Note

– Loans and the Allowance for Loan Losses –

Loans receivable at

December 31, 2019

and

2018

are summarized as follows:

	December 31,
	2019			2018
	(Dollars in thousands)
Real estate loans:
Construction and land	$	244,181		$	211,054
Farmland		48,681			45,989
1-4 family residential		293,142			270,583
Multi-family residential		36,454			39,273
Nonfarm nonresidential		612,608			518,660
Commercial		390,398			363,640
Consumer		84,801			79,270
Total loans held for investment		1,710,265			1,528,469

Less:
Allowance for loan losses		(12,124	)		(11,220	)
Net loans	$	1,698,141		$	1,517,249

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, 2019

and

2018.

Net deferred loan origination fees were

$3.0

million and

$1.7

million at

December 31, 2019

and

2018,

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, 2019

and

2018,

overdrafts of

$276,000

and

$858,000,

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

$129.7

million and

$147.0

million at

December 31, 2019

and

2018,

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, 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

with a net carrying amount of

$5.0

million and acquired performing loans

not

accounted for under ASC

310

totaling

$177.1

million with a related purchase discount of

$2.0

million.

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 ASC

310

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.

The following tables set forth, as of

December 31, 2019

and

2018,

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, 2019
	(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	$	1,590		$	104		$	1,538		$	236		$	2,715		$	4,453		$	584		$	11,220
Charge-offs		(2	)		(2	)		(162	)		-			(51	)		(1,556	)		(52	)		(1,825	)
Recoveries		-			-			14			-			4			41			64			123
Provision		280			127			498			(10	)		1,214			476			21			2,606
Ending Balance	$	1,868		$	229		$	1,888		$	226		$	3,882		$	3,414		$	617		$	12,124

Ending Balance:
Individually evaluated for impairment	$	-		$	4		$	30		$	-		$	52		$	421		$	49		$	556

Collectively evaluated for impairment	$	1,868		$	225		$	1,858		$	226		$	3,830		$	2,993		$	568		$	11,568

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

Loans receivable:
Ending Balance	$	244,181		$	48,681		$	293,142		$	36,454		$	612,608		$	390,398		$	84,801		$	1,710,265

Ending Balance:
Individually evaluated for impairment	$	397		$	222		$	2,531		$	-		$	4,101		$	4,175		$	421		$	11,847

Collectively evaluated for impairment	$	243,784		$	48,324		$	290,549		$	36,454		$	603,891		$	386,027		$	84,380		$	1,693,409

Purchased Credit Impaired (1)	$	-		$	135		$	62		$	-		$	4,616		$	196		$	-		$	5,009

(

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

	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.

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.

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

December 31, 2019

and

2018,

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

Credit Quality Indicators

	December 31, 2019
	Pass		Special Mention		Substandard		Doubtful		Total
	(Dollars in thousands)
Real Estate Loans:
Construction and land	$	241,519	$	1,141	$	1,124	$	397	$	244,181
Farmland		46,591		1,737		14		339		48,681
1-4 family residential		284,381		3,175		3,237		2,349		293,142
Multi-family residential		36,422		-		32		-		36,454
Nonfarm nonresidential		594,046		11,077		3,830		3,655		612,608
Commercial		374,500		9,219		4,854		1,825		390,398
Consumer		82,726		1,538		125		412		84,801
Total	$	1,660,185	$	27,887	$	13,216	$	8,977	$	1,710,265

	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

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, 2019

and

2018,

loan balances outstanding more than

days past due and still accruing interest amounted to

$72,000

and

$1.9

million, respectively. As of

December 31, 2019

and

2018,

loan balances outstanding on nonaccrual status amounted to

$9.0

million and

$11.7

million, respectively. The Bank considers all loans more than

days past due as nonperforming loans.

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

December 31, 2019

and

2018.

All loans greater than

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

Aged Analysis of Past Due Loans Receivable

	December 31, 2019
	(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	$	483	$	17	$	379	$	879	$	243,302	$	244,181	$	-
Farmland		18		16		143		177		48,504		48,681		-
1-4 family residential		1,245		975		1,000		3,220		289,922		293,142		29
Multi-family residential		32		-		-		32		36,422		36,454		-
Nonfarm nonresidential		181		610		1,529		2,320		610,288		612,608		-
Commercial		126		142		1,311		1,579		388,819		390,398		-
Consumer		143		34		405		582		84,219		84,801		43
Total	$	2,228	$	1,794	$	4,767	$	8,789	$	1,701,476	$	1,710,265	$	72

	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

Loan Receivables on Nonaccrual Status

	December 31,
	2019		2018
	(Dollars in thousands)
Real Estate Loans:
Construction and land	$	397	$	32
Farmland		339		112
1-4 family residential		2,349		2,728
Multi-family residential		-		-
Nonfarm nonresidential		3,655		6,031
Commercial		1,825		2,663
Consumer		412		125
Total	$	8,977	$	11,691

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

December 31, 2019

and

2018.

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

$292,000

and

$254,000

for the years ended

December 31, 2019

and

2018,

respectively.

	December 31, 2019
	(Dollars in thousands)
			Unpaid				Average
	Recorded		Principal		Related		Recorded
	Investment		Balance		Allowance		Investment
With an allowance recorded:
Real Estate Loans:
Construction and land	$	-	$	-	$	-	$	1
Farmland		20		21		4		21
1-4 family residential		136		167		30		163
Multi-family residential		-		-		-		-
Nonfarm nonresidential		721		738		52		601
Other Loans:
Commercial		851		926		421		1,053
Consumer		120		123		49		116
Total	$	1,848	$	1,975	$	556	$	1,955

With no allowance recorded:
Real Estate Loans:
Construction and land	$	397	$	420	$	-	$	184
Farmland		202		207		-		177
1-4 family residential		2,395		3,041		-		2,531
Multi-family residential		-		-		-		-
Nonfarm nonresidential		3,381		3,693		-		3,644
Other Loans:
Commercial		3,323		4,173		-		4,157
Consumer		301		358		-		192
Total	$	9,999	$	11,892	$	-	$	10,885

Total Impaired Loans:
Real Estate Loans:
Construction and land	$	397	$	420	$	-	$	185
Farmland		222		228		4		198
1-4 family residential		2,531		3,208		30		2,694
Multi-family residential		-		-		-		-
Nonfarm nonresidential		4,102		4,431		52		4,245
Other Loans:
Commercial		4,174		5,099		421		5,210
Consumer		421		481		49		308
Total	$	11,847	$	13,867	$	556	$	12,840

	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

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, 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
Payments received, net of discounts realized		(5,695	)
Carrying amount - December 31, 2019	$	5,009

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, 2019

and

2018,

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 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, 2019

and

2018.

Modifications as of

December 31, 2019:

			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		3	$	235	$	219
Nonfarm nonresidential		3		2,411		2,044
Other Loans:
Commercial		6		5,914		2,755
Consumer		1		11		9

Total		13	$	8,571	$	5,027

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

The Bank had

$79,000

in troubled debt restructurings that subsequently defaulted during the year ended

December 31, 2018

and

none

during the year ended

December 31, 2019.