Business First Bancshares Inc

Note 1– Nature of Operations– Summary of Significant Accounting Policies–

The accounting principles followed by Business First Bancshares, Inc. and itstwo wholly-owned subsidiaries, b1BANK (the “Bank”), and Coastal Commerce Statutory Trust, I; and the Bank’s wholly-owned subsidiaries, Business First Insurance, LLC, Smith Shellnut Wilson, LLC (“SSW”), Waterstone LSP, LLC ("Waterstone"), and b1 Securities, LLC ("b1Securities") 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, SSW, Waterstone and b1Securities (collectively, the “Company”). All significant intercompany balances and transactions have been eliminated.

The Company has a single reportable operating segment called Community Banking. Our chief executive officer is our chief operating decision maker. Our chief executive officer reviews net income on a routine basis to make decisions about allocating capital and personnel throughout the Company, as well as the composition of the balance sheet. See the Consolidated Statements of Income, Consolidated Statements of Financial Condition, and Note 18 for information utilized to assess performance of the reportable operating segment.

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 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.

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

On October 1, 2024, the Company completed the acquisition of Oakwood Bancshares, Inc. (“Oakwood”), the parent bank holding company for Oakwood Bank, located in the Dallas, Texas region. The company issued 3,973,134 shares of its common stock to the former shareholders of Oakwood. At September 30, 2024, Oakwood reported $863.6 million in total assets, $700.2 million in loans and $741.3 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 may undertake in the future. Critical accounting estimates that are particularly susceptible to significant change for the Company include the determination of the acquired loans and allowance for credit losses and purchase accounting adjustments (other than loans). Other estimates include goodwill, fair value of financial instruments, investment securities and the assessment of income taxes. Management does not anticipate any material changes to estimates in the near term. Factors that may cause sensitivity to the aforementioned estimates include but are not limited to: external market factors such as market interest rates and employment rates, changes to operating policies and procedures, economic conditions in the Company’s markets, and changes in applicable banking regulations. Actual results may ultimately differ from estimates.

The Bank’s loans are generally secured by specific items of collateral including real property, business assets, and consumer assets. Although the Bank has a diversified loan portfolio, a substantial portion of its debtors’ ability to honor their contracts is dependent on local economic conditions in the Bank’s market area.

While management uses available information to recognize losses on loans, further reductions in the carrying amounts of loans may be necessary based on changes in local economic conditions. In addition, regulatory agencies, as an integral part of their examination process, periodically review the estimated losses on loans. Such agencies may require the Bank to recognize additional losses based on their judgments about information available to them at the time of their examination.

Because of these factors, it is reasonably possible that the estimated losses on loans may change materially in the near term. However, the amount of the change that is reasonably possible cannot be estimated.

Acquisition Accounting

Acquisitions are accounted for under the purchase method of accounting. Purchased assets and assumed liabilities are recorded at their respective acquisition date fair values, and identifiable intangible assets are recorded at fair value. If the consideration given exceeds the fair value of the net assets received, goodwill is recognized. The Company generally records provisional amounts of fair value at the time of acquisition based on the information available. The provisional fair values are subject to refinement for up to one year after the closing date of an acquisition as information relative to closing date fair values becomes available.

Securities

Management determines the appropriate classification of debt securities (held to maturity, available for sale or trading) at the time of purchase and re-evaluates this classification quarterly. Securities classified as available for sale are those debt securities the Bank intends to hold for an indefinite period of time but not necessarily to maturity. Any decision to sell a security classified as available for sale would be based on various factors, including significant movements in interest rates, changes in the maturity mix of the Bank’s assets and liabilities, liquidity needs, regulatory capital considerations, and other similar factors. Securities available for sale are recorded at fair value. Unrealized gains or losses are reported as a component of comprehensive income. Realized gains or losses, determined on the basis of the cost of specific securities sold, are included in earnings.

Securities classified as held to maturity are those debt securities the Bank has both the intent and ability to hold to maturity regardless of changes in market conditions, liquidity needs or changes in general economic conditions. These securities are recorded at cost adjusted for amortization of premium and accretion of discount, computed by various methods approximating the interest method over their contractual lives. The Bank hasno securities classified as held to maturity at December 31, 2024 and 2023.

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, 2024 and 2023.

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 becomes 90 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.

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 ASU 2016-13, Financial Instrument– Credit Losses (Topic 326). Measurement of Credit Losses on Financial Instruments related to the impairment of financial instruments (ASU 2016-13). Prior to the adoption of Financial Instrument– Credit Losses (Topic 324), Measurement of Credit Losses on Financial Instruments, commonly referred to as the Current Expected Credit Loss (“CECL”), ASU 2016-13, acquired performing loans were accounted for under ASC 310-20, 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 Topic 310-30, “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 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 a third-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, currently one 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 a one-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 losses not 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 do not 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 ASU 2016-13, 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 Topic 310, “Receivables” and allowance allocations calculated in accordance with ASC Topic 450, “Contingencies.”

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 those not 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, 2024 and 2023, was negligible and therefore, no allowance for credit loss was recorded related to our investment securities.

Prior to the adoption of ASU 2016-13, 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 to not 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 made no later than 90 days after a loan has become past due, although certain loans accrue interest after 90 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.

Other Real Estate Owned

Real estate properties acquired through or in lieu of loan foreclosure or negotiated settlement are initially recorded at the fair value less estimated selling cost at the date of acquisition. Any write-downs based on the asset’s fair value at the date of acquisition are charged to the allowance for loan losses. After foreclosure, valuations are periodically performed by management and property held for sale is carried at the lower of the new cost basis or fair value less cost to sell. Impairment losses on property to be held and used are measured as the amount by which the carrying amount of a property exceeds its fair value. Costs of significant property improvements are capitalized, whereas costs relating to holding property are expensed. Valuations are periodically performed by management, and any subsequent write-downs are recorded as a charge to operations, if necessary, to reduce the carrying value of a property to the lower of its cost or fair value less cost to sell.

Goodwill and Other Intangible Assets

Goodwill represents the excess of the purchase price over the fair value of the net identifiable assets acquired in a business combination. Goodwill and other intangible assets deemed to have an indefinite useful life are not amortized but instead are subject to review for impairment annually, or more frequently if deemed necessary.

Intangible assets with estimable useful lives are amortized over their respective estimated useful lives and reviewed for impairment. If impaired, the asset is written down to its estimated fair value. Our other intangibles include core deposit intangibles (“CDI”) representing the value of the acquired core deposit base are generally recorded in connection with business combinations involving banks and branch locations; and customer-related intangibles representing the value of a customer list consisting of customer contact information acquired through business combination. The Company’s policy is to amortize these intangibles on a straight-line basis over their estimated useful life. Core deposit and customer intangibles are tested for impairment whenever events or changes in circumstances indicate the carrying amount of the assets may not be recoverable from future undiscounted cash flows.

The Company recognizes the rights to service mortgage and other loans as separate assets, which are recorded in other assets in the consolidated balance sheets, when purchased or when servicing is contractually separated from the underlying loans by sale with servicing rights retained. For loan sales with servicing retained, a servicing right, generally an asset, is recorded at fair value at the time of sale for the right to service the loans sold. All servicing rights are identified by class and amortized over the remaining service life of the loan.

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, 2024 and 2023, 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 is no longer subject to federal and state income tax examinations by tax authorities for years before 2021. Any interest and penalties assessed by income taxing authorities are not significant, and are included in other expenses in these financial statements, as applicable.

Stock Based Compensation

As described in Note 16, the Company has issued stock options, stock grants, phantom stock awards (settled only in cash), and restricted stock awards which incorporate stock-based compensation. The Company has adopted a fair value-based method of accounting for these awards. The compensation cost is measured at the grant date based on the value of the award and is recognized over the requisite service period, which is usually the vesting period. Forfeitures are recognized as they occur.

Statements of Cash Flows

For purposes of reporting cash flows, cash and cash equivalents include cash on hand and due from banks.

Comprehensive Income

Accounting principles generally require that recognized revenue, expenses, gains and losses be included in net income. Although certain changes in assets and liabilities, such as unrealized gains and losses on available for sale securities or other equity investments, are reported as a separate component of the equity section of the balance sheet, such items, along with net income, are components of comprehensive income. The components of comprehensive income are disclosed on the Consolidated Statements of Comprehensive Income for all periods presented.

Advertising

The Company expenses all costs of advertising and promotion the first time the advertising or promotion takes place. For the years ended December 31, 2024, 2023 and 2022, the Company expensed costs of $4.9 million, $4.6 million and $3.9 million, respectively.

Recognition of Revenue from Contracts with Customers

Service charges on deposit accounts, fee and broker commissions, ATM/debit card fee income (including interchange), and transactional income from traditional banking services, are the significant noninterest income sources of revenue from contracts with customers. The Company generally acts in a principal capacity in the performance of these services. The Company’s performance obligations are generally satisfied as the services are rendered and typically do not extend beyond a reporting period. Fees, which are typically billed and collected after services are rendered, are readily determinable and allocated individually to each service. In the normal course of business, the Company does not generally grant refunds for services provided. As such, the Company does not establish provisions for estimated returns.

Accounting Standards Adopted in 2024

ASU No. 2023-07, "Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures."ASU No. 2023-07, "Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures." ASU 2023-07 requires public business entities, including those with one reportable segment, to disclose additional disaggregated information about a reportable segment’s income and expenses in both interim and annual periods. The standard requires disclosure of the title and position of the chief operating decision maker and an explanation of how the reported measure(s) of segment profit or loss are utilized in assessing segment performance allocating resources.

The update permits disclosure of additional measures of a segment’s profit and losses, if multiple measures are utilized by the chief operating decision maker to allocate resources and evaluate profitability. Such measures, to the extent they are relevant but not in accordance with GAAP, shall be accompanied by appropriate disclosures and reconciliations to the appropriate reported GAAP amounts. The adoption of this standard did not have a material impact onthe consolidated financial statements and disclosures.

Accounting Standards Not Yet Adopted

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

Note 2– Reclassifications–

Certain reclassifications may have been made to the prior years’ financial statements in order to conform to the classifications adopted for reporting in 2024.

These reclassifications have no material effect on previously reported shareholders’ equity or net income.

Note 3– Mergers and Acquisitions–

Texas Citizens Bancorp, Inc.

On March 1, 2022, the Company consummated the merger of Texas Citizens Bancorp, Inc. (“TCBI”), headquartered in Pasadena, Texas, with and into the Company, pursuant to the terms of that certain Agreement and Plan of Reorganization (the “Reorganization Agreement”), dated as of October 20, 2021, by and between the Company and TCBI (the “Merger”). Also on March 1, 2022, TCBI’s wholly owned banking subsidiary, Texas Citizens Bank, National Association, was merged with and into b1BANK. Pursuant to the terms of the Reorganization Agreement, upon consummation of the Merger, the Company issued 2,069,532 shares of its common stock to the former shareholders of TCBI. At February 28, 2022, TCBI reported $534.2 million in total assets, $349.5 million in loans and $477.2 million in deposits.

The following table reflects the consideration paid for TCBI’s net assets and the identifiable assets purchased and liabilities assumed at their fair values as of March 1, 2022.

Oakwood Bancshares, Inc.

On October 1, 2024, the Company consummated the merger of Oakwood Bancshares, Inc. (“Oakwood”), headquartered in the Dallas, Texas region, with and into the Company, pursuant to the terms of that certain Agreement and Plan of Reorganization (the “Oakwood Reorganization Agreement”), dated as of April 25, 2024, by and between the Company and Oakwood. Also on October 1, 2024, Oakwood's wholly owned banking subsidiary, Oakwood Bank, was merged with and into b1BANK. Pursuant to the terms of the Oakwood Reorganization Agreement, upon consummation of the Oakwood acquisition, the Company issued 3,973,134 shares of its common stock to the former shareholders of Oakwood. At September 30, 2024, Oakwood reported $863.6 million in total assets, $700.2 million in loans and $741.3 million in deposits.

The following table reflects the consideration paid for Oakwood's net assets and the identifiable assets purchased and liabilities assumed at their fair values as of October 1, 2024.

The Company has recorded approximately $1.6 million and $236,000 of acquisition-related costs within merger and conversion-related expenses and salaries and benefits for the years ended December 31, 2024 and 2023, 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.

Securities Available for Sale: Fair values for securities were based on quoted market prices, where available. If quoted market prices were not available, fair value estimates were based on observable inputs including quoted market prices for similar instruments, quoted market prices that were not in an active market or other inputs that were observable in the market. In the absence of observable inputs, fair value was estimated based on pricing models/estimations.

Loans and Leases Receivable: Fair values for loans were based on a discounted cash flow methodology that considered factors including, but not limited to, loan type, classification status, remaining term, prepayment speed, and current discount rates. The discount rates used for loans were based on current market rates for new originations of comparable loans and included adjustments for any liquidity concerns. The discount rate did not include an explicit factor for credit losses, as that was included within the estimated cash flows.

As discussed in Note 1, acquired loans are evaluated as either PCD or non-PCD at acquisition, based upon management's assessment of whether or not a loan has experienced more than insignificant credit deterioration since origination. This evaluation is completed by management using a variety of factors, including individual loan characteristics as well as industry type and collateral evaluation, among other factors. At acquisition, management designated loans with a fair value of $146.9 million as PCD. The fair value was inclusive of an $8.4 million PCD allowance and $2.3 million non-credit fair value discount from the acquired contractual value.

The remainder of the Oakwood loan portfolio, with a fair value of $540.6 million at acquisition included a non-credit fair value discount of $2.0 million from the acquired contractual value.

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 and Oakwood were impractical to include due to the cost versus benefit of including such disclosures.

Waterstone LSP, LLC

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

Note 4– Earnings per Common Share–

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

Note 5– Cash and Due From Banks–

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, 2024 and 2023.

Note 6– Securities–

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

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

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

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

Securities available for sale with a fair value of $385.4 million and $629.7 million, respectively, were pledged as collateral on public deposits and for other purposes as required or permitted by law as of December 31, 2024 and 2023.

At December 31, 2024 and 2023, accrued interest receivable on securities was $4.9 million and $4.7 million, respectively, and is included within accrued interest receivable on the consolidated balance sheets.

There were $21,000 and $9,000 realized gross gains from sales or redemptions of securities for the years ended December 31, 2024 and 2022, respectively, andnone for the year ended December 31, 2023. There were $14,000, $2.6 million and $57,000 realized gross losses from sales or redemptions of securities for the years ended December 31, 2024, 2023 and 2022, respectively.

Other Equity Securities and VIEs

The Company has invested in the Federal Home Loan Bank of Dallas which is included in other equity securities and reflected at cost in these financial statements. The cost of these securities was $20.6 million and $14.8 million, respectively, at December 31, 2024 and 2023. The Federal Home Loan Bank stock is pledged to secure advances from the Federal Home Loan Bank of Dallas at both December 31, 2024 and 2023. 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, 2024 and 2023. These investments are carried at cost, less any impairment, due to the lack of a quoted market price and a ready market for these types of investments.

VIEs are legal entities that either do not have sufficient equity to finance their activities without the support from other parties or whose equity investors lack a controlling financial interest. The Company has investments in certain partnerships and limited liability entities that have been evaluated and determined to be VIEs. Consolidation of a VIE is appropriate if a reporting entity holds a controlling financial interest in the VIE and is the primary beneficiary. The Company is not the primary beneficiary and does not hold a controlling interest in the VIEs as it does not have the power to direct the activities that most significantly impact the VIEs’ economic performance.

Small Business Investment Companies (“SBIC”) and financial technology (“Fintech”) funds at December 31, 2024 and 2023 are summarized below.

Note 7– Loans and the Allowance for Loan Losses–

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

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

Net deferred loan origination fees were $12.6 million at both December 31, 2024 and 2023, 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, 2024 and 2023, overdrafts of $3.0 million and $2.2 million, respectively, have been reclassified to loans.

The Bank is the lead lender on participations sold, without recourse, to other financial institutions which amounts are not included in the consolidated balance sheets. The unpaid principal balances of mortgages and other loans serviced for others were approximately $747.0 million and $723.5 million at December 31, 2024 and 2023, respectively. The Company has servicing rights of $832,000 and $1.1 million recorded at December 31, 2024 and 2023, 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.

Real Estate Portfolio Segment

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

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

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

Commercial Portfolio Segment

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

Consumer and Other Portfolio Segment

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

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

Allowance for Credit Losses and Recorded Investment in Loans Receivable

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.

Credit Quality Indicators

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

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

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, 2024 and 2023, loan balances outstanding more than 90 days past due and still accruing interest amounted to $860,000 and $127,000, respectively. As of December 31, 2024 and 2023, loan balances outstanding on nonaccrual status amounted to $24.1 million and $16.9 million, respectively. The Bank considers all loans more than 90 days past due as nonperforming loans.

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

Aged Analysis of Past Due Loans Receivable

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, 2024 and 2023, the concessions granted to certain borrowers included extending the payment due dates and offering below market contractual interest rates, and were not significant to the consolidated financial statements.

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

Accrued interest receivable of $3.4 million and $4.2 million was outstanding as of December 31, 2024 and 2023, respectively, for all loan deferrals, primarily attributable to the COVID-19 pandemic and, to a much lesser extent, hurricanes which occurred in 2020 and 2021. These loans are no longer within their deferral periods. The accrued interest on the loans is due at their maturity.

At December 31, 2024 and 2023, accrued interest receivable on loans was $30.9 million and $25.2 million, respectively, and included within accrued interest receivable on the consolidated balance sheets.

Note 8– Premises and Equipment–

Bank premises and equipment at December 31, 2024 and 2023 consist of the following:

The provision for depreciation and amortization attributable to bank premises and equipment charged to operating expenses was $5.3 million, $4.7 million and $4.8 million for the years ended December 31, 2024, 2023 and 2022, respectively.

Note 9 -Goodwill and Other Intangible Assets–

Goodwill was recorded as a result of acquisitions. The carrying amount of goodwill as of December 31, 2024 and 2023 was $121.6 million and $88.4 million, respectively. In 2024, the increase of $33.2 million in goodwill was due to the acquisitions of Waterstone and Oakwood. In 2023, goodwill was reduced by $153,000 due to the sale of the Leesville branch. The Company performed the required annual goodwill impairment test as of October 1, 2024. The Company’s annual test didnot indicate any impairment as of the testing date. Following the testing date, management determined no triggering event had occurred though December 31, 2024.

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, 2024 and 2023 is as follows:

Amortization expense on the core deposit and customer intangible assets totaled approximately $2.3 million, $2.1 million and $2.0 million during the years ended December 31, 2024, 2023 and 2022, respectively. The following table presents the estimated aggregate amortization expense for the periods indicated:

Note 10– Deposits–

Deposit accounts at December 31, 2024 and 2023 are summarized as follows:

Approximately 70.7% of certificates of deposit as of December 31, 2024 have stated maturity dates during 2025 and the remaining 29.3% have stated maturity dates during 2026 and beyond.

At December 31, 2024 and 2023, total deposits for the top three customer relationships was approximately $211.3 million and $168.3 million, respectively, which represented 3.2% and 3.2% of total deposits, respectively. Brokered and reciprocal deposits were approximately $1.2 billion and $1.0 billion at December 31, 2024 and 2023, respectively. Included in these brokered and reciprocal deposits are public fund deposits of approximately $155.0 million and $145.9 million at December 31, 2024 and 2023, respectively. Other public fund deposits were approximately $603.2 million and $511.6 million at December 31, 2024 and 2023, respectively.

Note 11– Borrowings–

The Bank had outstanding advances from the FHLB of $355.9 million and $211.2 million at December 31, 2024 and 2023, respectively, consisting of:

One fixed rate loan with an original principal balance of $60.0 million. The loan was made in 2021 and the balance at December 31, 2024 and December 31, 2023 was $23.3 million and $35.3 million, respectively, with interest at 0.89%. Principal and interest payments are due monthly and the loan matures in November 2026.

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

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

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

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

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

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

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

One fixed rate loan of $25.0 million at both December 31, 2024 and 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 with an original principal balance of $10.0 million. The loan was made in 2020 and was acquired during the Oakwood acquisition. The balance at December 31, 2024 was $1.7 million, with interest at 0.52%. Principal and interest payments are due monthly and the loan matures in October 2025.

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

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

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

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

One short term, fifteen-day, fixed rate loan of $55.0 million at December 31, 2024, with interest at 4.38%. Principal and interest was due, paid and rolled into a $30.0 million renewal, at maturity in January 2025.

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 $2.0 billion at December 31, 2024 with unused availability for advances and letters of credit of approximately $1.3 billion.

The Company has outstanding lines of credit with several of its correspondent banks available to assist in the management of short-term liquidity. These agreements provide for interest based upon the federal funds rate on the outstanding balance. Total available lines of credit as of December 31, 2024 and 2023 were $160.0 million and $145.0 million, respectively. The Company wasnot in a purchased position on these lines at December 31, 2024 and 2023.

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

In December 2018, the Company issued subordinated notes in the amount of $25.0 million. The subordinated notes bear a fixed rate of interest at 6.75% until December 31, 2028 and a floating rate thereafter through maturity in 2033. The balance outstanding at both December 31, 2024 and 2023 was $25.0 million. The subordinated notes were issued for the purpose of paying off a long term advance and line of credit with First National Bankers Bank, for general corporate purposes and to provide Tier 2 capital. The subordinated notes are redeemable by the Company at its option beginning in 2028.

In the Pedestal acquisition, the Company assumed Pedestal’s junior subordinated debentures, which are associated with $5.0 million in trust preferred securities acquired from Pedestal. Interest on the junior subordinated debentures is accrued at an annual rate equal to the 3-month LIBOR, as determined in the indenture governing the debentures, plus 3.05%. Interest is payable quarterly. The indenture allows the Company to defer interest payments for up to 20 consecutive quarterly periods without resulting in a default. The trust preferred securities do not have a stated maturity date, however, they are subject to mandatory redemption on September 17, 2033, or upon earlier redemption. The Company has guaranteed, on a subordinated basis, distributions and other payments due on the trust preferred securities subject to the guarantee agreement and the indenture. Principal and interest payments on the junior subordinated debentures are in a superior position to the liquidation rights of holders of common stock.

On March 26, 2021, the Company issued $52.5 million in subordinated debt. This subordinated debt bears interest at a fixed rate of 4.25% through March 31, 2026 and a floating rate, based on a benchmark rate plus 354 basis points, thereafter through maturity in 2031. The subordinated notes were issued to provide additional capital support to the Bank, to support growth, to better position the Company to take advantage of strategic opportunities that may arise from time to time, repayment of existing Company borrowings, and for other general corporate purposes. The subordinated notes are redeemable by the Company at its option beginning in 2026.

On April 1, 2021, the Company, through b1BANK, consummated the acquisition of SSW. Under the terms of the acquisition, the Company issued $3.9 million in subordinated debt to the former owners of SSW. This subordinated debt bears interest at a fixed rate of 4.75% through April 1, 2026 and a floating rate, based on a benchmark rate plus 442 basis points, thereafter through maturity in 2031. The subordinated notes are redeemable by the Company at its option beginning in 2026.

On March 1, 2022, the Company assumed, in connection with the TCBI acquisition, three tranches of subordinated debt with an aggregate principal balance outstanding of $26.4 million. One tranche in the amount of $10.0 million bears 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. The third tranche in the amount of $8.9 million had an adjustable interest rate plus 595 basis points, based on a benchmark rate, until maturity on March 24, 2027. The $8.9 million tranche was called on May 1, 2023 by the Company and has been fully extinguished. The Company recognized a $1.5 million gain on the extinguishment of this debt during 2023. These notes carried an aggregate $833,000 and $1.1 million fair value adjustment, respectively, as of December 31, 2024 and 2023.

Note 12– Securities Purchased and Sold Under Agreements to Resell and Repurchase–

During the year ended December 31, 2024, the Bank entered into an agreement to purchase investment securities with the intention to resell those securities at various times throughout the year. At December 31, 2024, the Bank purchased $50.8 million at a rate of 5.1% and maturing in 2025. At December 31, 2024 and 2023, the Bank had also sold various investment securities with an agreement to repurchase these securities at various times within one year. These securities generally remain under the Bank’s control and are included in securities available for sale. These pledged securities have coupon rates ranging from 0.9% to 8.0% and maturity dates ranging from 2025 to 2041. The related liability to repurchase these securities was $22.6 million and $18.9 million at December 31, 2024 and 2023, respectively.

Note 13– Income Taxes–

The consolidated provision (credit) for income taxes consists of the following at December 31, 2024, 2023 and 2022:

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, 2024, 2023 and 2022:

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:

The Company acquired certain deferred tax attributes and liabilities as a result of the TCBI acquisition in 2022 and Oakwood acquisition in 2024, including a federal net operating loss (“NOL”) carryforward of $8.8 million and $4.2 million, respectively, and a federal charitable contribution carryforward of $229,000 and $99,000. The amount of the NOL carryforward the Company is allowed to deduct against current taxable income each year is limited, and the Company may not offset more than 80% of taxable income in any year. As of December 31, 2024, the NOL and charitable contribution carryforward was $3.2 million to be carried forward indefinitely until utilized.

Note 14– Accumulated Other Comprehensive Income (Loss)–

The following is a summary of the changes in the balances of each component of accumulated other comprehensive income (loss) for the years ended December 31, 2024 and 2023:

Note 15– Shareholders’ Equity and Regulatory Matters–

Shareholders’ Equity of the Company includes the undistributed earnings of the Bank. The Company pays dividends from its assets, which are provided primarily by dividends from the Bank. Certain restrictions exist regarding the ability of the Bank to pay cash distributions. Louisiana statutes require approval to pay distributions in excess of a bank’s earnings in the current year plus retained net profits for the preceding year. The Company paid quarterly common stock dividends totaling $0.56 per share and $0.50 per share for the years ended December 31, 2024 and 2023, respectively, based upon quarterly financial performance. The Company paid full quarterly preferred stock dividends totaling $75.00 per share for both years ended December 31, 2024 and 2023.

Common Stock Repurchase Plan

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 did not 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 the first five years following issuance and thereafter at a variable rate equal to the then current 3-month secured overnight financing rate (“SOFR”), reset quarterly, plus 470 basis points. The preferred stock has a perpetual term and may not be redeemed, except under certain circumstances, under the first five years of issuance. The preferred stock is non-convertible and dividends equivalent to $75.00 per share were paid during both years ended December 31, 2024 and 2023.

Regulatory Matters

The Company and the Bank are subject to various regulatory capital requirements administered by federal and state banking agencies. Failure to meet minimum regulatory capital requirements can initiate certain mandatory, and possible additional discretionary actions by regulators that, if undertaken, could have a direct material effect on the Company’s and the Bank’s financial statements.

Under the regulatory capital adequacy guidelines and the regulatory framework for prompt corrective action, the Company and the Bank must meet specific capital guidelines involving quantitative measures of assets, liabilities and certain off-balance-sheet items as calculated under regulatory accounting practices. The capital amounts and classification under the prompt corrective action guidelines are also subject to qualitative judgments by the regulators about components, risk weightings and other factors. Prompt corrective action provisions are not applicable to bank holding companies.

Quantitative measures established by regulation to ensure capital adequacy require the Company and the Bank to maintain minimum amounts and ratios. As detailed below, as of December 31, 2024 and 2023, the Bank met all of the capital adequacy requirements to which it is subject.

As of December 31, 2024 and 2023, 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, 2024 and 2023, each of the Company and the Bank was required to maintain minimum total capital, Tier 1 capital, risk-based common equity Tier 1, and Tier 1 leverage ratios at the levels disclosed in the table below to be categorized as well capitalized. There are no conditions or events since the most recent notification that management believes have changed the prompt corrective action category.

The following is a summary of the Company’s (consolidated) and the Bank’s actual capital amounts and ratios at December 31, 2024 and 2023.

Note 16– Stock Based Compensation–

Equity Incentive Plan

In 2006, the Company’s board of directors adopted the 2006 Stock Option Plan, pursuant to which the Company was permitted to issue stock options to purchase up to 450,000 shares of the Company’s common stock, all of which could be issued as either incentive stock options under Section 422A of the Internal Revenue Code of 1986, as amended, or non-qualified stock options. In January 2007, the Company’s board of directors adopted an amendment to the 2006 Stock Option Plan, which increased the number of available shares under the plan from 450,000 to 1,500,000. The 2006 Stock Option Plan expired on December 22, 2016, however, there are still 12,400 fully vested and outstanding options that remain unexercised as of December 31, 2024.

On June 29, 2017, the Company’s shareholders approved its 2017 Equity Incentive Plan (the “2017 Plan”). The 2017 Plan provided 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. On June 23, 2022, the Company's shareholders approved an additional 400,000 shares to be reserved for future awards under the 2017 Plan. In addition, the number of shares issuable under the 2017 Plan was 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. As of May 23, 2024, there will be no future awards made under the 2017 Plan.

On May 22, 2024, the Company’s shareholders approved the Business First Bancshares, Inc. 2024 Equity Incentive Plan (the “2024 Plan”). The authorized share pool under the 2024 Plan is comprised of 645,000 shares, plus any shares that were available for issuance under the 2017 Plan and any underlying awards outstanding under the 2017 Plan as of the effective date of the 2024 Plan that were terminated or cancelled without having been unexercised or forfeited, cancelled, or repurchased by the Company. In addition, the number of shares issuable under the 2024 Plan was increased by 207,293 shares as a result of the conversion of Oakwood stock options to Company stock options due to the Oakwood acquisition on October 1, 2024. In total, the 2024 Plan has reserved 852,293 shares of common stock for grant, award or issuance to eligible participants, all of which may be subject to incentive stock option treatment. The Plan is administered by the Compensation Committee of the Company’s board of directors, which determines, within the provisions of the 2024 Plan, those eligible participants to whom, and the times at which, grants and awards will be made. As of December 31, 2024, there were 160,336 shares of common stock issued pursuant to awards and grants under the 2024 Plan to the Company’s employees, directors or consultants, of which 152,084 shares are subject to outstanding and unexercised awards and grants, and 484,664 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, 2024, 2023 and 2022, the Company issued shares of restricted stock which vest inthree equal installments over the requisite service period. For the years ended December 31, 2024, 2023 and 2022, respectively, the Company recognized $2.8 million, $4.7 million and $4.3 million in compensation costs related to restricted stock awards. At December 31, 2024, 2023 and 2022, respectively, unrecognized share-based compensation associated with these awards totaled $1.1 million, $3.4 million and $3.7 million. The $1.1 million of unrecognized share-based compensation at December 31, 2024 is expected to be recognized over a weighted average period of 0.6 years.

The table below summarizes the restricted stock award activity for the period presented.

Restricted Stock Units

The Company issues restricted share units to certain key officers and executive officers. The Company issues a.) restricted share units that vest after the end of athree-year performance period, based on satisfaction of performance conditions set for in the restricted share unit agreements, or b.) shares which vest ratably over athree-year service period. Recipients do not possess voting or investment power over the common stock underlying such units until vesting. The grant date fair value of these restricted share units is the same as the value of the corresponding number of shares of common stock.

For the year ended December 31, 2024, the Company recognized $115,000 in compensation costs related to restricted stock units. At December 31, 2024, unrecognized share-based compensation associated with these units totaled $4.4 million. The $4.4 million of unrecognized share-based compensation at December 31, 2024 is expected to be recognized over a weighted average period of 2.4 years.

Phantom Stock

The Company issues phantom stock awards to certain key officers and employees. The awards are subject to a vesting period ofthree years and are paid out in cash upon vesting. The amount paid per vesting period is calculated as the number of vested “share equivalents” multiplied by the closing market price of a share of the Company’s common stock on the vesting date. Share equivalents are calculated on the date of grant as the total award’s dollar value is divided by the closing market price of a share of the Company’s common stock on the grant date. The liability for these awards is recorded within other liabilities.

During the year ended December 31, 2024, the Company issued share equivalents of phantom stock which vest in three equal installments over the requisite service period. For the year ended December 31, 2024, the Company recognized $9,000 in compensation costs related to phantom stock. At December 31, 2024, unrecognized share-based compensation associated with these units totaled $275,000. The $275,000 of unrecognized share-based compensation at December 31, 2024 is expected to be recognized over a weighted average period of 2.4 years.

Stock Options

As of December 31, 2024, the Company had 179,969 outstanding and 174,055 vested and exercisable stock options, all of which have been issued to our executive officers and key personnel and remain subject to the terms and conditions of the 2006 Stock Option Plan, 2017 Plan and 2024 Plan until they are exercised or forfeited. As of December 31, 2024, the weighted average exercise price of the stock options was $21.74.

The following is an analysis of the activity related to the stock options:

The aggregate intrinsic value of outstanding awards at December 31, 2024 and 2023 is $707,000 and $731,000 with a weighted average remaining contractual life of 3.7 years and 1.9 years, respectively.

Note 17– Employee Benefit Plans–

Defined Contribution Plan

The Bank has a defined contribution plan qualified under Internal Revenue Code 401(K) for those employees who meet the eligibility requirements. Contributions may be made by eligible employees subject to Internal Revenue Service limits. The Bank contributes a matching contribution up to 4% of wages which totaled $2.8 million, $2.4 million and $2.3 million and is included in salaries and employee benefits for the years ended December 31, 2024, 2023 and 2022, 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, 2024 and 2023, the Company had recorded accrued liabilities of $4.1 million and $3.5 million, respectively. The expense related to the deferred compensation agreements was $766,000, $586,000 and $507,000 for the years ended December 31, 2024, 2023 and 2022, respectively.

Note 18– Other Income and Expenses–

An analysis of Other Income for the Company's single reportable operating segment is as follows for the years ended December 31, 2024, 2023 and 2022:

An analysis of Other Expenses for the Company's single reportable operating segment is as follows for the years ended December 31, 2024, 2023 and 2022:

Note 19– Financial Instruments with Off-Balance-Sheet Risk–

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

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 $1.4 billion and standby and commercial letters of credit of approximately $50.0 million at December 31, 2024. As discussed in Note 7, we had a reserve for unfunded loan commitments of $3.7 million and $3.3 million at December 31, 2024 and 2023, respectively.

Note 20– Concentrations of Credit–

The majority of the Bank’s business activities are with customers in the Bank’s market area, which consists primarily of 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 Note 7. The Bank, as a matter of policy, does not extend credit to any single borrower or group of related borrowers in excess of the Bank’s legal lending limits. Most of the Bank’s credits are to individuals and businesses secured by real estate. A substantial portion of their ability to pay on their debt is dependent on the local economy and industries in the areas.

Within the loan portfolio, the Bank has a concentration of credits secured by real estate. The Bank had extended credit secured by non-farm non-residential real estate totaling approximately $2.3 billion and $2.0 billion, which accounted for 39.2% and 39.8% of total loans held for investment at December 31, 2024 and 2023, respectively. Additionally, the Bank had extended credit secured by construction and land development totaling approximately $670.5 million and $669.8 million, respectively; these loans represented 11.2% and 13.4% of total loans held for investment at December 31, 2024 and 2023, respectively.

The Bank maintains amounts on deposit and federal funds sold with correspondent banks which may periodically exceed the federally insured amount.

Note 21– Leases–

The Bank leases certain branch offices through non-cancelable operating leases with terms that range 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 $6.6 million, $5.6 million and $4.9 million for the years ended December 31, 2024, 2023 and 2022, respectively. The Company had a weighted average lease term of 6.3 years and 6.5 years and a weighted average discount rate of 3.69% and 3.24% as of December 31, 2024 and 2023, respectively.

Future minimum lease payments under these leases are as follows:

Note 22– Commitments–

SBIC Capital Commitment

The SBIC is a program initiated by the U.S. Small Business Administration ("SBA") in 1958 to assist in the funding of small business loans. The program is a joint venture between investors with venture capital, the SBA, and small business borrowers. Investors are responsible for funding the first portion of the capital requirements, with the remaining requirement being funded by the SBA. The funds are then lent to small business borrowers.

The Bank has agreed to participate as an investor with McLarty Capital Partners SBIC, L.P. (“McLarty”), McLarty Capital Partners SBIC II, L.P. (“McLarty II”), Firmament Capital Partners SBIC III, L.P. (“Firmament 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 Fund 2, LLC (“New Louisiana”), Pharos Capital Partners IV-A, L.P. (“Pharos”) and Valesco Fund III, LP ("Valesco III"). 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”) and GP Capital Partners, LP (“GP Capital”). Details of these commitments at December 31, 2024 are below.

Fintech Fund Commitment

The Company has agreed to invest in certain Fintech funds. As part of the TCBI acquisition, the Company acquired an investment in Work America Capital Fund I, LP and SBRE I, LLC. During the year ended December 31, 2023, SBRE I, LLC was fully redeemed. Details of these commitments at December 31, 2024 are below.

Federal Home Loan Bank Letters of Credit

The Bank had outstanding letters of credit on behalf of others from the FHLB of $327.2 million and $301.7 million at December 31, 2024 and 2023, respectively. The outstanding letters of credit as of December 31, 2024 are as follows:

Fifteen letters of credit totaling $119.9 million expire in January 2025.

Seven letters of credit totaling $175.8 million expire in February 2025.

Two letters of credit totaling $508,000 expire in March 2025.

One letter of credit of $216,000 expires in May 2025.

Three letters of credit totaling $26.3 million expire in August 2025.

Two letters of credit totaling $2.5 million expire in September 2025.

Two letters of credit totaling $464,000 expire in October 2025.

Three letters of credit totaling $1.2 million expire in November 2025.

One letter of credit of $329,000 expires in December 2025.

Note 23– Related Party Transactions–

In the ordinary course of business, the Bank has granted loans to directors, officers and their affiliates. Such loans were made on substantially the same terms as those prevailing at the time for comparable transactions with other customers. Such loans amounted to $15.2 million and $19.5 million at December 31, 2024 and 2023, respectively.

Related party deposits totaled $57.1 million and $51.2 million as of December 31, 2024 and 2023, respectively.

Note 24– Fair Value of Financial Instruments–

Fair Value Disclosures

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

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

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

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

Recurring Basis

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

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

The following tables present the balance of assets and liabilities measured on a recurring basis as of December 31, 2024 and 2023. The Company didnot record any liabilities at fair value for which measurement of the fair value was made on a recurring basis.

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

The tables below provide a reconciliation for assets measured at fair value on a recurring basis using significant unobservable inputs, or Level 3 inputs, for the years ended December 31, 2024 and 2023.

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

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 Level 3 assets measured using appraisals from external parties of the collateral less any prior liens and adjusted for estimated selling costs. Adjustments may be made by management based on a customized internally developed discounting matrix. Repossessed assets are initially recorded at fair value less estimated cost to sell, which is generally 10%. The fair value of repossessed assets is based on property appraisals and an analysis of similar properties available. As such, the Bank records repossessed assets as Level 3.

Fair Value Financial Instruments

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

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

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

Securities Purchased Under Agreements to Resell - The carrying amount approximates its fair value.

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

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

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

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

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

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

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

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

Note 25– Litigation and Contingencies–

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

Note 26– Financial Statements– Parent Company Only–

The balance sheets and statements of income for Business First Bancshares, Inc. (Parent Company) are as follows:

BALANCE SHEETS

AS OF DECEMBER 31, 2024 AND 2023

STATEMENTS OF INCOME

FOR THE YEARS ENDED DECEMBER 31, 2024, 2023 AND 2022