Business First Bank(BFST) - 2025 Q2 - Quarterly Report

General Information Registrant Information BUSINESS FIRST BANCSHARES, INC. is an accelerated filer, registered on the NASDAQ Global Select Market under the symbol BFST, having filed all required reports and interactive data files electronically - Registrant is an accelerated filer[4] - Common Stock, par value $1.00 per share, is traded on the NASDAQ Global Select Market under the symbol BFST[3] - As of July 31, 2025, the issuer has 29,602,970 shares of common stock outstanding[4] PART I - FINANCIAL INFORMATION Item 1. Financial Statements This section presents the unaudited consolidated financial statements for Business First Bancshares, Inc. and its subsidiaries, including balance sheets, statements of income, comprehensive income (loss), changes in shareholders' equity, and cash flows for the periods ended June 30, 2025, and December 31, 2024 (for balance sheet) or June 30, 2024 (for income and cash flow statements) Consolidated Balance Sheets Consolidated Balance Sheet Highlights (Dollars in thousands) | Metric | June 30, 2025 (Unaudited) | December 31, 2024 | | :-------------------------------- | :-------------------------- | :------------------ | | ASSETS | | | | Total Assets | $7,948,294 | $7,857,090 | | Cash and Due from Banks | $495,757 | $319,098 | | Loans and Lease Receivable, Net | $5,989,154 | $5,926,559 | | Securities Available for Sale | $926,450 | $893,549 | | LIABILITIES | | | | Total Liabilities | $7,099,854 | $7,057,624 | | Total Deposits | $6,419,651 | $6,511,331 | | Federal Home Loan Bank Borrowings | $492,946 | $355,875 | | SHAREHOLDERS' EQUITY | | | | Total Shareholders' Equity | $848,440 | $799,466 | Unaudited Consolidated Statements of Income Consolidated Statements of Income Highlights (Dollars in thousands, except per share data) | Metric | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :----------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Total Interest Income | $114,850 | $99,870 | $228,543 | $195,881 | | Total Interest Expense | $47,808 | $45,861 | $95,518 | $90,341 | | Net Interest Income | $67,042 | $54,009 | $133,025 | $105,540 | | Provision for Credit Losses | $2,225 | $1,310 | $5,037 | $2,496 | | Total Other Income | $14,415 | $12,176 | $27,641 | $21,562 | | Total Other Expenses | $51,206 | $43,110 | $101,784 | $85,632 | | Net Income | $22,103 | $17,206 | $42,646 | $30,776 | | Net Income Available to Common Shareholders | $20,753 | $15,856 | $39,946 | $28,076 | | Basic EPS | $0.70 | $0.63 | $1.36 | $1.11 | | Diluted EPS | $0.70 | $0.62 | $1.35 | $1.10 | Unaudited Consolidated Statements of Comprehensive Income (Loss) Consolidated Comprehensive Income (Loss) Highlights (Dollars in thousands) | Metric | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :----------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Consolidated Net Income | $22,103 | $17,206 | $42,646 | $30,776 | | Other Comprehensive Income (Loss) | $5,076 | $3,850 | $15,230 | $(1,199) | | Consolidated Comprehensive Income | $27,179 | $21,056 | $57,876 | $29,577 | Unaudited Consolidated Statements of Changes in Shareholders' Equity Shareholders' Equity Changes (Dollars in thousands) | Metric | Balances at March 31, 2025 | Balances at June 30, 2025 | | :-------------------------------- | :------------------------- | :------------------------ | | Preferred Stock | $71,930 | $71,930 | | Common Stock | $29,572 | $29,603 | | Additional Paid-In Capital | $501,609 | $502,046 | | Retained Earnings | $276,045 | $292,629 | | Accumulated Other Comprehensive Income (Loss) | $(52,844) | $(47,768) | | Total Shareholders' Equity | $826,312 | $848,440 | Shareholders' Equity Changes (Six Months Ended June 30, 2025) (Dollars in thousands) | Metric | Balances at December 31, 2024 | Balances at June 30, 2025 | | :-------------------------------- | :-------------------------- | :------------------------ | | Preferred Stock | $71,930 | $71,930 | | Common Stock | $29,552 | $29,603 | | Additional Paid-In Capital | $500,024 | $502,046 | | Retained Earnings | $260,958 | $292,629 | | Accumulated Other Comprehensive Income (Loss) | $(62,998) | $(47,768) | | Total Shareholders' Equity | $799,466 | $848,440 | Unaudited Consolidated Statements of Cash Flows Consolidated Statements of Cash Flows Highlights (Six Months Ended June 30) (Dollars in thousands) | Cash Flow Activity | 2025 | 2024 | | :----------------------------------- | :------- | :------- | | Net Cash Provided by Operating Activities | $42,747 | $22,667 | | Net Cash Provided by (Used in) Investing Activities | $54,706 | $(139,285) | | Net Cash Provided by Financing Activities | $79,206 | $98,559 | | Net Increase (Decrease) in Cash and Due From Banks | $176,659 | $(18,059) | | Cash and Due From Banks at End of Period | $495,757 | $208,051 | Notes to Unaudited Consolidated Financial Statements This section provides detailed notes to the unaudited consolidated financial statements, covering the basis of presentation, reclassifications, mergers and acquisitions, earnings per common share, securities, loans and allowance for loan losses, long-term debt, FHLB borrowings, other income and expenses, leases, commitments and contingencies, fair value of financial instruments, and subsequent events Note 1– Basis of Presentation The unaudited consolidated financial statements include Business First Bancshares, Inc. and its subsidiaries, prepared in accordance with SEC rules and GAAP, with management making estimates and assumptions for acquired loans, allowance for credit losses, purchase accounting adjustments, goodwill, fair value of financial instruments, investment securities, and income taxes - The Company's critical accounting estimates include acquired loans, allowance for credit losses, purchase accounting adjustments, goodwill, fair value of financial instruments, investment securities, and income taxes[22] - ASU No. 2023-09, 'Income Taxes (Topic 740): Improvements to Income Tax Disclosures,' will be effective for the Company starting December 31, 2025, and is not expected to have a significant impact on financial statements[23] Note 2– Reclassifications Certain reclassifications were made to conform to 2025 reporting, which had no material effect on previously reported shareholders' equity or net income - Reclassifications made to conform to 2025 reporting had no material effect on previously reported shareholders' equity or net income[24] Note 3– Mergers and Acquisitions The Company completed the acquisition of Waterstone LSP, LLP on January 31, 2024, for $3.3 million in cash, expanding SBA lending services, and merged with Oakwood Bancshares, Inc. on October 1, 2024, issuing 3,973,134 shares of common stock, acquiring $863.6 million in total assets, $700.2 million in loans, and $741.3 million in deposits, resulting in $30.2 million in goodwill - Acquired Waterstone LSP, LLP on January 31, 2024, for $3.3 million cash, enhancing SBA lending services[26] - Merged with Oakwood Bancshares, Inc. on October 1, 2024, issuing 3,973,134 common shares[27] Oakwood Acquisition Financials (as of September 30, 2024) (Dollars in millions) | Metric | Amount | | :---------------- | :----- | | Total Assets | $863.6 | | Total Loans | $700.2 | | Total Deposits | $741.3 | Oakwood Purchase Price Allocation (Dollars in thousands) | Metric | Amount | | :-------------------------- | :------- | | Total Purchase Price | $103,819 | | Net Assets Acquired | $73,654 | | Goodwill Resulting from Merger | $30,165 | Note 4– Earnings per Common Share This note details the calculation of basic and diluted earnings per common share (EPS), which reflects income available to common shareholders divided by the weighted average common shares outstanding, with diluted EPS accounting for potential dilution from convertible securities Earnings Per Common Share (Dollars in thousands, except per share data) | Metric | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :----------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Net Income Available to Common Shares | $20,753 | $15,856 | $39,946 | $28,076 | | Weighted Average Common Shares Outstanding | 29,517,495 | 25,265,495 | 29,354,228 | 25,196,079 | | Basic Earnings Per Common Share | $0.70 | $0.63 | $1.36 | $1.11 | | Diluted Earnings Per Common Share | $0.70 | $0.62 | $1.35 | $1.10 | Note 5– Securities The Company's securities portfolio consists of available-for-sale securities, with amortized cost of $987.0 million and fair value of $926.5 million as of June 30, 2025, experiencing gross unrealized losses of $63.0 million primarily due to changes in market interest rates, not credit quality, with no allowance for credit losses recognized Securities Available for Sale (Dollars in thousands) | Metric | June 30, 2025 | December 31, 2024 | | :-------------------------------- | :-------------- | :---------------- | | Amortized Cost | $987,013 | $973,423 | | Gross Unrealized Gains | $2,428 | $913 | | Gross Unrealized Losses | $62,991 | $80,787 | | Fair Value | $926,450 | $893,549 | - Unrealized losses are considered non-credit related, as management does not believe any securities are impaired due to credit quality and does not intend to sell them before recovery of amortized cost[47] Securities Available for Sale by Contractual Maturity (June 30, 2025) (Dollars in thousands) | Maturity | Amortized Cost | Fair Value | | :-------------------- | :------------- | :--------- | | Less Than One Year | $35,492 | $34,979 | | One to Five Years | $191,404 | $181,288 | | Over Five to Ten Years | $351,018 | $331,006 | | Over Ten Years | $409,099 | $379,177 | | Total | $987,013 | $926,450 | Note 6– Loans and the Allowance for Loan Losses The loan portfolio, net of allowance for loan losses, increased to $5.99 billion at June 30, 2025, from $5.93 billion at December 31, 2024, with the allowance for loan losses rising to $58.5 million from $54.8 million, and nonaccrual loans significantly increasing to $56.4 million from $24.1 million Loans Receivable, Net (Dollars in thousands) | Loan Type | June 30, 2025 | December 31, 2024 | | :-------------------------- | :-------------- | :---------------- | | Real Estate Loans: Commercial | $2,533,761 | $2,483,223 | | Real Estate Loans: Construction | $600,292 | $670,502 | | Real Estate Loans: Residential | $879,891 | $884,533 | | Commercial | $1,960,974 | $1,868,675 | | Consumer and Other | $72,732 | $74,466 | | Total Loans Held for Investment | $6,047,650 | $5,981,399 | | Less: Allowance for Loan Losses | $(58,496) | $(54,840) | | Net Loans | $5,989,154 | $5,926,559 | Allowance for Loan Losses and Reserve for Unfunded Loan Commitments (Dollars in thousands) | Metric | June 30, 2025 | December 31, 2024 | | :----------------------------------- | :-------------- | :---------------- | | Allowance for Loan Losses: Ending Balance | $58,496 | $54,840 | | Reserve for Unfunded Loan Commitments: Ending Balance | $3,270 | $3,688 | | Total Allowance for Credit Losses | $61,766 | $58,528 | Nonaccrual Loans by Segment (Dollars in thousands) | Loan Segment | June 30, 2025 | December 31, 2024 | | :-------------------------- | :-------------- | :---------------- | | Real Estate Loans: Commercial | $22,451 | $3,621 | | Real Estate Loans: Construction | $5,447 | $5,251 | | Real Estate Loans: Residential | $7,510 | $7,078 | | Commercial | $20,767 | $8,039 | | Consumer and Other | $202 | $158 | | Total Nonaccrual Loans | $56,377 | $24,147 | Note 7– Long Term Debt During the first six months of 2025, the Company redeemed $7.0 million of its subordinated debt maturing in 2031, resulting in a $630,000 gain on extinguishment - Redeemed $7.0 million of subordinated debt (maturing 2031) during the six months ended June 30, 2025[80] - Recognized a $630,000 gain on the extinguishment of debt[80] Note 8– Federal Home Loan Bank ("FHLB") Borrowings FHLB borrowings increased to $492.9 million at June 30, 2025, from $355.9 million at December 31, 2024, consisting of various fixed-rate loans with maturities ranging from July 2025 to October 2033, with an additional $1.5 billion remaining on its FHLB line availability FHLB Borrowings (Dollars in thousands) | Metric | June 30, 2025 | December 31, 2024 | | :-------------------------- | :-------------- | :---------------- | | Outstanding Advances | $492,946 | $355,875 | | FHLB Line Availability Remaining | $1,500,000 | $1,300,000 | - FHLB advances consist of various fixed-rate loans with interest rates ranging from 0.52% to 4.89% and maturities up to October 2033[81][82][83][84][85][86][87][88][89] Note 9– Other Income and Other Expense Total other income increased significantly for both the three and six months ended June 30, 2025, primarily driven by a $3.36 million gain on the sale of a branch and increased swap fee income, while total other expenses also rose, mainly due to higher salaries and employee benefits and data processing fees, largely attributable to the Oakwood acquisition and core conversion Other Income (Dollars in thousands) | Metric | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :----------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Total Other Income | $14,415 | $12,176 | $27,641 | $21,562 | | Gain on Sale of Branch | $3,360 | $- | $3,360 | $- | | Swap Fee Income | $808 | $285 | $1,547 | $514 | | Gain on Extinguishment of Debt | $- | $- | $630 | $- | Other Expenses (Dollars in thousands) | Metric | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :----------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Total Other Expenses | $51,206 | $43,110 | $101,784 | $85,632 | | Salaries and Employee Benefits | $28,317 | $25,523 | $57,814 | $50,939 | | Data Processing Fees | $5,321 | $2,641 | $8,557 | $5,220 | | Occupancy of Bank Premises | $3,119 | $2,634 | $6,520 | $5,148 | Note 10– Leases The Bank leases branch offices under non-cancelable operating leases with terms up to ten years, incurring $4.2 million in rental expense for the six months ended June 30, 2025, with future minimum lease payments totaling $32.3 million, a weighted average lease term of 6.2 years, and a discount rate of 3.82% - Rental expense for operating leases was $4.2 million for the six months ended June 30, 2025, up from $3.0 million in 2024[94] Future Minimum Lease Payments (Dollars in thousands) | Period | Amount | | :----------------------------------- | :------- | | July 1, 2025 through December 31, 2025 | $3,013 | | January 1, 2026 through December 31, 2026 | $5,735 | | January 1, 2027 through December 31, 2027 | $5,491 | | January 1, 2028 through December 31, 2028 | $4,944 | | January 1, 2029 through December 31, 2029 | $4,153 | | January 1, 2030 and Thereafter | $8,955 | | Total Future Minimum Lease Payments | $32,291 | | Less Imputed Interest | $(3,727) | | Present Value of Lease Liabilities | $28,564 | Note 11– Commitments and Contingencies The Bank has off-balance sheet commitments including $1.5 billion in commitments to extend credit and $51.0 million in standby and commercial letters of credit as of June 30, 2025, maintaining a $3.3 million reserve for unfunded loan commitments, and management believes legal proceedings will not materially affect financial statements Off-Balance Sheet Commitments (Dollars in millions) | Commitment Type | June 30, 2025 | December 31, 2024 | | :----------------------------------- | :-------------- | :---------------- | | Commitments to Extend Credit | $1,500 | $1,400 | | Standby and Commercial Letters of Credit | $51.0 | $50.0 | | Reserve for Unfunded Loan Commitments | $3.3 | $3.7 | Note 12– Fair Value of Financial Instruments The Company categorizes financial assets and liabilities measured at fair value into a three-level hierarchy based on input observability, with total assets measured at fair value on a recurring basis at $927.1 million (including $36.0 million as Level 3) and individually evaluated loans and other nonperforming assets measured on a nonrecurring basis totaling $76.1 million (all Level 3) as of June 30, 2025 - Fair value hierarchy: Level 1 (quoted prices in active markets), Level 2 (observable inputs), Level 3 (unobservable inputs)[99][100] Assets Measured at Fair Value on a Recurring Basis (June 30, 2025) (Dollars in thousands) | Asset Type | Fair Value | Level 1 | Level 2 | Level 3 | | :-------------------------- | :--------- | :------ | :------ | :------ | | U.S. Treasury Securities | $16,994 | $- | $16,994 | $- | | Corporate Securities | $42,509 | $- | $29,825 | $12,684 | | Mortgage-Backed Securities | $587,116 | $- | $587,116 | $- | | Municipal Securities | $270,082 | $- | $246,788 | $23,294 | | Total | $927,127 | $- | $891,149 | $35,978 | Assets Measured at Fair Value on a Nonrecurring Basis (Dollars in thousands) | Asset Type | June 30, 2025 Fair Value | December 31, 2024 Fair Value | | :-------------------------- | :----------------------- | :----------------------- | | Individually Evaluated Loans | $74,649 | $62,138 | | Other Nonperforming Assets | $1,473 | $5,529 | | Total | $76,122 | $67,667 | Note 13– Subsequent Events On July 7, 2025, the Company entered into a definitive agreement to acquire Progressive Bancorp, Inc. and its subsidiary, Progressive Bank, which had approximately $752.2 million in total assets, $673.0 million in deposits, and $582.9 million in loans as of March 31, 2025 - Agreement to acquire Progressive Bancorp, Inc. and Progressive Bank was signed on July 7, 2025[120] Progressive Bancorp, Inc. Financials (as of March 31, 2025) (Dollars in millions) | Metric | Amount | | :---------------- | :----- | | Total Assets | $752.2 | | Total Deposits | $673.0 | | Total Loans | $582.9 | Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's perspective on the Company's financial condition and results of operations, highlighting significant changes, key performance indicators, and future outlook, including forward-looking statements, business overview, recent developments, and detailed analysis of financial performance and condition, including non-GAAP measures Overview Business First Bancshares, Inc. is a financial holding company headquartered in Baton Rouge, Louisiana, operating through its subsidiary b1BANK, providing financial services to small-to-midsized businesses and professionals across Louisiana and Texas, reporting total assets of $7.9 billion, total loans of $6.0 billion, total deposits of $6.4 billion, and total shareholders' equity of $848.4 million as of June 30, 2025 - The Company operates as a financial holding company through b1BANK, serving small-to-midsized businesses and professionals in Louisiana and Texas[129] Key Financial Metrics (as of June 30, 2025) (Dollars in millions) | Metric | Amount | | :----------------------- | :------- | | Total Assets | $7,900 | | Total Loans | $6,000 | | Total Deposits | $6,400 | | Total Shareholders' Equity | $848.4 | Other Developments Recent developments include opening new credit lines with the Federal Reserve, the acquisition of Waterstone LSP, LLC in January 2024, the merger with Oakwood Bancshares, Inc. in October 2024, the sale of the Kaplan banking center in April 2025, and an agreement to acquire Progressive Bancorp, Inc. in July 2025 - Opened two new credit lines totaling $1.1 billion with the Federal Reserve discount window as of June 30, 2025[132] - Acquired Waterstone LSP, LLC on January 31, 2024, for $3.3 million in cash[133] - Merged with Oakwood Bancshares, Inc. on October 1, 2024, issuing 3,973,134 common shares[134] - Sold Kaplan banking center on April 4, 2025, for an 8.00% deposit premium, resulting in a $3.4 million gain[135] - Entered definitive agreement to acquire Progressive Bancorp, Inc. on July 7, 2025[136] Financial Highlights For the six months ended June 30, 2025, total assets increased by 1.2% to $7.9 billion, total loans held for investment increased by 1.1% to $6.0 billion, total deposits decreased by 1.4% to $6.4 billion, net income available to common shareholders rose by 42.3% to $39.9 million, and net interest income increased by 26.0% to $133.0 million, largely due to the Oakwood acquisition Financial Highlights (Six Months Ended June 30, 2025 vs. December 31, 2024) (Dollars in millions) | Metric | June 30, 2025 | December 31, 2024 | Change (%) | | :----------------------------------- | :------------ | :---------------- | :--------- | | Total Assets | $7,900 | $7,800 | 1.2% | | Total Loans Held for Investment | $6,000 | $6,000 | 1.1% | | Total Deposits | $6,400 | $6,500 | (1.4%) | Financial Highlights (Six Months Ended June 30, 2025 vs. 2024) (Dollars in millions) | Metric | 2025 | 2024 | Change (%) | | :----------------------------------- | :----- | :----- | :--------- | | Net Income Available to Common Shareholders | $39.9 | $28.1 | 42.3% | | Net Interest Income | $133.0 | $105.5 | 26.0% | | Basic EPS | $1.36 | $1.11 | 22.5% | | Diluted EPS | $1.35 | $1.10 | 22.7% | | Return on Average Assets | 1.04% | 0.84% | 23.8% | | Return on Average Common Equity | 10.68% | 9.73% | 9.8% | - Allowance for credit losses increased to 1.02% of total loans held for investment (from 0.98% at Dec 31, 2024)[141] - Ratio of nonperforming loans to total loans held for investment increased to 0.97% (from 0.42% at Dec 31, 2024)[141] Results of Operations Net income available to common shareholders increased to $20.8 million ($0.70 EPS) for Q2 2025 and $39.9 million ($1.35 diluted EPS) for H1 2025, driven by higher net interest income and other income, partially offset by increased provision for credit losses and noninterest expenses, with net interest margin improving to 3.68% for both periods while the overall cost of funds decreased Performance Summary (Dollars in millions, except per share data) | Metric | Q2 2025 | Q2 2024 | H1 2025 | H1 2024 | | :----------------------------------- | :------ | :------ | :------ | :------ | | Net Income Available to Common Shareholders | $20.8 | $15.9 | $39.9 | $28.1 | | Basic EPS | $0.70 | $0.63 | $1.36 | $1.11 | | Diluted EPS | $0.70 | $0.62 | $1.35 | $1.10 | | Return on Average Assets (annualized) | 1.07% | 0.95% | 1.04% | 0.84% | | Return on Average Equity (annualized) | 10.87% | 10.94% | 10.68% | 9.73% | Net Interest Income and Margin | Metric | Q2 2025 | Q2 2024 | H1 2025 | H1 2024 | | :------------------- | :------ | :------ | :------ | :------ | | Net Interest Income | $67.0M | $54.0M | $133.0M | $105.5M | | Net Interest Margin | 3.68% | 3.45% | 3.68% | 3.39% | | Net Interest Spread | 2.88% | 2.47% | 2.90% | 2.42% | | Overall Cost of Funds | 2.78% | 3.07% | 2.80% | 3.03% | - Provision for credit losses increased to $2.2 million for Q2 2025 (from $1.3 million in Q2 2024) and $5.0 million for H1 2025 (from $2.5 million in H1 2024), due to macroeconomic forecast deterioration and increased nonaccrual/past due loans[156] Noninterest Income (Dollars in thousands) | Metric | Q2 2025 | Q2 2024 | H1 2025 | H1 2024 | | :----------------------------------- | :------ | :------ | :------ | :------ | | Total Noninterest Income | $14,415 | $12,176 | $27,641 | $21,562 | | Gain on Sale of Branch | $3,360 | $- | $3,360 | $- | | Gain on Extinguishment of Debt | $- | $- | $630 | $- | | Swap Fee Income | $808 | $285 | $1,547 | $514 | Noninterest Expense (Dollars in thousands) | Metric | Q2 2025 | Q2 2024 | H1 2025 | H1 2024 | | :----------------------------------- | :------ | :------ | :------ | :------ | | Total Noninterest Expense | $51,206 | $43,110 | $101,784 | $85,632 | | Salaries and Employee Benefits | $28,317 | $25,523 | $57,814 | $50,939 | | Data Processing | $5,321 | $2,641 | $8,557 | $5,220 | | Occupancy of Bank Premises | $3,119 | $2,634 | $6,520 | $5,148 | Income Tax Expense | Metric | Q2 2025 | Q2 2024 | H1 2025 | H1 2024 | | :------------------- | :------ | :------ | :------ | :------ | | Income Tax Expense | $5,923 | $4,559 | $11,199 | $8,198 | | Effective Tax Rate | 21.1% | 21.0% | 20.8% | 21.0% | Financial Condition Total assets increased by $91.2 million to $7.9 billion at June 30, 2025, driven by growth in the mortgage-backed investment portfolio and loan portfolio, with total loans held for investment increasing by 1.1% to $6.0 billion, commercial loans showing strong growth, nonperforming assets significantly increasing to $60.3 million, total deposits decreasing by 1.4% to $6.4 billion, and the allowance for credit losses increasing to $61.8 million, representing 1.02% of total loans - Total assets increased by $91.2 million (1.2%) from December 31, 2024, to June 30, 2025, primarily due to increases in mortgage-backed investment portfolio, unrealized gains, and the loan portfolio[168] Loan Portfolio Composition (Dollars in thousands) | Loan Type | June 30, 2025 | December 31, 2024 | | :-------------------------- | :-------------- | :---------------- | | Real Estate Loans: Commercial | $2,533,761 | $2,483,223 | | Real Estate Loans: Construction | $600,292 | $670,502 | | Real Estate Loans: Residential | $879,891 | $884,533 | | Commercial | $1,960,974 | $1,868,675 | | Consumer and Other | $72,732 | $74,466 | | Total Loans Held for Investment | $6,047,650 | $5,981,399 | - Commercial loans increased by $92.3 million (4.9%) to $2.0 billion as of June 30, 2025[180] Nonperforming Assets (Dollars in thousands) | Metric | June 30, 2025 | December 31, 2024 | | :-------------------------- | :-------------- | :---------------- | | Nonaccrual Loans | $56,377 | $24,147 | | Accruing Loans 90+ Days Past Due | $2,467 | $860 | | Total Nonperforming Loans | $58,844 | $25,007 | | Total Other Real Estate Owned | $1,473 | $5,529 | | Total Nonperforming Assets | $60,317 | $30,536 | | Ratio of Nonperforming Loans to Total Loans | 0.97% | 0.42% | | Ratio of Nonperforming Assets to Total Assets | 0.76% | 0.39% | Allowance for Credit Losses (Dollars in thousands) | Metric | June 30, 2025 | December 31, 2024 | | :----------------------------------- | :-------------- | :---------------- | | Allowance for Credit Losses at End of Period | $61,766 | $58,528 | | Ratio of Allowance for Credit Losses to Loans | 1.02% | 0.98% | | Ratio of Allowance for Credit Losses to Nonaccrual Loans | 109.56% | 242.38% | - Securities portfolio increased by $32.9 million (3.7%) to $926.5 million at June 30, 2025, primarily due to mortgage-backed securities purchases and net unrealized gains[204] - Total deposits decreased by $91.7 million (1.4%) to $6.4 billion at June 30, 2025, with uninsured deposits at $2.7 billion (42.1%), down from $2.8 billion (43.4%) at December 31, 2024[213] Average Deposits and Rates (Six Months Ended June 30, 2025 vs. Year Ended December 31, 2024) (Dollars in thousands) | Deposit Type | H1 2025 Average Balance | H1 2025 Average Rate | FY 2024 Average Balance | FY 2024 Average Rate | | :----------------------------------- | :---------------------- | :------------------- | :---------------------- | :------------------- | | Interest-bearing demand accounts | $776,029 | 2.54% | $611,561 | 3.36% | | Limited access money market accounts and savings | $2,569,752 | 3.33% | $2,146,610 | 2.79% | | Certificates and other time deposits > $250k | $367,336 | 3.96% | $628,929 | 4.52% | | Total Interest-bearing Deposits | $5,085,431 | 3.33% | $4,427,233 | 3.73% | | Noninterest-bearing Demand Accounts | $1,268,659 | -% | $1,285,445 | -% | | Total Deposits | $6,354,090 | 2.67% | $5,712,678 | 2.89% | Interest Rate Sensitivity and Market Risk The Company manages interest rate risk through its asset and liability management policy and monitoring system, with simulation models indicating that a +300 basis point change in interest rates would increase net interest income by 7.20% but decrease fair value of equity by 3.95% over a 12-month horizon as of June 30, 2025 - Primary market risk is sensitivity to interest rate movements, managed by the asset-liability committee (ALCO) of b1BANK[240][243] Simulated Change in Net Interest Income and Fair Value of Equity (12-month horizon) | Change in Interest Rates (Basis Points) | June 30, 2025: % Change in Net Interest Income | June 30, 2025: % Change in Fair Value of Equity | December 31, 2024: % Change in Net Interest Income | December 31, 2024: % Change in Fair Value of Equity | | :-------------------------------------- | :--------------------------------------------- | :--------------------------------------------- | :--------------------------------------------- | :--------------------------------------------- | | +300 | 7.20% | (3.95%) | 8.10% | (0.70%) | | +200 | 4.96% | (2.50%) | 5.60% | (0.30%) | | +100 | 2.55% | (1.14%) | 2.90% | -% | | Base | -% | -% | -% | -% | | -100 | (2.41%) | 1.10% | (2.30%) | 0.30% | | -200 | (4.75%) | 1.32% | (5.20%) | (1.30%) | Impact of Inflation The Company's financial statements are prepared using historical dollars, without adjusting for inflation, as interest rates have a more significant impact on performance than general inflation levels, though operating expenses do reflect general inflation - Interest rates have a more significant impact on the Company's performance than general inflation, as most assets and liabilities are monetary[247] - Operating expenses do reflect general levels of inflation[248] Non-GAAP Financial Measures The Company uses non-GAAP financial measures like 'core net income,' 'tangible book value per common share,' and 'tangible common equity to tangible assets' to supplement GAAP measures, with adjustments typically excluding acquisition-related expenses, gains/losses on asset sales, and goodwill/intangible assets to provide a clearer view of core business performance Core Net Income Available to Common Shareholders (Dollars in thousands, except per share data) | Metric | Q2 2025 | Q2 2024 | H1 2025 | H1 2024 | | :----------------------------------- | :------ | :------ | :------ | :------ | | Net Income Available to Common Shareholders | $20,753 | $15,856 | $39,946 | $28,076 | | Core Net Income Available to Common Shareholders | $19,525 | $16,273 | $38,806 | $29,081 | | Diluted EPS | $0.70 | $0.62 | $1.35 | $1.10 | | Core Diluted EPS | $0.66 | $0.64 | $1.31 | $1.14 | Tangible Book Value Per Common Share (Dollars in thousands, except per share data) | Metric | June 30, 2025 | December 31, 2024 | | :----------------------------------- | :-------------- | :---------------- | | Total Common Shareholders' Equity | $776,510 | $727,536 | | Goodwill | $(121,146) | $(121,572) | | Core Deposit and Customer Intangibles | $(15,775) | $(17,252) | | Total Tangible Common Equity | $639,589 | $588,712 | | Common Shares Outstanding | 29,602,970 | 29,552,358 | | Book Value Per Common Share | $26.23 | $24.62 | | Tangible Book Value Per Common Share | $21.61 | $19.92 | Tangible Common Equity to Tangible Assets (Dollars in thousands, except per share data) | Metric | June 30, 2025 | December 31, 2024 | | :----------------------------------- | :-------------- | :---------------- | | Total Tangible Common Equity | $639,589 | $588,712 | | Total Assets | $7,948,294 | $7,857,090 | | Goodwill | $(121,146) | $(121,572) | | Core Deposit and Customer Intangibles | $(15,775) | $(17,252) | | Total Tangible Assets | $7,811,373 | $7,718,266 | | Common Equity to Total Assets | 9.8% | 9.3% | | Tangible Common Equity to Tangible Assets | 8.2% | 7.6% | Item 3. Quantitative and Qualitative Disclosures About Market Risk The Company is exposed to interest rate, credit, and liquidity risks, which are managed through policies, procedures, and oversight, with interest rate risk controlled by asset-liability management, liquidity risk managed via the asset-liability management policy and contingency funding plan, and credit risk managed through credit policy and allowance for credit losses evaluation - Primary market risks include interest rate, credit, and liquidity risk[263] - Interest rate risk is managed through the asset-liability management policy[263] - Liquidity risk is managed through the asset-liability management policy and contingency funding plan[264] - Credit risk, primarily from the loan portfolio, is managed through credit policy and evaluation of the allowance for credit losses[265] Item 4. Controls and Procedures Management, with the participation of the principal executive and financial officers, concluded that disclosure controls and procedures were effective as of June 30, 2025, having remediated a previously reported material weakness in IT general controls related to change management segregation of duties during the first and second quarters of 2025, with no other material changes to internal controls over financial reporting Evaluation of Disclosure Controls and Procedures The principal executive officer and principal financial officer concluded that the Company's disclosure controls and procedures were effective as of June 30, 2025, providing reasonable assurance that required information is recorded, processed, summarized, and reported timely - Disclosure controls and procedures were effective as of June 30, 2025[266] Remediation of Material Weakness A material weakness in IT general controls related to change management segregation of duties, previously reported for December 31, 2024, was effectively remediated by June 30, 2025, through independent audit testing, Company monitoring, and conversion to a new core processing system - Material weakness in IT general controls around change management segregation of duties was remediated by June 30, 2025[267] - Remediation steps included independent audit testing, Company monitoring of the third-party service provider, and conversion to a new core processing system[267] Changes in Internal Controls over Financial Reporting Except for the remediation of the material weakness discussed, there were no other material changes in internal control over financial reporting during the period covered by this report - No other material changes in internal control over financial reporting, apart from the remediation of the material weakness[268] PART II - OTHER INFORMATION Item 1. Legal Proceedings The Company is involved in routine legal proceedings in the ordinary course of business, but management believes their disposition will not have a material adverse effect on the financial statements - The Company is not currently involved in any pending legal proceedings other than routine, nonmaterial proceedings[270] Item 1A. Risk Factors No material changes to risk factors were disclosed in the Annual Report on Form 10-K for December 31, 2024, other than those related to the proposed acquisition of Progressive Bancorp, Inc - No material changes in risk factors from the Annual Report on Form 10-K for December 31, 2024, except for risks related to the proposed acquisition of Progressive Bancorp, Inc[271] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds This item is not applicable to the Company for the reporting period - Not applicable[272] Item 3. Defaults Upon Senior Securities This item is not applicable to the Company for the reporting period - Not applicable[272] Item 4. Mine Safety Disclosures This item is not applicable to the Company for the reporting period - Not applicable[273] Item 5. Other Information During the three months ended June 30, 2025, no director or officer adopted or terminated a Rule 10b5-1 trading arrangement or non-Rule 10b5-1 trading agreement - No director or officer adopted or terminated a Rule 10b5-1 trading arrangement or non-Rule 10b5-1 trading agreement during the three months ended June 30, 2025[276] Item 6. Exhibits This section lists all exhibits filed with the Form 10-Q, including agreements, articles of incorporation, bylaws, specimen stock certificates, voting agreements, director support agreements, certifications, and Inline XBRL documents - Includes Agreement and Plan of Reorganization with Progressive Bancorp, Inc. (Exhibit 2.1)[274] - Includes Certifications of Principal Executive Officer and Principal Financial Officer (Exhibits 31.1, 31.2, 32.1)[277] - Includes Inline XBRL Instance Document and Taxonomy Extension Documents (Exhibits 101.INS, 101.SCH, 101.CAL, 101.DEF, 101.LAB, 101.PRE)[277] Signatures The report is signed by David R. Melville, III, Chairman, President and Chief Executive Officer, and Gregory Robertson, Chief Financial Officer, on August 5, 2025, pursuant to the Securities Exchange Act of 1934 - Signed by David R. Melville, III (Chairman, President, CEO) and Gregory Robertson (CFO) on August 5, 2025[281]