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.

	March 31, 2018
			Special
(Amounts in thousands)	Pass		Mention		Substandard		Doubtful		Loss		Total
Non-covered loans
Commercial loans
Construction, development, and other land	$	50,157	$	951	$	1,156	$	-	$	-	$	52,264
Commercial and industrial		86,653		3,373		335		-		-		90,361
Multi-family residential		117,038		2,583		1,035		-		-		120,656
Single family non-owner occupied		131,129		6,903		4,195		-		-		142,227
Non-farm, non-residential		596,704		11,750		10,245		173		-		618,872
Agricultural		8,865		198		287		-		-		9,350
Farmland		20,885		205		2,477		-		-		23,567
Consumer real estate loans
Home equity lines		99,123		601		1,752		-		-		101,476
Single family owner occupied		475,892		5,088		25,388		-		-		506,368
Owner occupied construction		29,213		-		305		-		-		29,518
Consumer and other loans
Consumer loans		68,353		6		175		-		-		68,534
Other		4,510		-		-		-		-		4,510
Total non-covered loans		1,688,522		31,658		47,350		173		-		1,767,703
Covered loans
Commercial loans
Construction, development, and other land		-		37		-		-		-		37
Single family non-owner occupied		259		-		18		-		-		277
Non-farm, non-residential		-		-		9		-		-		9
Consumer real estate loans
Home equity lines		10,789		9,714		935		-		-		21,438
Single family owner occupied		2,856		387		402		-		-		3,645
Total covered loans		13,904		10,138		1,364		-		-		25,406
Total loans	$	1,702,426	$	41,796	$	48,714	$	173	$	-	$	1,793,109

	December 31, 2017
			Special
(Amounts in thousands)	Pass		Mention		Substandard		Doubtful		Loss		Total
Non-covered loans
Commercial loans
Construction, development, and other land	$	57,768	$	1,367	$	882	$	-	$	-	$	60,017
Commercial and industrial		87,181		3,721		1,286		-		-		92,188
Multi-family residential		118,509		5,663		1,030		-		-		125,202
Single family non-owner occupied		130,689		7,271		3,710		-		-		141,670
Non-farm, non-residential		596,616		12,493		7,351		173		-		616,633
Agricultural		6,639		294		102		-		-		7,035
Farmland		22,875		210		2,564		-		-		25,649
Consumer real estate loans
Home equity lines		100,833		618		1,754		-		-		103,205
Single family owner occupied		471,382		5,480		25,824		-		-		502,686
Owner occupied construction		38,947		-		231		-		-		39,178
Consumer and other loans
Consumer loans		70,448		13		311		-		-		70,772
Other		5,001		-		-		-		-		5,001
Total non-covered loans		1,706,888		37,130		45,045		173		-		1,789,236
Covered loans
Commercial loans
Construction, development, and other land		1		38		-		-		-		39
Single family non-owner occupied		265		-		19		-		-		284
Non-farm, non-residential		-		-		9		-		-		9
Consumer real estate loans
Home equity lines		11,338		11,685		697		-		-		23,720
Single family owner occupied		2,996		411		489		-		-		3,896
Total covered loans		14,600		12,134		1,214		-		-		27,948
Total loans	$	1,721,488	$	49,264	$	46,259	$	173	$	-	$	1,817,184

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:

	March 31, 2018						December 31, 2017
			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	$	976	$	1,160	$	-	$	727	$	988	$	-
Commercial and industrial		152		930		-		315		1,142		-
Multi-family residential		663		1,172		-		499		1,010		-
Single family non-owner occupied		2,406		3,642		-		2,042		3,521		-
Non-farm, non-residential		5,714		8,338		-		3,022		5,955		-
Agricultural		287		293		-		102		107		-
Farmland		897		959		-		395		414		-
Consumer real estate loans
Home equity lines		1,743		1,928		-		1,621		1,770		-
Single family owner occupied		15,191		17,558		-		16,633		18,964		-
Owner occupied construction		230		230		-		231		231		-
Consumer and other loans
Consumer loans		75		77		-		141		144		-
Total impaired loans with no allowance		28,334		36,287		-		25,728		34,246		-

Impaired loans with a related allowance
Commercial loans
Construction, development, and other land		-		-		-		-		-		-
Commercial and industrial		-		-		-		343		343		270
Single family non-owner occupied		444		444		60		446		446		62
Non-farm, non-residential		1,378		1,378		591		262		263		15
Farmland		410		418		105		936		974		233
Consumer real estate loans
Home equity lines		73		73		73		-		-		-
Single family owner occupied		5,543		5,543		2,065		5,586		5,606		1,978
Total impaired loans with an allowance		7,848		7,856		2,894		7,573		7,632		2,558
Total impaired loans (1)	$	36,182	$	44,143	$	2,894	$	33,301	$	41,878	$	2,558

(

)

Includes loans totaling

$25.06

million as of

March 31, 2018,

and

$20.13

million as of

December 31, 2017,

that do

not

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

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

	Three Months Ended March 31,
	2018				2017
(Amounts in thousands)	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	$	13	$	1,116	$	-	$	11
Commercial and industrial		1		585		2		330
Multi-family residential		10		799		-		356
Single family non-owner occupied		23		2,960		43		3,326
Non-farm, non-residential		39		7,109		4		2,725
Agricultural		-		283		-		126
Farmland		9		438		-		1,006
Consumer real estate loans
Home equity lines		7		1,806		15		1,042
Single family owner occupied		107		15,586		87		12,203
Owner occupied construction		3		227		3		233
Consumer and other loans
Consumer loans		1		76		-		50
Total impaired loans with no related allowance		213		30,985		154		21,408

Impaired loans with a related allowance:
Commercial loans
Construction, development, and other land		-		-		-		428
Commercial and industrial		-		-		15		312
Single family non-owner occupied		7		439		8		343
Non-farm, non-residential		-		166		10		1,154
Farmland		-		404		-		-
Consumer real estate loans
Home equity lines		-		72		-		417
Single family owner occupied		32		5,474		35		6,373
Owner occupied construction		-		-		-		-
Total impaired loans with a related allowance		39		6,555		68		9,027
Total impaired loans	$	252	$	37,540	$	222	$	30,435

There were

impaired PCI loan pools as of

March 31, 2018,

December 31, 2017.

The following table provides information on impaired PCI loan pools for the dates indicated:

	Three Months Ended March 31,
	2018		2017
(Amounts in thousands)
Interest income recognized	$	-	$	10
Average recorded investment		-		1,075

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:

	March 31, 2018						December 31, 2017
(Amounts in thousands)	Non-covered		Covered		Total		Non-covered		Covered		Total
Commercial loans
Construction, development, and other land	$	382	$	-	$	382	$	-	$	-	$	-
Commercial and industrial		124		-		124		211		-		211
Multi-family residential		663		-		663		498		-		498
Single family non-owner occupied		974		18		992		851		19		870
Non-farm, non-residential		4,839		-		4,839		2,448		-		2,448
Agricultural		287		-		287		102		-		102
Farmland		785		-		785		805		-		805
Consumer real estate loans
Home equity lines		826		563		1,389		882		306		1,188
Single family owner occupied		12,741		15		12,756		13,108		17		13,125
Owner occupied construction		-		-		-		-		-		-
Consumer and other loans
Consumer loans		29		-		29		92		-		92
Total nonaccrual loans	$	21,650	$	596	$	22,246	$	18,997	$	342	$	19,339

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

$27

thousand as of

March 31, 2018,

and

thousand as of

December 31, 2017.

	March 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	$	7	$	11	$	382	$	400	$	51,864	$	52,264
Commercial and industrial		55		77		43		175		90,186		90,361
Multi-family residential		-		240		360		600		120,056		120,656
Single family non-owner occupied		753		440		323		1,516		140,711		142,227
Non-farm, non-residential		1,243		243		4,282		5,768		613,104		618,872
Agricultural		229		-		185		414		8,936		9,350
Farmland		965		-		410		1,375		22,192		23,567
Consumer real estate loans
Home equity lines		653		42		412		1,107		100,369		101,476
Single family owner occupied		3,580		3,037		7,084		13,701		492,667		506,368
Owner occupied construction		96		64		-		160		29,358		29,518
Consumer and other loans
Consumer loans		426		53		-		479		68,055		68,534
Other		-		-		-		-		4,510		4,510
Total non-covered loans		8,007		4,207		13,481		25,695		1,742,008		1,767,703
Covered loans
Commercial loans
Construction, development, and other land		-		-		-		-		37		37
Single family non-owner occupied		18		-		-		18		259		277
Non-farm, non-residential		-		-		-		-		9		9
Consumer real estate loans
Home equity lines		540		5		302		847		20,591		21,438
Single family owner occupied		65		-		-		65		3,580		3,645
Total covered loans		623		5		302		930		24,476		25,406
Total loans	$	8,630	$	4,212	$	13,783	$	26,625	$	1,766,484	$	1,793,109

	December 31, 2017
	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	$	20	$	365	$	-	$	385	$	59,632	$	60,017
Commercial and industrial		232		40		142		414		91,774		92,188
Multi-family residential		544		-		185		729		124,473		125,202
Single family non-owner occupied		223		302		331		856		140,814		141,670
Non-farm, non-residential		2,433		383		1,536		4,352		612,281		616,633
Agricultural		123		-		-		123		6,912		7,035
Farmland		113		-		692		805		24,844		25,649
Consumer real estate loans
Home equity lines		226		198		485		909		102,296		103,205
Single family owner occupied		6,959		2,418		8,186		17,563		485,123		502,686
Owner occupied construction		326		79		-		405		38,773		39,178
Consumer and other loans
Consumer loans		439		97		17		553		70,219		70,772
Other		-		-		-		-		5,001		5,001
Total non-covered loans		11,638		3,882		11,574		27,094		1,762,142		1,789,236
Covered loans
Commercial loans
Construction, development, and other land		-		-		-		-		39		39
Single family non-owner occupied		-		-		-		-		284		284
Non-farm, non-residential		-		-		-		-		9		9
Consumer real estate loans
Home equity lines		402		-		173		575		23,145		23,720
Single family owner occupied		70		-		-		70		3,826		3,896
Total covered loans		472		-		173		645		27,303		27,948
Total loans	$	12,110	$	3,882	$	11,747	$	27,739	$	1,789,445	$	1,817,184

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

March 31, 2018,

December 31, 2017.

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

	March 31, 2018						December 31, 2017
(Amounts in thousands)	Nonaccrual (1)		Accruing		Total		Nonaccrual (1)		Accruing		Total
Commercial loans
Single family non-owner occupied	$	348	$	521	$	869	$	364	$	528	$	892
Non-farm, non-residential		-		291		291		-		295		295
Consumer real estate loans
Home equity lines		-		138		138		-		145		145
Single family owner occupied		1,658		6,081		7,739		1,565		6,496		8,061
Owner occupied construction		-		230		230		-		233		233
Consumer and other loans
Consumer loans		-		36		36		-		37		37
Total TDRs	$	2,006	$	7,297	$	9,303	$	1,929	$	7,734	$	9,663

Allowance for loan losses related to TDRs					$	648					$	642

(

)

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:

	Three Months Ended March 31,
	2018		2017
(Amounts in thousands)
Interest income recognized	$	70	$	84

There were

loans modified as TDRs during the

three

months ended

March 31, 2018,

2017.

There were

payment defaults on loans modified as TDRs that were restructured within the previous

months as of

March 31, 2018

2017.

The following table provides information about other real estate owned (“OREO”), which consists of properties acquired through foreclosure, as of the dates indicated:

	March 31, 2018		December 31, 2017
(Amounts in thousands)
Non-covered OREO	$	4,620	$	2,409
Covered OREO		70		105
Total OREO	$	4,690	$	2,514

Non-covered OREO secured by residential real estate	$	2,812	$	2,209
Residential real estate loans in the foreclosure process (1)		8,221		9,921

(

)

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