What changed in this filing

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Item 1A. Risk Factors

2024-03-15 compared with 2023-03-16 · 233 added, 263 removed, 213 unchanged (70% of the section changed)

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risks relating to proper loan underwriting;

risks resulting from changes in economic and industry conditions such as labor and material shortages, supply chain difficulties, and heightened inflationary pressures;

risks resulting from changes in economic and industry conditions such as labor and material shortages, supply chain difficulties, and inflationary pressures;

and risks inherent in dealing with individual borrowers.

The creditworthiness of a borrower is affected by many factors including local market conditions and general economic conditions.

If the overall economic climate in the U.S., generally, or in Louisiana, specifically, experiences material disruption, our borrowers may experience difficulties in repaying their loans, the collateral we hold may decrease in value or become illiquid, and the level of nonperforming loans, charge-offs, and delinquencies could rise and require significant additional provisions for credit losses.

Our risk management practices, such as monitoring the concentration of our loans within specific industries and our credit approval, review, and administrative practices may not adequately reduce credit risk.

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A failure to effectively measure and limit our credit risk could result in loan defaults, foreclosures, and additional charge-offs.

As a result, we may need to significantly increase our provision for loan losses, which could adversely affect our net income.

As a result, we may need to significantly increase our provision for credit losses, which could adversely affect our net income.

Our commercial real estate loan portfolio exposes us to risks that may be greater than the risks related to other types of loans.

Our loan portfolio includes owner occupied and non-owner occupied commercial real estate loans for individuals and businesses for various purposes, which are secured by commercial properties, as well as real estate construction and development loans.

As of December 31, 2023, our owner occupied loans totaled $412.7 million, or 20.7% of loans HFI.

Also, as of December 31, 2023, our construction and development loans, non-owner occupied commercial real estate loans, and non-real estate secured loans financing commercial real estate activities totaled $566.6 million, or 28.4% of loans HFI.

The repayment of these loans is typically dependent upon income generated, or expected to be generated, by the property securing the loan in amounts sufficient to cover operating expenses and debt service.

This projected income may be adversely affected by changes in the economy, changes in interest rates, or local market conditions.

Commercial real estate loans expose us to greater credit risk than loans secured by residential real estate, because there are fewer potential purchasers for the commercial real estate collateral, which can make liquidation more difficult in the event of default of the underlying loan.

Additionally, non-owner occupied commercial real estate loans generally involve relatively large balances to single borrowers or related groups of borrowers.

Accordingly, charge-offs on non-owner occupied commercial real estate loans may be larger on an individual loan basis than those incurred with our residential or consumer loan portfolios.

Unexpected deterioration in the credit quality of our commercial real estate loan portfolio would require us to increase our provision for credit losses, which would reduce our profitability.

A significant portion of our loan portfolio consists of real estate loans, which subjects us to the potential impairment of the collateral securing the loan if the real estate market experiences negative changes and the costs and potential risks associated with the ownership of the real property if we are forced to foreclose.

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Adverse changes affecting real estate values and the liquidity of real estate in one or more of our markets could increase the credit risk associated with our loan portfolio, significantly impair the value of property pledged as collateral on loans, and affect our ability to sell the collateral upon foreclosure without a loss or additional losses.

Consequently, we could be required to increase our allowance for loan losses, adversely affecting profitability.

Additionally, we may have to foreclose on the collateral property to protect our investment.

We may thereafter own and operate such property, in which case we would be exposed to the risks inherent in the ownership of real estate, including potential environmental liability due to contamination of a property either during ownership or after the divesting of it.

As of December 31, 2022, we held no OREO.

As of December 31, 2023, we held OREO totaling $69,000.

This amount could increase in the future, depending upon the level of our real estate foreclosures and our ability to efficiently divest of the foreclosed OREO.

The amount that we, as a mortgagee, may realize after a default is dependent upon factors outside of our control, including, but not limited to, general or local economic conditions, environmental cleanup liability, assessments, interest rates, real estate tax rates, operating expenses of the mortgaged properties, ability to obtain and maintain adequate occupancy of the properties, zoning laws, governmental and regulatory rules, and natural disasters.

Our commercial real estate loan portfolio exposes us to risks that may be greater than the risks related to other types of loans.

As of December 31, 2022, our owner occupied loans totaled $393.4 million, or 20.6% of loans HFI.

Also, as of December 31, 2022, our construction and development loans, non-owner occupied commercial real estate loans, and non-real estate secured loans financing commercial real estate activities totaled $560.4 million, or 29.2% of

This projected income may be adversely affected by changes in the economy or local market conditions.

Additionally, non-owner occupied commercial real estate loans generally involve relatively large balances to single borrowers or related groups of borrowers.

Accordingly, charge-offs on non-owner occupied commercial real estate loans may be larger on an individual loan basis than those incurred with our residential or consumer loan portfolios.

Unexpected deterioration in the credit quality of our commercial real estate loan portfolio would require us to increase our provision for loan losses, which would reduce our profitability.

Consequently, we could be required to increase our ACL, adversely affecting our profitability.

Our business may be adversely affected by credit risk associated with residential property.

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A downturn in the housing market coupled with elevated unemployment rates may also result in a decline in demand for our products and services.

In addition, interest rate increases often result in larger payment requirements for our borrowers with variable rate loans, which increases the potential for default and could result in a decrease in the demand for residential loans.

In addition, in a declining interest rate environment, there may be an increase in prepayments on residential loans as borrowers refinance their loans at lower rates, which may adversely affect our business and profitability.

By contrast, interest rate increases often result in larger payment requirements for our borrowers with variable rate loans, which increases the potential for default and could result in a decrease in the demand for residential loans.

At the same time, the marketability of the property securing a residential loan may be adversely affected by any reduced demand resulting from higher interest rates.

In a declining interest rate environment, there may be an increase in prepayments on residential loans as borrowers refinance their loans at lower rates, which may adversely affect our business and profitability.

A significant portion of our loan portfolio is comprised of commercial and industrial loans secured by receivables, inventory, equipment, or other commercial collateral, and the deterioration in the collateral’s value could expose us to credit losses.

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Additionally, the repayment of commercial and industrial loans is subject to the ongoing business operations of the borrower.

The collateral securing such loans generally includes movable property, such as equipment and inventory.

These types of collateral may decline in value more rapidly than we anticipate, exposing us to increased credit risk.

In addition, a portion of our customer base, including customers in the energy and real estate business, may be exposed to volatile businesses or industries that are sensitive to commodity prices or market fluctuations, such as energy prices.

Accordingly, negative changes in commodity prices, real estate values, or liquidity could impair the value of the collateral securing these loans.

The collateral securing such loans generally includes movable property, such as equipment and inventory, which may decline in value more rapidly than we anticipate, exposing us to increased credit risk.

Significant adverse changes in the economy or local market conditions where our commercial lending customers operate could cause rapid declines in loan collectability and the values associated with general business assets resulting in inadequate collateral coverage.

Our allowance for loan losses may prove to be insufficient to absorb losses inherent in our loan portfolio.

The allowance for loan losses represents our estimate of probable losses in our loan portfolio at each balance sheet date and is based upon relevant information available to us.

The allowance contains provisions for probable losses that have been identified relating to specific borrowing relationships, as well as probable losses inherent in the loan portfolio and credit undertakings that are not specifically identified.

Additions to the allowance for loan losses, which are charged to earnings through the provision for loan losses, are determined based on a variety of factors, including an analysis of our loan portfolio, historical loss experience, and an evaluation of current economic conditions in our market areas.

As of December 31, 2022, our allowance for loan losses totaled $20.6 million, which represents approximately 1.08% of loans HFI.

The actual amount of loan losses is affected by changes in economic, operating, and other conditions within our markets, as well as changes in the financial condition, cash flows, and operations of our borrowers.

Our ACL may prove to be insufficient to absorb losses inherent in our loan portfolio.

The ACL is a valuation account that is deducted from the amortized cost basis of loans HFI to present management’s best estimate of the expected credit losses to be recognized over the lifetime of the loans.

Management estimates the allowance balance using relevant available information, from internal and external sources, relating to past events, current conditions, and reasonable and supportable forecasts.

The determination of the amount of allowance involves a high degree of judgement and subjectivity.

As of December 31, 2023, our ACL totaled $21.3 million, which represents approximately 1.07% of loans HFI.

The actual amount of credit losses is affected by changes in economic, operating, and other conditions within our markets, as well as changes in the financial condition, cash flows, and operations of our borrowers.

All of these factors are beyond our control, and such losses may exceed our current estimates.

Additional loan losses will likely occur in the future and may occur at a rate greater than we have previously experienced or greater than we anticipate.

We may be required to make additional provisions for loan losses to further supplement our allowance for loan losses, due either to our management’s decision or as a regulatory requirement.

In addition, bank regulatory agencies will periodically review our allowance for loan losses and the value attributed to nonaccrual loans or to real estate acquired through foreclosure.

Additional credit losses will likely occur in the future and may occur at a rate greater than we have previously experienced or greater than we anticipate.

We may be required to make additional provisions for credit losses to further supplement our ACL, due either to our management’s decision or as a regulatory requirement.

In addition, bank regulatory agencies will periodically review our ACL and the value attributed to nonaccrual loans or to real estate acquired through foreclosure.

Such regulatory agencies may require us to recognize future charge-offs.

Finally, the measure of our allowance for loan losses is subject to new accounting standards.

FASB adopted a new accounting standard that was effective for us on January 1, 2023.

This new standard, referred to as CECL, requires

financial institutions to determine periodic estimates of lifetime expected credit losses on loans and recognize the expected credit losses as allowances for credit losses.

This changes our historical method of providing allowances for loan losses that are probable, which could require us to increase our allowance for credit losses going forward.

CECL also greatly increases the types of data we need to collect and review to determine the appropriate level of the allowance for credit losses.

The CECL model could create more volatility in the level of our allowance for credit losses going forward.

For more information on our CECL adoption, see “Item 8.

Financial Statements and Supplementary Data - Note 1.

Significant Accounting Policies - Recent Accounting Pronouncements” in this Report.

As a participating lender in the PPP, we are subject to risks related to the SBA program and related PPP loans.

The CARES Act in March of 2020 and the Economic Aid Act in December of 2020 included a significant loan program administered through the SBA referred to as the PPP.

Under the PPP, small businesses and other entities and individuals could apply for loans from existing SBA lenders and other approved regulated lenders that enrolled in the program, subject to numerous limitations and eligibility criteria.

We participated as a lender in the PPP.

The PPP became available on April 3, 2020.

Due to how quickly each act was passed and implemented, there was a significant amount of ambiguity and changes in the laws, rules, and guidance regarding requirements for eligibility, underwriting, origination, funding, and forgiveness of PPP loans, which exposes us to regulatory and legal risks relating to past noncompliance with the PPP.

We also have post-forgiveness credit risk on PPP loans if the SBA determines that there is a deficiency in the manner the loan was originated, funded, or serviced by us, such as an issue with the eligibility of a borrower to receive a PPP loan.

In the event of a loss resulting from a determination by the SBA that there was a deficiency in the manner the PPP loan was originated, funded, or serviced by us, the SBA may seek to recover from us any loss related to the deficiency.

In addition, we have post-forgiveness credit risk related to how forgiveness of PPP loans was handled and how the forgiveness amounts were determined.

Governmental agencies have, and may continue to change the rules, create new rules, have a very detailed review process, or require additional forms or paperwork that the borrower may not complete appropriately.

All of these items could negatively impact us.

Governmental agencies could audit our PPP borrowers, and any allegations of fraud resulting from such audit could expose us to liability and reputational risk.

Since the commencement of the PPP, numerous other banks have been subject to litigation regarding the process and procedures that those banks used in processing applications for the PPP.

We may be exposed to similar litigation from customers, non‑customers, and agents that approached us regarding PPP loans and litigation regarding our procedures for processing applications, funding PPP loans, and coordinating the forgiveness of the loans.

If any such litigation is initiated against us, it may result in significant financial liability, significant litigation costs, or adversely affect our reputation.

Appraisals and other valuation techniques we use in evaluating and monitoring loans secured by real property, OREO, and repossessed personal property may not accurately describe the net value of the asset.

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However, an appraisal is only an estimate of the value of the property at the time the appraisal is made.

Because real estate values may change significantly in relatively short periods of time (especially in periods of heightened economic uncertainty), this estimate may not accurately describe the net value of the real property collateral after the loan is made.

estate values may change significantly in relatively short periods of time (especially in periods of heightened economic uncertainty), this estimate may not accurately describe the net value of the real property collateral after the loan is made.

As a result, we may not be able to realize the full amount of any remaining indebtedness when we foreclose on and sell the relevant property.

In addition, we rely on appraisals and other valuation techniques to establish the value of our OREO and personal property that we acquire through foreclosure and to determine certain loan impairments.

If any of these valuations are inaccurate, our combined and consolidated financial statements may not reflect the correct value of our OREO or personal property, and our allowance for loan losses may not reflect accurate loan impairments.

If any of these valuations are inaccurate, our combined and consolidated financial statements may not reflect the correct value of our OREO or personal property, and our ACL may not reflect accurate estimated losses.

The amount of our nonperforming assets may increase significantly, resulting in additional losses, costs, and expenses.

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A significant portion of our business development and marketing strategy is focused on small to medium-sized businesses.

Small to medium-sized businesses frequently have smaller market shares than their competition;

Small to medium-sized businesses:

frequently have smaller market shares than their competition;

may be more vulnerable to economic downturns, inflation, and labor market and supply chain constraints;

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Any of these factors may impair a borrower’s ability to repay a loan.

In addition, the success of a small or medium-sized business

often depends on the management skills, talents, and efforts of one individual or a small group of individuals.

In addition, the success of a small or medium-sized business often depends on the management skills, talents, and efforts of one individual or a small group of individuals.

The death, disability, or resignation of one or more of these people could have an adverse impact on the business and its ability to repay loans.

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We are subject to risks due to changing interest rates.

The majority of our banking assets are monetary in nature and subject to risk from changes in interest rates.

Like most financial institutions, our earnings and cash flows depend to a great extent upon the level of our net interest income.

Net interest income represents the difference between the interest income we earn on loans, investments, and other interest-earning assets, and the interest we pay on interest-bearing liabilities, such as deposits and borrowings.

Fluctuations in interest rates may impact both the level of income and expense recorded on some of our assets and liabilities and the market value of applicable interest-earning assets and interest-bearing liabilities, which could, in turn, negatively affect our net income.

In a rising interest rate environment, the value of our securities AFS portfolio generally declines.

As of December 31, 2022, our net unrealized loss in our securities AFS portfolio was $74.1 million due to the significant rise in interest rates during 2022.

When interest-earning assets mature or reprice more quickly, or to a greater degree than interest-bearing liabilities, rising interest rates could increase net interest income.

Similarly, when interest-bearing liabilities mature or reprice more quickly, or to a greater degree than interest-earning assets in a period, an increase in interest rates could reduce net interest income.

Our interest sensitivity profile was asset sensitive as of December 31, 2022, meaning that our assets have the opportunity to reprice at a faster pace than our liabilities.

Consequently, we estimate our net interest income would increase in a rising interest rate environment and decrease in a falling interest rate environment.

However, rising interest rates could decrease loan originations by decreasing loan demand and creating depository pressures for us from customers withdrawing their deposits seeking higher returns.

This could result in decreasing our loan revenues, requiring us to borrow money to fund loans, or increasing the rate we pay on deposits, any of which could decrease our net interest income.

Interest rates are affected by many factors outside of our control, including governmental monetary policies, inflation, deflation, recessions, changes in unemployment, the money supply, international disorder, and instability in domestic and foreign financial markets.

Changes in the level of market interest rates affect our net yield on interest-earning assets, our cost of funds, and our loan origination volume.

An increase in the general level of interest rates may, among other things, reduce the demand for loans and decrease loan repayments.

Increases could also adversely affect the ability of borrowers of floating rate loans to meet their higher payment obligations, which could in turn lead to an increase in NPAs and charge-offs.

A decrease in the general level of interest rates may, among other things, increase prepayments within the loan portfolio and on mortgage-backed securities within the securities portfolio, and increase competition for deposits.

Natural disasters, acts of war or terrorism, the impact of pandemics, civil unrest, and other external events could result in a disruption of our operations and increases in loan losses.

The majority of our banking assets are monetary in nature and subject to risk from changes in interest rates that are highly sensitive to many factors that are beyond our control.

Like most financial institutions, our profitability is dependent upon our net interest income.

Net interest income is the primary component of our earnings and is affected by both local economic conditions and competition, as well as national monetary policy and market interest rates.

Unexpected and/or significant changes to interest rates could cause our net interest margin and net interest income to decrease, and could adversely affect the valuation of our assets and liabilities.

An increase in the general level of interest rates may reduce loan demand and loan fees, decrease loan repayments, create deposit rate pressure, while increasing the yield on short-term interest-bearing assets and on new and renewing loans and securities.

Higher interest rates could adversely affect the ability of borrowers of floating rate loans to meet their higher payment obligations, which could result in an increase in delinquencies and charge-offs, and increase the cost of deposits.

A decrease in the general level of interest rates may reduce the yield on short-term interest-bearing assets and on new and renewing loans and securities, while decreasing deposit rate pressure and the cost of deposits.

The fair market value of our securities portfolio, the investment income, and the cash flows from these securities also fluctuate depending on general economic and market conditions.

Changes in market values impact the net unrealized gains and losses on securities AFS and the related accumulated other comprehensive income in equity.

Also, any such losses could be realized into earnings if it becomes necessary to sell securities AFS in a loss position.

Although management believes it has implemented effective asset and liability management strategies to manage the effects of changes in interest rates, any significant and unexpected change in market rates could have a material negative effect on our financial condition and earnings, and our strategies may not always be successful in managing the risks associated with changes in interest rates.

Natural disasters, acts of war or terrorism, the impact of pandemics, civil unrest, and other external events could result in a disruption of our operations and increases in credit losses.

We are a community banking franchise concentrated in Louisiana.

A significant portion of our business is generated from Louisiana markets that have been, and may continue to be, damaged by major hurricanes, floods, tropical storms, tornadoes, ice storms, and other natural disasters.

As of December 31, 2022, 93.4% of loans HFI were made to borrowers who reside or conduct business in Louisiana, and substantially all of our real estate loans are secured by properties located in Louisiana.

Natural disasters can disrupt our operations, cause widespread property damage, and severely depress the local economies in which we operate.

A deterioration in local economic conditions or in the residential or commercial real estate markets could have an adverse effect on the quality of our loan portfolio, the demand for our products and services, the ability of borrowers to timely repay loans, and the value of the collateral securing loans.

If the population, employment, or income growth in any of our markets is negative or slower than projected, income levels, deposits, and real estate development could be adversely impacted, which could adversely affect our business and

profitability.

As of December 31, 2023, 94.0% of loans HFI were made to borrowers who reside or conduct business in Louisiana, and substantially all of our real estate loans are secured by properties located in Louisiana.

Additionally, our business could be adversely affected by the effects of war and international conflict, civil unrest, inflation, labor market and supply chain constraints, or a widespread outbreak of pandemics.

Further, we are monitoring the ongoing conflict between Russia and Ukraine.

While we do not expect that the conflict will be directly material to us, associated effects of the geopolitical instability, such as the imposition of sanctions against Russia and Russia’s response to such sanctions (including retaliatory acts like cyber-attacks and sanctions against other countries), could adversely affect the global economy or domestic markets, including ours.

Further, we are monitoring the ongoing military conflicts between Russia and Ukraine and Israel and Hamas, as well as the current tensions with China.

While we do not expect that these conflicts will be directly material to us, associated effects of the geopolitical instability, such as the imposition of sanctions against Russia and Russia’s response to such sanctions (including retaliatory acts like cyber-attacks and sanctions against other countries), could adversely affect the global economy or domestic markets, including ours.

If the economies in our primary markets experience an overall decline as a result of these types of external events, demand for loans and our other products and services could be reduced.

In addition, the rate of delinquencies, foreclosures, bankruptcies, and losses on loan portfolios may increase substantially, as uninsured property losses or sustained job interruption or loss may materially impair our borrowers’ ability to repay their loans.

Such external events could, therefore, result in decreased revenue and increased loan losses for us.

Such external events could, therefore, result in decreased revenue and increased credit losses for us.

As a business operating in the financial services industry, our business and operations may be adversely affected in numerous and complex ways, including demand for our products and services, inflation, and financial markets.

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Federal fiscal and monetary policymaking decisions could lead to changes in interest rates, inflation, or other economic impacts such as supply chain issues, labor market constraints, and recessions.

The primary impact of continued inflation on our operations is our ability to manage the impact of changes in interest rates, which could impact the demand for our products and services.

In addition, we could also experience increased operating costs related to providing our products and services as a result of continued inflation.

The primary impact of inflation on our operations is our ability to manage the impact of changes in interest rates, which could impact the demand for our products and services.

In addition, we could also experience increased operating costs related to providing our products and services as a result of inflation.

The medium and long-term fiscal outlook of the federal government and U.S.

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As of December 31, 2023, we had $387.4 million in unfunded credit commitments to our customers.

Actual borrowing needs of our customers may exceed our expectations, especially during a challenging economic environment when our customers may be more dependent on our credit commitments due to reduced income or the lack of available credit elsewhere, the increasing costs of credit, or the limited availability of financings from alternative sources.

credit elsewhere, the increasing costs of credit, or the limited availability of financings from alternative sources.

This could adversely affect our liquidity, which could impair our ability to fund operations and meet obligations as they become due.

Volatility in oil prices and downturns in the energy industry, particularly in Louisiana, could lead to increased credit losses in our loan portfolio.

Volatility in oil and natural gas prices along with cyclical downturns in the energy industry, particularly in Louisiana, could lead to increased credit losses in our loan portfolio.

As of December 31, 2023, we had energy loans of $34.0 million, or 1.7% of loans HFI.

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General uncertainty resulting from continued volatility could have other adverse impacts such as job losses in industries tied to energy, lower borrowing needs, higher transaction deposit balances, or a number of other effects that are difficult to isolate or quantify, particularly in states with significant dependence on the energy industry like Louisiana, all of which could lead to increased credit losses in our loan portfolio.

Risks Related to Our Operations

We rely heavily on our executive management team and other key employees, and we could be adversely affected by an unexpected loss of their service.

Our success depends in large part on the performance of our key personnel, as well as on our ability to attract, motivate, and retain highly qualified management and employees.

Competition for employees is intense, and the process of locating key personnel with the combination of skills and attributes required to execute our business plan may be lengthy.

We may not be successful in retaining our key employees.

Further, we may not be able to identify and hire qualified replacement personnel on terms acceptable to us, or at all, whether due to tightening labor conditions or otherwise.

If we unexpectedly lose the services of one or more of our key personnel and are unable to replace them, we would also lose the benefit of

their skills, knowledge of our primary markets, and years of industry experience, which could adversely affect our business and profitability.

We are subject to laws regarding the privacy, information security, and protection of personal information.

Unauthorized access, cyber-crime, and other threats to data security may require significant resources, harm our reputation, and otherwise cause harm to our business.

In the ordinary course of our business, we necessarily collect, use, and retain, on various information systems that we maintain and in those maintained by third party data service providers, personal and financial information concerning individuals and businesses with which we have a banking relationship.

We also maintain important internal company data such as personally identifiable information about our employees and information about our operations.

Threats to data security such as unauthorized access and cyber-attacks emerge and change rapidly.

These threats may increase our costs for protection or remediation.

They may also result in competing time constraints between applicable privacy and other requirements and our ability to secure data in accordance with customer expectations and evolving laws and regulations governing the privacy and protection of personal information.

It is difficult or impossible to defend against every risk posed by changing technologies and cyber-crime.

Increasing sophistication of cyber-attacks makes it increasingly difficult to prevent a security breach.

Controls employed by our information technology department, our other employees, and our vendors could prove inadequate.

We, or any of our vendors or third-party providers, could also experience a breach due to circumstances such as intentional or negligent conduct on the part of employees or other internal and external sources, software bugs, or other technical malfunctions.

Any of these threats may cause our customer accounts and financial systems to become vulnerable to takeover schemes or cyber-fraud.

If personal, confidential, or proprietary information of customers, employees, or others were to be mishandled or misused by us or third parties with access to that information, we could be exposed to litigation or regulatory sanctions under personal information laws and regulations.

Cyber incidents could include actual or attempted unauthorized access, tampering, malware insertion, ransomware attacks, or other system integrity events.

A breach of our security that results in unauthorized access to our data could expose us to disruption or challenges relating to our daily operations as well as to data loss, litigation, fines, penalties, damages, inquiries, examinations, investigations, significant increases in compliance costs, and reputational damage, which could cause us to lose customers or potential customers.

We rely on third parties to provide key components of our business infrastructure, and a failure of these parties to perform for any reason could disrupt our operations.

Third parties provide key components of our business infrastructure such as data processing, internet connections, network access, core application processing, statement production, and account analysis.

Our business depends on the successful and uninterrupted functioning of our information technology and telecommunications systems and third-party servicers.

The failure of these systems, or the termination of a third-party software license or service agreement on which any of these systems is based, could interrupt our operations.

Because our information technology and telecommunications systems interface with and depend on third-party systems, we could experience service denials if demand for such services exceeds capacity.

Additionally, our operations could be interrupted if any of our third-party service providers experience financial difficulty, are inadvertently or intentionally negligent, are subject to cybersecurity breaches, terminate their services, or fail to comply with applicable banking regulations.

We are subject to claims, litigation, and other proceedings that could result in legal liability.

From time to time, we are, or may be, involved in various legal matters arising in the ordinary course of business.

One or more unfavorable outcomes of these ordinary course claims or litigation against us could have a material adverse effect on our business.

In addition, regardless of their merits, scope, validity, or ultimate outcomes, such matters are costly, time-consuming, may result in protracted litigation or otherwise divert management’s attention, and may materially and adversely affect our reputation, even if resolved favorably.

We have a continuing need for technological improvements, and we may not have the resources to effectively implement new technology, or we may experience operational challenges when implementing new technology.

The financial services industry is undergoing rapid technological changes with frequent introductions of new technology-driven products and services.

In addition to better serving customers, the effective use of technology increases efficiency and enables financial institutions to reduce costs.

As we continue to grow, our success will be partially dependent upon our ability to address the needs of our customers and enhance operational efficiencies through the use of technology.

We may experience operational challenges as we implement these new technology products or enhancements.

As a result, we may not fully realize the anticipated benefits from our new technology, or we may incur significant costs to overcome related challenges in a timely manner.

Many of our larger competitors have substantially greater resources to invest in technological improvements.

As a result, they may be able to offer additional or superior products, which would put us at a competitive disadvantage.

Accordingly, we may lose customers seeking technology-driven products and services that we are not able to provide.

Our financial results depend on management’s selection of accounting methods and certain assumptions and estimates.

The preparation of our financial statements requires us to make estimates and assumptions that affect the reported amounts of certain assets and liabilities, disclosure of contingent assets and liabilities, and the reported amount of related revenues and expenses.

Certain accounting policies are inherently based to a greater extent on estimates, assumptions, and judgments of management and, as such, have a greater possibility of producing results that could be materially different than originally estimated.

These policies include the allowance for loan losses, accounting for income taxes, the determination of fair value for financial instruments, and accounting for stock-based compensation.

Management’s judgment and the data relied upon by management may be based on assumptions that prove to be inaccurate, particularly in times of market stress or other unforeseen circumstances.

Even if the relevant, factual assumptions are accurate, our decisions may prove to be inadequate or inaccurate because of other flaws in the design or use of analytical tools used by management.

We are dependent on the use of data and modeling in our management’s decision-making, and faulty data or modeling approaches could negatively impact our decision-making ability or subject us to regulatory scrutiny.

The use of statistical and quantitative models and other quantitative analysis is intrinsic to bank decision-making and is becoming increasingly widespread in our operations.

It is also becoming more prevalent in regulatory compliance.

While we are not currently subject to annual stress testing under the Dodd-Frank Act and the Federal Reserve’s Comprehensive Capital Analysis and Review submissions, we currently utilize stress testing for monitoring and managing interest rate risk and liquidity.

We also use a loan pricing model to help price loans, as well as an ALL model to evaluate the ALL.

While we believe the quantitative techniques and approaches of these models improve our decision-making, they also create the possibility that faulty data, flawed quantitative approaches, or misunderstanding or misuse of their outputs could negatively impact our decision-making ability or, if we become subject to regulatory stress-testing in the future, cause adverse regulatory scrutiny.

We utilize third-party companies to support our investment group, and we may be adversely affected by the condition or performance of our third-party brokerage partners.

We are not registered with the SEC as an investment advisor or broker-dealer.

To provide a broader range of investment products and services to our customers through our investment group, we partner with third-parties who are licensed and registered to serve in those capacities.

The investment products and services provided to our customers through our investment group, by virtue of these third-party channels generally are not insured by the FDIC.

Therefore, we may have exposure for illegal, negligent, fraudulent, or other acts of these investment advisors and brokers.

Although we seek to limit this exposure through clear disclosure, ongoing oversight, and contractual provisions requiring indemnification, limitations of liability, insurance coverage, and other similar protections, those obligations may not always be enforceable, or our third-party service providers ultimately may not have sufficient financial strength to fully comply, all of which may increase our financial exposure and adversely affect our business.

Climate related events and legislative and societal responses regarding climate change present risks to our business.

Climate change may intensify severe weather events such as hurricanes and rainstorms that recur in our market areas, which may adversely impact our locations and business and those of our customers and suppliers.

In addition, there has been an increased focus among businesses, consumers and investors regarding transitioning to renewable energy and a net zero economy.

If we fail to adequately anticipate and address these changing preferences, our business could be adversely impacted.

We are also subject to risks relating to potential new climate change-related legislation or regulations, which could increase our and our customers’ costs.

The risks associated with these matters are continuing to evolve rapidly and the ultimate impact on our business is difficult to predict with any certainty.

Risks Related to Our Competition and Services

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legislative, regulatory, and technological changes;

and the emergence of alternative sources for financial services, including fintech companies,

which could cause us to lose some of our existing customers, and we may not be successful attracting new customers.

and the emergence of alternative sources for financial services, including fintech companies, all of which could cause us to lose some of our existing customers, and we may not be successful attracting new customers.

Our failure to compete effectively in our primary markets could cause us to lose market share.

We may be adversely affected by the soundness of other financial institutions.

Our ability to engage in routine funding transactions could be adversely affected by the actions and soundness of other financial institutions.

Financial services companies are interrelated as a result of trading, clearing, counterparty, and other relationships.

We have exposure to different industries and counterparties and exposure through transactions with counterparties in the financial services industry, including broker-dealers, commercial banks, investment banks, and other financial intermediaries.

In addition, we participate in loans originated by other institutions, and we participate in syndicated transactions (including shared national credits) in which other lenders serve as the lead bank.

Further, high-profile bank failures have resulted in some degree of public awareness and caused widespread questions about potential concerns in the financial institutions industry.

Failures by, declines in the financial condition of, or even rumors or questions about one or more financial institutions, financial service companies, or the financial services industry generally, may lead to a decline in market-wide liquidity, asset quality problems, or other problems and could lead to losses or defaults by us or by other institutions.

We may not be able to implement our expansion strategy, which may adversely affect our ability to maintain our historical earnings trends.

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In addition, we cannot provide assurance that we will be able to successfully integrate any business or assets we acquire with our existing business.

The integration of acquired operations and assets may require substantial management time, effort, and resources and may divert management’s focus from other strategic opportunities and operational matters.

The integration of acquired operations and assets may require

substantial management time, effort, and resources and may divert management’s focus from other strategic opportunities and operational matters.

Further, we may not be able to execute on more general aspects of our expansion strategy, which may impair our ability to sustain our historical rate of growth or prevent us from growing at all.

We may not be able to generate sufficient new loans and deposits within acceptable risk and expense tolerances, obtain the personnel or funding necessary for additional growth, or find suitable acquisition candidates.

For example, we may not be able to generate sufficient new loans and deposits within acceptable risk and expense tolerances, obtain the personnel or funding necessary for additional growth, or find suitable acquisition candidates.

Various factors, such as economic conditions and competition with other financial institutions, may impede or prohibit the growth of our operations, the opening of new banking centers, and the consummation of acquisitions.

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Any new line of business, product, product enhancement, or service could also have a significant impact on the effectiveness of our system of internal controls and subject us to additional, unknown risks.

We may be adversely affected by the soundness of other financial institutions.

Our ability to engage in routine funding transactions could be adversely affected by the actions and soundness of other financial institutions.

Financial services companies are interrelated as a result of trading, clearing, counterparty, and other relationships.

In addition, we participate in loans originated by other institutions, and we participate in syndicated transactions (including shared national credits) in which other lenders serve as the lead bank.

As a result, defaults by, declines in the financial condition of, or even rumors or questions about one or more financial institutions, financial service companies, or the financial services industry generally, may lead to a decline in market-wide liquidity, asset quality problems, or other problems and could lead to losses or defaults by us or by other institutions.

Risks Related to Our Financial Stability

The fair value of our investment securities can fluctuate due to factors outside of our control, which could have a material adverse effect on our business and profitability.

Factors beyond our control can significantly influence the fair value of securities in our investment portfolio, potentially resulting in adverse changes to the portfolio’s fair value.

These factors include, but are not limited to, rating agency actions related to the securities, defaults by the issuer or with respect to the underlying collateral, and changes in market interest rates and instability in the capital markets.

Any of these factors, among others, could cause OTTI, realized or unrealized losses in future periods, and declines in AOCI, which could have a material adverse effect on our business, financial condition, results of operations, and capital requirements.

In addition, the process for determining whether impairment of a security is other-than-temporary often requires complex, subjective judgments about whether there has been a significant deterioration in the financial condition of the issuer, whether management has the intent or ability to hold a security for a period of time sufficient to allow for any anticipated recovery in fair value, the future financial performance and liquidity of the issuer and any underlying collateral, and other relevant factors.

As a result, any failure or deficiency in making these judgments could have a material adverse effect on our business and profitability.

We may need to rely on financial markets to provide needed capital in the future, and if we fail to maintain sufficient capital, we may not be able to satisfy regulatory requirements or maintain adequate protection against financial stress.

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We rely on our ability to generate deposits and effectively manage the repayment and maturity schedules of our loans and investment securities, respectively, to ensure that we have adequate liquidity to fund our operations.

As can be seen from events in 2023 regarding the operations and failures of other banks in the U.S., an inability to mitigate deposit withdrawals and to raise funds through new deposits, borrowings, the sale of investment securities at or above the value of such securities on our books, and other sources could have a material adverse effect on liquidity.

Our most important source of funds is deposits.

Historically, our deposits have provided a stable source of funds.

However, deposit balances can decrease when customers perceive alternative investments as providing a better risk/return tradeoff.

Even though a majority of our certificates of deposit renew upon maturity with what we believe are competitive rates, some of our more rate-sensitive customers may move those funds to higher-yielding alternatives.

If our customers move money out of bank deposits and into other investments such as money market funds, we would lose a relatively low-cost source of funds, increasing our funding costs, and reducing our net interest income and net income.

However, deposit balances can decrease when customers perceive alternative investments as providing a better risk/return tradeoff or when customers have negative views related to disruption in the financial markets or the prospects for the financial services industry as a whole.

If our customers move money out of bank deposits, our liquidity position could be impacted, and we would lose a relatively low-cost source of funds, increasing our funding costs, and reducing our net interest income and net income.

Even though a majority of our certificates of deposit renew upon maturity with what we believe are competitive rates, some of our more rate-sensitive customers may move those and other deposit funds to higher-yielding alternatives.

Our other primary sources of liquidity consist of cash flows from operations, maturities and sales of investment securities, and proceeds from the issuance and sale of our equity to investors.

As a secondary source of liquidity, we have the ability to borrow overnight funds from other financial institutions with whom we have a correspondent relationship.

We also have the ability to borrow from the FHLB of Dallas.

We also have the ability to borrow from the FHLB of Dallas and the Federal Reserve Bank’s Discount Window facility.

Also, the Federal Reserve’s Bank Term Funding Program was available from March 12, 2023 through March 11, 2024.

Historically, we have not utilized brokered or internet deposits to meet liquidity needs.

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These factors may include disruptions in the financial markets or negative expectations about the industry’s prospects.

Our access to funding sources could also be affected by regulatory actions against us or by a decrease in the level of our business activity due to a downturn in the Louisiana economy or in economic conditions generally.

Our access to funding sources could also be affected by regulatory actions against us or by a decrease in the level of our business

activity due to a downturn in the Louisiana economy or in economic conditions generally.

A decline in available funding could adversely impact our ability to originate loans, invest in securities, meet our expenses, or fulfill obligations such as meeting deposit withdrawal demands or repaying our borrowings.

We may be adversely affected by the transition from LIBOR.

In July 2017, the United Kingdom Financial Conduct Authority, the authority that regulates LIBOR, announced its intent to stop compelling banks to submit rates for the calculation of LIBOR after 2021.

Subsequently, on March 5, 2021, it was announced that certain USD-LIBOR rates would cease to be published after June 30, 2023.

The Alternative Reference Rates Committee has proposed that the Secured Overnight Financing Rate is the rate that represents best practice as the alternative to USD-LIBOR for use in derivatives and other financial contracts that are currently indexed to USD-LIBOR.

As of December 31, 2022, 2.1% of loans HFI were indexed to LIBOR with a setting that expires June 30, 2023.

These loans contain either provisions for the designation of an alternate benchmark rate or “fallback” provisions providing for alternative rate calculations in the event LIBOR is unavailable.

However, the existing provisions and/or recent modifications to our documents to address the transition may not adequately address the actual changes to LIBOR or the financial impact of successor benchmark rates.

Even with provisions allowing for designation of alternative benchmarks or

“fallback” provisions, changes to or the discontinuance of LIBOR could result in customer uncertainty and disputes arising as a consequence of the transition from LIBOR.

The fair value of our investment securities can fluctuate due to factors outside of our control, which could have a material adverse effect on our business and profitability.

Factors beyond our control can significantly influence the fair value of securities in our investment portfolio, potentially resulting in adverse changes to the portfolio’s fair value.

Any of these factors, among others, could cause realized or unrealized losses in future periods and declines in AOCI, which could have a material adverse effect on our business, financial condition, results of operations, and capital requirements.

In addition, the process for determining impairment of a security often requires complex, subjective judgments about whether there has been a significant deterioration in the financial condition of the issuer, whether management has the intent or ability to hold a security for a period of time sufficient to allow for any anticipated recovery in fair value, the future financial performance and liquidity of the issuer and any underlying collateral, and other relevant factors.

As a result, any failure or deficiency in making these judgments could have a material adverse effect on our business and profitability.

Risks Related to Our Operations

We rely heavily on our executive management team and other key employees, and we could be adversely affected by an unexpected loss of their service.

Our success depends in large part on the performance of our key personnel, as well as on our ability to attract, motivate, and retain highly qualified management and employees.

Competition for employees is intense, and the process of locating key personnel with the combination of skills and attributes required to execute our business plan may be lengthy.

We may not be successful in retaining our key employees.

Further, we may not be able to identify and hire qualified replacement personnel on terms acceptable to us, or at all, whether due to tightening labor conditions or otherwise.

If we unexpectedly lose the services of one or more of our key personnel and are unable to replace them, we would also lose the benefit of their skills, knowledge of our primary markets, and years of industry experience, which could adversely affect our business and profitability.

We are subject to laws regarding the privacy, information security, and protection of personal information.

Unauthorized access, cyber-crime, and other threats to data security may require significant resources, harm our reputation, and otherwise cause harm to our business.

In the ordinary course of our business, we necessarily collect, use, and retain, on various information systems that we maintain and in those maintained by third-party providers and, in some cases, vendors retained by those third parties, personal and financial information concerning individuals and businesses with which we have a banking relationship.

We also maintain important internal company data such as personally identifiable information about our employees and information about our operations.

Threats to data security such as unauthorized access and cyber-attacks emerge and change rapidly.

These threats may increase our costs for protection or remediation.

It is difficult or impossible to defend against every risk posed by changing technologies and cyber-crime.

Cyber incidents could include actual or attempted unauthorized access, tampering, malware insertion, ransomware attacks, or other system integrity events.

Increasing sophistication of cyber-attacks makes it increasingly difficult to prevent a security breach.

For example, in mid-2023, we received notice that certain of our customer data was involved in the global incident involving the MOVEit Transfer vulnerability.

Our internal network systems were not impacted by the MOVEit Transfer vulnerability.

However, several of our third-party financial institution vendors who utilized MOVEit Transfer in their service offerings to us notified us that their systems may have been compromised.

Based on the investigation, we were notified that certain of our customers had personal information exfiltrated through the cyber-attack, and we notified our affected customers.

Further, we, or any of our vendors or third-party providers, could also experience a breach due to circumstances such as intentional or negligent conduct on the part of employees or other internal and external sources, software bugs, or other technical malfunctions.

Any of these threats may cause our customer accounts and financial systems to become vulnerable to takeover schemes or cyber-fraud.

We rely on third parties to provide key components of our business infrastructure, and a failure of these parties to perform for any reason could disrupt our operations.

Our business depends on the successful and uninterrupted functioning of our IT and telecommunications systems and third-party servicers.

The failure of these systems, or the termination of a third-party software license or service agreement on which any of these systems is based, could interrupt our operations.

Because our IT and telecommunications systems interface with and depend on third-party systems, we could experience service denials if demand for such services exceeds capacity.

Additionally, our operations could be interrupted if any of our third-party service providers experience financial difficulty, are inadvertently or intentionally negligent, are subject to cybersecurity breaches, fail to effectively manage their providers, terminate their services, or fail to comply with applicable banking regulations.

We are subject to claims, litigation, and other proceedings that could result in legal liability.

From time to time, we are, or may be, involved in various legal matters arising in the ordinary course of business.

One or more unfavorable outcomes of these ordinary course claims or litigation against us could have a material adverse effect on our business.

Regardless of their merits, scope, validity, or ultimate outcomes, such matters are costly, time-consuming, may result in protracted litigation or otherwise divert management’s attention, and may materially and adversely affect our reputation, even if resolved favorably.

In addition, since the commencement of the PPP, numerous other banks have been subject to litigation regarding the process and procedures that those banks used in processing applications for the PPP.

We may be exposed to similar litigation from governmental agencies, customers, non‑customers, and agents that approached us regarding PPP loans and litigation regarding our procedures for processing applications, funding PPP loans, and coordinating the forgiveness of the loans.

If any such litigation is initiated against us, it may result in significant financial liability, significant litigation costs, or adversely affect our reputation.

Further, governmental agencies could audit our PPP borrowers, and any deficiencies resulting from such audit could also expose us to liability and reputational risk.