Note

Credit Quality

The Company uses a risk grading matrix to assign a risk grade to each loan in its portfolio. Loan risk ratings

may

be upgraded or downgraded to reflect current information identified during the loan review process. The general characteristics of each risk grade are as follows:

●

Pass -- This grade is assigned to loans with acceptable credit quality and risk. The Company further segments this grade based on borrower characteristics that include capital strength, earnings stability, liquidity, leverage, and industry conditions.

●

Special Mention -- This grade is assigned to loans that require an above average degree of supervision and attention. These loans have the characteristics of an asset with acceptable credit quality and risk; however, adverse economic or financial conditions exist that create potential weaknesses deserving of management’s close attention. If potential weaknesses are

not

corrected, the prospect of repayment

may

worsen.

●

Substandard -- This grade is assigned to loans that have well defined weaknesses that

may

make payment default, or principal exposure, possible. These loans will likely be dependent on collateral liquidation, secondary repayment sources, or events outside the normal course of business to meet repayment terms.

●

Doubtful -- This grade is assigned to loans that have the weaknesses inherent in substandard loans; however, the weaknesses are so severe that collection or liquidation in full is unlikely based on current facts, conditions, and values. Due to certain specific pending factors, the amount of loss cannot yet be determined.

●

Loss -- This grade is assigned to loans that will be charged off or charged down when payments, including the timing and value of payments, are uncertain. This risk grade does

not

imply that the asset has

recovery or salvage value, but simply means that it is

not

practical or desirable to defer writing off, either all or a portion of, the loan balance even though partial recovery

may

be realized in the future.

The following tables present the recorded investment of the loan portfolio, by loan class and credit quality, as of the dates indicated. Losses on covered loans are generally reimbursable by the FDIC at the applicable loss share percentage,

80%;

therefore, covered loans are disclosed separately.

	December 31, 2019
			Special
(Amounts in thousands)	Pass		Mention		Substandard		Doubtful		Loss		Total
Non-covered loans
Commercial loans
Construction, development, and other land	$	45,781	$	2,079	$	799	$	-	$	-	$	48,659
Commercial and industrial		135,651		4,327		2,984		-		-		142,962
Multi-family residential		118,045		2,468		1,327		-		-		121,840
Single family non-owner occupied		149,916		7,489		5,776		-		-		163,181
Non-farm, non-residential		683,481		27,160		16,620		-		-		727,261
Agricultural		11,299		122		335		-		-		11,756
Farmland		17,609		4,107		1,439		-		-		23,155
Consumer real estate loans
Home equity lines		106,246		2,014		1,818		-		-		110,078
Single family owner occupied		580,580		17,001		23,116		-		-		620,697
Owner occupied construction		16,341		179		721		-		-		17,241
Consumer and other loans
Consumer loans		108,065		1,341		621		-		-		110,027
Other		4,742		-		-		-		-		4,742
Total non-covered loans		1,977,756		68,287		55,556		-		-		2,101,599
Covered loans
Commercial loans
Construction, development, and other land		-		28		-		-		-		28
Single family non-owner occupied		199		-		-		-		-		199
Non-farm, non-residential		-		-		3		-		-		3
Consumer real estate loans
Home equity lines		7,177		2,327		349		-		-		9,853
Single family owner occupied		2,111		275		392		-		-		2,778
Total covered loans		9,487		2,630		744		-		-		12,861
Total loans	$	1,987,243	$	70,917	$	56,300	$	-	$	-	$	2,114,460

	December 31, 2018
			Special
(Amounts in thousands)	Pass		Mention		Substandard		Doubtful		Loss		Total
Non-covered loans
Commercial loans
Construction, development, and other land	$	61,877	$	661	$	970	$	-	$	-	$	63,508
Commercial and industrial		102,044		2,166		653		-		-		104,863
Multi-family residential		104,183		1,087		1,742		-		-		107,012
Single family non-owner occupied		131,443		4,395		4,259		-		-		140,097
Non-farm, non-residential		595,659		8,166		9,906		146		-		613,877
Agricultural		8,328		131		86		-		-		8,545
Farmland		16,898		538		1,469		-		-		18,905
Consumer real estate loans
Home equity lines		91,194		649		1,623		-		-		93,466
Single family owner occupied		482,794		4,355		23,814		-		-		510,963
Owner occupied construction		17,872		-		299		-		-		18,171
Consumer and other loans
Consumer loans		71,240		4		308		-		-		71,552
Other		5,310		-		-		-		-		5,310
Total non-covered loans		1,688,842		22,152		45,129		146		-		1,756,269
Covered loans
Commercial loans
Construction, development, and other land		-		35		-		-		-		35
Single family non-owner occupied		223		-		15		-		-		238
Non-farm, non-residential		-		-		6		-		-		6
Consumer real estate loans
Home equity lines		9,511		5,244		529		-		-		15,284
Single family owner occupied		2,507		355		390		-		-		3,252
Total covered loans		12,241		5,634		940		-		-		18,815
Total loans	$	1,701,083	$	27,786	$	46,069	$	146	$	-	$	1,775,084

The Company identifies loans for potential impairment through a variety of means, including, but

not

limited to, ongoing loan review, renewal processes, delinquency data, market communications, and public information. If the Company determines that it is probable all principal and interest amounts contractually due will

not

be collected, the loan is generally deemed impaired.

The following table presents the recorded investment, unpaid principal balance, and related allowance for loan losses for impaired loans, excluding PCI loans, as of the dates indicated:

	December 31, 2019						December 31, 2018
			Unpaid						Unpaid
	Recorded		Principal		Related		Recorded		Principal		Related
(Amounts in thousands)	Investment		Balance		Allowance		Investment		Balance		Allowance
Impaired loans with no related allowance
Commercial loans
Construction, development, and other land	$	552	$	768	$	-	$	824	$	840	$	-
Commercial and industrial		576		599		-		386		416		-
Multi-family residential		1,254		1,661		-		1,127		1,274		-
Single family non-owner occupied		2,652		3,176		-		2,761		3,095		-
Non-farm, non-residential		4,158		4,762		-		4,154		4,494		-
Agricultural		158		164		-		86		96		-
Farmland		1,437		1,500		-		1,464		1,547		-
Consumer real estate loans
Home equity lines		1,372		1,477		-		1,315		1,451		-
Single family owner occupied		15,588		17,835		-		15,451		18,390		-
Owner occupied construction		648		648		-		225		225		-
Consumer and other loans
Consumer loans		290		294		-		145		156		-
Total impaired loans with no allowance		28,685		32,884		-		27,938		31,984		-

Impaired loans with a related allowance
Commercial loans
Multi-family residential		-		-		-		534		536		230
Non-farm, non-residential		1,241		1,227		292		840		842		235
Consumer real estate loans
Home equity lines		-		-		-		65		68		65
Single family owner occupied		1,246		1,246		353		3,631		3,683		922
Total impaired loans with an allowance		2,487		2,473		645		5,070		5,129		1,452
Total impaired loans (1)	$	31,172	$	35,357	$	645	$	33,008	$	37,113	$	1,452

(

)

Total impaired loans include loans totaling

$24.64

million as of

December 31, 2019,

and

$25.27

million as of

December 31, 2018,

that do

not

meet the Company's evaluation threshold for individual impairment and are therefore collectively evaluated for impairment. During the

first

quarter of

2018,

the Company changed the threshold for quarterly reviews of individual loans that are deemed to be impaired from

$250

thousand to

$500

thousand or greater.

The following table presents the average recorded investment and interest income recognized on impaired loans, excluding PCI loans, for the periods indicated:

	Year Ended December 31,
	2019				2018				2017
(Amounts in thousands)	Interest Income Recognized		Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized		Average Recorded Investment
Impaired loans with no related allowance:
Commercial loans
Construction, development, and other land	$	22	$	704	$	26	$	921	$	56	$	455
Commercial and industrial		34		363		19		383		14		556
Multi-family residential		24		1,356		47		910		53		523
Single family non-owner occupied		123		2,979		123		2,652		106		3,214
Non-farm, non-residential		123		4,683		133		4,828		122		4,052
Agricultural		9		121		-		164		5		124
Farmland		55		1,469		64		1,172		17		853
Consumer real estate loans
Home equity lines		46		1,439		44		1,637		50		1,365
Single family owner occupied		599		16,058		503		15,423		488		15,758
Owner occupied construction		29		308		8		244		8		234
Consumer and other loans
Consumer loans		13		213		9		161		9		75
Total impaired loans with no related allowance		1,077		29,693		976		28,495		928		27,209

Impaired loans with a related allowance:
Commercial loans
Construction, development, and other land		-		-		-		-		-		107
Commercial and industrial		-		-		-		-		103		1,376
Multi-family residential		-		-		2		270		-		-
Single family non-owner occupied		-		-		7		110		27		479
Non-farm, non-residential		48		766		2		809		15		789
Farmland		-		-		-		307		22		442
Consumer real estate loans
Home equity lines		-		-		3		68		-		104
Single family owner occupied		46		1,947		158		5,296		161		4,805
Total impaired loans with a related allowance		94		2,713		172		6,860		328		8,102
Total impaired loans	$	1,171	$	32,406	$	1,148	$	35,355	$	1,256	$	35,311

There were

PCI loan pools that became impaired subsequent to the acquisition of the loans as of

December 31, 2019

2018.

The following tables provide information on impaired PCI loan pools for the dates indicated:

	Year Ended December 31,
	2019		2018		2017
(Amounts in thousands)
Interest income recognized	$	-	$	-	$	20
Average recorded investment		-		-		528

The Company generally places a loan on nonaccrual status when it is

days or more past due. PCI loans are generally

not

classified as nonaccrual due to the accrual of interest income under the accretion method of accounting. The following table presents nonaccrual loans, by loan class, as of the dates indicated:

	December 31, 2019						December 31, 2018
(Amounts in thousands)	Non-covered		Covered		Total		Non-covered		Covered		Total
Commercial loans
Construction, development, and other land	$	211	$	-	$	211	$	413	$	-	$	413
Commercial and industrial		530		-		530		428		-		428
Multi-family residential		1,144		-		1,144		1,395		-		1,395
Single family non-owner occupied		1,286		-		1,286		1,696		15		1,711
Non-farm, non-residential		3,400		-		3,400		4,020		-		4,020
Agricultural		158		-		158		86		-		86
Farmland		713		-		713		711		-		711
Consumer real estate loans
Home equity lines		753		220		973		614		271		885
Single family owner occupied		7,259		24		7,283		10,141		36		10,177
Owner occupied construction		428		-		428		-		-		-
Consumer and other loans
Consumer loans		231		-		231		79		-		79
Total nonaccrual loans	$	16,113	$	244	$	16,357	$	19,583	$	322	$	19,905

The following tables present the aging of past due loans, by loan class, as of the dates indicated. Nonaccrual loans

days or more past due are included in the applicable delinquency category. Loans acquired with credit deterioration, with a discount, continue to accrue interest based on expected cash flows; therefore, PCI loans are

not

generally considered nonaccrual. Non-covered accruing loans contractually past due

days or more totaled

$144

thousand as of

December 31, 2019,

and

$58

thousand as of

December 31, 2018.

	December 31, 2019
	30 - 59 Days		60 - 89 Days		90+ Days		Total		Current		Total
(Amounts in thousands)	Past Due		Past Due		Past Due		Past Due		Loans		Loans
Non-covered loans
Commercial loans
Construction, development, and other land	$	63	$	65	$	211	$	339	$	48,320	$	48,659
Commercial and industrial		1,913		238		507		2,658		140,304		142,962
Multi-family residential		375		-		1,144		1,519		120,321		121,840
Single family non-owner occupied		754		267		661		1,682		161,499		163,181
Non-farm, non-residential		917		1,949		3,027		5,893		721,368		727,261
Agricultural		86		164		-		250		11,506		11,756
Farmland		856		349		664		1,869		21,286		23,155
Consumer real estate loans
Home equity lines		1,436		165		503		2,104		107,974		110,078
Single family owner occupied		7,728		2,390		3,766		13,884		606,813		620,697
Owner occupied construction		207		-		428		635		16,606		17,241
Consumer and other loans
Consumer loans		1,735		439		202		2,376		107,651		110,027
Other		22		-		-		22		4,720		4,742
Total non-covered loans		16,092		6,026		11,113		33,231		2,068,368		2,101,599
Covered loans
Commercial loans
Construction, development, and other land		-		-		-		-		28		28
Single family non-owner occupied		-		-		-		-		199		199
Non-farm, non-residential		-		-		-		-		3		3
Consumer real estate loans
Home equity lines		144		28		-		172		9,681		9,853
Single family owner occupied		-		50		-		50		2,728		2,778
Total covered loans		144		78		-		222		12,639		12,861
Total loans	$	16,236	$	6,104	$	11,113	$	33,453	$	2,081,007	$	2,114,460

	December 31, 2018
	30 - 59 Days		60 - 89 Days		90+ Days		Total		Current		Total
(Amounts in thousands)	Past Due		Past Due		Past Due		Past Due		Loans		Loans
Non-covered loans
Commercial loans
Construction, development, and other land	$	111	$	-	$	407	$	518	$	62,990	$	63,508
Commercial and industrial		306		-		262		568		104,295		104,863
Multi-family residential		113		-		1,274		1,387		105,625		107,012
Single family non-owner occupied		514		1,115		992		2,621		137,476		140,097
Non-farm, non-residential		1,332		540		2,398		4,270		609,607		613,877
Agricultural		109		-		-		109		8,436		8,545
Farmland		640		-		392		1,032		17,873		18,905
Consumer real estate loans
Home equity lines		408		209		334		951		92,515		93,466
Single family owner occupied		5,006		3,495		4,445		12,946		498,017		510,963
Owner occupied construction		-		-		-		-		18,171		18,171
Consumer and other loans
Consumer loans		507		200		59		766		70,786		71,552
Other		-		-		-		-		5,310		5,310
Total non-covered loans		9,046		5,559		10,563		25,168		1,731,101		1,756,269
Covered loans
Commercial loans
Construction, development, and other land		-		-		-		-		35		35
Single family non-owner occupied		15		-		-		15		223		238
Non-farm, non-residential		-		-		-		-		6		6
Consumer real estate loans
Home equity lines		176		38		91		305		14,979		15,284
Single family owner occupied		166		-		-		166		3,086		3,252
Total covered loans		357		38		91		486		18,329		18,815
Total loans	$	9,403	$	5,597	$	10,654	$	25,654	$	1,749,430	$	1,775,084

The Company

may

make concessions in interest rates, loan terms and/or amortization terms when restructuring loans for borrowers experiencing financial difficulty. Restructured loans in excess of

$250

thousand are evaluated for a specific reserve based on either the collateral or net present value method, whichever is most applicable. Restructured loans under

$250

thousand are subject to the reserve calculation at the historical loss rate for classified loans. Certain TDRs are classified as nonperforming at the time of restructuring and are returned to performing status after

six

months of satisfactory payment performance; however, these loans remain identified as impaired until full payment or other satisfaction of the obligation occurs. PCI loans are generally

not

considered TDRs as long as the loans remain in the assigned loan pool.

covered loans were recorded as TDRs as of

December 31, 2019

2018.

The following table presents loans modified as TDRs, by loan class and accrual status, as of the dates indicated:

	December 31,
	2019						2018
(Amounts in thousands)	Nonaccrual (1)		Accruing		Total		Nonaccrual (1)		Accruing		Total
Commercial loans
Single family non-owner occupied	$	552	$	595	$	1,147	$	640	$	309	$	949
Non-farm, non-residential		-		307		307		-		314		314
Consumer real estate loans
Home equity lines		-		115		115		-		127		127
Single family owner occupied		1,790		5,305		7,095		1,941		5,417		7,358
Owner occupied construction		-		221		221		-		225		225
Consumer and other loans
Consumer loans		-		32		32		-		35		35
Total TDRs	$	2,342	$	6,575	$	8,917	$	2,581	$	6,427	$	9,008

Allowance for loan losses related to TDRs					$	353					$	568

(

)

Nonaccrual TDRs are included in total nonaccrual loans disclosed in the nonaccrual table above.

The following table presents interest income recognized on TDRs for the periods indicated:

	Year Ended December 31,
	2019		2018		2017
(Amounts in thousands)
Interest income recognized	$	277	$	264	$	222

The following table presents loans modified as TDRs, by type of concession made and loan class, that were restructured during the periods indicated.

	Year Ended December 31,
	2019						2018
(Amounts in thousands)	Total Contracts		Pre-modification Recorded Investment		Post-modification Recorded Investment (1)		Total Contracts		Pre-modification Recorded Investment		Post-modification Recorded Investment (1)
Below market interest rate
Single family owner occupied		-	$	-	$	-		1	$	11	$	11
Below market interest rate and extended payment term
Single family owner occupied		6		887		871		1		41		41
Principal deferral
Home equity		1		5		2
Single family owner occupied		3		331		279		-		-		-
Total principal deferral		4		336		281		-		-		-
Total		10	$	1,223	$	1,152		2	$	52	$	52

The following table presents loans modified as TDRs, by loan class, that were restructured within the previous

months for which there was a payment default during the periods indicated:

	Year Ended December 31,
	2019				2018
	Total		Recorded		Total		Recorded
	Contracts		Investment		Contracts		Investment
(Amounts in thousands)
Single family owner occupied		-	$	-		1	$	521
Total		-	$	-		1	$	521

The following table provides information about OREO, which consists of properties acquired through foreclosure, as of the dates indicated:

	December 31, 2019		December 31, 2018
(Amounts in thousands)
Non-covered OREO	$	3,969	$	3,806
Covered OREO		-		32
Total OREO	$	3,969	$	3,838

Non-covered OREO secured by residential real estate	$	2,232	$	2,303
Residential real estate loans in the foreclosure process (1)		1,539		6,349

(

)

The recorded investment in consumer mortgage loans collateralized by residential real estate that are in the process of foreclosure according to local requirements of the applicable jurisdiction