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Note 7 - Loans and the Allowance for Loan Losses -

12 Months Ended

Dec. 31, 2022

Note 7 – Loans and the Allowance for Loan Losses –

Loans receivable at December 31, 2022 and 2021 are summarized as follows:

	December 31,
	2022			2021
	(Dollars in thousands)
Real estate loans:
Construction and land	$	722,074		$	548,528
Farmland		193,587			87,463
1-4 family residential		557,741			467,699
Multi-family residential		98,637			97,508
Nonfarm nonresidential		1,826,819			1,144,426
Commercial		1,090,343			721,385
Consumer and other		116,975			122,599

Total loans held for investment		4,606,176			3,189,608

Less:
Allowance for loan losses		(38,178	)		(29,112	)

Net loans	$	4,567,998		$	3,160,496

SBA PPP loans accounted for $2.8 million and $5.4 million of the commercial loan portfolio as of December 31, 2022 and 2021, respectively.

The performing 1-4 family residential, multi-family residential, commercial real estate, and commercial loans, are pledged, under a blanket lien, as collateral securing advances from the FHLB at December 31, 2022 and 2021.

Net deferred loan origination fees were $13.1 million and $7.7 million at December 31, 2022 and 2021, 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, 2022 and 2021, overdrafts of $2.0 million and $2.4 million, respectively, have been reclassified to loans.

The Bank is the lead lender on participations sold, without recourse, to other financial institutions which amounts are not included in the consolidated balance sheets. The unpaid principal balances of mortgages and other loans serviced for others were approximately $683.3 million and $461.8 million at December 31, 2022 and 2021, respectively. The Company has servicing rights of $1.7 million and $1.4 million recorded at December 31, 2022 and 2021, respectively, which are recorded within other assets.

The Bank grants loans and extensions of credit to individuals and a variety of businesses and corporations located in its general market areas throughout Louisiana and Texas. Management segregates the loan portfolio into portfolio segments which is defined as the level at which the Bank develops and documents a systematic method for determining its allowance for 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 net unaccreted purchase discount. To the extent the calculated loss is greater than the remaining net unaccreted discount, an allowance is recorded for such difference. For purchased impaired credits, cash flow re-estimations are performed at least quarterly for each acquired impaired loan or loan pool. Increases in estimated cash flows above those expected at the time of acquisition are recognized on a prospective basis as interest income over the remaining life of the loan and/or pool. Decreases in expected cash flows subsequent to acquisition generally result in recognition of a provision for credit loss.

Total loans held for investment at December 31, 2022 includes $498.1 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, 2022 were acquired impaired loans accounted for under ASC 310-30 with a net carrying amount of $49.8 million and acquired performing loans not accounted for under ASC 310-30 totaling $450.0 million with a remaining purchase discount of $3.3 million.

Total loans held for investment at December 31, 2021 includes $379.0 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, 2021 were acquired impaired loans accounted for under ASC 310-30 with a net carrying amount of $51.2 million and acquired performing loans not accounted for under ASC 310-30 totaling $331.3 million with a remaining purchase discount of $3.5 million.

The following tables set forth, as of December 31, 2022 and 2021, 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, 2022
	(Dollars in thousands)
	Real Estate:					Real Estate:			Real Estate:			Real Estate:
	Construction			Real Estate:		1-4 Family			Multi-family			Nonfarm						Consumer
	and Land			Farmland		Residential			Residential			Nonresidential			Commercial			and Other			Total
Allowance for credit losses:
Beginning Balance	$	4,498		$	721	$	3,791		$	774		$	9,794		$	8,358		$	1,176		$	29,112
Charge-offs		(16	)		-		(191	)		-			(51	)		(2,091	)		(472	)		(2,821	)
Recoveries		25			-		20			-			50			697			209			1,001
Provision		1,261			833		1,003			(43	)		3,355			4,233			244			10,886
Ending Balance	$	5,768		$	1,554	$	4,623		$	731		$	13,148		$	11,197		$	1,157		$	38,178

Ending Balance:
Individually evaluated for impairment	$	21		$	-	$	99		$	-		$	59		$	2,002		$	33		$	2,214

Collectively evaluated for impairment	$	5,747		$	1,554	$	4,524		$	731		$	13,089		$	9,195		$	1,124		$	35,964

Purchased Credit Impaired	$	-		$	-	$	-		$	-		$	-		$	-		$	-		$	-

Loans receivable:
Ending Balance	$	722,074		$	193,587	$	557,741		$	98,637		$	1,826,819		$	1,090,343		$	116,975		$	4,606,176

Ending Balance:
Individually evaluated for impairment	$	992		$	16	$	4,028		$	-		$	3,037		$	6,325		$	309		$	14,707

Collectively evaluated for impairment	$	720,129		$	193,557	$	538,558		$	98,637		$	1,796,274		$	1,078,544		$	115,983		$	4,541,682

Purchased Credit Impaired	$	953		$	14	$	15,155		$	-		$	27,508		$	5,474		$	683		$	49,787

	December 31, 2021
	(Dollars in thousands)
	Real Estate:						Real Estate:			Real Estate:			Real Estate:
	Construction			Real Estate:			1-4 Family			Multi-family			Nonfarm						Consumer
	and Land			Farmland			Residential			Residential			Nonresidential			Commercial			and Other			Total
Allowance for credit losses:
Beginning balance	$	3,584		$	600		$	3,453		$	818		$	7,369		$	5,018		$	1,182		$	22,024
Charge-offs		(28	)		(1	)		(169	)		-			(139	)		(830	)		(469	)		(1,636	)
Recoveries		1			2			39			-			99			417			119			677
Provision		941			120			468			(44	)		2,465			3,753			344			8,047
Ending Balance	$	4,498		$	721		$	3,791		$	774		$	9,794		$	8,358		$	1,176		$	29,112

Ending Balance:
Individually evaluated for impairment	$	26		$	-		$	110		$	-		$	83		$	438		$	37		$	694

Collectively evaluated for impairment	$	4,472		$	721		$	3,681		$	774		$	9,711		$	7,920		$	1,139		$	28,418

Purchased Credit Impaired	$	-		$	-		$	-		$	-		$	-		$	-		$	-		$	-

Loans receivable:
Ending Balance	$	548,528		$	87,463		$	467,699		$	97,508		$	1,144,426		$	721,385		$	122,599		$	3,189,608

Ending Balance:
Individually evaluated for impairment	$	1,358		$	74		$	3,627		$	-		$	2,959		$	5,514		$	289		$	13,821

Collectively evaluated for impairment	$	546,164		$	87,387		$	444,934		$	97,508		$	1,118,836		$	708,346		$	121,392		$	3,124,567

Purchased Credit Impaired	$	1,006		$	2		$	19,138		$	-		$	22,631		$	7,525		$	918		$	51,220

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 the Company’s market areas. Risks associated with these loans include fluctuations in the value of real estate, project completion risk and change in market trends. The Company is also exposed to risk based on the ability of the construction loan borrower to finance the loan or sell the property upon completion of the project, which may be affected by changes in secondary market terms and criteria for permanent financing since the time that the Company funded the loan.

Farmland loans are loans that can be, or are, used for agricultural purposes. These loans are usually repaid through permanent financing, cash flow from the borrower’s ongoing operations, development of the property, or sale of the property.

One-to-four family residential loans include first and second lien 1-4 family mortgage loans, as well as home equity lines of credit, in each case primarily on owner-occupied primary residences. The Company is exposed to risk based on fluctuations in the value of the real estate collateral securing the loan, as well as changes in the borrower’s financial condition, which could be affected by numerous factors, including divorce, job loss, illness or other personal hardship.

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

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

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, 2022 and 2021, the credit quality indicators, disaggregated by class of loan, are as follows:

Credit Quality Indicators

	December 31, 2022
	Pass		Special Mention		Substandard		Doubtful		Total
	(Dollars in thousands)
Real Estate Loans:
Construction and land	$	716,071	$	3,496	$	2,157	$	350	$	722,074
Farmland		191,475		2,082		16		14		193,587
1-4 family residential		545,142		3,780		7,909		910		557,741
Multi-family residential		98,621		-		16		-		98,637
Nonfarm nonresidential		1,781,136		32,972		10,462		2,249		1,826,819
Commercial		1,074,417		6,520		6,761		2,645		1,090,343
Consumer and other		116,179		126		603		67		116,975
Total	$	4,523,041	$	48,976	$	27,924	$	6,235	$	4,606,176

	December 31, 2021
	Pass		Special Mention		Substandard		Doubtful		Total
	(Dollars in thousands)
Real Estate Loans:
Construction and land	$	545,071	$	266	$	1,850	$	1,341	$	548,528
Farmland		86,063		1,324		-		76		87,463
1-4 family residential		456,150		3,109		2,801		5,639		467,699
Multi-family residential		97,485		-		23		-		97,508
Nonfarm nonresidential		1,094,782		34,495		9,735		5,414		1,144,426
Commercial		704,755		7,886		3,137		5,607		721,385
Consumer and other		121,566		350		257		426		122,599
Total	$	3,105,872	$	47,430	$	17,803	$	18,503	$	3,189,608

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, 2022 and 2021, loan balances outstanding more than 90 days past due and still accruing interest amounted to $335,000 and $222,000, respectively. As of December 31, 2022 and 2021, loan balances outstanding on nonaccrual status amounted to $11.1 million and $12.9 million, respectively. The Bank considers all loans more than 90 days past due as nonperforming loans.

The following tables provide an analysis of the aging of loans and leases as of December 31, 2022 and December 31, 2021. Past due and nonaccrual loan amounts exclude acquired impaired loans, even if contractually past due or if the Company does not expect to receive payment in full, as the Company is currently accreting interest income over the expected life of the loans. All loans greater than 90 days past due are generally placed on nonaccrual status.

Aged Analysis of Past Due Loans Receivable

	December 31, 2022
	(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	$	320	$	41	$	638	$	999	$	721,075	$	722,074	$	-
Farmland		49		-		50		99		193,488		193,587		50
1-4 family residential		1,590		423		1,781		3,794		553,947		557,741		-
Multi-family residential		-		-		-		-		98,637		98,637		-
Nonfarm nonresidential		1,442		210		1,631		3,283		1,823,536		1,826,819		48
Commercial		1,035		1,919		2,069		5,023		1,085,320		1,090,343		222
Consumer and other		443		43		299		785		116,190		116,975		15
Total	$	4,879	$	2,636	$	6,468	$	13,983	$	4,592,193	$	4,606,176	$	335

	December 31, 2021
	(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	$	632	$	16	$	488	$	1,136	$	547,392	$	548,528	$	-
Farmland		83		-		-		83		87,380		87,463		-
1-4 family residential		917		534		1,496		2,947		464,752		467,699		107
Multi-family residential		-		-		-		-		97,508		97,508		-
Nonfarm nonresidential		222		627		1,767		2,616		1,141,810		1,144,426		-
Commercial		106		55		4,257		4,418		716,967		721,385		97
Consumer and other		392		144		271		807		121,792		122,599		18
Total	$	2,352	$	1,376	$	8,279	$	12,007	$	3,177,601	$	3,189,608	$	222

Loan Receivables on Nonaccrual Status

	December 31,
	2022		2021
	(Dollars in thousands)
Real Estate Loans:
Construction and land	$	992	$	1,341
Farmland		16		76
1-4 family residential		4,080		3,601
Multi-family residential		-		-
Nonfarm nonresidential		2,628		2,614
Commercial		3,033		4,947
Consumer and other		305		289
Total	$	11,054	$	12,868

The following is a summary of information pertaining to impaired loans as of December 31, 2022 and December 31, 2021. Purchased performing 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 $378,000 and $334,000 for the years ended December 31, 2022 and 2021, respectively.

	December 31, 2022
	(Dollars in thousands)
			Unpaid				Average
	Recorded		Principal		Related		Recorded
	Investment		Balance		Allowance		Investment
With an allowance recorded:
Real Estate Loans:
Construction and land	$	21	$	25	$	21	$	131
Farmland		-		-		-		-
1-4 family residential		663		700		99		402
Multi-family residential		-		-		-		-
Nonfarm nonresidential		729		778		59		707
Other Loans:
Commercial		5,507		5,656		2,002		2,246
Consumer and other		74		75		33		67
Total	$	6,994	$	7,234	$	2,214	$	3,553

With no allowance recorded:
Real Estate Loans:
Construction and land	$	971	$	1,000	$	-	$	828
Farmland		16		19		-		71
1-4 family residential		3,365		4,295		-		3,341
Multi-family residential		-		-		-		-
Nonfarm nonresidential		2,309		2,832		-		4,031
Other Loans:
Commercial		817		2,896		-		3,662
Consumer and other		235		435		-		167
Total	$	7,713	$	11,477	$	-	$	12,100

Total Impaired Loans:
Real Estate Loans:
Construction and land	$	992	$	1,025	$	21	$	959
Farmland		16		19		-		71
1-4 family residential		4,028		4,995		99		3,743
Multi-family residential		-		-		-		-
Nonfarm nonresidential		3,038		3,610		59		4,738
Other Loans:
Commercial		6,324		8,552		2,002		5,908
Consumer and other		309		510		33		234
Total	$	14,707	$	18,711	$	2,214	$	15,653

	December 31, 2021
	(Dollars in thousands)
			Unpaid				Average
	Recorded		Principal		Related		Recorded
	Investment		Balance		Allowance		Investment
With an allowance recorded:
Real Estate Loans:
Construction and land	$	68	$	70	$	26	$	27
Farmland		-		-		-		12
1-4 family residential		314		371		110		325
Multi-family residential		-		-		-		-
Nonfarm nonresidential		784		801		83		623
Other Loans:
Commercial		695		836		438		1,217
Consumer and other		91		92		37		80
Total	$	1,952	$	2,170	$	694	$	2,284

With no allowance recorded:
Real Estate Loans:
Construction and land	$	1,290	$	1,356	$	-	$	1,050
Farmland		74		82		-		150
1-4 family residential		3,313		4,171		-		2,835
Multi-family residential		-		-		-		48
Nonfarm nonresidential		2,175		2,691		-		2,889
Other Loans:
Commercial		4,819		5,211		-		3,882
Consumer and other		198		467		-		184
Total	$	11,869	$	13,978	$	-	$	11,038

Total Impaired Loans:
Real Estate Loans:
Construction and land	$	1,358	$	1,426	$	26	$	1,077
Farmland		74		82		-		162
1-4 family residential		3,627		4,542		110		3,160
Multi-family residential		-		-		-		48
Nonfarm nonresidential		2,959		3,492		83		3,512
Other Loans:
Commercial		5,514		6,047		438		5,099
Consumer and other		289		559		37		264
Total	$	13,821	$	16,148	$	694	$	13,322

As discussed in Note 3, the Company acquired loans with fair values of $338.0 million from TCBI on March 1, 2022. Of the total $338.0 million of loans acquired, $316.5 million were determined to have no evidence of deteriorated credit quality and are accounted for under ASC Topics 310-10 and 310-20. The unamortized discount related to the acquired performing loans totaled $1.7 million at March 1, 2022. The remaining $21.5 million were determined to exhibit deteriorated credit quality since origination under ASC 310-30.

The following table presents the balances acquired on March 1, 2022 which were accounted for under ASC 310-30.

	Purchased
	Impaired Credits
	(Dollars in thousands)

Contractually required payments	$	52,899
Non-accretable difference (expected losses)		(26,803	)
Cash flows expected to be collected at acquisition		26,096
Accretable yield		(4,622	)
Basis in acquired loans at acquisition	$	21,474

The following is a summary of changes in the accretable difference for loans accounted for under ASC 310-30 during the year ended December 31, 2022:

Balance at December 31, 2021	$	20,659
Additions		4,622
Transfers from non-accretable difference to accretable yield		8,400
Accretion		(7,739	)
Changes in expected cash flows not affecting non-accretable differences		(3,658	)
Balance at December 31, 2022	$	22,284

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, 2022 and 2021, the concessions granted to certain borrowers included extending the payment due dates and offering below market contractual interest rates.

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 Company had one troubled debt restructuring that subsequently defaulted during the year ended December 31, 2022 in amount of $1.5 million and three during the year ended December 31, 2021 in the amount of $154,000. The Company modified one loan that was categorized as a trouble debt restructuring during the year ended December 31, 2022, with a pre-modification balance of $3.5 million and a post-modification balance of $3.2 million. During the year ended December 31, 2021, the Company did not modify any loans that were categorized as trouble debt restructurings.

As of December 31, 2022 and 2021, our loan portfolio included loans with outstanding principal balances of $425.2 million and $522.0 million, respectively, that had previously been granted payment deferrals due to the effects of the COVID-19 pandemic. As of both December 31, 2022 and 2021, the Company had no loans with outstanding principal balances still in their pandemic-related deferral periods. Under Section 4013 of the CARES Act, as extended by the Consolidated Appropriations Act of 2021, and based on the interpretive guidance released by the FASB and the applicable banking regulators, the Company determined that none of the modifications associated with the COVID-19 pandemic were troubled debt restructurings at both December 31, 2022 and 2021.

Accrued interest receivable of $5.4 million and $6.0 million was outstanding as of December 31, 2022 and 2021, respectively, for all loan deferrals.