Note 6 – Loans and the Allowance for Loan Losses –

Loans receivable at March 31, 2016 and December 31, 2015 are summarized as follows:


	March 31,			December 31,
	2016			2015
	(Dollars in thousands)
Real estate loans:
Construction and land	$	104,083		$	97,872
Farmland		6,891			8,897
1-4 family residential		114,697			112,954
Multi-family residential		27,136			26,058
Nonfarm nonresidential		296,367			312,207
Commercial		198,737			185,276
Consumer		41,468			29,128

Total loans held for investment		789,379			772,392

Less:
Allowance for loan losses		(7,214	)		(7,244	)

Net loans	$	782,165		$	765,148

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 March 31, 2016 and December 31, 2015.

Net deferred loan origination fees were $776,000 and $740,000 at March 31, 2016 and December 31, 2015, 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 March 31, 2016 and December 31, 2015, overdrafts of $134,000 and $150,000, respectively, have been reclassified to loans.

The Bank is the lead lender on participations sold, without recourse, to other financial institutions which are not included in the consolidated balance sheets. The unpaid principal balances of mortgages and other loans serviced for others were approximately $45.7 million and $44.7 million at March 31, 2016 and December 31, 2015, 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. 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 unaccreted purchase discount. To the extent the calculated loss is greater than the remaining unaccreted discount, an allowance is recorded for such difference.

The following table sets forth, as of March 31, 2016 and December 31, 2015, 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


	March 31, 2016
	(Dollars in thousands)
	Real Estate: Construction and Land			Real Estate: Farmland		Real Estate: 1-4 Family Residential			Real Estate: Multi-family Residential		Real Estate: Nonfarm Nonresidential			Commercial			Consumer			Total
Allowance for credit losses:
Beginning Balance	$	600		$	30	$	1,021		$	101	$	1,416		$	3,618		$	458		$	7,244
Charge-offs		(2	)		—		(98	)		—		(256	)		(390	)		—			(746	)
Recoveries		8			—		3			—		1			3			31			46
Provision		210			17		182			116		440			(12	)		(283	)		670

Ending Balance	$	816		$	47	$	1,108		$	217	$	1,601		$	3,219		$	206		$	7,214

Ending Balance:
Individually evaluated for impairment	$	504		$	—	$	129		$	—	$	—		$	5		$	—		$	638

Collectively evaluated for impairment	$	312		$	47	$	925		$	173	$	1,601		$	3,214		$	206		$	6,478

Purchased Credit Impaired (1)	$	—		$	—	$	54		$	44	$	—		$	—		$	—		$	98

Loans receivable:
Ending Balance	$	104,083		$	6,891	$	114,697		$	27,136	$	296,367		$	198,737		$	41,468		$	789,379

Ending Balance:
Individually evaluated for impairment	$	1,480		$	—	$	3,795		$	—	$	4,437		$	3,274		$	—		$	12,986

Collectively evaluated for impairment	$	102,517		$	6,891	$	110,415		$	26,921	$	289,995		$	195,463		$	41,468		$	773,670

Purchased Credit Impaired (1)	$	86		$	—	$	487		$	215	$	1,935		$	—		$	—		$	2,723

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


	December 31, 2015
	(Dollars in thousands)
	Real Estate: Construction and Land			Real Estate: Farmland		Real Estate: 1-4 Family Residential			Real Estate: Multi-family Residential		Real Estate: Nonfarm Nonresidential			Commercial			Consumer		Total
Allowance for credit losses:
Beginning balance	$	525		$	19	$	775		$	35	$	1,140		$	3,813		$	325	$	6,632
Charge-offs		(102	)		—		(144	)		—		(44	)		(695	)		—		(985	)
Recoveries		34			—		94			—		13			164			92		397
Provision		143			11		296			66		307			336			41		1,200

Ending Balance	$	600		$	30	$	1,021		$	101	$	1,416		$	3,618		$	458	$	7,244

Ending Balance:
Individually evaluated for impairment	$	504		$	—	$	129		$	—	$	—		$	475		$	—	$	1,108

Collectively evaluated for impairment	$	96		$	30	$	838		$	57	$	1,416		$	3,143		$	458	$	6,038

Purchased Credit Impaired (1)	$	—		$	—	$	54		$	44	$	—		$	—		$	—	$	98

Loans receivable:
Ending Balance	$	97,872		$	8,897	$	112,954		$	26,058	$	312,207		$	185,276		$	29,128	$	772,392

Ending Balance:
Individually evaluated for impairment	$	1,732		$	—	$	3,666		$	—	$	4,172		$	2,226		$	—	$	11,796

Collectively evaluated for impairment	$	96,046		$	8,897	$	108,778		$	25,829	$	305,234		$	183,050		$	29,128	$	756,962

Purchased Credit Impaired (1)	$	94		$	—	$	510		$	229	$	2,801		$	—		$	—	$	3,634

(1)	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 March 31, 2016 and December 31, 2015, the credit quality indicators, disaggregated by class of loan, are as follows:

Credit Quality Indicators


	March 31, 2016
	Pass		Special Mention		Substandard		Doubtful		Total
	(Dollars in thousands)
Real Estate Loans:
Construction and land	$	99,961	$	1,524	$	1,112	$	1,486	$	104,083
Farmland		6,891		—		—		—		6,891
1-4 family residential		106,158		2,319		2,897		3,323		114,697
Multi-family residential		25,975		—		945		216		27,136
Nonfarm nonresidential		273,256		9,067		12,112		1,932		296,367
Commercial		167,660		22,509		6,476		2,092		198,737
Consumer		41,039		399		30		—		41,468

Total	$	720,940	$	35,818	$	23,572	$	9,049	$	789,379


	December 31, 2015
	Pass		Special Mention		Substandard		Doubtful		Total
	(Dollars in thousands)
Real Estate Loans:
Construction and land	$	93,740	$	1,300	$	1,094	$	1,738	$	97,872
Farmland		8,897		—		—		—		8,897
1-4 family residential		104,720		1,824		3,205		3,205		112,954
Multi-family residential		24,884		945		—		229		26,058
Nonfarm nonresidential		281,503		12,727		16,171		1,806		312,207
Commercial		157,734		22,222		4,341		979		185,276
Consumer		28,702		396		30		—		29,128

Total	$	700,180	$	39,414	$	24,841	$	7,957	$	772,392

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.

The following table reflects certain information with respect to the loan portfolio delinquencies by loan class and amount as of March 31, 2016 and December 31, 2015. All loans greater than 90 days past due are generally placed on non-accrual status.

Aged Analysis of Past Due Loans Receivable


	March 31, 2016
	(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:
Construction and land	$	11	$	—	$	48	$	59	$	104,024	$	104,083	$	—
Farmland		—		—		—		—		6,891		6,891		—
1-4 family residential		176		231		746		1,153		113,544		114,697		41
Multi-family residential		—		—		—		—		27,136		27,136		—
Nonfarm nonresidential		1,256		302		485		2,043		294,324		296,367		—
Commercial		—		—		—		—		198,737		198,737		—
Consumer		—		—		—		—		41,468		41,468		—

Total	$	1,443	$	533	$	1,279	$	3,255	$	786,124	$	789,379	$	41


	December 31, 2015
	(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:
Construction and land	$	—	$	10	$	384	$	394	$	97,478	$	97,872	$	—
Farmland		—		—		—		—		8,897		8,897		—
1-4 family residential		289		132		1,086		1,507		111,447		112,954		—
Multi-family residential		—		—		—		—		26,058		26,058		—
Nonfarm nonresidential		1,185		178		309		1,672		310,535		312,207		—
Commercial		78		13		—		91		185,185		185,276		—
Consumer		—		—		—		—		29,128		29,128		—

Total	$	1,552	$	333	$	1,779	$	3,664	$	768,728	$	772,392	$	—

The following is a summary of information pertaining to impaired loans as of March 31, 2016 and December 31, 2015. 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 $77,000 and $146,000 for the three months ending March 31, 2016 and 2015, respectively.


	March 31, 2016
	(Dollars in thousands)
	Recorded Investment		Unpaid Principal Balance		Related Allowance		Average Recorded Investment
With an allowance recorded:
Real Estate Loans:
Construction and land	$	1,312	$	1,514	$	504	$	1,320
Farmland		—		—		—		—
1-4 family residential		297		310		129		299
Multi-family residential		—		—		—		—
Nonfarm nonresidential		—		—		—		—
Other Loans:
Commercial		19		20		5		1,043
Consumer		—		—		—		—

	$	1,628	$	1,844	$	638	$	2,662

With no allowance recorded:
Real Estate Loans:
Construction and land	$	168	$	199	$	—	$	197
Farmland		—		—		—		—
1-4 family residential		3,498		4,051		—		3,374
Multi-family residential		—		—		—		—
Nonfarm nonresidential		4,437		5,889		—		4,255
Other Loans:
Commercial		3,255		4,345		—		1,486
Consumer		—		—		—		—

	$	11,358	$	14,484	$	—	$	9,312

Total Impaired Loans:
Real Estate Loans:
Construction and land	$	1,480	$	1,713	$	504	$	1,517
Farmland		—		—		—		—
1-4 family residential		3,795		4,361		129		3,673
Multi-family residential		—		—		—		—
Nonfarm nonresidential		4,437		5,889		—		4,255
Other Loans:
Commercial		3,274		4,365		5		2,529
Consumer		—		—		—		—

	$	12,986	$	16,328	$	638	$	11,974


	December 31, 2015
	(Dollars in thousands)
			Unpaid				Average
	Recorded		Principal		Related		Recorded
	Investment		Balance		Allowance		Investment
With an allowance recorded:
Real Estate Loans:
Construction and land	$	1,336	$	1,514	$	504	$	1,392
Farmland		—		—		—		—
1-4 family residential		305		313		129		78
Multi-family residential		—		—		—		—
Nonfarm nonresidential		—		—		—		—
Other Loans:
Commercial		975		1,653		475		908
Consumer		—		—		—		—

	$	2,616	$	3,480	$	1,108	$	2,378

With no allowance recorded:
Real Estate Loans:
Construction and land	$	396	$	401	$	—	$	1,530
Farmland		—		—		—		—
1-4 family residential		3,361		3,898		—		1,933
Multi-family residential		—		—		—		—
Nonfarm nonresidential		4,172		5,588		—		4,062
Other Loans:
Commercial		1,251		1,255		—		3,368
Consumer		—		—		—		14

	$	9,180	$	11,142	$	—	$	10,907

Total Impaired Loans:
Real Estate Loans:
Construction and land	$	1,732	$	1,915	$	504	$	2,922
Farmland		—		—		—		—
1-4 family residential		3,666		4,211		129		2,011
Multi-family residential		—		—		—		—
Nonfarm nonresidential		4,172		5,588		—		4,062
Other Loans:
Commercial		2,226		2,908		475		4,276
Consumer		—		—		—		14

	$	11,796	$	14,622	$	1,108	$	13,285

The Company elected to account for certain loans acquired in the AGFC merger as acquired impaired loans under FASB ASC 310-30, Loans and Debt Securities Acquired with Deteriorated Credit Quality (“ASC 310-30”), due to evidence of credit deterioration at acquisition and the probability that the Company will be unable to collect all contractually required payments.

The following table presents the fair value of loans acquired with deteriorated credit quality as of the date of the AGFC merger. The expected cash flows approximated fair value as of the date of merger and, as a result, no accretable yield was recognized at acquisition.


	April 1, 2015
	(Dollars in thousands)
Purchased Impaired Credits:
Contractually required principal and interest	$	11,294
Nonaccretable difference		6,375

Cash flows expected to be collected		4,919
Accretable yield		—

Fair value of Purchased Impaired Credits at Acquisition	$	4,919

The following table presents the changes in the carrying amount of the purchased impaired credits from the April 1, 2015 merger date to March 31, 2016.


	Purchased
	Impaired Credits
	(Dollars in thousands)
Carrying amount - April 1, 2015 (acquisition)	$	4,919
Payments received, net of discounts realized		(469	)
Charge-offs		(204	)
Transfer to Other Real Estate		(612	)

Carrying amount - December 31, 2015		3,634
Payments received, net of discounts realized		(498	)
Charge-offs		(263	)
Transfer to Other Real Estate		(150	)

Carrying amount - March 31, 2016	$	2,723

Total loans acquired in the AGFC merger included $142.8 million of performing loans not accounted for under ASC 310-30, which had an estimated fair value of $138.1 million as of the date of acquisition. As of March 31, 2016 and December 31, 2015, the AGFC performing loans totaled $85.7 million and $93.1 million, respectively, with a related purchase discount of $3.0 million and $3.2 million, respectively.

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 March 31, 2016 and December 31, 2015, 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 loan modifications occurring as of March 31, 2016 and December 31, 2015. The Bank had $54,000 in troubled debt restructurings that had subsequently defaulted during the year ended December 31, 2015, and none that subsequently defaulted during the three months ended March 31, 2016.

Modifications as of March 31, 2016:


			Pre-Modification		Post-Modification
	Number		Outstanding		Outstanding
	of		Recorded		Recorded
	Contracts		Investment		Investment
	(Dollars in thousands)
Troubled Debt Restructing
Real Estate Loans:
1-4 family residential		5	$	1,568	$	998
Nonfarm nonresidential		3		5,143		3,563
Other Loans:
Commercial		4		3,294		2,740

Total Loans		12	$	10,005	$	7,301

Modifications as of December 31, 2015:


			Pre-Modification		Post-Modification
	Number		Outstanding		Outstanding
	of		Recorded		Recorded
	Contracts		Investment		Investment
	(Dollars in thousands)
Troubled Debt Restructing
Real Estate Loans:
1-4 family residential		5	$	1,568	$	1,008
Nonfarm nonresidential		3		5,143		3,623
Other Loans:
Commercial		3		1,736		1,234

Total Loans		11	$	8,447	$	5,865