5.	LOANS AND LEASES AND ALLOWANCE FOR LOAN AND LEASE LOSSES

Portfolio Segments

The Company has divided the loan and lease portfolio into

eight

portfolio segments, each with different risk characteristics described as follows:

Construction, land development and other land loans

– Commercial construction, land and land development loans include the development of residential housing projects, loans for the development of commercial and industrial use property and loans for the purchase and improvement of raw land. These loans are secured in whole or in part by the underlying real estate collateral and are generally guaranteed by the principals of the borrowing entity.

Secured by

family residential properties

– These loans include conventional mortgage loans on

one

-to-

four

family residential properties. These properties

may

serve as the borrower’s primary residence, vacation home or investment property. Also included in this portfolio are home equity loans and lines of credit. This type of lending, which is secured by a

first

second

mortgage on the borrower’s residence, allows customers to borrow against the equity in their home.

Secured by multi-family residential properties

– This portfolio segment includes mortgage loans secured by apartment buildings.

Secured by non-farm, non-residential properties

– This portfolio segment includes real estate loans secured by commercial and industrial properties, office or mixed-use facilities, strip shopping centers or other commercial property. These loans are generally guaranteed by the principals of the borrowing entity.

Other real estate loans

– Other real estate loans are loans primarily for agricultural production, secured by mortgages on farmland.

Commercial and industrial loans

and leases

– This portfolio segment includes loans and leases to commercial customers for use in the normal course of business. These credits

may

be loans, lines of credit and leases to financially strong borrowers, secured by inventories, equipment or receivables, and are generally guaranteed by the principals of the borrowing entity.

Consumer loans

– This portfolio segment includes a variety of secured and unsecured personal loans, including automobile loans, loans for household and personal purposes, and all other direct consumer installment loans.

Indirect sales

– This portfolio segment includes loans secured by collateral that is purchased by consumers at retail stores with whom ALC has an established relationship to provide financing for the retail products sold if applicable underwriting standards are met.

As of

September

30,

2018

and

December 31, 2017,

the composition of the loan and lease portfolio by reporting segment and portfolio segment was as follows:

	September 30 , 201 8
	Bank		ALC		Total
	(Dollars in Thousands)
Real estate loans:
Construction, land development and other land loans	$	43,501	$	—	$	43,501
Secured by 1-4 family residential properties		111,555		8,472		120,027
Secured by multi-family residential properties		22,915		—		22,915
Secured by non-farm, non-residential properties		150,523		—		150,523
Other		1,100		—		1,100
Commercial and industrial loans and leases (1)		83,087		—		83,087
Consumer loans:
Consumer		7,075		31,965		39,040
Indirect sales		—		71,005		71,005
Total loans		419,756		111,442		531,198
Less: Unearned interest, fees and deferred cost		331		5,929		6,260
Allowance for loan losses		2,709		2,407		5,116
Net loans	$	416,716	$	103,106	$	519,822

(

)

Includes equipment financing leases.

	December 31, 201 7
	Bank		ALC		Total
	(Dollars in Thousands)
Real estate loans:
Construction, land development and other land loans	$	26,143	$	—	$	26,143
Secured by 1-4 family residential properties		34,272		10,801		45,073
Secured by multi-family residential properties		16,579		—		16,579
Secured by non-farm, non-residential properties		105,133		—		105,133
Other		190		—		190
Commercial and industrial loans		69,969		—		69,969
Consumer loans:
Consumer		5,217		34,083		39,300
Indirect sales		—		55,071		55,071
Total loans		257,503		99,955		357,458
Less: Unearned interest, fees and deferred cost		374		6,189		6,563
Allowance for loan losses		2,447		2,327		4,774
Net loans	$	254,682	$	91,439	$	346,121

The Company makes commercial, real estate and installment loans to its customers. Although the Company has a diversified loan portfolio,

63.6

% and

54.0%

of the portfolio was concentrated in loans secured by real estate as of

September 30, 2018

and

December 31, 2017,

respectively.

Loans with a carrying value of

$27.0

million were pledged as collateral to secure FHLB borrowings as of

September 30, 2018.

loans were pledged as collateral as of

December 31, 2017.

Related Party Loans

In the ordinary course of business, the Bank makes loans to certain officers and directors of the Company, including companies with which they are associated. These loans are made on the same terms as those prevailing for comparable transactions with unrelated parties. Management believes that such loans do

not

represent more than a normal risk of collectability, nor do they present other unfavorable features. The aggregate balances of such related party loans and commitments as of

September 30, 2018

and

December

31,

2017

were

$0.8

million and

$0.5

million, respectively. During the

nine

months ended

September 30, 2018,

there were

$0.5

million of new loans to these parties, and repayments by active related parties were

$0.2

million. During the year ended

December 31, 2017,

there were

new loans to these related parties, and repayments by active related parties were

$11

thousand

Acquired Loans

The Company acquired loans during the quarter ended

September 30, 2018.

At acquisition, certain acquired loans evidenced deterioration of credit quality since origination and it was probable, at acquisition, that all contractually required payments would

not

be collected.

Loans purchased with evidence of credit deterioration since origination and for which it is probable that all contractually required payments will

not

be collected are considered to be credit impaired. Evidence of credit quality deterioration as of the purchase date

may

include information such as past-due and nonaccrual status, borrower credit scores and recent loan to value percentages. Purchased credit impaired loans are accounted for under the accounting guidance for loans and debt securities acquired with deteriorated credit quality (ASC

310

) and initially measured at fair value, which includes estimated future credit losses expected to be incurred over the life of the loan. Accordingly, an allowance for credit losses related to these loans is

not

carried over and recorded at the acquisition date.

The carrying amount of these loans is included in the balance sheet amount of loans receivable at

September 30, 2018.

The amount of these loans is shown below:

	September 30, 2018
	(Dollars in Thousands)
Real estate loans:
Construction, land development and other land loans	$	75
Secured by 1-4 family residential properties		2,227
Secured by non-farm, non-residential properties		207
Other		7
Outstanding balance	$	2,516
Carrying amount, net of fair value adjustment of $278 thousand at September 30, 2018	$	2,238

The Company did

not

recognize any accretable yield, or income expected to be collected, associated with these loans. Additionally, during the

three

months ended

September 30, 2018,

the Company did

not

increase or reverse the allowance for loan losses related to these purchased credit impaired loans.

Allowance for Loan Losses

The following tables present changes in the allowance for loan losses during the

nine

months ended

September 30, 2018

and the year ended

December 31, 2017

and the related loan balances by loan portfolio segment and loan type as of

September 30, 2018

and

December 31, 2017:

	Bank
	Nine M onths Ended September 30, 2018
	Construction, Land		1-4 Family			Real Estate Multi- Family		Non-Farm Non- Residential		Other		Commercial			Consumer			Indirect Sales		Total
	(Dollars in Thousands)
Allowance for loan losses:
Beginning balance	$	203	$	238		$	116	$	777	$	2	$	1,049		$	62		$	—	$	2,447
Charge-offs		—		(9	)		—		—		—		(2	)		(3	)		—		(14	)
Recoveries		—		36			—		4		—		8			13			—		61
Provision		4		52			11		42		—		97			9			—		215
Ending balance	$	207	$	317		$	127	$	823	$	2	$	1,152		$	81		$	—	$	2,709

Ending balance of allowance attributable to loans:
Individually evaluated for impairment	$	31	$	51		$	—	$	7	$	—	$	67		$	22		$	—	$	178
Collectively evaluated for impairment		176		266			127		816		2		1,085			59			—		2,531
Loans acquired with deteriorated credit quality		—		—			—		—		—		—			—			—		—
Total allowance for loan losses	$	207	$	317		$	127	$	823	$	2	$	1,152		$	81		$	—	$	2,709
Ending balance of loans receivable:
Individually evaluated for impairment	$	155	$	58		$	—	$	517	$	—	$	67		$	45		$	—	$	842
Collectively evaluated for impairment		43,273		109,347			22,915		149,998		1,093		83,020			7,030			—		416,676
Loans acquired with deteriorated credit quality		73		2,150			—		8		7		—			—			—		2,238
Total loans receivable	$	43,501	$	111,555		$	22,915	$	150,523	$	1,100	$	83,087		$	7,075		$	—	$	419,756

	ALC
	Nine Months Ended September 30, 2018
	Construction, Land		1-4 Family			Real Estate Multi- Family		Non-Farm Non-Residential		Other		Commercial		Consumer			Indirect Sales			Total
	(Dollars in Thousands)
Allowance for loan losses:
Beginning balance	$	—	$	52		$	—	$	—	$	—	$	—	$	1,653		$	622		$	2,327
Charge-offs		—		(73	)		—		—		—		—		(1,841	)		(423	)		(2,337	)
Recoveries		—		12			—		—		—		—		396			75			483
Provision		—		35			—		—		—		—		1,488			411			1,934
Ending balance	$	—	$	26		$	—	$	—	$	—	$	—	$	1,696		$	685		$	2,407

Ending balance of allowance attributable to loans:
Individually evaluated for impairment	$	—	$	—		$	—	$	—	$	—	$	—	$	—		$	—		$	—
Collectively evaluated for impairment		—		26			—		—		—		—		1,696			685			2,407
Total allowance for loan losses	$	—	$	26		$	—	$	—	$	—	$	—	$	1,696		$	685		$	2,407
Ending balance of loans receivable:
Individually evaluated for impairment	$	—	$	—		$	—	$	—	$	—	$	—	$	—		$	—		$	—
Collectively evaluated for impairment		—		8,472			—		—		—		—		31,965			71,005			111,442
Total loans receivable	$	—	$	8,472		$	—	$	—	$	—	$	—	$	31,965		$	71,005		$	111,442

	Bank and ALC
	Nine Months Ended September 30, 2018
	Construction, Land		1-4 Family			Real Estate Multi- Family		Non-Farm Non-Residential		Other		Commercial			Consumer			Indirect Sales			Total
	(Dollars in Thousands)
Allowance for loan losses:
Beginning balance	$	203	$	290		$	116	$	777	$	2	$	1,049		$	1,715		$	622		$	4,774
Charge-offs		—		(82	)		—		—		—		(2	)		(1,844	)		(423	)		(2,351	)
Recoveries		—		48			—		4		—		8			409			75			544
Provision		4		87			11		42		—		97			1,497			411			2,149
Ending balance	$	207	$	343		$	127	$	823	$	2	$	1,152		$	1,777		$	685		$	5,116

Ending balance of allowance attributable to loans:
Individually evaluated for impairment	$	31	$	51		$	—	$	7	$	—	$	67		$	22		$	—		$	178
Collectively evaluated for impairment		176		292			127		816		2		1,085			1,755			685			4,938
Loans acquired with deteriorated credit quality		—		—			—		—		—		—			—			—			—
Total allowance for loan losses	$	207	$	343		$	127	$	823	$	2	$	1,152		$	1,777		$	685		$	5,116
Ending balance of loans receivable:
Individually evaluated for impairment	$	155	$	58		$	—	$	517	$	—	$	67		$	45		$	—		$	842
Collectively evaluated for impairment		43,273		117,819			22,915		149,998		1,093		83,020			38,995			71,005			528,118
Loans acquired with deteriorated credit quality		73		2,150			—		8		7		—			—			—			2,238
Total loans receivable	$	43,501	$	120,027		$	22,915	$	150,523	$	1,100	$	83,087		$	39,040		$	71,005		$	531,198

	Bank
	Year Ended December 31, 2017
	Construction, Land			1-4 Family			Real Estate Multi- Family		Non-Farm Non-Residential			Other		Commercial			Consumer			Indirect Sales		Total
	(Dollars in Thousands)
Allowance for loan losses:
Beginning balance	$	535		$	304		$	88	$	903		$	2	$	527		$	50		$	—	$	2,409
Charge-offs		—			—			—		—			—		(16	)		(63	)		—		(79	)
Recoveries		—			103			—		69			—		19			56			—		247
Provision		(332	)		(169	)		28		(195	)		—		519			19			—		(130	)
Ending balance	$	203		$	238		$	116	$	777		$	2	$	1,049		$	62		$	—	$	2,447

Ending balance of allowance attributable to loans:
Individually evaluated for impairment	$	—		$	5		$	—	$	21		$	—	$	72		$	—		$	—	$	98
Collectively evaluated for impairment		203			233			116		756			2		977			62			—		2,349
Total allowance for loan losses	$	203		$	238		$	116	$	777		$	2	$	1,049		$	62		$	—	$	2,447
Ending balance of loans receivable:
Individually evaluated for impairment	$	—		$	187		$	—	$	532		$	—	$	72		$	—		$	—	$	791
Collectively evaluated for impairment		26,143			34,085			16,579		104,601			190		69,897			5,217			—		256,712
Total loans receivable	$	26,143		$	34,272		$	16,579	$	105,133		$	190	$	69,969		$	5,217		$	—	$	257,503

	ALC
	Year Ended December 31, 2017
	Construction, Land		1-4 Family			Real Estate Multi- Family		Non-Farm Non-Residential		Other		Commercial		Consumer			Indirect Sales			Total
	(Dollars in Thousands)
Allowance for loan losses:
Beginning balance	$	—	$	107		$	—	$	—	$	—	$	—	$	1,717		$	623		$	2,447
Charge-offs		—		(28	)		—		—		—		—		(2,297	)		(587	)		(2,912	)
Recoveries		—		32			—		—		—		—		545			98			675
Provision		—		(59	)		—		—		—		—		1,688			488			2,117
Ending balance	$	—	$	52		$	—	$	—	$	—	$	—	$	1,653		$	622		$	2,327

Ending balance of allowance attributable to loans:
Individually evaluated for impairment	$	—	$	—		$	—	$	—	$	—	$	—	$	—		$	—		$	—
Collectively evaluated for impairment		—		52			—		—		—		—		1,653			622			2,327
Total allowance for loan losses	$	—	$	52		$	—	$	—	$	—	$	—	$	1,653		$	622		$	2,327
Ending balance of loans receivable:
Individually evaluated for impairment	$	—	$	—		$	—	$	—	$	—	$	—	$	—		$	—		$	—
Collectively evaluated for impairment		—		10,801			—		—		—		—		34,083			55,071			99,955
Total loans receivable	$	—	$	10,801		$	—	$	—	$	—	$	—	$	34,083		$	55,071		$	99,955

	Bank and ALC
	Year Ended December 31, 2017
	Construction, Land			1-4 Family			Real Estate Multi- Family		Non-Farm Non-Residential			Other		Commercial			Consumer			Indirect Sales			Total
	(Dollars in Thousands)
Allowance for loan losses:
Beginning balance	$	535		$	411		$	88	$	903		$	2	$	527		$	1,767		$	623		$	4,856
Charge-offs		—			(28	)		—		—			—		(16	)		(2,360	)		(587	)		(2,991	)
Recoveries		—			135			—		69			—		19			601			98			922
Provision		(332	)		(228	)		28		(195	)		—		519			1,707			488			1,987
Ending balance	$	203		$	290		$	116	$	777		$	2	$	1,049		$	1,715		$	622		$	4,774

Ending balance of allowance attributable to loans:
Individually evaluated for impairment	$	—		$	5		$	—	$	21		$	—	$	72		$	—		$	—		$	98
Collectively evaluated for impairment		203			285			116		756			2		977			1,715			622			4,676
Total allowance for loan losses	$	203		$	290		$	116	$	777		$	2	$	1,049		$	1,715		$	622		$	4,774
Ending balance of loans receivable:
Individually evaluated for impairment	$	—		$	187		$	—	$	532		$	—	$	72		$	—		$	—		$	791
Collectively evaluated for impairment		26,143			44,886			16,579		104,601			190		69,897			39,300			55,071			356,667
Total loans receivable	$	26,143		$	45,073		$	16,579	$	105,133		$	190	$	69,969		$	39,300		$	55,071		$	357,458

Credit Quality Indicators

The Bank utilizes a

credit grading system that provides a uniform framework for establishing and monitoring credit risk in the loan portfolio. Under this system, each loan is graded based on pre-determined risk metrics and categorized into

one

nine

risk grades. These risk grades can be summarized into categories described as pass, special mention, substandard, doubtful and loss, as described in further detail below.

●

Pass (Risk Grades

): Loans in this category include obligations

in which the probability of default is considered low.

●

Special Mention (Risk Grade

): Loans in this category exhibit potential credit weaknesses or downward trends deserving Bank management’s close attention. If left uncorrected, these potential weaknesses

may

result in the deterioration of the repayment prospects for the asset or in the Bank’s credit position at some future date. Special mention loans are

not

adversely classified and do

not

expose the Bank to sufficient risk to warrant adverse classification. Although a special mention asset has a higher probability of default than pass-rated categories, its default is

not

imminent.

●

Substandard (Risk Grade

): Loans in this category have defined weaknesses that jeopardize the orderly liquidation of debt. A substandard loan is inadequately protected by the current worth and paying capacity of the obligor or by the collateral pledged, if any. Normal repayment from the borrower is in jeopardy, although

loss of principal is envisioned. There is a distinct possibility that a partial loss of interest and/or principal will occur if the deficiencies are

not

corrected. Loss potential, while existing in the aggregate amount of substandard assets, does

not

have to exist in individual assets classified as substandard.

●

Doubtful (Risk Grade

): Loans classified as doubtful have all of the weaknesses found in substandard loans, with the added characteristic that the weaknesses make collection of debt in full, based on currently existing facts, conditions and values, highly questionable or improbable. Serious problems exist such that partial loss of principal is likely; however, because of certain important, reasonably specific pending factors that

may

work to strengthen the assets, the loans’ classification as estimated losses is deferred until a more exact status

may

be determined. Such pending factors

may

include proposed merger, acquisition or liquidation procedures, capital injection, perfection of liens on additional collateral and refinancing plans. Loans classified as doubtful

may

include loans to borrowers that have demonstrated a history of failing to live up to agreements.

●

Loss (Risk Grade

): Loans are classified in this category when borrowers are deemed incapable of repayment of unsecured debt. Loans to such borrowers are considered uncollectable and of such little value that continuance as active assets of the Bank is

not

warranted. This classification does

not

mean that the loan has absolutely

recovery or salvage value, but rather that it is

not

prudent to defer writing off these assets, even though partial recovery

may

be affected in the future.

At ALC, because the loan portfolio is more uniform in nature, each loan is categorized into

one

two

risk grades, depending on whether the loan is considered to be performing or nonperforming. Performing loans are loans that are paying principal and interest in accordance with a contractual agreement. Nonperforming loans are loans that have demonstrated characteristics that indicate a probability of loss.

The tables below illustrate the carrying amount of loans by credit quality indicator as of

September

30,

2018:

	Bank
	Pass 1-5		Special Mention 6		Substandard 7		Doubtful 8		Total
	(Dollars in Thousands)
Loans secured by real estate:
Construction, land development and other land loans	$	42,761	$	511	$	229	$	—	$	43,501
Secured by 1-4 family residential properties		107,276		266		4,013		—		111,555
Secured by multi-family residential properties		22,915		—		—		—		22,915
Secured by non-farm, non-residential properties		147,302		2,099		1,122		—		150,523
Other		1,093		7		—		—		1,100
Commercial and industrial loans		80,853		2,077		157		—		83,087
Consumer loans		6,990		—		85		—		7,075
Total	$	409,190	$	4,960	$	5,606	$	—	$	419,756

The above amounts include purchased credit impaired loans. As of

September 30, 2018,

$2.2

million of purchased credit impaired loans were rated “Substandard.”

	ALC
	Performing		Nonperforming		Total
	(Dollars in Thousands)
Loans secured by real estate:
Secured by 1-4 family residential properties	$	8,379	$	93	$	8,472
Consumer loans:
Consumer		31,149		816		31,965
Indirect sales		70,713		292		71,005
Total	$	110,241	$	1,201	$	111,442

The tables below illustrate the carrying amount of loans by credit quality indicator as of

December

31,

2017:

	Bank
	Pass 1-5		Special Mention 6		Substandard 7		Doubtful 8		Total
	(Dollars in Thousands)
Loans secured by real estate:
Construction, land development and other land loans	$	25,872	$	84	$	187	$	—	$	26,143
Secured by 1-4 family residential properties		33,278		339		655		—		34,272
Secured by multi-family residential properties		16,579		—		—		—		16,579
Secured by non-farm, non-residential properties		99,847		4,766		520		—		105,133
Other		190		—		—		—		190
Commercial and industrial loans		67,689		2,066		214		—		69,969
Consumer loans		5,155		—		62		—		5,217
Total	$	248,610	$	7,255	$	1,638	$	—	$	257,503

	ALC
	Performing		Nonperforming		Total
	(Dollars in Thousands)
Loans secured by real estate:
Secured by 1-4 family residential properties	$	10,495	$	306	$	10,801
Consumer loans:
Consumer		32,933		1,150		34,083
Indirect sales		54,611		460		55,071
Total	$	98,039	$	1,916	$	99,955

The following tables provide an aging analysis of past due loans by class as of

September

30,

2018:

	Bank
	As of September 30 , 2018
	30-59 Days Past Due		60-89 Days Past Due		90 Days Or Greater		Total Past Due		Current		Total Loans		Recorded Investment > 90 Days And Accruing
	(Dollars in Thousands)
Loans secured by real estate:
Construction, land development and other land loans	$	459	$	—	$	74	$	533	$	42,968	$	43,501	$	—
Secured by 1-4 family residential properties		1,980		78		2,123		4,181		107,374		111,555		—
Secured by multi-family residential properties		—		—		—		—		22,915		22,915		—
Secured by non-farm, non-residential properties		14		—		8		22		150,501		150,523		—
Other		—		—		—		—		1,100		1,100		—
Commercial and industrial loans		428		23		—		451		82,636		83,087		—
Consumer loans		21		4		—		25		7,050		7,075		—
Total	$	2,902	$	105	$	2,205	$	5,212	$	414,544	$	419,756	$	—

The above amounts include purchased credit impaired loans. As of

September 30, 2018,

$0.2

million of purchased credit impaired loans were

days past due and

$2.0

million were

or more days past due.

	ALC
	As of September 30 , 2018
	30-59 Days Past Due		60-89 Days Past Due		90 Days Or Greater		Total Past Due		Current		Total Loans		Recorded Investment > 90 Days And Accruing
	(Dollars in Thousands)
Loans secured by real estate:
Construction, land development and other land loans	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Secured by 1-4 family residential properties		122		2		93		217		8,255		8,472		—
Secured by multi-family residential properties		—		—		—		—		—		—		—
Secured by non-farm, non-residential properties		—		—		—		—		—		—		—
Other		—		—		—		—		—		—		—
Commercial and industrial loans		—		—		—		—		—		—		—
Consumer loans:
Consumer		599		428		816		1,843		30,122		31,965		—
Indirect sales		323		122		292		737		70,268		71,005		—
Total	$	1,044	$	552	$	1,201	$	2,797	$	108,645	$	111,442	$	—

The following tables provide an aging analysis of past due loans by class as of

December 31, 2017:

	Bank
	As of December 31, 2017
	30-59 Days Past Due		60-89 Days Past Due		90 Days Or Greater		Total Past Due		Current		Total Loans		Recorded Investment > 90 Days And Accruing
	(Dollars in Thousands)
Loans secured by real estate:
Construction, land development and other land loans	$	—	$	—	$	—	$	—	$	26,143	$	26,143	$	—
Secured by 1-4 family residential properties		227		—		52		279		33,993		34,272		—
Secured by multi-family residential properties		—		—		—		—		16,579		16,579		—
Secured by non-farm, non-residential properties		13		—		—		13		105,120		105,133		—
Other		—		—		—		—		190		190		—
Commercial and industrial loans		70		—		—		70		69,899		69,969		—
Consumer loans		42		—		—		42		5,175		5,217		—
Total	$	352	$	—	$	52	$	404	$	257,099	$	257,503	$	—

	ALC
	As of December 31, 2017
	30-59 Days Past Due		60-89 Days Past Due		90 Days Or Greater		Total Past Due		Current		Total Loans		Recorded Investment > 90 Days And Accruing
	(Dollars in Thousands)
Loans secured by real estate:
Construction, land development and other land loans	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Secured by 1-4 family residential properties		61		23		290		374		10,427		10,801		—
Secured by multi-family residential properties		—		—		—		—		—		—		—
Secured by non-farm, non-residential properties		—		—		—		—		—		—		—
Other		—		—		—		—		—		—		—
Commercial and industrial loans		—		—		—		—		—		—		—
Consumer loans:
Consumer		490		323		1,111		1,924		32,159		34,083		—
Indirect sales		281		230		433		944		54,127		55,071		—
Total	$	832	$	576	$	1,834	$	3,242	$	96,713	$	99,955	$	—

The following table provides an analysis of non-accruing loans by class as of

September

30,

2018

and

December 31, 2017:

	Loans on Non-Accrual Status
	September 30 , 2018		December 31, 2017
	(Dollars in Thousands)
Loans secured by real estate:
Construction, land development and other land loans	$	73	$	—
Secured by 1-4 family residential properties		2,492		501
Secured by multi-family residential properties		—		—
Secured by non-farm, non-residential properties		26		29
Other		7		—
Commercial and industrial loans		25		12
Consumer loans:
Consumer		867		1,173
Indirect sales		292		433
Total loans	$	3,782	$	2,148

As of

September 30, 2018,

purchased credit impaired loans comprised

$2.2

million of nonaccrual loans.

Impaired Loans

A loan is considered impaired when, based on current information and events, it is probable that the Company will be unable to collect the scheduled payments of principal or interest when due according to the contractual terms of the related loan agreement. If a loan is impaired, a specific valuation allowance is allocated, if necessary, so that the loan is reported at the present value of estimated future cash flows using the loan’s existing rate or at the fair value of collateral if repayment is expected solely from the liquidation of the collateral at the Bank. All loans of

$0.5

million or more that have a credit quality risk grade of

seven

or above are identified for impairment analysis. At management’s discretion, additional loans

may

be impaired based on homogeneous factors such as changes in the nature and volume of the portfolio, portfolio quality, adequacy of the underlying collateral value, loan concentrations, historical charge-off trends and economic conditions that

may

affect the borrower’s ability to pay. At ALC, all real estate loans of

$0.1

million or more are identified for impairment analysis. There are currently

loans at ALC that meet that criteria. Impaired loans, or portions thereof, are charged off when deemed uncollectable

As of

September

30,

2018,

the carrying amount of impaired loans at the Bank consisted of the following:

	September 30 , 2018
Impaired loans with no related allowance recorded	Carrying Amount		Unpaid Principal Balance		Related Allowances
	(Dollars in Thousands)
Loans secured by real estate
Construction, land development and other land loans	$	73	$	73	$	—
Secured by 1-4 family residential properties		2,150		2,150		—
Secured by multi-family residential properties		—		—		—
Secured by non-farm, non-residential properties		8		8		—
Other		7		7		—
Commercial and industrial		—		—		—
Consumer		—		—		—
Total loans with no related allowance recorded	$	2,238	$	2,238	$	—

Impaired loans with an allowance recorded
Loans secured by real estate
Construction, land development and other land loans	$	155	$	155	$	31
Secured by 1-4 family residential properties		58		58		51
Secured by multi-family residential properties		—		—		—
Secured by non-farm, non-residential properties		517		517		7
Other		—		—		—
Commercial and industrial		67		67		67
Consumer		45		45		22
Total loans with an allowance recorded	$	842	$	842	$	178

Total impaired loans
Loans secured by real estate
Construction, land development and other land loans	$	228	$	228	$	31
Secured by 1-4 family residential properties		2,208		2,208		51
Secured by multi-family residential properties		—		—		—
Secured by non-farm, non-residential properties		525		525		7
Other		7		7		—
Commercial and industrial		67		67		67
Consumer		45		45		22
Total impaired loans	$	3,080	$	3,080	$	178

The above amounts include purchased credit impaired loans. As of

September 30, 2018,

purchased credit impaired loans comprised

$2.2

million of impaired loans without a related allowance recorded.

As of

December

31,

2017,

the carrying amount of impaired loans at the Bank consisted of the following:

	December 31, 2017
Impaired loans with no related allowance recorded	Carrying Amount		Unpaid Principal Balance		Related Allowances
	(Dollars in Thousands)
Loans secured by real estate
Construction, land development and other land loans	$	—	$	—	$	—
Secured by 1-4 family residential properties		—		—		—
Secured by multi-family residential properties		—		—		—
Secured by non-farm, non-residential properties		—		—		—
Commercial and industrial		—		—		—
Total loans with no related allowance recorded	$	—	$	—	$	—

Impaired loans with an allowance recorded
Loans secured by real estate
Construction, land development and other land loans	$	—	$	—	$	—
Secured by 1-4 family residential properties		187		187		5
Secured by multi-family residential properties		—		—		—
Secured by non-farm, non-residential properties		532		532		21
Commercial and industrial		72		72		72
Total loans with an allowance recorded	$	791	$	791	$	98

Total impaired loans
Loans secured by real estate
Construction, land development and other land loans	$	—	$	—	$	—
Secured by 1-4 family residential properties		187		187		5
Secured by multi-family residential properties		—		—		—
Secured by non-farm, non-residential properties		532		532		21
Commercial and industrial		72		72		72
Total impaired loans	$	791	$	791	$	98

The average net investment in impaired loans and interest income recognized and received on impaired loans during

the

nine

months ended

September 30,

2018

and the year ended

December 31,

2017

were as follows:

	September 30 , 2018
	Average Recorded Investment		Interest Income Recognized		Interest Income Received
	(Dollars in Thousands)
Loans secured by real estate
Construction, land development and other land loans	$	52	$	6	$	6
Secured by 1-4 family residential properties		370		1		1
Secured by multi-family residential properties		—		—		—
Secured by non-farm, non-residential properties		524		25		27
Other		1		—		—
Commercial and industrial		68		3		4
Consumer		5		2		2
Total	$	1,020	$	37	$	40

	December 31, 2017
	Average Recorded Investment		Interest Income Recognized		Interest Income Received
	(Dollars in Thousands)
Loans secured by real estate
Construction, land development and other land loans	$	902	$	—	$	—
Secured by 1-4 family residential properties		190		13		14
Secured by multi-family residential properties		—		—		—
Secured by non-farm, non-residential properties		537		35		35
Commercial and industrial		59		7		5
Total	$	1,688	$	55	$	54

Loans on which the accrual of interest has been discontinued amounted to

$3.8

million and

$2.1

million as of

September 30,

2018

and

December

31,

2017,

respectively. If interest on those loans had been accrued, there would have been

$26

thousand and

$19

thousand of interest accrued for the periods ended

September 30,

2018

and

December 31, 2017,

respectively. Interest income related to these loans as of both

September 30,

2018

and

December 31,

2017

was

thousand.

Troubled Debt Restructurings

Troubled debt restructurings include loans with respect to which concessions have been granted to borrowers that generally would

not

have otherwise been considered had the borrowers

not

been experiencing financial difficulty. The concessions granted

may

include payment schedule modifications, interest rate reductions, maturity date extensions, modifications of note structure, principal balance reductions or some combination of these concessions. There were

loans modified with concessions granted during the

nine

-month period ended

September 30, 2018.

Restructured loans

may

involve loans remaining on non-accrual, moving to non-accrual or continuing on accrual status, depending on the individual facts and circumstances of the borrower. Non-accrual restructured loans are included with all other non-accrual loans. In addition, all accruing restructured loans are reported as troubled debt restructurings. Generally, restructured loans remain on non-accrual until the customer has attained a sustained period of repayment performance under the modified loan terms (generally a minimum of

six

months). However, performance prior to the restructuring, or significant events that coincide with the restructuring, are considered in assessing whether the borrower can meet the new terms and whether the loan should be returned to or maintained on non-accrual status. If the borrower’s ability to meet the revised payment schedule is

not

reasonably assured, then the loan remains on non-accrual. As of both

September 30, 2018

and

December 31, 2017,

the Company had

0.1

million of non-accruing loans that were previously restructured and that remained on non-accrual status. For both the

nine

months ended

September 30, 2018

and the year ended

December 31, 2017,

the Company had

loans that were restored to accrual status based on a sustained period of repayment performance.

The following table provides the number of loans

remaining in each loan category, as of

September 30,

2018

and

December 31, 2017,

that the Bank had previously modified in a troubled debt restructuring, as well as the pre- and post-modification principal balance as of each date.

	September 30 , 2018						December 31, 2017
	Number of Loans		Pre- Modification Outstanding Principal Balance		Post- Modification Principal Balance		Number of Loans		Pre- Modification Outstanding Principal Balance		Post- Modification Principal Balance
	(Dollars in Thousands)
Loans secured by real estate:
Construction, land development and other land loans		1	$	107	$	76		1	$	107	$	82
Secured by 1-4 family residential properties		3		318		125		3		318		165
Secured by non-farm, non-residential properties		1		53		34		1		53		37
Commercial loans		2		116		75		2		116		81
Total		7	$	594	$	310		7	$	594	$	365

As of

September 30, 2018

and

December 31, 2017,

loans that previously had been modified in a troubled debt restructuring had defaulted subsequent to modification.

Restructured loan modifications primarily included maturity date extensions and payment schedule modifications. There were

modifications to principal balances of the loans that were restructured. Accordingly, there was

impact on the Company

’s allowance for loan losses resulting from the modifications.

All loans with a principal balance of

$0.5

million or more that have been modified in a troubled debt restructuring are considered impaired and evaluated individually for impairment. The nature and extent of impairment of restructured loans, including those that have experienced a subsequent payment default, are considered in the determination of an appropriate level of allowance for loan losses. This evaluation resulted in an allowance for loan losses attributable to such restructured loans of

thousand as of both

September 30, 2018

and

December 31, 2017.