Table of Contents

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

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FORM 10-Q

 

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(Mark One)

 

☒

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended March 31, 2020

 

or

 

☐

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from              to             

 

Commission file number: 001-38447

 

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BUSINESS FIRST BANCSHARES, INC.

(Exact name of registrant as specified in its charter)

 

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Louisiana	20-5340628
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification Number)
500 Laurel Street, Suite 101 Baton Rouge, Louisiana	70801
(Address of principal executive offices)	(Zip Code)

 

(225) 248-7600

(Registrant’s telephone number, including area code)

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, par value $1.00 per share	BFST	NASDAQ Global Select Market

 

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  ☒    No   ☐

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes  ☒    No  ☐

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer	☐	Accelerated filer	☒
Non-accelerated filer	☐	Smaller reporting company	☒
		Emerging growth company	☒

 

If an emerging growth company, indicate by a check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☒

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ☐    No  ☒

 

As of May 4, 2020, the issuer has outstanding 20,667,365 shares of common stock, par value $1.00 per share.

 

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BUSINESS FIRST BANCSHARES, INC. 

 

PART I - FINANCIAL INFORMATION
Item 1.	Financial Statements	3
	Consolidated Balance Sheets as of March 31, 2020 (Unaudited) and December 31, 2019	3
	Unaudited Consolidated Statements of Income for the three months ended March 31, 2020 and 2019	4
	Unaudited Consolidated Statements of Comprehensive Income for the three months ended March 31, 2020 and 2019	5
	Unaudited Consolidated Statements of Changes in Shareholders’ Equity for the three months ended March 31, 2020 and 2019	6
	Unaudited Consolidated Statements of Cash Flows for the three months ended March 31, 2020 and 2019	7
	Notes to Unaudited Consolidated Financial Statements	9
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	29
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	57
Item 4.	Controls and Procedures	57
PART II - OTHER INFORMATION
Item 1.	Legal Proceedings	58
Item 1A.	Risk Factors	58
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	61
Item 3.	Defaults Upon Senior Securities	61
Item 4.	Mine Safety Disclosures	61
Item 5.	Other Information	61
Item 6.	Exhibits	61
Signatures		63

 

 

 

		March 31, 2020				December 31,
		(Unaudited)				2019
ASSETS
Cash and Due from Banks		$	80,109			$	89,371
Federal Funds Sold			29,135				61,372
Securities Available for Sale, at Fair Values			275,115				278,193
Mortgage Loans Held for Sale			868				251
Loans and Lease Receivable, Net of Allowance for Loan Losses of $13,319 at March 31, 2020 and $12,124 at December 31, 2019			1,758,061				1,698,141
Premises and Equipment, Net			29,656				29,280
Accrued Interest Receivable			7,724				8,025
Other Equity Securities			11,721				12,565
Other Real Estate Owned			3,281				4,036
Cash Value of Life Insurance			32,765				32,568
Deferred Taxes			1,800				2,145
Goodwill			48,495				48,495
Core Deposit Intangible			6,471				6,694
Other Assets			2,461				2,699
Total Assets		$	2,287,662			$	2,273,835
LIABILITIES
Deposits:
Noninterest Bearing		$	417,534			$	398,847
Interest Bearing			1,385,274				1,383,163
Total Deposits			1,802,808				1,782,010
Securities Sold Under Agreements to Repurchase			14,728				67,989
Short Term Borrowings			5,000				-
Subordinated Debt			25,000				25,000
Federal Home Loan Bank Borrowings			138,000				93,000
Accrued Interest Payable			1,573				1,533
Other Liabilities			18,523				19,206
Total Liabilities			2,005,632				1,988,738
Commitments and Contingencies (See Note 7)
SHAREHOLDERS' EQUITY
Preferred Stock, No Par Value; 5,000,000 Shares Authorized			-				-
Common Stock, $1 Par Value; 50,000,000 Shares Authorized; 13,067,987 and 13,279,363 Shares Issued and Outstanding at March 31, 2020 and December 31, 2019, respectively			13,068				13,279
Additional Paid-in Capital			206,966				212,505
Retained Earnings			59,859				56,700
Accumulated Other Comprehensive Income			2,137				2,613
Total Shareholders' Equity			282,030				285,097
Total Liabilities and Shareholders' Equity		$	2,287,662			$	2,273,835

 

		For The Three Months Ended March 31,
		2020				2019
Interest Income:
Interest and Fees on Loans		$	24,143			$	22,423
Interest and Dividends on Securities			1,731				1,874
Interest on Federal Funds Sold and Due From Banks			142				290
Total Interest Income			26,016				24,587
Interest Expense:
Interest on Deposits			4,686				4,757
Interest on Borrowings			1,119				710
Total Interest Expense			5,805				5,467
Net Interest Income			20,211				19,120
Provision for Loan Losses			1,367				633
Net Interest Income after Provision for Loan Losses			18,844				18,487
Other Income:
Service Charges on Deposit Accounts			931				938
Gain on Sales of Securities			25				-
Other Income			1,848				1,373
Total Other Income			2,804				2,311
Other Expenses:
Salaries and Employee Benefits			9,435				8,552
Occupancy and Equipment Expense			1,891				1,894
Other Expenses			5,317				3,344
Total Other Expenses			16,643				13,790
Income Before Income Taxes			5,005				7,008
Provision for Income Taxes			506				1,349
Net Income		$	4,499			$	5,659
Earnings Per Share:
Basic		$	0.34			$	0.43
Diluted		$	0.34			$	0.41

 

		For The Three Months Ended March 31,
		2020				2019
Consolidated Net Income		$	4,499			$	5,659
Other Comprehensive Income (Loss):
Unrealized Gain (Loss) on Investment Securities			(627	)			3,973
Reclassification Adjustment for Gains included in Net Income			25				-
Income Tax Effect			126				(834	)
Other Comprehensive Income (Loss)			(476	)			3,139
Consolidated Comprehensive Income		$	4,023			$	8,798

 

														Accumulated
						Additional								Other				Total
		Common				Paid-In				Retained				Comprehensive				Shareholders'
		Stock				Capital				Earnings				Income (Loss)				Equity
Balances at December 31, 2018		$	13,213			$	212,332			$	37,982			$	(3,469	)		$	260,058
Comprehensive Income:
Net Income			-				-				5,659				-				5,659
Other Comprehensive Income			-				-				-				3,139				3,139
Cash Dividends Declared, $0.08 Per Share			-				-				(1,065	)			-				(1,065	)
Stock Issuance			114				1,154				-				-				1,268
Stock Based Compensation Cost			44				249				-				-				293
Surrendered Shares of Stock Based Compensation			(10	)			(198	)			-				-				(208	)
Balances at March 31, 2019		$	13,361			$	213,537			$	42,576			$	(330	)		$	269,144
Balances at December 31, 2019		$	13,279			$	212,505			$	56,700			$	2,613			$	285,097
Comprehensive Income:
Net Income			-				-				4,499				-				4,499
Other Comprehensive Loss			-				-				-				(476	)			(476	)
Cash Dividends Declared, $0.10 Per Share			-				-				(1,340	)			-				(1,340	)
Stock Issuance			332				3,029				-				-				3,361
Surrendered Shares of Options Exercised			(173	)			(4,148	)			-				-				(4,321	)
Stock Based Compensation Cost			65				145				-				-				210
Stock Repurchase			(435	)			(4,565	)			-				-				(5,000	)
Balances at March 31, 2020		$	13,068			$	206,966			$	59,859			$	2,137			$	282,030

 

		For The Three Months Ended March 31,
		2020				2019
Cash Flows From Operating Activities:
Consolidated Net Income		$	4,499			$	5,659
Adjustments to Reconcile Net Income to Net Cash Provided by (Used in) Operating Activities:
Provision for Loan Losses			1,367				633
Depreciation and Amortization			378				398
Net Accretion of Purchase Accounting Valuations			(67	)			(282	)
Noncash Compensation Expense			210				85
Net Amortization of Securities			379				439
Gain on Sales of Securities			(25	)			-
Loss on Sale of Other Real Estate Owned, Net of Writedowns			46				56
Increase in Cash Value of Life Insurance			(197	)			(168	)
Provision (Credit) for Deferred Income Taxes			471				(63	)
Changes in Assets and Liabilities:
Decrease in Accrued Interest Receivable			301				1,169
(Increase) Decrease in Other Assets			238				(353	)
Increase in Accrued Interest Payable			40				665
Increase (Decrease) in Other Liabilities			(683	)			597
Net Cash Provided by Operating Activities			6,957				8,835
Cash Flows From Investing Activities:
Purchases of Securities Available for Sale			(21,398	)			(9,594	)
Proceeds from Maturities / Sales of Securities Available for Sale			13,537				9,828
Proceeds from Paydowns of Securities Available for Sale			9,983				8,694
Purchases of Other Equity Securities			(749	)			(46	)
Redemption of Other Equity Securities			1,593				820
Net Increase in Loans			(61,656	)			(58,057	)
Purchases of Premises and Equipment			(754	)			(432	)
Proceeds from Sales of Other Real Estate			751				170
Net Decrease in Federal Funds Sold			32,237				11,743
Net Cash Used in Investing Activities			(26,456	)			(36,874	)

		For The Three Months Ended March 31,
		2020				2019
Cash Flows From Financing Activities:
Net Increase in Deposits			20,798				10,529
Net Decrease in Securities Sold Under Agreements to Repurchase			(53,261	)			(1,159	)
Net Advances (Repayments) on Federal Home Loan Bank Borrowings			45,000				(25,000	)
Net Proceeds from in Short Term Borrowings			5,000				-
Proceeds from Issuance of Common Stock			3,361				392
Surrendered Shares of Options Exercised			(4,321	)			-
Repurchase of Common Stock			(5,000	)			-
Proceeds from Exercise of Stock Warrants			-				876
Payment of Dividends on Common Stock			(1,340	)			(1,065	)
Net Cash Provided by (Used in) Financing Activities			10,237				(15,427	)
Net Decrease in Cash and Cash Equivalents			(9,262	)			(43,466	)
Cash and Cash Equivalents at Beginning of Period			89,371				96,072
Cash and Cash Equivalents at End of Period		$	80,109			$	52,606
Supplemental Disclosures for Cash Flow Information:
Cash Payments for:
Interest on Deposits		$	4,654			$	4,498
Interest on Borrowings		$	1,111			$	304
Income Tax Payments		$	-			$	-
Supplemental Schedule for Noncash Investing and Financing Activities:
Change in the Unrealized Gain (Loss) on Securities Available for Sale		$	(602	)		$	3,973
Change in Deferred Tax Effect on the Unrealized (Gain) Loss on Securities Available for Sale		$	126			$	(834	)
Transfer of Loans to Other Real Estate		$	42			$	-

 

Note 1 – Basis of Presentation –

 

The unaudited consolidated financial statements include the accounts of Business First Bancshares, Inc. (the “Company”) and its wholly-owned subsidiary, b1BANK (the “Bank”), and the Bank’s wholly-owned subsidiary, Business First Insurance, LLC. The Bank operates out of branch locations in markets across Louisiana and Texas. As a state bank, it is subject to regulation by the Office of Financial Institutions, State of Louisiana, and the Federal Deposit Insurance Corporation, and undergoes periodic examinations by these agencies. The Company is also regulated by the Federal Reserve and is subject to periodic examinations.

 

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

 

These interim consolidated financial statements have been prepared according to the rules and regulations of the Securities and Exchange Commission and, therefore, certain information and footnote disclosures normally presented in accordance with United States (“U.S.”) generally accepted accounting principles (“GAAP”) have been omitted or abbreviated.  These interim financial statements should be read in conjunction with the audited consolidated financial statements and footnote disclosures for the Company’s previously filed Form 10-K for the year ended December 31, 2019.

 

COVID-19, a global pandemic, has adversely impacted the broad economy, including most industries and sectors.  The length and depth of the pandemic will ultimately determine the overall financial impact to the Company, but it could impair our customer’s ability to meet their financial obligations to us.  Furthermore, while there has been no material impact to the Company’s employees to date, COVID-19 could potentially create business continuity issues for the Company. 

 

Preparation of financial statements in conformity with 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. Estimates are used in accounting for, among other items, the allowance for loan losses, useful lives for depreciation and amortization, fair value of financial instruments, deferred taxes, and contingencies. Estimates that are particularly susceptible to significant change for the Company include the determination of the allowance for loan losses and the assessment of deferred tax assets and liabilities and, therefore, are critical accounting policies. 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 our markets, and changes in applicable banking regulations. Actual results may ultimately differ from estimates, although management does not generally believe such differences would materially affect the consolidated financial statements in any individual reporting period presented.

 

 

 

Note 2 – Reclassifications –

 

Certain reclassifications may have been made to conform to the classifications adopted for reporting in 2020. These reclassifications have no effect on previously reported net income.

 

 

BUSINESS FIRST BANCSHARES, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

 

 

 

Note 3 – Earnings per Common Share –

 

Basic earnings per share (“EPS”) represents income available to common shareholders divided by the weighted average number of common shares outstanding; no dilution for any potentially convertible shares is included in the calculation. Diluted EPS reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock or resulted in the issuance of common stock that then shared in the earnings of the Company. The potential common shares that may be issued by the Company relate to outstanding stock options, excluding stock options that were antidilutive. Diluted EPS also includes unvested restricted stock awards (“RSAs”).

 

 

 

BUSINESS FIRST BANCSHARES, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

 

 

 

Note 4 – Securities –

 

The amortized cost and fair values of securities available for sale as of March 31, 2020 and December 31, 2019 are summarized as follows:

 

 

 

 

BUSINESS FIRST BANCSHARES, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

 

 

The following tables present a summary of securities with gross unrealized losses and fair values at March 31, 2020 and December 31, 2019, aggregated by investment category and length of time in a continued unrealized loss position. Due to the nature of these investments and current prevailing market prices, these unrealized losses are considered a temporary impairment of the securities.

 

 

 

Management evaluates securities for other than temporary impairment when economic and market conditions warrant such evaluations. Consideration is given to the extent and length of time the fair value has been below cost, the reasons for the decline in value, and the Company’s intent to sell a security or whether it is more likely than not that the Company will be required to sell the security before the recovery of its amortized cost. The Company has developed a process to identify securities that could potentially have a credit impairment that is other than temporary. This process involves evaluating each security for impairment by monitoring credit performance, collateral type, collateral geography, loan-to-value ratios, credit scores, loss severity levels, pricing levels, downgrades by rating agencies, cash flow projections and other factors as indicators of potential credit issues. When the Company determines that a security is deemed to be other than temporarily impaired, an impairment loss is recognized.

 

 

BUSINESS FIRST BANCSHARES, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

 

 

The amortized cost and fair values of securities available for sale as of March 31, 2020 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.

 

 

 

Note 5 – Loans and the Allowance for Loan Losses –

 

Loans receivable at March 31, 2020 and December 31, 2019 are summarized as follows:

 

 

 

BUSINESS FIRST BANCSHARES, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

 

 

The performing 1-4 family residential, multi-family residential, commercial real estate, and commercial loans are pledged, under a blanket lien, as collateral securing advances from the FHLB at March 31, 2020 and December 31, 2019.

 

Net deferred loan origination fees were $3.2 million and $3.0 million at March 31, 2020 and December 31, 2019, respectively, and are netted in their respective loan categories above. In addition to loans issued in the normal course of business, the Company considers overdrafts on customer deposit accounts to be loans, and reclassifies overdrafts as loans in its consolidated balance sheets. At March 31, 2020 and December 31, 2019, overdrafts of $884,000 and $276,000, 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 $139.9 million and $129.7 million at March 31, 2020 and December 31, 2019, respectively.

 

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

 

Loans acquired in business combinations are initially recorded at fair value, which includes an estimate of credit losses expected to be realized over the remaining lives of the loans and, therefore, no corresponding allowance for loan losses is recorded for these loans at acquisition. Methods utilized to estimate any subsequently required allowance for loan losses for acquired loans not deemed credit-impaired at acquisition are similar to originated loans; however, the estimate of loss is based on the unpaid principal balance and then compared to any remaining unaccreted purchase discount. To the extent the calculated loss is greater than the remaining unaccreted discount, an allowance is recorded for such difference.

 

 

BUSINESS FIRST BANCSHARES, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

 

 

Total loans held for investment at March 31, 2020 includes $151.6 million of loans acquired in acquisitions that were recorded at fair value as of the acquisition date. Included in the acquired balances at March 31, 2020 were acquired impaired loans accounted for under the Financial Accounting Standard Board’s (“FASB”) Accounting Standards Codification 310-30, Loans and Debt Securities Acquired with Deteriorated Credit Quality (“ASC 310-30”) with a net carrying amount of $5.2 million and acquired performing loans not accounted for under ASC 310-30 totaling $148.3 million with a related purchase discount of $1.9 million.

 

Total loans held for investment at December 31, 2019 includes $180.0 million of loans acquired in acquisitions that were recorded at fair value as of the acquisition date. Included in the acquired balances at December 31, 2019 were acquired impaired loans accounted for under ASC 310-30 with a net carrying amount of $5.0 million and acquired performing loans not accounted for under ASC 310-30 totaling $177.1 million with a related purchase discount of $2.0 million.

 

The following tables set forth, as of March 31, 2020 and December 31, 2019, the balance of the allowance for loan losses by portfolio segment, disaggregated by impairment methodology, which is then further segregated by amounts evaluated for impairment collectively and individually. The allowance for loan losses allocated to each portfolio segment is not necessarily indicative of future losses in any particular portfolio segment and does not restrict the use of the allowance to absorb losses in other portfolio segments.

 

Allowance for Credit Losses and Recorded Investment in Loans Receivable

 

 

(1) Purchased credit impaired loans are evaluated for impairment on an individual basis.

 

 

BUSINESS FIRST BANCSHARES, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

 

 

 

(1) Purchased credit impaired loans are evaluated for impairment on an individual basis.

 

Portfolio Segment Risk Factors

 

Construction and land include loans to small-to-midsized businesses to construct owner-user properties, loans to developers of commercial real estate investment properties and residential developments and, to a lesser extent, loans to individual clients for construction of single-family homes in our market areas. Risks associated with these loans include fluctuations in the value of real estate, project completion risk and change in market trends. We are 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 we funded the loan.

 

Farmland loans are often for investments related to agricultural businesses and may include construction of facilities. These loans are usually repaid through permanent financing or the cashflow from the borrower’s ongoing operations.

 

One to four family residential include first and second lien one-to-four family mortgage loans, as well as home equity lines of credit, in each case primarily on owner-occupied primary residences. We are 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.

 

Multifamily residential loans are generally originated to provide permanent financing for multifamily residential income producing properties.  Repayment of these loans primarily relies on successful rental and management of the property.

 

Nonfarm nonresidential loans are extensions of credit secured by owner occupied and non-owner occupied collateral. Repayment is generally relied upon from the successful operations of the property. General economic conditions may impact the performance of these types of loans, including fluctuations in the value of real estate, vacancy rates, and unemployment trends.

 

 

BUSINESS FIRST BANCSHARES, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

 

 

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

 

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

 

Management further disaggregates the loan portfolio segments into classes of loans, which are based on the initial measurement of the loan, risk characteristics of the loan and the method for monitoring and assessing the credit risk of the loan.

 

As of March 31, 2020 and December 31, 2019, the credit quality indicators, disaggregated by class of loan, are as follows:

 

Credit Quality Indicators

 

 

 

 

 

BUSINESS FIRST BANCSHARES, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

 

 

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

 

●

Pass loans are of satisfactory quality.

 

●

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

 

●

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

 

●

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

 

The following tables reflect certain information with respect to the loan portfolio delinquencies by loan class and amount as of March 31, 2020 and December 31, 2019. All loans greater than 90 days past due are generally placed on nonaccrual status.

 

Aged Analysis of Past Due Loans Receivable

 

 

 

 

BUSINESS FIRST BANCSHARES, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

 

 

The following is a summary of information pertaining to impaired loans as of March 31, 2020 and December 31, 2019. Purchased performing loans are placed on nonaccrual status and reported as impaired using the same criteria applied to the originated portfolio. Purchased impaired loans (credits) are excluded from this table. The interest income recognized for impaired loans was $56,000 and $69,000 for the three months ending March 31, 2020 and 2019, respectively.

 

 

 

BUSINESS FIRST BANCSHARES, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

 

 

 

 

BUSINESS FIRST BANCSHARES, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

 

 

The Company elected to account for certain loans acquired in business combinations as acquired impaired loans under ASC 310-30 due to evidence of credit deterioration at acquisition and the probability that the Company will be unable to collect all contractually required payments. The expected cash flows approximated fair value as of the date of mergers.

 

The following table presents the changes in the carrying amount of the purchased impaired credits accounted for under ASC 310-30 for the periods presented.

 

 

The Bank seeks to assist customers that are experiencing financial difficulty by renegotiating loans within lending regulations and guidelines. The Bank makes loan modifications, primarily utilizing internal renegotiation programs via direct customer contact, that manage customers’ debt exposures held only by the Bank. Additionally, the Bank makes loan modifications with customers who have elected to work with external renegotiation agencies and these modifications provide solutions to customers’ entire unsecured debt structures. During the periods ended March 31, 2020 and December 31, 2019, the concessions granted to certain borrowers generally included extending the payment due dates and offering below market contractual interest rate.

 

Once modified in a troubled debt restructuring, a loan is generally considered impaired until its contractual maturity. At the time of the restructuring, the loan is evaluated for an allowance for credit losses. The Bank continues to specifically reevaluate the loan in subsequent periods, regardless of the borrower’s performance under the modified terms. If a borrower subsequently defaults on the loan after it is restructured, the Bank provides an allowance for credit losses for the amount of the loan that exceeds the value of the related collateral.

 

 

BUSINESS FIRST BANCSHARES, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

 

 

The following tables present informative data regarding troubled debt restructurings as of March 31, 2020 and December 31, 2019. The Bank had no troubled debt restructurings that had subsequently defaulted during the three months ended March 31, 2020 and the year ended December 31, 2019, respectively.

 

 

 

 

For the quarter ended March 31, 2020, the Company modified approximately 150 loans with outstanding balances totaling $83.0 million by granting temporary payment deferrals of principal and/or interest.  The payment deferrals were granted due to the effects of the COVID-19 pandemic.  Based on the interpretive guidance released by the FASB and our regulators, the Company determined these modifications were not troubled debt restructurings.