NOTE

– LOANS

Loans net of unearned income, deferred loan origination costs, and net premiums on acquired loans by class were as follows:

	201 9			201 8
	(in thousands)
Commercial	$	145,551		$	129,368
Commercial Real Estate:
Construction		64,911			86,867
Farmland		79,118			77,937
Nonfarm nonresidential		255,459			172,177
Residential Real Estate:
Multi-family		70,950			49,757
1-4 Family		226,629			175,761
Consumer		47,790			39,104
Agriculture		35,064			33,737
Other		799			536
Subtotal		926,271			765,244
Less: Allowance for loan losses		(8,376	)		(8,880	)
Loans, net	$	917,895		$	756,364

The following table presents the activity in the allowance for loan losses by portfolio segment for the years ended

December 31, 2019,

2018,

and

2017:

	Commercial			Commercial Real Estate			Residential Real Estate			Consumer			Agriculture			Other			Total
December 31, 201 9 :	(in thousands)
Beginning balance	$	1,299		$	4,676		$	2,452		$	130		$	321		$	2		$	8,880
Provision (negative provision)		342			(622	)		(958	)		943			297			(2	)		–
Loans charged off		(37	)		(47	)		(275	)		(663	)		(266	)		–			(1,288	)
Recoveries		106			73			524			75			3			3			784
Ending balance	$	1,710		$	4,080		$	1,743		$	485		$	355		$	3		$	8,376

	Commercial			Commercial Real Estate			Residential Real Estate			Consumer			Agriculture			Other			Total
Dec ember 3 1 , 201 8 :	(in thousands)
Beginning balance	$	892		$	4,032		$	2,900		$	64		$	313		$	1		$	8,202
Provision (negative provision)		196			(192	)		(599	)		92			6			(3	)		(500	)
Loans charged off		(50	)		(198	)		(252	)		(95	)		(13	)		(8	)		(616	)
Recoveries		261			1,034			403			69			15			12			1,794
Ending balance	$	1,299		$	4,676		$	2,452		$	130		$	321		$	2		$	8,880

	Commercial			Commercial Real Estate			Residential Real Estate			Consumer			Agriculture			Other			Total
Dec ember 3 1 , 201 7 :	(in thousands)
Beginning balance	$	475		$	4,894		$	3,426		$	8		$	162		$	2		$	8,967
Provision (negative provision)		363			(1,223	)		(129	)		(8	)		213			(16	)		(800	)
Loans charged off		(5	)		(58	)		(692	)		(51	)		(95	)		–			(901	)
Recoveries		59			419			295			115			33			15			936
Ending balance	$	892		$	4,032		$	2,900		$	64		$	313		$	1		$	8,202

The following table presents the balance in the allowance for loan losses and the recorded investment in loans by portfolio segment and based on the impairment method as of

December 31, 2019:

	Commercial		Commercial Real Estate		Residential Real Estate		Consumer		Agriculture		Other		Total
	(in thousands)
Allowance for loan losses:
Ending allowance balance attributable to loans:
Individually evaluated for impairment	$	3	$	37	$	2	$	–	$	–	$	–	$	42
Collectively evaluated for impairment		1,707		4,043		1,741		485		355		3		8,334
Total ending allowance balance	$	1,710	$	4,080	$	1,743	$	485	$	355	$	3	$	8,376

Loans:
Loans individually evaluated for impairment	$	74	$	1,064	$	892	$	98	$	42	$	–	$	2,170
Loans collectively evaluated for impairment		145,477		398,424		296,687		47,692		35,022		799		924,101
Total ending loans balance	$	145,551	$	399,488	$	297,579	$	47,790	$	35,064	$	799	$	926,271

The following table presents the balance in the allowance for loan losses and the recorded investment in loans by portfolio segment and based on the impairment method as of

December 31, 2018:

	Commercial		Commercial Real Estate		Residential Real Estate		Consumer		Agriculture		Other		Total
	(in thousands)
Allowance for loan losses:
Ending allowance balance attributable to loans:
Individually evaluated for impairment	$	–	$	35	$	168	$	–	$	–	$	–	$	203
Collectively evaluated for impairment		1,299		4,641		2,284		130		321		2		8,677
Total ending allowance balance	$	1,299	$	4,676	$	2,452	$	130	$	321	$	2	$	8,880

Loans:
Loans individually evaluated for impairment	$	53	$	510	$	2,348	$	–	$	–	$	–	$	2,911
Loans collectively evaluated for impairment		129,315		336,471		223,170		39,104		33,737		536		762,333
Total ending loans balance	$	129,368	$	336,981	$	225,518	$	39,104	$	33,737	$	536	$	765,244

paired Loans

Impaired loans include restructured loans and loans on nonaccrual or classified as doubtful, whereby collection of the total amount is improbable, or loss, whereby all or a portion of the loan has been written off or a specific allowance for loss had been provided.

The following table presents information related to loans individually evaluated for impairment by class of loan as of and for the year ended

December 31, 2019:

	Unpaid Principal Balance		Recorded Investment		Allowance For Loan Losses Allocated		Average Recorded Investment		Interest Income Recognized		Cash Basis Income Recognized
	(in thousands)
With No Related Allowance Recorded:
Commercial	$	138	$	50	$	—	$	57	$	3	$	3
Commercial real estate:
Construction		—		—		—		—		—		—
Farmland		380		293		—		179		23		23
Nonfarm nonresidential		1,057		489		—		295		34		3
Residential real estate:
Multi-family		—		—		—		—		—		—
1-4 Family		1,679		745		—		1,402		219		191
Consumer		309		98		—		56		6		6
Agriculture		304		42		—		47		3		3
Other		—		—		—		—		—		—
Subtotal		3,867		1,717		—		2,036		288		229
With An Allowance Recorded:
Commercial		24		24		3		15		2		—
Commercial real estate:
Construction		—		—		—		—		—		—
Farmland		282		282		37		236		9		—
Nonfarm nonresidential		—		—		—		—		—		—
Residential real estate:
Multi-family		—		—		—		—		—		—
1-4 Family		183		147		2		459		6		—
Consumer		—		—		—		—		—		—
Agriculture		—		—		—		—		—		—
Other		—		—		—		—		—		—
Subtotal		489		453		42		710		17		—
Total	$	4,356	$	2,170	$	42	$	2,746	$	305	$	229

The following table presents information related to loans individually evaluated for impairment by class of loan as of and for the year ended

December 31, 2018:

	Unpaid Principal Balance		Recorded Investment		Allowance For Loan Losses Allocated		Average Recorded Investment		Interest Income Recognized		Cash Basis Income Recognized
	(in thousands)
With No Related Allowance Recorded:
Commercial	$	120	$	53	$	—	$	125	$	—	$	—
Commercial real estate:
Construction		—		—		—		—		—		—
Farmland		1,860		89		—		1,156		360		360
Nonfarm nonresidential		402		262		—		327		19		—
Residential real estate:
Multi-family		—		—		—		—		—		—
1-4 Family		2,678		1,628		—		1,964		—		—
Consumer		12		—		—		1		—		—
Agriculture		—		—		—		—		—		—
Other		—		—		—		—		—		—
Subtotal		5,072		2,032		—		3,573		379		360
With An Allowance Recorded:
Commercial		—		—		—		60		3		—
Commercial real estate:
Construction		—		—		—		—		—		—
Farmland		—		—		—		—		—		—
Nonfarm nonresidential		159		159		35		100		—		—
Residential real estate:
Multi-family		—		—		—		—		—		—
1-4 Family		720		720		168		1,111		—		—
Consumer		—		—		—		—		—		—
Agriculture		—		—		—		—		—		—
Other		—		—		—		—		—		—
Subtotal		879		879		203		1,271		3		—
Total	$	5,951	$	2,911	$	203	$	4,844	$	382	$	360

The following table presents information related to loans individually evaluated for impairment by class of loan as of and for the year ended

December 31, 2017:

	Unpaid Principal Balance		Recorded Investment		Allowance For Loan Losses Allocated		Average Recorded Investment		Interest Income Recognized		Cash Basis Income Recognized
	(in thousands)
With No Related Allowance Recorded:
Commercial	$	703	$	487	$	—	$	495	$	7	$	7
Commercial real estate:
Construction		—		—		—		—		—		—
Farmland		3,687		2,059		—		2,651		210		210
Nonfarm nonresidential		1,047		576		—		716		59		47
Residential real estate:
Multi-family		—		—		—		820		—		—
1-4 Family		4,293		2,787		—		2,884		143		143
Consumer		9		1		—		2		2		2
Agriculture		—		—		—		24		1		1
Other		—		—		—		—		—		—
Subtotal		9,739		5,910		—		7,592		422		410
With An Allowance Recorded:
Commercial		100		100		13		100		7		—
Commercial real estate:
Construction		—		—		—		—		—		—
Farmland		—		—		—		235		—		—
Nonfarm nonresidential		—		—		—		238		14		—
Residential real estate:
Multi-family		—		—		—		—		—		—
1-4 Family		1,163		1,163		206		1,404		68		—
Consumer		—		—		—		—		—		—
Agriculture		—		—		—		24		—		—
Other		—		—		—		—		—		—
Subtotal		1,263		1,263		219		2,001		89		—
Total	$	11,002	$	7,173	$	219	$	9,593	$	511	$	410

Troubled Debt Restructuring

A troubled debt restructuring (TDR) occurs when the Bank has agreed to a loan modification in the form of a concession for a borrower who is experiencing financial difficulty. The Bank’s TDRs typically involve a reduction in interest rate, a deferral of principal for a stated period of time, or an interest only period. All TDRs are considered impaired and the Bank has allocated reserves for these loans to reflect the present value of the concessionary terms granted to the borrower.

The following table presents the TDR loan modifications by portfolio segment outstanding as of

December 31, 2019

and

2018:

	TDRs Performing to Modified Terms		TDRs Not Performing to Modified Terms		Total TDRs
	(in thousands)
December 31, 201 9
Commercial Real Estate:
Nonfarm nonresidential	$	400	$	—	$	400
Residential Real Estate:
1-4 Family		75		—		75
Total TDRs	$	475	$	—	$	475

	TDRs Performing to Modified Terms		TDRs Not Performing to Modified Terms		Total TDRs
	(in thousands)
December 31, 2018
Commercial Real Estate:
Nonfarm nonresidential	$	190	$	—	$	190
Residential Real Estate:
1-4 Family		720		—		720
Total TDRs	$	910	$	—	$	910

December 31, 2019

and

2018,

100

of the Company’s TDRs were performing according to their modified terms. The Company allocated

$1,000

and

$168,000

as of

December 31, 2019

and

2018,

respectively, in reserves to customers whose loan terms have been modified in TDRs. The Company has committed to lend

additional amounts as of

December 31, 2019

December 31, 2018

to customers with outstanding loans that are classified as TDRs.

The following table presents a summary of the TDR loan modifications by portfolio segment that occurred during the

twelve

months ended

December 31, 2019:

	TDRs Performing to Modified Terms		TDRs Not Performing to Modified Terms		Total TDRs
	(in thousands)
December 31, 201 9
Commercial Real Estate:
Nonfarm nonresidential	$	215	$	—	$	215
Residential Real Estate:
1-4 Family		75		—		75
Total TDRs	$	290	$	—	$	290

As of

December 31, 2019,

100%

of the Company’s TDRs that occurred during

2019

were performing in accordance with their modified terms. The Company has allocated

$1,000

in reserves to customers whose loan terms have been modified during

2019.

For modifications occurring during the

twelve

months ended

December 31, 2019,

the post-modification balances approximate the pre-modification balances. There were

modifications during the

twelve

months ended

December 31, 2018.

Management periodically reviews renewals and modifications of previously identified TDRs, for which there was

principal forgiveness, to consider if it is appropriate to remove the TDR classification. If the borrower is

longer experiencing financial difficulty and the renewal/modification did

not

contain a concessionary interest rate or other concessionary terms, management considers the potential removal of the TDR classification. If deemed appropriate based upon current underwriting, the TDR classification is removed as the borrower has complied with the terms of the loan at the date of renewal/modification and there was a reasonable expectation that the borrower would continue to comply with the terms of the loan subsequent to the date of the renewal/modification. In this instance, the TDR was originally considered a restructuring in a prior year as a result of a modification with an interest rate that was

not

commensurate with the risk of the underlying loan. Additionally, TDR classification can be removed in circumstances in which the Company performs a non-concessionary re-modification of the loan at terms that were considered to be at market for loans with comparable risk. Management expects the borrower will continue to perform under the re-modified terms based on the borrower’s past history of performance.

During the years ended

December 31, 2019,

2018,

and

2017,

TDRs defaulted on their restructured loan within the

twelve

-month period following the loan modification. A default is considered to have occurred once the TDR is past due

days or more or it has been placed on nonaccrual.

Non

performing Loans

Non-performing loans include impaired loans and smaller balance homogeneous loans, such as residential mortgage and consumer loans, that are collectively evaluated for impairment. The following table presents the recorded investment in nonaccrual and loans past due

days and still on accrual by class of loan as of

December 31, 2019

and

2018:

	Nonaccrual				Loans Past Due 90 Days And Over Still Accruing
	201 9		201 8		201 9		201 8
	(in thousands)

Commercial	$	50	$	53	$	—	$	—
Commercial Real Estate:
Construction		—		—		—		—
Farmland		431		249		—		—
Nonfarm nonresidential		90		61		—		—
Residential Real Estate:
Multi-family		—		—		—		—
1-4 Family		817		1,628		—		—
Consumer		98		—		—		—
Agriculture		42		—		—		—
Other		—		—		—		—
Total	$	1,528	$	1,991	$	—	$	—

The following table presents the aging of the recorded investment in past due loans by class as of

December 31, 2019

and

2018:

	30 – 59 Days Past Due		60 – 89 Days Past Due		90 Days And Over Past Due		Nonaccrual		Total Past Due And Nonaccrual

	(in thousands)
December 31 , 201 9
Commercial	$	14	$	3	$	—	$	50	$	67
Commercial Real Estate:
Construction		—		—		—		—		—
Farmland		274		—		—		431		705
Nonfarm nonresidential		206		—		—		90		296
Residential Real Estate:
Multi-family		—		—		—		—		—
1-4 Family		1,162		503		—		817		2,482
Consumer		91		164		—		98		353
Agriculture		—		—		—		42		42
Other		—		—		—		—		—
Total	$	1,747	$	670	$	—	$	1,528	$	3,945

	30 – 59 Days Past Due		60 – 89 Days Past Due		90 Days And Over Past Due		Nonaccrual		Total Past Due And Nonaccrual

	(in thousands)
December 31, 201 8
Commercial	$	39	$	—	$	—	$	53	$	92
Commercial Real Estate:
Construction		—		—		—		—		—
Farmland		244		107		—		249		600
Nonfarm nonresidential		—		52		—		61		113
Residential Real Estate:
Multi-family		—		—		—		—		—
1-4 Family		1,299		137		—		1,628		3,064
Consumer		8		35		—		—		43
Agriculture		3		—		—		—		3
Other		—		—		—		—		—
Total	$	1,593	$	331	$	—	$	1,991	$	3,915

Credit Quality Indicators

Management categorizes all loans into risk categories at origination based upon original underwriting. Thereafter, management categorizes loans into risk categories based on relevant information about the ability of borrowers to service their debt such as current financial information, historical payment experience, credit documentation, public information, and current economic trends. Additionally, loans are analyzed through internal and external loan review processes. Borrower relationships in excess of

$500,000

are routinely analyzed through credit administration processes which classify the loans as to credit risk. The following definitions are used for risk ratings:

Watch –

Loans

classified as watch are those loans which have or

may

experience a potentially adverse development which necessitates increased monitoring.

Special Mention –

Loans classified as special mention do

not

have all of the characteristics of substandard or doubtful loans. They have

one

or more deficiencies which warrant special attention and which corrective action, such as accelerated collection practices,

may

remedy.

Substandard –

Loans classified as substandard are those loans with clear and defined weaknesses such as a highly leveraged position, unfavorable financial ratios, uncertain repayment sources or poor financial condition which

may

jeopardize the repayment of the debt as contractually agreed. They are characterized by the distinct possibility that the Bank will sustain some loss if the deficiencies are

not

corrected.

Doubtful

– Loans classified as doubtful are those loans which have characteristics similar to substandard loans but with an increased risk that collection or liquidation in full is highly questionable and improbable.

Loans

not

meeting the criteria above that are analyzed individually as part of the above described process are considered to be “Pass” rated loans. As of

December 31, 2019

and

2018,

and based on the most recent analysis performed, the risk category of loans by class of loans is as follows:

	Pass		Watch		Special Mention		Substandard		Doubtful		Total

	(in thousands)

December 31, 201 9
Commercial	$	130,312	$	11,280	$	—	$	3,959	$	—	$	145,551
Commercial Real Estate:
Construction		64,911		—		—		—		—		64,911
Farmland		71,503		6,663		—		952		—		79,118
Nonfarm nonresidential		245,995		6,986		—		2,478		—		255,459
Residential Real Estate:
Multi-family		70,950		—		—		—		—		70,950
1-4 Family		221,727		2,420		—		2,482		—		226,629
Consumer		47,657		5		—		128		—		47,790
Agriculture		34,853		168		—		43		—		35,064
Other		799		—		—		—		—		799
Total	$	888,707	$	27,522	$	—	$	10,042	$	—	$	926,271

	Pass		Watch		Special Mention		Substandard		Doubtful		Total

	(in thousands)

December 31, 201 8
Commercial	$	129,106	$	141	$	—	$	121	$	—	$	129,368
Commercial Real Estate:
Construction		86,867		—		—		—		—		86,867
Farmland		74,054		2,741		—		1,142		—		77,937
Nonfarm nonresidential		169,551		1,983		—		643		—		172,177
Residential Real Estate:
Multi-family		44,697		5,060		—		—		—		49,757
1-4 Family		169,342		2,209		113		4,097		—		175,761
Consumer		38,768		11		—		325		—		39,104
Agriculture		32,683		1,019		—		35		—		33,737
Other		536		—		—		—		—		536
Total	$	745,604	$	13,164	$	113	$	6,363	$	—	$	765,244