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.

	June 30, 2019
			Special
(Amounts in thousands)	Pass		Mention		Substandard		Doubtful		Loss		Total
Non-covered loans
Commercial loans
Construction, development, and other land	$	60,835	$	587	$	733	$	-	$	-	$	62,155
Commercial and industrial		89,541		1,722		1,041		-		-		92,304
Multi-family residential		98,396		832		1,341		-		-		100,569
Single family non-owner occupied		129,951		3,750		5,479		-		-		139,180
Non-farm, non-residential		579,747		5,307		11,019		90		-		596,163
Agricultural		8,948		100		414		-		-		9,462
Farmland		15,272		519		1,531		-		-		17,322
Consumer real estate loans
Home equity lines		85,707		636		1,751		-		-		88,094
Single family owner occupied		465,864		3,814		23,877		-		-		493,555
Owner occupied construction		13,134		-		621		-		-		13,755
Consumer and other loans
Consumer loans		87,917		10		425		-		-		88,352
Other		4,497		-		-		-		-		4,497
Total non-covered loans		1,639,809		17,277		48,232		90		-		1,705,408
Covered loans
Commercial loans
Construction, development, and other land		-		31		-		-		-		31
Single family non-owner occupied		212		-		12		-		-		224
Non-farm, non-residential		5		-		-		-		-		5
Consumer real estate loans
Home equity lines		8,126		3,803		325		-		-		12,254
Single family owner occupied		2,289		334		383		-		-		3,006
Total covered loans		10,632		4,168		720		-		-		15,520
Total loans	$	1,650,441	$	21,445	$	48,952	$	90	$	-	$	1,720,928

	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:

	June 30, 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	$	600	$	815	$	-	$	824	$	840	$	-
Commercial and industrial		139		160		-		386		416		-
Multi-family residential		1,265		1,666		-		1,127		1,274		-
Single family non-owner occupied		2,980		3,495		-		2,761		3,095		-
Non-farm, non-residential		4,968		5,685		-		4,154		4,494		-
Agricultural		47		49		-		86		96		-
Farmland		1,257		1,529		-		1,464		1,547		-
Consumer real estate loans
Home equity lines		1,467		1,575		-		1,315		1,451		-
Single family owner occupied		15,650		17,730		-		15,451		18,390		-
Owner occupied construction		223		223		-		225		225		-
Consumer and other loans
Consumer loans		137		141		-		145		156		-
Total impaired loans with no allowance		28,733		33,068		-		27,938		31,984		-

Impaired loans with a related allowance
Commercial loans
Commercial and industrial		-		-		-		-		-		-
Multi-family residential		-		-		-		534		536		230
Single family non-owner occupied		-		-		-		-		-		-
Non-farm, non-residential		670		670		175		840		842		235
Farmland		-		-		-		-		-		-
Consumer real estate loans
Home equity lines		-		-		-		65		68		65
Single family owner occupied		2,981		2,981		764		3,631		3,683		922
Total impaired loans with an allowance		3,651		3,651		939		5,070		5,129		1,452
Total impaired loans (1)	$	32,384	$	36,719	$	939	$	33,008	$	37,113	$	1,452

(

)

Total impaired loans include loans totaling

$21.52

million as of

June 30, 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.

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 June 30,								Six Months Ended June 30,
	2019				2018				2019				2018
(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	$	5	$	790	$	1	$	823	$	12	$	795	$	14	$	969
Commercial and industrial		2		149		2		237		5		383		3		411
Multi-family residential		7		1,269		-		296		16		1,444		10		547
Single family non-owner occupied		28		3,237		25		2,307		56		3,116		48		2,634
Non-farm, non-residential		47		5,230		-		4,048		64		4,953		39		5,579
Agricultural		-		48		-		175		2		51		-		229
Farmland		10		1,438		6		1,336		26		1,444		15		887
Consumer real estate loans
Home equity lines		7		1,484		10		1,837		14		1,446		17		1,822
Single family owner occupied		154		15,838		86		14,247		278		15,889		193		14,917
Owner occupied construction		2		223		3		292		4		222		6		259
Consumer and other loans
Consumer loans		3		137		5		207		4		121		6		141
Total impaired loans with no related allowance		265		29,843		138		25,805		481		29,864		351		28,395

Impaired loans with a related allowance:
Commercial loans
Construction, development, and other land		-		-		-		-		-		-		-		-
Commercial and industrial		-		-		-		-		-		-		-		-
Single family non-owner occupied		-		-		-		-		-		-		7		439
Non-farm, non-residential		8		553		-		1,374		8		277		-		770
Farmland		-		-		-		409		-		-		-		407
Consumer real estate loans
Home equity lines		-		-		2		68		-		-		2		70
Single family owner occupied		36		2,987		59		7,040		65		2,639		91		6,257
Owner occupied construction		-		-		-		-		-		-		-		-
Total impaired loans with a related allowance		44		3,540		61		8,891		73		2,916		100		7,943
Total impaired loans	$	309	$	33,383	$	199	$	34,696	$	554	$	32,780	$	451	$	36,338

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:

	June 30, 2019						December 31, 2018
(Amounts in thousands)	Non-covered		Covered		Total		Non-covered		Covered		Total
Commercial loans
Construction, development, and other land	$	244	$	-	$	244	$	413	$	-	$	413
Commercial and industrial		87		-		87		428		-		428
Multi-family residential		1,150		-		1,150		1,395		-		1,395
Single family non-owner occupied		1,392		13		1,405		1,696		15		1,711
Non-farm, non-residential		3,302		-		3,302		4,020		-		4,020
Agricultural		47		-		47		86		-		86
Farmland		519		-		519		711		-		711
Consumer real estate loans
Home equity lines		719		185		904		614		271		885
Single family owner occupied		8,824		5		8,829		10,141		36		10,177
Consumer and other loans
Consumer loans		84		-		84		79		-		79
Total nonaccrual loans	$	16,368	$	203	$	16,571	$	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

$37

thousand as of

June 30, 2019,

compared to

$58

thousand as of

December 31, 2018.

	June 30, 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	$	31	$	3	$	241	$	275	$	61,880	$	62,155
Commercial and industrial		150		241		63		454		91,850		92,304
Multi-family residential		-		314		946		1,260		99,309		100,569
Single family non-owner occupied		763		426		962		2,151		137,029		139,180
Non-farm, non-residential		1,507		331		2,906		4,744		591,419		596,163
Agricultural		138		217		-		355		9,107		9,462
Farmland		297		-		469		766		16,556		17,322
Consumer real estate loans
Home equity lines		623		63		513		1,199		86,895		88,094
Single family owner occupied		3,419		1,804		4,098		9,321		484,234		493,555
Owner occupied construction		-		-		-		-		13,755		13,755
Consumer and other loans
Consumer loans		735		143		73		951		87,401		88,352
Other		-		-		-		-		4,497		4,497
Total non-covered loans		7,663		3,542		10,271		21,476		1,683,932		1,705,408
Covered loans
Commercial loans
Construction, development, and other land		-		-		-		-		31		31
Single family non-owner occupied		13		-		-		13		211		224
Non-farm, non-residential		-		-		-		-		5		5
Consumer real estate loans
Home equity lines		652		79		2		733		11,521		12,254
Single family owner occupied		-		-		-		-		3,006		3,006
Total covered loans		665		79		2		746		14,774		15,520
Total loans	$	8,328	$	3,621	$	10,273	$	22,222	$	1,698,706	$	1,720,928

	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

June 30, 2019,

December 31, 2018.

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

	June 30, 2019						December 31, 2018
(Amounts in thousands)	Nonaccrual (1)		Accruing		Total		Nonaccrual (1)		Accruing		Total
Commercial loans
Construction, development, and other land	$	-	$	-	$	-	$	-	$	-	$	-
Single family non-owner occupied		561		604		1,165		640		309		949
Non-farm, non-residential		-		312		312		-		314		314
Consumer real estate loans
Home equity lines		3		119		122		-		127		127
Single family owner occupied		2,163		5,205		7,368		1,941		5,417		7,358
Owner occupied construction		-		223		223		-		225		225
Consumer and other loans
Consumer loans		-		34		34		-		35		35
Total TDRs	$	2,727	$	6,497	$	9,224	$	2,581	$	6,427	$	9,008
Allowance for loan losses related to TDRs					$	475					$	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:

	Three Months Ended June 30,				Six Months Ended
	2019		2018		2019		2018
(Amounts in thousands)
Interest income recognized	$	84	$	64	$	147	$	134

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 June 30,
	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 and extended payment term
Single family owner occupied		1	$	80	$	81		-	$	-	$	-
Single family non-owner occupied		1		185		184		-		-		-
Total below market interest rate and extended payment term		2		265		265		-		-		-
Total		2	$	265	$	265		-	$	-	$	-

(

) Represents the loan balance immediately following modification

	Six Months Ended June 30,
	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 and extended payment term
Single family owner occupied		3	$	454	$	432		-	$	-	$	-
Single family non-owner occupied		2		489		484		-		-		-
Total below market interest rate and extended payment term		5		943		916		-		-		-
Payment deferral
Single family owner occupied		1		66		45		-		-		-
Home equity lines		1		4		3		-		-		-
Total principal deferral		2		70		48		-		-		-
Total		7	$	1,013	$	964		-	$	-	$	-

(

) 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

June 30, 2019

2018.

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

	June 30, 2019		December 31, 2018
(Amounts in thousands)
Non-covered OREO	$	3,810	$	3,806
Covered OREO		152		32
Total OREO	$	3,962	$	3,838
Non-covered OREO secured by residential real estate	$	2,638	$	2,303
Residential real estate loans in the foreclosure process (1)		3,564		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