The Bank has a defined contribution plan qualified under Internal Revenue Code401(K) for those employees who meet the eligibility requirements. Contributions* maybe made by eligible employees subject to Internal Revenue Service limits. The Bank contributes a matching contribution up to 4% of wages which totaled $2.4 million, $2.3 million and $1.8 million and is included in salaries and employee benefits for the years ended December 31, 2023,*2022 and2021, 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, 2023and2022,* the Company had recorded accrued liabilities of $3.5 million and $3.0 million, respectively. The expense related to the deferred compensation agreements was $586,000, $507,000 and $408,000 for the years ended* December 31, 2023,*2022 and2021, respectively.
Note18 – Other Income and Expenses–
An analysis of Other Income is as follows for the years ended* December 31, 2023,*2022 and2021:
| 2023 | 2022 | 2021 | |
|---|---|---|---|
| (Dollars in thousands) | |||
| Debit Card and ATM Fee Income | $6,590 | $6,407 | $6,199 |
| Cash Value of Life Insurance Income | 2,247 | 1,931 | 1,396 |
| Fees and Brokerage Commissions | 7,247 | 6,964 | 5,015 |
| Pass-Through Income from SBIC Partnerships | 1,946 | 1,347 | 2,615 |
| Gain on Extinguishment of Debt | 1,458 | - | - |
| Gain on Sale of Branch | 945 | - | 492 |
| Swap Fee Income | 964 | - | - |
| Other | 6,134 | 3,863 | 2,757 |
| Total Other Income | $27,531 | $20,512 | $18,474 |
An analysis of Other Expenses is as follows for the years ended* December 31, 2023,*2022 and2021:
| 2023 | 2022 | 2021 | |
|---|---|---|---|
| (Dollars in thousands) | |||
| Advertising and Promotions | $4,628 | $3,949 | $2,712 |
| Communications | 2,290 | 2,561 | 1,976 |
| Ad Valorem Shares Tax | 3,160 | 3,400 | 2,499 |
| Data Processing Fees | 9,034 | 8,358 | 8,137 |
| Directors' Fees | 1,079 | 972 | 790 |
| Insurance | 2,028 | 1,655 | 1,091 |
| Legal and Professional Fees | 3,173 | 2,359 | 2,679 |
| Office Supplies and Printing | 1,215 | 1,159 | 1,131 |
| Regulatory Assessments | 4,119 | 3,124 | 2,440 |
| Taxes and Licenses | 299 | 61 | 120 |
| Merger and Conversion Costs | 236 | 4,808 | 515 |
| Other | 13,971 | 12,414 | 11,396 |
| Total Other Expenses | $45,232 | $44,820 | $35,486 |
Note19 – 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 arenot 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.
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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 and standby and commercial letters of credit of approximately $45.2 million at* December 31, 2023.As discussed in Note7,* we have a reserve for unfunded loan commitments of $3.3 million and $605,000 at* December 31, 2023and2022,* respectively.
Note20 – Concentrations of Credit–
The majority of the Bank’s business activities are with customers in the Bank’s market area, which consists primarily of Louisiana, 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 Note7. The Bank, as a matter of policy, doesnot 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 $2.0 billion and $1.8 billion, which accounted for 39.8% and 39.7% of total loans held for investment at* December 31, 2023and2022,* respectively. Additionally, the Bank had extended credit secured by construction and land development totaling approximately $669.8 million and $722.1 million, respectively; these loans represented 13.4% and 15.7% of total loans held for investment at* December 31, 2023and2022,* respectively.
The Bank maintains amounts on deposit and federal funds sold with correspondent banks which* may*periodically exceed the federally insured amount.
Note21 – 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 $5.6 million, $4.9 million and $2.8 million for the years ended* December 31, 2023,2022 and2021, respectively. The Company had a weighted average lease term of 6.5 years and 6.0 years and a weighted average discount rate of 3.24% and 2.63% as of December 31, 2023and2022,* respectively.
Future minimum lease payments under these leases are as follows:
| December 31, | |
|---|---|
| (Dollars in thousands) | |
| 2024 | $4,429 |
| 2025 | 3,693 |
| 2026 | 3,473 |
| 2027 | 3,362 |
| 2028 | 3,064 |
| 2029 and Thereafter | 5,617 |
| Total Future Minimum Lease Payments | 23,638 |
| Less Imputed Interest | (2,474) |
| Present Value of Lease Liabilities | $21,164 |
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Note22 – Commitments–
SBIC Capital Commitment
The SBIC is a program initiated by the U.S. Small Business Administration ("SBA") in1958 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 thefirst 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 III”), Firmament Capital Partners SBIC IV, L.P. (“Firmament IV”), Bluehenge Capital Secured Debt SBIC, L.P. (“Bluehenge”), Bluehenge Capital Secured Debt SBIC II, L.P. (“Bluehenge II”), New Louisiana Angel Fund2, 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 II”), Valesco Fund III, LP (“Valesco III”), and GP Capital Partners, LP (“GP Capital”). Details of these commitments at* December 31, 2023*are below.
| Total Capital Commitment | Capital Called | Remaining Unfunded Capital Commitment | |
|---|---|---|---|
| McLarty | $2,000 | $1,802 | $198 |
| McLarty II | 2,500 | 2,222 | 278 |
| Firmament III | 2,500 | 1,873 | 627 |
| Firmament IV | 2,500 | 517 | 1,983 |
| Bluehenge | 2,500 | 2,312 | 188 |
| Bluehenge II | 2,500 | 1,188 | 1,312 |
| New Louisiana | 50 | 50 | - |
| Pharos | 1,000 | 495 | 505 |
| Valesco II | 1,000 | 795 | 205 |
| Valesco III | 2,000 | 119 | 1,881 |
| GP Capital | 1,000 | 636 | 364 |
| $19,550 | $12,009 | $7,541 |
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, 2023*are below.
| Total Capital Commitment | Capital Called | Remaining Unfunded Capital Commitment | |
|---|---|---|---|
| BankTech Ventures, LP | $500 | $235 | $265 |
| Jam Fintop BankTech, LP | 1,000 | 508 | 492 |
| Ledyard Capital Managers, LLC | 1,000 | 1,000 | - |
| Mendon Ventures Banktech Fund I, LP | 1,500 | 1,355 | 145 |
| Castle Creek Launchpad Fund I, LP | 1,500 | 682 | 818 |
| Work America Capital Fund I, LP | 700 | 700 | - |
| $6,200 | $4,480 | $1,720 |
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Federal Home Loan Bank Letters of Credit
The Bank had outstanding letters of credit on behalf of others from the FHLB of $301.7 million and $173.7 million at* December 31, 2023and2022,* respectively. The outstanding letters of credit as of* December 31, 2023*are as follows:
Twelve letters of credit totaling $93.2 million expire in* January 2024.*
Four letters of credit totaling $162.7 million expire in* February 2024.*
One letter of credit of $403,000 expires in* March 2024.*
Eleven letters of credit totaling $28.9 million expire in* April 2024.*
Nine letters of credit totaling $7.1 million expire in* May 2024.*
Two letters of credit totaling $4.6 million expire in* June 2024.*
Two letters of credit totaling $3.4 million expire in* August 2024.*
One letter of credit of $251,000 expires in* September 2024.*
Two letters of credit totaling $675,000 expire in* November 2024.*
One letter of credit of $329,000 expires in* December 2024.*
Note23 – 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 $19.5 million and $66.8 million at* December 31, 2023and2022,* respectively.
Related party deposits totaled $51.2 million and $58.0 million as of* December 31, 2023and2022,* respectively.
Note24 – Fair Value of Financial Instruments–
Fair Value Disclosures
The Company groups its financial assets and liabilities measured at fair value inthree 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. Thethree 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. |
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Recurring Basis
Fair values of investment securities available for sale were primarily measured using information from athird-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* December 31, 2023and2022.* 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 | $16,239 | $ | - | $16,239 | $ | - |
| U.S. Government Agency Securities | 9,410 | - | 9,410 | - | ||
| Corporate Securities | 43,839 | - | 35,871 | 7,968 | ||
| Mortgage-Backed Securities | 506,310 | - | 506,310 | - | ||
| Municipal Securities | 303,773 | - | 282,926 | 20,847 | ||
| Loans Held for Sale | 835 | - | 835 | - | ||
| Total | $880,406 | $ | - | $851,591 | $28,815 | |
| 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 | |
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The Company reviews fair value hierarchy classifications on a quarterly basis. Changes in the Company’s ability to observe inputs to the valuation* maycause reclassification of certain assets or liabilities within the fair value hierarchy. The tables below provide a reconciliation for assets measured at fair value on a recurring basis using significant unobservable inputs, or Level3* inputs, for the year ended* December 31, 2023.*
| Municipal | Corporate | |
|---|---|---|
| Securities | Bonds | |
| (Dollars in thousands) | ||
| Balance at December 31, 2022 | $34,768 | $19,000 |
| Realized Gains (Losses) Included in Net Income | - | - |
| Unrealized Losses Included in Other Comprehensive Loss | (2,228) | (1,532) |
| Purchases | - | - |
| Sales | - | - |
| Maturities, Prepayments, and Calls | (1,798) | - |
| Transfers Into Level 3 | - | - |
| Transfers Out of Level 3 | (9,895) | (9,500) |
| Balance at December 31, 2023 | $20,847 | $7,968 |
The following table provides quantitative information about significant unobservable inputs used in fair value measurements of Level3 assets measured at fair value on a recurring basis at* December 31, 2023.*
| Estimated | Valuation | Unobservable | Range of | |
|---|---|---|---|---|
| Fair Value | Technique | Inputs | Discounts | |
| (Dollars in thousands) | ||||
| Municipal Securities | $20,847 | Present Value of Expected Future Cash Flow Model | Liquidity Premium | 1% |
| Corporate Securities | 7,968 | Present Value of Expected Future Cash Flow Model | Liquidity Premium | 2% |
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 impaired/individually evaluated loans is measured at the fair value of the collateral for collateral-dependent loans. Impaired loans are Level3 assets measured using appraisals from external parties of the collateral less any prior liens and adjusted for estimated selling costs. Adjustments* maybe 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 Level3.*
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| Fair Value · Level 1 · Level 2 · Level 3 | ||||||
|---|---|---|---|---|---|---|
| (Dollars in thousands) | ||||||
| Assets: | ||||||
| Impaired/Individually Evaluated Loans | $4,750 | $ | - | $ | - | $4,750 |
| Other Nonperforming Assets | 1,685 | - | - | 1,685 | ||
| Total | $6,435 | $ | - | $ | - | $6,435 |
| Assets: | ||||||
| Impaired Loans | $16,816 | $ | - | $ | - | $16,816 |
| Other Nonperforming Assets | 1,434 | - | - | 1,434 | ||
| Total | $18,250 | $ | - | $ | - | $18,250 |
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 areno quoted market prices for the Company’s various financial instruments. In cases where quoted market prices arenot 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* maynot* 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* maynot* 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 isnot 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 withinninety 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 donot differ significantly from the commitment amount and are therefore omitted from this disclosure.
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The estimated approximate fair values of the Bank’s financial instruments as of* December 31, 2023and2022* are as follows:
| Carrying · Total | ||||||||
|---|---|---|---|---|---|---|---|---|
| Amount · Fair Value · Level 1 · Level 2 · Level 3 | ||||||||
| (Dollars in thousands) | ||||||||
| Financial Assets: | ||||||||
| Cash and Short-Term Investments | $377,244 | $377,244 | $377,244 | $ | - | $ | - | |
| Securities | 879,571 | 879,571 | - | 850,756 | 28,815 | |||
| Loans Held for Sale | 835 | 835 | - | 835 | - | |||
| Loans - Net | 4,952,371 | 4,849,503 | - | - | 4,849,503 | |||
| Cash Value of BOLI | 96,478 | 96,478 | - | 96,478 | - | |||
| Other Equity Securities | 33,942 | 33,942 | - | - | 33,942 | |||
| Total | $6,340,441 | $6,237,573 | $377,244 | $948,069 | $4,912,260 | |||
| Financial Liabilities: | ||||||||
| Deposits | $5,248,790 | $5,243,326 | $ | - | $ | - | $5,243,326 | |
| Borrowings | 635,073 | 613,464 | - | 613,464 | - | |||
| Total | $5,883,863 | $5,856,790 | $ | - | $613,464 | $5,243,326 | ||
| 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 | |||
| Cash Value of BOLI | 91,958 | 91,958 | - | 91,958 | - | |||
| Other Equity Securities | 37,467 | 37,467 | - | - | 37,467 | |||
| Total | $5,756,824 | $5,632,403 | $168,346 | $929,245 | $4,534,812 | |||
| Financial Liabilities: | ||||||||
| Deposits | $4,820,345 | $4,810,263 | $ | - | $ | - | $4,810,263 | |
| Borrowings | 560,114 | 544,564 | - | 544,564 | - | |||
| Total | $5,380,459 | $5,354,827 | $ | - | $544,564 | $4,810,263 | ||
Note25 – 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 wouldnot have a material adverse effect on the Bank’s financial statements.
Note26 – Subsequent Events–
The Company acquired Waterstone LSP, LLC ("Waterstone") on* January 31, 2024.*Waterstone works with community banks and small business owners to implement and manage the SBA's loan programs.
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Note27 – 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, 2023AND2022*
(Dollars in thousands)
| 2023 · 2022 | |||
|---|---|---|---|
| Assets: | |||
| Cash | $12,382 | $35,684 | |
| Investment in Subsidiaries | 714,971 | 641,491 | |
| Fintech Funds | 3,924 | 3,080 | |
| Goodwill | 5,704 | 5,704 | |
| Income Taxes Receivable | 10,840 | 8,739 | |
| Other Assets | 1,610 | 1,794 | |
| Total Assets | $749,431 | $696,492 | |
| Liabilities: | |||
| Accrued Interest Payable | $ | - | $80 |
| Subordinated Debt | 99,990 | 110,749 | |
| Subordinated Debt - Trust Preferred Securities | 5,155 | 5,155 | |
| Other Liabilities | 27 | 27 | |
| Total Liabilities | 105,172 | 116,011 | |
| Shareholders' Equity: | |||
| Preferred Stock | 71,930 | 71,930 | |
| Common Stock | 25,352 | 25,110 | |
| Additional Paid-in Capital | 397,447 | 393,690 | |
| Retained Earnings | 216,115 | 163,955 | |
| Accumulated Other Comprehensive Income (Loss) | (66,585) | (74,204) | |
| Total Shareholders' Equity | 644,259 | 580,481 | |
| Total Liabilities and Shareholders' Equity | $749,431 | $696,492 | |
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STATEMENTS OF INCOME
FOR THE YEARS ENDED* DECEMBER 31, 2023,*2022 AND2021
(Dollars in thousands)
| 2023 | 2022 | 2021 | |
|---|---|---|---|
| Income: | |||
| Dividend Income From Subsidiaries | $13,000 | $10,000 | $13,000 |
| Interest Income | 19 | 13 | 5 |
| Other Income | 1,147 | 43 | - |
| Expenses: | |||
| Interest Expense | 5,753 | 5,477 | 3,793 |
| Other Operating Expenses | 6,102 | 6,097 | 4,374 |
| Income (Loss) Before Income Taxes and Equity in Undistributed | |||
| Net Income of Subsidiaries | 2,311 | (1,518) | 4,838 |
| Income Tax Benefit | (2,059) | (2,400) | (1,916) |
| Income Before Equity in Undistributed Net Income of Subsidiaries | 4,370 | 882 | 6,754 |
| Equity in Undistributed Net Income of Subsidiaries | 66,673 | 53,373 | 45,382 |
| Net Income | 71,043 | 54,255 | 52,136 |
| Preferred Stock Dividends | 5,401 | 1,350 | - |
| Net Income Available to Common Shareholders | $65,642 | $52,905 | $52,136 |
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