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.

	September 30, 2018
			Special
(Amounts in thousands)	Pass		Mention		Substandard		Doubtful		Loss		Total
Non-covered loans
Commercial loans
Construction, development, and other land	$	60,665	$	800	$	1,192	$	-	$	-	$	62,657
Commercial and industrial		102,590		2,187		826		-		-		105,603
Multi-family residential		106,488		4,077		2,145		-		-		112,710
Single family non-owner occupied		133,820		4,500		4,271		-		-		142,591
Non-farm, non-residential		588,273		8,556		9,825		146		-		606,800
Agricultural		8,716		198		102		-		-		9,016
Farmland		18,427		626		1,819		-		-		20,872
Consumer real estate loans
Home equity lines		94,401		648		1,770		-		-		96,819
Single family owner occupied		491,179		4,562		24,622		-		-		520,363
Owner occupied construction		17,588		-		301		-		-		17,889
Consumer and other loans
Consumer loans		69,611		5		354		-		4		69,974
Other		5,132		-		-		-		-		5,132
Total non-covered loans		1,696,890		26,159		47,227		146		4		1,770,426
Covered loans
Commercial loans
Construction, development, and other land		-		35		-		-		-		35
Single family non-owner occupied		230		-		15		-		-		245
Non-farm, non-residential		-		-		7		-		-		7
Consumer real estate loans
Home equity lines		9,864		6,329		611		-		-		16,804
Single family owner occupied		2,610		372		410		-		-		3,392
Total covered loans		12,704		6,736		1,043		-		-		20,483
Total loans	$	1,709,594	$	32,895	$	48,270	$	146	$	4	$	1,790,909

	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:

	September 30, 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	$	903	$	918	$	-	$	727	$	988	$	-
Commercial and industrial		300		321		-		315		1,142		-
Multi-family residential		1,380		1,445		-		499		1,010		-
Single family non-owner occupied		2,448		2,782		-		2,042		3,521		-
Non-farm, non-residential		3,859		4,759		-		3,022		5,955		-
Agricultural		102		107		-		102		107		-
Farmland		1,404		1,478		-		395		414		-
Consumer real estate loans
Home equity lines		1,451		1,589		-		1,621		1,770		-
Single family owner occupied		14,963		17,868		-		16,633		18,964		-
Owner occupied construction		227		227		-		231		231		-
Consumer and other loans
Consumer loans		203		209		-		141		144		-
Total impaired loans with no allowance		27,240		31,703		-		25,728		34,246		-

Impaired loans with a related allowance
Commercial loans
Commercial and industrial		-		-		-		343		343		270
Multi-family residential		536		536		235		-		-		-
Single family non-owner occupied		842		842		238		446		446		62
Non-farm, non-residential		-		-		-		262		263		15
Farmland		410		418		158		936		974		233
Consumer real estate loans
Home equity lines		65		68		66		-		-		-
Single family owner occupied		4,907		4,951		1,017		5,586		5,606		1,978
Total impaired loans with an allowance		6,760		6,815		1,714		7,573		7,632		2,558
Total impaired loans (1)	$	34,000	$	38,518	$	1,714	$	33,301	$	41,878	$	2,558

________________________________________________________________________________________________

(

)

Total impaired loans include loans totaling

$25.42

million as of

September 30, 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. 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:

	Three Months Ended September 30,								Nine Months Ended September 30,
	2018				2017				2018				2017
(Amounts in thousands)	Interest Income Recognized		Average Recorded Investment		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	$	-	$	910	$	32	$	907	$	14	$	950	$	32	$	309
Commercial and industrial		3		311		5		754		6		378		8		468
Multi-family residential		5		1,402		-		509		15		832		3		474
Single family non-owner occupied		8		2,529		11		3,304		56		2,599		88		3,313
Non-farm, non-residential		-		3,926		68		5,244		39		5,028		93		3,766
Agricultural		-		103		4		127		-		187		4		127
Farmland		23		1,425		17		1,003		38		1,066		17		1,004
Consumer real estate loans
Home equity lines		3		1,514		15		1,683		20		1,719		35		1,259
Single family owner occupied		15		15,832		137		17,478		208		15,222		317		15,209
Owner occupied construction		-		229		1		235		6		249		6		234
Consumer and other loans
Consumer loans		-		210		1		62		6		164		3		52
Total impaired loans with no related allowance		57		28,391		291		31,306		408		28,394		606		26,215

Impaired loans with a related allowance:
Commercial loans
Construction, development, and other land		-		-		-		-		-		-		-		143
Commercial and industrial		-		-		50		2,516		-		-		103		1,727
Multi-family residential		-		541		-		-		-		271		-		-
Single family non-owner occupied		-		849		8		778		7		644		21		488
Non-farm, non-residential		-		-		-		872		-		770		15		964
Farmland		-		413		-		413		-		409		-		275
Consumer real estate loans
Home equity lines		1		67		-		-		3		69		-		139
Single family owner occupied		35		4,999		24		3,814		126		5,838		92		4,527
Owner occupied construction		-		-		-		-		-		-		-		1
Total impaired loans with a related allowance		36		6,869		82		8,393		136		8,001		231		8,264
Total impaired loans	$	93	$	35,260	$	373	$	39,699	$	544	$	36,395	$	837	$	34,479

There were

impaired PCI loan pools as of

September 30, 2018,

December 31, 2017.

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

	Three Months Ended September 30,				Nine Months Ended September 30,
	2018		2017		2018		2017
(Amounts in thousands)
Interest income recognized	$	-	$	-	$	-	$	20
Average recorded investment		-		-		-		705

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:

	September 30, 2018						December 31, 2017
(Amounts in thousands)	Non-covered		Covered		Total		Non-covered		Covered		Total
Commercial loans
Construction, development, and other land	$	485	$	-	$	485	$	-	$	-	$	-
Commercial and industrial		284		-		284		211		-		211
Multi-family residential		1,861		-		1,861		498		-		498
Single family non-owner occupied		1,328		15		1,343		851		19		870
Non-farm, non-residential		3,960		-		3,960		2,448		-		2,448
Agricultural		102		-		102		102		-		102
Farmland		1,055		-		1,055		805		-		805
Consumer real estate loans
Home equity lines		758		277		1,035		882		306		1,188
Single family owner occupied		10,574		38		10,612		13,108		17		13,125
Consumer and other loans
Consumer loans		135		-		135		92		-		92
Total nonaccrual loans	$	20,542	$	330	$	20,872	$	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

$46

thousand as of

September 30, 2018,

compared to

thousand as of

December 31, 2017.

	September 30, 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	$	87	$	-	$	478	$	565	$	62,092	$	62,657
Commercial and industrial		174		260		216		650		104,953		105,603
Multi-family residential		148		-		1,515		1,663		111,047		112,710
Single family non-owner occupied		762		281		881		1,924		140,667		142,591
Non-farm, non-residential		795		74		2,559		3,428		603,372		606,800
Agricultural		-		-		-		-		9,016		9,016
Farmland		201		321		410		932		19,940		20,872
Consumer real estate loans
Home equity lines		379		199		499		1,077		95,742		96,819
Single family owner occupied		3,247		1,802		3,938		8,987		511,376		520,363
Owner occupied construction		90		-		-		90		17,799		17,889
Consumer and other loans
Consumer loans		484		169		117		770		69,204		69,974
Other		-		-		-		-		5,132		5,132
Total non-covered loans		6,367		3,106		10,613		20,086		1,750,340		1,770,426
Covered loans
Commercial loans
Construction, development, and other land		-		-		-		-		35		35
Single family non-owner occupied		-		-		-		-		245		245
Non-farm, non-residential		-		-		-		-		7		7
Consumer real estate loans
Home equity lines		184		239		26		449		16,355		16,804
Single family owner occupied		59		-		30		89		3,303		3,392
Total covered loans		243		239		56		538		19,945		20,483
Total loans	$	6,610	$	3,345	$	10,669	$	20,624	$	1,770,285	$	1,790,909

	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

September 30, 2018,

December 31, 2017.

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

	September 30, 2018						December 31, 2017
(Amounts in thousands)	Nonaccrual (1)		Accruing		Total		Nonaccrual (1)		Accruing		Total
Commercial loans
Single family non-owner occupied	$	332	$	311	$	643	$	364	$	528	$	892
Non-farm, non-residential		-		315		315		-		295		295
Consumer real estate loans
Home equity lines		-		130		130		-		145		145
Single family owner occupied		1,881		6,124		8,005		1,565		6,496		8,061
Owner occupied construction		-		227		227		-		233		233
Consumer and other loans
Consumer loans		-		35		35		-		37		37
Total TDRs	$	2,213	$	7,142	$	9,355	$	1,929	$	7,734	$	9,663

Allowance for loan losses related to TDRs					$	632					$	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 September 30,				Nine Months Ended September 30,
	2018		2017		2018		2017
(Amounts in thousands)
Interest income recognized	$	73	$	74	$	207	$	159

The following tables present loans modified as TDRs, by type of concession made and loan class, that were restructured during the periods indicated:

	Three Months Ended September 30,
	2018						2017
(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		-		-		-		1		42		42
Total		1	$	11	$	11		1	$	42	$	42

________________________________________________________________________

(

) Represents the loan balance immediately following modification

	Nine Months Ended September 30,
	2018						2017
(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		1		41		41		3		141		141
Total		2	$	52	$	52		3	$	141	$	141

________________________________________________________________________

(

) Represents the loan balance immediately following modification

There were

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

months as of

September 30, 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:

	September 30, 2018		December 31, 2017
(Amounts in thousands)
Non-covered OREO	$	4,754	$	2,409
Covered OREO		44		105
Total OREO	$	4,798	$	2,514

Non-covered OREO secured by residential real estate	$	3,331	$	2,209
Residential real estate loans in the foreclosure process (1)		7,129		9,921


( 1 )	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