Loans and the Allowance for Loan Losses

9 Months Ended

Sep. 30, 2024

Loans and the Allowance for Loan Losses –

Loans receivable at September 30, 2024 and December 31, 2023 are summarized as follows:


	September 30, 2024		December 31, 2023
	(Dollars in thousands)
Real Estate Loans:
Commercial	$	2,256,370	$	2,217,928
Construction	654,353		669,798
Residential	743,878		682,394
Total Real Estate Loans	3,654,601		3,570,120
Commercial	1,496,480		1,358,838
Consumer and Other	69,037		63,827
Total Loans Held for Investment	5,220,118		4,992,785

Less:
Allowance for Loan Losses	(42,154)		(40,414)
Net Loans	$	5,177,964	$	4,952,371

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 September 30, 2024 and December 31, 2023. Commercial and agricultural loans are pledged against the Federal Reserve Banks’ (“FRB”) discount window as of September 30, 2024 and December 31, 2023.

Net deferred loan origination fees were $12.8 million and $12.6 million at September 30, 2024 and December 31, 2023, 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 September 30, 2024 and December 31, 2023, overdrafts of $6.1 million and $2.2 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 $743.3 million and $723.5 million at September 30, 2024 and December 31, 2023, respectively. The Company had servicing rights of $954,000 and $1.1 million recorded at both September 30, 2024, and December 31, 2023, 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 credit 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.

Portfolio Segments and Risk Factors

The loan portfolio is disaggregated into portfolio segments and then further disaggregated into classes for certain disclosures. GAAP defines a portfolio segment as the level at which an entity develops and documents a systematic method for determining its allowance for credit losses. A class is generally a disaggregation of a portfolio segment. The Company's loan portfolio segments are Real Estate, Commercial, and Consumer and Other. The classes and risk characteristics of each segment are discussed in more detail below. The segmentation and disaggregation of the portfolio is part of the ongoing credit monitoring process.

Real Estate Portfolio Segment

Real Estate: Commercial loans are extensions of credit secured by owner-occupied and non-owner-occupied collateral. Repayment is generally dependent on 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. Real estate commercial loans also include farmland loans that can be, or are, used for agricultural purposes. These loans are usually repaid through refinancing, cash flow from the borrower’s ongoing operations, development of the property, or sale of the property.

Real Estate: Construction loans include loans to small-to-midsized businesses to construct owner-occupied 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 changes 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.

Real Estate: 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. Real estate residential loans also include multi-family residential loans 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.

Commercial Portfolio Segment

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 based on 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 Portfolio Segment

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.

The following tables set forth, as of September 30, 2024, and December 31, 2023, the balance of the allowance for credit losses by loan portfolio segment. The allowance for credit 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


	September 30, 2024
	(Dollars in thousands)
	Real Estate: Commercial		Real Estate: Construction		Real Estate: Residential		Commercial		Consumer and Other		Total
Allowance for Loan Losses:
Beginning Balance	$	17,676	$	6,596	$	5,485	$	10,424	$	233	$	40,414
Charge-offs	(1)		(672)		(293)		(859)		(1,558)		(3,383)
Recoveries	15		-		12		264		236		527
Provision (Recovery)	394		(267)		1,118		1,756		1,595		4,596
Ending Balance	$	18,084	$	5,657	$	6,322	$	11,585	$	506	$	42,154

Reserve for Unfunded Loan Commitments:
Beginning Balance	$	206	$	1,546	$	177	$	1,372	$	23	$	3,324
Provision (Recovery)	54		(720)		5		222		4		(435)
Ending Balance	$	260	$	826	$	182	$	1,594	$	27	$	2,889

Total Allowance for Credit Losses	$	18,344	$	6,483	$	6,504	$	13,179	$	533	$	45,043


	December 31, 2023
	(Dollars in thousands)
	Real Estate: Commercial		Real Estate: Construction		Real Estate: Residential		Commercial		Consumer and Other		Total
Allowance for Loan Losses:
Beginning Balance	$	14,702	$	5,768	$	5,354	$	11,721	$	633	$	38,178
Adoption of ASU 2016-13	4,823		933		(365)		(2,483)		(248)		2,660
Beginning Balance After Adoption	19,525		6,701		4,989		9,238		385		40,838
Charge-offs	(2,049)		(36)		(42)		(2,813)		(1,489)		(6,429)
Recoveries	26		1		18		672		327		1,044
Provision (Recovery)	174		(70)		520		3,327		1,010		4,961
Ending Balance	$	17,676	$	6,596	$	5,485	$	10,424	$	233	$	40,414

Reserve for Unfunded Loan Commitments:
Beginning Balance	$	220	$	137	$	13	$	229	$	6	$	605
Adoption of ASU 2016-13	116		2,113		190		657		121		3,197
Beginning Balance After Adoption	336		2,250		203		886		127		3,802
Provision (Recovery)	(130)		(704)		(26)		486		(104)		(478)
Ending Balance	$	206	$	1,546	$	177	$	1,372	$	23	$	3,324

Total Allowance for Credit Losses	$	17,882	$	8,142	$	5,662	$	11,796	$	256	$	43,738

Included within the above allowance, in the tables above, are loans which management has individually evaluated to determine an allowance for credit losses. The following table summarizes, by segment, the loan balance and specific allowance allocation for those loans which have been individually evaluated.


	September 30, 2024				December 31, 2023
	Loan Balance		Specific Allocations		Loan Balance		Specific Allocations
	(Dollars in thousands)
Real Estate Loans:
Commercial	$	7,375	$	-	$	883	$	-
Construction	4,124		142		2,334		513
Residential	-		-		1,533		-
Total Real Estate Loans	11,499		142		4,750		513
Commercial	-		-		-		-
Consumer and Other	-		-		-		-
Total	$	11,499	$	142	$	4,750	$	513

Credit Quality Indicators

We utilize a risk grading matrix to assign a risk grade to each of our commercial loans. Loans are graded on a scale of 10 to 80. Individual loan officers review updated financial information for all pass grade loans to reassess the risk grade, generally on at least an annual basis. When a loan has a risk grade of 60, it is still considered a pass grade loan; however, it is considered to be on management’s “watch list,” and subject to additional and more frequent monitoring by both the loan officer and senior credit and risk personnel. When a loan has a risk grade of 70 or higher, a special assets officer monitors the loan on an on-going basis.

The following tables set forth the credit quality indicators, disaggregated by loan segment, as of September 30, 2024, and December 31, 2023:


	September 30, 2024
			Criticized
	Pass (Risk Grade 10-45)		Special Mention (Risk Grade 50)		Substandard (Risk Grade 60)		Doubtful (Risk Grade 70)		Loss (Risk Grade 80)		Total		Current Period Charge- offs
	(Dollars in thousands)
Real Estate: Commercial
Originated in 2024	$	198,896	$	-	$	-	$	-	$	-	$	198,896	$	-
Originated in 2023	190,774		22,185		139		-		-		213,098		-
Originated in 2022	718,376		38,881		3,353		-		-		760,610		2
Originated in 2021	390,941		5,910		473		-		-		397,324		-
Originated in 2020	126,015		1,967		446		-		-		128,428		4
Originated Prior to 2020	471,558		4,342		6,765		879		-		483,544		(5)
Revolving	73,370		440		660		-		-		74,470		-
Revolving Loans Converted to Term	-		-		-		-		-		-		-
Total Real Estate: Commercial	$	2,169,930	$	73,725	$	11,836	$	879	$	-	$	2,256,370	$	1

Real Estate: Construction
Originated in 2024	$	140,112	$	-	$	403	$	-	$	-	$	140,515	$	-
Originated in 2023	117,290		-		701		-		-		117,991		46
Originated in 2022	198,474		-		1,258		-		-		199,732		278
Originated in 2021	67,395		-		3,005		-		-		70,400		348
Originated in 2020	25,524		-		15		-		-		25,539		-
Originated Prior to 2020	28,172		101		2,004		-		-		30,277		-
Revolving	69,502		397		-		-		-		69,899		-
Revolving Loans Converted to Term	-		-		-		-		-		-		-
Total Real Estate: Construction	$	646,469	$	498	$	7,386	$	-	$	-	$	654,353	$	672

Real Estate: Residential
Originated in 2024	$	62,319	$	-	$	231	$	-	$	-	$	62,550	$	2
Originated in 2023	74,311		-		148		-		-		74,459		1
Originated in 2022	203,168		1,162		1,158		10		-		205,498		10
Originated in 2021	94,188		116		207		-		-		94,511		1
Originated in 2020	62,259		384		503		41		-		63,187		2
Originated Prior to 2020	132,326		1,687		5,968		251		-		140,232		73
Revolving	102,013		148		1,053		-		-		103,214		204
Revolving Loans Converted to Term	227		-		-		-		-		227		-
Total Real Estate: Residential	$	730,811	$	3,497	$	9,268	$	302	$	-	$	743,878	$	293

Commercial
Originated in 2024	$	274,743	$	1,737	$	8,155	$	-	$	-	$	284,635	$	-
Originated in 2023	258,892		2,555		1,104		-		-		262,551		19
Originated in 2022	205,033		1,029		9,441		-		-		215,503		450
Originated in 2021	98,866		2,743		1,657		-		-		103,266		271
Originated in 2020	29,771		45		576		-		-		30,392		43
Originated Prior to 2020	59,768		1,933		524		329		-		62,554		76
Revolving	529,754		5,779		2,029		-		-		537,562		-
Revolving Loans Converted to Term	17		-		-		-		-		17		-
Total Commercial	$	1,456,844	$	15,821	$	23,486	$	329	$	-	$	1,496,480	$	859

Consumer and Other
Originated in 2024	$	8,487	$	-	$	-	$	-	$	-	$	8,487	$	24
Originated in 2023	6,775		-		21		-		-		6,796		59
Originated in 2022	5,181		-		13		-		-		5,194		38
Originated in 2021	2,273		-		46		-		-		2,319		4
Originated in 2020	1,219		-		67		-		-		1,286		31
Originated Prior to 2020	25,657		-		65		-		-		25,722		40
Revolving	18,803		-		407		-		-		19,210		1,362
Revolving Loans Converted to Term	23		-		-		-		-		23		-
Total Consumer and Other	$	68,418	$	-	$	619	$	-	$	-	$	69,037	$	1,558

Total Loans	$	5,072,472	$	93,541	$	52,595	$	1,510	$	-	$	5,220,118	$	3,383


	December 31, 2023
			Criticized
	Pass (Risk Grade 10-45)		Special Mention (Risk Grade 50)		Substandard (Risk Grade 60)		Doubtful (Risk Grade 70)		Loss (Risk Grade 80)		Total		Current Period Charge- offs
	(Dollars in thousands)
Real Estate: Commercial
Originated in 2023	$	228,902	$	-	$	84	$	-	$	-	$	228,986	$	-
Originated in 2022	751,649		1,909		-		-		-		753,558		-
Originated in 2021	427,269		6,103		492		-		-		433,864		357
Originated in 2020	151,848		3,551		8		-		-		155,407		-
Originated in 2019	149,946		5,556		372		932		-		156,806		1,447
Originated Prior to 2019	379,503		1,313		7,970		335		-		389,121		245
Revolving	99,723		226		237		-		-		100,186		-
Revolving Loans Converted to Term	-		-		-		-		-		-		-
Total Real Estate: Commercial	$	2,188,840	$	18,658	$	9,163	$	1,267	$	-	$	2,217,928	$	2,049

Real Estate: Construction
Originated in 2023	$	131,617	$	-	$	-	$	-	$	-	$	131,617	$	-
Originated in 2023	322,032		647		62		-		-		322,741		-
Originated in 2021	85,438		2,601		1,229		-		-		89,268		-
Originated in 2020	22,515		31		16		-		-		22,562		-
Originated in 2019	19,402		-		1,675		-		-		21,077		1
Originated Prior to 2019	20,180		413		588		345		-		21,526		35
Revolving	60,612		395		-		-		-		61,007		-
Revolving Loans Converted to Term	-		-		-		-		-		-		-
Total Real Estate: Construction	$	661,796	$	4,087	$	3,570	$	345	$	-	$	669,798	$	36

Real Estate: Residential
Originated in 2023	$	76,662	$	-	$	-	$	-	$	-	$	76,662	$	-
Originated in 2022	170,229		433		410		14		-		171,086		-
Originated in 2021	98,329		-		708		-		-		99,037		11
Originated in 2020	68,281		386		520		57		-		69,244		1
Originated in 2019	54,902		1,112		1,061		119		-		57,194		22
Originated Prior to 2019	97,716		1,230		6,000		299		-		105,245		7
Revolving	103,252		-		654		-		-		103,906		1
Revolving Loans Converted to Term	20		-		-		-		-		20		-
Total Real Estate: Residential	$	669,391	$	3,161	$	9,353	$	489	$	-	$	682,394	$	42

Commercial
Originated in 2023	$	303,160	$	1,439	$	709	$	-	$	-	$	305,308	$	-
Originated in 2022	267,678		698		1,196		-		-		269,572		247
Originated in 2021	136,291		5,483		928		16		-		142,718		25
Originated in 2020	48,990		448		921		42		-		50,401		49
Originated in 2019	21,137		584		640		231		-		22,592		1,632
Originated Prior to 2019	61,166		3,843		341		251		-		65,601		658
Revolving	499,642		2,128		573		28		-		502,371		202
Revolving Loans Converted to Term	275		-		-		-		-		275		-
Total Commercial	$	1,338,339	$	14,623	$	5,308	$	568	$	-	$	1,358,838	$	2,813

Consumer and Other
Originated in 2023	$	11,245	$	-	$	-	$	-	$	-	$	11,245	$	8
Originated in 2022	7,219		-		27		-		-		7,246		78
Originated in 2021	3,372		-		55		-		-		3,427		29
Originated in 2020	1,850		-		88		-		-		1,938		11
Originated in 2019	2,359		-		40		-		-		2,399		18
Originated Prior to 2019	18,280		-		92		-		-		18,372		61
Revolving	18,814		100		160		-		-		19,074		1,284
Revolving Loans Converted to Term	126		-		-		-		-		126		-
Total Consumer and Other	$	63,265	$	100	$	462	$	-	$	-	$	63,827	$	1,489

Total Loans	$	4,921,631	$	40,629	$	27,856	$	2,669	$	-	$	4,992,785	$	6,429

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 September 30, 2024, and December 31, 2023, loan balances outstanding more than 90 days past due and still accruing interest amounted to $185,000 and $127,000, respectively. As of September 30, 2024 and December 31, 2023, loan balances outstanding on nonaccrual status amounted to $25.9 million and $16.9 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 September 30, 2024, and December 31, 2023. All loans greater than 90 days past due are generally placed on nonaccrual status.

Aged Analysis of Past Due Loans Receivable


	September 30, 2024
	(Dollars in thousands)
	30-59 Days Past Due		60-89 Days Past Due		Greater Than 90 Days Past Due		Total Past Due		Current		Total Loans Receivable		Recorded Investment Over 90 Days Past Due and Still Accruing
Real Estate Loans:
Commercial	$	3,745	$	77	$	6,751	$	10,573	$	2,245,797	$	2,256,370	$	-
Construction	7,511		-		5,171		12,682		641,671		654,353		56
Residential	804		1,246		4,865		6,915		736,963		743,878		-
Total Real Estate Loans	12,060		1,323		16,787		30,170		3,624,431		3,654,601		56
Commercial	6,365		522		5,346		12,233		1,484,247		1,496,480		103
Consumer and Other	151		41		520		712		68,325		69,037		26
Total	$	18,576	$	1,886	$	22,653	$	43,115	$	5,177,003	$	5,220,118	$	185


	December 31, 2023
	(Dollars in thousands)
	30-59 Days Past Due		60-89 Days Past Due		Greater Than 90 Days Past Due		Total Past Due		Current		Total Loans Receivable		Recorded Investment Over 90 Days Past Due and Still Accruing
Real Estate Loans:
Commercial	$	240	$	536	$	2,954	$	3,730	$	2,214,198	$	2,217,928	$	44
Construction	279		1,320		3,198		4,797		665,001		669,798		-
Residential	1,792		1,207		4,058		7,057		675,337		682,394		20
Total Real Estate Loans	2,311		3,063		10,210		15,584		3,554,536		3,570,120		64
Commercial	1,101		71		1,622		2,794		1,356,044		1,358,838		52
Consumer and Other	280		252		188		720		63,107		63,827		11
Total	$	3,692	$	3,386	$	12,020	$	19,098	$	4,973,687	$	4,992,785	$	127

The following table presents non-accrual loans by segment as of September 30, 2024, and December 31, 2023, respectively.


	September 30, 2024		December 31, 2023
	(Dollars in thousands)
Real Estate Loans:
Commercial	$	7,100	$	3,280
Construction	5,736		3,543
Residential	6,909		7,352
Total Real Estate Loans	19,745		14,175
Commercial	5,581		2,395
Consumer and Other	548		373
Total	$	25,874	$	16,943

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 September 30, 2024, and December 31, 2023, the concessions granted to certain borrowers included extending the payment due dates and offering below market contractual interest rates, and were not significant to the consolidated financial statement

Accrued interest receivable of $4.0 million and $4.2 million was outstanding at September 30, 2024, and December 31, 2023, respectively, for all loan deferrals, primarily attributable to the COVID-19 pandemic and, to a much lesser extent, hurricanes which occurred in 2020 and 2021. These loans are no longer within their deferral periods. The accrued interest on the loans is due at their maturity.

At September 30, 2024 and December 31, 2023, accrued interest receivable on loans was $28.8 million and $25.2 million, respectively, and is included within accrued interest receivable on the consolidated balance sheets.