Note 6 - Loans and the Allowance for Loan Losses -

6 Months Ended

Jun. 30, 2023

Notes to Financial Statements

Financing Receivables [Text Block]

Note 6 – Loans and the Allowance for Loan Losses –

Loans receivable at June 30, 2023 and December 31, 2022 are summarized as follows:

	June 30,			December 31,
	2023			2022
	(Dollars in thousands)
Real Estate Loans:
Commercial	$	2,132,044		$	2,020,406
Construction		719,080			722,074
Residential		675,462			656,378
Total Real Estate Loans		3,526,586			3,398,858
Commercial		1,309,222			1,153,873
Consumer and Other		62,929			53,445
Total Loans Held for Investment		4,898,737			4,606,176
Less:
Allowance for Loan Losses		(42,013	)		(38,178	)
Net Loans	$	4,856,724		$	4,567,998

The performing 1-4 family residential, multi-family residential, and commercial real estate, are pledged, under a blanket lien, as collateral securing advances from the FHLB at June 30, 2023 and December 31, 2022.  Commercial and agricultural loans are pledged against the Federal Reserve Banks’ (“FRB”) discount window as of June 30, 2023.

Net deferred loan origination fees were $13.7 million and $13.1 million at June 30, 2023 and December 31, 2022, 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 both June 30, 2023 and December 31, 2022, overdrafts of $2.0 million, 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 $736.4 million and $683.3 million at June 30, 2023 and December 31, 2022, respectively.  The Company had servicing rights of $1.4 million and $1.7 million recorded as of June 30, 2023, and December 31, 2022, respectively, and is 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 permanent financing, 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 table sets forth, as of June 30, 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

	June 30, 2023
	(Dollars in thousands)
	Real Estate:			Real Estate:			Real Estate:						Consumer
	Commercial			Construction			Residential			Commercial			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		(1,827	)		(1	)		(42	)		(373	)		(724	)		(2,967	)
Recoveries		16			-			7			82			102			207
Provision		449			1,269			293			1,282			642			3,935
Ending Balance	$	18,163		$	7,969		$	5,247		$	10,229		$	405		$	42,013
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		(51	)		(200	)		34			143			(101	)		(175	)
Ending Balance	$	285		$	2,050		$	237		$	1,029		$	26		$	3,627
Total Allowance for Credit Losses	$	18,448		$	10,019		$	5,484		$	11,258		$	431		$	45,640

Included within the above allowance 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.

	June 30, 2023				January 1, 2023
	Loan Balance		Specific Allocations		Loan Balance		Specific Allocations
	(Dollars in thousands)
Real Estate Loans:
Commercial	$	1,345	$	-	$	3,008	$	1,915
Construction		2,348		553		1,424		513
Residential		1,601		-		1,558		3
Total Real Estate Loans		5,294		553		5,990		2,431
Commercial		2,911		1,760		6,096		1,779
Consumer and Other		-		-		-		-
Total	$	8,205	$	2,313	$	12,086	$	4,210

The following table sets forth, as of December 31, 2022 (prior to the adoption of ASU 2016-13), the balance of the allowance for credit losses by portfolio segment, disaggregated by impairment methodology, which is then further segregated by amounts evaluated for impairment collectively and individually.  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.

	December 31, 2022
	(Dollars in thousands)
	Real Estate:			Real Estate:			Real Estate:						Consumer
	Commercial			Construction			Residential			Commercial			and Other			Total
Allowance for Loan Losses:
Beginning Balance	$	10,515		$	4,498		$	4,565		$	9,016		$	518		$	29,112
Charge-offs		(51	)		(16	)		(191	)		(2,139	)		(424	)		(2,821	)
Recoveries		50			25			20			739			167			1,001
Provision		4,188			1,261			960			4,105			372			10,886
Ending Balance	$	14,702		$	5,768		$	5,354		$	11,721		$	633		$	38,178
Ending Balance:
Individually Evaluated for Impairment	$	59		$	21		$	99		$	2,020		$	15		$	2,214
Collectively Evaluated for Impairment	$	14,643		$	5,747		$	5,255		$	9,701		$	618		$	35,964
Purchased Credit Impaired	$	-		$	-		$	-		$	-		$	-		$	-
Loans Receivable:
Ending Balance	$	2,020,406		$	722,074		$	656,378		$	1,153,873		$	53,445		$	4,606,176
Ending Balance:
Individually Evaluated for Impairment	$	3,053		$	992		$	4,028		$	6,442		$	192		$	14,707
Collectively Evaluated for Impairment	$	1,989,831		$	720,129		$	637,195		$	1,141,957		$	52,570		$	4,541,682
Purchased Credit Impaired	$	27,522		$	953		$	15,155		$	5,474		$	683		$	49,787

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 table sets forth the credit quality indicators, disaggregated by loan segment, as of June 30, 2023:

	June 30, 2023
			Criticized
	Pass		Special Mention		Substandard		Doubtful		Loss				Current Period Charge-
	(Risk Grade 10-45)		(Risk Grade 50)		(Risk Grade 60)		(Risk Grade 70)		(Risk Grade 80)		Total		offs
	(Dollars in thousands)
Real Estate: Commercial
Originated in 2023	$	97,431	$	-	$	-	$	-	$	-	$	97,431	$	-
Originated in 2022		737,026		1,709		-		-		-		738,735		-
Originated in 2021		454,027		6,098		74		-		-		460,199		357
Originated in 2020		160,247		3,699		11		-		-		163,957		-
Originated in 2019		153,506		9,976		454		948		-		164,884		1,447
Originated Prior to 2019		421,120		6,411		8,742		485		-		436,758		23
Revolving		69,876		-		204		-		-		70,080		-
Revolving Loans Converted to Term		-		-		-		-		-		-		-
Total Real Estate: Commercial	$	2,093,233	$	27,893	$	9,485	$	1,433	$	-	$	2,132,044	$	1,827
Real Estate: Construction
Originated in 2023	$	58,661	$	-	$	-	$	-	$	-	$	58,661	$	-
Originated in 2022		366,332		-		65		-		-		366,397		-
Originated in 2021		142,951		-		997		-		-		143,948		-
Originated in 2020		51,701		32		-		-		-		51,733		-
Originated in 2019		22,193		-		1,760		-		-		23,953		-
Originated Prior to 2019		24,106		573		511		345		-		25,535		1
Revolving		48,853		-		-		-		-		48,853		-
Revolving Loans Converted to Term		-		-		-		-		-		-		-
Total Real Estate: Construction	$	714,797	$	605	$	3,333	$	345	$	-	$	719,080	$	1
Real Estate: Residential
Originated in 2023	$	37,466	$	-	$	-	$	-	$	-	$	37,466	$	-
Originated in 2022		169,873		447		255		17		-		170,592		-
Originated in 2021		110,897		-		715		-		-		111,612		11
Originated in 2020		71,502		385		598		163		-		72,648		1
Originated in 2019		63,027		439		977		126		-		64,569		22
Originated Prior to 2019		109,050		1,176		5,896		373		-		116,495		7
Revolving		101,625		-		434		-		-		102,059		1
Revolving Loans Converted to Term		21		-		-		-		-		21		-
Total Real Estate: Residential	$	663,461	$	2,447	$	8,875	$	679	$	-	$	675,462	$	42
Commercial
Originated in 2023	$	163,250	$	142	$	10	$	-	$	-	$	163,402	$	-
Originated in 2022		294,438		380		671		-		-		295,489		97
Originated in 2021		159,627		5,958		836		16		-		166,437		15
Originated in 2020		63,467		4,523		682		46		-		68,718		27
Originated in 2019		39,600		920		1,447		1,669		-		43,636		33
Originated Prior to 2019		65,902		4,443		3,611		378		-		74,334		-
Revolving		492,797		3,720		661		28		-		497,206		201
Revolving Loans Converted to Term		-		-		-		-		-		-		-
Total Commercial	$	1,279,081	$	20,086	$	7,918	$	2,137	$	-	$	1,309,222	$	373
Consumer and Other
Originated in 2023	$	6,288	$	-	$	-	$	-	$	-	$	6,288	$	-
Originated in 2022		9,430		-		18		-		-		9,448		12
Originated in 2021		4,941		-		62		-		-		5,003		20
Originated in 2020		2,512		-		107		-		-		2,619		5
Originated in 2019		2,805		-		66		-		-		2,871		3
Originated Prior to 2019		17,144		2		103		-		-		17,249		58
Revolving		19,329		-		17		-		-		19,346		626
Revolving Loans Converted to Term		105		-		-		-		-		105		-
Total Consumer and Other	$	62,554	$	2	$	373	$	-	$	-	$	62,929	$	724
Total Loans	$	4,813,126	$	51,033	$	29,984	$	4,594	$	-	$	4,898,737	$	2,967

The following table sets forth the credit quality indicators, disaggregated by loan segment, as of December 31, 2022 (prior to the adoption of ASU 2016-13):

	December 31, 2022
	Pass		Special Mention		Substandard		Doubtful
	(Risk Grade 10-45)		(Risk Grade 50)		(Risk Grade 60)		(Risk Grade 70)		Total
	(Dollars in thousands)
Real Estate Loans:
Commercial	$	1,972,611	$	35,054	$	10,478	$	2,263	$	2,020,406
Construction		716,071		3,496		2,157		350		722,074
Residential		643,763		3,780		7,925		910		656,378
Total Real Estate Loans		3,332,445		42,330		20,560		3,523		3,398,858
Commercial		1,137,555		6,646		6,960		2,712		1,153,873
Consumer and Other		53,041		-		404		-		53,445
Total	$	4,523,041	$	48,976	$	27,924	$	6,235	$	4,606,176

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 June 30, 2023, and December 31, 2022, loan balances outstanding more than 90 days past due and still accruing interest amounted to $468,000 and $335,000, respectively.  As of June 30, 2023, and December 31, 2022, loan balances outstanding on nonaccrual status amounted to $17.0 million and $11.1 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 June 30, 2023, and December 31, 2022. For the year ended December 31, 2022, 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 prior to the adoption of CECL, the Company accreted interest income over the expected life of the loans.  With the adoption of CECL and deconstruction of acquired impaired accounting, those amounts are no longer excluded for the period ended June 30, 2023.  All loans greater than 90 days past due are generally placed on nonaccrual status. 

Aged Analysis of Past Due Loans Receivable

	June 30, 2023
	(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:
Commercial	$	1,742	$	78	$	2,538	$	4,358	$	2,127,686	$	2,132,044	$	-
Construction		2,364		206		2,145		4,715		714,365		719,080		138
Residential		1,938		1,192		3,050		6,180		669,282		675,462		43
Total Real Estate Loans		6,044		1,476		7,733		15,253		3,511,333		3,526,586		181
Commercial		2,148		29		3,989		6,166		1,303,056		1,309,222		263
Consumer and Other		258		27		213		498		62,431		62,929		24
Total	$	8,450	$	1,532	$	11,935	$	21,917	$	4,876,820	$	4,898,737	$	468

	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:
Commercial	$	1,491	$	210	$	1,681	$	3,382	$	2,017,024	$	2,020,406	$	98
Construction		320		41		638		999		721,075		722,074		-
Residential		1,590		423		1,781		3,794		652,584		656,378		-
Total Real Estate Loans		3,401		674		4,100		8,175		3,390,683		3,398,858		98
Commercial		1,183		1,934		2,186		5,303		1,148,570		1,153,873		222
Consumer and Other		295		28		182		505		52,940		53,445		15
Total	$	4,879	$	2,636	$	6,468	$	13,983	$	4,592,193	$	4,606,176	$	335

Upon adoption of ASU 2016-13, the Company eliminated the pooling of purchased impaired credit loans.  As a result, $7.0 million of purchased credit deterioration loans were recognized as non-accrual loans as of January 1, 2023.  The following table presents non-accrual loans by segment as of June 30, 2023, January 1, 2023, and December 31, 2022, respectively. 

	June 30,		January 1,		December 31,
	2023		2023		2022
	(Dollars in thousands)
Real Estate Loans:
Commercial	$	3,081	$	5,847	$	2,644
Construction		2,423		2,421		992
Residential		7,034		6,518		4,080
Total Real Estate Loans		12,538		14,786		7,716
Commercial		4,235		3,045		3,150
Consumer and Other		233		257		188
Total	$	17,006	$	18,088	$	11,054

Accrued interest receivable of $4.7 million and $5.4 million was outstanding as of June 30, 2023, and December 31, 2022, 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 June 30, 2023 and December 31, 2022, accrued interest receivable on loans was $22.2 million and $21.2 million, respectively, and included within accrued interest receivable on the consolidated balance sheets.