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Item 7. Management’s Discussion and Analysis

2024-02-28 compared with 2023-02-22 · 245 added, 211 removed, 585 unchanged (44% of the section changed)

22 unchanged sentences

Allowance for Loan Credit Losses.

The allowance for loan credit losses represents the estimated losses for loans accounted for on an amortized cost basis.

The allowance for loan credit losses (“ALCL”) represents the estimated losses for loans accounted for on an amortized cost basis.

Expected losses are calculated using relevant information about past events, including historical experience, current conditions, and reasonable and supportable forecasts that affect the collectability of the reported amount.

We evaluate loans held for investment ("LHFI") on a pool basis with pools of loans characterized by loan type, collateral, industry, internal credit risk rating and FICO score.

The amount of the allowance for loan credit losses is affected by loan charge-offs, which decrease the allowance, recoveries on loans previously charged off, which increase the allowance, as well as the provision for loan credit losses charged to income, which increases the allowance.

The amount of the ALCL is affected by loan charge-offs, which decrease the allowance, recoveries on loans previously charged off, which increase the allowance, as well as the provision for loan credit losses charged to income, which increases the allowance.

In determining the provision for loan credit losses, management monitors fluctuations in the allowance resulting from actual charge-offs and recoveries and periodically reviews the size and composition of the loan portfolio in light of current and forecasted economic conditions.

If actual losses exceed the amount of allowance for loan credit losses, it could materially and adversely affect our earnings.

If actual losses exceed the amount of ALCL, it could materially and adversely affect our earnings.

This evaluation is inherently subjective as it requires estimates that are susceptible to significant revision as more information becomes available.

Credit losses are charged against the allowance for loan credit losses when management believes the loss is confirmed.

Credit losses are charged against the ALCL when management believes the loss is confirmed.

Loan Acquisition Accounting.

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Both assumptions can, and generally will, change as market conditions and interest rates change.

An increase in either the prepayment speed or discount rate assumption will result in a decrease in the fair value of the MSR, while a decrease in these assumptions will result in an increase in the fair value of the MSR.

In recent years, there have been significant market-driven fluctuations in loan prepayment speeds and discount rates.

These fluctuations can be rapid and may continue to be significant.

Therefore, estimating prepayment speed and/or discount rates within ranges that market participants would use in determining the fair value of the MSR requires significant management judgment.

Estimating prepayment speed and/or discount rates within ranges that market participants would use in determining the fair value of the MSR requires significant management judgment.

We are a financial holding company headquartered in Ruston, Louisiana.

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Deeply rooted in our history is a culture committed to providing personalized, relationship banking to businesses, municipalities, and personal clients to enrich the lives of the people in the communities we serve.

We provide a broad range of financial services and currently operate 59 banking centers located in Dallas/Fort Worth, East Texas, Houston, North Louisiana and Mississippi.

We provide a broad range of financial services and currently has over 60 locations from Dallas/Fort Worth, East Texas and Houston, across North Louisiana and into Mississippi .

In early 2024, we entered our new Southeast market with two planned banking locations in Mobile, Alabama and Fort Walton Beach, Florida.

As a financial holding company operating through one segment, we generate the majority of our revenue from interest earned on loans and investments, service charges and fees on deposit accounts.

8 unchanged sentences

Results of Operations

Selected income statement data, returns on average assets and average equity for the comparable periods were as follows:

(Dollars in thousands, except per share amounts) At and for the Years Ended December 31,

2022 2021 2020

At and for the Years Ended December 31,

(Dollars in thousands, except per share amounts) 2023 2022 2021

Net income $ 83,800 $ 87,715 $ 108,546

7 unchanged sentences

Net Interest Income and Net Interest Margin

During the third quarter of 2022, we completed our merger with BTH.

As a result of the merger, the Company acquired $1.24 billion in loans, net of fair value accounting adjustments, $456.8 million in investment securities and $1.57 billion in deposits, which impacted most net interest income and interest expense categories.

Net interest income for the year ended December 31, 2022, was $275.3 million, an increase of $59.0 million compared to the year ended December 31, 2021.

Net interest income for the year ended December 31, 2023, was $299.6 million, an increase of $24.3 million, or 8.8%, compared to the year ended December 31, 2022.

Increases in interest rates and average interest-earning assets drove increases of $129.4 million and $67.4 million, respectively, in total interest income.

The increase in total interest income was offset by a $25.9 million increase in interest expense;

$22.5 million of the increase was driven by increases in interest rates.

Purchase accounting accretion on acquired loans was $2.8 million for the year ended December 31, 2022, with remaining purchase accounting net loan discounts totaling $2.2 million at December 31, 2022.

Net purchase accounting accretion income on deposits and subordinated indebtedness totaled $472,000 for the year ended December 31, 2022, bringing the impact from purchase accounting treatment on total net interest income to $3.3 million for the year ended December 31, 2022.

Interest income earned on LHFI during the year ended December 31, 2022, increased in all loan categories, except for mortgage warehouse lines of credit, when compared to the year ended December 31, 2021.

Interest income earned on commercial real estate and commercial and industrial loans contributed $26.4 million and $23.4 million, respectively, of the $68.6 million total increase in interest income earned on LHFI when compared to the year ended December 31, 2021.

These increases were offset by an $8.7 million decrease in interest income earned on mortgage warehouse lines of credit for the year ended December 31, 2022, compared to the year ended December 31, 2021.

Increases in mortgage interest rates during the year ended December 31, 2022, negatively impacted the volume of mortgage warehouse lines during the year ended December 31, 2022.

An increase in average balances drove $18.5 million of the $26.4 million increase in interest income earned on commercial real estate, while increases in interest rates drove $21.4 million of the $23.4 million increase in interest income earned on commercial and industrial loans for the comparable periods.

The merger with BTH contributed $79.0 million of the $449.4 million growth in average balances in commercial real estate.

The increase in total interest income was partially offset by a $172.5 million increase in interest expense, of which $163.5 million of the increase was driven by increases in interest rates.

The Federal Reserve Board sets various benchmark rates, including the Federal Funds rate, and thereby influences the general market rates of interest, including the loan and deposit rates offered by financial institutions.

In early 2020, the Federal Reserve lowered the target rate range to 0.00% to 0.25%, which remained in effect throughout all of 2021.

On March 17, 2022, the target rate range was increased to 0.25% to 0.50%, then subsequently increased six more times during 2022, to 4.25% to 4.50%.

At December 31, 2022, the Federal Funds target rate had range increased 425 basis points on a year-to-date basis.

In order to remain competitive as market interest rates increase, interest rates paid on deposits must also increase.

Increases in interest rates contributed $43.3 million to the total increase in interest income earned on total LHFI, while interest rates increased our total deposit interest expense and FHLB and advances and other borrowings interest expense by $19.0 million and $3.3 million, respectively.

The fully tax-equivalent net interest margin was 3.42% for the year ended December 31, 2022, a 32 basis point increase from the year ended December 31, 2021.

The yield earned on interest-earning assets for the year ended December 31, 2022, was 4.02%, a 60 basis point increase from 3.42% for the year ended December 31, 2021.

This increase was partially offset by a 43 basis point increase in interest rates paid on total interest-bearing liabilities.

The net increase in purchase accounting accretion income due to the BTH merger increased the fully tax-equivalent NIM by four basis points during the year ended December 31, 2022.

The Federal Funds target rate range had increased 525 basis points starting with the Federal Reserve Board’s first rate increase in 2022, and in order to remain competitive as market interest rates increased, we increased interest rates paid on our deposits.

Increases in interest rates contributed $107.8 million to the total increase in interest income earned on total LHFI during the year ended December 31, 2023, while rising interest rates increased our total deposit interest expense and FHLB advances and other borrowings interest expense by $152.6 million and $10.3 million, respectively, during the same period.

Interest income earned on LHFI during the year ended December 31, 2023, increased in all loan categories when compared to the year ended December 31, 2022.

Interest income earned on real estate loans and commercial and industrial loans contributed $112.5 million and $65.3 million, respectively, of the $181.1 million total increase in interest income earned on LHFI when compared to the year ended December 31, 2022.

Increases in average balances and interest rates drove $57.3 million and $55.2 million, respectively, of the total increase in interest income earned on real estate loans, while increases in interest rates drove $44.9 million of the $65.3 million increase in interest income earned on commercial and industrial loans for the comparable periods.

Purchase accounting accretion on acquired loans was $2.0 million for the year ended December 31, 2023, with remaining purchase accounting net loan discounts totaling $222,000 at December 31, 2023.

Net purchase accounting accretion income on deposits and subordinated indebtedness totaled $124,000 for the year ended December 31, 2023, bringing the impact from purchase accounting treatment on total net interest income to $2.1 million for the year ended December 31, 2023.

Net purchase accounting accretion was $3.3 million during the year ended December 31, 2022.

Towards the end of the first quarter of 2023, in response to the uncertainty in the marketplace surrounding the bank failures that occurred during this time, we strategically borrowed and held approximately $700.0 million in excess cash for contingency liquidity.

This excess liquidity was held at a weighted-average rate of 5.17% and added $130.0 million in average interest-bearing assets for the year ended December 31, 2023, which negatively impacted the fully tax-equivalent net interest margin (“NIM-FTE”) by 10 basis points.

The $700.0 million in excess cash was repaid by June 30, 2023.

During the third quarter of 2023, we made a strategic decision to sell available for sale investment securities with a book value of $181.9 million, and realized a loss of $7.2 million, in order to use the proceeds to pay down FHLB advances.

The impact on the NIM-FTE for the year ended December 31, 2023, was three basis points.

While the associated loss resulted in an $0.15 negative impact to diluted EPS for the year ended December 31, 2023, the difference between the relatively low yield on securities sold and the higher cost of FHLB advances was an attractive trade-off, with an estimated annualized positive forward impact to NIM-FTE of 11 basis points, an estimated annualized forward diluted EPS benefit of approximately $0.11 and an estimated earn-back period of 1.7 years.

The estimated metrics above use our annualized third quarter of 2023 net income, less any non-operating income items, and added the estimated annualized tax-effected net interest income using a weighted average tax-effected yield of 3.08% on the securities sold and an expected interest rate of 5.62% on the FHLB advances paid off.

During the month ended December 31, 2023, we sold available for sale investment securities with a book value of $78.9 million, and realized a loss of $4.6 million.

We intend to use the proceeds in order to support loan growth in our markets, including our new Southeast market;

however, in the interim, the proceeds will be held in our interest-earning deposits with banks with an estimated annual yield of 5.4%.

Due to the timing of this transaction, it had no impact on our NIM-FTE for the year ended December 31, 2023.

While the associated loss resulted in an $0.11 negative impact to diluted EPS for the year ended December 31, 2023, the difference between the relatively low yield on the securities sold and the higher yield of either interest-earning deposits in banks and/or new loan originations as we deploy proceeds was an attractive trade-off.

Depending on how long it takes to deploy from cash to loans, we estimate an annualized positive forward impact to NIM-FTE of three to five basis points, an estimated annualized forward diluted EPS benefit of approximately $0.06 to $0.11, and an estimated earn-back period of 1.9 to 1.1 years.

The metrics above used the estimated annualized tax-effected net interest income generated in excess of the weighted average tax-effected yield of 2.04% on the securities sold compared to an estimated interest yield of 5.4% if the proceeds are invested in interest-earning deposits at other banks, or 7.7% if the proceeds are used to fund new loan production.

The NIM-FTE was 3.23% for the year ended December 31, 2023, a 19 basis point decrease from the year ended December 31, 2022.

The decrease was primarily due to 83 basis points of margin compression experienced during the year ended December 31, 2023, and reflected a 240 basis point increase in interest rates paid on total interest-bearing liabilities offset by a 157 basis point increase in the yield earned on interest-earning assets for the year ended December 31, 2023.

The increase in the Federal Funds rate, and the pace at which it increased, caused a shift in average deposit balances reflected in increases of $782.5 million, or 127.0%, in average time deposit balances, and a $413.1 million, or 18.5%, increase in money market deposit balances compared to the year ended December 31, 2022.

The change in market interest rates driven primarily by the Federal Funds rate increases during the intervening period was also reflected in the decline of $275.1 million, or 11.4%, in average noninterest-bearing deposits for the year ended December 31, 2023, compared to the year ended December 31, 2022.

The following table presents average consolidated balance sheet information, interest income, interest expense and the corresponding average yields earned and rates paid for the year ended December 31, 2023, 2022 and 2021.

Year Ended December 31,

Years Ended December 31,

2023 2022 2021

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All average balances are daily average balances.

(2) Includes Government National Mortgage Association ("GNMA") repurchase average balances of $33.6 million, $53.9 million and $37.7 million for the year ended December 31, 2022, 2021 and 2020, respectively.

(2) Includes Government National Mortgage Association ("GNMA") repurchase average balances of $1.1 million, $33.6 million, $53.9 million for the year ended December 31, 2023, 2022 and 2021, respectively.

The GNMA repurchase asset and liability are recorded as equal offsetting amounts in the consolidated balance sheets, with the asset included in loans held for sale and the liability included in FHLB advances and other borrowings.

During the second half of 2022, the Company entered into an agreement to sell its GNMA MSR portfolio, which met all final sale conditions in early 2023.

The Company derecognized the related GNMA repurchase asset and offsetting liability during the quarter ended March 31, 2023.

For more information on the GNMA repurchase option, see Note 9 — Mortgage Banking in the notes to our consolidated financial statements.

42 unchanged sentences

Residential real estate 9,186 3,404 12,590

PPP (197) 9,583 9,386

Commercial and industrial excl.

PPP (2,960) (3,981) (6,941)

Commercial and industrial 2,005 21,430 23,435

Mortgage warehouse lines of credit (12,137) 3,399 (8,738)

15 unchanged sentences

Provision for Credit Losses

We recorded a provision for credit loss expense of $24.7 million for the year ended December 31, 2022, a $35.5 million increase from a provision net benefit of $10.8 million for the year ended December 31, 2021.

The increase was primarily due to the merger with BTH, which drove a $14.9 million provision for loan credit losses for the CECL requirement on non-PCD loans.

In addition, the total LHFI, excluding BTH loans and mortgage warehouse lines of credit, increased $978.6 million during the comparable periods.

Net charge-offs were $4.6 million during the year ended December 31, 2022, compared to $11.3 million during the year ended December 31, 2021, while the allowance for loan credit losses to nonperforming LHFI was 876.87% at December 31, 2022, compared to 259.35% at December 31, 2021, primarily driven by a $15.0 million decrease in nonperforming LHFI at December 31, 2022, compared to December 31, 2021, as well as the $22.6 million increase in the Company’s allowance for loan credit losses during the intervening period.

While the majority of our credit metrics continue to improve, uncertainty remains due to risks related to continued inflation, economic recession concerns, market interest rate increases, geopolitical risks, labor pressures, and continued global supply-chain disruptions.

We recorded a provision expense of $16.8 million for the year ended December 31, 2023, a $7.9 million decrease from $24.7 million for the year ended December 31, 2022.

The decrease was primarily due to the $14.9 million provision for loan credit losses on non-PCD loans associated with the BTH merger that occurred on August 1, 2022, offset by an increase in loan provision primarily due to loan growth during the intervening period, as well as increases in required reserves on individually evaluated loans at December 31, 2023, compared to December 31, 2022.

In addition, we recorded a release of credit loss provision of $836,000 on our investment securities during the year ended December 31, 2023, an improvement of $1.6 million from a provision expense of $732,000 during the year ended December 31, 2022.

Net charge-offs were $7.8 million during the year ended December 31, 2023, compared to $4.6 million during the year ended December 31, 2022.

The ALCL to nonperforming LHFI was 321.66% at December 31, 2023, compared to 876.87% at December 31, 2022, primarily driven by a $20.2 million increase in nonperforming LHFI compared to December 31, 2022.

The increase in nonperforming loans was driven by increases of $14.5 million and $5.3 million in commercial and industrial and nonperforming residential real estate loans, respectively.

The provision for credit losses, which includes the provisions for loan losses, off-balance sheet commitments and investment security credit losses, is based on management's assessment of the adequacy of our allowance for credit losses ("ACL") for loans, securities and our reserve for off-balance sheet lending commitments.

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The table below presents the various components of and changes in our noninterest income for the periods indicated.

(Dollars in thousands) Year Ended December 31, 2022 vs.

(Dollars in thousands) Years Ended December 31, 2023 vs.

2022 2022 vs.

1 unchanged sentence

2023 2022 2021 $ Change % Change $ Change % Change

Service charges and fees $ 17,669 $ 15,049 $ 12,998 $ 2,620 17.4 % $ 2,051 15.8 %

Insurance commission and fee income $ 25,085 $ 22,869 $ 13,098 $ 2,216 9.7 % $ 9,771 74.6 %

Service charges and fees 18,803 17,669 15,049 1,134 6.4 2,620 17.4

Mortgage banking revenue 3,356 6,722 12,927 (3,366) (50.1) (6,205) (48.0)

Other fee income 3,871 3,530 2,879 341 9.7 651 22.6

Gain on sales of securities, net 1,664 1,748 580 (84) (4.8) 1,168 N/M

Loss on sales and disposals of other assets, net (175) (185) (1,213) 10 5.4 1,028 (84.7)

Limited partnership investment (loss) income (199) 5,701 78 (5,900) (103.5) 5,623 N/M

Swap fee income 457 814 2,546 (357) (43.9) (1,732) (68.0)

Swap fee income 1,277 457 814 820 N/M (357) (43.9)

(Loss) gain on sales of securities, net (11,635) 1,664 1,748 (13,299) N/M (84) (4.8)

Limited partnership investment gain (loss) income 405 (199) 5,701 604 N/M (5,900) (103.5)

Gain (loss) on sales and disposals of other assets, net 64 (175) (185) 239 N/M 10 (5.4)

Change in fair value of equity investments 10,096 — — 10,096 N/A — N/A

Other income 7,013 4,737 10,162 2,276 48.0 (5,425) (53.4)

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N/M = Not meaningful.

Noninterest income for the year ended December 31, 2022, decreased by $4.9 million, or 7.9%, to $57.3 million, compared to $62.2 million for the year ended December 31, 2021, and was largely driven by decreases of $6.2 million, $5.9 million and $5.4 million in mortgage banking revenue, limited partnership investment income and other noninterest income, respectively.

The decreases were partially offset by increases of $9.8 million and $2.6 million in insurance commission and fee income and service charges and fees income, respectively.

Mortgage banking revenue.

The $6.2 million decrease in mortgage banking revenue compared to the year ended December 31, 2021, was primarily due to a $9.8 million decrease in gain on sale of loans sold including MSR origination, primarily due to a 44.9% reduction in origination volume, a 51.2% reduction in sales volume and a 13.5% reduction in sales margin experienced during the year ended December 31, 2022, as well as a $2.0 million impairment on the held for sale GNMA MSR portfolio.

The decreases were partially offset by a $5.5 million increase in mortgage held for sale and pipeline fair value adjustment.

During the second half of 2022, the Company recognized an impairment of $2.0 million and entered into an agreement to sell its GNMA MSR portfolio, which met all final sale conditions in early 2023.

The Company sold approximately $1.8 million in GNMA MSR, with no significant additional gain or loss realized, and derecognized the related GNMA repurchase asset and offsetting liability of $24.6 million in the first quarter of 2023.

Limited partnership investment income.

The $5.9 million decrease in limited partnership investment income during the year ended December 31, 2022, compared to the year ended December 31, 2021, was primarily due to a net $5.7 million valuation increase in the limited partnership funds during the year ended December 31, 2021, compared to a net $256,000 valuation decrease recorded during the year ended December 31, 2022.

Other income.

The decrease in other noninterest income was primarily due to the acquisition of the remaining 62% equity interest in The Lincoln Agency in December 2021.

The previously held 38% equity method investment in Lincoln Agency was remeasured to its fair value, resulting in recognition of a gain of $5.2 million in other noninterest income during the year ended December 31, 2021.

N/A = Not applicable.

Noninterest income for the year ended December 31, 2023, increased by $1.1 million, or 1.9%, to $58.3 million, compared to $57.3 million for the year ended December 31, 2022.

The increase was primarily due to increases of $10.1 million, $2.3 million and $2.2 million in the change in fair value of equity investments, other noninterest income and insurance commission and fee income, respectively.

The BTH merger contributed $1.8 million of the noninterest income increase between the two periods, primarily reflected in service charges and fee income.

The increases were partially offset by an increase of $13.3 million in the loss on sales of securities, net, and a decrease of $3.4 million in mortgage banking revenue, respectively.

Insurance commission and fee income.

The increase in insurance commission and fee income during the year ended December 31, 2022, as compared to the year ended December 31, 2021, was primarily driven by $8.3 million of additional contribution income as a result of the insurance acquisitions that occurred on December 31, 2021, which significantly expanded the Company's insurance presence in the North Louisiana market.

Service charges and fees .

The $2.6 million increase in service charges and fees income was primarily driven by increases of $444,000, $321,000 and $606,000, excluding BTH service charges, in overdraft fee income, account analysis income and debit interchange fees due to increases in debit card transactions, respectively.

In total, BTH contributed $749,000 to the total service charges and fee income since the date of the merger.

The $2.2 million increase in insurance commission and fee income was mainly due to increases in new commercial accounts combined with higher contingency income earned due to lower claims for catastrophic events experienced by our insurance agency counterparties during the year ended December 31, 2023, compared to the year ended December 31, 2022.

Mortgage banking revenue.

The $3.4 million decrease in mortgage banking revenue compared to the year ended December 31, 2022, was primarily due to a slowdown in the residential housing market brought on by higher mortgage interest rates, and in some key markets, continued housing supply shortages, leading to overall lower lending during the period.

During December 2023 and January 2024, the Company solicited non-binding indications of interest with respect to the proposed sale of substantially all of its mortgage servicing rights asset and recognized an impairment of $1.8 million.

The Company plans to sell approximately $17.4 million in mortgage servicing rights, representing approximately $1.39 billion in unpaid principal balances, subject to successful negotiation of a definitive purchase and sale agreement and satisfaction of all closing conditions.

Late in the year ended December 31, 2022, we recorded a $2.0 million impairment on the held for sale GNMA MSR portfolio.

We sold the GNMA MSR, with no significant additional gain or loss realized, and derecognized the related GNMA repurchase asset and offsetting liability early in the year ended December 31, 2023.

(Loss) gain on sales of securities, net.

The loss on sales of securities was due to the sale of available for sale investment securities with a book value of $260.8 million, which realized a loss on sale of $11.8 million during the second half of 2023.

We used the proceeds from the sales to pay down FHLB advances and support loan growth in our markets.

Please see the Net Interest Income and Net Interest Margin section above for more information on these transactions.

Change in fair value of equity investments.

The $10.1 million increase in change in fair value of equity investments was due to a gain realized from a positive valuation adjustment on one of our non-marketable equity securities, which qualified for the practical expedient under which we carry these securities at cost adjusted for any observable transactions during the period, less any impairment.

During the year ended December 31, 2023, we observed multiple orderly transactions for identical equity securities indicating a price change had occurred and adjusted our basis upwards accordingly.

Other noninterest income.

The $2.3 million increase in other noninterest income was primarily due to a positive fair value adjustment of our municipal securities of $726,000 for the year ended December 31, 2023, compared to a negative fair value adjustment of $854,000 for the year ended December 31, 2022.

Noninterest Expense

The following table presents the significant components of noninterest expense for the periods indicated:

(Dollars in thousands) Year Ended December 31, 2022 vs.

(Dollars in thousands) Years Ended December 31, 2023 vs.

2022 2022 vs.

4 unchanged sentences

Data processing 11,590 10,456 9,117 1,134 10.8 1,339 14.7

Intangible asset amortization 9,628 5,488 844 4,140 75.4 4,644 N/M

Office and operations 10,834 8,120 6,399 2,714 33.4 1,721 26.9

Loan-related expenses 6,097 7,688 6,316 (1,591) (20.7) 1,372 21.7

Professional services 5,931 3,813 3,644 2,118 55.5 169 4.6

Electronic banking 3,958 3,563 3,686 395 11.1 (123) (3.3)

Loan-related expenses 5,035 6,097 7,688 (1,062) (17.4) (1,591) (20.7)

Advertising and marketing 5,986 4,431 3,438 1,555 35.1 993 28.9

Electronic banking 4,712 3,958 3,563 754 19.1 395 11.1

Franchise tax expense 3,334 3,582 2,538 (248) (6.9) 1,044 41.1

Regulatory assessments 6,456 3,547 2,904 2,909 82.0 643 22.1

Intangible asset amortization 5,488 844 1,060 4,644 N/M (216) (20.4)

Communications 1,527 1,246 1,574 281 22.6 (328) (20.8)

6 unchanged sentences

Noninterest expense for the year ended December 31, 2023, increased by $34.8 million, or 17.4%, to $235.2 million, compared to $200.4 million for the year ended December 31, 2022.

The increase was primarily due to increases of $25.9 million, $6.2 million, $4.6 million, $2.9 million and $1.7 million in salaries and employee benefits expenses, merger-related expense, intangible asset amortization, occupancy and equipment, net and office and operations, respectively.

The increases were partially offset by a $1.6 million decrease in loan-related expenses.

The BTH merger contributed $18.1 million the total increase, excluding merger-related expenses.

Salaries and employee benefits.

The $25.9 million increase in salaries and employee benefits expenses was primarily driven by an increase in full-time equivalent employees to 1,011 at December 31, 2022, from 776 at December 31, 2021, and reflected a $14.6 million increase in salary alone.

• The BTH merger contributed 114 of the new full time positions and $5.6 million to the salaries and employee benefits expense increase.

• The insurance acquisition at December 31, 2021, contributed 34 new full time positions and $4.8 million to the salaries and employee benefits expense increase.

• Incentive compensation increased $5.7 million due to loan production exceeding performance goals.

• Also contributing to the increase was the impact of cost of living adjustments and annual raises made on March 1, 2022, and additional cost of living increases made in August 2022.

Merger-related expense.

The $6.2 million merger-related expenses during the year ended December 31, 2022, were associated with the BTH merger that closed on August 1, 2022.

Intangible asset amortization expense.

The $4.6 million increase in intangible asset amortization expense was primarily due to the core deposit intangible established in conjunction with the BTH merger, which contributed $3.4 million to the total increase.

The insurance acquisition at December 31, 2021, contributed $1.4 million to the total increase for the relationship-based and noncompete intangibles established in conjunction with the acquisition.

The $19.8 million increase in salaries and employee benefits expenses was primarily driven by increases of $15.0 million, $1.2 million and $1.1 million in salary expense, incentive compensation and medical self-insurance costs, respectively, for the year ended December 31, 2023, compared to the year ended December 31, 2022.

• The BTH merger contributed $7.5 million to the total salaries and employee benefits increase, primarily due to an additional seven months of BTH expense during the year ended December 31, 2023, compared to five months of BTH expense during the year ended December 31, 2022.

• The impact of the cost of living increases made in August 2022 and annual cost of living adjustments and raises made on March 1, 2023, increased the comparative change in salaries and employee benefits between the two periods.

Occupancy and equipment, net.

The $2.9 million increase in occupancy and equipment expense was primarily due to the BTH merger that closed on August 1, 2022, which contributed $1.6 million to the total increase.

In addition, the rental expense increased by $323,000 primarily due to one new banking center location which opened during the last quarter of 2022, and total maintenance and repairs expense increased on property, furniture, fixtures and equipment by $296,000.

The $6.6 million increase was primarily due to the BTH merger that closed on August 1, 2022, which contributed $3.3 million to the total increase.

Additionally, the increase was due to the addition of two new banking locations and two mortgage production offices being added during the intervening period.

Intangible asset amortization expense.

The $4.1 million increase was primarily due to the core deposit intangible established in conjunction with the BTH merger.

Office and operations.

The increase in office and operations expense was primarily due to increases in business development costs and credit card reward expenses.

Loan-related expenses.

The decrease in loan-related expenses was primarily driven by a decrease of $1.2 million in loan-related legal fees, primarily due to our lower past due and nonperforming LHFI balances.

These increases were mainly due to increases in connection with the BTH merger.

Professional services.

The increase was mainly due to a $1.1 million increase in consulting expense.

Regulatory assessment.

The $2.9 million increase in regulatory assessments was driven primarily by an increase in the blended FDIC’s Uniform Assessment rate to 7.10% at December 31, 2023, from 4.09% at December 31, 2022, which was primarily the result of growth in our average assets during the intervening period.

Merger-related expense.

The $6.2 million merger-related expenses in 2022 were associated with the BTH merger that was closed on August 1, 2022, while no comparable expense occurred during the year ended December 31, 2023.

Income Tax Expense

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Our effective tax rate was 20.9% for the year ended December 31, 2023, compared to 18.4% for the year ended December 31, 2022.

The effective tax rate was lower for the year ended December 31, 2021, compared to the rate for the year ended December 31, 2022, primarily due to the tax impact of the exercise of stock options and vesting of stock awards during the year ended December 31, 2021.

Offsetting the increase in the effective tax rate during the year ended December 31, 2022, compared to the effective tax rate during the year ended December 31, 2021, was the impact of merger-related expenses during 2022, which drove net income before income taxes down.

Our effective income tax rates have differed from the applicable U.S.

statutory rates of 21% at December 31, 2022 and 2021, due to the effect of tax-exempt income from securities, low-income housing and qualified school construction bond tax credits, tax-exempt income from life insurance policies and income tax effects associated with stock-based compensation.

Because of these items, we expect our effective income tax rate to continue to remain below the applicable U.S.

statutory rate.

These tax-exempt items can have a larger than proportional effect on the effective income tax rate as net income decreases.

Any increases to the statutory tax rate would increase income taxes in the future.

The effective tax rate was higher for the year ended December 31, 2023, compared to the year ended December 31, 2022, primarily due to higher state income taxes as a result of higher state income, as well as an increase in stock compensation tax expense during the year ended December 31, 2023.

Comparison of Financial Condition at December 31, 2023, and December 31, 2022

The merger with BTH affected most material financial metrics of the Company at December 31, 2022.

Total assets increased by $1.82 billion, or 23.2%, to $9.69 billion at December 31, 2022, from $7.86 billion at December 31, 2021.

The increase in total assets is primarily due to $1.85 billion in total assets, net of purchase accounting adjustments, acquired from the merger with BTH, which included $1.24 billion in loan balances, net of purchase accounting adjustments.

Organic loan growth contributed an additional $619.2 million increase in our loan portfolio balances which grew to $7.09 billion at December 31, 2022, from $5.23 billion at December 31, 2021.

The increase in total assets was offset by a $346.6 million decrease in cash and cash equivalents to $359.0 million at December 31, 2022, from $705.6 million at December 31, 2021.

Total deposits increased $1.21 billion to $7.78 billion at December 31, 2022, from $6.57 billion at December 31, 2021.

The increase in deposits was due to the assumption of $1.57 billion in deposits, net of purchase accounting adjustments, from the BTH merger.

Excluding the deposits acquired in the BTH merger at August 1, 2022, total deposit balances decreased by $361.5 million, or 5.5%, with the remaining BTH-originated deposits totaling $1.45 billion at December 31, 2022.

Overall, higher rates of inflation tend to cause individuals and businesses to hold fewer liquid assets thereby contributing to tightening liquidity.

Stockholders’ equity increased $219.7 million to $949.9 million at December 31, 2022, compared to $730.2 million at December 31, 2021.

The increase in stockholders’ equity is primarily associated with the $306.3 million in consideration paid related to the BTH merger and the $87.7 million in net income for the year ended December 31, 2022, partially offset by the $165.6 million in other comprehensive loss and the $15.9 million of stockholder dividends declared in 2022.

Total assets increased by $36.5 million, or 0.4%, to $9.72 billion at December 31, 2023, from $9.69 billion at December 31, 2022.

The increase in total assets is primarily due to an increase of $570.9 million, or 8.1%, in our loans held for investment (“LHFI”).

LHFI was $7.66 billion at December 31, 2023, compared to $7.09 billion at December 31, 2022.

The increase was partially offset by decreases of $387.9 million and $78.5 million in available for sale securities and cash and cash equivalents, respectively.

Available for sale securities and cash and cash equivalents were $1.25 billion and $280.4 million at December 31, 2023, respectively compared to $1.64 billion and $359.0 million at December 31, 2022, respectively.

Federal Home Loan Bank advances, repurchase obligations and other borrowings decreased $555.6 million, or 86.9%, to $83.6 million at December 31, 2023, from $639.2 million at December 31, 2022, offset by a $475.4 million, or 6.1%, increase in total deposits to $8.25 billion at December 31, 2023, from $7.78 billion at December 31, 2022.

Total deposits increased at December 31, 2023, compared to December 31, 2022, primarily due to increases in brokered time deposits and money market deposits.

Loan Portfolio

Our loan portfolio is our largest category of interest-earning assets, and interest income earned on our loan portfolio is our primary source of income.

At December 31, 2022, 78.8% of the loan portfolio held for investment was comprised of commercial and industrial loans, including mortgage warehouse lines of credit, commercial real estate and construction/land/land development loans, which were primarily originated within our market areas of Texas, North Louisiana, and Mississippi, compared to 82.3% at December 31, 2021.

At December 31, 2023, 77.1% of the loan portfolio held for investment was comprised of commercial and industrial loans, including mortgage warehouse lines of credit, commercial real estate and construction/land/land development loans, which were primarily originated within our legacy market areas of Texas, North Louisiana, and Mississippi, compared to 78.8% at December 31, 2022.

The following table presents the ending balance of our loan portfolio held for investment at the dates indicated.

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Amount Percent Amount Percent $ Change % Change

Commercial real estate $ 2,304,678 32.6 % $ 1,693,512 32.4 % $ 611,166 36.1 %

Commercial real estate (“CRE”) (1)

$ 2,442,734 31.9 % $ 2,304,678 32.6 % $ 138,056 6.0 %

Construction/land/land development

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Total real estate 5,247,894 68.5 4,727,841 66.7 520,053 11.0

Commercial and industrial total 2,051,161 28.9 1,454,235 27.8 596,926 41.0

Commercial and industrial 2,059,460 26.9 2,051,161 28.9 8,299 0.4

Mortgage warehouse lines of credit 329,966 4.3 284,867 4.0 45,099 15.8

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Total LHFI $ 7,660,944 100.0 % $ 7,090,022 100.0 % $ 570,922 8.1

At December 31, 2022, total LHFI were $7.09 billion, an increase of $1.86 billion, or 35.5%, compared to $5.23 billion at December 31, 2021.

The merger with BTH has contributed $1.22 billion to the increase, net of purchase accounting adjustments, at December 31, 2022.

Our organic loan growth contributed to the remaining increase.

Total LHFI at December 31, 2022, excluding mortgage warehouse lines of credit, were $6.81 billion, reflecting an increase of $2.20 billion, or 47.8%, increase, compared to December 31, 2021.

______________________

(1) Includes owner-occupied CRE of $953.8 million and $843.0 million at December 31, 2023, and 2022, respectively.

At December 31, 2023, total LHFI were $7.66 billion, an increase of $570.9 million, or 8.1%, compared to $7.09 billion at December 31, 2022.

The increase was primarily driven by loan growth of $520.1 million in real estate loans.

Total LHFI at December 31, 2023, excluding mortgage warehouse lines of credit, was $7.33 billion, reflecting an increase of $525.8 million, or 7.7%, compared to December 31, 2022.

Our lending focus continues to be on operating companies, including commercial loans and lines of credit, as well as owner-occupied commercial real estate loans.

A significant portion, 31.9%, of our LHFI portfolio at December 31, 2023, consisted of CRE loans secured by real estate properties.

Such loans can involve high principal loan amounts, and the repayment of these loans is dependent, in large part, on a borrower’s ongoing business operations or on income generated from the properties that are leased to third parties.

The table below sets forth the CRE loan portfolio, by portfolio industry sector and collateral location as of December 31, 2023.

December 31, 2023

(Dollars in thousands) Louisiana

State Mississippi State Texas

State All other states Total

Non-owner occupied CRE:

Office building $ 24,165 $ 49,501 $ 281,160 $ 21,065 $ 375,891

Retail shopping 47,633 36,200 206,309 104,677 394,819

Real estate & construction 35,253 5,234 138,369 54,314 233,170

Healthcare 47,905 5,865 113,686 35,931 203,387

Hotels 51,238 36,790 7,085 9,902 105,015

All others sectors 17,192 8,626 114,247 36,565 176,630

Total non-owner occupied CRE 223,386 142,216 860,856 262,454 1,488,912

Owner-occupied CRE:

Real estate & construction $ 44,764 $ 21,939 $ 175,688 $ 13,146 $ 255,537

Retail shopping 15,190 191 120,075 98 135,554

Consumer Services 23,513 4,715 45,040 — 73,268

Entertainment & Recreation 21,432 10,658 37,890 — 69,980

All others sectors 120,081 25,545 205,184 68,673 419,483

Total owner-occupied CRE 224,980 63,048 583,877 81,917 953,822

Total CRE loans $ 448,366 $ 205,264 $ 1,444,733 $ 344,371 $ 2,442,734

Loan Portfolio Maturity Analysis

8 unchanged sentences

Construction/land/land development 310,988 582,521 138,852 37,864 1,070,225

Residential real estate loans 91,145 577,391 220,460 588,542 1,477,538

Residential real estate 103,946 716,411 121,440 793,138 1,734,935

Total real estate 797,391 2,844,514 757,128 848,861 5,247,894

Commercial and industrial loans 811,097 1,123,501 116,412 151 2,051,161

Commercial and industrial 860,534 1,093,768 105,025 133 2,059,460

Mortgage warehouse lines of credit 329,966 — — — 329,966

Consumer loans 11,834 13,255 494 570 26,153

Consumer 9,234 13,393 485 512 23,624

Total LHFI $ 1,997,125 $ 3,951,675 $ 862,638 $ 849,506 $ 7,660,944

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Nonperforming Assets

Nonperforming assets consist of nonperforming loans and property acquired through foreclosures or repossession, as well as bank-owned property not currently in use and listed for sale.

Nonperforming assets consist of nonperforming/nonaccrual loans and property acquired through foreclosures or repossession, as well as bank-owned property not in use and listed for sale.

Loans are placed on nonaccrual status when management believes that the borrower’s financial condition, after giving consideration to economic and business conditions, and collection efforts, is such that collection of interest is doubtful, or generally when loans are 90 days or more past due.

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Nonaccrual loans are returned to accrual status when all the principal and interest amounts contractually due are brought current and future payments are reasonably assured.

If a loan is determined by management to be uncollectible, regardless of size, the portion of the loan determined to be uncollectible is then charged to the allowance for loan credit losses.

Purchased loans that have experienced more than insignificant credit deterioration since origination are purchase credit deteriorated (“PCD”) loans.

If a loan is determined by management to be uncollectible, regardless of size, the portion of the loan determined to be uncollectible is then charged to the ALCL.

Purchased loans that have experienced more than insignificant credit deterioration since origination are purchased credit deteriorated (“PCD”) loans.

The Company evaluates acquired loans for deterioration in credit quality based on any of, but not limited to, the following:

(1) nonaccrual status;

(2) troubled debt restructured designation;

(2) borrowers are experiencing financial difficulty which results in modification to the loan terms;

(3) risk ratings of special mention, substandard or doubtful;

(4) watchlist credits;

and (5) delinquency status, including loans that are current on merger/acquisition date, but had been previously delinquent two times 60 days.

and (5) delinquency status, including loans that are current on merger/acquisition date, but had previously been 60 days delinquent twice.

An allowance for credit losses is determined using the same methodology as other individually evaluated loans.

Subsequent changes to the allowance for credit losses are recorded through the provision for credit losses.

We held approximately $48.1 million of unpaid principal balance PCD loans at December 31, 2022, and no PCD loans at December 31, 2021.

We held approximately $34.8 million of unpaid principal balance PCD loans at December 31, 2023, and $48.1 million of unpaid principal balance PCD loans at December 31, 2022.

We manage the quality of our lending portfolio in part through a disciplined underwriting policy and through continual monitoring of loan performance and borrowers’ financial condition.

There can be no assurance, however, that our loan portfolio will not become subject to losses due to declines in economic conditions or deterioration in the financial condition of our borrowers.

Overall, credit metrics have improved at December 31, 2022, compared to December 31, 2021;

however, uncertainty remains due to risks related to rising inflation, economic recession concerns, market interest rate increases, labor pressures, continued global supply-chain disruptions and increased geopolitical risks.

The following table shows our nonperforming loans and nonperforming assets at the dates indicated:

(Dollars in thousands)

December 31, December 31,

Nonperforming LHFI:

December 31, 2023 December 31, 2022

Commercial real estate $ 786 $ 526

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$ 34,044 $ 14,679

Troubled debt restructuring loans - nonaccrual

Loan modifications made to borrowers experiencing financial difficulty - nonaccrual (1)

$ 8,388 $ 4,389

Troubled debt restructuring loans - accruing

Loan modifications made to borrowers experiencing financial difficulty - accruing (1)

7,660,944 7,090,022

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Ratio of nonperforming assets to total assets

Ratio of nonperforming assets to average LHFI

At December 31, 2022, total nonperforming LHFI decreased by $15.0 million, or 60.1%, from December 31, 2021, primarily due to lower nonperforming commercial and industrial and residential loan balances.

Please see Note 5 - Loans to our consolidated financial statements contained in Item 8 of this report for more information on nonperforming loans.

______________________

(1) December 31, 2022, amounts were previously disclosed as troubled debt restructured (“TDR”) loans under Accounting Standards Codification 310-40.

Accounting Standards Update 2022-02 eliminated the TDR guidance effective for public business entities on January 1, 2023.

At December 31, 2023, total nonperforming LHFI increased by $20.2 million from December 31, 2022.

The increase in nonperforming LHFI was driven by increases of $14.5 million and $5.3 million in nonperforming commercial and industrial loans and residential real estate loans, respectively.

The net increase in nonperforming commercial and industrial loans was mainly due to two relationships totaling $11.1 million, which maintained reserves of $5.2 million as of December 31, 2023.

The increase in nonperforming residential real estate loans was driven by a reclassification of nonperforming mortgage loans from the held for sale portfolio to the held for investment portfolio during the year ended December 31, 2023, which contributed a $5.8 million increase in nonperforming residential real estate loans, with government guarantees of $5.0 million.

The residential real estate loans carry government guarantees and considering the guaranty, as well as the value, of the underlying collateral resulted in an immaterial impact to the ALCL.

Please see Note 4 — Loans to our consolidated financial statements contained in Part II, Item 8 of this report for more information on nonperforming loans.

Potential Problem Loans

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Loans classified as loss are charged-off and we have low expectations for the recovery of any payments in respect to loans rated as loss.

Information regarding the internal risk ratings of our loans at December 31, 2022, is included in Note 5 - Loans to our consolidated financial statements contained in Item 8 of this report.

Information regarding the internal risk ratings of our loans at December 31, 2023, is included in Note 4 — Loans to our consolidated financial statements contained in Part II, Item 8 of this report.

Allowance for Loan Credit Losses

The allowance for loan credit losses represents the estimated losses for loans accounted for on an amortized cost basis.

The ALCL represents the estimated losses for loans accounted for on an amortized cost basis.

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Those individual loans that are not collateral dependent are evaluated based on a discounted cash flow methodology.

If actual losses exceed the amount of the allowance for loan credit losses, it would materially and adversely affect our earnings.

If actual losses exceed the amount of the ALCL, it would materially and adversely affect our earnings.

Acquisition Accounting and Acquired Loans .

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Purchased loans that have experienced more than insignificant credit deterioration since origination are PCD loans.

An allowance for loan credit losses is determined using the same methodology as other individually evaluated loans.

An ALCL is determined using the same methodology as other individually evaluated loans.

The sum of the loan’s purchase price and allowance for credit losses becomes its initial amortized cost basis.

The difference between the initial amortized cost basis and the par value of the loan is a non-credit discount or premium, which is amortized or accreted into interest income over the life of the loan.

Subsequent changes to the allowance for loan credit losses are recorded through the provision for credit losses.

Subsequent changes to the ALCL are recorded through the provision for credit losses.

As a general rule, when it becomes evident that the full principal and accrued interest of a loan may not be collected, or at 90 days past due, we will reflect that loan as nonperforming.

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• for commercial and industrial loans, the debt service coverage ratio (income from the business in excess of operating expenses compared to loan repayment requirements), the operating results of the commercial, industrial or professional enterprise, the borrower’s business, professional and financial ability and expertise, the specific risks and volatility of income and operating results typical for businesses in that category and the value, nature and marketability of collateral.

Overall, absent the impact of the BTH merger, most credit metrics improved at December 31, 2022, compared to December 31, 2021.

The impact of the BTH merger on loans at December 31, 2022, was as follows:

provision of $23.9 million, classified loans of $17.8 million, past due loans of $6.0 million, and nonperforming LHFI of $2.6 million.

The allowance for loan credit losses to nonperforming LHFI increased to 876.87% at December 31, 2022, compared to 259.35% at December 31, 2021, primarily driven by a $15.0 million decrease in nonperforming LHFI at December 31, 2022, compared to December 31, 2021, as well as the $22.6 million increase in the allowance for loan credit losses during the intervening period, which was predominately driven by the BTH merger.

Past due loans to total LHFI declined to 0.15% at December 31, 2022, compared to 0.49% at December 31, 2021.

The following table presents the allowance for credit loss by loan category:

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(1) Represents the ratio of each loan type to total LHFI.

Our allowance for loan credit losses increased by $22.6 million, or 35.0%, to $87.2 million at December 31, 2022, from $64.6 million at December 31, 2021.

The ratio of allowance for loan credit losses to total LHFI was 1.23% at both December 31, 2022 and 2021.

The allowance for loan credit losses increased $22.6 million compared to December 31, 2021, mainly due to a $23.9 million allowance for BTH loans at December 31, 2022.

Qualitative factor changes across the Company's risk pools, which includes the impact of the BTH acquired loans, drove a $22.4 million increase for the year ended December 31, 2022.

The following table presents an analysis of the allowance for credit losses and other related data at the periods indicated.

(Dollars in thousands) Year Ended December 31,

Allowance for loan credit losses 2022 2021

Our ALCL increased by $9.7 million, or 11.1%, to $96.9 million at December 31, 2023, from $87.2 million at December 31, 2022.

The ratio of ALCL to total LHFI increased to 1.26% at December 31, 2023, compared to 1.23% at December 31, 2022.

Qualitative factor changes across the Company’s risk pools drove a $6.7 million increase in the ALCL, with the allowance for individually evaluated loans contributing another $4.4 million of the increase for the year ended December 31, 2023, when compared to the year ended December 31, 2022.

The following table presents an analysis of the ALCL and other related data at the periods indicated.

(Dollars in thousands) Years Ended December 31,

ALCL 2023 2022

Balance at beginning of period $ 87,161 $ 64,586

Allowance for loan credit losses - BTH merger 5,527 —

ALCL - BTH merger — 5,527

Provision for loan credit losses 17,514 21,613

12 unchanged sentences

Balance at end of period $ 96,868 $ 87,161

Ratio of allowance for loan credit losses to:

Ratio of ALCL to:

Nonperforming LHFI 321.66 % 876.87 %

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Net charge-offs as a percentage of:

Provision for loan credit losses 21.12 N/M

Allowance for loan credit losses 5.24 17.47

Provision for loan credit losses 44.58 21.12

ALCL 8.06 5.24

Average LHFI 0.10 0.08

N/M = Not meaningful.

The ALCL to nonperforming LHFI decreased to 321.66% at December 31, 2023, compared to 876.87% at December 31, 2022, primarily driven by a $20.2 million increase in nonperforming LHFI at December 31, 2023.

Past due loans to total LHFI increased to 0.34% at December 31, 2023, compared to 0.15% at December 31, 2022.

The steep incline in the interest rate environment driven by the Federal Reserve Board’s Federal Funds rate setting policy, as outlined in the Results of Operations section above, has negatively impacted borrowers with variable or floating rate loans causing their cost of borrowings to increase significantly over the last eighteen months.

This has put pressure on borrower’s cash flow and contributed to higher overall nonperforming loans at December 31, 2023 compared to December 31, 2022.

Our securities portfolio is the second largest component of earning assets and provides a significant source of revenue.

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Unrealized gains and losses arising in the available for sale portfolio as a result of changes in the fair value of the securities are reported on an after-tax basis as a component of accumulated other comprehensive (loss) income in stockholders’ equity while securities classified as held to maturity are carried at amortized cost.

For further discussion of the valuation components and classification of investment securities, see Note 1 - Significant Accounting Policies to our consolidated financial statements contained in Item 8 of this report.

Our securities portfolio totaled $1.66 billion at December 31, 2022, representing an increase of $124.1 million, or 8.1%, from $1.53 billion at December 31, 2021.

At August 1, 2022, we acquired $456.8 million of available for sale securities from BTH, $447.5 million of which were sold during the third quarter of 2022, and majority of the funds were used to pay down Federal Home Loan Bank Advances.

For additional information regarding our securities portfolio, please see Note 4 - Securities to our consolidated financial statements contained in Item 8 of this report.

For further discussion of the valuation components and classification of investment securities, see Note 1 — Significant Accounting Policies to our consolidated financial statements contained in Part II, Item 8 of this report.

Our securities portfolio totaled $1.27 billion at December 31, 2023, representing a decrease of $387.1 million, or 23.3%, from $1.66 billion at December 31, 2022.

The decrease was primarily due to sales, maturities and calls, as well as normal principal paydowns, which was partially offset by decrease in unrealized losses during the year ended December 31, 2023.

During the last few days of the quarter ended September 30, 2023, we made a strategic decision to sell available for sale investment securities with a book value of $181.9 million and realized a loss of $7.2 million, the proceeds of which were used to pay down FHLB advances.

In order to support loan operations heading into 2024, during the last quarter of the 2023 year we sold available for sale investment securities with a book value of $78.9 million and realized a loss of $4.6 million.

Our available for sale portfolio totaled $1.25 billion at December 31, 2023, and represented 98.6% of our total security portfolio and is comprised of 47.8% mortgage-backed, 22.5% municipal, 6.4% treasury/agency, 13.2% collateralized mortgage obligations and 10.1% corporate/asset-backed securities.

Our available for sale portfolio totaled $1.64 billion at December 31, 2022, and represented 98.9% of our total security portfolio and was comprised of 40.5% mortgage-backed, 23.7% municipal, 15.1% treasury/agency, 11.3% collateralized mortgage obligations and 9.4% corporate/asset-backed securities.

The securities portfolio had a weighted average effective duration of 4.28 years at December 31, 2023, compared to 4.24 years at December 31, 2022.

For additional information regarding our securities portfolio, please see Note 3 — Securities to our consolidated financial statements contained in Part II, Item 8 of this report.

The following table sets forth the composition of our securities portfolio at the dates indicated.

1 unchanged sentence

Available for sale:

Amount % of Total Amount % of Total

Carrying Amount % of Total Carrying Amount % of Total

State and municipal securities $ 282,126 22.5 % $ 389,477 23.7 %

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If interest rates begin to fall, prepayments may increase, thereby shortening the estimated average life of these securities.

All of our mortgage-backed securities and collateralized mortgage obligations are issued and/or guaranteed by U.S.

government agencies or U.S.

government-sponsored entities.

Other than securities issued by government agencies or government sponsored enterprises, we did not own securities of any one issuer for which aggregate cost exceeded 10.0% of consolidated stockholders’ equity at December 31, 2023 or 2022.

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We also obtain deposits from local municipalities and state agencies.

Our deposit balances were impacted by the merger with BTH that occurred on August 1, 2022.

At the merger date, we assumed BTH deposits of $758.4 million in interest-bearing demand deposits, $398.1 million in noninterest-bearing demand deposits, $302.5 million in time deposits and $107.5 million in savings deposits, resulting in an overall $1.57 billion increase to our deposit balances at the merger date.

At December 31, 2022, all deposit categories increased when compared to December 31, 2021, with interest-bearing demand and noninterest-bearing deposits increasing by $325.1 million, or 23.0%, and $319.0 million, or 14.7%, respectively, compared to December 31, 2021.

Total deposits increased at December 31, 2023, compared to December 31, 2022, primarily due to increases in brokered time deposits and money market deposits, which increased by $439.6 million and $330.2 million, respectively, partially offset by a decrease in noninterest-bearing demand deposits of $562.8 million compared to December 31, 2022.

Typically, higher interest rates and sustained inflation will cause customers to move liquid asset balances into higher interest-earning vehicles such as money market funds.

The following table presents our deposit mix at the dates indicated:

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967,901 11.7 781,880 10.0 186,021 23.8

Brokered time deposits 444,989 5.4 5,407 0.1 439,582 N/M

269,926 3.3 326,223 4.2 (56,297) (17.3)

1 unchanged sentence

$ 8,251,125 100.0 % $ 7,775,702 100.0 % $ 475,423 6.1

__________________

N/M = Not meaningful.

We manage our interest expense on deposits through specific deposit product pricing that is based on competitive pricing, economic conditions and current and anticipated funding needs.

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The following table reflects the classification of our average deposits and the average rate paid on each deposit category for the periods indicated:

Year Ended December 31,

Years Ended December 31,

2023 2022 2021

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928,694 27,892 3.00 611,195 4,476 0.73 607,742 4,576 0.75

Brokered time deposits 470,040 24,241 5.16 5,002 8 0.16 — — —

291,059 2,606 0.90 288,010 517 0.18 232,081 157 0.07

5 unchanged sentences

$ 8,271,682 $ 196,457 2.38 $ 7,105,310 $ 33,509 0.47 $ 6,153,500 $ 13,418 0.22

Our average deposit balance was $7.11 billion for the year ended December 31, 2022, an increase of $951.8 million, or 15.5%, from $6.15 billion for the year ended December 31, 2021.

Our average deposit balance was $8.27 billion for the year ended December 31, 2023, an increase of $1.17 billion, or 16.4%, from $7.11 billion for the year ended December 31, 2022.

The average annualized rate paid on our interest-bearing deposits for the year ended December 31, 2023, was 3.21%, compared to 0.72% for the year ended December 31, 2022.

The increase in the average cost of our deposits was primarily the result of the rising interest rate environment experienced during the year ended December 31, 2022.

Recently, we have managed our deposit interest expense by the strategic release of non-relationship, higher-rate deposits during 2022;

however, our current deposit rates have not yet completely absorbed all of the market interest rate increases that have occurred during the year ended December 31, 2022.

Average noninterest-bearing deposits at December 31, 2022, were $2.42 billion, compared to $1.91 billion at December 31, 2021, an increase of $517.1 million, or 27.1%, and represented 34.1% and 31.0% of average total deposits for the year ended December 31, 2022 and 2021, respectively.

The increase in the average cost of our deposits was primarily the result of the rapidly rising interest rate environment experienced since March 17, 2022, when the Federal Reserve Board started a series of eleven Federal Funds target range rate increases cumulating in a 525 basis point increase to the current target range of 5.25% to 5.50%.

Our current deposit rates have not yet completely absorbed all of the market interest rate increases that have occurred during the year ended December 31, 2023.

Average noninterest-bearing deposits during the year ended December 31, 2023, were $2.15 billion, compared to $2.42 billion at December 31, 2022, a decrease of $275.1 million, or 11.4%, and represented 26.0% and 34.1% of average total deposits for the year ended December 31, 2023 and 2022, respectively.

Noninterest-bearing deposits are impacted by the higher interest rate environment, as customers move out of noninterest-bearing deposit balances into higher interest-earning investments.

The following table presents the maturity distribution of our time deposits and the amount of such deposits in excess of the FDIC insurance limit at December 31, 2023.

4 unchanged sentences

Time Deposits in Excess of the FDIC Insurance Limit

Total Time & Brokered Time

3 months or less

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$ 270,395 $ 1,412,890

The following table reflects the estimated total amount of uninsured and uncollateralized deposits for the periods indicated:

(Dollars in thousands) December 31, 2023 December 31, 2022

Total deposits $ 8,251,125 $ 7,775,702

Estimated insured deposits:

FDIC insured (3,425,268) (3,331,724)

FDIC insured reciprocal (801,699) (245,621)

FDIC insured brokered time deposits (444,989) (5,407)

Total estimated FDIC insured deposits (4,671,956) (3,582,752)

Estimated FDIC uninsured deposits 3,579,169 4,192,950

Collateralized public funds (849,603) (762,366)

Estimated uninsured/uncollateralized deposits $ 2,729,566 $ 3,430,584

Percentage of estimated uninsured/uncollateralized deposits to total deposits 33.1 % 44.1 %

Borrowed funds are summarized as follows:

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GNMA repurchase liability

24,569 43,355

Overnight repurchase agreements with depositors 7,124 27,921

Holding company line of credit 30,000 —

Correspondent short-term borrowings — 30,000

Total FHLB advances and other borrowings $ 83,598 $ 639,230

Subordinated indebtedness, net $ 194,279 $ 201,765

Short-term FHLB advances increased $550.0 million at December 31, 2022, compared to December 31, 2021, primarily due to a combination of the organic growth of $619.2 million in loan balances, decline in cash and cash equivalents of $346.6 million, pay down of $250.3 million in long-term FHLB advances and decrease in deposit balances, excluding BTH assumed deposits, of $240.2 million compared to December 31, 2021.

We used funds generated primarily from the sale of BTH-acquired available for sale investment securities, to reduce our balances in long-term FHLB advances and support our loan growth.

Short-term FHLB advances decreased $480.0 million, or 87.3%, at December 31, 2023, compared to December 31, 2022.

Our long-term debt consists of advances from the FHLB with original maturities greater than one year and the subordinated indebtedness captioned and described below.

Interest rates for FHLB long-term advances outstanding at December 31, 2022, ranged from 1.99% to 4.57% and were subject to restrictions or penalties in the event of prepayment.

Interest rates for FHLB long-term advances outstanding at December 31, 2021, ranged from 1.65% to 4.57%.

In conjunction with the BTH merger, the Company assumed certain repurchase agreements with former BTH depositors that included the sale and repurchase of BTH investment securities of at least equal to the daily balance of the BTH depositor's account, subject to maximum limitations, with various maturity dates.

These BTH repurchase agreements were restructured and integrated into the Company's repurchase agreements which include the sale and repurchase of investment securities and mature on a daily basis.

The total overnight repurchase agreements with depositors carried a daily average interest rate of 0.24% for the year ended December 31, 2022, and 0.08% for the year ended December 31, 2021.

Interest rates for FHLB long-term advances outstanding at December 31, 2023 and 2022, ranged from 1.99% to 4.57% and were subject to restrictions or penalties in the event of prepayment.

Overnight repurchase agreements with depositors consist of obligations of ours to depositors and mature on a daily basis.

These obligations to depositors carried a daily average interest rate of 2.21% and 0.24% for the years ended December 31, 2023, and 2022, respectively.

At December 31, 2023, we held 31 unfunded letters of credit from the FHLB totaling $693.6 million with expiration dates ranging from January 14, 2024, to September 22, 2027.

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Security for all indebtedness and outstanding commitments to the FHLB consists of a blanket floating lien on all of our first mortgage loans, commercial real estate and other real estate loans, as well as our investment in capital stock of the FHLB and deposit accounts at the FHLB.

The net amounts available under the blanket floating lien at December 31, 2022 and 2021, were $1.29 billion and $982.2 million, respectively.

Additionally, at December 31, 2022, we had the ability to borrow $1.23 billion from the discount window at the Federal Reserve Bank of Dallas ("FRB"), with $1.76 billion in commercial and industrial loans pledged as collateral.

There were no borrowings against this line at December 31, 2022.

The net amounts available under our borrowing capacity from the FHLB at December 31, 2023 and 2022, were $2.01 billion and $1.29 billion, respectively.

Additionally, at December 31, 2023 and 2022, we had the ability to borrow $1.42 billion and $1.23 billion from the discount window at the Federal Reserve Bank of Dallas ("FRB"), with $1.69 billion and $1.76 billion in commercial and industrial loans pledged as collateral, respectively.

There were no borrowings against this line at both December 31, 2023 and 2022.

Holding Company Line of Credit

The Company has a line of credit under the terms of which the loan amount shall not exceed an aggregate principal balance of $100 million, consisting of an initial $50.0 million extension of credit and any one or more potential incremental revolving loan amounts that the lender may make in its sole discretion, up to an aggregate principal of $50.0 million, upon the request of the Company.

The revolving line of credit matures on October 27, 2023, and the Company had $30.0 million and zero outstanding on this revolving credit loan under the Loan Agreement at December 31, 2022 and 2021, respectively.

For additional information regarding our holding company line of credit, please see Note 12 - Borrowings in the notes to our consolidated financial statements contained in Item 8 of this report.

The revolving line of credit matures on October 27, 2024, and the Company had no balance outstanding on this revolving credit loan under the Loan Agreement at December 31, 2023, and $30.0 million outstanding at December 31, 2022.

Subordinated Indebtedness

Included in subordinated indebtedness, net in the table above, are $37.6 million of subordinated promissory notes ("BTH Notes") assumed from BTH in conjunction with the merger on August 1, 2022.

The BTH Notes are intended to qualify for Tier 2 capital treatment and are substantively identical in terms and conditions, including priority, except for the maturity dates and interest rates payable on the notes.

Interest is payable on the BTH Notes quarterly, and the principal amount of each BTH Note is payable at maturity.

After the five-year anniversary of issuance, the Company can redeem the BTH Notes in part or in full at the Company’s discretion and, if applicable, subject to receipt of any required regulatory approvals.

In addition, the BTH Notes can be redeemed at any time without penalty, upon not less than ten days’ notice, in the event that (i) the BTH Notes no longer qualify as Tier 2 capital as a result of any amendment or change in interpretation or application of laws or regulation that becomes effective after the date of issuance of the BTH Notes, (ii) a tax event, or (iii) investment company act event, as defined in the BTH Notes.

The BTH Notes are unsecured and rank senior to the Company’s common stock, any preferred stock that may be issued, and the BTH TruPS (defined below).

At December 31, 2023, the Company had BTH Notes of $34.7 million with maturity dates ranging from December 2024 to June 2031.

Interest rates on the BTH Notes primarily reprice quarterly and range from Prime +50 bps to Prime +175 bps, with a floor of 3.875% on all the BTH Notes, and ceilings ranging from 6.125% to 6.375%.

In February 2020, Origin Bank completed an offering of $70.0 million in aggregate principal amount of 4.25% fixed-to-floating rate subordinated notes due 2030 (the “4.25% Notes”) to certain investors in a transaction exempt from registration under Section 3(a)(2) of the Securities Act of 1933, as amended.

The 4.25% Notes initially bear interest at a fixed annual rate of 4.25%, payable semi-annually in arrears, to but excluding February 15, 2025.

From and including February 15, 2025, to but excluding the maturity date or early redemption date, the interest rate will equal the three-month LIBOR rate (provided that in the event the three-month LIBOR is less than zero, the three-month LIBOR will be deemed to be zero) plus 282 basis points, payable quarterly in arrears, subject to customary fallback provision upon the discontinuation of LIBOR.

On June 30, 2023, in conjunction with the customary fallback provision upon the discontinuation of LIBOR, the rate for the floating rate periods from and including February 15, 2025, on these notes transitioned to the three-month term SOFR plus 308 basis points.

Origin Bank is entitled to redeem the 4.25% Notes, in whole or in part, on or after February 15, 2025, and to redeem the 4.25% Notes at any time in whole upon certain other specified events.

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The 4.50% Notes qualify as Tier 2 capital for regulatory capital purposes for the Company and a portion of the proceeds was transferred to Origin Bank during the fourth quarter of 2020, which qualifies as Tier 1 capital for regulatory capital purposes for the Bank.

During the year ended December 31, 2023, and with the approval of the Board of Governors of the Federal Reserve System, the Company repurchased $5.0 million of the 4.50% notes in conjunction the Federal Deposit Insurance Corporation’s failed bank resolution process.

On August 1, 2022, the Company assumed BTH’s obligations with respect to $7.2 million in aggregate principal amount of junior subordinated debentures issued to a statutory trust of BTH ("BTH TruPS").

The BTH TruPS and the Company’s two other wholly-owned, unconsolidated subsidiary grantor trusts were established for the purpose of issuing trust preferred securities.

The trust preferred securities accrue and pay distributions periodically at specified annual rates as provided in each trust agreement.

The trusts used the net proceeds from each of the offerings to purchase a like amount of junior subordinated debentures (the "debentures") of the Company.

The debentures are the sole assets of the trusts.

The Company's obligations under the debentures and related documents, taken together, constitute a full and unconditional guarantee by the Company of the obligations of the trusts.

The trust preferred securities are mandatorily redeemable upon maturity of the debentures and can be currently redeemed by the Company in whole or in part, at a redemption price equal to 100% of the outstanding principal amount of the debentures, plus any accrued but unpaid interest to the redemption date.

The trust preferred securities qualify as Tier 1 capital of the Company for regulatory purposes, subject to certain limitations.

For additional information regarding our outstanding subordinated indebtedness, including the junior subordinated debentures underlying legacy issuances of trust preferred securities, please see Note 12 - Borrowings in the notes

to our consolidated financial statements contained in Item 8 of this report.

For additional information regarding our holding company line of credit, subordinated indebtedness, including the junior subordinated debentures underlying the issuance of trust preferred securities, please see Note 11 — Borrowings in the notes to our consolidated financial statements contained in Part II, Item 8 of this report.

Liquidity and Capital Resources

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At December 31, 2023 and 2022, our cash and liquid securities totaled 10.9% and 12.1% of total assets, respectively, providing liquidity to support our existing operations.

The Company, which is a separate legal entity apart from the Bank, must provide for its own liquidity, including to fund payment of any dividends that may be declared for our common stockholders and interest and principal on any outstanding debt or trust preferred securities incurred by the Company.

The Company had available cash balances of $99.8 million and $28.9 million at December 31, 2022 and 2021, respectively.

This cash is available for the general corporate purposes described above, as well as providing capital support to the Bank and financing potential future acquisitions.

In addition, the Company has a line of credit under the terms of which the loan amount shall not exceed an aggregate principal balance of $100 million, consisting of an initial $50 million extension of credit and any one or more potential incremental revolving loan amounts that the lender may make in its sole discretion, up to an aggregate principal of $50 million, upon the request of the Company.

See Note 12 - Borrowings to our consolidated financial statements contained in Item 8 of this report for more information on the holding company line of credit.

The Company, which is a separate legal entity apart from the Bank, must provide for its own liquidity, including the funding of the payment of any dividends that may be declared for our common stockholders and interest and principal on any outstanding debt or trust preferred securities incurred by the Company.

The available cash balances as noted in the table below are available for the general corporate purposes described above, as well as providing capital support to the Bank.

In addition, the Company has a line of credit as referenced above under Holding Company Line of Credit.

The table below shows the liquidity measures for the Company at the dates indicated:

(Dollars in thousands)

December 31, 2023 December 31, 2022

Available cash balances at the holding company (unconsolidated)

$ 87,698 $ 99,810

Cash and liquid securities as a percentage of total assets

10.9 % 12.1 %

There are regulatory restrictions on the ability of the Bank to pay dividends under federal and state laws, regulations and policies.

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We typically rely on such funding when the cost of such borrowings compares favorably to the rates that we would be required to pay for other funding sources, including certain deposits.

See Note 12 - Borrowings to our consolidated financial statements contained in Item 8 of this report for additional borrowing capacity and outstanding advances at the FHLB.

See Note 11 — Borrowings to our consolidated financial statements contained in Part II, Item 8 of this report for additional borrowing capacity and outstanding advances at the FHLB.

We also had unsecured federal funds lines of credit available to us, with no amounts outstanding at either December 31, 2023 or 2022.

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In the normal course of business as a financial services provider, we enter into various financial instruments, such as certain contractual obligations and commitments to extend credit and letters of credit, to meet the financing needs of our customers.

These commitments are discussed in more detail in Note 19 - Commitments and Contingencies to our consolidated financial statements contained in Item 8 of this report.

These commitments are discussed in more detail in Note 18 — Commitments and Contingencies to our consolidated financial statements contained in Part II, Item 8 of this report.

Stockholders’ Equity

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Net income 83,800

Other comprehensive loss, net of tax (165,604)

BTH Merger 306,344

Other comprehensive income, net of tax 38,852

Dividends declared - common stock ($0.60 per share) (18,797)

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Stock Repurchases

In July 2019, the Company's board of directors authorized a stock repurchase program, pursuant to which the Company was authorized to purchase up to $40 million of its outstanding common stock.

The stock repurchase program was approved for a period of three years and expired in June 2022, having repurchased a total of $28.0 million of outstanding common stock.

In July 2022, the Board of Directors of the Company authorized a stock repurchase program pursuant to which the Company may, from time to time, purchase up to $50 million of its outstanding common stock.

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The stock repurchase program does not obligate the Company to purchase any shares at any time.

There were no stock repurchases during the year ended December 31, 2022.

There were no stock repurchases during the year ended December 31, 2023 or 2022.

The Inflation Reduction Act of 2022 signed into law during in August 2022 includes a provision for an excise tax equal to 1% of the fair market value of any stock repurchased by covered corporations during a taxable year, subject to certain limits and provisions.

The excise tax is effective beginning in 2023.

While we may complete transactions subject to the new excise tax, we do not expect a material impact to our financial condition or result of operations.

There was no impact to our financial condition or result of operations as a result of this tax.

Regulatory Capital Requirements

Together with the Bank, we are subject to various regulatory capital requirements administered by federal banking agencies.

For further information, these requirements are discussed in greater detail in " Item 1.

Business - Regulation and Supervision, ".

Failure to meet minimum capital requirements may result in certain actions by regulators that, if enforced, could have a direct material effect on our financial statements.

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7. Management’s Discussion and Analysis