☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

(Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report)

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Indicate by check mark whether the registrant has submitted electronically ~~and posted on its corporate web site, if any,~~ every Interactive Data File required to be submitted ~~and posted~~ pursuant to Rule 405 of ~~Regulations~~Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit ~~and post~~ such files).

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting ~~company,”~~company” and “emerging growth company” in Rule 12b-2 of the Exchange Act. ~~(Check one):~~

If an emerging growth company, indicate by check mark ofif the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Indicate the number of shares outstanding of each of the ~~issuer~~’sissuer’s classes of common stock, as of the latest practicable date.

Statements contained in this Quarterly Report on Form 10-Q that are not historical facts are forward-looking statements (as defined in the Private Securities Litigation Reform Act of 1995). In addition, First US Bancshares, Inc. (“Bancshares” and, together with its subsidiaries, the “Company”), through its senior management, from time to time makes forward-looking statements concerning its expected future operations, ~~and~~ performance and other developments. The words “estimate,” “project,” “intend,” “anticipate,” “expect,” “believe,” “~~continues~~”“continues” and similar expressions are indicative of forward-looking statements. Such forward-looking statements are necessarily estimates reflecting the Company’s best judgment based on current information and involve a number of risks and ~~uncertainties,~~uncertainties. Certain factors that could affect the accuracy of such forward-looking statements and ~~various factors could~~ cause actual results to differ materially from those ~~contemplated by~~projected in such forward-looking ~~statements. Such factors could include those~~statements are identified ~~from time to time~~ in the Company’s filings with the Securities and Exchange Commission (“SEC”) ~~filings~~, and forward-looking statements contained herein or in other public ~~announcements, including the risk factors described in Part I, Item 1A~~statements of the ~~Company’s Annual Report on Form 10-K as~~Company or its senior management should be considered in light of and for the year ended December 31, 2016. Specifically, with respect to statements relating to loan demand, growth and earnings potential, geographic expansion and the adequacy of the allowance for loan losses for the Company, thesethose factors. Such factors may include ~~but are not limited to,~~ the rate of growth (or lack thereof) in the economy generally and in the Company’s service ~~areas,~~areas; the ~~availability~~impact of ~~quality loans~~the current COVID-19 pandemic on the Company’s business, the Company’s customers, the communities that the Company serves and the United States economy, including the impact of actions taken by governmental authorities to try to contain the virus and protect against it, through vaccinations and otherwise, or address the impact of the virus on the United States economy (including, without limitation, the Coronavirus Aid, Relief and Economic Security (CARES) Act and subsequent federal legislation) and the resulting effect on the Company’s operations, liquidity and capital position and on the financial condition of the Company’s borrowers and other customers; the impact of changing accounting standards and tax laws on the Company’s allowance for loan losses and financial results; the impact of national and local market conditions on the Company’s business and operations; strong competition in the banking industry; the impact of changes in interest rates and monetary policy on the Company’s performance and financial condition; the pending discontinuation of LIBOR as an interest rate benchmark; the impact of technological changes in the banking and financial service industries and potential information system failures; cybersecurity and data privacy threats; the costs of complying with extensive governmental regulation; the possibility that acquisitions may not produce anticipated results and result in unforeseen integration difficulties; and other risk factors described from time to time in the Company’s ~~service areas,~~public filings, including, but not limited to, the ~~relative strength and weakness in~~Company’s most recent Annual Report on Form 10-K. Relative to the ~~consumer and commercial credit sectors and in~~Company’s dividend policy, the ~~real estate markets and collateral values. Forward-looking statements speak only as~~payment of cash dividends is subject to the discretion of the ~~date they are made,~~Board of Directors and will be determined in light of then-current conditions, including the ~~Company undertakes no obligation to revise forward-looking statements to reflect circumstances~~Company’s earnings, leverage, operations, financial conditions, capital requirements and other factors deemed relevant by the Board of Directors. In the future, the Board of Directors may change the Company’s dividend policy, including the frequency or ~~events that occur after the dates on which the forward-looking statements are made, except as required by law.~~amount of any dividend, in light of then-existing conditions.

The accompanying notes are an integral part of these Interim Condensed Consolidated Statements.

INTERIM CONDENSED CONSOLIDATED STATEMENTS OF ~~CASH FLOWS~~CHANGES IN SHAREHOLDERS’ EQUITY

The accompanying notes are an integral part of these Interim Condensed Consolidated Statements.

N~~OTES~~INTERIM CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY

GENERAL

1.	~~GENERAL~~

The accompanying unaudited interim condensed consolidated financial statements include the accounts of First US Bancshares, Inc. (“Bancshares”) and its subsidiaries (collectively, the “Company”). Bancshares is the parent holding company of First US Bank (the “Bank”). The Company and the Bank are both headquartered in Birmingham, Alabama. The Bank operates a finance company subsidiary, Acceptance Loan Company, Inc. (“ALC”). Management has determined that the Bank and ALC comprise Bancshares’ two reportable operating segments. All significant intercompany transactions and accounts have been eliminated. During the third quarter of 2021, ALC ceased new business development and permanently closed its 20 branch lending locations in Alabama and Mississippi to the public. ALC is continuing to service its remaining portfolio of loans from its headquarters in Mobile, Alabama.

The unaudited interim condensed consolidated financial statements, in the opinion of management, reflect all adjustments necessary for a fair presentation of the Company’s consolidated financial position, results of operations and cash flows for the periods presented. Such adjustments are of a normal, recurring nature. The results of operations for any interim period are not necessarily indicative of results expected for the fiscal year ending December 31, ~~2017~~.2022. While certain information and ~~footnote~~ disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) have been condensed or omitted pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”), management believes that the disclosures herein are adequate to make the information presented not misleading. These unaudited interim condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto contained in the Company’s Annual Report on Form 10-K as of and for the year ended December 31, ~~2016.~~2021.

INVESTMENT SECURITIES

~~ASU 2016-05, “Derivatives and Hedging (Topic 815): Effect of Derivative Contract Novations on Existing Hedge Accounting Relationships.”~~~~Issued in March 2016, ASU 2016-05~~clarifies that a change in the counterparty to a derivative instrument that has been designated as a hedging instrument under the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 815 does not, in and of itself, require de-designation of that hedging relationship, provided that all other hedge accounting criteria continue to be met. ASU 2016-05 became effective for the Company on January 1, 2017. The adoption of ASU 2016-05 did not have a material impact on the Company’s consolidated financial statements.

~~ASU 2016-02, “Leases (Topic 842).”~~ Issued in February 2016, ASU 2016-02 was issued by the FASB to increase transparency and comparability among organizations by recognizing lease assets and liabilities on the balance sheet and by disclosing key information about leasing arrangements. ASU 2016-02 will require organizations that lease assets (lessees) to recognize on the balance sheet the assets and liabilities for the rights and obligations created by the lease for all operating leases under current U.S. GAAP with a term of more than 12 months. The recognition, measurement and presentation of expenses and cash flows arising from a lease are not significantly changed under ASU 2016-02, and there will continue to be differentiation between finance leases and operating leases. The accounting applied by the lessor in a lease transaction remains largely unchanged from previous U.S. GAAP. ASU 2016-02 is effective for fiscal years beginning after December 15, 2018. Management is currently evaluating the impact that this ASU will have on the Company’s consolidated financial statements.

~~ASU 2016-01, “Financial Instruments-Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities (An Amendment of FASB ASC 825).”~~ Issued in January 2016, ASU 2016-01 is intended to enhance the reporting model for financial instruments to provide users of financial statements with improved decision-making information. The amendments of ASU 2016-01 include: (i) requiring equity investments, except those accounted for under the equity method of accounting or those that result in the consolidation of an investee, to be measured at fair value, with changes in fair value recognized in net income; (ii) requiring a qualitative assessment to identify impairment of equity investments without readily determinable fair values; and (iii) clarifying that an entity should evaluate the need for a valuation allowance on a deferred tax asset related to available-for-sale securities in combination with the entity’s other deferred tax assets. The amendments of ASU 2016-01 are effective for interim and annual periods beginning after December 15, 2017. Management is currently evaluating the impact that this ASU will have on the Company’s consolidated financial statements.

~~ASU 2014-09, “Revenue from Contracts with Customers (Topic 606).”~~ ~~Issued in May 2014, ASU 2014-09 will add~~ ~~FASB ASC Topic 606, Revenue from Contracts with Customers,~~ ~~and will supersede revenue recognition requirements in~~ ~~FASB ASC Topic 605, Revenue Recognition~~~~and certain cost guidance in~~ ~~FASB ASC Topic 605-35, Revenue Recognition – Construction-Type and Production-Type Contracts.~~ ASU 2014-09 requires an entity to recognize revenue when (or as) an entity transfers control of goods or services to a customer at the amount to which the entity expects to be entitled. Depending on whether certain criteria are met, revenue should be recognized either over time, in a manner that depicts the entity’s performance, or at a point in time, when control of the goods or services is transferred to the customer. ~~ASU 2015-14,~~~~“Revenue from Contracts with Customers (Topic 606) - Deferral of the Effective Date,”~~ issued in August 2015, defers the effective date of ASU 2014-09 by one year. ASU 2015-14 provides that the amendments of ASU 2014-09 become effective for interim and annual periods beginning after December 15, 2017. Management is currently evaluating the impact that this ASU will have on the Company’s consolidated financial statements, as well as the most appropriate method of application. However, because this guidance does not apply to revenue associated with financial instruments, including loans and securities accounted for under other U.S. GAAP, the adoption of ASU 2014-09 is not expected to have a material impact on the Company’s consolidated financial statements. Further, management has determined that the adoption of this ASU for revenue streams reported within non-interest income that are within the scope of the accounting standard will not materially impact the Company’s consolidated financial statements.

3.	~~INVESTMENT SECURITIES~~

Details of investment securities available-for-sale and held-to-maturity as of September 30, ~~2017~~2022 and December 31, ~~2016~~2021 were as follows:


	Available-for-Sale									Available-for-Sale
	September 30, 2017									September 30, 2022
			Gross		Gross			Estimated				Gross		Gross			Estimated
	Amortized		Unrealized		Unrealized			Fair		Amortized		Unrealized		Unrealized			Fair
	Cost		Gains		Losses			Value		Cost		Gains		Losses			Value
	(Dollars in Thousands)									(Dollars in Thousands)
Mortgage-backed securities:
Residential	$	83,391	$	477	$	(318	)	$	83,550	$	50,647	$	1	$	(3,801	)	$	46,847
Commercial		67,781		62		(705	)		67,138		18,324		134		(418	)		18,040
Obligations of U.S. government-sponsored agencies											5,118		—		(778	)		4,340
Obligations of states and political subdivisions		5,424		231		—			5,655		3,789		—		(127	)		3,662
Obligations of U.S. government-sponsored agencies		2,000		2		—			2,002
Corporate notes											19,838		2		(1,680	)		18,160
U.S. Treasury securities		80		—		—			80		56,946		—		(4,201	)		52,745
Total	$	158,676	$	772	$	(1,023	)	$	158,425	$	154,662	$	137	$	(11,005	)	$	143,794


	Held-to-Maturity									Held-to-Maturity
	September 30, 2017									September 30, 2022
			Gross		Gross			Estimated				Gross		Gross			Estimated
	Amortized		Unrealized		Unrealized			Fair		Amortized		Unrealized		Unrealized			Fair
	Cost		Gains		Losses			Value		Cost		Gains		Losses			Value
	(Dollars in Thousands)									(Dollars in Thousands)
Mortgage-backed securities:
Commercial	$	15,976	$	18	$	(61	)	$	15,933	$	1,334	$	—	$	(37	)	$	1,297
Obligations of U.S. government-sponsored agencies		9,458		25		(79	)		9,404		675		—		(46	)		629
Obligations of states and political subdivisions		1,943		26		(3	)		1,966		100		—		(13	)		87
Total	$	27,377	$	69	$	(143	)	$	27,303	$	2,109	$	—	$	(96	)	$	2,013


	Available-for-Sale									Available-for-Sale
	December 31, 2016									December 31, 2021
			Gross		Gross			Estimated				Gross		Gross			Estimated
	Amortized		Unrealized		Unrealized			Fair		Amortized		Unrealized		Unrealized			Fair
	Cost		Gains		Losses			Value		Cost		Gains		Losses			Value
	(Dollars in Thousands)									(Dollars in Thousands)
Mortgage-backed securities:
Residential	$	99,922	$	490	$	(2,003	)	$	98,409	$	46,020	$	450	$	(242	)	$	46,228
Commercial		71,761		56		(1,287	)		70,530		24,647		371		(47	)		24,971
Obligations of U.S. government-sponsored agencies											5,207		—		(15	)		5,192
Obligations of states and political subdivisions		9,759		390		(7	)		10,142		4,247		80		(10	)		4,317
Obligations of U.S. government-sponsored agencies		2,000		—		(7	)		1,993
Corporate notes		756		—		—			756		15,458		76		(52	)		15,482
U.S. Treasury securities		80		—		—			80		35,097		—		(404	)		34,693
Total	$	184,278	$	936	$	(3,304	)	$	181,910	$	130,676	$	977	$	(770	)	$	130,883


	Held-to-Maturity									Held-to-Maturity
	December 31, 2016									December 31, 2021
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Estimated Fair Value		Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value
	(Dollars in Thousands)									(Dollars in Thousands)
Mortgage-backed securities:
Commercial	$	14,684	$	5	$	(148	)	$	14,541	$	2,115	$	29	$	—	$	2,144
Obligations of U.S. government-sponsored agencies		9,129		13		(222	)		8,920		768		10		—		778
Obligations of states and political subdivisions		2,091		2		(46	)		2,047		553		2		—		555
Total	$	25,904	$	20	$	(416	)	$	25,508	$	3,436	$	41	$	—	$	3,477

The scheduled maturities of investment securities available-for-sale and held-to-maturity as of September 30,~~, 2017~~ 2022 are presented in the following table:

Available-for-Sale

Held-to-Maturity

Amortized
Cost

Estimated
Fair
Value

Amortized
Cost

Estimated
Fair
Value

(Dollars in Thousands)

Maturing within one year
$ 490 $ 496 $
—
$
—

Maturing after one to five years
8,674 8,723 2,048 �� 2,079
Maturing after five to ten years
71,462 71,596 2,904 2,899
Maturing after ten years
78,050 77,610 22,425 22,325
Total
$ 158,676 $ 158,425 $ 27,377 $ 27,303


	Available-for-Sale				Held-to-Maturity
	Amortized Cost		Estimated Fair Value		Amortized Cost		Estimated Fair Value
	(Dollars in Thousands)
Maturing within one year	$	2,518	$	2,511	$	—	$	—
Maturing after one to five years		60,412		56,550		—		—
Maturing after five to ten years		73,817		67,510		1,830		1,757
Maturing after ten years		17,915		17,223		279		256
Total	$	154,662	$	143,794	$	2,109	$	2,013

For purposes of the maturity table, mortgage-backed securities, which are not due at a single maturity date, have been allocated over maturity groupings based on the weighted-average contractual maturities of underlying collateral. The mortgage-backed securities generally mature earlier than their weighted-average contractual maturities because of principal prepayments.

The following ~~table reflects~~tables reflect gross unrealized losses and fair value, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position, as of September 30, ~~2017~~2022 and December 31, ~~2016.~~2021.


	Available-for-Sale										Available-for-Sale
	September 30, 2017										September 30, 2022
	Less than 12 Months					12 Months or More					Less than 12 Months					12 Months or More
	Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			Fair Value		Unrealized Losses
	(Dollars in Thousands)										(Dollars in Thousands)
Mortgage-backed securities:
Residential	$	38,784	$	(115	)	$	14,350	$	(203	)	$	26,903	$	(1,478	)	$	19,875	$	(2,323	)
Commercial		19,576		(145	)		37,291		(560	)		8,105		(364	)		535		(54	)
Obligations of U.S. government-sponsored agencies												4,223		(777	)		117		(1	)
Obligations of states and political subdivisions												3,151		(72	)		512		(55	)
Corporate notes												13,452		(1,387	)		2,707		(293	)
U.S. Treasury securities		80		—			—		—			21,323		(686	)		31,502		(3,515	)
Total	$	58,440	$	(260	)	$	51,641	$	(763	)	$	77,157	$	(4,764	)	$	55,248	$	(6,241	)


	Held-to-Maturity										Held-to-Maturity
	September 30, 2017										September 30, 2022
	Less than 12 Months					12 Months or More					Less than 12 Months					12 Months or More
	Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			Fair Value		Unrealized Losses
	(Dollars in Thousands)										(Dollars in Thousands)
Mortgage-backed securities:
Commercial	$	9,643	$	(58	)	$	423	$	(3	)	$	1,297	$	(37	)	$	—	$	—
Obligations of U.S. government-sponsored agencies		3,217		(27	)		4,345		(52	)		629		(46	)		—		—
Obligations of states and political subdivisions		—		—			543		(3	)		87		(13	)		—		—
Total	$	12,860	$	(85	)	$	5,311	$	(58	)	$	2,013	$	(96	)	$	—	$	—

Available-for-Sale

December 31, 2016

Less than 12 Months

12 Months or More

Fair
Value

Unrealized
Losses

Fair
Value

Unrealized
Losses

(Dollars in Thousands)

Mortgage-backed securities:

Residential
$ 85,741 $ (1,976
)
$ 1,904 $ (27
)
Commercial
54,475 (946
)
10,721 (341
)
Obligations of U.S. government-sponsored agencies
1,993 (7
)
— —
Obligations of states and political subdivisions
434 (7 ) — —
U.S. Treasury securities
80 —

— —
Total
$ 142,723 $ (2,936
)
$ 12,625 $ (368
)

Held-to-Maturity

December 31, 2016

Less than 12 Months

12 Months or More

Fair
Value

Unrealized
Losses

Fair
Value

Unrealized
Losses

(Dollars in Thousands)

Mortgage-backed securities:

Commercial
$ 12,776 $ (148
)
$ — $ —
Obligations of U.S. government-sponsored agencies
7,957 (222
)
— —

Obligations of states and political subdivisions
1,628 (46
)
— —
Total
$ 22,361 $ (416
)
$ — $ —


	Available-for-Sale
	December 31, 2021
	Less than 12 Months					12 Months or More
	Fair Value		Unrealized Losses			Fair Value		Unrealized Losses
	(Dollars in Thousands)
Mortgage-backed securities:
Residential	$	31,346	$	(240	)	$	253	$	(2	)
Commercial		2,245		(12	)		2,970		(35	)
Obligations of U.S. government-sponsored agencies		4,987		(13	)		194		(2	)
Obligations of states and political subdivisions		561		(10	)		—		—
Corporate notes		9,092		(52	)		—		—
U.S. Treasury securities		34,692		(404	)		—		—
Total	$	82,923	$	(731	)	$	3,417	$	(39	)

There were no held-to-maturity securities in an unrealized loss position as of December 31, 2021.

Due to the increasing interest rate environment during the nine months ended September 30, 2022, gross unrealized losses increased significantly, particularly within the Company’s available-for-sale portfolio. Management evaluates securities for other-than-temporary impairment no less frequently than quarterly and more frequently when economic or market concerns warrant such evaluation. Consideration is given to: (i) the length of time and the extent to which fair value has been less than ~~cost,~~cost; (ii) the financial condition and near-term prospects of the ~~issuer,~~issuer; (iii) whether the Company intends to sell ~~securities,~~the securities; and (iv) whether it is more likely than not that the Company will be required to sell the securities before recovery of their amortized cost ~~bases.~~basis.

As of September 30, ~~2017, 46~~2022, 26 debt securities had been in a loss position for more than 12 months, and 75109 debt securities had been in a loss position for less than 12 months. As of December 31, ~~2016, 13~~2021, 10 debt securities had been in a loss position for more than 12 months, and ~~130~~32 debt securities had been in a loss position for less than 12 months. The increase in the number of debt securities in a loss position resulted from the rising interest rate environment during the nine months ended September 30, 2022. As of both September 30, ~~2017~~2022 and December 31, ~~2016,~~2021, the losses for all securities were considered to be a direct result of the effect that the prevailing interest rate environment had on the value of debt securities and were not related to the creditworthiness of the issuers. Further, the Company has the current intent and ability to retain its investments ~~in the issuers~~ for a period of time that management believes to be sufficient to allow for any anticipated recovery in fair value. Therefore, the Company did ~~not~~not recognize any other-than-temporary impairments as of September 30, ~~2017 and~~2022 or December 31, ~~2016.~~2021.

Investment securities ~~available-for-sale~~ with a carrying value of ~~$87.1~~$60.9 million and ~~$87.7~~$52.2 million as of September 30, ~~2017~~2022 and December 31, ~~2016,~~2021, respectively, were pledged to secure public deposits and for other purposes.

LOANS AND ALLOWANCE FOR LOAN AND LEASE LOSSES

4.	~~LOANS AND ALLOWANCE FOR LOAN LOSSES~~

Portfolio Segments

The Company has divided the loan portfolio into ~~eight~~the following portfolio segments ~~each with different~~based on risk ~~characteristics described as follows:~~characteristics:

Construction, land development and other land loans – Commercial construction, land and land development loans include loans for 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.~~land and loans primarily for agricultural production that are secured by farmland. 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 1-4 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 or second mortgage on the borrower’s residence, allows customers to borrow against the equity in their ~~homes.~~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 loansand leases – This portfolio segment includes loans and leases to commercial customers for use in the normal course of business. These credits may be loans, ~~and~~ 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~~Direct consumer – 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~~Branch retail – This portfolio segment includes loans secured by collateral ~~that is~~ purchased by consumers at retail stores with whom ALC had an established relationship through its branch network to provide financing for the retail products sold if applicable underwriting standards were met. The collateral securing these loans generally includes personal property items such as furniture, ATVs and home appliances.

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

The collateral securing these loans generally includes recreational vehicles, campers, boats, horse trailers and cargo trailers.

As of September 30, ~~2017~~2022 and December 31, ~~2016,~~2021, the composition of the loan portfolio by reporting segment and portfolio segment was as follows:


	September 30, 2017						September 30, 2022
	Bank		ALC		Total		Bank		ALC		Total
	(Dollars in Thousands)						(Dollars in Thousands)
Real estate loans:
Construction, land development and other land loans	$	20,213	$	—	$	20,213	$	36,740	$	—	$	36,740
Secured by 1-4 family residential properties		35,125		11,490		46,615		83,231		1,680		84,911
Secured by multi-family residential properties		16,498		—		16,498		72,446		—		72,446
Secured by non-farm, non-residential properties		107,679		—		107,679		200,505		—		200,505
Other		223		—		223
Commercial and industrial loans		66,320		—		66,320
Commercial and industrial loans and leases (1)								65,951		—		65,951
Consumer loans:
Consumer		5,431		35,650		41,081
Indirect sales		—		50,553		50,553
Direct consumer								5,685		6,594		12,279
Branch retail								—		16,278		16,278
Indirect								262,742		—		262,742
Total loans		251,489		97,693		349,182		727,300		24,552		751,852
Less: Unearned interest, fees and deferred cost		367		5,981		6,348		847		734		1,581
Allowance for loan losses		2,422		2,386		4,808
Allowance for loan and lease losses								8,033		1,340		9,373
Net loans	$	248,700	$	89,326	$	338,026	$	718,420	$	22,478	$	740,898

December 31, 2016

Bank

ALC

Total

(Dollars in Thousands)

Real estate loans:

Construction, land development and other land loans
$ 23,772 $ — $ 23,772
Secured by 1-4 family residential properties
32,955 13,724 46,679
Secured by multi-family residential properties
16,627 — 16,627
Secured by non-farm, non-residential properties
102,112 — 102,112
Other
234 — 234
Commercial and industrial loans
57,963 — 57,963
Consumer loans:

Consumer 6,206 36,413 42,619
Indirect sales
— 44,775 44,775
Total loans
239,869 94,912 334,781
Less: Unearned interest, fees and deferred cost
218 6,935 7,153
Allowance for loan losses
2,409 2,447 4,856
Net loans
$ 237,242 $ 85,530 $ 322,772


	December 31, 2021
	Bank			ALC		Total
	(Dollars in Thousands)
Real estate loans:
Construction, land development and other land loans	$	67,048		$	—	$	67,048
Secured by 1-4 family residential properties		70,439			2,288		72,727
Secured by multi-family residential properties		46,000			—		46,000
Secured by non-farm, non-residential properties		197,901			—		197,901
Commercial and industrial loans and leases (1)		73,947			—		73,947
Consumer loans:
Direct consumer		5,972			15,717		21,689
Branch retail		—			25,692		25,692
Indirect		205,940			—		205,940
Total loans		667,247			43,697		710,944
Less: Unearned interest, fees and deferred cost		(324	)		2,918		2,594
Allowance for loan and lease losses		7,038			1,282		8,320
Net loans	$	660,533		$	39,497	$	700,030

(1)

Includes equipment financing leases and PPP loans. As of September 30, 2022 and December 31, 2021, equipment finance leases totaled $10.8 million and $11.0 million, respectively, and PPP loans totaled $31 thousand and $1.7 million, respectively.

The Company makes commercial, real estate and installment loans to its customers. Although the Company has a diversified loan portfolio, 54~~.8%~~52.5% and ~~56.6%~~54.0% of the portfolio was concentrated in loans secured by real estate ~~located primarily within a single geographic region of the United States~~ as of September 30, ~~2017~~2022 and December 31, ~~2016,~~2021, respectively.

Loans with a carrying value of $113.5 million and $66.6 million were pledged as collateral to secure Federal Home Loan Bank (“FHLB”) borrowings as of September 30, 2022 and December 31, 2021, respectively.

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 ~~non-related~~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 were $0.3 million as of both September 30, ~~2017~~2022 and December 31, ~~2016 were $0.5 million and $2.7 million, respectively.~~2021. During the nine months ended September 30, ~~2017,~~2022, there were no new loans to these parties, and repayments by active related parties were $7$5 thousand. In addition, during the nine months ended September 30, 2017, approximately $2.5 million in related party loans were reclassified as unrelated party loans due to the retirement of certain members of the Company’s Board of Directors. During the year ended December 31, ~~2016,~~2021, there ~~was one~~were no new ~~loan~~loans to ~~a related party,~~these parties, and repayments by active related parties ~~totaled $0.1~~were $0.1 million.

Allowance for Loan and Lease Losses

The following tables present changes in the allowance for loan and lease losses during the nine months ended September 30, 2022 and 2021 and the related loan balances by loan ~~portfolio segment and loan~~ type as of September 30, ~~2017~~2022 and ~~December 31, 2016.~~2021:

	Bank
	Nine Months Ended September 30, 2017																								As of and for the Nine Months Ended September 30, 2022
	Construction, Land			1-4 Family			Real Estate Multi- Family			Non-Farm Non-Residential			Other		Commercial		Consumer			Indirect Sales		Total			Construction, Land Development, and Other			Real Estate 1-4 Family			Real Estate Multi- Family		Non- Farm Non- Residential		Commercial and Industrial		Direct Consumer			Branch Retail			Indirect			Total
	(Dollars in Thousands)																								(Dollars in Thousands)
Allowance for loan losses:
Allowance for loan and lease losses:
Beginning balance	$	535		$	304		$	88	$	903		$	2	$	527		$	50		$	—	$	2,409		$	628		$	690		$	437	$	1,958	$	860	$	1,004		$	304		$	2,439		$	8,320
Charge-offs		—			—			—		—			—		(16	)		(63	)		—		(79	)		—			(10	)		—		—		—		(1,604	)		(423	)		(238	)		(2,275	)
Recoveries		—			85			—		69			—		16			52			—		222			2			23			—		4		—		387			97			34			547
Provision		(328	)		(141	)		27		(142	)		—		440			14			—		(130	)		(246	)		89			210		30		244		1,161			445			848			2,781
Ending balance	$	207		$	248		$	115	$	830		$	2	$	967		$	53		$	—	$	2,422		$	384		$	792		$	647	$	1,992	$	1,104	$	948		$	423		$	3,083		$	9,373

Ending balance of allowance attributable to loans:
Individually evaluated for impairment	$	62		$	5		$	—	$	55		$	—	$	72		$	—		$	—	$	194		$	—		$	8		$	—	$	—	$	277	$	—		$	—		$	—		$	285
Collectively evaluated for impairment		145			243			115		775			2		895			53			—		2,228			384			784			647		1,992		827		948			423			3,083			9,088
Total allowance for loan losses	$	207		$	248		$	115	$	830		$	2	$	967		$	53		$	—	$	2,422
Total allowance for loan and lease losses																									$	384		$	792		$	647	$	1,992	$	1,104	$	948		$	423		$	3,083		$	9,373
Ending balance of loans receivable:
Individually evaluated for impairment	$	86		$	189		$	—	$	535		$	—	$	70		$	—		$	—	$	880		$	1,048		$	600		$	—	$	1,765	$	2,603	$	18		$	—		$	—		$	6,034
Collectively evaluated for impairment		20,127			34,936			16,498		107,144			223		66,250			5,431			—		250,609			35,692			84,311			72,446		198,740		63,348		12,261			16,278			262,742			745,818
Loans acquired with deteriorated credit quality																										—			—			—		—		—		—			—			—			—
Total loans receivable	$	20,213		$	35,125		$	16,498	$	107,679		$	223	$	66,320		$	5,431		$	—	$	251,489		$	36,740		$	84,911		$	72,446	$	200,505	$	65,951	$	12,279		$	16,278		$	262,742		$	751,852

	ALC
	Nine Months Ended September 30, 2017																						As of and for the Nine Months Ended September 30, 2021
	Construction, Land		1-4 Family			Real Estate Multi- Family		Non-Farm Non-Residential		Other		Commercial		Consumer			Indirect Sales			Total			Construction, Land Development, and Other			Real Estate 1-4 Family			Real Estate Multi- Family			Non- Farm Non- Residential		Commercial and Industrial			Direct Consumer			Branch Retail			Indirect			Total
	(Dollars in Thousands)																						(Dollars in Thousands)
Allowance for loan losses:
Allowance for loan and lease losses:
Beginning balance	$	—	$	107		$	—	$	—	$	—	$	—	$	1,717		$	623		$	2,447		$	393		$	639		$	577		$	1,566	$	1,008		$	1,202		$	373		$	1,712		$	7,470
Charge-offs		—		(27	)		—		—		—		—		(1,721	)		(445	)		(2,193	)		(22	)		(6	)		—			—		(6	)		(848	)		(299	)		(365	)		(1,546	)
Recoveries		—		28			—		—		—		—		435			75			538			21			9			—			4		10			512			148			48			752
Provision		—		(5	)		—		—		—		—		1,134			465			1,594			128			50			(89	)		415		(135	)		120			127			901			1,517
Ending balance	$	—	$	103		$	—	$	—	$	—	$	—	$	1,565		$	718		$	2,386		$	520		$	692		$	488		$	1,985	$	877		$	986		$	349		$	2,296		$	8,193

Ending balance of allowance attributable to loans:
Individually evaluated for impairment	$	—	$	—		$	—	$	—	$	—	$	—	$	—		$	—		$	—		$	—		$	10		$	—		$	—	$	58		$	—		$	—		$	—		$	68
Collectively evaluated for impairment		—		103			—		—		—		—		1,565			718			2,386			520			682			488			1,985		819			986			349			2,296			8,125
Total allowance for loan losses	$	—	$	103		$	—	$	—	$	—	$	—	$	1,565		$	718		$	2,386
Total allowance for loan and lease losses																							$	520		$	692		$	488		$	1,985	$	877		$	986		$	349		$	2,296		$	8,193
Ending balance of loans receivable:
Individually evaluated for impairment	$	—	$	—		$	—	$	—	$	—	$	—	$	—		$	—		$	—		$	—		$	671		$	—		$	1,053	$	1,015		$	21		$	—		$	—		$	2,760
Collectively evaluated for impairment		—		11,490			—		—		—		—		35,650			50,553			97,693			58,175			72,430			51,420			197,692		76,664			25,824			29,764			194,154			706,123
Loans acquired with deteriorated credit quality																								—			11			—			—		—			—			—			—			11
Total loans receivable	$	—	$	11,490		$	—	$	—	$	—	$	—	$	35,650		$	50,553		$	97,693		$	58,175		$	73,112		$	51,420		$	198,745	$	77,679		$	25,845		$	29,764		$	194,154		$	708,894

Bank and ALC

Nine Months Ended September 30, 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
— (27 ) — — — (16 ) (1,784 ) (445 ) (2,272 )
Recoveries
— 113 — 69 — 16 487 75 760
Provision
(328 ) (146 ) 27 (142 ) — 440 1,148 465 1,464
Ending balance
$ 207 $ 351 $ 115 $ 830 $ 2 $ 967 $ 1,618 $ 718 $ 4,808

Ending balance of allowance attributable to loans:
Individually evaluated for impairment
$ 62 $ 5 $ — $ 55 $ — $ 72 $ — $ — $ 194
Collectively evaluated for impairment
145 346 115 775 2 895 1,618 718 4,614
Total allowance for loan losses $ 207 $ 351 $ 115 $ 830 $ 2 $ 967 $ 1,618 $ 718 $ 4,808
Ending balance of loans receivable:

Individually evaluated for impairment
$ 86 $ 189 $ — $ 535 $ — $ 70 $ — $ — $ 880
Collectively evaluated for impairment 20,127 46,426 16,498 107,144 223 66,250 41,081 50,553 348,302
Total loans receivable
$ 20,213 $ 46,615 $ 16,498 $ 107,679 $ 223 $ 66,320 $ 41,081 $ 50,553 $ 349,182

Bank

Year Ended December 31, 2016

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
$ 110 $ 138 $ 29 $ 351 $ 1 $ 659 $ 41 $ — $ 1,329
Charge-offs
— (66 ) — (40 ) — (2 ) (43 ) — (151 )
Recoveries
200 23 — — — 73 50 — 346
Provision
225 209 59 592 1 (203 ) 2 — 885
Ending balance
$ 535 $ 304 $ 88 $ 903 $ 2 $ 527 $ 50 $ — $ 2,409

Ending balance of allowance attributable to loans:
Individually evaluated for impairment
$ 423 $ 5 $ — $ 107 $ — $ — $ — $ — $ 535
Collectively evaluated for impairment
112 299 88 796 2 527 50 — 1,874
Total allowance for loan losses $ 535 $ 304 $ 88 $ 903 $ 2 $ 527 $ 50 $ — $ 2,409
Ending balance of loans receivable:

Individually evaluated for impairment
$ 1,361 $ 193 $ — $ 549 $ — $ — $ — $ — $ 2,103
Collectively evaluated for impairment 22,411 32,762 16,627 101,563 234 57,963 6,206 — 237,766
Total loans receivable
$ 23,772 $ 32,955 $ 16,627 $ 102,112 $ 234 $ 57,963 $ 6,206 $ — $ 239,869

ALC

Year Ended December 31, 2016

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
$ — $ 250 $ — $ — $ — $ — $ 1,584 $ 618 $ 2,452
Charge-offs
— (56
)
— —

— —

(2,218
)
(752 ) (3,026
)
Recoveries
— 39 — — — — 451 220 710
Provision
— (126 ) — — — —

1,900 537 2,311
Ending balance
$ — $ 107 $ — $ — $ — $ — $ 1,717 $ 623 $ 2,447

Ending balance of allowance attributable to loans:
Individually evaluated for impairment
$ — $ — $ — $ — $ — $ — $ — $ — $ —
Collectively evaluated for impairment
— 107 — — — — 1,717 623 2,447
Total allowance for loan losses $ — $ 107 $ — $ — $ — $ — $ 1,717 $ 623 $ 2,447
Ending balance of loans receivable:

Individually evaluated for impairment
$ — $ — $ — $ — $ — $ — $ — $ — $ —
Collectively evaluated for impairment — 13,724 — — — — 36,413 44,775 94,912
Total loans receivable
$ — $ 13,724 $ — $ — $ — $ — $ 36,413 $ 44,775 $ 94,912

Bank and ALC

Year Ended December 31, 2016

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
$ 110 $ 388 $ 29 $ 351 $ 1 $ 659 $ 1,625 $ 618 $ 3,781
Charge-offs
— (122
)
— (40
)
— (2
)
(2,261
)
(752 ) (3,177
)
Recoveries
200 62 — — — 73 501 220 1,056
Provision
225 83 59 592 1 (203
)
1,902 537 3,196
Ending balance
$ 535 $ 411 $ 88 $ 903 $ 2 $ 527 $ 1,767 $ 623 $ 4,856

Ending balance of allowance attributable to loans:
Individually evaluated for impairment
$ 423 $ 5 $ — $ 107 $ — $ — $ — $ — $ 535
Collectively evaluated for impairment
112 406 88 796 2 527 1,767 623 4,321
Total allowance for loan losses $ 535 $ 411 $ 88 $ 903 $ 2 $ 527 $ 1,767 $ 623 $ 4,856
Ending balance of loans receivable:

Individually evaluated for impairment
$ 1,361 $ 193 $ — $ 549 $ — $ — $ — $ — $ 2,103
Collectively evaluated for impairment 22,411 46,486 16,627 101,563 234 57,963 42,619 44,775 332,678
Total loans receivable
$ 23,772 $ 46,679 $ 16,627 $ 102,112 $ 234 $ 57,963 $ 42,619 $ 44,775 $ 334,781

Credit Quality Indicators

The ~~Bank~~Company 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~~construction, land, multi-family real estate, other commercial real estate, and commercial and industrial loans are graded based on pre-determined risk metrics and categorized into one of 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 1-5): Loans in this category include obligations~~ ~~in which the probability of default is considered low.~~

●

~~Special Mention (Risk Grade 6):~~ 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

•

Pass (Risk Grades 1-5): Loans in this category include obligations in which the probability of default is considered low.

•

Special Mention (Risk Grade 6): Loans in this category exhibit potential credit weaknesses or downward trends deserving 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 Company’s credit position at some future date. Special mention loans are not adversely classified and do not expose the Company 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 7): 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 no 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 8): 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. The Company did not have any loans classified as Doubtful (Risk Grade 8) as of September 30, 2022 or December 31, 2021.

•

Loss (Risk Grade 9): 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 Company is not warranted. This classification does not mean that the loan has absolutely no recovery or salvage value, but rather that it is not prudent to defer writing off these assets, even though partial recovery may be realized in the future. The Company did not have any loans classified as Loss (Risk Grade 9) as of September 30, 2022 or December 31, 2021.

Because residential real estate and consumer 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 7):~~ Loans in this category have defined weaknesses that jeopardize the orderly liquidation of debt. A substandard loan is inadequately protected by the current sound worth and paying capacity of the obligor or by the collateral pledged, if any. Normal repayment from the borrower is in jeopardy, although no 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 8):~~ 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 9):~~ 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 no recovery or salvage value, but rather that it is not prudent to defer writing off these worthless assets, even though partial recovery may occur in the future.

~~At ALC, because the loan portfolio is~~ more uniform in nature, each loan is categorized into one of 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, ~~2017.~~2022:


	Bank										September 30, 2022
	Pass 1-5		Special Mention 6		Substandard 7		Doubtful 8		Total		Pass 1-5			Special Mention 6			Substandard 7			Total
	(Dollars in Thousands)										(Dollars in Thousands)
Loans secured by real estate:
Construction, land development and other land loans	$	19,939	$	—	$	274	$	—	$	20,213	$	35,692		$	—		$	1,048		$	36,740
Secured by 1-4 family residential properties		34,069		201		855		—		35,125
Secured by multi-family residential properties		16,498		—		—		—		16,498		72,446			—			—			72,446
Secured by non-farm, non-residential properties		102,264		4,884		531		—		107,679		198,004			656			1,845			200,505
Other		223		—		—		—		223
Commercial and industrial loans		63,995		2,105		220		—		66,320		63,064			—			2,887			65,951
Consumer loans		5,366		—		65		—		5,431
Total	$	242,354	$	7,190	$	1,945	$	—	$	251,489	$	369,206		$	656		$	5,780		$	375,642
As a percentage of total loans												98.29	%		0.17	%		1.54	%		100.00	%

ALC

Performing

Nonperforming

Total

(Dollars in Thousands)

Loans secured by real estate:

Secured by 1-4 family residential properties
$ 11,292 $ 198 $ 11,490
Consumer loans:
Consumer 34,609 1,041 35,650
Indirect sales
50,168 385 50,553
Total
$ 96,069 $ 1,624 $ 97,693


	September 30, 2022
	Performing			Nonperforming			Total
	(Dollars in Thousands)
Loans secured by real estate:
Secured by 1-4 family residential properties	$	83,611		$	1,300		$	84,911
Consumer loans:
Direct consumer		12,112			167			12,279
Branch retail		16,130			148			16,278
Indirect		262,742			—			262,742
Total	$	374,595		$	1,615		$	376,210
As a percentage of total loans		99.57	%		0.43	%		100.00	%

The tables below illustrate the carrying amount of loans by credit quality indicator as of December 31, ~~2016.~~2021:


	Bank										December 31, 2021
	Pass 1-5		Special Mention 6		Substandard 7		Doubtful 8		Total		Pass 1-5			Special Mention 6			Substandard 7			Total
	(Dollars in Thousands)										(Dollars in Thousands)
Loans secured by real estate:
Construction, land development and other land loans	$	22,240	$	—	$	1,532	$	—	$	23,772	$	67,046		$	—		$	2		$	67,048
Secured by 1-4 family residential properties		31,995		213		747		—		32,955
Secured by multi-family residential properties		16,627		—		—		—		16,627		43,472			2,528			—			46,000
Secured by non-farm, non-residential properties		99,082		2,315		715		—		102,112		189,425			7,442			1,034			197,901
Other		234		—		—		—		234
Commercial and industrial loans		55,481		2,227		255		—		57,963		72,116			333			1,498			73,947
Consumer loans		6,126		—		80		—		6,206
Total	$	231,785	$	4,755	$	3,329	$	—	$	239,869	$	372,059		$	10,303		$	2,534		$	384,896
As a percentage of total loans												96.66	%		2.68	%		0.66	%		100.00	%

ALC

Performing

Nonperforming

Total

(Dollars in Thousands)

Loans secured by real estate:

Secured by 1-4 family residential properties
$ 13,507 $ 217 $ 13,724
Consumer loans:
Consumer 35,278 1,135 36,413
Indirect sales
44,228 547 44,775
Total
$ 93,013 $ 1,899 $ 94,912


	December 31, 2021
	Performing			Nonperforming			Total
	(Dollars in Thousands)
Loans secured by real estate:
Secured by 1-4 family residential properties	$	71,526		$	1,201		$	72,727
Consumer loans:
Direct consumer		20,939			750			21,689
Branch retail		25,486			206			25,692
Indirect		205,940			—			205,940
Total	$	323,891		$	2,157		$	326,048
As a percentage of total loans		99.34	%		0.66	%		100.00	%

The following ~~tables provide~~table provides an aging analysis of past due loans by class as of September 30, ~~2017.~~2022:

Bank

As of September 30, 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
$ 23 $
—
$ — $ 23 $ 20,190 $ 20,213 $
—

Secured by 1-4 family residential properties
149 — 91 240 34,885 35,125
—

Secured by multi-family residential properties

—

—

—

—
16,498 16,498
—

Secured by non-farm, non-residential properties

15

117

—

132
107,547 107,679
—

Other

—

—

—

—
223 223
—

Commercial and industrial loans
31 —
—
31 66,289 66,320
—

Consumer loans

—

—

23

23
5,408 5,431
—

Total
$ 218 $ 117 $ 114 $ 449 $ 251,040 $ 251,489 $
—


	As of September 30, 2022
	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	$	—		$	—		$	—		$	—		$	36,740		$	36,740		$	—
Secured by 1-4 family residential properties		288			15			223			526			84,385			84,911			—
Secured by multi-family residential properties		—			—			—			—			72,446			72,446			—
Secured by non-farm, non-residential properties		382			—			—			382			200,123			200,505			—
Commercial and industrial loans		406			—			—			406			65,545			65,951			—
Consumer loans:
Direct consumer		289			143			150			582			11,697			12,279			—
Branch retail		195			142			148			485			15,793			16,278			—
Indirect		101			—			59			160			262,583			262,742			—
Total	$	1,661		$	300		$	580		$	2,541		$	749,312		$	751,852		$	—
As a percentage of total loans		0.22	%		0.04	%		0.08	%		0.34	%		99.66	%		100.00	%

ALC

As of September 30, 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
73 70 71 214 11,276 11,490
—

Secured by multi-family residential properties

—

—

—

—

—

—

—

Secured by non-farm, non-residential properties

—

—

—

—

—

—

—

Other

—

—

—

—

—

—

—

Commercial and industrial loans

—

—

—

—

—

—

—

Consumer loans:
Consumer
506 433 1,016 1,955 33,695 35,650
—

Indirect sales

214

221

383

818

49,735

50,553

—

Total
$ 793 $ 724 $ 1,470 $ 2,987 $ 94,706 $ 97,693 $
—

The following ~~tables provide~~table provides an aging analysis of past due loans by class as of December 31, ~~2016~~.2021:

Bank

As of December 31, 2016

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
$
—
$ — $ 86 $ 86 $ 23,686 $ 23,772 $ —
Secured by 1-4 family residential properties
164 69 145 378 32,577 32,955 —
Secured by multi-family residential properties

—
— — — 16,627 16,627 —
Secured by non-farm, non-residential properties
762 — — 762 101,350 102,112 —
Other

—
— — — 234 234 —
Commercial and industrial loans
— — 14 14 57,949 57,963 —
Consumer loans

—
28 — 28 6,178 6,206 —
Total
$ 926 $ 97 $ 245 $ 1,268 $ 238,601 $ 239,869 $ —


	As of December 31, 2021
	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	$	—		$	—		$	—		$	—		$	67,048		$	67,048		$	—
Secured by 1-4 family residential properties		349			23			20			392			72,335			72,727			—
Secured by multi-family residential properties		—			—			—			—			46,000			46,000			—
Secured by non-farm, non-residential properties		403			—			—			403			197,498			197,901			—
Commercial and industrial loans		54			—			234			288			73,659			73,947			—
Consumer loans:
Direct consumer		652			589			730			1,971			19,718			21,689			—
Branch retail		377			182			206			765			24,927			25,692			—
Indirect		43			14			—			57			205,883			205,940			—
Total	$	1,878		$	808		$	1,190		$	3,876		$	707,068		$	710,944		$	—
As a percentage of total loans		0.27	%		0.11	%		0.17	%		0.55	%		99.45	%		100.00	%

ALC

As of December 31, 2016

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 29 213 303 13,421 13,724 —
Secured by multi-family residential properties
— — — — — — —
Secured by non-farm, non-residential properties
— — — — — — —
Other
— — — — — — —
Commercial and industrial loans
— — — — — — —
Consumer loans:
Consumer
441 413 1,104 1,958 34,455 36,413 —
Indirect sales
191 139 489 819 43,956 44,775 —
Total
$ 693 $ 581 $ 1,806 $ 3,080 $ 91,832 $ 94,912 $ —

The following table provides an analysis of non-accruing loans by class as of September 30, ~~2017~~2022 and December 31, ~~2016.~~2021:


	Loans on Non-Accrual Status				Loans on Non-Accrual Status
	September 30, 2017		December 31, 2016		September 30, 2022		December 31, 2021
	(Dollars in Thousands)				(Dollars in Thousands)
Loans secured by real estate:
Construction, land development and other land loans	$	—	$	86	$	—	$	2
Secured by 1-4 family residential properties		418		570		1,090		780
Secured by multi-family residential properties		—		—		—		—
Secured by non-farm, non-residential properties		33		53		—		—
Commercial and industrial loans		14		32		631		277
Consumer loans:
Consumer		1,106		1,676
Indirect sales		385		—
Direct consumer						149		743
Branch retail						148		206
Indirect						59		—
Total loans	$	1,956	$	2,417	$	2,077	$	2,008

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~~’sloan’s existing rate or at the fair value of collateral if repayment is expected solely from the liquidation of the ~~collateral at~~collateral. At the ~~Bank.~~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 athe borrower’s ability to pay. At ALC, all ~~real estate~~ loans of ~~$0.1 million~~$50 thousand or more that are 90 days or more past due are identified for impairment analysis. ~~There are currently~~As of both September 30, 2022 and December 31, 2021, there were $0.1 million of impaired loans with no ~~loans~~related allowance recorded at ~~ALC that meet that criteria. All loans of $0.5 million or more that have a credit quality risk grade of seven or above are identified for impairment analysis.~~ALC. Impaired loans, or portions thereof, are charged off when deemed uncollectable.

As of September 30, ~~2017,~~2022, the carrying amount of the Company’s impaired loans consisted of the following:

As of December 31, ~~2016,~~2021, the carrying amount of the Company’s impaired loans consisted of the following:

The average net investment in impaired loans and interest income recognized and received on impaired loans ~~as of~~during the nine months ended September 30, ~~2017~~2022 and the year ended December 31, ~~2016~~2021 were as follows:


	Nine Months Ended September 30, 2022
	Average Recorded Investment		Interest Income Recognized		Interest Income Received
	(Dollars in Thousands)
Loans secured by real estate
Construction, land development and other land loans	$	116	$	2	$	—
Secured by 1-4 family residential properties		624		4		4
Secured by multi-family residential properties		—		—		—
Secured by non-farm, non-residential properties		1,116		38		35
Commercial and industrial		872		7		4
Direct consumer		19		1		1
Total	$	2,747	$	52	$	44

September 30, 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
$ 1,183 $ 1 $ 1
Secured by 1-4 family residential properties
191 10 11
Secured by multi-family residential properties
— — —
Secured by non-farm, non-residential properties
539 27 25
Commercial and industrial
55 6 3
Total
$ 1,968 $ 44 $ 40


	Year Ended December 31, 2021
	Average Recorded Investment		Interest Income Recognized		Interest Income Received
	(Dollars in Thousands)
Loans secured by real estate
Construction, land development and other land loans	$	—	$	—	$	—
Secured by 1-4 family residential properties		773		31		31
Secured by multi-family residential properties		—		—		—
Secured by non-farm, non-residential properties		2,377		140		108
Commercial and industrial		637		61		40
Direct consumer		22		9		2
Total	$	3,809	$	241	$	181

December 31, 2016

Average
Recorded
Investment

Interest
Income
Recognized

Interest
Income
Received

(Dollars in Thousands)

Loans secured by real estate

Construction, land development and other land loans
$ 1,381 $ 41 $ 39
Secured by 1-4 family residential properties
232 14 14
Secured by multi-family residential properties
— — —
Secured by non-farm, non-residential properties
557 33 31
Commercial and industrial
— — —
Total
$ 2,170 $ 88 $ 84

Loans on which the accrual of interest has been discontinued amounted to ~~$2.0~~$2.1 million and ~~$2.4~~$2.0 million as of September 30, ~~2017~~2022 and December 31, ~~2016,~~2021, respectively. If interest on those loans had been accrued, there would have been $5$17 thousand and ~~$35~~$52 thousand of interest accrued for the periods ended September 30, ~~2017~~2022 and December 31, ~~2016,~~2021, respectively. Interest income related to these loans ~~as of~~for the nine months ended September 30, ~~2017~~2022 and the year ended December 31, ~~2016~~2021 was $3$27 thousand and $4$30 thousand, respectively.

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, ~~modification~~smodifications of note structure, principal balance reductions or some combination of these concessions. There were no loans modified with concessions granted during the ~~nine-month period~~nine months ended September 30, ~~2017.~~2022 and two loans with balances totaling $0.6 million modified with concessions granted during the year ended December 31, 2021. 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, 2017 and December 31, 2016, the~~The Company ~~had $0.1 million of~~did not have any non-accruing loans that were previously restructured and that remained on non-accrual ~~status.~~status as of both September 30, 2022 and December 31, 2021. For both the nine months ended September 30, ~~2017,~~2022 and the year ended December 31, 2021, the Company had no loans that were restored to accrual status based on a sustained period of repayment performance. ~~For the year ended December 31, 2016, the Company had $0.3 million in restructured loans that were restored to accrual status based on a sustained period of repayment performance.~~

The following table provides, as of September 30, 2022 and December 31, 2021, the number of loans remaining in each loan category ~~as of September 30, 2017 and December 31, 2016~~ that the ~~Bank~~Company had previously modified in a troubled debt restructuring, as well as the pre- and post-modification principal balance as of each date.

September 30, 2017

December 31, 2016

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 $ 84 2 $ 1,960 $ 1,286
Secured by 1-4 family residential properties
3 318 188 3 318 249
Secured by non-farm, non-residential properties
1 53 38 1 53 41
Commercial loans
2 116 83 2 116 88
Total
7 $ 594 $ 393 8 $ 2,447 $ 1,664


	September 30, 2022						December 31, 2021
	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	$	—		1	$	107	$	—
Secured by 1-4 family residential properties		2		59		12		2		59		12
Secured by non-farm, non-residential properties		2		621		613		2		621		617
Commercial loans		2		116		24		2		116		31
Total		7	$	903	$	649		7	$	903	$	660

As of September 30, ~~2017~~2022 and December 31, ~~2016,~~ 2021, no 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 no modifications to principal balances of the loans that were restructured. Accordingly, there was no impact on the ~~Company~~’sCompany’s allowance for loan and lease losses resulting from the modifications.

All loans with a principal balance of ~~$0.5~~$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 and lease losses. This evaluation resulted in an allowance for loan and lease losses attributable to such restructured loans of $37 thousand as of both September 30, ~~2017~~2022 and ~~$15 thousand as of~~ December 31, ~~2016.~~2021.

OTHER REAL ESTATE OWNED AND REPOSSESSED ASSETS

Other Real Estate Owned

5.	~~OTHER REAL ESTATE OWNED~~

Other real estate and certain other assets acquired in foreclosure are reported at the ~~lower of the investment in the loan or the fair~~net realizable value of the property, less estimated costs to sell. The following table summarizes foreclosed property activity ~~for~~as of the nine months ended September 30, ~~2017~~2022 and ~~2016.~~2021:

	September 30, 2017
	Bank			ALC			Total			September 30, 2022			September 30, 2021
	(Dollars in Thousands)									(Dollars in Thousands)
Beginning balance	$	4,353		$	505		$	4,858		$	2,149		$	949
Transfers from loans		—			87			87
Additions											411			1,981
Sales proceeds		(649	)		(199	)		(848	)		(2,215	)		(891	)
Gross gains		14			—			14			369			401
Gross losses		(20	)		(101	)		(121	)		(27	)		—
Net gains (losses)		(6	)		(101	)		(107	)
Net gains											342			401
Impairment		(171	)		—			(171	)		(1	)		(67	)
Ending balance	$	3,527		$	292		$	3,819		$	686		$	2,373

September 30, 2016

Bank

ALC

Total

(Dollars in Thousands)

Beginning balance
$ 5,327 $ 711 $ 6,038
Transfers from loans
255 149 404
Sales proceeds
(655
)
(259
)
(914
)
Gross gains
— 27 27
Gross losses
(40
)
(73
)
(113
)
Net gains (losses)
(40
)
(46
)
(86
)
Impairment
— (51
)
(51
)
Ending balance
$ 4,887 $ 504 $ 5,391

Valuation adjustments are recorded in other non-interest expense and are primarily post-foreclosure write-downs that are a result of continued declining property values based on updated appraisals or other indications of value, such as offers to purchase. ~~Fair~~Net realizable value less estimated ~~cost~~costs to sell of foreclosed residential real estate held by the Company was ~~$0.6 million and $1.1 million~~zero as of both September 30, ~~2017~~2022 and ~~2016, respectively.~~2021. In addition, the Company held ~~$20~~$19 thousand and ~~$0.1 million~~zero in consumer mortgage loans collateralized by residential real estate that were in the process of foreclosure as of September 30, ~~2017~~2022 and ~~2016,~~2021, respectively.

Repossessed Assets

In addition to the other real estate and other assets acquired in foreclosure, the Company also acquires assets through the repossession of the underlying collateral of loans in default. The following table summarizes repossessed asset activity as of the nine months ended September 30, 2022 and 2021:


	September 30, 2022			September 30, 2021
	(Dollars in Thousands)
Beginning balance	$	154		$	245
Transfers from loans		635			665
Sales proceeds		(331	)		(683	)
Gross gains		—			—
Gross losses		(292	)		(76	)
Net losses		(292	)		(76	)
Impairment		—			—
Ending balance	$	166		$	151

Repossessed assets are included in Other Assets in the Company’s condensed consolidated balance sheet.

GOODWILL AND OTHER INTANGIBLE ASSETS

6.	~~INVESTMENT IN LIMITED PARTNERSHIP~~

~~The Company holds an investment in an affordable housing project~~Goodwill is tested for ~~which it provides funding~~impairment annually, or more often if circumstances warrant. If, as a ~~limited partner~~result of impairment testing, it is determined that the implied fair value of goodwill is lower than its carrying amount, impairment is indicated, and ~~has received tax credits related~~goodwill must be written down to its ~~investment~~implied fair value. Subsequent increases in goodwill value are not recognized in the ~~project based on its partnership share. The net assets of the partnership consist primarily of apartment complexes~~, and the primary liabilities consist of those associated with the operation of the partnership. The Company has determined that this investment requires consolidation as a variable interest entity under ~~ASC Topic 810, Consolidation.~~ ~~The Company holds a 99.9% interest in the limited partnership. Assets~~consolidated financial statements. Goodwill, originally recorded ~~by the Company~~ as a result of the ~~consolidation were less than $0.1~~Company's acquisition of The Peoples Bank ("TPB") in 2018, totaled $7.4 million as of both September 30, ~~2017~~2022 and December 31, ~~2016.~~2021. Goodwill impairment was neither indicated nor recorded during the nine months ended September 30, 2022 or the year ended December 31, 2021.

7.	~~SHORT-TERM BORROWINGS~~

Core deposit premiums are amortized over a seven-year period and are periodically evaluated, at least annually, as to the recoverability of their carrying value. Core deposit premiums of $2.0 million were recorded during 2018 as part of the TPB acquisition.

The Company’s goodwill and other intangible assets (carrying basis and accumulated amortization) as of September 30, 2022 were as follows:


	September 30, 2022			December 31, 2021
	(Dollars in Thousands)
Goodwill	$	7,435		$	7,435
Core deposit intangible:
Gross carrying amount		2,048			2,048
Accumulated amortization		(1,627	)		(1,414	)
Core deposit intangible, net		421			634
Total	$	7,856		$	8,069

The Company’s estimated remaining amortization expense on intangible assets as of September 30, 2022 was as follows:


	Amortization Expense
	(Dollars in Thousands)
2022	$	55
2023		195
2024		122
2025		49
2026 and thereafter		—
Total	$	421

The net carrying amount of the Company’s core deposit premiums is not considered recoverable if it exceeds the sum of the undiscounted cash flows expected to result from use and eventual disposition. That assessment is based on the carrying amount of the intangible assets subject to amortization at the date on which it is tested for recoverability. Intangible assets subject to amortization are tested by the Company for recoverability whenever events or changes in circumstances indicate that their carrying amount may not be recoverable.

BORROWINGS

Short-Term Borrowings

Short-term borrowings consist of federal funds purchased, securities sold under repurchase agreements, and short-term ~~Federal Home Loan Bank (“FHLB”)~~FHLB advances with original maturities of one year or less. ~~Short-term borrowings totaled $10.6 million and $10.1 million as of September 30, 2017 and December 31, 2016, respectively.~~

•

Federal funds purchased, which represent unsecured lines of credit that generally mature within one to four days, are available to the Bank through arrangements with correspondent banks and the Federal Reserve. As of both September 30, ~~2017~~2022 and December 31, ~~2016,~~2021, there were no federal funds purchased ~~outstanding, and the Bank had $18.8 million in available unused lines of credit with correspondent banks and the Federal Reserve.~~

outstanding.

•

Securities sold under repurchase agreements, which are secured borrowings, generally are reflected at the amount of cash received in connection with the transaction. The Bank may be required to provide additional collateral based on the fair value of the underlying securities. The Bank monitors the fair value of the underlying securities on a daily basis. Securities sold under repurchase agreements as of September 30, ~~2017~~2022 and December 31, ~~2016~~2021 totaled ~~$0.6 million~~$106 thousand and ~~$0.1 million,~~$46 thousand, respectively.

•

Short-term FHLB advances are secured borrowings available to the Bank as an alternative funding source. As of ~~both~~ September 30, ~~2017~~2022 and December 31, ~~2016,~~2021, the Bank had ~~$10.0~~$40.0 million and $10.0 million, respectively, in outstanding FHLB advances with original maturities of less than one year.

8.	~~LONG-TERM DEBT~~

Long-Term Borrowings

FHLB Advances

The Company ~~uses~~ may use FHLB advances with original maturities of more than one year as an alternative to funding sources with similar maturities, such as certificates of deposit or other deposit programs. These advances generally offer more attractive rates than other mid-term financing options. They are also flexible, allowing the Company to quickly obtain the necessary maturities and rates that best suit its overall asset/liability strategy. FHLB advances with an original maturity of more than one year are classified as long-term. ~~The~~As of both September 30, 2022 and December 31, 2021, the Company ~~had~~did not have any long-term FHLB advances ~~outstanding~~outstanding.

Subordinated Debt

On October 1, 2021, the Company completed a private placement of ~~$10.0~~$11.0 million in aggregate principal amount of fixed-to-floating rate subordinated notes that will mature on October 1, 2031 (the “Notes”). The Notes bear interest at a rate of 3.50% per annum for the first five years, after which the interest rate will be reset quarterly to a benchmark interest rate per annum which, subject to certain conditions provided in the Notes, will be equal to the then current three-month term Secured Overnight Financing Rate (“SOFR”) plus 275 basis points. The Company used the net proceeds for general corporate purposes, including repurchasing of the Company’s common stock, and supporting organic growth plans, including the maintenance of capital ratios. As of both September 30, 2022 and December 31, 2021, the Notes were recorded as long-term borrowings totaling $10.7 million, net of unamortized debt issuance costs. The table below provides additional information related to the Notes as of and for the nine months ended September 30, 2022 and the year ended December 31, 2021, respectively.


	September 30,			December 31,
	2022			2021
	(Dollars in Thousands)
Balance at period-end	$	10,708		$	10,653
Average balance during the period	$	10,702		$	2,682
Maximum month-end balance during the year	$	10,708		$	10,653
Average rate paid during the year, including amortization of debt issuance costs		4.16	%		4.20
Weighted average remaining maturity (in years)		9.00			9.75

Available Credit

As an additional funding source, the Company has available unused lines of credit with correspondent banks, the Federal Reserve and the FHLB. Certain of these funding sources are subject to underlying collateral. As of September 30, 2022 and December 31, 2021, the Company’s available unused lines of credit consisted of the following:


Available Unused Lines of Credit	Collateral Requirements	September 30, 2022	December 31, 2021
Correspondent banks	None	$45.0 million	$45.0 million
Federal Reserve (discount window)	Subject to collateral	$1.2 million	$1.0 million
FHLB advances (1)	Subject to collateral	$206.6 million	$237.0 million

(1)

These amounts represent the total remaining credit the Company has from the FHLB, but this credit can only be utilized to the extent that underlying collateral exists. The total lendable collateral value of assets pledged (including loans and investment securities) associated with FHLB advances and letters of credit totaled $78.3 million and ~~$15.0~~$66.6 million as of September 30, ~~2017~~2022 and December 31, ~~2016,~~2021, respectively.

~~Assets pledged associated~~The Company’s collateral exposure with the FHLB in the form of advances ~~totaled $22.3~~and letters of credit was $70.0 million and ~~$28.0~~$40.0 million as of September 30, ~~2017 and~~ ~~December 31, 2016, respectively. As of September 30, 2017~~2022 and December 31, ~~2016, the Company had $164.8~~2021, respectively, leaving an excess of collateral of $8.3 million and ~~$155.0~~$26.6 million, respectively, ~~in remaining~~available to utilize for additional credit ~~from~~as of the ~~FHLB (subject~~respective dates. The Company also has the ability to ~~available collateral).~~pledge additional assets to increase the availability of borrowings.

9.	~~INCOME TAXES~~

INCOME TAXES

The provision for income taxes was $~~0.4~~1.4 million and $0.8 million for ~~both of~~ the ~~nine-month periods~~nine months ended September 30, ~~2017~~2022 and ~~2016.~~2021, respectively. The Company’s effective tax rate was ~~23.0%~~23.7% and ~~23.4%~~21.9%, respectively, for the same periods. The effective tax rate is impacted by recurring permanent differences, such as those associated with bank-owned life insurance and tax-exempt ~~investments~~investment and loan income.

The Company had a net deferred tax asset of ~~$7.7~~$5.1 million and ~~$8.7~~$2.5 million as of September 30, ~~2017~~2022 and December 31, ~~2016,~~2021, respectively. The ~~reduction in the~~ net deferred tax asset, ~~resulted primarily from~~which is included on the ~~impact of~~balance sheet in other assets, is impacted by changes in the fair value of securities available-for-sale ~~as well as the reduction of federal~~and cash flow hedges, changes in net operating loss ~~carry-forwards.~~carryforwards and other book-to-tax temporary differences.

10.

DEFERRED COMPENSATION PLANS

~~10.~~

~~DEFERRED COMPENSATION PLANS~~

The ~~Bank~~Company has entered into supplemental retirement compensation benefits agreements with certain directors and former executive officers. The measurement of the liability under these agreements includes estimates involving life expectancy, length of time before retirement and the expected returns on the bank-owned life insurance policies used to fund those agreements. Should these estimates prove to be materially wrong, the cost of these agreements could change accordingly. The related deferred compensation obligation to these directors and executive officers included in other liabilities was ~~$3.4 million and $3.5~~$3.2 million as of both September 30, ~~2017~~2022 and December 31, ~~2016, respectively.~~2021.

Non-employee directors may elect to defer payment of all or any portion of their Bancshares and Bank director fees under Bancshares’ Non-Employee Directors’ Deferred Compensation Plan (the “Deferral Plan”). The Deferral Plan ~~which was ratified by Bancshares’ shareholders at the annual meeting held on May 11, 2004,~~ permits non-employee directors to invest their directors’ fees and to receive the adjusted value of the deferred amounts in cash and/or shares of Bancshares’ common stock. Neither Bancshares nor the Bank makes any contribution to participants’ accounts under the Deferral Plan. As of September 30, ~~2017~~2022 and December 31, ~~2016,~~2021, a total of ~~100,990~~112,782 and ~~114,547~~117,825 shares of Bancshares common stock, respectively, were deferred in connection with the Deferral Plan. All deferred fees, whether in the form of cash or shares of Bancshares common stock, are reflected as compensation expense in the period earned. The Company classifies all deferred ~~directors'~~directors’ fees allocated to be paid in shares ~~of stock~~ as equity ~~surplus.~~additional paid-in capital. The Company ~~uses~~may use issued shares or shares of treasury stock to satisfy these obligations when due.

11.

STOCK AWARDS

~~11.~~

~~STOCK AWARDS~~

In accordance with the Company’s 2013 Incentive Plan, stock awards, including stock options and restricted stock, have been granted to certain employees and non-employee directors. Shares of common stock available for distribution to satisfy the grants may consist, in whole or in part, of authorized and unissued shares, treasury shares or shares reacquired by the Company in any manner. Stock-based compensation expense related to stock awards totaled ~~$0.2 million and $0.1~~$0.3 million for both the ~~nine-month periods~~nine months ended September 30, ~~2017~~2022 and ~~2016,~~2021, respectively.

Stock Options

~~The stock~~Stock option awards ~~were~~have been granted with an exercise price equal to the market price of ~~Bancshares’~~the Company’s common stock on the date of the grant and have vesting periods ranging from one to three years, with ~~10-year~~10-year contractual terms.

The Company recognizes the cost of services received in exchange for stock option awards based on the grant date fair value of the award, with compensation expense recognized on a straight-line b~~asis~~basis over the award’s vesting period. The fair value of outstanding awards was determined using the Black-Scholes option pricing ~~model based on~~model. The Company did not grant any stock option awards during the ~~assumptions noted in the table below. Expected volatilities are based on historical volatilities of Bancshares’ common stock.~~nine months ended September 30, 2022 or 2021.

2017 2016
Risk-free interest rate 2.23 % 1.58 %
Expected term 7.5 years 7.5 years
Expected stock price volatility 25.36 % 25.25 %
Dividend yield 1.50 % 1.50 %

The following table summarizes the ~~Company's~~Company’s stock option activity for the periods presented.


	Nine Months Ended								Nine Months Ended
	September 30, 2017				September 30, 2016				September 30, 2022				September 30, 2021
	Number of Shares		Average Exercise Price		Number of Shares		Average Exercise Price		Number of Shares		Average Exercise Price		Number of Shares		Average Exercise Price
Options:
Outstanding, beginning of period		272,550	$	8.21		175,550	$	8.17		420,250	$	9.79		421,000	$	9.79
Granted		70,600		13.84		97,000		8.30		—		—		—		—
Exercised		19,316		8.15		—		—		—		—		750		8.23
Expired		—		—		—		—		—		—		—		—
Forfeited		3,334		11.79		—		—		600		10.86		—		—
Options outstanding, end of period		320,500	$	9.42		272,550	$	8.21		419,650	$	9.79		420,250	$	9.79
Options exercisable, end of period		208,633	$	8.20		175,550	$	8.17		416,249	$	9.77		395,678	$	9.74

The aggregate intrinsic value of stock options outstanding (calculated as the amount by which the market value of underlying stock exceeds the exercise price of the option) was ~~approximately $0.8 million~~zero and ~~$0.4~~$0.6 million as of September 30, ~~2017~~2022 and ~~2016,~~2021, respectively.

Restricted Stock

During ~~the first nine months of 2017, 7,533 shares of restricted stock were granted with vesting periods of either one or three years. No shares of restricted stock were granted during~~ the nine months ended September 30, ~~2016.~~2022 and 2021, 45,938 shares and 38,430 shares, respectively, of restricted stock were granted. The Company recognizes the cost of services received in exchange for restricted stock awards based on the grant date closing price of the stock, with compensation expense recognized on a straight-line basis over the award’s vesting period.

12.

LEASES

The Bank and ALC are involved in a number of operating leases, primarily for branch locations. Branch leases have remaining lease terms ranging from two years to seven years, some of which include options to extend the leases for up to five years, and some of which include an option to terminate the lease within one year. The Bank leases certain office facilities to third parties and classifies these leases as operating leases.

The following table provides a summary of the components of lease expense, as well as the reporting location in the Condensed Consolidated Statements of Operations, for the three and nine months ended September 30, 2022 and 2021:


	Location in the Condensed	Three Months Ended				Nine Months Ended
	Consolidated Statements of Operations	September 30, 2022		September 30, 2021		September 30, 2022		September 30, 2021
		(Dollars in Thousands)				(Dollars in Thousands)
Operating lease expense (1)	Net occupancy and equipment	$	108	$	209	$	326	$	627
Operating lease income (2)	Lease income	$	210	$	208	$	635	$	619

(1)

Includes short-term lease costs. For the three and nine months ended September 30, 2022 and 2021, short-term lease costs were nominal in amount.

(2)

Operating lease income includes rental income from owned properties.

The following table provides supplemental lease information for operating leases on the Condensed Consolidated Balance Sheet as of September 30, 2022:


	Location in the Condensed
	Consolidated Balance Sheet	September 30, 2022
		(Dollars in Thousands)
Operating lease right-of-use assets	Other assets	$	1,974
Operating lease liabilities	Other liabilities	$	2,051
Weighted-average remaining lease term (in years)			5.28
Weighted-average discount rate			3.30	%

The following table provides supplemental lease information for the Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2022 and 2021:


	Nine Months Ended
	September 30, 2022		September 30, 2021
	(Dollars in Thousands)
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	$	320	$	523

The following table is a schedule of remaining future minimum lease payments for operating leases that had an initial or remaining non-cancellable lease term in excess of one year as of September 30, 2022:


	Minimum Rental Payments
	(Dollars in Thousands)
2022	$	107
2023		432
2024		438
2025		339
2026		346
2027 and thereafter		591
Total future minimum lease payments	$	2,253
Less: Imputed interest		202
Total operating lease liabilities	$	2,051

13.

DERIVATIVE FINANCIAL INSTRUMENTS

~~12.~~

~~DERIVATIVE FINANCIAL INSTRUMENTS~~

~~On April 1, 2016,~~The Company is exposed to certain risks arising from both its business operations and economic conditions. The Company manages its exposures to a wide variety of business and operational risks through management of its core business activities. The Company manages economic risks, including interest rate, liquidity and credit risk, primarily by managing the amount, sources and duration of certain balance sheet assets and liabilities. In the normal course of business, the Company also uses derivative financial instruments to add stability to interest income or expense and to manage its exposure to movements in interest rates. The Company does not use derivatives for trading or speculative purposes and only enters into transactions that have a qualifying hedge relationship. The Company’s hedging strategies involving interest rate derivatives are classified as either cash flow hedges or fair value hedges, depending upon the rate characteristic of the hedged item.

Cash Flow Hedges

The Bank has entered into forward interest rate swap contracts on certain variable-rate money market deposit accounts (indexed to the Federal Funds effective rate’s daily weighted average). The money market account balances are expected to exceed the notional amount for the duration of the hedges and the rates on these deposits are anticipated to move closely with changes in one-month LIBOR, or a comparable benchmark interest rate. These interest rate swaps were designated as derivative instruments in cash flow hedges with the objective of converting the floating interest payments to a fixed rate. Under the swap arrangements, the Bank ~~entered into~~pays a fixed interest rate and receives a variable interest rate based on one-month LIBOR, or a comparable benchmark interest rate, on the notional amount, with monthly net settlements.

Terminated Cash Flow Hedge

During the second quarter of 2022, the Bank terminated a forward interest rate swap contract on a variable ~~rate~~ FHLB advance ~~(indexed~~that was previously designated as a cash flow hedge. The termination of the swap resulted in a net gain of $0.3 million which will remain in accumulated other comprehensive income and be reclassified into earnings over the original term of the interest rate swap contract. During the nine-month period ended September 30, 2022, a gain of $41 thousand, net of income taxes, was reclassified from other comprehensive income (loss) related to ~~three-month LIBOR) with a total notional amount~~ ~~of $10.0 million.~~the terminated contract. There were no gains or losses reclassified from other comprehensive income (loss) related to cash flow hedges for the nine months ended September 30, 2021.

Fair Value Hedges

The Bank has entered into forward interest rate swap contracts on fixed rate commercial real estate loans. The interest rate ~~swap contract was~~swaps were designated as a derivative ~~instrument~~instruments in ~~a cash flow hedge under~~ ~~ASC Topic 815, Derivatives and Hedging,~~fair value hedges with the objective of ~~protecting the quarterly interest~~effectively converting pools of fixed rate ~~payments on the FHLB advance from the risk of variability of those payments resulting from changes in the three-month LIBOR interest~~assets to variable rate throughout the ~~seven-year period beginning on April 5, 2016 and ending on April 5, 2023.~~hedge durations. Under the swap ~~arrangement, which became effective on April 5, 2016,~~arrangements, the Bank ~~will pay~~pays a fixed interest rate ~~of 1.46%~~ and ~~receive~~receives a variable interest rate based on ~~three-month~~one-month LIBOR, or a comparable benchmark interest rate, on the ~~total~~ notional amount, ~~of $10.0 million,~~ with ~~quarterly~~monthly net settlements. The Bank recognized no gains or losses on the fair value hedges for the three and nine months ended September 30, 2022 and 2021.

~~No ineffectiveness related~~Presentation

The Company has elected to offset derivative fair value amounts under master netting agreements, given that all of the ~~interest rate swap designated~~Company’s hedges are with the same counterparty.

The following table reflects the notional amount and fair value of derivative instruments included on the Company’s Consolidated Balance Sheets on a net basis.


	As of September 30, 2022				As of December 31, 2021
	Notional		Estimated Fair Value		Notional		Estimated Fair Value
	Amount		Gain (Loss) (1)		Amount		Gain (Loss) (1)
	(Dollars in Thousands)
Derivatives designated as hedging instruments:
Fair value hedges:
Interest rate swaps related to fixed rate commercial real estate loans	$	20,000	$	1,087	$	20,000	$	(198	)
Total fair value hedges				1,087				(198	)
Cash flow hedges:
Interest rate swaps related to variable-rate money market deposit accounts		20,000		1,251		20,000		(472	)
Interest rate swaps related to FHLB advances		—		—		10,000		(104	)
Total cash flow hedges				1,251				(576	)
Total hedges designated as hedging instruments, net			$	2,338			$	(774	)

(1)

Derivatives in a gain position are recorded as other assets and derivatives in a ~~cash~~ ~~flow hedge was recognized~~loss position are recorded as other liabilities in the consolidated ~~statements~~balance sheets.

The Company has elected the last-of-layer method with respect to both of ~~operations~~its fair value hedges. This approach allows the Company to designate as the hedged item a stated amount of the assets that are not expected to be affected by prepayments, defaults and other factors affecting the timing and amount of cash flows. Relative to the identified pools of loans, this represents the last dollar amount of the designated commercial loans, which is equivalent to the notional amounts of the derivative instruments.

The following amounts were recorded on the condensed consolidated balance sheet related to cumulative basis adjustments for fair value hedges:


Location in the Condensed Consolidated Balance Sheet in Which the Hedged	Carrying Amount of the Hedged Assets		Cumulative Amount of Fair Value Hedging Adjustment Included in the Carrying Amount of the Hedged Assets
Item is Included	September 30, 2022
	(Dollars in Thousands)
Loans and leases, net of allowance for loan and lease losses (1)	$	32,353	$	1,087

(1)

These amounts include the ~~three- or nine-month periods ended~~amortized cost basis of closed portfolios used to designate hedging relationships in which the hedged item is the last layer expected to be remaining at the end of the hedging relationship. As of September 30, ~~2017.~~ 2022, the amortized cost basis of the closed portfolios used in these hedging relationships was $33.4 million, the cumulative basis adjustments associated with these hedging relationships were $1.1 million, and the amounts of the designated hedged items were $20.0 million.

The ~~accumulated net after-tax gain related~~following table presents the effect of hedging derivative instruments on the Company’s Consolidated Statements of Operations. The effects are presented as either an increase or decrease to ~~the effective cash flow hedge included in accumulated other comprehensive~~ income ~~totaled $0.2 million as of both September 30, 2017 and December 31, 2016.~~before income taxes.

~~13.~~

~~SEGMENT REPORTING~~


	Location in the Condensed	Three Months Ended					Nine Months Ended
	Consolidated Statements of Operations	September 30, 2022		September 30, 2021			September 30, 2022			September 30, 2021
		(Dollars in Thousands)					(Dollars in Thousands)
Interest income	Interest and fees on loans	$	45	$	(64	)	$	(42	)	$	(188	)
Interest expense	Interest on deposits		36		(32	)		20			(95	)
Interest expense	Interest on short-term borrowings		24		(85	)		(103	)		(249	)
	Net increase (decrease) to income before income taxes	$	105	$	(181	)	$	(125	)	$	(532	)

14.

SEGMENT REPORTING

Under ASC Topic 280,Segment Reporting, certain information is disclosed for the two reportable operating segments of Bancshares: the Bank and ALC. The reportable segments were determined using the internal management reporting system. These segments comprise Bancshares’ and the Bank’s significant subsidiaries. The accounting policies for each segment are the same as those described in Note 2, “Summary of Significant Accounting Policies,” of the Notes to Consolidated Financial Statements in the Company’s Annual Report on Form 10-K as of and for the year ended December 31, ~~2016.~~2021. The segment results include certain overhead allocations and intercompany transactions that were recorded at current market prices. All intercompany transactions have been eliminated to determine the consolidated balances. The results for the two reportable segments of the Company are included in the tables below.

All

Bank

ALC

Other

Eliminations

Consolidated

(Dollars in Thousands)

As of and for the three months ended September 30, 2017:

Net interest income
$ 4,192 $ 2,940 $ 3 $
—
$ 7,135
Provision (reduction in reserve) for loan losses
(130 ) 503
—

—
373
Total non-interest income
1,005 219 954 (942 ) 1,236
Total non-interest expense
4,699 2,303 336 (148 ) 7,190
Income before income taxes
628 353 621 (794 ) 808
Provision for income taxes
48 202 (77 )
—
173
Net income
$ 580 $ 151 $ 698 $ (794 ) $ 635
Other significant items:

Total assets
$ 616,820 $ 92,942 $ 84,170 $ (179,333 ) $ 614,599
Total investment securities
185,722
—
80
—
185,802
Total loans, net
329,327 89,326
—
(80,627 ) 338,026
Investment in subsidiaries
5
—
78,469 (78,469 ) 5
Fixed asset additions
818 13
—

—
831
Depreciation and amortization expense
238 41
—

—
279
Total interest income from external customers
3,596 4,224
—

—
7,820
Total interest income from affiliates
1,284
—
3 (1,287 )
—

For the nine months ended September 30, 2017:

Net interest income
$ 12,168 $ 8,933 $ 10 $
—
$ 21,111
Provision (reduction in reserve) for loan losses
(130 ) 1,594
—

—
1,464
Total non-interest income
2,647 700 2,451 (2,465 ) 3,333
Total non-interest expense
13,522 6,966 1,074 (472 ) 21,090
Income before income taxes
1,423 1,073 1,387 (1,993 ) 1,890
Provision for income taxes
249 458 (272 )
—
435
Net income
$ 1,174 $ 615 $ 1,659 $ (1,993 ) $ 1,455
Other significant items:

Fixed asset additions
8,578 103
—

—
8,681
Depreciation and amortization expense
657 124
—

—
781
Total interest income from external customers
10,493 12,520
—

—
23,013
Total interest income from affiliates
3,587
—
9 (3,596 )
—


					All
	Bank		ALC		Other			Eliminations			Consolidated
	(Dollars in Thousands)
As of and for the three months ended September 30, 2022
Total interest income	$	9,875	$	1,026	$	1		$	(232	)	$	10,670
Total interest expense		1,041		231		115			(232	)		1,155
Net interest income		8,834		795		(114	)		—			9,515
Provision for loan and lease losses		840		325		—			—			1,165
Total non-interest income		1,102		43		2,145			(2,202	)		1,088
Total non-interest expense		6,421		397		255			(41	)		7,032
Income before income taxes		2,675		116		1,776			(2,161	)		2,406
Provision for income taxes		600		28		(82	)		—			546
Net income	$	2,075	$	88	$	1,858		$	(2,161	)	$	1,860
Other significant items:
Total assets	$	993,194	$	23,544	$	98,769		$	(126,230	)	$	989,277
Total investment securities		145,902		—		1			—			145,903
Total loans, net		740,418		22,478		—			(21,998	)		740,898
Goodwill and core deposit intangible, net		7,856		—		—			—			7,856
Investment in subsidiaries		—		—		91,575			(91,575	)		—
Fixed asset additions		331		—		—			—			331
Depreciation and amortization expense		413		9		—			—			422
Total interest income from external customers		9,645		1,025		—			—			10,670
Total interest income from affiliates		231		—		1			(232	)		—
For the nine months ended September 30, 2022
Total interest income		26,503		3,911		3			(841	)		29,576
Total interest expense		2,185		838		344			(841	)		2,526
Net interest income		24,318		3,073		(341	)		0			27,050
Provision for loan and lease losses		1,185		1,596		—			—			2,781
Total non-interest income		2,833		173		5,511			(5,744	)		2,773
Total non-interest expense		18,899		1,379		854			(166	)		20,966
Income before income taxes		7,067		271		4,316			(5,578	)		6,076
Provision for income taxes		1,646		65		(271	)		—			1,440
Net income	$	5,421	$	206	$	4,587		$	(5,578	)	$	4,636
Other significant items:
Fixed asset additions	$	672	$	—	$	—		$	—		$	672
Depreciation and amortization expense		1,173		28		—			—			1,201
Total interest income from external customers		25,666		3,910		—			—			29,576
Total interest income from affiliates		838		—		3			(841	)		—

All

Bank

ALC

Other

Eliminations

Consolidated

(Dollars in Thousands)

As of and for the three months ended September 30, 2016:

Net interest income

$
3,917

$
3,253
$
3

$
—

$
7,173

Provision for loan losses

100

580
—

—

680

Total non-interest income

1,159
316 973
(881
)

1,567

Total non-interest expense

4,636
2,403 474
(165
)

7,348

Income (loss) before income taxes

340
586 502
(716
)

712

Provision for income taxes

52
196 (86
)

—

162

Net income (loss)

$
288

$
390
$
588
$
(716
)

$
550

Other significant items:

Total assets

$
602,123
$
89,347
$
84,291

$
(175,454
)

$
600,307

Total investment securities
209,486
—

80

—

209,566

Total loans, net
308,423 85,720
—

(77,022
)

317,121

Investment in subsidiaries
5 —
78,737

(78,737
)

5

Fixed asset additions
960 16
—

—

976

Depreciation and amortization expense
193 54
—

—

247

Total interest income from external customers
3,415 4,345
—

—

7,760

Total interest income from affiliates
1,092
—

3

(1,095
)

—

For the nine months ended September 30, 2016:

Net interest income

$
11,199

$
9,544
$
8

$
—

$
20,751

Provision (reduction in reserve) for loan losses

(350
)
1,733
—

—

1,383

Total non-interest income
3,002 909
2,481

(2,356
)

4,036

Total non-interest expense
13,435 7,306
1,373

(445
)

21,669

Income (loss) before income taxes
1,116 1,414
1,116

(1,911
)

1,735

Provision for income taxes
224 484
(302
)

—

406

Net income (loss)

$
892
$
930
$
1,418

$
(1,911
)

$
1,329

Other significant items:

Fixed asset additions
4,521 33
—

—

4,554

Depreciation and amortization expense
564 162
—

—

726

Total interest income from external customers
9,750 12,684
—

—

22,434

Total interest income from affiliates
3,140
—

8

(3,148
)

—


						All
	Bank		ALC			Other			Eliminations			Consolidated
	(Dollars in Thousands)
As of and for the three months ended September 30, 2021
Total interest income	$	8,134	$	2,302		$	1		$	(407	)	$	10,030
Total interest expense		696		406			—			(407	)		695
Net interest income		7,438		1,896			1			—			9,335
Provision for loan and lease losses		460		158			—			—			618
Total non-interest income		776		176			1,111			(1,167	)		896
Total non-interest expense		6,211		2,100			354			(118	)		8,547
Income before income taxes		1,543		(186	)		758			(1,049	)		1,066
Provision for income taxes		336		(47	)		(60	)		—			229
Net income	$	1,207	$	(139	)	$	818		$	(1,049	)	$	837
Other significant items:
Total assets	$	959,978	$	48,693		$	94,718		$	(146,655	)	$	956,734
Total investment securities		121,386		—			81			—			121,467
Total loans, net		691,106		46,645			—			(40,779	)		696,972
Goodwill and core deposit intangible, net		8,142		—			—			—			8,142
Investment in subsidiaries		—		—			89,088			(89,088	)		—
Fixed asset additions		107		2			—			—			109
Depreciation and amortization expense		401		21			—			—			422
Total interest income from external customers		7,728		2,302			—			—			10,030
Total interest income from affiliates		406		—			1			(407	)		—
For the nine months ended September 30, 2021
Total interest income		24,138		7,045			5			(1,254	)		29,934
Total interest expense		2,228		1,249			—			(1,254	)		2,223
Net interest income		21,910		5,796			5			—			27,711
Provision for loan and lease losses		1,280		237			—			—			1,517
Total non-interest income		2,389		480			3,608			(3,821	)		2,656
Total non-interest expense		18,853		5,749			1,102			(362	)		25,342
Income before income taxes		4,166		290			2,511			(3,459	)		3,508
Provision for income taxes		895		72			(199	)		—			768
Net income	$	3,271	$	218		$	2,710		$	(3,459	)	$	2,740
Other significant items:
Fixed asset additions	$	642	$	6		$	—		$	—		$	648
Depreciation and amortization expense		1,231		69			—			—			1,300
Total interest income from external customers		22,889		7,045			—			—			29,934
Total interest income from affiliates		1,249		—			5			(1,254	)		—

14.	~~GUARANTEES, COMMITMENTS AND CONTINGENCIES~~

15.

OTHER OPERATING INCOME AND EXPENSE

Other Operating Income

Other operating income for the three and nine months ended September 30, 2022 and 2021 consisted of the following:


	Three Months Ended					Nine Months Ended
	September 30,					September 30,
	2022			2021		2022			2021
	(Dollars in Thousands, Except Per Share Data)
Bank-owned life insurance	$	112		$	110	$	335		$	327
Credit insurance commissions and fees		(15	)		63		(66	)		150
ATM fee income		125			141		403			432
Mortgage fees from secondary market		7			—		11			23
Wire transfer fees		12			18		39			49
Gain on sales of premises and equipment and other assets		278			17		301			17
Other income		48			68		211			240
Total	$	567		$	417	$	1,234		$	1,238

Other Operating Expense

Other operating expense for the three and nine months ended September 30, 2022 and 2021 consisted of the following:


	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2022			2021			2022			2021
	(Dollars in Thousands, Except Per Share Data)
Postage, stationery and supplies	$	164		$	206		$	469		$	618
Telephone/data communication		159			283			518			742
Advertising and marketing		47			33			145			115
Travel and business development		71			42			176			109
Collection and recoveries		57			32			176			142
Other services		68			129			208			272
Insurance expense		145			149			465			464
FDIC insurance and state assessments		166			191			506			521
Loss on sales of premises and equipment and other assets		27			76			55			130
Core deposit intangible amortization		67			85			213			268
Other real estate/foreclosure expense, net		(5	)		(273	)		(320	)		(286	)
Other expense		518			537			1,463			1,564
Total	$	1,484		$	1,490		$	4,074		$	4,659

16.

GUARANTEES, COMMITMENTS AND CONTINGENCIES

Credit

The ~~Bank~~’sBank’s exposure to credit loss in the event of nonperformance by the other party for commitments to make loans and standby letters of credit is represented by the contractual amount of those instruments. The Bank uses the same credit policies in making these commitments as it does for on-balance sheet instruments. For interest rate swap transactions and commitments to purchase or sell securities for forward delivery, the contract or notional amounts do not represent exposure to credit loss. The Bank controls the credit risk of these derivative instruments through credit approvals, limits and monitoring procedures. Certain derivative contracts have credit risk for the carrying value plus the amount to replace such contracts in the event of counterparty default. All of the Bank’s financial instruments are held for risk management and not for trading purposes. During the nine-month periods ended September 30, 2017 and 2016, there were no credit losses associated with derivative contracts.

In the normal course of business, there are outstanding commitments and contingent liabilities, such as commitments to extend credit, letters of credit and others, that are not included in the consolidated financial statements. The financial instruments involve, to varying degrees, elements of credit and interest rate risk in excess of amounts recognized in the financial statements. A summary of these commitments and contingent liabilities is presented ~~below.~~below:


	September 30, 2017		December 31, 2016		September 30, 2022		December 31, 2021
	(Dollars in Thousands)				(Dollars in Thousands)
Standby letters of credit	$	180	$	183	$	—	$	—
Standby performance letters of credit					$	541	$	582
Commitments to extend credit	$	53,231	$	41,267	$	212,606	$	164,247

Standby letters of credit and standby performance letters of credit are contingent commitments issued by the Bank generally to guarantee the performance of a customer to a ~~third-party.~~third party. The Bank has recourse against the customer for any amount that it is required to pay to a ~~third-party~~third party under a standby letter of credit or standby performance letter of credit. Revenues are recognized over the lives of the standby letters of credit and standby performance letters of credit. As of September 30, ~~2017~~2022 and December 31, ~~2016,~~2021, the potential ~~amount~~amounts of future payments that the Bank could be required to make under its standby letters of credit and standby performance letters of credit, which represent the Bank’s total credit risk in ~~this category, is~~these categories, are included in the table above.

A commitment to extend credit is an agreement to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. The Bank evaluates each customer’s creditworthiness on a case-by-case basis. The amount of collateral obtained, if deemed necessary by the Bank upon the extension of credit, is based on management’s credit evaluation of the counterparty. Collateral held varies but may include accounts receivable, inventory, property, plant and equipment and income-producing commercial properties.

Commitments to purchase securities for delayed delivery require the Bank to purchase a specified security at a specified price for delivery on a specified date. Similarly, commitments to sell securities for delayed delivery require the Bank to sell a specified security at a specified price for delivery on a specified date. Market risk arises from potential movements in security values and interest rates between the commitment and delivery dates. As of both September 30, 2017 and December 31, 2016, there were no outstanding commitments to purchase securities for delayed delivery and no outstanding commitments to sell securities for delayed delivery.Self-Insurance

The Company is self-insured for a significant portion of employee health benefits. However, the Company maintains stop-loss coverage with third-party insurers to limit the Company’s individual claim and total exposure related to self-insurance. The Company estimates an accrued liability for the ultimate costs to ~~close~~settle known claims, as well as claims incurred but not yet reported, as of the balance sheet date. The Company’s recorded estimated liability for self-insurance is based on the insurance ~~companies’~~companies' incurred loss estimates and management’s judgment, including assumptions and evaluation of factors related to the frequency and severity of claims, the Company’s claims development history and the Company’s claims settlement practices. The assessment of loss contingencies and self-insurance reserves is a highly subjective process that requires judgments about future events. Contingencies are reviewed at least quarterly to determine the adequacy of self-insurance accruals. Self-insurance accruals totaled $0.2 million as of both September 30, 2022 and December 31, 2021. The ultimate settlement of loss contingencies and self-insurance reserves may differ significantly from amounts ~~that the Company has~~ accrued in the Company’s consolidated financial statements.

Litigation

In 2016, the Bank entered into an agreement with a general contractor to manage construction of an office complex on a parcel of land located in the Birmingham, Alabama area that was purchased by the Bank in 2016. As of September 30, 2017, construction of the office complex was substantially complete, and remaining contractual commitments with the general contractor totaled $0.3 million.

~~Litigation~~

The Company is party to certain ordinary course litigation from time to time, and the Company intends to vigorously defend itself in all such litigation. In the opinion of the Company, based on review and consultation with legal counsel, the outcome of such ordinary course litigation should not have a material adverse effect on the Company’s consolidated financial statements or results of operations.

17.

FAIR VALUE OF FINANCIAL INSTRUMENTS

~~15.~~

~~FAIR VALUE OF FINANCIAL INSTRUMENTS~~

~~The Company follows the provisions of~~ ~~ASC Topic 820,~~~~Fair Value Measurements and Disclosures~~~~, which defines fair value, establishes a framework for measuring fair value and expands disclosures about fair value measurements.~~ The assumptions used in the Company’s estimation of the fair value of the Company’s financial instruments are detailed below. The following disclosures should not be considered a ~~surrogate~~representation of the liquidation value of the Company, but rather represent a good-faith estimate of the increase or decrease in value of financial instruments held by the Company since purchase, origination or issuance.

Fair Value Hierarchy

Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between willing market participants at the measurement date. In determining fair value, the Company uses various methods, including market, income and cost approaches. Based on these approaches, the Company often utilizes certain assumptions that market participants would use in pricing the asset or liability, including assumptions about risk and/or the risks inherent in the inputs to the valuation technique. These inputs can be readily observable, market-corroborated or generally unobservable inputs. The Company utilizes valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs. Based on the observability of the inputs used in the valuation techniques, the Company is required to provide the following information according to the fair value hierarchy. The fair value hierarchy ranks the quality and reliability of the information used to determine fair ~~values.~~value. Assets and liabilities carried at fair value will be classified and disclosed in one of the following three categories:

•

Level 1 — Valuations for assets and liabilities traded in active exchange markets, such as the New York Stock Exchange or Nasdaq. Valuations are obtained from readily available pricing sources for market transactions involving identical assets or liabilities.

•

Level 2 — Valuations for assets and liabilities traded in less active dealer or broker markets. Valuations are obtained from third-party pricing services for identical or similar assets or liabilities.

•

Level 3 — Valuations for assets and liabilities that are derived from other valuation methodologies, including option pricing models, discounted cash flow models and similar techniques, and not based on market exchange, dealer or broker-traded transactions. Level 3 valuations incorporate certain assumptions and projections in determining the fair value assigned to such assets or liabilities.

●

~~Level 1~~ — Valuations for assets and liabilities traded in active exchange markets, such as the New York Stock Exchange or Nasdaq. Valuations are obtained from readily available pricing sources for market transactions involving identical assets or liabilities.

●

~~Level 2~~ ~~— Valuations for assets and liabilities traded in less active dealer or broker markets. Valuations are obtained from third-party pricing services for identical or similar assets or liabilities.~~

●

~~Level 3~~ — Valuations for assets and liabilities that are derived from other valuation methodologies, including option pricing models, discounted cash flow models and similar techniques, and not based on market exchange, dealer or broker-traded transactions. Level 3 valuations incorporate certain assumptions and projections in determining the fair value assigned to such assets or liabilities.

The Company rarely transfers assets and liabilities measured at fair value between Level 1 and Level 2 measurements. Trading account assets and securities available-for-sale may be periodically transferred to or from Level 3 valuation based on ~~management~~’smanagement’s conclusion regarding the best method of pricing for an individual security. Such transfers are accounted for as if they occurred at the beginning of a reporting period. There were no such transfers during the nine months ended September 30, ~~2017~~2022 or the year ended December 31, ~~2016.~~2021.

Fair Value Measurements on a Recurring Basis

Securities Available-for-Sale

~~Securities~~ ~~Available-for-Sale~~

Where quoted market prices are available in an active market, securities are classified within Level 1 of the valuation hierarchy. Level 1 securities include exchange-traded equities. Level 2 securities include U.S. Treasury and agency securities, mortgage-backed agency securities, obligations of states and political subdivisions and certain corporate, asset-backed and other securities. Level 2 fair values are obtained from quoted prices of securities with similar characteristics. In certain cases, where Level 1 or Level 2 inputs are not available, securities are classified within Level 3 of the hierarchy.

Interest Rate Derivative Agreements

Interest rate derivative agreements are used by the Company to mitigate risk associated with changes in interest rates. The fair value of these agreements is based on information obtained from third-party financial institutions. This information is periodically evaluated by the Company and, as necessary, corroborated against other third-party valuations. The Company classifies these derivative assets within Level 2 of the valuation hierarchy.

The following table presents assets and liabilities measured at fair value on a recurring basis as of September 30, ~~2017~~2022 and December 31, ~~2016. There were no liabilities measured at fair value on a recurring basis for either period presented.~~2021.


	Fair Value Measurements as of September 30, 2017 Using								Fair Value Measurements as of September 30, 2022 Using
	Totals At September 30, 2017		Quoted Prices in Active Markets For Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Totals At September 30, 2022		Quoted Prices in Active Markets For Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
	(Dollars in Thousands)								(Dollars in Thousands)
Investment securities, available-for-sale
Mortgage-backed securities:
Residential	$	83,550	$	—	$	83,550	$	—	$	46,847	$	—	$	46,847	$	—
Commercial		67,138		—		67,138		—		18,040		—		18,040		—
Obligations of U.S. government-sponsored agencies										4,340		—		4,340		—
Obligations of states and political subdivisions		5,655		—		5,655		—		3,662		—		3,662		—
Obligations of U.S. government-sponsored agencies		2,002		—		2,002		—
Corporate notes										18,160		—		18,160		—
U.S. Treasury securities		80		—		80		—		52,745		—		52,745		—
Other assets - derivatives		291		—		291		—		2,338		—		2,338		—


	Fair Value Measurements as of December 31, 2016 Using								Fair Value Measurements as of December 31, 2021 Using
	Totals At December 31, 2016		Quoted Prices in Active Markets For Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Totals At December 31, 2021		Quoted Prices in Active Markets For Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
	(Dollars in Thousands)								(Dollars in Thousands)
Investment securities, available-for-sale
Mortgage-backed securities:
Residential	$	98,409	$	—	$	98,409	$	—	$	46,228	$	—	$	46,228	$	—
Commercial		70,530		—		70,530		—		24,971		—		24,971		—
Obligations of U.S. government-sponsored agencies										5,192				5,192
Obligations of states and political subdivisions		10,142		—		10,142		—		4,317		—		4,317		—
Obligations of U.S. government-sponsored agencies		1,993		—		1,993		—
Corporate notes		756		—		756		—		15,482		—		15,482		—
U.S. Treasury securities		80		—		80		—		34,693		—		34,693		—
Other assets - derivatives		346		—		346		—
Other liabilities - derivatives										774		—		774		—

Fair Value Measurements on a Non-recurring Basis

Impaired Loans

Loans that are considered impaired are loans for which, based on current information and events, it is probable that the Company will be unable to collect all principal and interest payments due under the contractual terms of the loan agreement. Impaired loans can be measured based on the present value of expected payments using the ~~loan~~’sloan’s original effective rate as the discount rate, the loan’s observable market price or the fair value of the collateral less estimated selling cost if the loan is collateral-dependent. For the Company, the fair value of impaired loans is primarily measured based on the value of the collateral securing the loans (typically real estate). The Company determines the fair value of the collateral based on independent appraisals performed by qualified licensed appraisers. The appraisals may include a single valuation approach or a combination of approaches, including comparable sales and income approaches. Appraised values are discounted for estimated costs to sell and may be discounted further based on management’s knowledge of the collateral, changes in market conditions since the most recent appraisal and/or management’s knowledge of the borrower and the borrower’s business. Such discounts by management are subjective and are typically significant unobservable inputs for determining fair value. Impaired loans are evaluated by management for additional impairment at least quarterly and are adjusted accordingly.

OREO and Other Assets Held-for-Sale

~~Other Real Estate Owned (OREO)~~

OREO consists of properties obtained through foreclosure or in satisfaction of loans and is recorded at ~~the lower of the loan’s carrying amount or the fair~~net realizable value, ~~of the property,~~ less estimated cost to sell. Estimates of fair value are generally based on third-party appraisals of the property and are classified within Level 3 of the fair value hierarchy. The appraisals are sometimes discounted based on management’s knowledge of the property and/or changes in market conditions from the date of the most recent appraisal. Such discounts are typically significant unobservable inputs for determining fair value.

~~Other Assets~~

~~Included~~As of September 30, 2022 and December 31, 2021, included within ~~other assets are~~OREO were certain assets that were formerly included as premises and equipment but have been removed from service, and as of the balance sheet date, were designated as assets to be disposed of by sale. These include assets associated with branches of the Bank and ALC that have been closed. When an asset is designated as ~~held for sale,~~held-for-sale, the Company ceases depreciation of the asset, and the asset is recorded at the lower of its carrying amount or fair value less estimated cost to sell. Estimates of fair value are generally based on third-party appraisals of the property and are classified within Level 3 of the fair value hierarchy. The appraisals are sometimes discounted based on management’s knowledge of the property and/or changes in market conditions from the date of the most recent appraisal. Such discounts are typically unobservable inputs for determining fair value.

The following table presents the balances of impaired loans, OREO and other assets held-for-sale measured at fair value on a non-recurring basis as of September 30, ~~2017~~2022 and December 31, ~~2016.~~2021:

Fair Value Measurements as of September 30, 2017 Using

Totals
At
September 30,
2017

Quoted
Prices in
Active
Markets For
Identical
Assets
(Level 1)

Significant
Other
Observable
Inputs
(Level 2)

Significant
Unobservable
Inputs
(Level 3)

(Dollars in Thousands)

Impaired loans
$ 686 $
—
$
—
$ 686
OREO 3,819 — — 3,819
Other assets
228
—

—
228


	Fair Value Measurements as of September 30, 2022 Using
	Totals At September 30, 2022		Quoted Prices in Active Markets For Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
	(Dollars in Thousands)
Impaired loans	$	84	$	—	$	—	$	84
OREO and other assets held-for-sale		686		—		—		686


	Fair Value Measurements as of December 31, 2021 Using
	Totals At December 31, 2021		Quoted Prices in Active Markets For Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
	(Dollars in Thousands)
Impaired loans	$	6	$	—	$	—	$	6
OREO and other assets held-for-sale		2,149		—		—		2,149

Fair Value Measurements as of December 31, 2016 Using

Totals
At
December 31,
2016

Quoted
Prices in
Active
Markets For Identical
Assets
(Level 1)

Significant
Other
Observable
Inputs
(Level 2)

Significant
Unobservable
Inputs
(Level 3)

(Dollars in Thousands)

Impaired loans
$ 1,568 $ — $ — $ 1,568
OREO 4,858 — — 4,858
Other assets
280 — — 280

Non-recurring Fair Value Measurements Using Significant Unobservable Inputs

The following table presents information regarding assets and liabilities measured at fair value using significant unobservable inputs (Level 3) as of September 30, ~~2017.~~2022. The table includes the valuation techniques and the significant unobservable inputs utilized. The range of each unobservable input and the weighted average within the range utilized as of September 30, ~~2017~~2022 are both included. Following the table is a description of the valuation technique and the sensitivity of the technique to changes in the significant unobservable input.

Level 3 Significant Unobservable Input Assumptions

Fair Value

September 30,

2017

Valuation Technique

Unobservable Input

Quantitative Range

of Unobservable

Inputs

(Weighted

Average)

Fair Value
September 30, 2022

Valuation Technique

Unobservable Input

Quantitative Range
of Unobservable
Inputs
(Weighted Average)

(Dollars in Thousands)

Non-recurring fair value measurements:

Impaired loans

686

Multiple data points, including discount to appraised value of collateral based on recent market activity

Appraisal comparability adjustment (discount)

9% - 10%

(9.5%)

Multiple data points,
including discount to
appraised value of
collateral based on
recent market activity

Appraisal comparability
adjustment (discount)

9%-10%

(9.5%)

OREO

3,819

Discount to appraised value of property based on recent market activity for sales of similar properties

Appraisal comparability adjustment (discount)

9% - 10%

(9.5%)

Other assets

228

Discount to appraised value of property based on recent market activity for sales of similar properties

Appraisal comparability adjustment (discount)

9% - 10%

(9.5%)

OREO and other assets held-for-sale

686

Discount to appraised
value of property
based on recent
market activity for
sales of similar
properties

Appraisal comparability
adjustment (discount)

9%-10%

(9.5%)

Impaired Loans

Impaired loans are valued based on multiple data points indicating the fair value for each loan. The primary data point is the appraisal value of the underlying collateral, to which a discount is applied. Management establishes this discount or comparability adjustment based on recent sales of similar property types. As liquidity in the market increases or decreases, the comparability adjustment and the resulting asset valuation are impacted.

OREO

~~OREO~~

OREO under a binding contract for sale is valued based on contract price. If no sales contract is pending for a specific property, management establishes a comparability adjustment to the appraised value based on historical activity, considering proceeds for properties sold versus the corresponding appraised value. Increases or decreases in realization for properties sold impact the comparability adjustment for similar assets remaining on the balance sheet.

Other Assets Held-for-Sale

Assets designated as ~~held for sale~~held-for-sale that are under a binding contract are valued based on the contract price. If no sales contract is pending for a specific property, management establishes a comparability adjustment to the appraised value based on historical activity, considering proceeds for properties sold versus the corresponding appraised value. Increases or decreases in realization for properties sold impact the comparability adjustment for similar assets remaining on the balance sheet.

Fair Value of Financial Instruments

ASC Topic 825, Financial Instruments, requires disclosure of fair value information about financial instruments, whether or not recognized on the face of the balance sheet, for which it is practicable to ~~estimate that value.~~estimate. The following methods and assumptions were used by the Company in estimating the fair value of its financial instruments:

Cash, due from banks and federal funds sold:The carrying amount of cash, due from banks and federal funds sold approximates fair value.

Federal Home Loan Bank stock:Based on the redemption provision of the FHLB, the stock has no quoted market value and is carried at cost.

Investment securities:Fair values of investment securities are based on quoted market prices where available. If quoted market prices are not available, estimated fair values are based on market prices of comparable instruments.

Derivative instruments:The fair value of derivative instruments is based on information obtained from a third-party financial institution. This information is periodically evaluated by the Company and, as necessary, corroborated against other third-party information.

Accrued interest receivable and payable:The carrying amount of accrued interest approximates fair value.

Loans, net:~~For variable-rate loans,~~ The fair values are based on carrying values. Fixed-rate commercial loans, other installment loans and certain real estate mortgage loans are valued using discounted cash flows. The discount rate used to determine the present value of ~~these~~ loans is ~~based~~estimated on ~~interest rates charged by the Company on comparable loans as to~~an exit price basis incorporating contractual cash flow, prepayment discount spreads, credit ~~risk~~loss and ~~term at the determination date.~~liquidity premiums.

Demand and savings deposits:The fair values of demand deposits are equal to the carrying value of such deposits. Demand deposits include non-interest-bearing demand deposits, savings accounts, NOW accounts and money market demand accounts.

Time deposits:The fair values of relatively short-term time deposits are equal to their carrying values. Discounted cash flows are used to value long-term time deposits. The discount rate used is based on interest rates currently ~~being~~ offered by the Company on comparable deposits as to amount and term.

Short-term borrowings:These borrowings may consist of federal funds purchased, securities sold under agreements to repurchase and the floating rate borrowings from the FHLB account. Due to the short-term nature of these borrowings, fair values approximate carrying values.

Long-term debt:The fair value of this debt is estimated using discounted cash flows based on the Company’s current incremental borrowing rate for similar types of borrowing arrangements as of the determination date.

Off-balance sheet instruments:The carrying amount of commitments to extend credit and standby letters of credit approximates fair value. The carrying amount of the off-balance sheet financial instruments is based on fees currently charged to enter into such agreements.

The estimated fair value and related carrying or notional amounts, as well as the level within the fair value hierarchy, of the ~~Company~~’sCompany’s financial instruments as of September 30, ~~2017~~2022 and December 31, ~~2016~~2021 were as follows:


	September 30, 2017										September 30, 2022
	Carrying Amount		Estimated Fair Value		Level 1		Level 2		Level 3		Carrying Amount		Estimated Fair Value		Level 1		Level 2		Level 3
	(Dollars in Thousands)										(Dollars in Thousands)
Assets:
Cash and cash equivalents	$	32,554	$	32,554	$	32,554	$	—	$	—	$	36,820	$	36,820	$	36,820	$	—	$	—
Investment securities available-for-sale		158,425		158,425		—		158,425		—		143,794		143,794		—		143,794		—
Investment securities held-to-maturity		27,377		27,303		—		27,303		—		2,109		2,013		—		2,013		—
Federal funds sold												120		120		—		120		—
Federal Home Loan Bank stock		1,396		1,396		—		—		1,396		2,009		2,009		—		—		2,009
Loans, net of allowance for loan losses		338,026		327,251		—		—		327,251
Loans, net of allowance for loan and lease losses												740,898		703,047		—		—		703,047
Other assets - derivatives		291		291		—		291		—		2,338		2,338		—		2,338		—
Liabilities:
Deposits		508,385		507,298		—		507,298		—		846,537		836,020		—		836,020		—
Short-term borrowings		10,635		10,634		—		10,634		—		40,106		40,106		—		40,106		—
Long-term debt		10,000		10,000		—		10,000		—
Long-term borrowings												10,708		9,906				9,906

December 31, 2016

Carrying
Amount

Estimated
Fair Value

Level 1

Level 2

Level 3

(Dollars in Thousands)

Assets:

Cash and cash equivalents
$ 23,530 $ 23,530 $ 23,530 $ — $ —
Investment securities available-for-sale
181,910 181,910 — 181,910 —
Investment securities held-to-maturity
25,904 25,508 — 25,508 —
Federal Home Loan Bank stock
1,581 1,581
—
— 1,581
Loans, net of allowance for loan losses
322,772 319,881 — — 319,881
Other assets - derivatives
346 346 — 346 —
Liabilities:

Deposits
497,556 497,037 — 497,037 —
Short-term borrowings
10,119 10,119 — 10,119 —
Long-term debt
15,000 14,998 — 14,998 —


	December 31, 2021
	Carrying Amount		Estimated Fair Value		Level 1		Level 2		Level 3
	(Dollars in Thousands)
Assets:
Cash and cash equivalents	$	61,244	$	61,244	$	61,244	$	—	$	—
Investment securities available-for-sale		130,883		130,883		—		130,883		—
Investment securities held-to-maturity		3,436		3,477		—		3,477		—
Federal funds sold		82		82		—		82		—
Federal Home Loan Bank stock		870		870		—		—		870
Loans, net of allowance for loan and lease losses		700,030		694,744		—		—		694,744
Liabilities:
Deposits		838,126		837,439		—		837,439		—
Short-term borrowings		10,046		10,046		—		10,046		—
Long-term borrowings		10,653		10,804				10,804
Other liabilities - derivatives		774		774		—		774		—

I~~TEM 2.~~

~~MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS~~

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

DESCRIPTION OF THE BUSINESS

First US Bancshares, Inc., a Delaware corporation (“Bancshares” and, together with its subsidiaries, the “Company”), is a bank holding company with its principal ~~office~~soffices in Birmingham, Alabama. Bancshares operates one commercial banking subsidiary, First US Bank (the “Bank”). As of September 30, ~~2017,~~2022, the Bank operated and served its customers through ~~sixteen~~15 banking offices located in Birmingham, ~~Bucksville,~~ Butler, Calera, Centreville, ~~Columbiana,~~ Gilbertown, Grove Hill, Harpersville, Jackson, Thomasville, Tuscaloosa and Woodstock, ~~Alabama, in~~Alabama; Knoxville and Powell, Tennessee; and Rose Hill, Virginia. In addition, ~~to a~~the Bank operates loan production ~~office~~offices in ~~Mountain Brook, Alabama.~~Mobile, Alabama and the Chattanooga, Tennessee area. The Bank provides a wide range of commercial banking services to small- and medium-sized businesses, property managers, business executives, professionals and other individuals. The Bank also performs indirect lending through third-party retailers and currently conducts this lending in 12 states, including Alabama, Florida, Georgia, Kentucky, Mississippi, Missouri, North Carolina, Oklahoma, South Carolina, Tennessee, Texas and Virginia.

The Bank owns all of the stock of Acceptance Loan Company, Inc., an Alabama corporation (“ALC”). ALC is a finance company ~~organized for the purpose of making and purchasing consumer loans.~~ ~~ALC’s principal office is located~~headquartered in Mobile, Alabama. ~~The Bank is~~During the ~~funding source for ALC. As~~third quarter of ~~September 30, 2017, in addition to~~2021, ALC ceased new business development and permanently closed its ~~principal office, ALC operated twenty-one offices located~~20 branch lending locations in Alabama and ~~southeast Mississippi.~~Mississippi to the public. ALC continues to service its remaining portfolio of loans from its headquarters in Mobile, Alabama.

~~The Bank provides a wide range of commercial banking services to small- and medium-sized businesses, property managers, business executives, professionals and other individuals, while ALC’s business is focused on consumer lending.~~

FUSB Reinsurance, Inc., an Arizona corporation and a ~~wholly~~ ~~owned~~wholly-owned subsidiary of the Bank (“FUSB Reinsurance”), reinsures or “underwrites” credit life and credit accident and health insurance policies sold to the Bank’s and ALC’s consumer loan customers. FUSB Reinsurance is responsible for the first level of risk on these policies up to a specified maximum amount, and a primary third-party insurer retains the remaining risk. ~~The~~A third-party ~~insurer~~administrator is also responsible for performing most of the administrative functions of FUSB Reinsurance on a contract basis.

Delivery of the best possible financial services to customers remains an overall operational focus of ~~Bancshares and its subsidiaries (collectively,~~ the ~~“Company”). We recognize~~Company. The Company recognizes that attention to detail and responsiveness to ~~customers~~’customers’ desires are critical to customer satisfaction. The Company continues to upgrade technology, both in its financial services and in the training of its ~~258~~155 full-time equivalent employees (as of September 30, 2022), to ensure customer satisfaction and convenience.

The preparation of the ~~Company~~’sCompany’s consolidated financial statements requires management to make subjective judgments associated with estimates. These estimates are necessary to comply with accounting principles generally accepted in the United States of America (“U.S. GAAP”) and general banking practices. These estimates include accounting for the allowance for loan and lease losses, the right-of-use asset and lease liability, the value of other real estate owned ~~valuation of~~and certain collateral-dependent loans, consideration related to goodwill impairment testing and deferred tax ~~assets and fair value measurements.~~asset valuation. A description of these estimates, which significantly affect the determination of the Company’s consolidated financial position, results of operations and cash flows, is set forth in Note 2, “Summary of Significant Accounting Policies,” of the Notes to Consolidated Financial Statements in Bancshares’ Annual Report on Form 10-K as of and for the year ended December 31, ~~2016.~~2021.

The emphasis of this discussion is a comparison of assets, liabilities and ~~shareholders~~’shareholders’ equity as of September 30, ~~2017~~2022 to December 31, ~~2016,~~2021, while comparing income and expense for the ~~three- and nine-month periods~~nine months ended September 30, ~~2017~~2022 and ~~2016.~~2021.

All yields and ratios presented and discussed herein are recorded and presented on the accrual basis and not on the tax-equivalent basis, unless otherwise indicated.

This information should be read in conjunction with the ~~Company~~’sCompany’s unaudited condensed consolidated financial statements and related notes appearing elsewhere in this report and Management’s Discussion and Analysis of Financial Condition and Results of Operations appearing in Bancshares’ Annual Report on Form 10-K as of and for the year ended December 31, ~~2016.~~2021. As used in the following discussion, the words ~~“ we,~~“we,” ~~“ us,~~“us,” ~~“ our”~~“our” and the ~~“ Company”~~“Company” refer to Bancshares and its consolidated subsidiaries, unless the context indicates otherwise.

RECENT MARKET CONDITIONS

During the nine months ended September 30, 2022, general economic conditions benefited from declining COVID-19 cases and the related lifting of COVID-19 restrictions throughout the United States. However, economic uncertainty remains with respect to the long-term effectiveness of efforts to reduce the impact of COVID-19 both globally and domestically. In addition, economic uncertainty emerged from geopolitical developments surrounding the invasion of Ukraine by Russia and further COVID-19 lockdowns in China. Furthermore, inflation has reached a 40-year high during 2022, and market rates of interest have risen after a prolonged period at historical lows. In March 2022, the Federal Reserve Board (FRB) raised the target federal funds rate for the first time in three years, with additional increases in May, June, July and September 2022. Further increases are expected during the remainder of 2022 as the FRB attempts to reduce inflation.

As interest rates increase, competitive pressures on both loan and deposit pricing are also expected to increase. The pace and magnitude of changes in interest rates, or the impact that such changes will have on the Company’s operating results, cannot be fully predicted. During this still-ongoing and still-volatile transition period, the yield curve has flattened and, at times, become inverted. Unusual yield curve effects, including inversion, may continue. Further, as the rate of inflation accelerates, the Company’s operations could be impacted by, among other things, accelerating cost of goods and services, including the cost of salaries and benefits. Additionally, the Company’s borrowers could be negatively impacted by rising expense levels, leading to deterioration of credit quality and/or reductions in the Company’s lending activity. The higher interest rate environment has also led to unrealized losses in the Company's investment portfolio, which consists primarily of fixed rate instruments.

EXECUTIVE OVERVIEW

Update on Strategic Initiatives

Beginning in 2021, the Company originated certain strategic initiatives designed to improve the Company’s operating efficiency, focus the Company’s loan growth activities, and fortify asset quality. The discussion below provides an update regarding the Company’s ongoing strategic initiatives.

Cessation of Business at ALC

On September 3, 2021, ALC ceased new business development and permanently closed its 20 branch lending locations in Alabama and Mississippi to the public. As of September 30, 2022, ALC employed eight full-time equivalent employees that continued to collect payments on loans through ALC’s Mobile, Alabama headquarters office. The objectives of this initiative included the simplification of the Company’s business processes, reduction of non-interest expense, and the improvement of the Company’s asset quality. The timing of the Company’s ability to achieve each of these objectives will be different with some objectives being achieved relatively quickly after execution of the initiative, while others will take more time as ALC’s loan portfolio continues to pay down. For example, a significant reduction of non-interest expense was achieved beginning in the fourth quarter of 2021 and has continued in 2022 due to the reduction of personnel, termination of branch leases, and reduction of technology and other overhead expenses. During the nine months ended September 30, 2022, non-interest expense at ALC totaled $1.4 million, compared to $5.7 million during the same period of 2021.

Though the initiative resulted in non-interest expense reductions relatively early in its execution, it has also resulted in increased expense related to loan loss provisioning. As a result of branch closures, charge-offs associated with ALC loans have increased since the inception of the initiative compared to prior periods. Net charge-offs at ALC totaled $1.5 million during the nine months ended September 30, 2022, compared to $0.5 million during the nine months ended September 30, 2021. In addition, in management’s view, the economic uncertainties that have emerged in 2022, including elevated inflation levels, have increased overall credit risk related to ALC’s loan portfolio. Accordingly, qualitative economic factors associated with ALC’s loan loss reserves have worsened, resulting in additional loan loss provisions. For the nine months ended September 30, 2022, loan loss provisions specific to ALC’s loans totaled $1.6 million, compared to $0.2 million for the corresponding period of 2021. Over time, the reduction of loans at ALC is expected to improve the Company’s asset quality. ALC’s loans and, in particular, its direct consumer portfolio have historically had the Company’s highest level of losses. Approximately 89.0% and 61.0% of the Company’s total net charge-offs were associated with ALC’s loan portfolio during the nine months ended September 30, 2022 and 2021, respectively. As of September 30, 2022, ALC's remaining loans net of unearned interest and fees totaled $23.8 million, compared to $40.8 million as of December 31, 2021.

While this strategy is expected to provide ongoing expense reductions, interest income earned on ALC’s loans will also continue to decline in future periods as the loans pay down. For the nine months ended September 30, 2022, interest income earned on ALC’s loans totaled $3.9 million, compared to $7.0 million for the nine months ended September 30, 2021. Accordingly, the Company’s focus remains on continued loan growth in other areas of the Bank’s portfolio, as well as efforts to continue to simplify the Company’s ongoing operations and reduce expenses further.

Organizational Efforts

In January 2022, management reorganized the Bank’s retail banking, technology and deposit operations functions under a single organizational structure. Under this structure, management expects to further improve the efficiency of its retail banking operation, while also improving the promotion and deployment of the Bank’s digital products and services.

In addition, the Company continues to evaluate opportunities throughout the organization to improve its processes and simplify business models.

Financial Highlights

The Company earned net income of ~~$0.10~~$1.9 million, or $0.29 per diluted common share, during the three months ended September 30, ~~2017,~~2022, compared to ~~$0.09~~$0.8 million, or $0.13 per diluted common share, ~~during~~for the ~~corresponding three-month period of 2016.~~three months ended September 30, 2021. For the nine months ended September 30, ~~2017,~~2022, net income totaled ~~$0.22~~$4.6 million, or $0.71 per diluted common share, compared to ~~$0.21~~$2.7 million, or $0.41 per diluted common share, for the nine months ended September 30, 2021.

Earnings improvement, comparing both the three and nine months ended September 30, 2022 to the corresponding ~~nine-month~~periods in 2021, was driven primarily by reductions in non-interest expense resulting from the strategic initiatives that were initiated by the Company beginning in 2021, and in particular the ALC cessation of business initiative. Non-interest expense was reduced by $1.5 million, or 17.7%, comparing the three months ended September 30, 2022 to the three months ended September 30, 2021, and by $4.4 million, or 17.3%, comparing the nine months ended September 30, 2022, to the corresponding period of ~~2016.~~ 2021.

Summarized condensed consolidated statements of operations are included below for the three and nine months ended September 30, 2022 and 2021.


	Three Months Ended				Nine Months Ended
	September 30,		September 30,		September 30,		September 30,
	2022		2021		2022		2021
	(Dollars in Thousands)
Interest income	$	10,670	$	10,030	$	29,576	$	29,934
Interest expense		1,155		695		2,526		2,223
Net interest income		9,515		9,335		27,050		27,711
Provision for loan and lease losses		1,165		618		2,781		1,517
Net interest income after provision for loan and lease losses		8,350		8,717		24,269		26,194
Non-interest income		1,088		896		2,773		2,656
Non-interest expense		7,032		8,547		20,966		25,342
Income before income taxes		2,406		1,066		6,076		3,508
Provision for income taxes		546		229		1,440		768
Net income	$	1,860	$	837	$	4,636	$	2,740
Basic net income per share	$	0.31	$	0.13	$	0.76	$	0.43
Diluted net income per share	$	0.29	$	0.13	$	0.71	$	0.41
Dividends per share	$	0.03	$	0.03	$	0.09	$	0.09

The ~~composition~~following discussion summarizes the most significant activity that drove changes in the Company’s net income during the nine months ended September 30, 2022, as compared to the nine months ended September 30, 2021.

Net Interest Income and Margin

Net interest income decreased by $0.7 million comparing the nine months ended September 30, 2022 to the nine months ended September 30, 2021. The most significant driver of ~~earnings changed significantly~~the decrease in net interest income was the reduction of interest and fees on ALC loans in connection with the ALC business cessation strategy. Interest and fees on ALC loans decreased by $3.1 million during the nine months ended September 30, 2022, compared to the nine months ended September 30, 2021. This reduction was partially offset by increased interest income in the Bank’s other loan portfolios, as well as an increase in investment security interest income. As ALC’s loan portfolio continues to pay down, there will be continued reduction in interest and fees attributable to ALC’s loans. These reductions are expected to continue to put downward pressure on total loan yield and net interest margin. As a result of the changing mix of loans, the Company’s net interest margin was reduced to 4.00% during the nine months ended September 30, 2022, compared to 4.29% during the nine months ended September 30, 2021. Historically, ALC’s loan portfolio has represented both the Company’s highest yielding loans, as well as the portfolio with the highest level of credit losses. Accordingly, while interest earned on these loans is expected to decrease over time, loan loss provision expense is also expected to decrease after the portfolio pays down.

As the pay down of ALC’s loans continues, management remains focused on efforts to grow earning assets in the Bank’s other loan and investment categories, while at the same time maintaining pricing discipline on deposit costs. As part of its overall interest rate risk management program, the Company has entered into forward interest rate swap contracts on certain variable rate deposit products and fixed rate commercial real estate loans. During the nine months ended September 30, 2022, the Company terminated one interest rate swap associated with a Federal Home Loan Bank borrowing and recorded a deferred gain associated with the termination of $0.3 million. The gain will be recognized over the remaining 24-month term of the original swap agreement.

Provision for Loan and Lease Losses

The provision for loan and lease losses was $2.8 million during the nine months ended September 30, 2022, compared to $1.5 million during the nine months ended September 30, 2021. The increase in provision expense during the nine months ended September 30, 2022, compared to the nine months ended September 30, 2021 reflected both an increase in charge-offs associated with ALC’s loan portfolio, as well as qualitative adjustments applied to the portfolio in response to heightened inflationary trends and other economic uncertainties that emerged during the period. In management’s view, the combination of the ALC business cessation strategy, coupled with deteriorating economic conditions, including elevated inflation levels, increased overall credit risk in ALC’s loan portfolio as of September 30, 2022, compared to December 31, 2021.

Non-interest Income

Non-interest income increased by $0.1 million comparing the nine months ended September 30, 2022 to the nine months ended September 30, 2021. The increase resulted primarily from increased service and other charges on deposit accounts comparing the two periods.

Non-interest Expense

Non-interest expense decreased by $4.4 million comparing the nine months ended September 30, 2022 to the nine months ended September 30, 2021. The decrease in 2022 resulted primarily from implementation of the ALC business cessation strategy, as well as other efficiency efforts conducted at the Bank. As a result of these efforts, significant expense reductions were realized associated with salaries and employee benefits, occupancy and equipment, as well as other expenses associated with technology and professional services. Non-interest expense during both the ~~three- and~~ nine-month periods ended September 30, ~~2017, compared to the corresponding periods of the previous year.~~ ~~The 2017 results were positively impacted~~2022 and 2021 was reduced by ~~increased net interest income as a result of growth~~$0.3 million and $0.4 million in net ~~loans, as well as decreases in non-interest expenses, including regulatory assessments, insurance expense and occupancy and equipment expense. By contrast, the 2016 results were bolstered by higher~~ gains on the sale of ~~securities than were experienced in 2017.~~other real estate owned (OREO), respectively.

Balance Sheet Levels

As of September 30, ~~2017,~~2022, the ~~Company’s net loans~~Company’s assets totaled ~~$338.0~~$989.3 million, compared to $958.3 million as of December 31, 2021, an increase of ~~$15.3~~3.2%. Compared to September 30, 2021, the Company’s total assets increased by $33.9 million, ~~and $20.9~~or 3.5%.

Loans

Total loans increased by $40.9 million, or 5.8% as of September 30, 2022, compared to December 31, ~~2016 and September 30, 2016, respectively. The majority of loan~~2021. Loan volume increases included growth ~~occurred~~ in the Bank’s indirect, residential (secured by multi-family and 1-4 family residential properties) and commercial ~~loan portfolio~~real estate (secured by nonfarm, nonresidential properties). Growth in these categories was consistent with continued robust commercial economic activity and ~~was concentrated~~resiliency in the Bank’s larger metropolitan service territories of Birmingham and Tuscaloosa, Alabama. The Bank’s commercial loan growth strategy has been focused on these larger metropolitan growth markets over the past 24 months. Consistent with that strategy,consumer demand during the ~~third quarter~~period.

Asset Quality

The Company’s nonperforming assets, including loans in non-accrual status and OREO, totaled $2.8 million as of ~~2017,~~September 30, 2022, compared to $4.2 million as of December 31, 2021. The reduction in nonperforming assets during the ~~Bank completed initial construction~~nine months ended September 30, 2022 resulted from the sale of ~~an office complex along U.S. Highway 280~~OREO properties during the period. Reductions in ~~Birmingham. The office complex houses~~OREO totaled $1.5 million and included the sale of banking centers that were closed by the Company in 2021. As a ~~retail branch~~percentage of ~~the Bank,~~total assets, nonperforming assets totaled 0.28% as ~~well~~of September 30, 2022 compared to 0.43% as ~~the Birmingham commercial lending team~~of December 31, 2021.

Deposit Growth and ~~certain members~~Deployment of ~~the Bank’s executive management team. At the end~~Funds

Deposits increased by $8.4 million, or 1.0%, as of ~~the third quarter, the headquarters of both Bancshares and the Bank were relocated~~September 30, 2022, compared to ~~the newly completed office complex.~~

~~Additional financial results for~~December 31, 2021. During the first nine months of ~~2017~~2022, management continued to focus on minimizing deposit expense and deploying excess cash balances into earning assets that meet the Company’s established credit standards, while maintaining appropriate levels of liquidity in accordance with projected funding needs. Total average funding costs, including both interest- and noninterest-bearing liabilities and borrowings, were 0.39% for the nine months ended September 30, 2022, compared to 0.36% for the nine months ended September 30, 2021. Given the increasing interest rate environment during the first nine months of 2022, management continued to deploy a portion of excess funds into the investment securities portfolio. Investment securities, including both the available-for-sale and held-to-maturity portfolios totaled $145.9 million as of September 30, 2022, compared to $134.3 million as of December 31, 2021. The expected average life of securities in the investment portfolio as of September 30, 2022 was 3.6 years, compared to 3.7 years as of December 31, 2021. Management maintains the portfolio with average durations that are ~~summarized below.~~expected to provide monthly cash flows that can be utilized to reinvest in earning assets at current market rates.

●

For the nine months ended September 30, 2017, pre-provision net interest income totaled $21.1 million, compared to $20.8 million during the same period of the previous year. The increase in net interest income resulted from growth in the loan portfolio. Average loans totaled $327.3 million and $283.0 million during the nine months ended September 30, 2017 and 2016, respectively.

●

Due to growth of the loan portfolio, certain investment security assets were redeployed into the loan portfolio upon maturity or prepayment. As a result of this shift in earning assets to the loan portfolio (which generally earns higher yields than the investment portfolio), the average balance of the investment securities portfolio (including both available-for-sale and held-to-maturity securities) decreased to $205.2 million for the nine months ended September 30, 2017, compared to $227.9 million for the nine months ended September 30, 2016.

●

Net yield on interest-earning assets was 5.08% for the nine months ended September 30, 2017, compared to 5.16% for the nine months ended September 30, 2016. Yields declined at the Bank and ALC as a result of continued efforts by management at both entities to adhere to practices designed to improve the credit quality of the Company’s loan portfolio. The Bank’s yield on loans totaled 4.15% for the nine months ended September 30, 2017, compared to 4.39% for the first nine months of 2016. ALC’s yield totaled 18.83% and 19.78% during the nine months ended September 30, 2017 and 2016, respectively. The yield reduction at ALC was underscored by a continued mix-shift away from traditional consumer loans to point-of-sale retail lending, which provides higher credit quality, but at reduced yields. Average cost of funds on deposits and other borrowings was 0.57% and 0.53% during the nine months ended September 30, 2017 and 2016, respectively.

●

~~For the nine months ended September 30, 2017, the provision for loan losses totaled $1.5 million, compared to $1.4 million for the nine months ended September 30, 2016.~~

●

~~Non-interest income decreased to $3.3 million for the nine months ended September 30, 2017, compared to $4.0 million during the corresponding period of 2016.~~ The decrease was primarily due to reductions in gains on sale and prepayments of investment securities totaling $0.4 million, as well as a reduction of $0.1 million in credit insurance revenues. In addition, other income was reduced by $0.2 million due primarily to the collection of settlement amounts associated with a nonaccrual asset in 2016 that was not repeated in 2017.

●

Non-interest expense decreased to $21.1 million for the nine months ended September 30, 2017, compared to $21.7 million for the corresponding period of 2016. The decrease resulted primarily from reductions in routine regulatory assessments, insurance expense, occupancy and equipment expense, professional services fees and impairment charges associated with closed branches. These reductions were partially offset by increases in salaries and benefits expense, telephone and data communications expense and write-downs of OREO.

●

The Company continued to experience improvement in asset quality metrics during the first nine months of 2017. Non-performing assets, including loans in non-accrual status and OREO, decreased to 0.94% of total assets as of September 30, 2017, compared to 1.20% as of December 31, 2016, and 1.28% as of September 30, 2016.

Shareholders’ Equity

Shareholders’ equity decreased by $7.0 million, or 7.7%, as of September 30, 2022, compared to December 31, 2021. The decrease in shareholders’ equity resulted primarily from increases in accumulated other comprehensive loss due to declines in the market value of the Company’s available-for-sale investment portfolio. The market value declines were the direct result of the increasing interest rate environment during the nine months ended September 30, 2022. No other-than-temporary impairment was recognized in the investment portfolio during the nine months ended September 30, 2022, and the Company has both the intent and ability to retain the investments for a period of time sufficient to allow for the full recovery of all market value decreases. The market value decrease in available-for-sale securities was partially offset by an increase in the market value of cash flow derivative instruments that hedge certain deposits and borrowings on the Company’s balance sheet.

●

~~Premises and equipment increased by $7.9 million during the first nine months of 2017 due to capital expenditures associated with the Bank’s new office complex in Birmingham, Alabama.~~

●

Deposits increased to $508.4 million as of September 30, 2017, compared to $497.6 million as of December 31, 2016. Short and long-term borrowings totaled $20.6 million as of September 30, 2017, compared to $25.1 million as of December 31, 2016.

Regulatory Capital

During the nine months ended September 30, 2022, the Bank continued to maintain capital ratios at higher levels than required to be considered a “well-capitalized” institution under applicable banking regulations. As of September 30, 2022, the Bank’s common equity Tier 1 capital and Tier 1 risk-based capital ratios were each 11.09%. Its total capital ratio was 12.23%, and its Tier 1 leverage ratio was 9.23%.

Liquidity

The Company continues to maintain excess funding capacity to provide adequate liquidity for loan growth, capital expenditures and ongoing operations. The Company benefits from a strong deposit base, a liquid investment securities portfolio and access to funding from a variety of sources, including federal funds lines, Federal Home Loan Bank (“FHLB”) advances and brokered deposits. ~~Management believes that continued success in loan growth efforts~~

Cash Dividend

The Company declared cash dividends totaling $0.09 per share on its common stock during both nine-month periods ended September 30, 2022 and September 30, 2021.

Share Repurchases

During the nine months ended September 30, 2022, the Company completed share repurchases totaling 412,400 shares of its common stock at ~~both the Bank and ALC, combined with adherence to established credit underwriting standards, will strengthen both the diversity and credit quality~~a weighted average price of $10.87 per share. The repurchases were completed under the Company’s ~~loan portfolio, while improving interest and fee income on loans.~~existing share repurchase program, which was amended in April 2021 to allow for the repurchase of additional shares through December 31, 2022. As of September 30, 2022, a total of 596,813 shares remained available for repurchase under the program.

RESULTS OF OPERATIONS

Three Months Ended
     Nine Months Ended

September 30,

September 30,
September 30, September 30,

2017

2016
  2017   2016

(Dollars in Thousands)

Interest income
$ 7,820 $ 7,760 $ 23,013 $ 22,434
Interest expense
685 587 1,902 1,683
Net interest income
7,135 7,173 21,111 20,751
Provision for loan losses
373 680

1,464 1,383
Net interest income after provision for loan losses
6,762 6,493 19,647 19,368
Non-interest income
1,236 1,567 3,333 4,036
Non-interest expense
7,190 7,348 21,090 21,669
Income before income taxes
808 712 1,890 1,735
Provision for income taxes
173 162 435 406
Net income
$ 635 $ 550 $ 1,455 $ 1,329

Net Interest Income

Net interest income is calculated as the difference between interest and fee income generated from earning assets and the interest expense paid on deposits and borrowed funds. Fluctuations in interest rates, as well as volume and mix changes in earning assets and interest-bearing liabilities, can materially impact net interest income. The Company’s earning assets ~~are comprised~~consist of loans, ~~at both the Bank and ALC, as well as~~ taxable and ~~nontaxable~~tax-exempt investments, ~~and~~Federal Home Loan Bank stock, federal funds sold by the ~~Bank.~~Bank and interest-bearing deposits in banks. Interest-bearing liabilities ~~are comprised~~consist of interest-bearing demand deposits and savings and time deposits, as well as ~~short-term borrowings~~short- and long-term ~~debt.~~borrowings.

The following tables show the average balances of each principal category of assets, liabilities and shareholders’ equity for the ~~three-~~three and ~~nine-month periods~~nine months ended September 30, ~~2017~~2022 and ~~2016.~~2021. Additionally, the tables provide an analysis of interest revenue or expense associated with each category, along with the accompanying yield or rate percentage. Net ~~yield~~interest margin is calculated for each period presented as net interest income divided by average total interest-earning assets.

Three Months Ended

Three Months Ended

September 30, 2017

September 30, 2016

Average
Balance

Interest

Annualized
Yield/
Rate %

Average
Balance

Interest

Annualized
Yield/
Rate %

(Dollars in Thousands)

ASSETS

Interest-earning assets:

Loans – Bank (Note A)

$
240,006

$
2,578

4.26
%

$
223,739

$
2,428

4.34
%
Loans – ALC (Note A)

91,193

4,224

18.38
%

88,783

4,345

19.57
%
Taxable investment securities

187,670

857

1.81
%

199,835

845

1.68
%
Non-taxable investment securities

8,225

75

3.62
%

11,927

106

3.56
%
Federal funds sold — — — % 8,967 12 0.54 %
Interest-bearing deposits in banks 27,249 86 1.25 % 18,300 24 0.52 %
Total interest-earning assets

554,343

7,820

5.60
%

551,551

7,760

5.63
%
Non-interest-earning assets:

Other assets

58,786

49,796

Total

$
613,129

$
601,347

LIABILITIES AND SHAREHOLDERS’ EQUITY

Interest-bearing liabilities:

Demand deposits

$
164,852

$
161

0.39
%

$
151,365

$
140

0.37
%
Savings deposits

82,201

53

0.26
%

78,415

37

0.19
%
Time deposits

182,405

403

0.88
%

182,567

355

0.78
%
Borrowings

20,099

68

1.34
%

20,289

55

1.08
%
Total interest-bearing liabilities

449,557

685

0.60
%

432,636

587

0.54
%
Non-interest-bearing liabilities:

Demand deposits

77,723

82,097

Other liabilities

7,282

7,919

Shareholders’ equity

78,567

78,695

Total

$
613,129

$
601,347

Net interest income (Note B)

$
7,135

$
7,173

Net yield on interest-earning assets

5.11
%

5.20
%


	Three Months Ended							Three Months Ended
	September 30, 2022							September 30, 2021
	Average Balance		Interest		Annualized Yield/ Rate %			Average Balance		Interest		Annualized Yield/ Rate %
ASSETS
Interest-earning assets:
Total loans (Note A)	$	743,145	$	9,750		5.21	%	$	691,435	$	9,568		5.49	%
Taxable investment securities		148,964		748		1.99	%		119,943		409		1.35	%
Tax-exempt investment securities		2,322		8		1.37	%		3,367		15		1.77	%
Federal Home Loan Bank stock		1,808		17		3.73	%		870		8		3.65	%
Federal funds sold		1,984		11		2.20	%		86		—		—
Interest-bearing deposits in banks		23,166		136		2.33	%		73,490		30		0.16	%
Total interest-earning assets		921,389		10,670		4.59	%		889,191		10,030		4.48	%

Noninterest-earning assets		64,593							67,067
Total	$	985,982						$	956,258

LIABILITIES AND SHAREHOLDERS’ EQUITY
Interest-bearing deposits:
Demand deposits	$	243,131	$	182		0.30	%	$	239,188	$	141		0.23	%
Savings deposits		211,724		342		0.64	%		208,187		160		0.30	%
Time deposits		209,361		340		0.64	%		223,988		351		0.62	%
Total interest-bearing deposits		664,216		864		0.52	%		671,363		652		0.39	%
Noninterest-bearing demand deposits		183,612		—		—			176,102		—		—
Total deposits		847,828		864		0.40	%		847,465		652		0.31	%
Borrowings		45,427		291		2.54	%		10,032		43		1.70	%
Total funding costs		893,255		1,155		0.51	%		857,497		695		0.32	%

Other noninterest-bearing liabilities		8,642							9,158
Shareholders’ equity		84,085							89,603
Total	$	985,982						$	956,258

Net interest income (Note B)			$	9,515						$	9,335
Net interest margin						4.10	%						4.17	%


Note A	—	For the purpose of these computations, non-accruing loans are included in the average loan amounts outstanding. ~~At the Bank, these~~These loans averaged ~~$0.3~~$1.7 million and ~~$0.9~~$1.1 million for the three months ended September 30, ~~2017~~2022 and ~~2016,~~2021, respectively. ~~At ALC, these loans averaged $1.6 million and $1.5 million for the respective periods presented.~~

Note B	—	Loan fees are included in ~~the~~ interest amounts presented. ~~At the Bank, loan~~Loan fees totaled $~~0.1~~$0.1 million and $0.4 million for ~~both of~~ the ~~three-month periods~~three months ended September 30, ~~2017~~2022 and ~~2016. At ALC, loan fees totaled $0.5 million and $0.7 million for the respective periods presented.~~2021, respectively.

Nine Months Ended

Nine Months Ended

September 30, 2017

September 30, 2016

Average
Balance

Interest

Annualized
Yield/
Rate %

Average
Balance

Interest

Annualized
Yield/
Rate %

(Dollars in Thousands)

ASSETS

Interest-earning assets:

Loans – Bank (Note A)

$
238,428

$
7,408

4.15
%

$
197,460

$
6,508

4.39
%
Loans – ALC (Note A)

88,918

12,520

18.83
%

85,504

12,684

19.78
%
Taxable investment securities

196,200

2,659

1.81
%

213,828

2,765

1.73
%
Non-taxable investment securities

8,989

245

3.64
%

14,073

382

3.62
%
Federal funds sold — — — % 4,288 17 0.53 %
Interest-bearing deposits in banks

22,705

181

1.07
%

20,581

78

0.51
%
Total interest-earning assets

555,240

23,013

5.54
%

535,734

22,434

5.58
%
Non-interest-earning assets:

Other assets

56,012

49,222

Total

$
611,252

$
584,956

LIABILITIES AND SHAREHOLDERS’ EQUITY

Interest-bearing liabilities:

Demand deposits

$
162,920

$
465

0.38
%

$
149,162

$
410

0.37
%
Savings deposits

80,364

132

0.22
%

77,411

108

0.19
%
Time deposits

183,242

1,116

0.81
%

180,949

1,050

0.77
%
Borrowings

21,596

189

1.17
%

15,467

115

0.99
%
Total interest-bearing liabilities

448,122

1,902

0.57
%

422,989

1,683

0.53
%
Non-interest-bearing liabilities:

Demand deposits

77,976

76,157

Other liabilities

7,223

7,750

Shareholders’ equity

77,931

78,060

Total

$
611,252

$
584,956

Net interest income (Note B)

$
21,111

$
20,751

Net yield on interest-earning assets

5.08
%

5.16
%


	Nine Months Ended							Nine Months Ended
	September 30, 2022							September 30, 2021
	Average Balance		Interest		Annualized Yield/ Rate %			Average Balance		Interest		Annualized Yield/ Rate %
ASSETS
Interest-earning assets:
Total loans (Note A)	$	713,015	$	27,339		5.13	%	$	672,807	$	28,726		5.71	%
Taxable investment securities		142,425		1,896		1.78	%		100,245		1,059		1.41	%
Tax-exempt investment securities		2,543		31		1.63	%		3,464		47		1.81	%
Federal Home Loan Bank stock		1,165		33		3.79	%		948		25		3.53	%
Federal funds sold		853		12		1.88	%		84		—		—
Interest-bearing deposits in banks		45,133		265		0.79	%		86,632		77		0.12	%
Total interest-earning assets		905,134		29,576		4.37	%		864,180		29,934		4.63	%

Noninterest-earning assets		65,379							68,041
Total	$	970,513						$	932,221

LIABILITIES AND SHAREHOLDERS’ EQUITY
Interest-bearing deposits:
Demand deposits	$	249,183	$	438		0.24	%	$	233,329	$	425		0.24	%
Savings deposits		206,294		693		0.45	%		190,296		453		0.32	%
Time deposits		208,621		833		0.53	%		230,986		1,222		0.71	%
Total interest-bearing deposits		664,098		1,964		0.40	%		654,611		2,100		0.43	%
Noninterest-bearing demand deposits		182,862		—		—			169,780		—		—
Total deposits		846,960		1,964		0.31	%		824,391		2,100		0.34	%
Borrowings		27,994		562		2.68	%		10,022		123		1.64	%
Total funding costs		874,954		2,526		0.39	%		834,413		2,223		0.36	%

Other noninterest-bearing liabilities		8,833							9,288
Shareholders’ equity		86,726							88,520
Total	$	970,513						$	932,221

Net interest income (Note B)			$	27,050						$	27,711
Net interest margin						4.00	%						4.29	%


Note A	—	For the purpose of these computations, non-accruing loans are included in the average loan amounts outstanding. ~~At the Bank, these~~These loans averaged ~~$0.5~~$1.8 million and ~~$1.2~~$1.9 million for the nine months ended September 30, ~~2017~~2022 and ~~2016,~~2021, respectively. ~~At ALC, these loans averaged $1.6 million for both of the periods presented.~~

Note B	—	Loan fees are included in ~~the~~ interest amounts presented. ~~At the Bank, loan~~Loan fees totaled $~~0.3~~$0.4 million and $1.3 million for ~~both of~~ the ~~nine-month periods~~nine months ended September 30, ~~2017~~2022 and ~~2016. At ALC, loan fees totaled $1.6 million and $2.1 million for the respective periods presented.~~2021, respectively.

~~Interest~~

The following tables summarize the impact of variances in volume and rate of interest-earning assets and interest-bearing liabilities on components of net interest income.


	Three Months Ended September 30, 2022									Nine Months Ended September 30, 2022
	Compared to									Compared to
	Three Months Ended September 30, 2021									Nine Months Ended September 30, 2021
	Increase (Decrease)									Increase (Decrease)
	Due to Change In:									Due to Change In:
	Volume			Average Rate			Net			Volume			Average Rate			Net
	(Dollars in Thousands)
Interest earned on:
Total loans	$	716		$	(534	)	$	182		$	1,717		$	(3,104	)	$	(1,387	)
Taxable investment securities		99			240			339			446			391			837
Tax-exempt investment securities		(5	)		(2	)		(7	)		(12	)		(4	)		(16	)
Federal Home Loan Bank stock		9			—			9			6			2			8
Federal funds sold		—			11			11			—			12			12
Interest-bearing deposits in banks		(21	)		127			106			(37	)		225			188
Total interest-earning assets		798			(158	)		640			2,120			(2,478	)		(358	)
Interest expense on:
Demand deposits		2			39			41			29			(16	)		13
Savings deposits		3			179			182			38			202			240
Time deposits		(23	)		12			(11	)		(118	)		(271	)		(389	)
Borrowings		152			96			248			221			218			439
Total interest-bearing liabilities		134			326			460			170			133			303
Increase (decrease) in net interest income	$	664		$	(484	)	$	180		$	1,950		$	(2,611	)	$	(661	)

Net interest income ~~earned on loans at~~totaled $9.5 million for the ~~Bank increased in both the three- and nine- month periods~~three months ended September 30, ~~2017~~2022, compared to $9.3 million for the three months ended September 30, 2021. The increase resulted primarily from loan growth and, to a lesser extent, increased yield on the investment portfolio and interest-bearing deposits in banks. For the nine months ended September 30, 2022, net interest income totaled $27.1 million, compared to $27.7 million for the nine months ended September 30, 2021. The decrease was primarily attributable to reductions in interest and fees on ALC loans in connection with the ALC cessation of business strategy. Interest and fees on ALC loans decreased by $3.1 million comparing the nine months ended September 30, 2022 to the corresponding ~~periods~~period of 2021. The decrease related to ALC loans was partially offset by interest income in the Bank’s other earning asset categories, which increased by $2.7 million on a net basis, comparing the nine months ended September 30, 2022 to the nine months ended September 30, 2021. As ALC’s loan portfolio continues to pay down, there will be continued reduction in interest and fees attributable to ALC’s loans. These reductions are expected to continue to put downward pressure on total loan yield and net interest margin. As a result of the ~~previous year~~changing mix of earning assets, the Company’s net interest margin was reduced to 4.10% during the three months ended September 30, 2022, compared to 4.17% during the three months ended September 30, 2021. For the nine months ended September 30, 2022, net interest margin was 4.00%, compared to 4.29% for the nine months ended September 30, 2021. Though net interest income and margin are expected to continue to decrease as a result of ~~growth in average loan volume.~~ Atthe cessation of business strategy at ALC, ~~despite continued growth in loan volume, interest income decreased during both 2017 periods compared~~significant non-interest expense savings have developed, or are expected to ~~the corresponding periods of 2016~~develop, as a result of ~~reductions in yield. The decrease in yield at ALC was due to continued focus on credit quality improvement. These activities have been ongoing for~~ the ~~past several years and have resulted in significant improvement in the credit quality of~~strategy. Historically, ALC’s ~~portfolio, with a corresponding decrease in yield commensurate with reduced risk. The~~ loan volume increases were partially offset by decreases in the average balances of taxable and non-taxable investments and federal funds sold. The shift in the mix of earning assets is consistent with management’s ongoing strategy to utilize cash flows from the maturity and paydown of investment securities to fund loan growth as opportunities permit. The investment portfolio has ~~been structured to provide monthly cash flows through the maturity and paydown of securities in a manner that management believes can continue to fund a substantial portion of loan growth over time.~~

~~Interest expense increased in~~represented both the ~~three- and nine-month periods ended September 30, 2017 compared to the corresponding periods of 2016 due to increases in the volume of interest-bearing liabilities,~~Company’s highest yielding loans, as well as ~~modest increases~~the portfolio with the highest level of credit losses. Accordingly, while interest earned on these loans is expected to decrease over time, loan loss provision expense is also expected to decrease after the portfolio pays down. As the pay down continues, management is continuing efforts to grow earning assets in ~~rate commensurate with~~ the Bank’s other loan and investment categories, while at the same time maintaining pricing discipline on deposit costs and earning asset yields consistent with the current interest rate ~~environment experienced~~environment.

Beginning in March of 2022 and through its November 2022 meeting, the Federal Open Market Committee has raised the federal funds rate by 375 basis points. Statements by the Federal Reserve chair have indicated that further interest rate increases may be expected in 2022 and into 2023 to address inflationary pressures. Although, as described above, the Company’s interest margin generally will benefit from rising interest rates, rates may rise in an uneven manner causing unpredictable effects, and higher rates could negatively affect the economy, loan demand and borrowers’ financial position, and could cause additional declines in the market value of the Company’s investment securities.

Provision for Loan and Lease Losses

The provision for loan and lease losses was $2.8 million during the nine months ended September 30, ~~2017.~~2022, compared to $1.5 million during the nine months ended September 30, 2021. The increase in the provision, comparing the two periods, resulted from both an increase in charge-offs associated with ALC’s runoff loan portfolio, as well as qualitative adjustments applied to the portfolio in response to heightened inflationary trends and other economic uncertainties that emerged during the nine months ended September 30, 2022. In management’s view, the combination of the ALC business cessation strategy, coupled with deteriorating economic conditions, including elevated inflation levels,

~~We expect that continued growth~~increased overall credit risk, particularly in ALC’s loan portfolio, as of September 30, 2022, compared to December 31, 2021. The loan loss provision recorded by the Company during the nine months ended September 30, 2022 included $1.6 million associated with ALC’s portfolio and $1.2 million associated with the Bank’s portfolio. The Company’s net ~~loan volume at~~charge-offs totaled $2.3 million during the nine months ended September 30, 2022, compared to $1.5 million during the nine months ended September 30, 2021. The majority of the Company’s charge-offs in both ~~the Bank~~2022 and ~~ALC~~2021 were associated with loans of sufficient credit quality will enhance net interest income, particularly as resources are shifted from lower-earning investment securities to higher-earning loan balances. However, the competitive environment is significant relative to the generation of loans of high credit quality. At both the Bank and ALC, management is continuing to focus efforts on new loan origination within the parameters of established credit policy, while also maintaining vigilance in the deployment of strategies to effectively manage risks associated with interest rate fluctuations. Net interest income could experience downward pressure as a result of increased competition for quality loan opportunities, lower reinvestment yields and fewer opportunities to reduce future funding costs.ALC’s portfolio.

~~Provision (Reduction in Reserve) for Loan Losses~~

~~The provision for loan losses is an expense used to establish~~Management believes that the allowance for loan ~~losses. Actual loan~~and lease losses ~~net~~as of ~~recoveries, are charged directly to the allowance for loan losses. The expense recorded for each reporting period is a reflection of actual net losses experienced during the period and management’s judgment as to the adequacy of the allowance~~September 30, 2022, which was calculated under an incurred loss model, was sufficient to absorb losses ~~inherent~~ in the Company’s loan portfolio based on circumstances existing as of the balance sheet date. ~~The following table presents~~ Management will continue to closely monitor the ~~provision (reduction in reserve)~~impact of changing economic circumstances on the Company’s loan portfolio and will adjust the allowance accordingly. In accordance with relevant accounting guidance for ~~loan losses~~smaller reporting companies, the Company has not yet adopted the Current Expected Credit Loss (CECL) accounting model for the ~~Bank~~calculation of credit losses and ~~ALC for~~is currently evaluating the ~~three~~ ~~and nine months ended September 30, 2017 and 2016.~~

Three Months Ended
Nine Months Ended

September 30,

September 30,
September 30, September 30,

2017

2016
2017 2016
(Dollars in Thousands) (Dollars in Thousands)
Bank
$ (130
)
$ 100

$ (130 ) $ (350 )
ALC
503 580 1,594 1,733
Total
$ 373 $ 680

$ 1,464 $ 1,383

Atimpact that adopting CECL will have on the ~~Bank, during both the three- and nine-month periods ended September 30, 2017, recoveries of previously charged-off loans exceeded current period charge-offs.~~ In addition, during the third quarter, the Bank resolved a previously impaired loan relationship through the collection of contractual amounts due. The resolution of the impairment, combined with continued net recoveries, enabled the BankCompany’s financial statements. Due to ~~reduce the allowance for loan losses by $0.1 million during the third quarter.~~ ~~The Bank’s allowance for loan losses~~its classification as a ~~percentage of loans totaled 0.96% as of September 30, 2017, compared to 1.01% as of December 31, 2016.~~

~~At ALC,~~smaller reporting company by the ~~provision for loan losses decreased during both the three-~~Securities and nine- month periods ended September 30, 2017, based primarily on modest improvements in charge-off experience during the period. ALC’s allowance for loan losses as a percentage of loans totaled 2.60% as of September 30, 2017, compared to 2.78% as of December 31, 2016.

~~For~~Exchange Commission, the Company is not required to implement the allowance for loan losses totaled 1.40% as of September 30, 2017, compared to 1.48% as of December 31, 2016. Based on our evaluation of the loan portfolio, we believe that the allowance for loan losses at both the Bank and ALC is adequate to absorb losses inherent in the loan portfolio as of September 30, 2017. While we believe that the methodologies and calculations that have been used in the determination of the allowance are adequate, our conclusions are based on estimates and judgments and are, therefore, approximate and imprecise. Factors beyond our control, such as changes in economic conditions impacting the national economy or the local service areas in which the Bank and ALC operate, may negatively and materially affect asset quality and the adequacy of the allowance for loan losses, as well as the resulting provision for loan losses. In general, we expect the provision for loan losses to increase commensurate with growth in loan volume at both the Bank and ALC; however, we would also expect such increases to be partially offset should credit quality of the portfolio continue to improve.CECL model until January 1, 2023.

Non-Interest Income

Non-interest income represents fees and income derived from sources other than interest-earning ~~asset~~s.assets. The following table presents the major components of non-interest ~~income. Expanded discussion of certain significant non-interest~~ income ~~items~~for the periods indicated:


	Three Months Ended September 30,									Nine Months Ended September 30,
	2022		2021		$ Change		% Change			2022		2021		$ Change			% Change
	(Dollars in Thousands)									(Dollars in Thousands)
Service charges and other fees on deposit accounts	$	311	$	271	$	40		14.8	%	$	904	$	777	$	127			16.3	%
Bank-owned life insurance		112		110		2		1.8	%		335		327		8			2.4	%
Lease income		210		208		2		1.0	%		635		619		16			2.6	%
Other income		455		307		148		48.2	%		899		933		(34	)		(3.6	)%
Total non-interest income	$	1,088	$	896	$	192		21.4	%	$	2,773	$	2,656	$	117			4.4	%

Non-interest income increased in both the three- and ~~fluctuations is provided below the table.~~

Three Months Ended
September 30,

Nine Months Ended
September 30,

2017

2016

$
Change

%
Change
2017 2016
$
Change

%
Change

(Dollars in Thousands)
(Dollars in Thousands)
Service charges and other fees on deposit accounts
$ 481 $ 463 $ 18 3.9
%
$ 1,406 $ 1,306 $ 100 7.7 %
Credit insurance commissions and fees
160 256 (96 ) (37.5 )
%
459 570 (111 ) (19.5 ) %
Bank-owned life insurance
106 105 1 0.1
%
318 316 2 0.6 %
Net gain on sale and prepayment of investment securities 178 259 (81 ) (31.3 ) % 228 657 (429 ) (65.3 ) %
Other income
311 484 (173 ) (35.7 )
%
922 1,187 (265 ) (22.3 ) %
Total non-interest income
$ 1,236 $ 1,567 $ (331 ) (21.1 )
%
$ 3,333 $ 4,036 $ (703 ) (17.4 ) %

~~Service Charges and Other Fees on Deposit Accounts~~

~~Service charges and other fees are generated on deposit accounts held at the Bank. The increase in this category of non-interest income during the three and nine months~~nine-month periods ended September 30, ~~2017 compared to the three and nine months ended September 30, 2016 resulted primarily from increased fees generated from service charges on deposit accounts.~~ Periodically, management evaluates the fee structure on the Bank’s deposit accounts in order to ensure that fees charged are competitive in the current environment and compliant with regulatory guidance. In addition, management continues to evaluate opportunities for deposit growth through further penetration in existing service territories. We expect that income from these sources will grow over time as deposit levels grow. However, there is significant competition among financial institutions for deposits. Accordingly, we cannot predict with certainty the level of revenues that will be derived in this category in the future.

~~Credit Insurance Commissions and Fees~~

Credit insurance commissions and fees are generated from credit life and credit accident and health insurance policies offered primarily at ALC to consumer loan customers through FUSB Reinsurance. The decrease in non-interest income in this category during the three and nine months ended September 30, 20172022, compared to the corresponding periods of ~~2016~~2021. For the three months ended September 30, 2022, the increase resulted primarily from ~~a focus by ALC management~~nonrecurring gains on ~~product lines~~sale of premises and equipment and other assets that ~~do not facilitate the generation of these types of sales.~~ ~~Although revenues in this category decreased during~~exceeded the three ~~and~~months ended September 30, 2021 by $0.2 million. For the nine months ended September 30, ~~2017 compared~~2022, the increase was due primarily to increases in service charges and other fees on deposit accounts that were volume driven. Non-interest revenues earned from service charges and other fees on deposit accounts have generally declined during recent years based on changes in depositor preferences for liquidity, particularly during the ~~three and nine months ended September 30, 2016, such revenues are generally dependent on the mix of product lines offered at ALC and the specific needs of borrowers.~~pandemic. Management continues to ~~seek~~evaluate opportunities to add new non-interest revenue streams or to grow ~~revenues~~existing streams; however, significant growth in this category when opportunities arise based on customer needs and in accordance with regulatory guidelines; however, we cannot predict with certainty the level of revenues that will be derived from this category in the future.

~~Bank-owned Life Insurance~~

The Bank utilizes bank-owned life insurance as a tool to offset the cost of certain retirement benefit programs. The income derived from bank-owned life insurance represents the increase in the cash surrender value of the policies (which is generally non-taxable) over the periods presented. The cash surrender value of the policies totaled $14.8 million and $14.6 million as of September 30, 2017 and December 31, 2016, respectively. The insurance policies are adjustable-rate assets with minimum guaranteed rates of interest between 2% and 4%. Accordingly, management does not expect significant fluctuation in the income derived from these assets.

~~Net Gain on Sale and Prepayment of Investment Securities~~

The investment securities portfolio is used by management to provide liquidity, to generate interest income and for use as collateral for public deposits and wholesale funding. Management reviews the securities in the investment portfolio periodically and, from time to time, may determine that it is appropriate to sell securities that are designated as securities available-for-sale. When this occurs, a gain or loss is recorded as the difference between the fair value of the security on the date of sale and the security’s carrying value. In addition, a gain may be recognized for prepayment penalties earned by the Company when a security is called by the debtor prior to its maturity date. Because determinations of whether to sell investment securities are made by management based on specific facts and circumstances at a given point in time, no assessment can be made as to the level of gains or losses that could be incurred related to sales of investment securities or prepayment penalties in the future.

~~Other Income~~

Other non-interest income includes fee income generated by the Bank for ancillary services, such as letters of credit, ATMs, debit and credit cards, wire transfers and real estate rental. In addition, other non-interest income is generated at ALC for ancillary services, including ALC’s auto club membership program, which provides members with emergency roadside assistance, lock and key services and reimbursement for emergency travel expenses. The decrease in other non-interest income during the three and nine months ended September 30, 2017 compared to the corresponding periods of 2016 resulted primarily from reductions in ACH fees and services at the Bank and in ALC’s auto club membership revenue. In addition, other income was reduced as a result of collection of settlement amounts associated with a nonaccrual asset in 2016 that was not ~~repeated in 2017. Given the nature of the types of revenues categorized as other income, there is uncertainty as to the level of revenue that will be derived from these sources~~expected in the ~~future.~~near term.

Non-Interest Expense

Non-interest expense represents expenses incurred from sources other than interest-bearing liabilities. The following table presents the major components of non-interest expense for the periods ~~indicated. Expanded discussion~~indicated:


	Three Months Ended September 30,												Nine Months Ended September 30,
	2022			2021			$ Change			% Change			2022			2021			$ Change			% Change
	(Dollars in Thousands)												(Dollars in Thousands)
Salaries and employee benefits	$	4,007		$	5,045		$	(1,038	)		(20.6	)%	$	12,389		$	14,951		$	(2,562	)		(17.1	)%
Net occupancy and equipment expense		861			1,259			(398	)		(31.6	)%		2,468			3,318			(850	)		(25.6	)%
Computer services		417			461			(44	)		(9.5	)%		1,224			1,411			(187	)		(13.3	)%
Insurance expense and assessments		310			340			(30	)		(8.8	)%		970			985			(15	)		(1.5	)%
Fees for professional services		263			292			(29	)		(9.9	)%		811			1,003			(192	)		(19.1	)%
Postage, stationery and supplies		164			206			(42	)		(20.4	)%		469			618			(149	)		(24.1	)%
Telephone/data communications		159			283			(124	)		(43.8	)%		518			742			(224	)		(30.2	)%
Other real estate/foreclosure (income) expense, net		(5	)		(273	)		268		NM				(320	)		(286	)		(34	)	NM
Other expense		856			934			(78	)		(8.4	)%		2,437			2,600			(163	)		(6.3	)%
Total non-interest expense	$	7,032		$	8,547		$	(1,515	)		(17.7	)%	$	20,966		$	25,342		$	(4,376	)		(17.3	)%

NM: Not meaningful

Non-interest expenses were reduced in both the three- and nine-month periods ended September 30, 2022 compared to the corresponding periods of ~~certain~~2021 due primarily to the strategic initiatives executed by the Company beginning in the third quarter of 2021. The initiatives, which included the ALC cessation of business strategy, Bank branch closures and other operational efficiency efforts at the Bank, led to significant ~~non-interest~~reductions in the Company’s personnel levels, reduced levels of occupancy and equipment expense, ~~items~~ and ~~fluctuations is provided below the table.~~decreases in various other expense categories.

Three Months Ended
September 30,

Nine Months Ended
September 30,

2017

2016

$
Change

%
Change
2017 2016
$
Change
%
Change

(Dollars in Thousands)
(Dollars in Thousands)
Salaries and employee benefits
$ 4,370 $ 4,334 $ 36 0.8

% $ 13,048 $ 12,734 $ 314 2.5 %
Net occupancy and equipment expense
806 830 (24 ) (2.9
)
% 2,276 2,381 (105 ) (4.4 ) %
Computer services 337 364 (27 ) (7.4 ) % 1,035 1,021 14 1.4 %
Insurance expense and assessments 161 255 (94 ) (36.9 ) % 479 775 (296 ) (38.2 ) %
Fees for professional services 187 231 (44 ) (19.0 ) % 650 748 (98 ) (13.1 ) %
Postage, stationery and supplies 174 183 (9 ) (4.9 ) % 479 562 (83 ) (14.8 ) %
Telephone/data communications 206 164 42 25.6 % 628 502 126 25.1 %
Other real estate/foreclosure expense:

Write-downs, net of gain or loss on sale
196 47 149 317.0

% 277 137 140 102.2 %
Carrying costs
48 77 (29 ) (37.7
)
% 184 233 (49 ) (21.0 ) %
Total other real estate/foreclosure expense
244 124 120 96.8

% 461 370 91 24.6 %
Other
705 863 (158 ) (18.3
)
% 2,034 2,576 (542 ) (21.0 ) %
Total non-interest expense
$ 7,190 $ 7,348 $ (158 ) (2.2
)
% $ 21,090 $ 21,669 $ (579 ) (2.7 ) %

~~Salaries and Employee Benefits~~

Salaries and employee benefits expense reductions have been achieved through the ~~largest category~~reduction of ~~non-interest expense, totaled $3.0~~ ~~million at~~employee levels, the ~~Bank and $1.4 million at ALC for the third quarter~~most notable of ~~2017, compared to $2.9 million at the Bank and $1.4 million at ALC~~which was realized during the third quarter of ~~2016. For~~2021 following implementation of the ~~nine-month period ended~~ALC business cessation strategy. Further reductions of employee levels have been achieved through the Company’s ongoing efficiency efforts. As of September 30, ~~2017, salaries and benefits expense totaled $8.7 million~~2022, the Company employed 155 full-time equivalent employees (including 147 at the Bank and ~~$4.3 million~~eight at ~~ALC,~~ALC), compared to ~~$8.3 million at the Bank and $4.4 million at ALC for the nine-month period ended~~175 as of December 31, 2021, 187 as of September 30, ~~2016. The expense amounts for the Bank are inclusive~~2021, and 259 as of ~~salaries and benefits paid~~June 30, 2021 (the quarter-end date immediately prior to ~~certain members of management and employees for work performed on behalf of Bancshares, as well as current and deferred fees paid to members~~execution of the ~~Bank’s~~strategic initiatives).

The reduction in occupancy and ~~Bancshares’ Boards~~equipment expense resulted primarily from the termination of Directors. Management remains committed to providing salaries and benefits packages to employees at competitive levels in order to ensure that we continue to provide quality service to our customers. Accordingly, we expect salaries and employee benefits expense to generally increase commensurate with our growth and trends in the employment market over time.

~~Net Occupancy and Equipment Expense~~

This category of non-interest expense includes expenses associated with depreciation of buildings, equipment and furniture and fixtures, rent of office space, utilities expense and maintenance and repair costs. The majority of the Bank’s office space is owned, while the majority of ALC’s office space is leased. The decrease in this category for the three and nine months ended September 30, 2017 compared to the three and nine months ended September 30, 2016 resulted primarily from a decrease in maintenance and repair expenselease contracts following cessation of business at ~~the Bank. Occupancy and equipment expense is expected to increase over time~~its branches, as well as the ~~Company depreciates expenditures associated with capital improvements. During the three and nine months ended September 30, 2017, the Company recorded $0.8 million and $8.7 million, respectively,~~closure of four bank branches in ~~additions to premises and equipment. The majority of these expenditures were associated with the construction~~ ~~of an office complex in Birmingham, Alabama. Initial construction of the office complex was completed during~~ the third quarter ~~and~~of 2021. As of September 30, 2022, all previously existing ALC leases had been terminated except for the ongoing lease of ALC’s headquarters ofoffice that continues to house the Company and the Bank were relocated to that location at the end of the third quarter. Approximately 25% of the square footage of the office complex is being utilized by the Bank, with the remainder to be leased to commercial tenants. Based on management's current estimates, it is expected that placement of the office complex into service will result in approximately $0.5 million in additional depreciation expense annually. Upon full lease-up of the office complex, management expects that the majority of depreciation expense, as well as additional operating costs associated with the complex, will be recovered through lease revenue; however, no assurance can be given regarding the office complex being fully leased by third-party tenants or the timing of such third-party leases.

~~Computer Services~~

~~Computer services expenses were primarily associated with core processing at the Bank and ALC. Due to the differing nature of their businesses, the Bank and~~remaining ALC ~~utilize different core processors. The increase in expense in this category comparing~~staff. During the nine months ended September 30, ~~2017~~2022, non-interest expense was also reduced by one-time net gains on the sale of OREO that totaled $0.3 million. The gains were primarily generated by the sale of the Bank’s closed branch assets.

Due to the strategic initiatives, additional expense reductions were also realized related to telephone/data communications, computer services, professional services, postage and supplies and various other expense categories, comparing both the three- and nine-month periods ended September 30, 2022 to the corresponding periods of 2021.

Both nine-month periods presented included certain one-time restructuring charges associated with the ALC cessation of business strategy. These charges included expenses associated with employee severances, termination of leases and technology contracts fixed asset valuation adjustments, and miscellaneous other expenses. The restructuring charges totaled $0.2 million during the nine months ended September 30, ~~2016 was associated with additional information technology services provided by~~2022, compared to $0.5 million during the Bank’s core processor that significantly enhanced the Bank’s technology platform, including increased protections against data security risk and enhanced disaster recovery planning. Given the rapid pace of technological change, increases in this category of expense are generally expected to occur at a more rapid pace than in other expense categories.

~~Insurance Expense and Assessments~~

~~This category of non-interest expense includes the cost of corporate insurance maintained by the Company, as well as FDIC insurance and state banking assessments.~~ The Bank pays assessments to the FDIC based on a prescribed regulatory calculation that factors in average total assets and the Company’s supervisory ratings, as determined by regulatory examinations. The decrease in this expense category comparing the three and nine months ended September 30, ~~2017 to~~2021. No restructuring charges were incurred during the three ~~and nine~~ months ended September 30, ~~2016 resulted primarily from reductions~~2022, while $0.5 million in ~~FDIC assessments. In~~restructuring charges were incurred during the near term, based on current regulatory guidelines, this category of expense is expected to decline. However, over a longer-term time horizon, management expects this category of expenses to increase based on growth in the Company’s balance sheet and expansion of the Company’s activities.

~~Fees for Professional Services~~

~~Fees for professional services include fees associated with legal, accounting and auditing, compliance and other consulting services. The decrease in these expenses for the~~ three ~~and nine~~ months ended September 30, ~~2017 compared to~~2021. As of September 30, 2022, the ~~same periods in 2016 resulted primarily from a decrease in professional fees~~majority of estimated restructuring charges associated with ~~collections and other legal matters, which~~the ALC strategy have decreased over time as a result of the increased credit quality in the Bank’s loan portfolio. Although we do not anticipate significant fluctuations in this category of expense, we do expect inflationary increases over time, as well as increases associated with increased regulatory oversight and reporting requirements commensurate with the Company’s growth and development.

~~Postage, Stationery and Supplies~~

been incurred. The decrease in expense in this category comparing the three and nine months ended September 30, 2017 to the three and nine months ended September 30, 2016 resulted from continued efforts by management at the Bank and ALC to manage controllable expenses. We will continue efforts to control these expenses in a prudent manner; however, expense in this category is generally expected to increase over time due to inflationary growth, as well as expanded penetration by the Bank into metropolitan service territories.

~~Telephone / Data Communications~~

The increase in this expense category for the three and nine months ended September 30, 2017 compared to the three and nine months ended September 30, 2016 was primarily associated with management’s efforts to enhance network and telephone capabilities. During 2016, the Company began efforts to upgrade its computer and telephone network systems. These effortsstrategic initiatives are expected to ~~create long-term benefits in improved efficiency and technical capabilities that will benefit both~~continue to reduce the ~~Bank and ALC. In the short-term, however, we expect increases in this category of expenses as the Company continues upgrades.~~

~~Other Real Estate / Foreclosure Expense~~

~~Other~~ ~~real estate / foreclosure~~Company’s expense includes both the cost of carrying OREO and write-downs of OREO. Cost of carrying OREO includes property taxes, attorneys’ fees, maintenance costs, security costs and the cost of obtaining independent property appraisals. Write-downs include impairments recorded on existing OREO properties in order to carry the property at the lower of cost or fair value, less estimated cost to sell.

~~OREO carrying costs decreased during the three and nine months ended September 30, 2017 compared to the corresponding periods of 2016 as a result of continued reduction~~structure in the ~~level of OREO at both~~near term, although the Bank and ALC. Write-downs, however, increased during the three and nine months ended September 30, 2017 compared to the same periods of 2016 due to impairment charges taken on a portion of the Bank’s OREO properties during the third quarter of 2017. OREO totaled $3.5 million and $0.3 million at the Bank and ALC, respectively, as of September 30, 2017, compared to $4.9 million and $0.5 million, respectively, as of September 30, 2016, a decrease of $1.6 million for the Company on a consolidated basis.

~~Although~~ management continued to reduce OREO levels during the nine-month period ended September 30, 2017, there is inherent uncertainty with respect to economic conditions and real estate values in certain of the service areas in which both the Bank and ALC operate. In addition, as the level of OREO is reduced, it becomes more difficult to work out remaining OREO at the same pace as experienced when OREO volumes were higher. Accordingly, continued reduction of carrying costs cannotreductions may be ~~expected with any level of certainty. Furthermore, if the national or local economy weakens, or if real estate values decline further in~~offset by inflationary pressures affecting the Company’s ongoing operations. One of management’s primary service areas, additional write-downs of existing OREO could be required. Additionally, the pace of migration of properties into OREO could increase, resulting in the potential for increased levels of both write-downs and carrying costs.

~~Other~~

This category encompasses a variety of expenses, including business development, security services, sales and other taxes, employee training, expenses associated with fixed asset write-downs and other miscellaneous expenses. Comparing the three and nine months ended September 30, 2017 to the three and nine months ended September 30, 2016, expenses in this category decreased due to reductions in a number of expense categories, including collection fees, debit card fraud, impairment on closed branch assets and reserves for accident and health policies sold through FUSB Reinsurance. Certain of these reductions are expectedfocuses continues to be ~~offset~~business simplification and process improvements in ~~future quarters; however, management continues~~an effort to ~~maintain vigilance in efforts to reduce these costs where opportunities to do so exist.~~continue improving the Company’s overall efficiency levels.

Provision for Income Taxes

The provision for income taxes was ~~$0.2~~$1.4 million ~~for both of the three-month periods ended September 30, 2017~~ and ~~2016. The Company’s effective tax rate was 21.4%~~$0.8 million for ~~the third quarter of 2017, compared to 22.8% for the third quarter of 2016. For~~ the nine months ended September 30, ~~2017~~2022 and ~~2016,~~2021, respectively, and the Company’s effective tax rate was ~~23.0%~~23.7% and ~~23.4%~~21.9%, ~~respectively.~~ respectively, for the same periods.

The effective tax rate is ~~expected to fluctuate based on~~impacted by recurring items, such as changes in tax-exempt interest income earned from bank-qualified municipal bonds and loans and the cash surrender value of bank-owned life insurance. Management makes decisions about whether to invest in tax-exempt instruments on a case-by-case basis after considering a number of factors, including investment return, credit quality and the consistency of such investments with the Company’s overall strategy. The Company’s effective tax rate is expected to fluctuate commensurate with the level of these investments as compared to total pre-tax income.

BALANCE SHEET ANALYSIS

Investment Securities

The investment securities portfolio is used by management to provide liquidity, to generate interest income and for use as collateral for public deposits and wholesale funding. Risk and return can be adjusted by altering the duration, composition and/or balance of the portfolio. The expected average life of securities in the investment portfolio was ~~2.7~~3.6 years and ~~3.1~~3.7 years as of September 30, ~~2017~~2022 and December 31, ~~2016,~~2021, respectively.

Available-for-sale securities are recorded at estimated fair value, with unrealized gains or losses recognized, net of taxes, in accumulated other comprehensive income, a separate component of shareholders’ equity. As of September 30, ~~2017,~~2022, available-for-sale securities totaled ~~$158.4~~$143.8 million, or ~~85.3%~~98.6% of the total investment portfolio, compared to ~~$181.9~~$130.9 million, or ~~87.5%~~97.4% of the total investment portfolio, as of December 31, ~~2016.~~2021. Available-for-sale securities consisted of residential and commercial mortgage-backed securities, U.S. Treasury securities, corporate bonds, obligations of U.S. government-sponsored agencies, and obligations of state and political ~~subdivisions and corporate notes.~~subdivisions.

Held-to-maturity securities are recorded at amortized cost and represent securities that the Company both intends and has the ability to hold to maturity. As of September 30, ~~2017,~~2022, held-to-maturity securities totaled ~~$27.4~~$2.1 million, or ~~14.7%~~1.4% of the total investment portfolio, compared to ~~$25.9~~$3.4 million, or ~~12.5%~~2.6% of the total investment portfolio, as of December 31, ~~2016.~~2021. Held-to-maturity securities consisted of commercial mortgage-backed securities, obligations of U.S. government-sponsored agencies, and obligations of state and political subdivisions.

Due to the increasing interest rate environment, during the nine months ended September 30, 2022, gross unrealized losses increased significantly, particularly within the Company’s available-for-sale portfolio. Gross unrealized losses in the available-for-sale portfolio totaled $11.0 million as of September 30, 2022, compared to $0.8 million as of December 31, 2021. Management evaluated unrealized losses as of September 30, 2022, and determined that no losses within the portfolio were other-than-temporary. Unrealized losses within the available-for-sale portfolio were recognized, net of tax, in accumulated other comprehensive income.

Loans and Allowance for Loan and Lease Losses

The Company’s total loan portfolio increased by $40.9 million, or 5.8%, as of September 30, 2022, compared to December 31, 2021. The tables below summarize loan balances by portfolio category ~~for both the Bank and ALC at the end of each of the~~ ~~most recent five quarters as of September 30, 2017.~~

Bank

2017 2016

September
30,

June
30,

March
31,

December
31,

September
30,

(Dollars in Thousands)

Real estate loans:

Construction, land development and other land loans
$ 20,213 $ 12,424 $ 25,853 $ 23,772 $ 24,610
Secured by 1-4 family residential properties
35,125 32,227 32,535 32,955 32,559
Secured by multi-family residential properties
16,498 16,702 16,464 16,627 16,801
Secured by non-farm, non-residential properties
107,679 113,037 97,294 102,112 97,859
Other
223 226 230 234 185
Commercial and industrial loans
66,320 65,087 57,253 57,963 54,459
Consumer loans
5,431 5,671 6,057 6,206 6,335
Total loans
$ 251,489 $ 245,374 $ 235,686 $ 239,869 $ 232,808
Less unearned interest, fees and deferred cost
367 371 249 218 191
Allowance for loan losses
2,422 2,526 2,521 2,409 1,216
Net loans
$ 248,700 $ 242,477 $ 232,916 $ 237,242 $ 231,401

ALC

2017 2016

September
30,

June
30,

March
31,

December
31,

September
30,

(Dollars in Thousands)

Real estate loans:

Construction, land development and other land loans
$
—
$ — $ — $ — $ —
Secured by 1-4 family residential properties
11,490 12,229 12,993 13,724 14,462
Secured by multi-family residential properties

—
— — — —
Secured by non-farm, non-residential properties

—
— — — —
Other

—
— — — —
Commercial and industrial loans

—
— — — —
Consumer loans:
Consumer
35,650 31,920 32,892 36,413 35,533
Indirect sales

50,553
52,134 47,196 44,775 45,382
Total loans
$ 97,693 $ 96,283 $ 93,081 $ 94,912 $ 95,377
Less unearned interest, fees and deferred cost
5,981 5,855 5,962 6,935 7,205
Allowance for loan losses
2,386 2,379 2,358 2,447 2,452
Net loans
$ 89,326 $ 88,049 $ 84,761 $ 85,530 $ 85,720

~~The tables below summarize changes in the allowance for loan losses~~ at the end of each of the most recent five quarters as of September 30, ~~2017 at both~~2022:


	Quarter Ended
	2022						2021
	September 30,		June 30,		March 31,		December 31,		September 30,
	(Dollars in Thousands)
Real estate loans:
Construction, land development and other land loans	$	36,740	$	40,625	$	52,817	$	67,048	$	58,175
Secured by 1-4 family residential properties		84,911		69,098		69,760		72,727		73,112
Secured by multi-family residential properties		72,446		66,848		50,796		46,000		51,420
Secured by non-farm, non-residential properties		200,505		187,041		177,752		197,901		198,745
Commercial and industrial loans, including PPP loans		65,951		65,908		68,098		73,947		77,679
Consumer loans:
Direct consumer		12,279		15,419		18,023		21,689		25,845
Branch retail		16,278		18,634		21,891		25,692		29,764
Indirect		262,742		252,206		220,931		205,940		194,154
Total loans	$	751,852	$	715,779	$	680,068	$	710,944	$	708,894
Less unearned interest, fees and deferred cost		1,581		1,142		1,738		2,594		3,729
Allowance for loan and lease losses		9,373		8,751		8,484		8,320		8,193
Net loans	$	740,898	$	705,886	$	669,846	$	700,030	$	696,972

The tables below summarize changes in the ~~Bank~~allowance for loan and ~~ALC.~~lease losses for each of the most recent five quarters as of September 30, 2022:


	Bank															Quarter Ended
	2017										2016					2022									2021
	Third Quarter			Second Quarter			First Quarter			Fourth Quarter			Third Quarter			September 30,			June 30,			March 31,			December 31,			September 30,
	(Dollars in Thousands)															(Dollars in Thousands)
Balance at beginning of period	$	2,526		$	2,521		$	2,409		$	1,216		$	1,138		$	8,751		$	8,484		$	8,320		$	8,193		$	7,726
Charge-offs:
Real estate loans:
Construction, land development and other land loans		—			—			—			—			—			—			—			—			(1	)		—
Secured by 1-4 family residential properties		—			—			—			(56	)		(3	)		(3	)		(5	)		(2	)		(6	)		(1	)
Secured by multi-family residential properties		—			—			—			—			—			—			—			—			—			—
Secured by non-farm, non-residential properties		—			—			—			—			—			—			—			—			—			—
Other		—			—			—			—			—
Commercial and industrial		—			(16	)		—			(1	)		(41	)
Consumer loans		(1	)		(60	)		(2	)		(13	)		(3	)
Other loans		—			—			—			—			—
Commercial and industrial loans, including PPP loans																	—			—			—			—			(6	)
Consumer loans:
Direct consumer																	(417	)		(532	)		(557	)		(437	)		(222	)
Branch retail																	(200	)		(177	)		(145	)		(23	)		(77	)
Indirect																	(136	)		(77	)		(25	)		(118	)		(55	)
Total charge-offs		(1	)		(76	)		(2	)		(70	)		(47	)		(756	)		(791	)		(729	)		(585	)		(361	)
Recoveries		27			81			114			28			25			213			163			172			219			210
Net recoveries (charge-offs)		26			5			112			(42	)		(22	)
Provision (reduction in reserve) for loan losses		(130	)		—			—			1,235			100
Net charge-offs																	(543	)		(628	)		(557	)		(366	)		(151	)
Provision for loan and lease losses																	1,165			895			721			493			618
Ending balance	$	2,422		$	2,526		$	2,521		$	2,409		$	1,216		$	9,373		$	8,751		$	8,484		$	8,320		$	8,193
as a percentage of loans		0.96	%		1.03	%		1.07	%		1.01	%		0.52	%
Ending balance as a percentage of loans																	1.25	%		1.22	%		1.25	%		1.17	%		1.16	%
Net charge-offs as a percentage of average loans																	0.29	%		0.36	%		0.32	%		0.20	%		0.09	%

ALC

2017 2016

Third
Quarter

Second
Quarter

First
Quarter

Fourth
Quarter

Third
Quarter

(Dollars in Thousands)

Balance at beginning of period
$ 2,379 $ 2,358 $ 2,447 $ 2,452 $ 2,453
Charge-offs:

Real estate loans:
Construction, land development and other land loans — — — — —
Secured by 1-4 family residential properties (10 ) (4 ) (13 ) (7 ) (28 )
Secured by multi-family residential properties — — — — —
Secured by non-farm, non-residential properties — — — — —
Other — — — — —
Commercial and industrial

—
— — —
—

Consumer loans:

Consumer
(494
)
(569
)
(658
)
(398
)
(596
)
Indirect sales (150 ) (160 ) (135 ) (354 ) (111 )
Other loans
—

—

—

—

—

Total charge-offs
(654
)
(733
)
(806
)
(759
)
(735
)
Recoveries
158 178 202 176 154
Net recoveries (charge-offs)
(496
)
(555
)
(604
)
(583
)
(581
)
Provision (reduction in reserve) for loan losses
503 576 515 578 580
Ending balance
$ 2,386 $ 2,379 $ 2,358 $ 2,447 $ 2,452
as a percentage of loans
2.60
%
2.63
%
2.71
%
2.78
%
2.78
%

Charge-offs increased during the nine months ended September 30, 2022 primarily in the direct consumer and branch retail categories due to charge-offs associated with ALC’s loan portfolio. In management’s view, the combination of the ALC business cessation strategy, coupled with deteriorating economic conditions, including elevated inflation levels, increased overall credit risk in ALC’s loan portfolio as of September 30, 2022, compared to December 31, 2021. The increase in provision expense in the nine months ended September 30, 2022 primarily reflected the impact of these changing circumstances on ALC’s portfolio and the overall changing economic conditions discussed above.

Nonperforming Assets

Nonperforming assets at the end of the five most recent quarters as of September 30, ~~2017~~2022 were as follows:


	Consolidated															Quarter Ended
	2017										2016					2022										2021
	September 30,			June 30,			March 31,			December 31,			September 30,			September 30,			June 30,			March 31,			December 31,			September 30,
	(Dollars in Thousands)															(Dollars in Thousands)
Non-accrual loans	$	1,956		$	1,847		$	2,205		$	2,417		$	2,266		$	2,077		$	1,455		$	2,228		$	2,008		$	969
Other real estate owned		3,819			4,351			4,587			4,858			5,391			686			276			874			2,149			2,373
Total	$	5,775		$	6,198		$	6,792		$	7,275		$	7,657		$	2,763		$	1,731		$	3,102		$	4,157		$	3,342
Nonperforming assets as a percentage of loans and other real estate		1.67	%		1.82	%		2.08	%		2.19	%		2.37	%
Nonperforming assets as a percentage of total assets		0.94	%		1.01	%		1.10	%		1.20	%		1.28	%		0.28	%		0.18	%		0.32	%		0.43	%		0.35	%

Bank

2017 2016

September
30,

June
30,

March
31,

December
31,

September
30,

(Dollars in Thousands)

Non-accrual loans
$ 332 $ 343 $ 609 $ 603 $ 766
Other real estate owned
3,527 3,951 4,161 4,353 4,887
Total
$ 3,859 $ 4,294 $ 4,770 $ 4,956 $ 5,653
Nonperforming assets as a percentage of loans and other real estate
1.52
%
1.72
%
1.99
%
2.03
%
2.38
%
Nonperforming assets as a percentage of total assets
0.63
%
0.69
%
0.77
%
0.81
%
0.94
%

ALC

2017 2016

September
30,

June
30,

March
31,

December
31,

September
30,

(Dollars in Thousands)

Non-accrual loans
$ 1,624 $ 1,504 $ 1,596 $ 1,814 $ 1,500
Other real estate owned
292 400 426 505 504
Total
$ 1,916 $ 1,904 $ 2,022 $ 2,319 $ 2,004
Nonperforming assets as a percentage of loans and other real estate
2.08
%
2.10
%
2.31
%
2.62
%
2.26
%
Nonperforming assets as a percentage of total assets
2.06
%
2.08
%
2.29
%
2.59
%
2.24
%

The decrease in OREO as of September 30, 2022, compared to December 31, 2021, resulted primarily from the sale of banking centers that were closed in 2021. The increase in non-accrual loans during the three-months ended September 30, 2022 resulted primarily from one commercial loan that moved to non-accrual status.

Allocation of Allowance for Loan and Lease Losses

~~Deposits~~

While no portion of the allowance for loan and lease losses is in any way restricted to any individual loan or group of loans and the entire allowance is available to absorb losses from any and all loans, the following table shows an allocation of the allowance for loan and lease losses as of September 30, 2022 and December 31, 2021:


	September 30, 2022								December 31, 2021
	Allocation Allowance		Percent of Allowance in Each Category to Total Allowance			Percent of Loans in Each Category to Total Loans			Allocation Allowance		Percent of Allowance in Each Category to Total Allowance			Percent of Loans in Each Category to Total Loans
	(Dollars in Thousands)
Real estate loans:
Construction, land development and other land loans	$	384		4.1	%		5.7	%	$	628		7.5	%		9.4	%
Secured by 1-4 family residential properties		792		8.4	%		9.7	%		690		8.3	%		10.2	%
Secured by multi-family residential properties		647		6.9	%		9.3	%		437		5.3	%		6.5	%
Secured by non-farm, non-residential properties		1,992		21.3	%		26.1	%		1,958		23.5	%		27.8	%
Commercial and industrial loans, including PPP loans		1,104		11.8	%		9.2	%		860		10.3	%		10.4	%
Consumer loans:
Direct consumer		948		10.1	%		2.2	%		1,004		12.1	%		3.1	%
Branch retail		423		4.5	%		2.6	%		304		3.7	%		3.6	%
Indirect		3,083		32.9	%		35.2	%		2,439		29.3	%		29.0	%
Total allowance for loan and lease losses	$	9,373		100.0	%		100.0	%	$	8,320		100.0	%		100.0	%

Deposits

Total deposits increased ~~by 2.2%~~ to ~~$508.4~~$846.5 million as of September 30, ~~2017,~~2022, from ~~$497.6~~$838.1 million as of December 31, ~~2016.~~2021, an increase of 1.0%. Core deposits, which exclude time deposits of $250 thousand or more, provide a relatively stable funding source that supports earning assets. Core deposits ~~totaled $479.7~~increased to $791.4 million, or ~~94.4%~~93.5% of total deposits, as of September 30, ~~2017,~~2022, compared to ~~$461.8~~$775.1 million, or ~~92.8%~~92.5% of total deposits, as of December 31, ~~2016.~~2021.

~~Deposits,~~ ~~in particular core~~55

Core deposits, have historically been the Company’s primary source of funding and have enabled the Company to successfully meet both short-term and long-term liquidity needs. Management anticipates that ~~such~~core deposits will continue to be ~~one of~~ the Company’s primary ~~sources~~source of funding in the ~~future, and we~~future. Management will continue to monitor deposit levels closely to help ensure an adequate level of funding for the Company’s activities. However, various economic and competitive factors could affect this funding source in the future, including increased competition from other financial institutions in deposit gathering, national and local economic conditions and interest rate policies adopted by the Federal Reserve and other central banks.

Other Interest-Bearing Liabilities

Other interest-bearing liabilities consist of federal funds purchased, securities sold under agreements to repurchase, FHLB advances, and ~~FHLB advances. This category continues to be utilized~~subordinated debt that are used by the Company as an alternative source of funds. During the third quarter of ~~2017, these borrowings~~2022, other interest-bearing liabilities represented ~~4.5%~~6.4% of average interest-bearing liabilities, compared to ~~2.6%~~1.5% in the third quarter of ~~2016.~~2021.

Shareholders’ Equity

~~Shareholders’ Equity~~

~~The~~ ~~Company has historically placed great emphasis on maintaining its strong capital base.~~ As of September 30, ~~2017,~~2022, shareholders’ equity totaled ~~$78.9~~$83.1 million, or ~~12.8%~~8.4% of total assets, compared to ~~$76.2~~$90.1 million, or ~~12.6%~~9.4% of total assets, as of December 31, ~~2016. Management believes that this level of equity is an indicator of the financial soundness of the Company and the Company’s ability to sustain future growth and profitability.~~2021. The ~~increase~~decrease in shareholders’ equity ~~during the period ended~~as of September 30, ~~2017 resulted from increases~~2022, compared to December 31, 2021, was due primarily to an increase in accumulated other comprehensive ~~income related to~~loss associated with unrealized losses on available-for-sale investment securities and a Company share repurchase program completed during the nine months ended September 30, 2022. The increase in unrealized losses within the securities portfolio resulted from significant increases in interest rates during the nine months ended September 30, 2022 which reduced security valuations. The reductions in security valuations were partially offset by increases in the fair value of cash flow hedges during the quarter. Changes in both the fair value of the available-for-sales investment securities portfolio and changes in the fair value of ~~investment securities available-for-sale.~~cash flow hedges are recorded, net of tax, in accumulated other comprehensive income. During the nine months ended September 30, 2022 the Company completed repurchases of 412,400 shares of its common stock at a weighted average price of $10.87 per share, or $4.5 million in aggregate. The ~~fair value~~shares were repurchased under the Company’s existing share repurchase program that was amended by the Board of Directors in April 2021 and will expire on December 31, 2022. Share repurchases under the ~~available-for-sale portfolio fluctuates based primarily on changes~~program may be made through open market and privately negotiated transactions at times and in ~~interest rates. Accordingly,~~such amounts as management deems appropriate, subject to applicable regulatory requirements. The repurchase program does not obligate the ~~net unrealized gains during~~Company to acquire any particular number of shares and may be suspended at any time at the ~~third quarter~~Company’s discretion. As of ~~2017 are not necessarily indicative of future performance of~~September 30, 2022, 596,813 shares remained available for repurchase under the ~~portfolio.~~program.

~~Bancshares~~’During both the nine months ended September 30, 2022 and 2021, the Company declared dividends totaling $0.09 per common share, or approximately $0.5 million in aggregate amount. Bancshares’ Board of Directors evaluates dividend payments based on the Company’s level of earnings and ~~our~~the desire to maintain a strong capital base, as well as regulatory requirements relating to the payment of dividends. ~~During each of the three-month periods ended September 30, 2017 and 2016, Bancshares declared dividends of $0.02 per common share, or approximately $0.1 million in aggregate amount.~~

~~As of September 30, 2017 and December 31, 2016, the Company retained approximately $20.4 million and $20.8 million in treas~~ury stock, respectively. The Company initiated a share repurchase program in January 2006, under which the Company was authorized to repurchase up to 642,785 shares of Bancshares common stock before December 31, 2007. In December 2007, and in each year since, the Board of Directors has extended the expiration date of the share repurchase program for an additional year. ~~Currently,~~ the share repurchase program is set to expire on December 31, 2017. There are 242,303 shares available for repurchase under this program, at management’s discretion. No shares were purchased under this program to date in 2017 or in 2016.

~~As of September 30, 2017 and December 31, 2016, a total of 100,990 and 114,547 shares of stock, respectively, were deferred in~~ connection with Bancshares’ Non-Employee Directors’ Deferred Compensation Plan. The plan permits non-employee directors to invest their directors’ fees and to receive the adjusted value of the deferred amounts in cash or shares of common stock. All deferred fees, whether in the form of cash or shares of stock, are reflected as compensation expense in the period earned. The Company classifies all deferred directors' fees allocated to be paid in shares of stock as equity surplus. The Company uses shares of treasury stock to satisfy these obligations when due.

LIQUIDITY AND CAPITAL RESOURCES

The asset portion of the balance sheet provides liquidity primarily from ~~two~~the following sources: (1) excess cash and interest-bearing deposits in banks, (2) federal funds sold, (3) principal payments and maturities of loans and ~~(2) maturities and~~(4) principal payments and maturities from the investment portfolio. ~~Other short-term investments, such as federal funds sold, may also provide additional sources of liquidity.~~ Loans maturing or repricing in one year or less amounted to ~~$114.6~~$183.4 million as of September 30, ~~2017~~2022 and ~~$127.3~~$102.4 million as of December 31, ~~2016.~~2021. Investment securities forecasted to mature or reprice in one year or less were estimated to be ~~$10.5~~$10.0 million and $9.5 million of the investment portfolio as of September 30, ~~2017.~~2022 and December 31, 2021, respectively.

Although ~~a substantial portion of~~some securities in the investment portfolio have legal final maturities exceeding 10 years, a substantial percentage of the portfolio provides monthly principal and interest payments and c~~onsists~~consists of securities that are readily marketable and easily convertible into cash on short notice. ~~As of September 30, 2017, the~~The investment securities portfolio had an estimated average life of ~~2.7~~3.6 years and ~~approximately 86.33%~~3.7 years as of ~~the portfolio (including both available-for-sale~~September 30, 2022 and ~~held-to-maturity investments) was expected to be repaid within five years.~~December 31, 2021, respectively. However, management does not rely solely upon the investment portfolio to generate cash flows to fund loans, capital expenditures, dividends, debt repayment and other cash requirements. These activities are also funded by cash flows from loan payments, as well as increases in deposits and short-term borrowings.

The liability portion of the balance sheet provides liquidity through interest-bearing and non-interest-bearing deposit accounts, which represent the Company’s primary sources of funds. In addition, federal funds purchased, FHLB advances, securities sold under agreements to repurchase and short-term and long-term borrowings are additional sources of available liquidity. Liquidity management involves the continual monitoring of the sources and uses of funds to maintain an acceptable cash position. Long-term liquidity management focuses on considerations related to the total balance sheet structure. The Bank manages the pricing of its deposits to maintain a desired deposit balance. ~~In addition, the Bank invests in short-term interest-earning assets, which provide liquidity to meet lending requirements.~~

As ~~of September 30, 2017 and December 31, 2016, the~~The Company had ~~$20.0~~$40.0 million and ~~$25.0~~$10.0 million ~~respectively, in~~of outstanding borrowings under FHLB ~~advances.~~ advances as of September 30, 2022 and December 31, 2021, respectively. In addition, on October 1, 2021, the Company completed a private placement of $11.0 million in aggregate principal amount of fixed-to-floating rate subordinated notes that will mature on October 1, 2031. Net of unamortized debt issuance costs, the subordinated notes were recorded as long-term borrowings totaling $10.7 million as of both September 30, 2022 and December 31, 2021.

The Company had up to ~~$164.8~~$206.6 million and ~~$155.0~~$237.0 million in remaining unused credit from the FHLB (subject to available ~~collateral)~~collateral, which may include eligible investment securities and loans) as of September 30, ~~2017~~2022 and December 31, ~~2016,~~2021, respectively. In addition, the Company had ~~$18.8~~$46.2 million and $46.0 million in unused established federal funds lines as of ~~both~~ September 30, ~~2017~~2022 and December 31, ~~2016.~~2021, respectively.

Management believes that the Company has adequate sources of liquidity to ~~more than~~ cover its contractual obligations and commitments over the next twelve months. ~~Management~~ ~~is not aware of any condition that currently exists that would have an adverse effect on the liquidity, capital resources or operation of the Company.~~

I~~TEM 3.~~

~~QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK~~

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The primary purpose inof managing interest rate risk is to invest capital effectively and preserve the value created by ~~our~~the Company’s core banking business. This is accomplished through the development and implementation of lending, funding, pricing and hedging strategies designed to maximize net interest income performance under varying interest rate environments, subject to liquidity and interest rate risk guidelines. Effective interest rate sensitivity management ensures that both assets and liabilities respond to changes in interest rates within an acceptable ~~time frame,~~timeframe, thereby minimizing the effect of such interest rate movements on short- and long-term net interest margin and net interest income.

Financial simulation models are the primary tools used by the Asset/Liability Committee of the ~~Bank's~~Bank’s board of directors to measure interest rate exposure. Using a wide range of scenarios, management is provided with extensive information on the potential impact on net interest income caused by changes in interest rates. In these simulations, assumptions are made about the direction and volatility of interest rates, the slope of the yield curve and the changing composition of the ~~Company~~’sCompany’s balance sheet resulting from both strategic plans and customer behavior. Simulation models also incorporate management’s assumptions regarding such factors as loan and deposit growth, pricing, prepayment speeds and spreads between interest ~~rates.~~rates paid on deposits and charged on loans.

~~Measuring~~Assessing Short-Term Interest Rate ~~Sensitivity~~Risk – Net Interest Margin Simulation

~~Interest rate sensitivity is~~On a ~~function of the repricing characteristics of all of the Company~~’s portfolio of assets and liabilities. These repricing characteristics are the timeframes during which the interest-bearing assets and liabilities are subject to fluctuation based on changes in interest rates, either at replacement or maturity, during the life of the instruments. Measuring interest rate sensitivity is a function of the differences in the volume of assets and the volume of liabilities that are subject to repricing in future time periods. These differences are known as interest sensitivity gaps and are usually calculated for segments of time and on a cumulative basis.

~~The Company measures changes in net interest income and net interest margin on a monthly~~periodic basis, ~~through income simulation over various interest rate shock scenarios, including plus or minus 1%, 2%, 3% and 4% scenarios. Each month,~~ management ~~evaluates~~simulates how changes in short- and long-term interest rates ~~may~~will impact future profitability, as reflected by changes in the ~~Company’s net interest margin.~~

~~Also on a monthly basis, management calculates how changes in interest rates would impact the market value of~~ the Company’s assets and liabilities, as well as its long-term profitability. The process is similar to assessing short-term risk but emphasizes and is measured over a five-year time period, which allows for a more comprehensive assessment of longer-term repricing and cash flow imbalances that may not be captured by short-termBank’s net interest margin ~~simulations.~~and net interest income. The results of these calculations are representative of long-term interest rate risk, both in terms of changes in the present value of the Company’s assets and liabilities and long-term changes in core profitability.

See Part II, Item 7A, “Quantitative and Qualitative Disclosures About Market Risk,” of Bancshares’ Annual Report on Form 10-K as of and for the year ended December 31, 2016 for additional disclosures related to market risk. Management’s evaluationtables below depict how, as of September 30, ~~2017 did not indicate any significant increase~~2022, pre-tax net interest margin and net interest income are forecasted to change over timeframes of six months, one year, two years and five years under the four listed interest rate scenarios. The interest rate scenarios contemplate immediate and parallel shifts in ~~the Company’s exposure to market risk~~short- and long-term interest rates.

Average Change in Net Interest Margin from ~~those disclosed as of December 31, 2016.~~Level Interest Rate Forecast (basis points, pre-tax):

I~~TEM 4.~~

~~CONTROLS AND PROCEDURES~~


	6 Months			1 Year			2 Years			5 Years
+1%		1			2			5			14
+2%		(5	)		(3	)		3			22
+3%		(21	)		(20	)		(11	)		19
+4%		(34	)		(32	)		(21	)		19
-1%		(7	)		(8	)		(11	)		(20	)
-2%		(17	)		(21	)		(28	)		(46	)
-3%		(30	)		(35	)		(46	)		(73	)

Cumulative Change in Net Interest Income from Level Interest Rate Forecast (dollars in thousands, pre-tax):


	6 Months			1 Year			2 Years			5 Years
+1%	$	46		$	163		$	932		$	7,207
+2%		(238	)		(349	)		505			11,221
+3%		(1,066	)		(1,965	)		(2,207	)		9,517
+4%		(1,696	)		(3,183	)		(4,098	)		9,716
-1%		(342	)		(805	)		(2,214	)		(9,940	)
-2%		(864	)		(2,062	)		(5,579	)		(23,205	)
-3%		(1,506	)		(3,533	)		(9,262	)		(36,240	)

ITEM 4. CONTROLS AND PROCEDURES

Conclusion Regarding the Effectiveness of Disclosure Controls and Procedures

Bancshares maintains disclosure controls and procedures that are designed to ensure that information required to be disclosed in Bancshares’ reports under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and that such information is accumulated and communicated to Bancshares’ management, including its Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives.

Bancshares’ management carried out an evaluation, under the supervision and with the participation of its Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of Bancshares’ disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) promulgated under the Exchange Act) as of September 30, ~~2017,~~2022, pursuant to the evaluation of these controls and procedures required by Rule 13a-15 of the Exchange Act. Based on that evaluation, Bancshares’ management concluded, as of September 30, ~~2017,~~2022, that Bancshares’ disclosure controls and procedures ~~are~~were effective at the reasonable assurance level to ensure that the information required to be disclosed in Bancshares’ periodic filings with the SEC is recorded, processed, summarized and reported within the time periods ~~specified.~~specified in the SEC’s rules and forms.

Changes in Internal Control Over Financial Reporting

There were no changes in ~~Bancshares~~’Bancshares’ internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) during the quarter ended September 30, ~~2017~~2022 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

P~~ART~~PART II. OTHER INFORMATION

I~~TEM 1.~~

~~LEGAL PROCEEDINGS~~

ITEM 1. LEGAL PROCEEDINGS

The Company is a party to certain ordinary course litigation, and the Company intends to vigorously defend itself in all such litigation. In the opinion of the Company, based on review and consultation with legal counsel, the outcome of such ordinary course litigation should not have a material adverse effect on the Company’s consolidated financial statements or results of operations.

I~~TEM 1A.~~

~~RISK FACTORS~~

ITEM 1A. RISK FACTORS

~~In addition to~~A list of factors that could materially affect the ~~other information set forth in this report, you should carefully consider the factors discussed~~Company’s business, financial condition and/or operating results is included in Part I, Item 1A, “Risk ~~Factors,”~~Factors” in ~~Bancshares~~’Bancshares’ Annual Report on Form 10-K as of and for the year ended December 31, 2016 that could materially affect the Company’s business, financial condition or future results. The risks described in Bancshares’ Annual Report on Form 10-K are not the only risks facing the Company.2021. There have been no material changes to such risk factors. Additional risks and uncertainties not currently known to the Company or that the Company currently deems to be immaterial also may materially adversely affect the Company’s business, financial condition and/or operating results.

I~~TEM 2.~~

~~UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS~~

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

The following table sets forth purchases made by or on behalf of Bancshares or any “affiliated purchaser,” as defined in Rule 10b-18(a)(3) of the Exchange Act, of shares of ~~Bancshares~~’Bancshares’ common stock during the third quarter of ~~2017.~~2022:

Issuer Purchases of Equity Securities


Period	Total Number of Shares Purchased (1)		Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Programs (2)		Maximum Number of Shares that May Yet Be Purchased Under the Programs (2)
July 1 – July 31		—	$	—		37,000		623,813
August 1 – August 31		—	$	—		8,400		615,413
September 1 – September 30		—	$	—		18,600		596,813
Total		—	$	—		64,000		596,813

(1)

No shares were purchased in open-market transactions by an independent trustee for Bancshares’ 401(k) Plan during the third quarter of 2022.

(2)

On December 16, 2020, the Board of Directors extended the share repurchase program initially approved by the Board on January 19, 2006, which authorized the repurchase of up to 642,785 shares of common stock. On April 28, 2021, the Board of Directors approved the repurchase of an additional 1,000,000 shares of common stock under the share repurchase program, bringing the number of shares authorized for repurchase as of September 30, 2022, to 596,813 shares. The Board also approved on April 28, 2021, the extension of the expiration date of the repurchase program from December 31, 2021, to December 31, 2022.

ITEM 6. EXHIBITS

~~Period~~

~~Total Number~~

~~of Shares~~

~~Purchased~~

~~Average~~

~~Price Paid~~

~~per Share~~

~~Total Number of~~

~~Shares Purchased as~~

~~Part of Publicly~~

~~Announced~~

~~Programs~~⁽¹⁾

~~Maximum Number (or Approximate Dollar Value)~~

~~of Shares that May Yet Be~~

~~Purchased Under~~

~~the Programs~~ ⁽¹⁾

~~July~~ ~~1 – July 31~~

—Exhibit No.

Description

—

~~242,303~~

~~August 1~~ ~~– August 31~~

—

~~242,303~~

~~September 1~~ ~~– September 30~~3.1

—Certificate of Incorporation of United Security Bancshares, Inc. (incorporated by reference to Exhibit 3(i) to the Quarterly Report on Form 10-Q (File No. 000-14549), filed on November 12, 1999).

—

~~242,303~~

~~Total~~

—

⁽²⁾

—

~~242,303~~

~~(1)~~	~~On December 16,~~
3.1A		Certificate of Amendment to the Certificate of Incorporation of United Security Bancshares, Inc., effective as of October 11, 2016 (incorporated by reference to Exhibit 3.1 to the ~~Board~~Current Report on Form 8-K (File No. 000-14549), filed on October 11, 2016).

3.2		Bylaws of ~~Directors extended~~First US Bancshares, Inc., effective as of October 11, 2016 (incorporated by reference to Exhibit 3.2 to the ~~share repurchase program previously approved by the Board~~Current Report on ~~January 19, 2006. Under the repurchase program, Bancshares is authorized~~Form 8-K (File No. 000-14549), filed on October 11, 2016).

31.1*		Certification of Chief Executive Officer pursuant to ~~repurchase up to 642,785 shares of its common stock. The expiration date~~Rule 13a-14(a) and Rule 15d-14(a) of the ~~extended repurchase program is December 31, 2017. As~~Securities Exchange Act, as amended.

31.2*		Certification of Chief Financial Officer pursuant to Rule 13a-14(a) and Rule 15d-14(a) of the Securities Exchange Act, as amended.

32*		Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

101		The following financial statements from the Quarterly Report on Form 10-Q for the quarter ended September 30, ~~2017, there were 242,303 shares still available for purchase under~~2022, formatted in Inline XBRL: (i) Interim Condensed Consolidated Balance Sheets, (ii) Interim Condensed Consolidated Statements of Comprehensive Income, (iii) Interim Condensed Consolidated Statements of Operations, (iv) Interim Condensed Consolidated Statements of Changes in Shareholders' Equity, (v) Interim Condensed Consolidated Statements of Cash Flows, and (vi) Notes to the ~~program.~~Interim Condensed Consolidated Financial Statements, tagged as blocks of text and including detailed tags.

~~(2)~~	~~There were no shares purchased~~
104		The cover page from the Quarterly Report on Form 10-Q for the quarter ended September 30, 2022, formatted in ~~open-market transactions by an independent trustee for Bancshares’ 401(k) Plan during the third quarter of 2017.~~Inline XBRL.

I~~TEM 6.~~

~~EXHIBITS~~

________________

~~The exhibits listed in the Index to Exhibits below are filed~~*Filed herewith ~~and are incorporated herein by reference.~~

S~~IGNATURES~~SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

FIRST US BANCSHARES, INC.

DATE: November 8~~, 2017~~9, 2022


~~BY:~~By:	/s/ Thomas S. Elley
		Thomas S. Elley
		Its Senior Executive Vice President, Treasurer and Assistant Secretary, Chief Financial Officer and Principal Accounting Officer
		(Duly Authorized Officer and Principal Financial Officer)

~~INDEX TO EXHIBITS~~

~~Exhibit No.~~		~~Description~~

~~3.1~~		Certificate of Incorporation of United Security Bancshares, Inc. (incorporated herein by reference to Exhibit 3(i) to the Quarterly Report on Form 10-Q for the quarter ended September 30, 1999 (File No. 000-14549), as filed on November 12, 1999).

~~3.1A~~		Certificate of Amendment to the Certificate of Incorporation of United Security Bancshares, Inc., effective as of October 11, 2016 (incorporated herein by reference to Exhibit 3.1 to the Current Report on Form 8-K (File No. 000-14549), filed on October 11, 2016).

~~3.2~~		Bylaws of First US Bancshares, Inc., effective as of October 11, 2016 (incorporated herein by reference to Exhibit 3.2 to the Current Report on Form 8-K (File No. 000-14549), filed on October 11, 2016).

~~31.1~~		~~Certification of Chief Executive Officer pursuant to Rule 13a-14(a) and Rule 15d-14(a) of the Securities Exchange Act, as amended.~~

~~31.2~~		~~Certification of Chief Financial Officer pursuant to Rule 13a-14(a) and Rule 15d-14(a) of the Securities Exchange Act, as amended.~~

32		~~Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.~~

~~101~~		~~Interactive Data Files for the Quarterly Report on Form 10-Q for the quarterly period ended~~ ~~September 30, 2017.~~


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, $0.01 par value	FUSB	The Nasdaq Stock Market LLC


Large accelerated filer	☐	~~Accelerated~~ ~~filer~~	Accelerated filer	☐
Non-accelerated filer	☐ ~~(Do not check if a smaller reporting company)~~☒		Smaller reporting company	☒
Emerging growth company	☐


Class	Outstanding at November 8~~, 2017~~ 7, 2022
Common Stock, $0.01 par value	~~6,077,354~~5,812,258 shares


		September 30,			December 31,				September 30,			December 31,
		2017			2016				2022			2021
		(Unaudited)							(Unaudited)
ASSETS	ASSETS							ASSETS
Cash and due from banks		$	8,705		$	7,018			$	11,608		$	10,843
Interest-bearing deposits in banks			23,849			16,512				25,212			50,401
Total cash and cash equivalents			32,554			23,530				36,820			61,244
Federal funds sold										120			82
Investment securities available-for-sale, at fair value			158,425			181,910				143,794			130,883
Investment securities held-to-maturity, at amortized cost			27,377			25,904				2,109			3,436
Federal Home Loan Bank stock, at cost			1,396			1,581				2,009			870
Loans, net of allowance for loan losses of $4,808 and $4,856, respectively			338,026			322,772
Premises and equipment, net			26,242			18,340
Loans, net of allowance for loan and lease losses of $9,373 and $8,320, respectively										740,898			700,030
Premises and equipment, net of accumulated depreciation of $21,338 and $21,916, respectively										24,209			25,123
Cash surrender value of bank-owned life insurance			14,843			14,603				16,360			16,141
Accrued interest receivable			1,877			1,987				2,691			2,556
Goodwill and core deposit intangible, net										7,856			8,069
Other real estate owned			3,819			4,858				686			2,149
Other assets			10,040			11,407				11,725			7,719
Total assets		$	614,599		$	606,892			$	989,277		$	958,302
LIABILITIES AND SHAREHOLDERS’ EQUITY
Deposits		$	508,385		$	497,556
LIABILITIES AND SHAREHOLDERS’ EQUITY								LIABILITIES AND SHAREHOLDERS’ EQUITY
Deposits:
Non-interest-bearing									$	177,778		$	174,501
Interest-bearing										668,759			663,625
Total deposits										846,537			838,126
Accrued interest expense			281			241				719			224
Other liabilities			6,444			7,735				8,104			9,189
Short-term borrowings			10,635			10,119				40,106			10,046
Long-term debt			10,000			15,000
Long-term borrowings										10,708			10,653
Total liabilities			535,745			530,651				906,174			868,238
Commitments and contingencies
Shareholders’ equity:
Common stock, par value $0.01 per share, 10,000,000 shares authorized; 7,341,556 and 7,329,060 shares issued, respectively; 6,077,354 and 6,043,102 shares outstanding, respectively			73			73
Surplus			10,657			10,786
Accumulated other comprehensive income (loss), net of tax			25			(1,277	)
Shareholders’ equity:
Common stock, par value $0.01 per share, 10,000,000 shares authorized; 7,679,659 and 7,634,918 shares issued, respectively; 5,812,258 and 6,172,378 shares outstanding, respectively										75			75
Additional paid-in capital										14,386			14,163
Accumulated other comprehensive loss, net of tax										(7,212	)		(276	)
Retained earnings			88,525			87,434				102,523			98,428
Less treasury stock: 1,264,202 and 1,285,958 shares at cost, respectively			(20,414	)		(20,764	)
Noncontrolling interest			(12	)		(11	)
Total shareholders’ equity			78,854			76,241
Total liabilities and shareholders’ equity		$	614,599		$	606,892
Less treasury stock: 1,867,401 and 1,462,540 shares at cost, respectively										(26,669	)		(22,326	)
Total shareholders’ equity										83,103			90,064
Total liabilities and shareholders’ equity									$	989,277		$	958,302

	Nine Months Ended
	September 30,
	2017			2016
	(Unaudited)
Cash flows from operating activities:
Net income	$	1,455		$	1,329
Adjustments to reconcile net income to cash provided by operating activities:
Depreciation and amortization		781			726
Provision for loan losses		1,464			1,383
Deferred income tax provision		231			368
Net gain on sale and prepayment of investment securities		(228	)		(657	)
Stock-based compensation expense		262			218
Net amortization of securities		869			1,163
Net loss on premises and equipment and other real estate		453			573
Changes in assets and liabilities:
Decrease (increase) in accrued interest receivable		110			(14	)
Decrease in other assets		57			224
Increase in accrued interest expense		40			51
Decrease in other liabilities		(114	)		(27	)
Net cash provided by operating activities		5,380			5,337
Cash flows from investing activities:
Purchases of investment securities, available-for-sale		(15,254	)		(49,236	)
Purchases of investment securities, held-to-maturity		(4,696	)		(13,850	)
Proceeds from sales of investment securities, available-for-sale		1,749			30,439
Proceeds from maturities and prepayments of investment securities, available-for-sale		38,570			37,131
Proceeds from maturities and prepayments of investment securities, held-to-maturity		3,119			17,779
Net decrease (increase) in Federal Home Loan Bank stock		185			(343	)
Proceeds from the sale of premises and equipment and other real estate		1,215			1,208
Net change in loan portfolio		(17,326	)		(64,081	)
Purchases of premises and equipment		(9,858	)		(4,554	)
Net cash used in investing activities		(2,296	)		(45,507	)
Cash flows from financing activities:
Net increase in customer deposits		10,829			14,570
Net increase (decrease) in other borrowings		516			(2,017	)
Net increase (decrease) in Federal Home Loan Bank advances		(5,000	)		10,000
Net share-based compensation transactions		(41	)		—
Dividends paid		(364	)		(362	)
Net cash provided by financing activities		5,940			22,191
Net increase (decrease) in cash and cash equivalents		9,024			(17,979	)
Cash and cash equivalents, beginning of period		23,530			44,072
Cash and cash equivalents, end of period	$	32,554		$	26,093
Supplemental disclosures:
Cash paid for:
Interest	$	1,862		$	1,632
Income taxes		77			85
Non-cash transactions:
Assets acquired in settlement of loans		608			1,009
Reissuance of treasury stock as compensation	$	350		$	53


		PAGE

	~~PART I.~~ ~~FINANCIAL INFORMATION~~

~~ITEM~~ 1.	~~FINANCIAL STATEMENTS~~

PART I. FINANCIAL INFORMATION		4

ITEM 1. FINANCIAL STATEMENTS		4

Interim C~~ondensed~~Condensed Consolidated Balance Sheets at September 30, ~~2017~~2022 (Unaudited) and December 31, ~~2016~~2021		4

Interim C~~ondensed~~Condensed Consolidated Statements of Operations for the Three and Nine Months Ended September 30, ~~2017~~2022 and ~~2016~~2021 (Unaudited)		5

Interim C~~ondensed~~Condensed Consolidated Statements of Comprehensive Income for the Three and Nine Months Ended September 30, ~~2017~~2022 and ~~2016~~2021 (Unaudited)		6

Interim C~~ondensed~~Condensed Consolidated Statements of Changes in Shareholders’ Equity for the Three and Nine Months Ended September 30, 2022 and 2021 (Unaudited)		7

Interim Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, ~~2017~~2022 and ~~2016~~2021 (Unaudited)	7	9

Notes to Interim Condensed Consolidated Financial Statements (Unaudited)	8
		10
~~ITEM~~ 2.
~~MANAGEMENT~~’SITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	35
		43
~~ITEM~~ 3.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	50
		58
~~ITEM~~ 4.
ITEM 4. CONTROLS AND PROCEDURES	51

	~~PART II. OTHER INFORMATION~~59	52

~~ITEM~~ 1.	~~LEGAL PROCEEDINGS~~	52

~~ITEM~~ ~~1A.~~PART II. OTHER INFORMATION	~~RISK FACTORS~~	52
		60
~~ITEM~~ 2.
ITEM 1. LEGAL PROCEEDINGS		60

ITEM 1A. RISK FACTORS		60

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS	52
		60
~~ITEM~~ 6.	~~EXHIBITS~~	52

~~Signature Page~~ITEM 6. EXHIBITS	53	61

Signature Page		62


	Three Months Ended					Nine Months Ended			Three Months Ended				Nine Months Ended
	September 30,					September 30,			September 30,				September 30,
	2017		2016		2017		2016		2022		2021		2022		2021
	(Unaudited)				(Unaudited)				(Unaudited)				(Unaudited)
Interest income:
Interest and fees on loans	$	6,802	$	6,773	$	19,928	$	19,192	$	9,750	$	9,568	$	27,339	$	28,726
Interest on investment securities		1,018		987		3,085		3,242		920		462		2,237		1,208
Total interest income		7,820		7,760		23,013		22,434		10,670		10,030		29,576		29,934

Interest expense:
Interest on deposits		617		532		1,713		1,568		864		652		1,964		2,100
Interest on borrowings		68		55		189		115		291		43		562		123
Total interest expense		685		587		1,902		1,683		1,155		695		2,526		2,223

Net interest income		7,135		7,173		21,111		20,751		9,515		9,335		27,050		27,711

Provision for loan losses		373		680		1,464		1,383

Net interest income after provision for loan losses		6,762		6,493		19,647		19,368

Provision for loan and lease losses										1,165		618		2,781		1,517
Net interest income after provision for loan and lease losses										8,350		8,717		24,269		26,194
Non-interest income:
Service and other charges on deposit accounts		481		463		1,406		1,306		311		271		904		777
Credit insurance income		160		256		459		570
Net gain on sales and prepayments of investment securities		178		259		228		657		—		—		—		22
Lease income										210		208		635		619
Other income, net		417		589		1,240		1,503		567		417		1,234		1,238
Total non-interest income		1,236		1,567		3,333		4,036		1,088		896		2,773		2,656

Non-interest expense:
Salaries and employee benefits		4,370		4,334		13,048		12,734		4,007		5,045		12,389		14,951
Net occupancy and equipment		806		830		2,276		2,381		861		1,259		2,468		3,318
Other real estate/foreclosure expense, net		244		124		461		370
Computer services										417		461		1,224		1,411
Fees for professional services										263		292		811		1,003
Other expense		1,770		2,060		5,305		6,184		1,484		1,490		4,074		4,659
Total non-interest expense		7,190		7,348		21,090		21,669		7,032		8,547		20,966		25,342

Income before income taxes		808		712		1,890		1,735		2,406		1,066		6,076		3,508
Provision for income taxes		173		162		435		406		546		229		1,440		768
Net income	$	635	$	550	$	1,455	$	1,329	$	1,860	$	837	$	4,636	$	2,740
Basic net income per share	$	0.10	$	0.09	$	0.24	$	0.22	$	0.31	$	0.13	$	0.76	$	0.43
Diluted net income per share	$	0.10	$	0.09	$	0.22	$	0.21	$	0.29	$	0.13	$	0.71	$	0.41
Dividends per share	$	0.02	$	0.02	$	0.06	$	0.06	$	0.03	$	0.03	$	0.09	$	0.09


	Common Stock Shares Outstanding			Common Stock		Additional Paid-in Capital			Accumulated Other Comprehensive Income (Loss)			Retained Earnings			Treasury Stock, at Cost			Total Shareholders’ Equity
Balance, June 30, 2021		6,214,809		$	75	$	13,981		$	312		$	96,252		$	(21,842	)	$	88,778
Net income		—			—		—			—			837			—			837
Net change in fair value of securities available-for-sale, net of tax		—			—		—			(18	)		—			—			(18	)
Net change in fair value of derivative instruments, net of tax		—			—		—			75			—			—			75
Dividends declared: $.03 per share		—			—		—			—			(186	)		—			(186	)
Impact of stock-based compensation plans, net		637			—		111			—			—			—			111
Reissuance of treasury stock as compensation		2,680			—		(41	)		—			—			41			—
Balance, September 30, 2021		6,218,126		$	75	$	14,051		$	369		$	96,903		$	(21,801	)	$	89,597

Balance, June 30, 2022		5,876,258		$	75	$	14,263		$	(6,584	)	$	100,838		$	(26,016	)	$	82,576
Net income		—			—		—			—			1,860			—			1,860
Net change in fair value of securities available-for-sale, net of tax		—			—		—			(1,048	)		—			—			(1,048	)
Net change in fair value of derivative instruments, net of tax		—			—		—			420			—			—			420
Dividends declared: $.03 per share		—			—		—			—			(175	)		—			(175	)
Impact of stock-based compensation plans, net		—			—		123			—			—			—			123
Reissuance of treasury stock as compensation		—			—		—			—			—			—			—
Treasury stock repurchases		(64,000	)													(653	)		(653	)
Balance, September 30, 2022		5,812,258		$	75	$	14,386		$	(7,212	)	$	102,523		$	(26,669	)	$	83,103


	Nine Months Ended		Year Ended
	September 30, 2022		December 31, 2021
	(Dollars in Thousands)
Expense Category
Severance and personnel expenses	$	108	$	263
Lease termination costs		2		224
Fixed asset valuation adjustments		—		239
Termination of technology contracts		45		85
Other expenses		—		93
Total expenses	$	155	$	904

	December 31, 2016
	Bank		ALC		Total
	(Dollars in Thousands)
Real estate loans:
Construction, land development and other land loans	$	23,772	$	—	$	23,772
Secured by 1-4 family residential properties		32,955		13,724		46,679
Secured by multi-family residential properties		16,627		—		16,627
Secured by non-farm, non-residential properties		102,112		—		102,112
Other		234		—		234
Commercial and industrial loans		57,963		—		57,963
Consumer loans:
Consumer		6,206		36,413		42,619
Indirect sales		—		44,775		44,775
Total loans		239,869		94,912		334,781
Less: Unearned interest, fees and deferred cost		218		6,935		7,153
Allowance for loan losses		2,409		2,447		4,856
Net loans	$	237,242	$	85,530	$	322,772

	Bank and ALC
	Nine Months Ended September 30, 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		—			(27	)		—		—			—		(16	)		(1,784	)		(445	)		(2,272	)
Recoveries		—			113			—		69			—		16			487			75			760
Provision		(328	)		(146	)		27		(142	)		—		440			1,148			465			1,464
Ending balance	$	207		$	351		$	115	$	830		$	2	$	967		$	1,618		$	718		$	4,808

Ending balance of allowance attributable to loans:
Individually evaluated for impairment	$	62		$	5		$	—	$	55		$	—	$	72		$	—		$	—		$	194
Collectively evaluated for impairment		145			346			115		775			2		895			1,618			718			4,614
Total allowance for loan losses	$	207		$	351		$	115	$	830		$	2	$	967		$	1,618		$	718		$	4,808
Ending balance of loans receivable:
Individually evaluated for impairment	$	86		$	189		$	—	$	535		$	—	$	70		$	—		$	—		$	880
Collectively evaluated for impairment		20,127			46,426			16,498		107,144			223		66,250			41,081			50,553			348,302
Total loans receivable	$	20,213		$	46,615		$	16,498	$	107,679		$	223	$	66,320		$	41,081		$	50,553		$	349,182

	Bank
	Year Ended December 31, 2016
	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	$	110	$	138		$	29	$	351		$	1	$	659		$	41		$	—	$	1,329
Charge-offs		—		(66	)		—		(40	)		—		(2	)		(43	)		—		(151	)
Recoveries		200		23			—		—			—		73			50			—		346
Provision		225		209			59		592			1		(203	)		2			—		885
Ending balance	$	535	$	304		$	88	$	903		$	2	$	527		$	50		$	—	$	2,409

Ending balance of allowance attributable to loans:
Individually evaluated for impairment	$	423	$	5		$	—	$	107		$	—	$	—		$	—		$	—	$	535
Collectively evaluated for impairment		112		299			88		796			2		527			50			—		1,874
Total allowance for loan losses	$	535	$	304		$	88	$	903		$	2	$	527		$	50		$	—	$	2,409
Ending balance of loans receivable:
Individually evaluated for impairment	$	1,361	$	193		$	—	$	549		$	—	$	—		$	—		$	—	$	2,103
Collectively evaluated for impairment		22,411		32,762			16,627		101,563			234		57,963			6,206			—		237,766
Total loans receivable	$	23,772	$	32,955		$	16,627	$	102,112		$	234	$	57,963		$	6,206		$	—	$	239,869

	ALC
	Performing		Nonperforming		Total
	(Dollars in Thousands)
Loans secured by real estate:
Secured by 1-4 family residential properties	$	11,292	$	198	$	11,490
Consumer loans:
Consumer		34,609		1,041		35,650
Indirect sales		50,168		385		50,553
Total	$	96,069	$	1,624	$	97,693

	Bank
	As of September 30, 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	$	23	$	—	$	—	$	23	$	20,190	$	20,213	$	—
Secured by 1-4 family residential properties		149		—		91		240		34,885		35,125		—
Secured by multi-family residential properties		—		—		—		—		16,498		16,498		—
Secured by non-farm, non-residential properties		15		117		—		132		107,547		107,679		—
Other		—		—		—		—		223		223		—
Commercial and industrial loans		31		—		—		31		66,289		66,320		—
Consumer loans		—		—		23		23		5,408		5,431		—
Total	$	218	$	117	$	114	$	449	$	251,040	$	251,489	$	—

	ALC
	As of September 30, 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		73		70		71		214		11,276		11,490		—
Secured by multi-family residential properties		—		—		—		—		—		—		—
Secured by non-farm, non-residential properties		—		—		—		—		—		—		—
Other		—		—		—		—		—		—		—
Commercial and industrial loans		—		—		—		—		—		—		—
Consumer loans:
Consumer		506		433		1,016		1,955		33,695		35,650		—
Indirect sales		214		221		383		818		49,735		50,553		—
Total	$	793	$	724	$	1,470	$	2,987	$	94,706	$	97,693	$	—

	Bank
	As of December 31, 2016
	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	$	—	$	—	$	86	$	86	$	23,686	$	23,772	$	—
Secured by 1-4 family residential properties		164		69		145		378		32,577		32,955		—
Secured by multi-family residential properties		—		—		—		—		16,627		16,627		—
Secured by non-farm, non-residential properties		762		—		—		762		101,350		102,112		—
Other		—		—		—		—		234		234		—
Commercial and industrial loans		—		—		14		14		57,949		57,963		—
Consumer loans		—		28		—		28		6,178		6,206		—
Total	$	926	$	97	$	245	$	1,268	$	238,601	$	239,869	$	—


							September 30, 2022
							Carrying Amount		Unpaid Principal Balance		Related Allowances
	September 30, 2017						(Dollars in Thousands)
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	$	—	$	—	$	—	$	1,048	$	1,048	$	—
Secured by 1-4 family residential properties		—		—		—		585		585		—
Secured by multi-family residential properties		—		—		—		—		—		—
Secured by non-farm, non-residential properties		—		—		—		1,765		1,765		—
Commercial and industrial		—		—		—		2,249		2,249		—
Direct consumer								18		18		—
Total loans with no related allowance recorded	$	—	$	—	$	—	$	5,665	$	5,665	$	—

Impaired loans with an allowance recorded
Loans secured by real estate
Construction, land development and other land loans	$	86	$	86	$	62	$	—	$	—	$	—
Secured by 1-4 family residential properties		189		189		5		15		15		8
Secured by multi-family residential properties		—		—		—		—		—		—
Secured by non-farm, non-residential properties		535		535		55		—		—		—
Commercial and industrial		70		70		72		354		354		277
Direct consumer								—		—		—
Total loans with an allowance recorded	$	880	$	880	$	194	$	369	$	369	$	285

Total impaired loans
Loans secured by real estate
Construction, land development and other land loans	$	86	$	86	$	62	$	1,048	$	1,048	$	—
Secured by 1-4 family residential properties		189		189		5		600		600		8
Secured by multi-family residential properties		—		—		—		—		—		—
Secured by non-farm, non-residential properties		535		535		55		1,765		1,765		—
Commercial and industrial		70		70		72		2,603		2,603		277
Direct consumer								18		18		—
Total impaired loans	$	880	$	880	$	194	$	6,034	$	6,034	$	285

	September 30, 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	$	1,183	$	1	$	1
Secured by 1-4 family residential properties		191		10		11
Secured by multi-family residential properties		—		—		—
Secured by non-farm, non-residential properties		539		27		25
Commercial and industrial		55		6		3
Total	$	1,968	$	44	$	40

	September 30, 2017						December 31, 2016
	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	$	84		2	$	1,960	$	1,286
Secured by 1-4 family residential properties		3		318		188		3		318		249
Secured by non-farm, non-residential properties		1		53		38		1		53		41
Commercial loans		2		116		83		2		116		88
Total		7	$	594	$	393		8	$	2,447	$	1,664

	2017			2016
Risk-free interest rate		2.23	%		1.58	%
Expected term	7.5 years			7.5 years
Expected stock price volatility		25.36	%		25.25	%
Dividend yield		1.50	%		1.50	%

						All
	Bank			ALC		Other			Eliminations			Consolidated
	(Dollars in Thousands)
As of and for the three months ended September 30, 2017:
Net interest income	$	4,192		$	2,940	$	3		$	—		$	7,135
Provision (reduction in reserve) for loan losses		(130	)		503		—			—			373
Total non-interest income		1,005			219		954			(942	)		1,236
Total non-interest expense		4,699			2,303		336			(148	)		7,190
Income before income taxes		628			353		621			(794	)		808
Provision for income taxes		48			202		(77	)		—			173
Net income	$	580		$	151	$	698		$	(794	)	$	635
Other significant items:
Total assets	$	616,820		$	92,942	$	84,170		$	(179,333	)	$	614,599
Total investment securities		185,722			—		80			—			185,802
Total loans, net		329,327			89,326		—			(80,627	)		338,026
Investment in subsidiaries		5			—		78,469			(78,469	)		5
Fixed asset additions		818			13		—			—			831
Depreciation and amortization expense		238			41		—			—			279
Total interest income from external customers		3,596			4,224		—			—			7,820
Total interest income from affiliates		1,284			—		3			(1,287	)		—

For the nine months ended September 30, 2017:
Net interest income	$	12,168		$	8,933	$	10		$	—		$	21,111
Provision (reduction in reserve) for loan losses		(130	)		1,594		—			—			1,464
Total non-interest income		2,647			700		2,451			(2,465	)		3,333
Total non-interest expense		13,522			6,966		1,074			(472	)		21,090
Income before income taxes		1,423			1,073		1,387			(1,993	)		1,890
Provision for income taxes		249			458		(272	)		—			435
Net income	$	1,174		$	615	$	1,659		$	(1,993	)	$	1,455
Other significant items:
Fixed asset additions		8,578			103		—			—			8,681
Depreciation and amortization expense		657			124		—			—			781
Total interest income from external customers		10,493			12,520		—			—			23,013
Total interest income from affiliates		3,587			—		9			(3,596	)		—

	Fair Value Measurements as of December 31, 2016 Using
	Totals At December 31, 2016		Quoted Prices in Active Markets For Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
	(Dollars in Thousands)
Impaired loans	$	1,568	$	—	$	—	$	1,568
OREO		4,858		—		—		4,858
Other assets		280		—		—		280

	Nine Months Ended							Nine Months Ended
	September 30, 2017							September 30, 2016
	Average Balance		Interest		Annualized Yield/ Rate %			Average Balance		Interest		Annualized Yield/ Rate %
	(Dollars in Thousands)
ASSETS
Interest-earning assets:
Loans – Bank (Note A)	$	238,428	$	7,408		4.15	%	$	197,460	$	6,508		4.39	%
Loans – ALC (Note A)		88,918		12,520		18.83	%		85,504		12,684		19.78	%
Taxable investment securities		196,200		2,659		1.81	%		213,828		2,765		1.73	%
Non-taxable investment securities		8,989		245		3.64	%		14,073		382		3.62	%
Federal funds sold		—		—		—	%		4,288		17		0.53	%
Interest-bearing deposits in banks		22,705		181		1.07	%		20,581		78		0.51	%
Total interest-earning assets		555,240		23,013		5.54	%		535,734		22,434		5.58	%
Non-interest-earning assets:
Other assets		56,012							49,222
Total	$	611,252						$	584,956
LIABILITIES AND SHAREHOLDERS’ EQUITY
Interest-bearing liabilities:
Demand deposits	$	162,920	$	465		0.38	%	$	149,162	$	410		0.37	%
Savings deposits		80,364		132		0.22	%		77,411		108		0.19	%
Time deposits		183,242		1,116		0.81	%		180,949		1,050		0.77	%
Borrowings		21,596		189		1.17	%		15,467		115		0.99	%
Total interest-bearing liabilities		448,122		1,902		0.57	%		422,989		1,683		0.53	%
Non-interest-bearing liabilities:
Demand deposits		77,976							76,157
Other liabilities		7,223							7,750
Shareholders’ equity		77,931							78,060
Total	$	611,252						$	584,956
Net interest income (Note B)			$	21,111						$	20,751
Net yield on interest-earning assets						5.08	%						5.16	%

	Three Months Ended September 30,											Nine Months Ended September 30,
	2017		2016		$ Change			% Change				2017		2016		$ Change			% Change
	(Dollars in Thousands)											(Dollars in Thousands)
Service charges and other fees on deposit accounts	$	481	$	463	$	18			3.9		%	$	1,406	$	1,306	$	100			7.7		%
Credit insurance commissions and fees		160		256		(96	)		(37.5	)	%		459		570		(111	)		(19.5	)	%
Bank-owned life insurance		106		105		1			0.1		%		318		316		2			0.6		%
Net gain on sale and prepayment of investment securities		178		259		(81	)		(31.3	)	%		228		657		(429	)		(65.3	)	%
Other income		311		484		(173	)		(35.7	)	%		922		1,187		(265	)		(22.3	)	%
Total non-interest income	$	1,236	$	1,567	$	(331	)		(21.1	)	%	$	3,333	$	4,036	$	(703	)		(17.4	)	%

	Bank
	2017						2016
	September 30,		June 30,		March 31,		December 31,		September 30,
	(Dollars in Thousands)
Real estate loans:
Construction, land development and other land loans	$	20,213	$	12,424	$	25,853	$	23,772	$	24,610
Secured by 1-4 family residential properties		35,125		32,227		32,535		32,955		32,559
Secured by multi-family residential properties		16,498		16,702		16,464		16,627		16,801
Secured by non-farm, non-residential properties		107,679		113,037		97,294		102,112		97,859
Other		223		226		230		234		185
Commercial and industrial loans		66,320		65,087		57,253		57,963		54,459
Consumer loans		5,431		5,671		6,057		6,206		6,335
Total loans	$	251,489	$	245,374	$	235,686	$	239,869	$	232,808
Less unearned interest, fees and deferred cost		367		371		249		218		191
Allowance for loan losses		2,422		2,526		2,521		2,409		1,216
Net loans	$	248,700	$	242,477	$	232,916	$	237,242	$	231,401