Total loans are presented net of unaccreted discounts and net deferred fees totaling $9.4 million and $7.8 million at March 31, 2023 and December 31, 2022, respectively.

Loans are considered past due if the required principal and interest payments have not been received as of the date such payments were due. As mentioned in Note 1, the accrual of interest on loans is discontinued when there is a clear indication that the borrower’s cash flow may not be sufficient to meet payments as they become due, which is generally when a loan is 90 days past due. Non-accrual loans and accruing loans past due more than 90 days segregated by class of loans were as follows:

As of March 31, 2023 and 2022, the amount of income that would have been accrued for loans on non-accrual was approximately $339,000 and $482,000, respectively.

An age analysis of past due loans, segregated by class of loans, was as follows:


	March 31, 2023
(Dollars in thousands)	30-59 days		60-89 days		Over 90 days		Total past due		Total current		Total loans
Real estate loans:
Non-farm non-residential owner occupied	$	288	$	—	$	855	$	1,143	$	507,793	$	508,936
Non-farm non-residential non-owner occupied		—		1,157		282		1,439		510,107		511,546
Residential		781		500		506		1,787		284,571		286,358
Construction, development & other		—		—		39		39		627,104		627,143
Farmland		—		—		—		—		22,512		22,512
Commercial & industrial		947		271		7,800		9,018		1,103,620		1,112,638
Consumer		—		—		—		—		3,280		3,280
Municipal and other		144		—		—		144		140,769		140,913
	$	2,160	$	1,928	$	9,482	$	13,570	$	3,199,756	$	3,213,326


	December 31, 2022
(Dollars in thousands)	30-59 days		60-89 days		Over 90 days		Total past due		Total current		Total loans
Real estate loans:
Non-farm non-residential owner occupied	$	2,996	$	—	$	1,856	$	4,852	$	488,939	$	493,791
Non-farm non-residential non-owner occupied		132		—		296		428		505,584		506,012
Residential		2,356		—		513		2,869		305,906		308,775
Construction, development & other		130		—		45		175		567,676		567,851
Farmland		—		—		—		—		22,820		22,820
Commercial & industrial		791		613		8,751		10,155		1,048,755		1,058,910
Consumer		—		—		20		20		3,852		3,872
Municipal and other		162		—		—		162		145,358		145,520
	$	6,567	$	613	$	11,481	$	18,661	$	3,088,890	$	3,107,551

Pursuant to the adoption of ASU 2022-02 effective January 1, 2023, the Company prospectively discontinued the recognition and measurement of TDRs. This guidance eliminated TDR accounting for loans in which the borrower was experiencing financial difficulty and the creditor was granted a concession. A loan is now considered restructured if the borrower is experiencing financial difficulties and the loan has been modified. Modifications may include interest rate reductions or below market interest rates, restructuring amortization schedules and other actions intended to minimize potential losses.

The Company had no modifications of loans to borrowers who were experiencing financial difficulty during the three months ended March 31, 2023.

On an ongoing basis, the performance of restructured loans is monitored for subsequent payment default. Payment default is recognized when the borrower is 90 days or more past due. As of March 31, 2023, there were no restructured loans in default.

Prior to the adoption of ASC Topic 326 on January 1, 2023, loans were reported as impaired when, based on then current information and events, it was probable the Company would be unable to collect all amounts due in accordance with the original contractual terms of the loan agreement, including scheduled principal and interest payments. If a loan was impaired, a specific valuation allowance was allocated, if necessary, so that the loan was reported net, at the fair value of collateral if repayment was expected solely from the collateral.

Interest payments received on impaired loans are recorded as interest income at December 31, 2022 unless collections of the remaining recorded investment are doubtful, at which time payments received are recorded as reductions of principal. Interest income collected on impaired loans was approximately $120,000 for the three months ended March 31, 2022.

Certain borrowers were unable to meet their contractual payment obligations because of the adverse effects of COVID-19. During March of 2020 and to help mitigate these effects, the Company began offering deferral modifications of principal and/or interest payments for varying periods, but typically no more than 90 days. After 90 days, customers could apply for an additional deferral, and a small portion of our customers requested such an additional deferral. At March 31, 2023 and December 31, 2022, the Company had approximately 221and 261 loans totaling $143.0 million and $150.7 million, respectively, in outstanding loan balances that were subject to deferral and modification agreements due to COVID-19 whereby the principal and/or interest payments were deferred to the end of each loan term. Subsequent to the approved deferral period, customers resumed their regular payments. The Coronavirus Aid, Relief, and Economic Security Act provides banks an option to elect to not account for certain loan modifications related to COVID-19 as TDRs if the borrowers were not more than 30 days past due at December 31, 2019. In the absence of other intervening factors, such short-term modifications made on a good faith basis are not categorized as TDRs, nor are loans granted payment deferrals related to COVID-19 reported as past due or placed on non-accrual status. At March 31, 2023 and December 31, 2022, $3.2 million and $3.3 million, respectively, in accrued interest receivables related to these loans remained outstanding and will be collected at the end of each loan term.

Credit Quality Indicators. From a credit risk standpoint, the Company classifies its loans in one of six categories: (i) pass, (ii) special mention, (iii) substandard, (iv) purchased credit impaired, (v) doubtful, or (vi) loss.

The classifications of loans reflect a judgment about the risks of default and loss associated with the loan. The Company reviews the ratings on credits monthly. Ratings are adjusted to reflect the degree of risk and loss that is felt to be inherent in each credit as of each monthly reporting period. The Company’s methodology is structured so that specific allocations are increased in accordance with deterioration in credit quality (and a corresponding increase in risk and loss) or decreased in accordance with improvement in credit quality (and a corresponding decrease in risk and loss).

(i) The Company has several pass credit grades that are assigned to loans based on varying levels of credits, ranging from credits that are secured by cash or marketable securities, to watch credits that have all the characteristics of an acceptable credit risk but warrant more than the normal level of supervision.

(ii) Special mention loans are loans that still show sufficient cash flow to service their debt but show a declining financial trend with potential cash flow shortages if trends continue. This category should be treated as a temporary grade. If cash flow deteriorates further

to become negative, then a substandard grade should be given. If cash flow trends begin to improve then an upgrade back to pass would be justified. Nonfinancial reasons for rating a credit special mention include management problems, pending litigation, an ineffective loan agreement or other material structure weakness.

(iii) A substandard loan has material weakness in the primary repayment source such as insufficient cash flow from operations to service the debt. However, other weaknesses such as limited paying capacity of the obligor or the collateral pledged could justify a substandard grade. Substandard loans must have a well-defined weakness, or weaknesses that jeopardize the liquidation of the debt.

(iv) Credits purchased from third parties are recorded at their estimated fair value at the acquisition date and are classified as PCI loans if the loans reflect credit deterioration since origination and it is probable at acquisition that the Company will be unable to collect all contractually required payments (see Note 1 – Nature of Operations and Summary of Significant Accounting Policies – Certain Acquired Loans).

(v) A loan classified as doubtful has all the weaknesses of a substandard loan with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions, and values, highly questionable and improbable. A doubtful loan has a high probability of total or substantial loss, but because of specific pending events that may strengthen the asset, its classification as loss is deferred. Doubtful borrowers are usually in default, lack adequate liquidity or capital, and lack the resources necessary to remain an operating entity. Because of high probability of loss, non-accrual status is required on doubtful loans.

(vi) Loans classified as loss are considered uncollectable and of such little value that their continuance as banking assets are not warranted. This classification does not mean that the asset has absolutely no recovery or salvage value, but rather that it is not practical or desirable to defer writing off this basically worthless asset even though partial recovery may be affected in the future. With loans classified as loss, the underlying borrowers are often in bankruptcy, have formally suspended debt repayments, or have otherwise ceased normal business operations. Once an asset is classified as loss, there is little prospect of collecting either its principal or interest. When access to collateral, rather than the value of the collateral, is a problem, a less severe classification may be appropriate. However, the Company does not maintain an asset on the balance sheet if realizing its value would require long-term litigation or other lengthy recovery efforts. Losses are to be recorded in the period an obligation becomes uncollectable.

The following tables summarize the Company's loans by risk grades, loan class and vintage, at March 31, 2023 and December 31, 2022. Gross charge-offs by origination year and loan class are also presented.


(Dollars in thousands)	Term Loans Amortized Cost Basis by Origination Year
As of March 31, 2023	2023		2022		2021		2020		2019		Prior Years			Revolving Loans Amortized Cost Basis		Total
Real estate loans:
Non-farm non-residential owner occupied
Pass	$	11,000	$	182,131	$	136,171	$	77,945	$	42,322	$	49,229		$	4,851	$	503,649
Special Mention		157		—		716		—		—		—			—		873
Substandard		—		531		1,007		—		2,191		685			—		4,414
Total Non-Farm non-residential owner-occupied	$	11,157	$	182,662	$	137,894	$	77,945	$	44,513	$	49,914		$	4,851	$	508,936
Non-farm non-residential non-owner occupied
Pass	$	11,860	$	188,659	$	199,694	$	34,075	$	20,738	$	40,814		$	8,742	$	504,582
Special Mention		—		—		—		223		—		—			—		223
Substandard		—		282		—		—		5,167		1,292			—		6,741
Total Non-Farm non-residential non owner-occupied	$	11,860	$	188,941	$	199,694	$	34,298	$	25,905	$	42,106		$	8,742	$	511,546
Residential
Pass	$	26,561	$	119,377	$	90,589	$	22,465	$	12,207	$	12,928		$	1,350	$	285,477
Substandard		—		—		868		—		—		13			—		881
Total Residential	$	26,561	$	119,377	$	91,457	$	22,465	$	12,207	$	12,941		$	1,350	$	286,358
Construction, development & other
Pass	$	46,455	$	104,006	$	59,154	$	806	$	275	$	603		$	409,369	$	620,668
Special Mention		—		—		6,436		—		—		—			—		6,436
Substandard		—		34		—		—		—		5			—		39
Total Construction, development & other	$	46,455	$	104,040	$	65,590	$	806	$	275	$	608		$	409,369	$	627,143
Farmland
Pass	$	—	$	12,520	$	2,693	$	864	$	3,769	$	2,073		$	593	$	22,512
Total Farmland	$	—	$	12,520	$	2,693	$	864	$	3,769	$	2,073		$	593	$	22,512
Commercial & industrial
Pass	$	94,001	$	409,475	$	179,889	$	24,793	$	18,216	$	5,602		$	368,972	$	1,100,948
Special Mention		—		133		—		—		—		82			1,804		2,019
Substandard		—		1,243		2,405		1,276		1,675		20			2,995		9,614
Doubtful		—		—		—		—		57		—			—		57
Total Commercial & industrial	$	94,001	$	410,851	$	182,294	$	26,069	$	19,948	$	5,704		$	373,771	$	1,112,638
Current period gross charge-offs	$	—	$	—	$	—	$	—	$	—	$	(120	)	$	—	$	(120	)
Consumer
Pass	$	1,176	$	988	$	250	$	293	$	171	$	399		$	3	$	3,280
Total Consumer	$	1,176	$	988	$	250	$	293	$	171	$	399		$	3	$	3,280
Current period gross charge-offs	$	—	$	—	$	—	$	—	$	—	$	(21	)	$	—	$	(21	)
Municipal and other
Pass	$	26,784	$	50,657	$	30,329	$	6,617	$	2,212	$	237		$	24,077	$	140,913
Total Municipal and other	$	26,784	$	50,657	$	30,329	$	6,617	$	2,212	$	237		$	24,077	$	140,913


(Dollars in thousands)	Term Loans Amortized Cost Basis by Origination Year
As of December 31, 2022	2022		2021			2020		2019		2018		Prior Years			Revolving Loans Amortized Cost Basis			Total
Real estate loans:
Non-farm non-residential owner occupied
Pass	$	182,294	$	125,782		$	78,148	$	43,076	$	27,010	$	27,060		$	4,263		$	487,633
Special Mention		—		1,885			—		—		—		—			—			1,885
Substandard		893		473			—		2,213		419		275			—			4,273
Total Non-Farm non-residential owner-occupied	$	183,187	$	128,140		$	78,148	$	45,289	$	27,429	$	27,335		$	4,263		$	493,791
Non-farm non-residential non-owner occupied
Pass	$	188,662	$	197,972		$	39,065	$	21,051	$	20,850	$	21,410		$	9,977		$	498,987
Special Mention		—		—			228		—		—		—			—			228
Substandard		192		104			—		5,200		—		1,301			—			6,797
Total Non-Farm non-residential non owner-occupied	$	188,854	$	198,076		$	39,293	$	26,251	$	20,850	$	22,711		$	9,977		$	506,012
Residential
Pass	$	121,652	$	130,924		$	23,149	$	13,534	$	6,115	$	8,950		$	3,557		$	307,881
Substandard		—		878			—		—		—		16			—			894
Total Residential	$	121,652	$	131,802		$	23,149	$	13,534	$	6,115	$	8,966		$	3,557		$	308,775
Construction, development & other
Pass	$	113,261	$	110,572		$	1,236	$	291	$	70	$	629		$	333,127		$	559,186
Special Mention		—		8,620			—		—		—		—			—			8,620
Substandard		40		—			—		—		—		5			—			45
Total Construction, development & other	$	113,301	$	119,192		$	1,236	$	291	$	70	$	634		$	333,127		$	567,851
Farmland
Pass	$	12,671	$	2,736		$	1,233	$	3,820	$	1,216	$	553		$	591		$	22,820
Total Farmland	$	12,671	$	2,736		$	1,233	$	3,820	$	1,216	$	553		$	591		$	22,820
Commercial & industrial
Pass	$	402,799	$	177,599		$	34,531	$	20,509	$	4,929	$	1,394		$	409,604		$	1,051,365
Special Mention		1,329		700			132		—		—		91			—			2,252
Substandard		495		1,779			1,142		1,733		120		24			—			5,293
Total Commercial & industrial	$	404,623	$	180,078		$	35,805	$	22,242	$	5,049	$	1,509		$	409,604		$	1,058,910
Current period gross charge-offs	$	—	$	—		$	—	$	—	$	—	$	(462	)	$	(752	)	$	(1,214	)
Consumer
Pass	$	1,550	$	1,224		$	338	$	199	$	25	$	93		$	423		$	3,852
Substandard		—		—			—		—		—		20			—			20
Total Consumer	$	1,550	$	1,224		$	338	$	199	$	25	$	113		$	423		$	3,872
Municipal and other
Pass	$	75,817	$	25,703		$	7,542	$	2,841	$	412	$	—		$	33,205		$	145,520
Total Municipal and other	$	75,817	$	25,703		$	7,542	$	2,841	$	412	$	—		$	33,205		$	145,520
Current period gross charge-offs	$	—	$	(18	)	$	—	$	—	$	—	$	—		$	—		$	(18	)

The allowance for credit losses on loans is a contra-asset valuation account, calculated in accordance with ASC 326, that is deducted from the amortized cost basis of loans to present the net amount expected to be collected. The amount of the allowance represents management's best estimate of current expected credit losses on loans considering available information, from internal and external sources, relevant to assessing collectability over the loans' contractual terms, adjusted for expected prepayments when appropriate. The contractual term excludes expected extensions, renewals and modifications unless (i) management has a reasonable expectation that a loan to an individual borrower that is experiencing financial difficulty will be modified or (ii) such extension or renewal options are not unconditionally cancellable by us and, in such cases, the borrower is likely to meet applicable conditions and likely to request extension or renewal. Relevant available information includes historical credit loss experience, current conditions and reasonable and supportable forecasts, including U.S. Unemployment, GDP and Case-Shiller U.S National Home Price Index. While historical credit loss experience provides the basis for the estimation of expected credit losses, adjustments to historical loss information may be made for differences in current portfolio-specific risk characteristics, environmental conditions or other relevant factors. The allowance for credit losses is measured on a collective basis for portfolios of loans when similar risk characteristics exist. Expected credit losses for collateral dependent loans, including loans where the borrower is experiencing financial difficulty but foreclosure is not probable, are based on the fair value of the collateral at the reporting date, adjusted for selling costs as appropriate.

Credit loss expense related to loans reflects the totality of actions taken on all loans for a particular period including any necessary increases or decreases in the allowance related to changes in credit loss expectations associated with specific loans or pools of loans. Portions of the allowance may be allocated for specific credits; however, the entire allowance is available for any credit that, in management’s judgment, should be charged off. While management utilizes its best judgment and information available, the ultimate appropriateness of the allowance is dependent upon a variety of factors beyond our control, including the performance of our loan portfolio, the economy, changes in interest rates and the view of the regulatory authorities toward loan classifications.

In calculating the allowance for credit losses, most loans are segmented into pools based upon similar characteristics and risk profiles. Common characteristics and risk profiles include the type/purpose of loan, underlying collateral, geographical similarity and historical/expected credit loss patterns. In developing these loan pools for the purposes of modeling expected credit losses, we also analyzed the degree of correlation in how loans within each portfolio respond when subjected to varying economic conditions and scenarios as well as other portfolio stress factors. For modeling purposes, we use loan call report codes to identify the pools of loans with similar risk characteristics. Loans that do not share risk characteristics are evaluated for expected credit losses on an individual basis and excluded from the collective evaluation. We periodically reassess each pool to ensure the loans within the pool continue to share similar characteristics and risk profiles and to determine whether further segmentation is necessary.

We have elected to use the discounted cash flow (“DCF”) method for estimating accumulated credit losses for all loans except for consumer loans and leases. The DCF model allows for an effective incorporation of reasonable and supportable forecasts that can be applied in a consistent and objective manner. The method also aligns well with other calculations outside the accumulated credit loss estimations which mitigate model risk in other areas such as fair value or exit price notion calculations, interest rate risk calculations, profitability analysis, asset-liability management, and other forms of cash flow analysis. We have elected to use the weighted-average remaining maturity (“WARM”) method for consumer loans. The long-term average loss rate is calculated and applied on a quarterly basis for the remaining life of the pool. Adjustments for economic expectations are made in the qualitative portion of the calculation. The long-term average loss rate is derived using peer data derived from the call report.

There may be certain financial assets for which the expectation of credit loss is zero after evaluating historical loss information, making necessary adjustments for current conditions and reasonable and supportable forecasts, and considering any collateral or guarantee arrangements that are not free-standing contracts. A loan that is fully secured by cash or cash equivalents, such as certificates of deposit issued by the lending institution, would likely have zero credit loss expectations. Similarly, the guaranteed portion of a Small Business Administration (SBA) loan or security purchased on the secondary market through the SBA’s fiscal and transfer agent would likely have zero credit loss expectations because these financial assets are unconditionally guaranteed by the U.S. government. Currently, the Company deducts the SBA guaranteed portion of financial assets from the individual asset balance.

Management qualitatively adjusts model results for risk factors that are not considered within our modeling processes but are nonetheless relevant in assessing the expected credit losses within our loan pools. These qualitative factor (“Q-Factor”) and other qualitative adjustments may increase or decrease management's estimate of expected credit losses by a calculated percentage or amount based upon the estimated level of risk. The various risks that may be considered in making Q-Factor and other qualitative adjustments include, among other things, the impact of (i) changes in lending policies and procedures, including changes in underwriting standards and practices for collections, write-offs, and recoveries, (ii) actual and expected changes in international, national, regional, and local economic and business conditions and developments that affect the collectability of the loan pools, (iii) changes in the nature and volume of the loan pools and in the terms of the underlying loans, (iv) changes in the experience, ability, and depth of our lending management and staff, (v) changes in volume and severity of past due financial assets, the volume of non-accrual assets, and the volume and severity

of adversely classified or graded assets, (vi) changes in the quality of our credit review function, (vii) changes in the value of the underlying collateral for loans that are non-collateral dependent, (viii) the existence, growth, and effect of any concentrations of credit and (ix) other factors such as the regulatory, legal and technological environments; competition; and events such as natural disasters or health pandemics.

In some cases, management may determine that an individual loan exhibits unique risk characteristics which differentiate the loan from other loans within our loan pools. In such cases, the loans are evaluated for expected credit losses on an individual basis and excluded from the collective evaluation. Specific allocations of the allowance for credit losses are determined by analyzing the borrower’s ability to repay amounts owed, collateral deficiencies, the relative risk grade of the loan and economic conditions affecting the borrower’s industry, among other things. A loan is considered to be collateral dependent when, based upon management's assessment, the borrower is experiencing financial difficulty and repayment is expected to be provided substantially through the operation or sale of the collateral. In such cases, expected credit losses are based on the fair value of the collateral at the measurement date, adjusted for estimated selling costs if satisfaction of the loan depends on the sale of the collateral. We reevaluate the fair value of collateral supporting collateral dependent loans on a quarterly basis. The fair value of real estate collateral supporting collateral dependent loans is evaluated using a methodology that is consistent with the Uniform Standards of Professional Appraisal Practice. The fair value of collateral supporting collateral dependent construction loans is based on an “as is” valuation.

The following table presents details of the allowance for credit losses on loans by portfolio segment as of March 31, 2023.


(Dollars in thousands)	Non-Farm Non-Residential Owner Occupied		Non-Farm Non-Residential Non-Owner Occupied		Residential		Construction, Development & Other		Farmland		Commercial & Industrial		Consumer		Municipal and Other			Total
March 31, 2023
Modeled expected credit losses	$	3,576	$	6,598	$	1,351	$	3,485	$	51	$	6,391	$	3	$	490		$	21,945
Q-Factor and other qualitative adjustments		1,700		1,790		720		1,812		42		6,298		6		(199	)		12,169
Specific allocations		—		—		—		—		—		1,801		—		—			1,801
Total	$	5,276	$	8,388	$	2,071	$	5,297	$	93	$	14,490	$	9	$	291		$	35,915

Management believes the allowance for credit losses is adequate to cover expected credit losses on loans at March 31, 2023 and December 31, 2022.

The following tables detail the activity in the allowance for credit losses by portfolio segment:


	For the Three Months Ended March 31, 2023
(Dollars in thousands)	Beginning balance		CECL Adoption Adjustment			Provision for Credit Losses			Charge-offs			Recoveries		Ending balance
Real estate loans:
Non-farm non-residential owner occupied	$	3,773	$	1,324		$	179		$	—		$	—	$	5,276
Non-farm non-residential non-owner occupied		5,741		2,610			37			—			—		8,388
Residential		1,064		996			11			—			—		2,071
Construction, development & other		3,053		1,608			636			—			—		5,297
Farmland		82		12			(1	)		—			—		93
Commercial & industrial		16,269		(2,903	)		739			(120	)		505		14,490
Consumer		6		4			20			(21	)		—		9
Municipal and other		363		349			(421	)		—			—		291
	$	30,351	$	4,000		$	1,200		$	(141	)	$	505	$	35,915


	For the Three Months Ended March 31, 2022
(Dollars in thousands)	Beginning balance		Provision for Credit Losses			Charge-offs		Recoveries		Ending balance
Real estate loans:
Non-farm non-residential owner occupied	$	3,456	$	631		$	—	$	—	$	4,087
Non-farm non-residential non-owner occupied		5,935		(322	)		—		—		5,613
Residential		957		(191	)		—		—		766
Construction, development & other		2,064		260			—		—		2,324
Farmland		45		(1	)		—		—		44
Commercial & industrial		6,500		3,669			—		4		10,173
Consumer		6		(14	)		—		13		5
Municipal and other		332		(32	)		—		—		300
	$	19,295	$	4,000		$	—	$	17	$	23,312