Note

– Loans and the Allowance for Loan Losses –

Loans receivable at

December 31, 2018

and

2017

are summarized as follows:

	December 31,
	2018			2017
	(Dollars in thousands)
Real estate loans:
Construction and land	$	211,054		$	143,535
Farmland		45,989			10,480
1-4 family residential		270,583			157,505
Multi-family residential		39,273			20,717
Nonfarm nonresidential		518,660			337,699
Commercial		363,640			254,427
Consumer		79,270			50,921
Total loans held for investment		1,528,469			975,284

Less:
Allowance for loan losses		(11,220	)		(8,765	)
Net loans	$	1,517,249		$	966,519

The performing

one

-to-

four

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, 2018

and

2017.

Net deferred loan origination fees were

$1.7

million and

$1.3

million at

December 31, 2018

and

2017,

respectively, and are netted in their respective loan categories above. In addition to loans issued in the normal course of business, the Company considers overdrafts on customer deposit accounts to be loans, and reclassifies overdrafts as loans in its consolidated balance sheets. At

December 31, 2018

and

2017,

overdrafts of

$858,000

and

$129,000,

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 balance sheet. The unpaid principal balances of mortgages and other loans serviced for others were approximately

$147.0

million and

$82.4

million at

December 31, 2018

and

2017,

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,

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.

Loans acquired in business combinations were recorded at estimated fair value at the acquisition date with

carryover of the related allowance for loan losses.

Total loans held for investment at

December 31, 2018

includes

$334.8

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, 2018

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

$10.7

million and acquired performing loans

not

accounted for under ASC

310

totaling

$327.3

million with a related purchase discount of

$3.2

million.

Total loans held for investment at

December 31, 2017

includes

$46.1

million of loans acquired in an acquisition that were recorded at fair value as of the acquisition date. Included in the acquired balances at

December 31, 2017

were acquired impaired loans with a net carrying amount of

$696,000

and acquired performing loans totaling

$47.2

million with a related purchase discount of

$1.8

million.

The following table sets forth, as of

December 31, 2018

and

2017,

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

	December 31, 2018
	(Dollars in thousands)
	Real Estate:					Real Estate:			Real Estate:		Real Estate:
	Construction			Real Estate:		1-4 Family			Multi-family		Nonfarm
	and Land			Farmland		Residential			Residential		Nonresidential		Commercial		Consumer			Total
Allowance for credit losses:
Beginning Balance	$	1,421		$	76	$	1,284		$	144	$	2,323	$	3,147	$	370		$	8,765
Charge-offs		(90	)		-		(294	)		-		-		-		(88	)		(472	)
Recoveries		398			-		18			-		13		28		80			537
Provision		(139	)		28		530			92		379		1,278		222			2,390
Ending Balance	$	1,590		$	104	$	1,538		$	236	$	2,715	$	4,453	$	584		$	11,220

Ending Balance:
Individually evaluated for impairment	$	-		$	-	$	96		$	-	$	47	$	1,112	$	25		$	1,280

Collectively evaluated for impairment	$	1,590		$	104	$	1,442		$	236	$	2,668	$	3,341	$	559		$	9,940

Purchased Credit Impaired (1)	$	-		$	-	$	-		$	-	$	-	$	-	$	-		$	-

Loans receivable:
Ending Balance	$	211,054		$	45,989	$	270,583		$	39,273	$	518,660	$	363,640	$	79,270		$	1,528,469

Ending Balance:
Individually evaluated for impairment	$	32		$	112	$	2,728		$	-	$	4,155	$	5,208	$	125		$	12,360

Collectively evaluated for impairment	$	211,022		$	45,713	$	267,761		$	39,273	$	507,506	$	354,985	$	79,145		$	1,505,405

Purchased Credit Impaired (1)	$	-		$	164	$	94		$	-	$	6,999	$	3,447	$	-		$	10,704

(

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

	December 31, 2017
	(Dollars in thousands)
	Real Estate:					Real Estate:			Real Estate:			Real Estate:
	Construction			Real Estate:		1-4 Family			Multi-family			Nonfarm
	and Land			Farmland		Residential			Residential			Nonresidential			Commercial			Consumer			Total
Allowance for credit losses:
Beginning balance	$	933		$	75	$	1,228		$	172		$	2,314		$	3,039		$	401		$	8,162
Charge-offs		(2	)		-		(184	)		-			(617	)		(2,945	)		(36	)		(3,784	)
Recoveries		1			-		48			-			23			40			38			150
Provision		489			1		192			(28	)		603			3,013			(33	)		4,237
Ending Balance	$	1,421		$	76	$	1,284		$	144		$	2,323		$	3,147		$	370		$	8,765

Ending Balance:
Individually evaluated for impairment	$	36		$	-	$	125		$	-		$	46		$	329		$	-		$	536

Collectively evaluated for impairment	$	1,385		$	76	$	1,125		$	144		$	2,277		$	2,818		$	370		$	8,195

Purchased Credit Impaired (1)	$	-		$	-	$	34		$	-		$	-		$	-		$	-		$	34

Loans receivable:
Ending Balance	$	143,535		$	10,480	$	157,505		$	20,717		$	337,699		$	254,427		$	50,921		$	975,284

Ending Balance:
Individually evaluated for impairment	$	92		$	-	$	2,817		$	-		$	5,831		$	4,268		$	441		$	13,449

Collectively evaluated for impairment	$	143,443		$	10,480	$	154,480		$	20,717		$	331,380		$	250,159		$	50,480		$	961,139

Purchased Credit Impaired (1)	$	-		$	-	$	208		$	-		$	488		$	-		$	-		$	696

(

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

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

December 31, 2018

and

2017,

the credit quality indicators, disaggregated by class of loan, are as follows:

Credit Quality Indicators

	December 31, 2018
	Pass		Special Mention		Substandard		Doubtful		Total
	(Dollars in thousands)
Real Estate Loans:
Construction and land	$	209,027	$	718	$	1,277	$	32	$	211,054
Farmland		45,563		153		161		112		45,989
1-4 family residential		260,325		4,601		2,929		2,728		270,583
Multi-family residential		39,237		-		36		-		39,273
Nonfarm nonresidential		494,698		14,421		3,510		6,031		518,660
Commercial		347,839		5,690		7,448		2,663		363,640
Consumer		77,731		1,180		234		125		79,270
Total	$	1,474,420	$	26,763	$	15,595	$	11,691	$	1,528,469

	December 31, 2017
	Pass		Special Mention		Substandard		Doubtful		Total
	(Dollars in thousands)
Real Estate Loans:
Construction and land	$	141,128	$	1,953	$	362	$	92	$	143,535
Farmland		10,480		-		-		-		10,480
1-4 family residential		148,845		4,657		1,574		2,429		157,505
Multi-family residential		20,677		-		40		-		20,717
Nonfarm nonresidential		325,216		4,861		1,687		5,935		337,699
Commercial		228,157		20,681		1,951		3,638		254,427
Consumer		49,787		672		21		441		50,921
Total	$	924,290	$	32,824	$	5,635	$	12,535	$	975,284

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, 2018

and

2017,

loan balances outstanding more than

days past due and still accruing interest amounted to

$1.9

million and

$132,000,

respectively. As of

December 31, 2018

and

2017,

loan balances outstanding on non-accrual status amounted to

$11.7

million and

$12.5

million, respectively. The Bank considers all loans more than

days past due as nonperforming loans.

The following table reflects certain information with respect to the loan portfolio delinquencies by loan class and amount as of

December 31, 2018

and

2017.

All loans greater than

days past due are generally placed on non-accrual status.

Aged Analysis of Past Due Loans Receivable

	December 31, 2018
	(Dollars in thousands)
													Recorded
					Greater								Investment Over
	30-59 Days		60-89 Days		Than 90 Days		Total				Total Loans		90 Days Past Due
	Past Due		Past Due		Past Due		Past Due		Current		Receivable		and Still Accruing
Real Estate Loans:
Construction and land	$	325	$	13	$	89	$	427	$	210,627	$	211,054	$	60
Farmland		-		96		-		96		45,893		45,989		-
1-4 family residential		1,596		588		1,400		3,584		266,999		270,583		270
Multi-family residential		36		-		-		36		39,237		39,273		-
Nonfarm nonresidential		2,437		-		3,967		6,404		512,256		518,660		450
Commercial		328		287		3,241		3,856		359,784		363,640		1,038
Consumer		237		89		106		432		78,838		79,270		58
Total	$	4,959	$	1,073	$	8,803	$	14,835	$	1,513,634	$	1,528,469	$	1,876

	December 31, 2017
	(Dollars in thousands)
													Recorded
					Greater								Investment Over
	30-59 Days		60-89 Days		Than 90 Days		Total				Total Loans		90 Days Past Due
	Past Due		Past Due		Past Due		Past Due		Current		Receivable		and Still Accruing
Real Estate Loans:
Construction and land	$	-	$	-	$	91	$	91	$	143,444	$	143,535	$	-
Farmland		-		-		-		-		10,480		10,480		-
1-4 family residential		470		319		939		1,728		155,777		157,505		73
Multi-family residential		-		-		-		-		20,717		20,717		-
Nonfarm nonresidential		2,344		103		3,329		5,776		331,923		337,699		-
Commercial		-		-		3,274		3,274		251,153		254,427		59
Consumer		6		-		367		373		50,548		50,921		-
Total	$	2,820	$	422	$	8,000	$	11,242	$	964,042	$	975,284	$	132

Loan Receivables on Nonaccrual Status

	December 31,
	2018		2017
	(Dollars in thousands)
Real Estate Loans:
Construction and land	$	32	$	92
Farmland		112		-
1-4 family residential		2,728		2,429
Multi-family residential		-		-
Nonfarm nonresidential		6,031		5,935
Commercial		2,663		3,638
Consumer		125		441
Total	$	11,691	$	12,535

The following is a summary of information pertaining to impaired loans as of

December 31, 2018

and

2017.

Acquired non-impaired loans are placed on nonaccrual status and reported as impaired using the same criteria applied to the originated portfolio. Purchased impaired credits are excluded from this table. The interest income recognized for impaired loans was

$254,000

and

$247,000

for the years ended

December 31, 2018

and

2017,

respectively.

	December 31, 2018
	(Dollars in thousands)
			Unpaid				Average
	Recorded		Principal		Related		Recorded
	Investment		Balance		Allowance		Investment
With an allowance recorded:
Real Estate Loans:
Construction and land	$	-	$	-	$	-	$	22
Farmland		-		-		-		-
1-4 family residential		363		451		96		303
Multi-family residential		-		-		-		-
Nonfarm nonresidential		447		501		47		367
Other Loans:
Commercial		1,883		2,935		1,112		547
Consumer		25		25		25		2
Total	$	2,718	$	3,912	$	1,280	$	1,241

With no allowance recorded:
Real Estate Loans:
Construction and land	$	32	$	56	$	-	$	15
Farmland		112		193		-		9
1-4 family residential		2,365		3,975		-		2,708
Multi-family residential		-		-		-		-
Nonfarm nonresidential		3,708		3,833		-		5,240
Other Loans:
Commercial		3,325		4,198		-		5,350
Consumer		100		144		-		261
Total	$	9,642	$	12,399	$	-	$	13,583

Total Impaired Loans:
Real Estate Loans:
Construction and land	$	32	$	56	$	-	$	37
Farmland		112		193		-		9
1-4 family residential		2,728		4,426		96		3,011
Multi-family residential		-		-		-		-
Nonfarm nonresidential		4,155		4,334		47		5,607
Other Loans:
Commercial		5,208		7,133		1,112		5,897
Consumer		125		169		25		263
Total	$	12,360	$	16,311	$	1,280	$	14,824

	December 31, 2017
	(Dollars in thousands)
			Unpaid				Average
	Recorded		Principal		Related		Recorded
	Investment		Balance		Allowance		Investment
With an allowance recorded:
Real Estate Loans:
Construction and land	$	90	$	90	$	36	$	74
Farmland		-		-		-		-
1-4 family residential		491		540		125		787
Multi-family residential		-		-		-		-
Nonfarm nonresidential		316		341		46		462
Other Loans:
Commercial		539		572		329		502
Consumer		-		-		-		5
Total	$	1,436	$	1,543	$	536	$	1,830

With no allowance recorded:
Real Estate Loans:
Construction and land	$	3	$	9	$	-	$	44
Farmland		-		-		-		-
1-4 family residential		2,325		2,744		-		2,188
Multi-family residential		-		-		-		-
Nonfarm nonresidential		5,515		5,653		-		3,402
Other Loans:
Commercial		3,729		5,581		-		5,898
Consumer		441		472		-		243
Total	$	12,013	$	14,459	$	-	$	11,775

Total Impaired Loans:
Real Estate Loans:
Construction and land	$	93	$	99	$	36	$	118
Farmland		-		-		-		-
1-4 family residential		2,816		3,284		125		2,975
Multi-family residential		-		-		-		-
Nonfarm nonresidential		5,831		5,994		46		3,864
Other Loans:
Commercial		4,268		6,153		329		6,400
Consumer		441		472		-		248
Total	$	13,449	$	16,002	$	536	$	13,605

The Company elected to account for certain loans acquired in business combinations as acquired impaired loans under ASC

310

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

for the periods presented.

	Purchased
	Impaired Credits
	(Dollars in thousands)

Carrying amount - December 31, 2016	$	1,776
Payments received, net of discounts realized		(924	)
Purchased impaired credit participation interest sales proceeds, net of discount realized		511
Charge-offs		(667	)
Carrying amount - December 31, 2017		696
Carrying amount of purchased impaired credits acquired in MBI acquisition		5,798
Carrying amount of purchased impaired credits acquired in RSBI acquisition		4,533
Payments received, net of discounts realized		(507	)
Purchased impaired credit participation interest sales proceeds, net of discount realized		210
Charge-offs		(26	)
Carrying amount - December 31, 2018	$	10,704

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, 2018

and

2017,

the concessions granted to certain borrowers included extending the payment due dates, lowering the contractual interest rate, reducing accrued interest, and reducing the debt’s face or maturity amount.

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 asset-specific 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.

The following tables present informative data regarding troubled debt restructurings as of

December 31, 2018

and

2017.

Modifications as of December 31, 2018:
			Pre-Modification		Post-Modification
	Number		Outstanding		Outstanding
	of		Recorded		Recorded
	Contracts		Investment		Investment
	(Dollars in thousands)
Troubled Debt Restructuring
Real Estate Loans:
1-4 family residential		1	$	-	$	-
Nonfarm nonresidential		3		2,412		2,308
Other Loans:
Commercial		6		5,914		3,512
Total		10	$	8,326	$	5,820

Modifications as of December 31, 2017:
			Pre-Modification		Post-Modification
	Number		Outstanding		Outstanding
	of		Recorded		Recorded
	Contracts		Investment		Investment
	(Dollars in thousands)
Troubled Debt Restructuring
Real Estate Loans:
1-4 family residential		2	$	703	$	455
Other Loans:
Commercial		4		4,498		2,605
Total		6	$	5,201	$	3,060

The Bank had

$79,000

and

$3.3

million in troubled debt restructurings that subsequently defaulted during the years ended

December 31, 2018

and

2017,

respectively.