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 no 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, 2020
			Special
(Amounts in thousands)	Pass		Mention		Substandard		Doubtful		Loss		Total
Non-covered loans
Commercial loans
Construction, development, and other land	$	49,187	$	358	$	3,776	$	-	$	-	$	53,321
Commercial and industrial		119,935		1,887		7,906		-		-		129,728
Multi-family residential		106,147		792		3,263		-		-		110,202
Single family non-owner occupied		171,010		3,032		13,729		-		-		187,771
Non-farm, non-residential		679,088		10,752		36,824		-		-		726,664
Agricultural		10,918		77		308		-		-		11,303
Farmland		20,496		487		5,062		-		-		26,045
Consumer real estate loans
Home equity lines		101,261		453		3,670		-		-		105,384
Single family owner occupied		565,195		3,317		35,034		-		-		603,546
Owner occupied construction		13,513		-		433		-		-		13,946
Consumer and other loans
Consumer loans		110,080		3		2,044		-		-		112,127
Other		4,573		-		-		-		-		4,573
Total non-covered loans		1,951,403		21,158		112,049		-		-		2,084,610
Covered loans
Commercial loans
Construction, development, and other land		-		27		-		-		-		27
Single family non-owner occupied		194		-		-		-		-		194
Non-farm, non-residential		-		-		2		-		-		2
Consumer real estate loans
Home equity lines		6,576		2,392		338		-		-		9,306
Single family owner occupied		1,937		274		375		-		-		2,586
Total covered loans		8,707		2,693		715		-		-		12,115
Total loans	$	1,960,110	$	23,851	$	112,764	$	-	$	-	$	2,096,725

	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

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, 2020						December 31, 2019
			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	$	1,383	$	1,618	$	-	$	552	$	768	$	-
Commercial and industrial		2,042		2,608		-		576		599		-
Multi-family residential		606		1,042		-		1,254		1,661		-
Single family non-owner occupied		4,071		4,783		-		2,652		3,176		-
Non-farm, non-residential		3,697		5,388		-		4,158		4,762		-
Agricultural		237		237		-		158		164		-
Farmland		1,589		1,664		-		1,437		1,500		-
Consumer real estate loans
Home equity lines		1,427		1,570		-		1,372		1,477		-
Single family owner occupied		17,030		20,254		-		15,588		17,835		-
Owner occupied construction		361		368		-		648		648		-
Consumer and other loans
Consumer loans		410		413		-		290		294		-
Total impaired loans with no allowance		32,853		39,945		-		28,685		32,884		-

Impaired loans with a related allowance
Commercial loans
Commercial and industrial		-		-		-		-		-		-
Multi-family residential		944		1,277		279		-		-		-
Single family non-owner occupied		-		-		-		-		-		-
Non-farm, non-residential		1,335		1,506		652		1,241		1,227		292
Farmland		-		-		-		-		-		-
Consumer real estate loans
Home equity lines		-		-		-		-		-		-
Single family owner occupied		1,239		1,239		350		1,246		1,246		353
Total impaired loans with an allowance		3,518		4,022		1,281		2,487		2,473		645
Total impaired loans (1)	$	36,371	$	43,967	$	1,281	$	31,172	$	35,357	$	645

(

)

Total impaired loans include loans totaling

$30.52

million as of

March 31, 2020,

and

$24.64

million as of

December 31, 2019,

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,
	2020				2019
(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	$	8	$	1,299	$	7	$	800
Commercial and industrial		29		2,029		3		617
Multi-family residential		11		670		9		1,618
Single family non-owner occupied		35		4,101		28		2,994
Non-farm, non-residential		43		4,674		17		4,675
Agricultural		1		206		2		53
Farmland		21		1,560		16		1,449
Consumer real estate loans
Home equity lines		9		1,467		7		1,408
Single family owner occupied		168		17,550		124		15,939
Owner occupied construction		6		334		2		221
Consumer and other loans
Consumer loans		4		407		1		105
Total impaired loans with no related allowance		335		34,297		216		29,879

Impaired loans with a related allowance:
Commercial loans
Construction, development, and other land		-		-		-		-
Commercial and industrial		-		-		-		-
Multi-family residential		-		941		-		-
Single family non-owner occupied		-		-		-		-
Non-farm, non-residential		-		1,338		-		-
Farmland		-		-		-		-
Consumer real estate loans
Home equity lines		-		-		-		-
Single family owner occupied		13		1,240		29		2,291
Owner occupied construction		-		-		-		-
Total impaired loans with a related allowance		13		3,519		29		2,291
Total impaired loans	$	348	$	37,816	$	245	$	32,170

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, 2020						December 31, 2019
(Amounts in thousands)	Non-covered		Covered		Total		Non-covered		Covered		Total
Commercial loans
Construction, development, and other land	$	908	$	-	$	908	$	211	$	-	$	211
Commercial and industrial		1,441		-		1,441		530		-		530
Multi-family residential		1,455		-		1,455		1,144		-		1,144
Single family non-owner occupied		2,033		-		2,033		1,286		-		1,286
Non-farm, non-residential		3,724		-		3,724		3,400		-		3,400
Agricultural		237		-		237		158		-		158
Farmland		875		-		875		713		-		713
Consumer real estate loans
Home equity lines		881		122		1,003		753		220		973
Single family owner occupied		8,214		23		8,237		7,259		24		7,283
Owner occupied construction		141		-		141		428		-		428
Consumer and other loans
Consumer loans		354		-		354		231		-		231
Total nonaccrual loans	$	20,263	$	145	$	20,408	$	16,113	$	244	$	16,357

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

$191

thousand as of

March 31, 2020,

compared to

$144

thousand as of

December 31, 2019.

	March 31, 2020
	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	$	288	$	74	$	908	$	1,270	$	52,051	$	53,321
Commercial and industrial		1,953		410		903		3,266		126,462		129,728
Multi-family residential		961		-		1,455		2,416		107,786		110,202
Single family non-owner occupied		2,622		866		1,511		4,999		182,772		187,771
Non-farm, non-residential		4,309		1,207		3,282		8,798		717,866		726,664
Agricultural		355		70		209		634		10,669		11,303
Farmland		289		247		663		1,199		24,846		26,045
Consumer real estate loans
Home equity lines		777		446		646		1,869		103,515		105,384
Single family owner occupied		8,696		2,005		3,913		14,614		588,932		603,546
Owner occupied construction		-		-		-		-		13,946		13,946
Consumer and other loans
Consumer loans		1,994		365		374		2,733		109,394		112,127
Other		-		-		-		-		4,573		4,573
Total non-covered loans		22,244		5,690		13,864		41,798		2,042,812		2,084,610
Covered loans
Commercial loans
Construction, development, and other land		-		-		-		-		27		27
Single family non-owner occupied		-		-		-		-		194		194
Non-farm, non-residential		-		-		-		-		2		2
Consumer real estate loans
Home equity lines		120		21		50		191		9,115		9,306
Single family owner occupied		68		-		-		68		2,518		2,586
Total covered loans		188		21		50		259		11,856		12,115
Total loans	$	22,432	$	5,711	$	13,914	$	42,057	$	2,054,668	$	2,096,725

	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

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

$500

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

$500

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, 2020,

December 31, 2019.

The provisions of the CARES Act included an election to

not

apply the guidance on accounting for troubled debt restructurings to loan modifications, such as extensions or deferrals, related to COVID-

made between

March 1, 2020

and the earlier of (i)

December 31, 2020

or (ii)

days after the end of the COVID-

national emergency. The relief can only be applied to modifications for borrowers that were

not

more than

days past due as of

December 31, 2019.

The Company elected to adopt these provisions of the CARES Act.

Through

March 31, 2020,

the Company had modified

154

loans with principal balances totaling

$6.61

million related to COVID-

relief. Those modifications were generally short-term payment deferrals and are

not

considered TDR’s based on the CARES Act; however, the Company’s policy is to downgrade commercial loans modified for COVID-

to Special Mention.

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

	March 31, 2020						December 31, 2019
(Amounts in thousands)	Nonaccrual (1)		Accruing		Total		Nonaccrual (1)		Accruing		Total
Commercial loans
Construction, development, and other land	$	-	$	63	$	63	$	-	$	-	$	-
Commercial and industrial		-		602		-		-		-		-
Single family non-owner occupied		539		1,280		1,819		552		595		1,147
Non-farm, non-residential		-		881		881		-		307		307
Consumer real estate loans
Home equity lines		-		87		87		-		115		115
Single family owner occupied		2,085		5,889		7,974		1,790		5,305		7,095
Owner occupied construction		-		219		219		-		221		221
Consumer and other loans
Consumer loans		-		31		31		-		32		32
Total TDRs	$	2,624	$	9,052	$	11,074	$	2,342	$	6,575	$	8,917

Allowance for loan losses related to TDRs					$	351					$	353

(

)

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,
	2020		2019
(Amounts in thousands)
Interest income recognized	$	98	$	63

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 March 31,
	2020						2019
(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 non-owner occupied		1		50		50		-	$	-	$	-
Total below market interest rate		1		50		50		-		-		-
Below market interest rate and extended payment term
Single family non-owner occupied		-		-		-		2		374		372
Single family owner occupied								1		304		304
Total below market interest rate and extended payment term		-		-		-		3		678		676
Payment deferral
Construction, development, and other land		1		63		63		-		-		-
Commercial and industrial		1		602		602		-		-		-
Single family non-owner occupied		1		529		529		-		-		-
Non-farm, non-residential		1		577		577		-		-		-
Single family owner occupied		2		672		672		1		66		49
Home equity lines		-		-		-		1		4		4
Total principal deferral		6		2,443		2,443		2		70		53
Total		7	$	2,493	$	2,493		5	$	748	$	729

Payment defaults on loans modified as TDRs restructured within the previous

months as of

March 31, 2020

was for

one

loan in the amount of

$209

thousand; there were

none

2019.

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, 2020		December 31, 2019
(Amounts in thousands)
OREO	$	2,502	$	3,969
Total OREO	$	2,502	$	3,969

OREO secured by residential real estate	$	1,211	$	2,232
Residential real estate loans in the foreclosure process (1)		2,043		1,539

(

)

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